Cost Management Oracle APPS

Oracle Application User Reference Manual Cost Management

KPIT Cummins Infosystems Limited Plot No. 35/36, Rajiv Gandhi Infotech Park, Phase I, MIDC, Hinjewadi, PUNE-41105 7, India Tel: +91 20 5652 5000, Fax: +91 20 5652 5001 www.kpitcummins.com

Table of Contents 1. Intr Introd oduc ucti tion on 3 i. Important Key Features 3 i i. Key concepts 5 i ii . Item Cost Definition 6 i v. Standard Costing 9 v. Average Costing 10 v i. Comparison of Standard and Average Costing 2. Bas Basic ic Fun Funct ctio iona nali liti ties es of of the the modu module le 12 i. Defining Item Costs 12 i i. Viewing Item Costs 12 i ii . Mass Editing Costing Information 12 i v. Supply Chain Costing 12 v. Period Close Activity 12 v i. View Transactions 12 v ii . R ep o rt s 1 2 v ii i . Case Study – Standard Costing 13 3. Ad Advanced / other fe features of of th the mo module 37 i. Retroactive Pricing 37 i i. Transfer Price Costing 38 i ii . Client Extensions 39 i v. Account Ge Generation Ex Extension Wo Workflow 40 v. View Transactions 41 4. Important Set Ups 42 a) Setups Related to Other Modules 42 b) Setups Related to Cost Management 43 i. Set Personal Profile Options 45 i i. Set Security Functions 48 i ii . Define Cost Types 49 i v. Defining Activities and Activity Costs 50 v. Define Cost Groups 51 v i. Define Material Sub-elements 52 v ii . Define Overheads 53 v ii i . Define Material Overhead Defaults 54 i x. Associate Expenditure Types with Cost Elements

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x. 5. 6. 7. 8.

Define Category Accounts (Optional) Inter Module Dependencies 58 Seeded technical objects 59 Periodic Actions, Reconciliations etc. Ac Accounting En Entries 61

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1. Introduction Oracle Cost Management is a comprehensive solution that helps organizations defi ne costs then performs cost accounting for supply chain transactions. These acti vities serve as a key component for complying with regulatory reporting and acco unting requirements, for streamlining the use of working capital in organization s, and improved profitability for businesses. i. Important Key Features It is a cost system for Inventory, Order Management, Purchasing and Work in Proc  ess transactions. Cost Management supports various transaction costing, comprehe nsive valuation and variance reporting and thorough integration with Oracle Fina ncials. The overview of Oracle Cost Management with the other functional modules can be represented as below: 

It provides flexible Item Cost setup features including multiple cost elements a nd infinite sub-elements for each element. System defined cost elements are Mate rial, Resource, Overhead, Material Overhead and Outside Processing. All these el ements can have multiple Sub-elements help to analyze costs in greater details. This helps to accurately identify and maintain costs and associate them with ite ms. It enables extensive cost simulation capabilities that help to define costs. It  also supports flexible period based accounting that enables you to transact in m ore than one open period at the same time. You can simultaneously reconcile and analyze one open period while conducting business in subsequent open period. Als o you can transfer summary of detail account activity to Oracle General Ledger a t any time and close the period at any time. It provides flexible account setup such as accounts by Organization, Sub-Invento  ry, WIP accounting class such that total item cost can be distributed to right e xpense accounts and capture valuation in proper asset accounts. It Supports following types of Costing Methods:  i. Standard Costing i i. Average Costing i ii . LIFO Costing i v. FIFO Costing v. Periodic Average Costing v i. Activity based Costing As per the scope of this document we will be considering details of only Standar d and Average Costing Methods. It can be broadly categorized based on functional criteria as:  a. Product Costing Rollup costs for bills and routings  Report and view assembly costs by level  Rollup costs based on Levels, Cost Type  Rollup costs using alternate bills and routings  Use Mass Edits to easily maintain costs and accounts  Copy Costs across cost types or organizations  Update costs at any time to revalue inventory and WIP  b. Inventory Costing Maintain perpetual inventory costs  Create inventory transaction accounting entries  Track Asset and Expense items and locations  Use Rule based accounting for Revenue and COGS 

c.

Manufacturing Costing Maintain perpetual balances, discrete jobs and schedules  Charge resources at actual or standard cost including OSP  Charge resource cost based on operation completion  Apply overheads by fixed amount per Item / Lot, Percent of Item / Resource Value  and Amount per resource unit.

i i. Key concepts Costing Organization: When we define an inventory organization, we can specify both an Item Master Org anization and a costing Organization. Child organization of the costing organization can share the costs of the costin g master organization if they are all using Standard Costing and are not manufac turing plants(i.e. are not WIP-enabled). The costing master organization can be a manufacturing plant. Items in each of these organizations will be stored at the same cost, provided t hey have the “Costing Enabled” and “Inventory Asset Value” attributes controlled at the item level rather than the Item Organization Level. Organizations using Average costing cannot share costs. Cost Group: A cost group is a set of accounts that hold on hand inventory. Prior to cost gro ups, sub-inventories were utilized to hold the accounts. The physical and accoun ting attributes are used in the sub-inventories to track the location, quantity, and value of the inventory. Cost groups were introduced to create separate tracking of the physical and acco unting aspects of inventory. Some of the benefits of using a cost group are: • Tracking qu quantity ac account an and qu quant antity mo movement ch characteristics • Main Mainta tain in mult multip iple le item item cost costs s in in eac each h org organ aniz izat atio ion n whe when n usi using ng a per perpe petu tual al cost costin ing g method (Average, FIFO, and LIFO). Distinct cost is maintained for each item/cos t group combination. • In stan standa dard rd cost costin ing, g, all all inv inven ento tory ry of an item item carr carrie ies s onl only y the the stan standa dard rd cost cost reg reg ardless of cost groups being utilized. • Elim Elimin inat ate e the the need need for for acco accoun unti ting ng chan change ges s for for subsub-in inve vent ntor ory y tran transf sfer ers. s. SubSub-in inve ven n tory transfers are pure physical moves when using the cost group functionality. If the current organization is not Project References Enabled, the Common cost g roup is defaulted and cannot be updated. If the organization is Project Referenc e Enabled, any cost group can be selected. The Common cost group is seeded when Cost Management is installed. The valuation accounts defined in the Organization Parameters window are used fo r this cost group and cannot be changed or made inactive. However, in an organiz ation that is Project Cost Collection Enabled the name and description of this c ost group can be changed. Since Warehouse Management / Inventory Patch set B, there is new functionality w ith regard to cost groups. Each time a new organization is created, a new cost g roup is also created for that organization. The same Cost Group is associated with all the Sub-inventories in the Org. Howev er, this could be overridden at the sub-inventory level. Cost Type: A cost type is a set of costs uniquely identified by name. In Standard Costing m ethod, ‘Frozen’ is the seeded cost type. An unlimited number of additional simulatio n or unimplemented cost types can be defined and updated. i ii . Item Co Cost De Definition Product costs are the sum of their elemental costs. The data model the supports item costs is illustrated below:

Cost Elements – Product costs are the sum of their elemental costs. Basic 5 Cost elements are li sted as follows: a. Material b. Material Overhead c. Resource d. Overhead e. Out-side Processing Cost Sub-Elements – You can use sub-elements as smaller classifications of the cost elements. Each c ost element must be associated with one or more sub-elements. Define sub-element s for each cost element and assign a rate or amount to each one. You can define as many sub-elements as needed. Basis Type – Basis types determine how costs are assigned to the item. Basis types are assign ed to sub-elements, which are then assigned to the item. Each sub-element must h ave a basis type. Examples: one hour of outside processing per basis item, two q uarts of material per basis lot. Basis types are assigned to sub-elements in three windows and, for the overhead sub-element, a setting established in one window may not always be applicable in another. (This refers specifically to the overhead sub-element, not the materia l overhead sub-element.) Basis types in Sub-element and Routing Windows Basis types assigned to sub-elements in sub-element and routing windows are the defaults for the purpose of routing. Basis types Resource Units and Resource Val ue, when assigned to an overhead sub-element (Routing only in the table below), are available to flow through to routing, but are not available in the Item Cost window. Basis types in the Item Cost window When you are defining item costs, for any overhead sub-element with a previously assigned basis of Resource Units or Resource Value, that basis is ignored, and only item or lot appears in the basis pop–up window. This does not change the assi gned basis for the purpose of routing. Elemen Element t Elemen Element t Detail Details s Sub-el Sub-eleme ement nt Details Details Material (Raw (Raw mater material ial cost cost of all compon component ents) s) The raw raw mate materia rial l / comp compone onent nt cost cost at the the lowest level of the bill of material determined from the unit cost of the compo nent nent item item. . Mate Materi rial al cost costs s can can be brok broken en down down to furt furthe her r clas classi sify fy the the mate materi ri al cost content. Material Overhead (Any co costs at attributed to to di direct ma material co costs.) The ov overhead co cost of of ma mat erial, calculated as a percentage of the total cost, or as a fixed charge per it em, lot, or activity. If you use Work in Process, you can also apply material ov erhead at the assembly level using a variety of allocation charge methods. Appropriate rate or amount, such as purchasing, freight, duty, or material handl ing can be considered as Material Overhead Sub-element. Resource (Direct costs, such as labor, machines, space, or miscellaneous charges, require d for manufacturin manufacturing g products. products.) ) Direct costs, such as labor, labor, machines, machines, space, space, or miscellaneous charges, required to make products. Resources can be calculated a s standard resource rate times the standard units on the routing, per operation, or as a fixed charge per item or lot passing through an operation. Each resource you associate to routing of the Item is considered as a su b-element which can be set up to charge actual or standard costs and may generat e a rate variance when charged. Overhead

(The overhead cost of resource and OSP, which is used as means to allocate depar tment costs) Overhead is used as a means to allocate costs of department or activitie s. E.g. you can define multiple overhead sub-elements to cover both fixed and va riable overhead, each with its own rate. You can assign multiple overhead sub-el ements to a single department, and vice versa. Overhead sub-elements are applied in the routing and usually represent p roduction overhead. These add indirect costs to Item. Outside Processing (This is the cost of outside processing purchased from a supplier) Outside processing may be a fixed charge per item or lot processed, a fi xed amount per OSP resource unit, or the standard resource rate times the standa rd units on the routing operation. To implement outside processing costs, you mu st define define a routing routing operation, operation, and use use an outside outside processin processing g resource. resource. OSP subsubelement represents service provided by suppliers. Each outside processing resour ce you define is a sub-element, may be set up to charge actual or standard costs , and may generate a purchase price variance when charged Basis Types – Basis types determine how costs are assigned to the item. Basis types are assign ed to each sub-element, which are then assigned to the item. Basis Type Details of Basis Type Item (All (All SubSub-el elem emen ents ts) ) Used Used with with Mate Materi rial al and and MOH MOH subsub-el elem emen ents ts to assi assign gn a fix fixe e d amount per item completed or received. Used with Resource, Overhead and OSP sub-elements to charge a fixed amount per i tem moved through an operation. Lot (All (All SubSub-el elem emen ents ts) ) Used Used to assi assign gn a fix fixed ed lot lot char charge ge to item items s or oper operat atio ions ns . The cost per item is calculated by dividing the fixed cost by the item’s standar d lot size for material and MOH sub-elements. For routing the cost per item is calculated by dividing the fixed cost by the st andard lot quantity moved through operation associated with Resource, OSP or Ove rhead sub-element. Resource Units (Overhead (Overhead & Material Material Overhead Overhead) ) Used to allocate allocate overhead overhead to an item, item, based based on t he number of resource units earned in the routing operation. Used with the overh ead sub-element only. The overhead calculation is based on resource units: (resource units earned in an operation * overhead rate or amount) You may optionally use resource units and resource value to earn material overhe ad when you complete units from a job or repetitive schedule. Resource Value (Overhead (Overhead & Material Material Overhead Overhead) ) Used to apply apply overhead overhead to an item, based on the the resource value earned in the routing operation. Used with the overhead sub-eleme nt only and usually expressed as a rate. The overhead calculation is based on re source value: (resource value earned in the operation * overhead rate) Total Value (Mat (Mater eria ial l Over Overhe head ad) ) Used Used to to assi assign gn mat mater eria ial l over overhe head ad to to an item item, , base based d on th e total value of the item. Used with the material overhead sub-element only. Mat erial overhead calculation is based on total value. Activity (Mat (Mater eria ial l Over Overhe head ad) ) Used Used to to dire direct ctly ly ass assig ign n the the acti activi vity ty cos cost t to an ite item. m. Us Us ed with the material overhead sub-element only. The material overhead calculatio n is based on activity (activity occurrences / # of items X activity rate)

i v. Standard Costing Use standard costing for performance measurement and cost control. Manufacturing industries typically use standard costing. Under standard costing, predetermined costs are used for valuing inventory and f or charging material, resource, overhead, period close, and job close and schedu le complete transactions. Differences between standard costs and actual costs ar e recorded as variances. Standard costing enables you to: • establish and maintain standard costs • define cost elements for product costing • value inventory and work in process balances • perform ex extensive co cost si simulations using un unlimited co cost ty types • determine profit margin using expected product costs • update standard costs from any cost type • reva revalu lue e on–h on–han and d inve invent ntor orie ies, s, in tran transi sit t inve invent ntor ory, y, and and disc discre rete te work work in proc proces ess s jo bs when updating costs • record va variances ag against ex expected pr product co costs • meas measur ure e you your r org organ aniz izat atio ion’ n’s s per perfo form rman ance ce base based d on on pre prede defi fine ned d pro produ duct ct cost costs s If you use Inventory without Work in Process, you can define your item costs onc e for each item (in the cost master organization) and share those costs with oth er organizations. If you share standard costs across multiple organizations, all reports, inquiries, and processes use those costs. You are not required to ente r duplicate costs. The cost master organization can be a manufacturing organization that uses Work in Process or Bills of Material. No organization sharing costs with the cost mas ter organization can use Bills of Material. v. Average Costing Average costing is used primarily for distribution and other industries where th e product cost fluctuates rapidly, or when dictated by regulation and other indu stry conventions. Average costing eliminates the need to set standards. Under average cost systems, the unit cost of an item is the average value of all receipts of that item to inventory, on a per unit basis. Each receipt of materi al to inventory updates the unit cost of the item received. Issues from inventor y use the current average cost as the unit cost. By using Oracle Cost Management’s average costing method, you can perpetually valu e inventory at an average cost, weighted by quantity (Inventory cost = average unit cost * quantity). For purchased items, this is a weighted average of the actual procurement cost o f an item. For manufactured items, this is a weighted average of the cost of all resources and materials consumed. Note: Weighted average costing cannot be appl ied to repetitively manufactured items. Therefore, you cannot define repetitive schedules in an organization that is defined as a manufacturing average cost org anization. This same average cost is used to value transactions. You can reconcile inventor y and work in process balances to your accounting entries. Note: Under average c osting, you cannot share costs; average costs are maintained separately in each inventory organization. Average costing enables you to: • approximate actual material costs

• • • • •

value inventory and transact maintain average costs automatically interface with reconcile inventory balances analyze profit margins using

at average cost your general ledger with general ledger an actual cost method

Inventory allows negative on–hand quantity balances without adversely affecting av erage costs. v i.

Comparison of of St Standard an and Av Average Costing

Averag Average e Costing Costing Standa Standard rd Costing Costing Mate Materi rial al with with Inve Invent ntor ory; y; all all cos cost t ele eleme ment nts s wit with h Bil Bills ls of Mate Materi rial al Mate Materi rial al and material overhead with Inventory; all cost elements with Bills of Material Item costs costs held by cost cost element element Item costs costs held by cost cost sub-element sub-element No shared costs; average cost is maintained separately in each organization Can share costs across child organizations when not using Work in Process Mainta Maintains ins the averag average e unit unit cost cost with with each each trans transact action ion Moving Moving averag average e cost cost is is n ot maintained Separate va valuation ac accounts fo for ea each co cost gr group an and co cost el element S e pa r at e valuation accounts for each sub-inventory and cost element Little or No variance variances s for Work in Process Process Transactions Transactions Variances Variances for Work in Pr ocess transactions Any error occurring during the cost processing of a transaction flags the transa ction as error. The cost processing of other transactions continues. Any error during the cost processing of a transaction for a particular o rganization flags the transaction as error and prevents the cost processing of o ther transactions in that particular organization. Failed cost updates can be re submitted just like other errors. Changing from Standard to Average Costing: You cannot change the costing method of an organization once transactions have b een performed. The only safe way to change a costing method is to create a new organization and effectively start again by transferring all the stock and orders. Anything else requires SQL and runs the danger of corrupting the database. Please refer to following Oracle Metalink Notes for detailed checklist of action s to be performed while changing the Costing Method from Standard to Average. Note 3 3 1 8 05 . 1 - Ho How to to Ch Change fr from St Standard Co Costing to to Av Average Co Costing 1 2 5 8 57 . 1 - Changing From Standard to Average Cost Organization(s) 2. Basic Functionalities of the module i. Defining Item Costs i i. Viewing Item Costs i ii . Mass Ed Editing Co Costing In Information i v. Supply Chain Costing v. Period Close Activity v i. View Tr Transactions v ii . R ep o rt s viii viii. .

Case Case Stud Study y – Sta Stand ndar ard d Cos Costi ting ng

This case study is divided into 3 sections. Section 1: SETUP ==============

In this section, let us try to understand the setup that serves as a foundation to present the test cases. Bill of Material (BOM) The following BOM would be used in understanding the Cost rollup process. As shown in the above screenshot, BOM of ORA1 comprises 3 Purchased items and 1 Subassembly. O1, R1 and A1 are the purchased items. RA1 is the sub-assembly. Yield of component R1 is specified as 0.8, in the Component Details Tab of Bills of Material screen. This means to say that for every 1 unit of R1 used in the m aking of RA1, 0.8 units would effectively get utilized and the remaining 0.2 uni ts would go unutilized or waste. So, in order to see that 1 unit of RA1 effectiv ely gets utilized; 1/0.8 or 1.125 units should actually be used. The yield of A1 is set to 1. Fig 2. Bill of Material of RA1 displaying the yield of components Similarly, the yield of sub-assembly RA1 is set to 0.7 in the BOM of ORA1. However, the yield of O1 is set to 1. Fig 3. Bill of Material of ORA1 displaying the yield of components Resources 3 Resources have been defined under 3 different Departments. DSR1, DSR2 and DSR3 are the 3 Departments defined. The Resources defined are LAM, FIX and SAW. Reso urce ‘LAM’ used for Lamination purpose is defined under Department DSR1 Unit cost of this Resource is defined as $12. The Navigation Path used for defining the Resource Unit Cost is as follows: Bills of Material -> Routings -> Resources -> Rates (B) Fig 4. Resource Cost of LAM Resource FIX used for fixing purpose is defined under Department DSR2. Unit Cost of Resource FIX is $16. Fig 5. Resource Cost of FIX Resource SAW is used for sawing. It is defined under Department DSR3 with a unit cost of $20. Fig 6. Resource Cost of SAW ROUTINGS Routings are defined for both RA1 and ORA1. Routing for RA1 has got 2 operations – 10 and 20. Resource LAM is attached to operation 10 and Resource FIX is attached to operati on 20. Item R1 is worked upon in operation 10 and A1 is worked upon in operation 20 usi ng the respective Resources attached. Usage of both the resources is set to 1.

Fig 7. Routing for RA1 Routing for ORA1 has 2 operations defined – 10 and 20. Resources SAW and FIX are attached to operations 10 and 20 respectively. Item O1 is worked upon in operation 10 and RA1 in operation 20. Usage of Resource SAW is set to 0.9 and that of Resource FIX is set to 1. Fig 8. Routing for ORA1 Overheads There are 2 overheads defined in the form of ‘Mgmt’ and ‘MfgMgmt’. Hence, these overhead s have been associated with the required Departments and Cost type ‘Pending’. We wou ld be using the Pending Cost type for our test case involving Cost Rollup. Note:- Overheads operate at the Department Level and need to be associated with a cost type. Overhead Mgmt has been associated with Departments DSR1 and DSR2 wi th a rate of 9 and it uses a basis type of ‘Resource Value’. The Navigation used is as follows: Cost -> Setup -> Subelements -> Overheads -> Rates (B) Fig 9. Association of Overhead Mgmt with Pending Cost Type and Departments DSR1 and DSR2 The same can be achieved using the following Navigation too: Bills of Material -> Routings -> Resources -> Rates (B) As shown above, a 3-way association among the Overhead ‘Mgmt’, ‘Pending’ Cost type, and Departments – DSR1 and DSR2 is complete. However, in order to charge the overhead based on specific resources within the Department, there needs to be an association between the Overhead and the specif ic Resource within the Department. To satisfy this condition, Overhead ‘Mgmt’ has been associated with Resources LAM an d FIX within Departments DSR1 and DSR2 respectively. The Navigation used is as follows: Cost -> Setup -> Subelements -> Overheads -> Resources (B) Fig 10. Association of Overhead Mgmt with Resources FIX and LAM for Pending Cost type The same can be achieved for each resource using following Navigation too: Bills of Material -> Routings -> Resources -> Overheads (B) Similarly overhead MfgMgmt has been associated with Department DSR3 and Pending Cost type with a rate of 7 using basis type ‘Resource Unit’. This Overhead has speci fically been attached to Resource SAW within Department DSR3. Fig 11. Association among Department DSR3, Pending Cost type and Overhead MfgMgm t Fig 12. Association between Overhead MfgMgmt and specific resource SAW within De partment DSR3 Item costs All the 5 items, namely O1, R1, A1, RA1 and ORA1 have costs defined. These are supported with screenshots and would be introduced one after the other in the course of the discussion, as and when required.

Section 2 – Item Cost Calculations ============================ Section 2 would look at the Cost rollup process for the Finished Good ORA1 in an Organization employing the Standard Cost method. COST ROLLUP As we start the exercise of understanding the rolled up costs, we must be remind ed of the following: 1) A yield factor of 0.8 has been set against R1 in the BOM of RA1. This means to say that for every 1 unit of R1 used, there would be wastage of 0. 2 units in the process of making RA1. 2) A yield of 0.7 has been set against RA1 in the BOM of ORA1. 3) Usage rate of Resource SAW has been set to 0.9 in the routing for ORA1. As we go forward, we would understand the implications of the above settings. Purchased Item A1 --------------------------Let us begin our understanding from the buy item A1. Material Cost of Item A1 has been defined as $12 with a basis type of Item. Material Overhead Cost has been defined with a basis type of Total Value and a r ate of 0.3.This means that the Material Overhead value would be 0.3 times the ex isting total value of item A1. This results in a value of $3.6 i.e. 0.3 * $12 Fig.13. Item Costs of A1 Let us look at the output of the Cost Rollup Report, which is the Bills of Mater ial Indented Cost Report. The yield factor of 0.7 set against RA1 would come int o play now. This means that for every 1 unit of RA1 used in the making of ORA1, 0.7 units would effectively get utilized and the remaining 0.3 units would go un utilized or waste. So in order to see that 1 unit of RA1 effectively gets utiliz ed; 1/0.7 or 1.428 units should be used. This value would get percolated to next level of BOM too i.e. to R1 and A1. Cost computations would also get carried out accordingly. Fig 14. Bills of Material Indented Cost Report Output for Item A1 The ‘Extended Qty/ Rate or Amount’ Column shows a value of 1.428571 against item A1 which is due to the yield factor of 0.7 set against the sub-assembly in the maki ng, RA1. The Material cost of A1 would get multiplied by this value to provide the extend ed cost as $17.14286 i.e. $12 * 1.428571 = $17.14286. The Material Overhead Cost has a rate of 0.3 defined using ‘Total Value’ as Basis ty pe. This data is represented by ‘Quantity/Rate or Amount’ and ‘Yield/Basis’ columns respecti vely against the Cost Element of Material Overhead. As understood earlier, when a basis type of ‘Total Value’ is used, the existing tota l value of the item would multiply the rate. This leads us to the product of 0.3 and $17.14286, which is the existing total value of the item A1 resulting from the rollup. Hence a value of $5.14286 is seen as extended cost of Material Overhead. Material Cost = $12 * 1.428571 = $17.14286 Material Overhead Cost = $3.6 * 17.14286 = $5.14286 The column ‘Item Unit Cost/Res Unit Cost’ displays a value of $15.6 based on the Ite m Costs screen. This is only a representative value and is not used in the cost rollup. Purchased Item R1 ---------------------------

Material Cost of R1 has been defined as $10 and the Material Overhead Cost as $2 . Both these costs use a basis type of Item. Fig.15. Item Costs of R1 The computations pertaining to this item for the cost rollup have been made a bi t more complex with the inclusion of a yield factor of 0.8 against this item in the BOM of RA1. While rolling up costs associated with R1, system would look at both the yield f actors i.e. 0.7 of RA1 and 0.8 of R1. Fig 16. Bills of Material Indented Cost Report Output for Item R1 The ‘Extended Qty/ Rate or Amount’ Column shows a value of 1.785714 which is derived as follows: This value directly multiplies the Material and Material Overhead costs as they use a basis type of Item, resulting in values of $17.85714 and $3.57143 in the e xtended cost column against the Material and Material Overhead cost elements res pectively. Material Cost = $10 * 1.785714 = $17.85714 Material Overhead Cost = $2 * 1.785714 = $3.57143 Sub-assembly RA1 --------------------------As we have understood the rolled up costs derived with respect to the buy items R1 and A1, we now move to sub-assembly RA1. A Material Overhead Cost of $4 was defined for sub-assembly RA1 before the rollu p was carried out. Please note that there was no Material Cost defined. Fig.17. Item Costs of RA1 As Resources and Overheads are expended in making the sub-assembly RA1, the roll ed up costs would include the same along with the Material Overhead cost defined initially. Fig 18. Bills of Material Indented Cost Report Output for Item R1 Let us take the cost elements one by one and understand the costs. The ‘Extended Qty/ Rate or Amount’ Column shows a value of 1.428571 against item RA1 which is due to the yield factor of 0.7 set against RA1 in the BOM of ORA1. The Material Overhead of $4 gets multiplied by this value to result in an extend ed cost of $5.71429. The Cost Element of Resource has got 2 sub-elements in the form of Resources LAM and FIX under Departments DSR1 and DSR2 respectively with a basis type of item. The unit cost of Resource LAM is $12 as shown in Fig.4. The unit cost of Resource FIX is $16 as shown in Fig. 5. These costs once again get multiplied by 1.428571 to result in extended costs of $17.14286 and $22.85714 respectively. The final cost element that needs to be accounted is overhead. Overhead ‘Mgmt’ has been attached to Cost type ‘Pending’ with a rate of 9 and a basis ty pe of Resource Value as shown in Fig. 9 A basis type of Resource Value means that the Rate defined against this Overhead

would get multiplied by the Value of Resource used. A prerequisite for this to happen is that the Overhead should be attached to the specific Resource. To satisfy this condition, the Overhead ‘Mgmt’ has been attached to Resources LAM an d FIX as shown in Fig.10. Hence, the cost of Overheads is calculated by multiplying the rate of 9 with the extended cost of the Resources, LAM and FIX. This results in values of $154.285 71 and $205.71429 in the extended cost column against the Overhead ‘Mgmt’. Material Overhead Cost = $4 * 1.428571 = 5.71429. Resource Costs --- LAM = $12 * 1.428571 = 17.14286 --- FIX = $16 * 1.428571 = 22.85714 Overhead Costs --- Mgmt (based on Resource Value of LAM) = 9 * $17.14286 = $154.28571 --- Mgmt (based on Resource Value of FIX) = 9 * $22.85714 = $205.71429 The Value of $314.6 in the ‘Item Unit Cost/Res Unit Cost’ Column against RA1 is the rolled up cost of sub-assembly RA1. This means to say that, if a rollup were car ried out for RA1 only and not ORA1, the rolled up cost of RA1 would have been $3 14.6. This is essentially computed without considering the yield factor of 0.7 defined against RA1 in the BOM of ORA1. However, the yield factor of 0.8 defined for Bu y item R1 would be considered in this computation as this item forms a part of t he BOM of RA1. Purchased Item O1 --------------------------This should be the simplest of all. RA1 has a Material Cost of $18 and a Materia l Overhead Cost of $7 defined with a basis type of ‘Item’. Fig.19. Item Costs of O1 For a change, there is no yield factor linked to this item. Hence, the costs defined would directly get considered for roll up. Fig 20. Bills of Material Indented Cost Report Output for Item O1 Material Cost = $18 Material Overhead Cost = $7 Finished Good ORA1 -----------------------------Finally, we get to the Finished Good Item ORA1. ORA1 has got a Material Cost of $5 with basis type ‘Item’. The Material Overhead Cost has a rate of 2 with a basis type of ‘Resource Unit’. This means to say that the Resource Units used in making ORA1 would multiply the Rate. As noted earlier, usage of Resource SAW is set to 0.9 and that of FIX is set to the not so interesting value of 1. Hence, a total of 1.9 resource units are used. This value gets multiplied with the rate of 2 and results in a value of $3.8. Fig.21. Item Costs of O1

Fig 22. Bills of Material Indented Cost Report Output for Item O1 As in the case of RA1, let us take each cost element and check for the Cost arri ved at.

Material Cost element has an extended cost of $5, which is picked up from the It em Costs screen. Similarly the Material Overhead Cost of $3.8 gets picked up. Resource Cost element has 2 resources SAW and FIX as sub-elements. Resource FIX has a unit cost of 16 as shown in Fig.5 Hence this cost is picked for the roll up. Resource SAW has a unit cost of 20 as shown in Fig.6. However SAW has a usage of 0.9 in the Routing for ORA1 as represented by Fig.8. Hence the extended cost would get calculated as 0.9 * 20 resulting in $18. The next Cost element to be considered is overhead. There are 2 sub-elements under this cost element in the form of MfgMgmt and Mgmt . As shown earlier, Mgmt has a rate of 9 defined with a basis type of Resource Val ue and it has been associated with Resource FIX. (Figs. 9 & 10) Also, MfgMgmt has a Rate of 7 defined with a basis type of Resource Unit and has been attached to the Resource SAW under Cost type Pending for the Resource Unit basis type to be effective. (Figs. 11 & 12) Hence the cost of sub-element Mgmt is calculated by multiplying the rate of 9 wi th the Resource Value of $16 resulting in $144. The cost of sub-element MfgMgmt is calculated by multiplying the rate of 7 with the Resource unit value of $0.9 resulting in $6.3. Material Cost = $5 Material Overhead Cost = $2 * 1.9 = $3.8 Resource Costs --- SAW = $20 * 0.9 = $18 --- FIX = $16 Overhead Costs --- MfgMgmt = $7 * 0.9 = $6.3 --- Mgmt = $16 * 9 = $144 A summation of all the extended costs discussed above results in the rolled up c ost of ORA1, which is $667.52857. Shrinkage Rate This case could have been made more interesting by bringing ‘Shrinkage Rate’ into pi cture. Enter the manufacturing shrinkage rate as 0.2 for the Finished Good ‘ORA1’. This can be done using the following Navigation: Cost -> Item Costs -> Item Costs -> Item Costs Summary -> Item Costs Details. Fig 23. Shrinkage Rate of ORA1 Cost rollup uses the value entered here to determine the incremental component r equirements due to the assembly shrinkage of the current item. Shrinkage Rate cannot be entered for items that do not base costs on a rollup of the item’s bill of material and routing (buy items). Note:- This value is different from the ‘Shrinkage Rate’ entered in the MPS/ MRP Pla nning Tab of the item Master. Shrinkage Rate is considered for planning purposes by MRP / MPS. Let us now understand the implication of this MFG Shrinkage Rate. All the costs displayed in the ‘extended cost’ column of the earlier Indented Bill o f Material Report would get multiplied by the following factor: 1 / (1 – manufacturing shrinkage) Hence the final cost of ORA1 would become: $667.52857 * 1/(1-0.2) = $834.411 Cost Update As understood earlier, Standard Costing uses the cost of an item that exists in the ‘Frozen’ cost type only for accounting all transactions pertaining to the Organi zation. Hence, the rolled up cost in Pending cost type needs to be updated to Fr ozen Cost type. This is accomplished by running the ‘Update Standard Costs’ concurrent request. The Navigation used for this purpose is as follows: Cost -> Item Costs -> Standard Cost Update -> Update Costs.

The standard cost update procedure enables users to define and roll up pending c osts, simulate changes to standard costs for “what if” analysis and then update pend ing costs to the frozen standard cost type. It is advisable to run cost update at the beginning of the inventory accounting period before transactions have started for the new period. At this juncture, it would be apt to introduce a new feature, Cost Cut-Off Date Cost Cutoff Date -----------------------This functionality is developed to allow businesses the option of changing labor rates and overhead rates at the beginning of the accounting period while transa ctions in the next period wait for these new costs to be completed. This feature exists for all the perpetual costing methods available in Release 11i: Standard , Average, FIFO and LIFO. This will allow period close, cost updates and rate ch anges to occur without impacting or interrupting business operations. When using the Cost Cutoff Date, all cost processing for the new accounting peri od is stopped for that organization. This provides accountants with the opportun ity of closing the previous period. Once the new costs are set, then the costing is started for the new period. This occurs by changing the cost cutoff date to a date in the future. To use this functionality, the Cost Cutoff Date field must be populated with a d ate in the Organization Parameters form. The Navigation Path is as follows: Inventory -> Setup->Organizations -> Parameters -> Costing Information (T) With this new functionality, the Standard Cost Update can now run in one organiz ation while other organizations are still costing transactions. Standard Cost Wo rkers are launched based on organization, so this improves the speed of costing transactions. Example ------------Let us understand the functionality of this feature with the help of an example. Assume December 2003 and January 2004 to be 2 accounting periods respectively. Suppose the cost cut-off date is set to 01-01-2004. New standard costs can be es tablished prior to 01-01-2004, say in December 2003. These costs will not impact the December co sting activities, as they will not be active until January 1, 2004. Also, no tra nsactions that occur from January 1, 2004 are having cost. This will allow the a ccountants to complete the costing for the December transactions, close the peri od, and run the reports for review. Now, a standard cost update can be performed using the new cost type for January 2004.This will update the cost of the costed items up to December 31, 2003. The reports can then be rerun with the same quantity and newly updated costs. Even at this stage, January 2004 transactions would not be costed. Costing in the new period would not happen till the costing of the previous period is finished. Th e uncosted transactions will remain in the 18 MTL_MATERIAL_TRANSACTIONS with costed_flag = N waiting for a cost worker to p rocess them. The Cost Manager will spawn no cost worker until the Cutoff Date is changed. To cost the January 2004 transactions once period of December 2003 is properly c losed, the Cost Cutoff Date is changed. This can be changed to the start of the next period or next quarter or next year --- whenever the rates need to be chang ed next. Once changed, the cost processing begins for the transactions that have been waiting. For standard costs, the processing of the transactions is immediate. For Average , FIFO, and LIFO costing the process takes longer because of the need to process the transactions sequentially to keep the costs accurate. As part of our test case, Standard Cost Update has been run for all the 5 items. Hence, costs of these items are now available for the system to consider them fo

r all further transactions and their subsequent accounting. Section 3 - Transaction Costing ========================== In Section 3, focus is laid on the behavior of Standard Costing method on some b asic transactions across 4 different modules of Oracle Applications, namely Orac le Purchasing, Oracle Inventory, Oracle Work in Process and Oracle Order Managem ent. A business requirement of manufacturing and shipping sub-assembly RA1 is assumed . A voluntary choice of RA1, instead of ORA1, has been made in order to maintain t he complexity of transactions at a minimum level and also to aid a quicker and b etter understanding of the accounting distributions generated by the system. The series of transactions followed for manufacturing and shipping of RA1 is as follows: 1) Purchase Order transaction for receiving 10 quantities of Purchased item A1 i nto sub-inventory SUB2. 2) A ‘Return to Vendor’ transaction of 2 faulty quantities of A1 from SUB2 to Vendor . 3) Miscellaneous Receipt transaction for receiving 10 quantities of purchased it em R1 into sub-inventory SUB1. 4) Sub-inventory transfer transaction for transferring 8 quantities of R1 from s ub-inventory SUB1 to sub-inventory SUB2. 5) WIP Completion of 3 quantities of sub-assembly RA1 into sub-inventory SUB3 by sourcing components R1 and A1 from sub-inventory SUB2. 6) WIP Assembly Scrap transactions of 1 quantity each of RA1 at Operation 10 and Operation 20 respectively. 7) Sales Order transaction for shipping 2 quantities of RA1. From the above flow of transactions, it is evident that 3 sub-inventories – SUB1, SUB2 and SUB3 have been used for carrying transactions. These sub-inventories ha ve a set of accounts (cost group) defined, representing each of the 5 cost eleme nts. Similarly, the WIP accounting class, Discrete, used for WIP transactions al so has a set of accounts defined. These accounts are as represented below: Fig 24. Accounts of Sub-inventories and Accounting Class These are the accounts that are frequently hit by the transactions. In addition to the above accounts, there are a few other accounts that would get hit by the transactions, which would be presented at a later stage as and when required. Now, we proceed with the understanding of the transactions and the corresponding accounting distributions generated. 1) A Purchase Order for 10 quantities of item A1 is created, received and delive red into Sub-inventory SUB2. Price of item A1 on the Purchase Order is $14. Please note that the material cost of A1 is $12 and Material Overhead cost is $3 .6 as shown in Fig.13. Fig 25. Transaction Summary of Receiving transaction As shown in the screenshot, a quantity of 10 of item A1 is received with destina tion type Receiving and delivered with destination type Inventory. Fig 26. Accounting of receiving transaction As the PO has been raised for 10 quantities with a unit price of $14, the Receiv ing Inspection account would get debited by an amount of $140 and the same amoun t would credit the Inventory AP accrual account.

The Navigation for defining the Receiving Inspection Account is as follows: Inventory -> Setup -> Organizations -> Receiving Parameters Fig 27. Navigation for defining Receiving Inspection Account The Navigation for defining the Inventory AP Accrual account is as follows: Inventory -> Setup -> Organizations -> Parameters -> Other Accounts (T) Fig 28. Navigation for defining Inventory AP Accrual account After receiving the Purchase Order, a delivery is made to sub-inventory SUB2. The accounting distributions generated are as follows: Fig 29. Accounting Distributions of Receiving transaction Fig 30. Accounting Distributions of Receiving transaction As the Receiving Inspection account got debited by $140 by the receiving transac tion, the same amount would credit it during the Delivery transaction. Hence the transaction value column displays a value of –140 against the Receiving Inspectio n account. The other account that gets credited is the overhead absorption accou nt. As noted earlier, material overhead cost of item A1 is $3.6 and since 10 quantit ies have been delivered, this account gets credited by an amount of $36. This ac count represents the absorption account of Material Overhead, Mat’l Hndlg, used fo r Material overhead cost of A1 (Refer to Fig.13 which displays the Mat’lHndlg subelement). The Navigation used for defining the Absorption account for a Material Overhead or an Overhead is as follows: Cost -> Setup -> Sub-Elements -> Overheads Fig 31. Navigation for defining Overhead Absorption Account. The Material Account of SUB2, 01-000-1410-1100-000, would get debited by $120 an d the Material Overhead account, 01-000-1420-1100-000 would get debited by $36. These figures are arrived based on the Costs defined for item A1 as shown in Fig . 13. The difference between the transaction values of Receiving Inspection Account an d Material account of sub-inventory SUB2 is debited to the purchase Price Varian ce account. The Navigation for defining the Inventory AP Accrual account is as follows: Inventory -> Setup -> Organizations -> Parameters -> Other Accounts (T) Refer to Fig.28 for the same. Note: - Purchase Price Variance calculation does not consider Material Overhead ------- Cost of the item. Note: - Purchase Price Variance account would have got credited if transaction -------- Value against Receiving Inspection account was less than $120 or if Transaction value against Material account was more than $140. 2) A Return transaction is performed to return 2 faulty quantities of A1 to the supplier based on the same PO.

2 more lines would get added to the Receipt Transaction Summary as follows: Fig 32. Transaction Summary of Return-to-Supplier transaction Thus, the 2 quantities are first returned to Receiving and then to the Supplier. The accounting entries created at the Receiving level would exactly display a re versal of the earlier ‘Receiving’ accounting entries. Fig 33. Accounting of Return-to-Supplier transaction The Receiving Inspection account would get credited by an amount of $28 as 2 qua ntities are being returned at a price of $14. The same amount would debit the Inventory AP accrual account. Similarly, the ‘Return to Supplier’ transaction distributions also display an exact reversal of the earlier PO Receipt transactions. Fig 34. Accounting Distributions of Receiving transaction Fig 35. Accounting Distributions of Receiving transaction The Receiving Inspection account would get debited by an amount of $28 and the O verhead absorption account by $7.2 i.e. $3.6 * 2quantities. As the Material Cost of item A1 is $12, $24 would credit Material account. $7.2 would credit material Overhead account, as Material Overhead Cost of A1 is $3.6. Purchase Price Variance account is hit by the difference between Material accoun t and Receiving Inspection account. Now, the on-hand quantity of item A1 is 8 in sub-inventory SUB2 3) A Miscellaneous Receipt is generated for Receiving 10 quantities of item R1 i nto sub-inventory SUB1. The charge account entered during Miscellaneous Receipt is 01-580-7740-0000-000. Fig 36. Charge Account for Miscellaneous Receipt Please note that R1 has a material cost of $10 and Material Overhead Cost of $2 defined. Refer to Fig. 15. Fig 37. Accounting Distributions of Miscellaneous Receipt transaction As 10 quantities are being received, material account of sub-inventory SUB1 is d ebited by $100. Similarly Material Overhead account is debited by $20. The charge account entered during Receipt is credited by $120. 4) A sub-inventory transfer of 8 quantities of R1 is carried out from sub-invent ory SUB1 to SUB2. Fig 38. Sub-inventory transfer transaction As material is being moved from SUB1 to SUB2, the accounts of SUB2 would get deb ited and those of SUB1 would get credited.

Fig 39. Accounting Distributions of Sub-inventory transfer transaction Material accounts are hit by a value of $80 as 8 quantities with a cost of $10 e ach are being moved. Material Overhead accounts are hit by a value of $16 as 8 q uantities with a cost of $2 each are being moved. 5) As per the earlier 4 transactions carried out, the on-hand quantity of A1 and R1 in sub-inventory SUB2 is 8 each. Using this on-hand quantity, let us proceed with the making of sub-assembly RA1 and deliver to sub-inventory SUB3. A standard discrete job is created with a start quantity of 5 for making sub-ass embly RA1. Completion sub-inventory is provided as SUB3. Refer to Fig.7 for the routing used in making RA1. Before proceeding with the understanding of WIP Assembly Distributions, let us h ave a re-look at the costs rolled up for sub-assembly RA1. This would ease the understanding of the accounting distributions generated. Fig 40. Cost Rollup for item RA1 Hence the total cost of item RA1 after the rollup is $314.6 This cost is split across the cost elements as follows: Fig 41. Element-wise Cost split for item RA1 The amount of $4 shown separately is the Material overhead Cost defined against RA1. This cost of RA1 existed, before the rollup for RA1 as done. Hence it is not inc luded as part of the rolled up costs but is considered separately. The distributions generated due to WIP Assembly Completion of 3 quantities of RA 1 are as follows: Fig 42. Accounting Distributions of WIP Assembly Completion transaction Fig 43. Accounting Distributions of WIP Assembly Completion transaction The sub-inventory accounts of SUB3 would get debited as material is delivered to this sub-inventory after completion. On the other hand, all accounts of WIP Acc ounting Class are credited. As 3 quantities are completed, the amounts in Fig. 41 get multiplied by 3 and de bit the corresponding cost elemental accounts of sub-inventory SUB3. The same behavior is exhibited by the WIP Accounting Class accounts too while ge tting credited, except for the Material Overhead account. This account gets debi ted by the rolled up Material Overhead Cost only, which is $18.3 ($6.1 * 3). The Material Overhead cost of $4 defined for the sub-assembly RA1 is charged separa tely to the overhead absorption account of ‘Mat’lHndlg’ sub-element. This behavior is exhibited because Material Overheads of the sub-assembly (RA1 i n this case) that is being completed are not charged to the job. They are charge d separately to the Overhead Absorption account of the specific Material Overhea d sub-element. However, the same is charged to the Material Overhead account of the Inventory V aluation accounts (Sub-inventory accounts). 1) The job in the previous transaction was completed for 3 quantities only thoug h start quantity was 5 due to faulty work during operations 10 and 20. Thus we would scrap the remaining 2 quantities, one at operation 20 and the othe r at operation 10. Let us first look at the Distributions generated due to the WIP Assembly scrap t ransaction performed at operation 20.

Fig 44. Accounting Distributions of WIP Assembly Scrap transaction at operation 20 As far as WIP Accounting Class is concerned, the accounting distributions genera ted are almost same as the ones generated for assembly completion transactions a s the assembly is put to scrap after completion of the last operation. As a resu lt, all the resources used in the routing are used up and also all the correspon ding Overheads are incurred. However, the only difference occurs due to the Material Overhead cost defined fo r the subassembly RA1. This is because Material Overheads are incurred only when the item is completed into a sub-inventory in case of WIP transactions and rece ived in a sub-inventory in case of purchasing transactions. Hence, the accountin g entries generated on the credit side are same as the ones provided in fig. 41. Material Overhead account does not include the $4 defined at subassembly level. The corresponding account that is hit on the debit side is the Scrap account ent ered during the Scrap transaction. The Navigation for defining scrap account for specific transaction is as follows : WIP -> Move Transactions -> Move Transactions The scrap account can be provided in the Move Transactions form only if the opti on ‘Require Scrap Account’ is checked in the WIP Parameters form. The Navigation for the same is as follows: WIP -> Setup -> Parameters -> Move Transaction (T) The distributions generated due to scrap transaction performed at operation 10 a re as follows: Fig 45. Accounting Distributions of WIP Assembly Scrap transaction at operation 10 As 1 quantity of assembly RA1 is scrapped at operation 10, Material, Material Ov erhead, Resource and Overhead costs associated with Operation 10 would only get considered. The costs associated with Operation 20 would not come into picture. Also, as in the previous scrap transaction, the material overhead cost defines a t sub-inventory level, $4, is not considered. Component R1 and Resource LAM are attached to operation 10 of the routing. The corresponding overhead associated with LAM is ‘Mgmt’. Refer to Fig.7. From Fig.40, Material and Material Overhead costs rolled up for item R1 are $12. 5 and $2.5 respectively. Resource cost incurred due to usage of resource LAM is $12. Similarly, Overhead cost due to Mgmt is $108. Based on above costs, corresponding accounts of WIP Accounting Class are hit. Sc rap account entered during the scrap transaction is 01-000-7730-0000-000.This ac count gets debited. 2) The last transaction that is undertaken is the shipment of 2 completed quanti ties of the sub-assembly RA1 from sub-inventory SUB3. Booking a Sales Order in O rder Management module of the Applications carries out this transaction. It actu ally comprises 2 steps wherein the 2 quantities are first moved to ‘Staging’ sub-inv entory and then shipped from there. The distributions generated due to the first step where material is moved from s ub-inventory SUB3 to sub-inventory Staging1 are as follows: Fig 46. Accounting Distributions of Sales order Pick transaction A close look at the distributions would indicate that they are very similar to t he ones generated by a sub-inventory transfer transaction. This is because the Sales Order Pick transaction transfers material from one Sub-inventory to the other.

Hence, the accounts of SUB3 would get credited and the corresponding accounts of Staging1 would get debited. As 2 quantities are being transferred, the values in Fig. 41 would get multiplie d by 2 and the same would hit the accounts. The second step would involve shipment of quantities from the Staging sub-invent ory. The distributions generated for the same are as follows: Fig 47. Accounting Distributions of Sales Order issue transaction As material is moving from staging sub-inventory, valuation accounts of this sub -inventory would get credited. Note that these were the same accounts that got d ebited by the Sales Order Pick transaction. The account that is getting debited, 01-520-5110-0000-000, is the Cost of Goods Sold account. The Navigation for defining the Cost of Goods Sold account is as follows: Inventory -> Setup -> Organizations -> Parameters -> Other Accounts (T) Fig 48. Navigation for defining the Cost of Goods Sold account

3. Advanced / other features of the module i. Retroactive Pricing Cost Management supports retroactive price changes in Oracle Purchasing. Over th e life of purchasing documents, prices can change. The Retroactive Price Update on Purchasing Documents concurrent program automati cally updates purchase orders and blanket releases retroactively with price chan ges. When this occurs, the accounting is adjusted: • For For purc purcha hase se orde orders rs with with a dest destin inat atio ion n type type of Inve Invent ntor ory/ y/Sh Shop op floo floor r The adjustment account is posted to the Retroactive Price Adjustment account. Th is account is defined at the organization level in the Receiving Options window in Oracle Purchasing. The following accounts and costs are not adjusted: – Inventory and Work in Process valuation accounts – Costs are not recalculated in Average and LIFO/FIF0 cost orgs. – Purchase price variance When a price change is approved, adjustments for prior receipts are created: Account Debit Credit Retroactive Price Adjustment XX – Inventory AP Accrual – XX • For purchase orders with a destination type of Expense The adjustment amount is posted to the Charge account specified order. When a price change is approved, adjustments are created in the ts: Account Debit Charge XX Inventory AP Accrual –

on the purchase following accoun Credit – XX

Transfer of ownership transactions, created for consigned goods, are also adjust ed when the price on the associated blanket agreement is changed and approved. i i.

Transfer Price Costing

You have the option to use the transfer price for inter-company accounting. Tran sfer price costing occurs when a sales order is created for an in-transit transf er, between two internal organizations, in two different operating units. This functionality is flagged in the Transfer Pricing Option profile option. Tra nsfer pricing is used in calculating Profit in Inventory. The operating unit ass ociates a price list with any operating unit. Features of this functionality include: • Acco Accoun unti ting ng dist distri ribu buti tion ons s for for inte intern rnal al orde order r tra trans nsfe fers rs are are the the same same entr entrie ies s as as an an external sales order and purchase order. • Inco Incomi ming ng item item cost cost for for the the Rece Receiv ivin ing g org organ aniz izat atio ion n is is the the tran transf sfer er pric price, e, rath rather er than the item cost of the Shipping organization. • Prof Profit it in Inve Invent ntor ory y is is rep repor orte ted d at at the the indi indivi vidu dual al comp compan any y lev level el for for int inter erna nal l ord ord er transfers, and eliminated at time of consolidation. • The The tra trans nsfe fer r pri price ce take takes s pri prior orit ity y ove over r the the tran transf sfer er char charge ge. . It It is is rec recom omme mend nded ed th at transfer credit is not set up in the Shipping Network window to avoid the val ue calculated in new entries. For internal transfers, freight is not charged dir ectly. • For For act actua ual l cos costi ting ng (Ave (Avera rage ge, , FIF FIFO, O, and and LIF LIFO) O) – the the whol whole e cos cost t is is use used d for for the the inv inve e ntory transaction, rather than divided between standard cost and purchase price variance. Required Setups: • Define In Inter-company re relationships between op operating un units • In the the Shi Shipp ppin ing g Net Netwo work rks s win windo dow w in in Ora Oracl cle e Inv Inven ento tory ry, , add add valu values es for for InIn-tr tran ansi sit t I nventory and Profit in Inventory accounts. These fields are located in the Other Accounts tabbed region. Set the profile option CST: Transfer Pricing Option to Yes. i ii . Client Extensions Oracle Cost Management provides flexible cost processing. However, many companie s have business requirements that are unique to their company or country. To add ress these unique requirements, Cost Management provides subprograms which enabl e you to extend the functionality of the product to implement and automate compa ny–specific business rules. In other words, subprograms provide extensibility by l etting you tailor the PL/SQL language to suit your needs. For this reason these subprograms are commonly known as client extensions. Extensions are applicable to all organizations unless the client extension is de signed to restrict its use. The following table lists the Cost Management client extensions and their predef ined template function files. The template function files are stored in the Cost Management admin/sql directory. Client Extension Name De s cr i pt i on Costing Method Package Specification Body Acco Accoun unti ting ng Entr Entry y Exte Extens nsio ion n Use Use this this exte extens nsio ion n to crea create te a diff differ eren ent t set set of debits and credits than those derived by the system. You should not use this cli ent ex extension if if yo you ar are us using th the Ac Account Generation Ex Extension. S t an d ar d CSTSCHKS.pls CSTSCHKB.pls Aver Averag age e CSTA CSTACH CHKS KS.p .pls ls CSTACHKB.pls Acco Accoun unt t Gene Genera rati tion on Ext Exten ensi sion on You You can can use use this this ext exten ensi sion on to to prov provid ide e alte altern rnat ativ iv e accounts per your requirements for account distributions. These accounts are p icked and used by the cost processor when the cost processor performs accounting distributions. You should not use this client extension if you are using the Ac counting Entry Extension. St a nd a rd C S TS C HK S .p l s

CSTSCHKB.pls Aver Averag age e CSTA CSTACH CHKS KS.p .pls ls CSTACHKB.pls Tran Transa sact ctio ion n Cos Cost t Ext Exten ensi sion on You You can can use use thi this s ext exten ensi sion on to rese reset t the the elem elemen enta ta l co costs of of tr transactions in in av average co costing organizations. A ve r ag e C S TA C HK S .pls CSTACHKB.pls Cost Cost Proce Processi ssing ng Cuto Cutoff ff Date Date Extens Extension ion You can can use use this this extens extension ion to proc process ess on ly transactions up through a user–specified date. You can only use this extension in av average co costing or o rg a ni z at i o ns . A v e ra g e CS T AC H KS . pl s CSTACHKB.pls Proj Projec ect t Cost Cost Coll Collec ecto tor r Tran Transa sact ctio ion n Clie Client nt Exte Extens nsio ion n The The Proj Projec ect t Cost Cost Coll Collec ect t or Transaction client extension provides the user the flexibility to control the logic of inserting records into the Projects interface table (PA_TRANSACTIONS_I NTER NTERFA FACE CE_A _ALL LL) ) for for each each inve invent ntor ory y tra trans nsac actio tion. n. Aver Averag age e CSTC CSTCCH CHKS KS.p .pls ls CSTCCHKB.pls Proj Projec ect t Cost Cost Coll Collec ecto tor r Acco Accoun unti ting ng Exte Extens nsion ion This This exte extens nsio ion n give gives s the the user users s t he flexibility to pass accounts to the project interface. The extension may be u sed for passin passing g custom custom capitali capitalizat zation ion account accounts. s. Averag Average e CSTPMH CSTPMHKS. KS.pls pls CSTPMHKB.pls To define company specific rules using client extensions, you design and write t hese rules using PL/SQL functions; these functions are called during specific po ints in the normal processing flow of Cost Management. These functions that you write are extensions rather than customizations because they are supported features within the product and are easily up-gradable betwe en releases of the product. Customizations are changes made to the base product and are not supported nor easily upgraded. i v. Account Generation Extension Workfl kflow The Account Generation Extension workflow is called from the Account Generator C lient Extension. The workflow is designed to provide a graphical user interface to the Client Extension, as well as additional features such as drag–and–drop functi onality. The workflow, like the Client Extension, allows you to specify the acco unts for distribution based on the type of transaction or to define your own bus iness functions to generate the desired accounts. You may choose to continue usi ng the Account Generator Client Extension without using the workflow, by turning off the call to the workflow within the client extension. If you choose to use the workflow, you modify the workflow rather than the Clien t Extension. The Account Generation Extension workflow has two item types: the S tandard Costing Workflow Item Type and Average Costing Workflow Item Type. Each of these workflow item types has 19 processes, one for each accounting line type . Line types identify which accounts are used, for example, inventory valuation or WIP variance accounts. Each process can be initiated from the Account Generat ion Client Extension, based on the costing method and the accounting line type. For standard costing, std_get_account_id package function is called. For average costing, get_account_id package function is called. To view the properties of any of the processes, select the process in the naviga tor tree, then choose Properties from the Edit menu. When you display the Proces s window for an Account Generation Extension process, you see that the process c onsists of three unique activities, several of which are reused to comprise the three activity nodes that appear in each workflow process diagram. The nodes are numbered for referencing below, but the numbers are not part of the process dia gram. As illustrated in the following diagram, all of the processes in the Account Gen

eration Extension workflow have the same structure and therefore only one is sho wn in this document. Each of the workflows processes is launched from the Account Generation Client E xtension. The exact workflow process called is dependent on the costing method ( standard or average) and the accounting line type. The workflow begins at node 1 with the Start activity. At node 2, the default account (–1) is returned. Node 3 is the end activity. v.

View Transactions

Explain in brief the advanced or other features of this module. Explain the purp ose, importance and functionalities in brief. Show navigations. Attach screen sh ots. But you need not have to offer detailed information on these features. E.g. in Inventory module….. 1. Physical Inventory 2. Cycle Count 3. Min-Max Planning 4. Important Set Ups a)

Setups Related to Other Modules

A p p l ic a ti o n S e tu p Oracle Oracle Genera General l Ledg Ledger er Define Define Your Your Set Set of Book Books s for for Perpet Perpetual ual Costin Costing g Entering Daily Rates Entering Period Rates Oracle Inventory Define Your Organizations Define Your Organization Parameters for Perpetual Costing Define Your Units of Measure Define Your Sub-inventories Define Your Categories Define Category Sets Open Your Accounting Periods Define Your Default Category Sets Define Your Items, Item Attributes, and Controls Define Your Account Aliases Launch Your Transaction Managers Oracle Purchasing Define Your Receivi iving Options and Controls Define Your Purchasing Options Oracle Bi Bills of of Ma Material Define Yo Your Bi Bills of of Ma Material Pa Parameters Define Your Resources Define Your Departments Assign Resources to a Department Define Overheads and Assign them to Departments Oracle Work in Process Process Define WIP Accounting Accounting Classes Classes and and Valuatio Valuation n Accounts Accounts Define WIP Parameters

b)

Setups Related to Cost Management

Following is the summary of setup steps for Oracle Cost Management

Sr. No. Step Details C om m en t s 1 Set Your Personal Profile Options Cost Management personal profile options control defaults within windows as well as data processing options. 2 Set Your Security Functions Cost Management security functions deter mine what information can be viewed, created, updated, and deleted in certain wi ndows in Cost Management. 3 Define Your Cost Types You must de define cost types. Each cost type conta ins a unique set of costs and has its own set of cost controls. Default : Frozen for Standard Costing, Average and Average Rates for Average Cos ting 4 Defining Your Activities and Activity Costs You can define activitie s, activity rate information, and activity and activity cost type associations. You can assign an activity to any cost. If you use the activity basis type, you can directly assign the activity cost to the item. When you use the other basis types, the cost is based on the sub-element, basis type, and entered rate or amo unt. The activity defaults from the sub-element; and, if needed, you can overrid e the default. 5 Define Cost Groups You can define cost groups and use them to group project related costs. Additional Information: This step is conditionally requi red if you plan to transfer project costs to Oracle Projects. Default: The organization’s default cost group. 6 Define Material Sub-elements Material sub-elements classify material costs, such as plastic or metal. A material sub-element has a default activity a nd a default basis type assigned to it. 7 Define Overheads You can use material overhead and overhead cost sub-elements to add indirect costs to item costs on either a percentage basis or as a fixed amount. 8 Define Material Overhead Defaults You can define and update defaul t material overhead sub-elements and rates at the organization or category level . When you define items in Oracle Inventory, these defaults are automatically us ed. This speed data entry when defining items. 9 Associate Ex Expenditure Ty Types wi with Co Cost El Elements You mu must as associate ex expen diture types with cost elements so that project transfers and the project relate d costs associated with miscellaneous transactions can be properly processed onc e they are transferred to Oracle Projects. Additional Information: This step is conditionally required if you to plan to transfer project costs to Oracle Projec ts. 10 Define Category Accounts (Optional) You can define category accounts . Category accounts are part of the product line accounting setup. 11 Associate WIP Accounting Classes with Categories (Optional) You can associate WIP accounting classes with category accounts. Default WIP accounting classes are part of product line accounting setup. i.

Set Personal Profile Options

Profile Option Comments Va l ue s CST: CST: Acco Accoun unt t Sum Summa mari riza zati tion on Indi Indica cate tes s whe wheth ther er, , in in sta stand ndar ard d cos costi ting ng, , ele eleme ment nta a l accou accounts nts are summar summarize ized d befor before e being being transfe transferre rred d to Genera General l Ledge Ledger. r. Yes No If th this pr profile is is se set to to No No, el elemental ac account vi visibili ty is maintained. You can set this profile to No if you are using average costin g, but it has no effect. CST: Cost Rollup – Wait Wait For Table Lock Indicates Indicates whether whether the cost cost rollup rollup waits until the desired information in Cost Management tables is available Y es The program will continually att empt to lock the tables. No The pr program tr tries 10 10 at attempts to to lo lock ta tables be before en endi ng

rollup request. CST: CST: Cos Cost t Upda Update te Deb Debug ug Lev Level el Indi Indica cate tes s none none or or the the leve level l and and type type of of debu debug g me ssag ssages es to prin print t in in the the cost cost upda update te log log fil file. e. Regu Regula lar r Ever Every y sub subro rout utin ine. e. E xt e nd e d Each SQL statement Full Full Same Same as Exte Extend nded ed and and keep keeps s any any temp tempor orar ary y dat data a in in the the dat dat abase. CST: Exchange Exchange Rate Type Indicates Indicates how to convert foreign foreign currency. currency. Margin Analys Analys is Report, the Material Distribution Report, and the WIP Distribution Report. Wh en entering a foreign exchange rate for one of these reports, you must specify t he exchange rate type. For reporting profit and loss results, different countrie s use use diff differ eren ent t fin finan anci cial al stan standa dard rds. s. peri period od aver averag age e rate rate For For Exa Examp mple le U.S. U.S. comp compan anie ies s con conver vert t usi using ng the the per perio iod d ave avera rage ge rate rate period end end rate For Example Example Australian Australian companie companies s use the period period end rate. CST: CST: Mai Maint ntai ain n Cost Cost Pri Privi vile lege ge This This pro profil file e opti option on is is used used in in the the secu securi rity ty fun func c tion when you define, update, or delete cost information. The profile option mus t be set to Yes to submit the Purge Standard Cost Update History concurrent prog r am . Y es Profile option is enabled. No Profile option is disabled. CST: Period Summary This profile option is used to indicate if period summarization is performed when the closing an accounting period using the Inventory Accounting Periods window. Auto Automa mati tic c Peri Period od summ summar ariz izat atio ion n proc proces ess s is perf perfor orme med d auto automa mati tica call lly y when the period is closed. The status of the period becomes Closed after summari zation process is completed. This is the default value. Manual Manual When When a period period is is closed, closed, the the perio period d summar summariza izatio tion n proces proces s is not automatically launched. The status of the period is Closed not Summarized . You must run the Period Close Reconciliation report if you want to calculate s ummarization data – and at that point the status becomes Closed. CST: CST: Tra Trans nsfe fer r Pric Pricin ing g Opti Option on This This pro profil file e opti option on is is used used to to enab enable le tra trans nsfe fer r p rice functionality for inter company accounting No Transfer price costing is disabled. This is the default value. Yes, Price Price Not As Incoming Incoming Cost Cost The incoming incoming cost cost to the Receivi Receivi ng organization is the Shipping organization’s inventory cost. Yes, Yes, Pric Price e As As Inc Incom omin ing g Cos Cost t The The inc incom omin ing g cos cost t to to the the Rece Receiv ivi i ng organization is based on the transfer price. CST: Vi View Co Cost Pr Privilege This pr profil file op option de determines wh whether ce certain c osting reports indicate display cost information. CST: CST: Ite Item m Cate Catego gory ry for for Inf Infla lati tion on Adj Adjus ustm tmen ent t Igno Ignore re thi this s unle unless ss you you are are usi using ng the Colombia responsibility. CST: It Item Ca Category Se Sets fo for In Inflation Ad Adjus justment Ignore th this un unless yo you a re using the Colombia responsibility. CST: CST: Pric Price e Ind Index ex for for Inf Infla lati tion on Adju Adjust stme ment nt Igno Ignore re this this unle unless ss you you are are usin using g the Colombia responsibility. i i. Set Security Functions Security function options specify how Oracle Cost Management controls access to and processes data. The system administrator sets up and maintains security func tions. F u n c ti o n N a me Co m me n ts Privilege to View Cost CST_VIEW_COST_INFOR FORMATION Determines whether the p rivilege to view costing information can be prohibited from the following window s: • Resources (in Bills of Material)

• Departments (in Bills of Material) • Indented Bills of Material (in Bills of Material and Engineering) Attention: By leaving the Privilege to View Cost security function as part of a user’s responsibility, but excluding the Privilege to Maintain Cost function, you can allow the user to print reports but not change any stored costs. Privilege to Maintain Cost CST_MAINTAI TAIN_COST_INFORMATION Determines wheth er the privilege to create, update, or delete costing information can be prohibi ted from the following windows: The following windows are governed by this funct ion: • Bills of Material (in Bills of Material and Engineering) • Routing (in Bills of Material and Engineering) Attention: To use either of the Cost Rollup options where costs are committed to the database, the Privilege to Maintain Cost security function must be included as part of the responsibility. Cost Cost Grou Group: p: Main Mainta tain in CST_ CST_CS CSTF TFDC DCGA GA_M _MAI AINT NTAI AIN N Dete Determ rmin ines es whet whethe her r the the priv privil ileg ege e to create, update, or delete cost group information can be prohibited from the Define Cost Group window. Acti Activi viti ties es: : Main Mainta tain in CST_ CST_CS CSTF TFDA DATY TY_M _MAI AINT NTAI AIN N Dete Determ rmin ines es whe wheth ther er cos costi ting ng inf infor or mation can be created, updated, or deleted from the Activities window. Cost Cost Type Types: s: Main Mainta tain in CST_ CST_CS CSTF TFDC DCTP TP_M _MAI AINT NTAI AIN N Dete Determ rmin ines es whet whethe her r cos costi ting ng info infor r mation can be created, updated, or deleted from the Cost Types window. Item Item Cost Costs: s: Main Mainta tain in CST_ CST_CS CSTF TFIT ITCT CT_M _MAI AINT NTAI AIN N Dete Determ rmin ines es whet whethe her r cos costi ting ng info infor r mation can be created, updated, or deleted from the Item Costs window. Mate Materi rial al Sub-e Sub-ele leme ment nts: s: Maint Maintai ain n CST_ CST_CS CSTF TFDMS DMSE_ E_MA MAIN INTA TAIN IN Dete Determ rmin ines es wheth whether er costi costi ng information can be created, updated, or deleted from the Material Sub-element s window. Over Overhe head ads: s: Main Mainta tain in CST_ CST_CS CSTF TFDO DOVH VH_M _MAI AINT NTAI AIN N Dete Determ rmin ines es whet whethe her r cost costin ing g info infor r mation can be created, updated, or deleted from the Overheads window. Define Cost Types Defining Activities and Activity Costs Define Cost Groups Define Material Sub-elements Define Overheads Define Material Overhead Defaults Associate Expenditure Types with Cost Elements Define Category Accounts (Optional) Associate WIP Accounting Classes with Categories (Optional) 5. Inter Module Dependencies Explain how this module is dependent on other module or vice versa. You can show the relationship in a pictorial form / flow chart. 6. Seeded technical objects Give details on important reports, interfaces, work flows etc. Give Parameters for critical reports. Specify the importance of them, show sampl e output. You can embed output in HTML or any other clear format. Explain important interfaces in detail. E.g. GL Interface that transfers data fr om AP / AR / FA / PO / INV / WIP to GL.

Or Shipping Interface that transfers Shipment Lines to AR for Auto-invoicing. What tables will grow when running cost rollups and updates fact: Oracle Cost Management 11.0.3 fact: CMCICU - Update Standard Costs fact: CSTRBICR3 - Cost Rollup

fix: The update standard cost program (CMCICU) CST_COST_UPDATES CST_ITEM_COSTS CST_ITEM_COST_DETAILS CST_RESOURCE_COSTS CST_STANDARD_COSTS MTL_MATERIAL_TRANSACTIONS MTL_SYSTEM_ITEMS WIP_OPERATIONS_RESOURCES WIP_PERIOD_BALANCES WIP_SCRAP_VALUES

updates the following tables:

The assembly cost rollup (CSTRBICR) updates the following tables: BOM_BILL_OF_MATERIALS CST_COST_TYPES CST_ITEM_COSTS CST_ITEM_COST_DETAILS The above tables do not actually grow in size. replaces the records already in the tables.

The updated information

The actual tables that grow will be temp tables, such as: CST_STD_COST_ADJ_TEMP MTL_MATERIAL_TRANSACTIONS_TEMP CST_ROLLUP_DELETE_TEMP, BOM_EXPLOSION_TEMP These tables should be self-cleaning (i.e., they should automatically delete the records after completion of the process). If for some reason they do not, because they are temp tables, truncate them from time to time. 7. Periodic Actions, Reconciliations etc. This is a very important aspect of this document and you need to use your all ex perience while drafting this. Detail out all important periodic actions performe d within this module, give their importance. Attach screen shots, show navigatio ns. Show….. 1. Module opening and closing 2. Data transfer to GL or other module ule, if applicable 3. Proc Proces esse ses s that that are are to be foll follow owed ed on occu occurr rren ence ce of cert certai ain n even events ts (e.g (e.g. . Fill Employee Hierarchy request in PO module)

4. Show Show how how do do you you reco reconc ncil ile e thi this s mod modul ule e wit with h GL. GL. This This is more more appl applic icab able le f or Finance modules; however, equally applicable for some other modules live INV, WIP. 5. Mont Month h End, End, Quar Quarte ter r End, End, Year Year end end proc proces esse ses s to be foll follow owed ed. . 6. Peri Period odic ic Chan Change ge of set set ups ups (e.g (e.g. . Res Reset etti ting ng docu docume ment nt numb number erin ing g in in Pur Purch chas as ing if separate series is to be used for the new year) 7. Chan Change ge of set set ups ups due due to chan change ge in tax tax stru struct ctur ure e (app (appli lica cabl ble e for for Fina Financ nce e modules to fix changes made in Union Budget) 8. Runn Runnin ing g of cert certai ain n repo report rts s to capt captur ure e mont monthl hly, y, year yearly ly data data. . 8. Accounting Entries This needs to be done only for the basic functionalities of the module. Show accounting effects of major transactions within your module. Also show the source (with screen shots) of the account code combinations (CC) used within the accounting entry. e.g. Accounting Entry generated upon Ship Confirm is…. Cost of Goods Sold (Debit)

CC captured from Inventory Parameters

Finished Good Inventory (Credit) CC captured from Sub-Inventory Definition.