Oracle E-Business Suite: Cost Cutoff Date to Retroactively Cost Transactions

Eric Guether
eguether@gmail.com

Objectives
Learn how to defer the costing of transactions through use of the Cost Cutoff Date (CCD) Realize the importance of CCD when updating standard costs Understand lessons learned: Potential temporary adverse effects on Inventory balance reports Impact on intercompany A/R invoicing

Release Scope
EBS 11i functionality (release 11.5.7 & higher) Examples shown are from EBS release 11.5.10.2 Should be completely applicable to EBS Release 12

Business Case
Company practice is to update standard costs every six months as of: October 1st [Cost Period: Oct. 1, 2006 to March 31, 2007] April 1st [Cost Period: April 1, 2007 to Sept. 30, 2007] My company does not finalize new costs until after April 1st / October 1st Oracles Assumption: Most companies have new costs finalized before the start of the new cost period and just want to defer transaction costing on first 1 or 2 days of new cost period Standard cost updates typically occur at my company on the 10th day of the new period [April 10th / Oct. 10th]

Dilemma Before Release 11.5.7

How to value early April / Oct. transactions at the new costs prior to performing the standard cost update? Still must value March- / Sept.- dated transactions at the old costs even if created in early April / Oct. Cannot simply shut-off the Cost Manager Might stop the costing of March / Sept. transactions created in early April / Oct., such as pending transactions resolved on 1st of April / Oct.

Off-line Workaround in 11i (Prior to 11.5.7)

Record early April / October inventory, WIP, shipping, and PO receiving transactions off-line (outside of Oracle EBS 11i) until the standard costs are updated on April 10th / Oct. 10th Retroactively record (enter) early April / October transactions in EBS after the standard cost updates Issues: Extra, unnecessary work to record offline Unreliable / unusable inventory quantities in EBS for a week or more Shipping and export documents prepared manually (not via EBS) for a week or more Violated automated business process controls

Solution: Cost Cutoff Date

Inventory organization parameter Controlled by the simple entry of one Cost Cutoff Date for the inventory org Introduced in EBS release 11.5.7 Entirely met our needs Eliminated the need to record transactions outside of EBS 11i

Parameter Setup
Organization Parameters > Costing Information tab

Functionality
Intended to keep new period transactions uncosted until you finish your standard cost updates for the org If the Cost Cutoff Date = 01-APR-2007, then transactions with G/L Date of: 01-APR-2007 or later will not be costed yet 31-MAR-2007 or earlier will be costed at the current [old period] costs, even if created on or after April 1st

Inventory Transactions Affected by the CCD

partial list; not complete Miscellaneous / Account Alias Transactions Subinventory Transfer Interorg Transfer Receiving Pick Confirm Ship Confirm / Sales Order Issue Create Intercompany AR Invoices

Other Transactions Affected by the CCD

partial list; not complete Purchasing module PO Receiving (including PPV) Returns to Supplier WIP module Discrete WIP assembly completion Discrete WIP component issue Work order-less completion

Cost Update Sequence

Complete all March transactions by early April Valued at current frozen costs [old period costs] Enter April-dated transactions on 01-APR like normal Close the March period in early April Perform standard cost updates (early/mid April) Uncosted transactions are not revalued Change the Cost Cutoff Date (CCD) to a later date, such as 01-OCT-2007 Cost Manager then costs all existing April-dated transactions at the updated frozen costs [new period costs]

Database Perspective
When the CCD is deferring the cost of a transaction, the transaction has: A record on the MTL_MATERIAL_TRANSACTIONS table Allows the transaction quantities to be recognized by the EBS 11i modules Its COSTED_FLAG = N Indicates the record has not yet been costed As long as the flag = N, no accounting entries [distributions] have been created yet

Example # 1: INV Misc. Receipt

Scenario where CCD will defer costing until the receipt can be valued at the new cost of $1,000 Receive 5 units of item LASER123 Standard Cost $1,200 per unit through end of March $1,000 starting April 1st (updated on 04-APR) Transaction date, 01-APR-2007, is equal to the cutoff date of 01-APR-2007 Creation date = 01-APR-2007

Example # 1 Transaction

Example # 1 Cost Update

To change the unit cost on 04-APR from $1,200 to $1,000

Example # 1 Change Cutoff Date

Change CCD on April 6th to 01-OCT-2007

Example # 1 Distributions

Example # 1 Chart
Costing deferred until 06-APR Valued at new cost of $1,000

Example # 2: PO Receipt
Scenario where CCD will defer costing of a PO receipt and creation of its purchase price variance (PPV) until it can be valued at the new cost of $1.00 Receive & deliver to Inventory (no inspection) 200 units of item DIODE-5002 PO Unit Price = $0.90 Standard Cost $1.25 per unit through end of March $1.00 starting April 1st (updated on 04-APR) Transaction date, 02-APR-2007, is after the cutoff date of 01-APR-2007

Example # 2 Transaction

Example # 2 Chart
The receipt is costed at $1.00, triggering the desired PPV of $-0.10 per unit [PO price $0.90 - $1.00 cost]

Lessons Learned: Reports

Some Inventory reports might show inaccurate historical balances while so many transactions are uncosted, including: Transaction Value Historical Summary Transaction Balance Historical Summary Cause: Reports fail to estimate the cost of some uncosted WIP and PO Receipt transactions when backing into historical balance Issue resolves itself as soon as the uncosted transactions get costed Oracle Support never acknowledged this despite several service requests (SRs)

Report With Error

Uncosted WIP component issue of LASER7777 for $480,000 is missing from Job or Schedule column 28-FEB value of $-480,000 is incorrect; should be zero

Lessons Learned: Intercompany Invoicing

The Create Intercompany AR Invoices program does not create a record until its parent record has been costed Parent record = Sales order issue material transaction type [action = Issue from stores] The CCD indirectly defers creation of intercompany A/R invoices in the new cost period when it directly defers the costing of the parent record This indirect deferral of the intercompany A/R invoice creation allows us to change the price list used for I/C invoicing at the same time as the standard cost updates

Intercompany Invoicing Example

Intercompany Invoicing Process Flow For Japan Customer Sale Sourced from U.S. Inventory Org
Parent ecord: ransaction type = Sales order issue Action = Issue from stores

Japan Customer
. Japan Customer Sales Order sourced from U.S. " EI" Org . Product S ipment global drop s ipment to customer from U.S. " EI" Org

. Customer Payment

. Customer OM Invoice

J P S ES Operating Unit

5. I C P Invoice created in S ES J P . Payment or I C Netting .IC Invoice created in U.S. MFG

US MANUFAC U ING Operating Unit

Price List for I/C A/R Invoices

Conclusion
The Cost Cutoff Date is powerful, useful, and easy to implement Using Cost Cutoff Date functionality can benefit an organizations cost update process Organizations utilizing EBS intercompany invoicing should understand the impact of transaction cost deferral on the intercompany A/R creation process