Oracle Cost Management
Introduction
By:
Eng. Tamer Fouda
Oracle SCM Principal Consultant
Item Unit Cost
(Cost for single unit of an Item)
WHY?
• Inventory Asset Valuation
• Issue Transactions Valuation
Weighted Average Cost Calculation
(Example-1)
- Item A
Date Receiving After Receiving
PO Price PO Qty Extended Extended On hand Unit Cost
Value Value
Yesterday 0.00 $ 0 0.00 $
Today 10.00 $ 1 10.00 $ 10.00 $ 1 10.00 $
Tomorrow 12.00 $ 1 12.00 $ 22.00 $ 2 11.00 $
Later 16.00 $ 3 48.00 $ 70.00 $ 5 14.00 $
Weighted Average Cost Calculation
(Example-2)
- Item B
Date Receiving After Receiving
PO Price PO Qty Extended Extended On hand Unit Cost
Value Value
Yesterday 0.00 $ 0 0.00 $
Today 50.00 $ 3 150.00 $ 150.00 $ 3 50.00 $
Tomorrow 45.00 $ 2 90.00 $ 240.00 $ 5 48.00 $
Later 48.00 $ 10 480.00 $ 720.00 $ 15 48.00 $
Cost Structure, Elements,
Sub-elements
Item Cost Structure
Raw, Packing, & Consumable Materials
Materials
Custom Duty, Shipping, Handling
& Transportation
Material Overheads
Cost Labor, Machines, Tools & Moulds
Resources
Elements
Resources At Outside Facilities
Outside Processing
Electricity, Water, Rent, & Other
manufacturing expenses Overheads
Item Cost Structure Examples
Manufacturing Manufacturing Imported Purchased
Item Cost Elements
Item -2 Item -1 Item Item
40 35 70 50 Materials
25 15 15 0 Material Overheads
35 30 0 0 Resources
10 0 0 0 Outside Processing
15 10 0 0 Overheads
Unit Cost Unit Cost Unit Cost Unit Cost
= 125 = 90 = 85 = 50
Item Cost Structure (cont.)
Plastics –
Metals –
Wood – Materials
Cartoon Boxes –
Custom Duty –
Handling – Material Overheads
Transportation –
Cost Sub- Labor1 –
Cutting Machines – Resources
elements Welding Machines –
Labor1 –
Cutting Machines – Outside Processing
Welding Machines –
Electricity –
Rent – Overheads
Water –
Inventory Valuation
Inventory Valuation Accounts
Each Inventory Organization
GL Inventory Materials Account can have its own GL Inventory
Valuation Accounts
GL Inventory Material Overheads Account
Organization 3
Organization 2
GL Inventory Resources Account Organization 1
GL Inventory Outside Processing Account
GL Inventory Overheads Account
Inventory Valuation Accounts
Inventory Valuation Accounts
(cont.) Item Cost Elements
GL Inventory Materials Account Materials
The System uses
the Cost
GL Inventory Material Overheads Account Elements values Material Overheads
for each item
transactions to
GL Inventory Resources Account evaluate the Resources
Journal Entry
transferred to GL
GL Inventory Outside Processing Account Outside Processing
Inventory
Valuation
GL Inventory Overheads Account
accounts Overheads
Inventory Costing
Inventory Costing
Inventory Valuation Accounts
• Receiving Trx:
GL Inventory Dr/ Inventory (M) acc.
Materials Account Cr/ AP Accrual acc.
AP Accrual => Supplier => Bank
GL Inventory Material
Overheads Account
Material Overhead Charging:
Dr/ Inventory (MO) acc.
GL Inventory
Cr/ Absorption acc.
Resources Account
GL Inventory Outside
Processing Account
GL Inventory
Overheads Account
Absorption account to be discussed later
Inventory Costing (cont.)
Inventory Valuation Accounts
• Subinventory Transfer Trx:
GL Inventory Dr/ Inventory (M) acc.
Materials Account Cr/ Inventory (M) acc.
Dr/ Inventory (MO) acc.
Cr/ Inventory (MO) acc.
GL Inventory Material Dr/ Inventory (R) acc.
Overheads Account Cr/ Inventory (R) acc.
Dr/ Inventory (OSP) acc.
GL Inventory Cr/ Inventory (OSP) acc.
Resources Account Dr/ Inventory (O) acc.
Cr/ Inventory (O) acc.
GL Inventory Outside
Processing Account
GL Inventory
Overheads Account
Inventory Costing (cont.)
Inventory Valuation Accounts
• Miscellaneous Receipt Trx:
GL Inventory Dr/ Inventory (M) acc.
Materials Account Cr/ Misc. Trx. acc.
GL Inventory Material
Overheads Account
• Miscellaneous Issue Trx:
GL Inventory Dr/ Misc. Trx. acc.
Resources Account Cr/ Inventory (M) acc.
Cr/ Inventory (MO) acc.
Cr/ Inventory (R) acc.
GL Inventory Outside Cr/ Inventory (OSP) acc.
Processing Account Cr/ Inventory (O) acc.
GL Inventory
Overheads Account
Inventory Costing (cont.)
Inventory Valuation Accounts
• Sales Issue Trx:
GL Inventory Dr/ COGS acc.
Materials Account Cr/ Inventory (M) acc.
Cr/ Inventory (MO) acc.
Cr/ Inventory (R) acc.
GL Inventory Material Cr/ Inventory (OSP) acc.
Overheads Account Cr/ Inventory (O) acc.
GL Inventory
Resources Account
GL Inventory Outside
Processing Account
GL Inventory
Overheads Account
Manufacturing Costing
Manufacturing Costing
• BOM: Bills Of Material
• RTG: Manufacturing Routing
• Operations
• Departments
• Resource, Resource Unit, Resource Value
• WIP: Work In Process
• DJ: Discrete Job
• WIP Accounting Class
WIP Accounting Class
WIP Valuation Accounts WIP Variances Accounts
GL WIP Materials GL WIP Materials
Account Variances Account
• There can be many classes,
GL WIP Material representing different sections
Overheads Account of production, different
categories of Products, or
different factory activity.
GL WIP Resources GL WIP Resources
Account Variances Account • Each Discrete Job is assigned to
ONE Class.
GL WIP Outside
GL WIP Outside
Processing Variances
Processing Account
Account
GL WIP Overheads GL WIP Overheads
Account Variances Account
Manufacturing Costing (cont.)
WIP Valuation Accounts Inventory Valuation Accounts
GL WIP Materials GL Inventory
Account Materials Account
GL WIP Material GL Inventory Material
Overheads Account • Material Issue Trx: Overheads Account
Dr/ WIP (M) acc.
Cr/ INV (M) acc.
GL WIP Resources Dr/ WIP (MO) acc. GL Inventory
Account Cr/ INV (MO) acc. Resources Account
GL WIP Outside GL Inventory Outside
Processing Account Processing Account
GL WIP Overheads GL Inventory
Account Overheads Account
Manufacturing Costing (cont.)
WIP Valuation Accounts
GL WIP Materials • Resource / Outside Processing Charge Trx:
Account Dr/ WIP (R / OSP) acc.
Cr/ Absorption acc.
GL WIP Material • Overhead ChargeTrx:
Dr/ WIP (O) acc.
Overheads Account Cr/ Absorption acc..
GL WIP Resources
Account
GL WIP Outside
Processing Account
GL WIP Overheads
Account
Absorption account to be discussed later
Manufacturing Costing (cont.)
WIP Valuation Accounts Inventory Valuation Accounts
GL WIP Materials GL Inventory
Account Materials Account
GL WIP Material GL Inventory Material
Overheads Account • Assembly CompletionTrx: Overheads Account
Dr/ INV (all) acc.
Cr/ WIP (all) acc.
GL WIP Resources GL Inventory
Account Resources Account
GL WIP Outside GL Inventory Outside
Processing Account Processing Account
GL WIP Overheads GL Inventory
Account Overheads Account
Manufacturing Costing (cont.)
WIP Valuation Accounts Inventory Valuation Accounts
GL WIP Materials GL Inventory
Account Materials Account
GL WIP Material GL Inventory Material
Overheads Account Overheads Account
Absorption acc
GL WIP Resources GL Inventory
Account Resources Account
Absorption acc
GL WIP Outside GL Inventory Outside
Processing Account Processing Account
GL WIP Overheads Absorption acc GL Inventory
Account Overheads Account
Job Closing
WIP Valuation Accounts WIP Variances Accounts
GL WIP Materials GL WIP Materials
Account Variances Account
• Job Closing VarianceTrx:
GL WIP Material Dr/ WIP Var. (all) acc.
Overheads Account Cr/ WIP (all) acc.
GL WIP Resources GL WIP Resources
Account Variances Account
GL WIP Outside
GL WIP Outside
Processing Variances
Processing Account
Account
GL WIP Overheads GL WIP Overheads
Account Variances Account
Variance Analysis / Reallocation
WIP Variances Accounts Inventory Valuation Accounts
GL WIP Materials GL Inventory
Variances Account Materials Account
Job Variance can be analyzed
then reallocation in inventory GL Inventory Material
using Cost Update Overheads Account
GL WIP Resources GL Inventory
Variances Account Resources Account
GL WIP Outside
GL Inventory Outside
Processing Variances
Processing Account
Account
GL WIP Overheads GL Inventory
Variances Account Overheads Account
Cost Update
Average Cost Update
Enter Parameters
Cost Update Item Unit Cost
[Adjustment account] Information Updated
Average Cost [Item] Cost Update
Update Form [Total or Cost Element] Transaction
Inventory
[New [Link] or %change or INV Journal Entry
Valuation Updated
value change]
• In cases like inventory re-evaluation, or variances re-allocation: item cost update is required.
• We can use this function to change the inventory valuation, and an item unit cost (total, or by
cost element)
• An adjustment account is used as one side of the Journal Entry generated, while the Inventory
Valuation Accounts are on the other side of it.
• The adjustment account will be different in each transaction depending on the case and the
purpose of the Cost update
• Update can be done by setting a new unit cost, percentage change, or Inventory value
change.
Cost Absorption
Cost Absorption
Income Statement
Purchasing
Losses Profit
Bank Customs Inventory
Electricity - Sales Revenue
COGS
Wages
- others.. - others..
Cost Absorption (cont.)
Income Statement
Purchasing
Losses Profit
Bank Customs Inventory
Electricity - Sales Revenue
COGS
Wages
- others.. - others..
Cost Absorption (cont.)
Income Statement
Purchasing
Losses Profit
Bank Customs Inventory
Electricity - Sales Revenue
COGS
Wages
Variances Only
- others.. - others..
Absorption Accounts
Absorption Accounts
• Are credit accounts used for monitoring estimated costs that are charged to the
Inventory or WIP asset accounts.
• They are used when charging Material Overheads, Resources, Outside
Processing, or Overheads to Inventory or WIP asset accounts.
• Naturally they represent all costs (other than material cost) which are absorbed
into the Inventory valuation, then from Inventory, they are expended into
COGS accounts when sales shipping occurs.
• There can be as many absorption accounts as required, however roughly
speaking they should map the expense accounts that are there.
• Accordingly, they should be compared to the expense accounts in order to
determine the variance between the actual expenses and the estimated costs.
Cost Rollup
Cost Rollup
Level 0 Assembly
Raw
Level 1 Subassembly
Material
Raw
Level 2 Subassembly
Material
Level 3 Raw Raw
Material Material