Cost Cut Off Date 001

8/7/2019 Cost Cut Off Date 001

1/37

11i Cost Cutoff Date toRetroactively Cost Transactions

NorCal OAUG 2007 Training Day EventJanuary 17, 2007

Eric Guether

Opnext, Inc.

[email protected]


2/37

Presentation Agenda

Introduction

Business Case & Solution: Cost Cutoff Date

Transaction Examples

Inventory Miscellaneous Receipt Purchasing Receipt into Inventory

WIP Workorderless Completion

Lessons Learned


3/37

Learning Objectives

Learn how to defer costing of transactions throughuse of the Cost Cutoff Date (CCD)

Realize the importance of CCD when updatingstandard costs

Understand lessons learned:

Potential temporary adverse effects on Inventorybalance reports

Impact on intercompany A/R invoicing


4/37

Todays Speaker: Eric Guether

IT Director at Opnext in Eatontown, NJ

Manages Opnexts Oracle EBS 11i system

Provides user support for some 11i modules, OracleAlerts and Discoverer 9i Desktop

Member of OAUG and NJOAUG

Began career as an accountant and then CPA


5/37

Who Is Opnext?

Lasers! Designer & maker of active fiber optic components

Spin-off of 2 Hitachi businesses

Headquarters in Eatontown, NJ

Manufacturing in Yokohama & Komoro, Japan Global sales to customers such as Lucent, Alcatel,

Cisco, Siemens, Kodak, NEC, and Hitachi

Running multiorg, single global instance of EBS 11i

11.5.10.2 (CU2) American English with Japanesenational language support (NLS)

Financials, OM, Inventory, Purchasing, Cost Mgmt.,Discrete MFG & Master Scheduling/MRP


6/37

Examples of Opnext Products

Laser Diode Modules Transmitters Receivers

Transceivers10GbE XENPAK

Modules


7/37

Business Case

Company practice is to update standard costs every 6months as of:

October 1st [Cost Period: Oct. 1, 2006 to March 31, 2007]

April 1st [Cost Period: April 1, 2007 to Sept. 30, 2007]

New costs not finalized 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

At Opnext, standard cost updates typically occuraround April 10th/ October 10th


8/37

Dilemma Before Release 11.5.7

Standard costs in Oracle do not have effective dates

How to value those early April / Oct. transactions atthe new costs after the standard cost update?

Still must value March- / Sept.- dated transactions at

the old period 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 asPending trx resolved on 1st day of new month


9/37

Off-line Workaround in 11.5.3

Record early April / October inventory, WIP, shipping,and PO receiving transactions off-line (outside of EBS11i) until the completion of standard cost updates

Retroactively record (enter) early April / October

transactions in EBS 11i after standard cost updates Issues

Extra, unnecessary work to record offline

Unreliable / unusable inventory quantities in EBS11i for a week or more

Shipping and export documents prepared manually(not via EBS 11i) for a week or more

Violated automated business process controls


10/37

Solution: Cost Cutoff Date

Inventory organization parameter

Introduced in release 11.5.7

Entirely met Opnexts needs

Completely eliminated the need to recordtransactions outside of EBS 11i

Controlled by the simple entry of one Cost CutoffDate for the org


11/37

Parameter Setup

Organization Parameters > Costing Information tab


12/37

Functionality

Intended to keep new period transactions uncosteduntil you finish your standard cost updates for the org

If the Cost Cutoff Date = 01-APR-2007, thentransactions with G/L Date of:

01-APR-2007 or later will not be costed

31-MAR-2007 or earlier will be costed, even ifcreated on or after April 1st


13/37

Cost Update Sequence

Complete all March trx by early April

Valued at current frozen costs = old costs

Begin entry of April-dated trx on 01-APR

Close the March period in early April

Perform std. cost updates (early/mid April) Uncosted transactions are not revalued

Change the CCD to a later date

Example: 01-OCT-2007

Cost Manager then costs all existing April- datedtransactions at updated frozen costs


14/37

When the CCD is deferring the cost of a transaction,the transaction has:

A record on the MTL_MATERIAL_TRANSACTIONStable

Allows the transaction quantities to berecognized 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

Database Perspective


15/37

Example # 1: INV Misc. Receipt

Scenario where CCD will defer costing

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 the cutoffdate of 01-APR-2007

Creation date = 01-APR-2007


16/37

Example # 1 Transaction


17/37

Example # 1 Cost Update

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


18/37

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

Example # 1 Change Cutoff Date


19/37

Example # 1 Distributions


20/37

Example # 1 Chart

Costing deferred until 06-APR

Valued at new cost of $1,000


21/37

INV Trx Affected by 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


22/37

Other Trx Affected by 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


23/37

Example # 2: PO Receiving

Receive & deliver to Inventory (no inspection)

Receive 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 dateof 01-APR-2007

Using the CCD, the receipt is costed at $1.00 per unit,triggering a purchase price variance (PPV) of $-0.10per unit [PO price $0.90 - $1.00 cost]


24/37



25/37

Example # 2 Chart


26/37

Example # 3: Work Order-less Completion

Work Order-less Completion (WOC)

Transaction Type = WIPAssembly Completion

Three Transactions in One

Receive 10 units of final product TRM999 intoinventory

Consume 10 units of component LASER123 frominventory

Create accrual distribution for Outside Processing

(OSP) resource charge

Transaction date 03-APR-2007 > CCD


27/37

WOC: Three Transactions in One

Final Product

Added to Inventory

Component

Consumed fromInventory

Liability Accrued

for Outside

Processing

Charge

WORK ORDER-LESS

COMPLETION


28/37

Example # 3 Costs

Component Standard Cost

$1,200 per unit through end of March

$1,000 starting April 1st (updated on 04-APR)

Outside Processing Charge

$50 per unit through end of March

$30 starting April 1st (updated on 04-APR)

Final Product Standard Cost

Derived from Assembly Cost Rollup $1,250 through end of March [$1,200 + $50]

$1,030 starting April 1st [$1,000 + $30]


29/37



30/37

Example # 3 Cost Rollup


31/37

Example # 3 Results

Transaction costing is deferred in:

INV module for final product completion

INV module for component consumption

WIP module for OSP routing resource charge

Final product costed at new period cost of $1,030


32/37

Lessons Learned: Reports

Opnext Warning! When so many transactions are uncosted for days

or weeks, some INV reports might show inaccuratehistorical balances:

Transaction Value Historical Summary Transaction Balance Historical Summary

Cause: Reports fail to estimate cost of someuncosted WIP and PO Receipt transactions when

backing into historical balance Issue resolves itself as soon as CCD changes and

uncosted transactions become costed

Oracle Support never acknowledged this


33/37

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


34/37

Lessons Learned: Intercompany Invoicing

The Create Intercompany AR Invoices programdoes not create a record until its parent record hasbeen 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 directlydefers the costing of the parent record

Deferring of I/C A/R invoice creation allows Opnext toupdate the price list used for I/C invoicing in earlyApril or October


35/37

Intercompany Invoicing Example

Intercompany InvoicingP

rocess Flow ForJapan Customer Sale Sourced from U.S. Inventory Org

JapanCustomer

J PAN SALESOperating Unit

. Japan Customer

Sales Ordersourced fromU.S. " EI" Org

. CustomerO Invoice

. Product S ipment

glo al drops ipment to

customer fromU.S. " EI" Org

. I C A/R Invoicecreated in U.S. F

. I/C A/P Invoicecreated in

JAPAN SALES

US

ANUFAC URINGOperating Unit

. CustomerPayment

. Payment orI/C Netting

Parent Record:rx type = Salesorder issue

Action = Issuefrom stores


36/37

Price List for I/C A/R Invoices


37/37

Additional Resources

Metalink note # 213628.1: What is the Cost CutoffDate?

Metalink bug # 3585271: INVTRHAN: HISTORICAL DATAQTY=0 BUT THE VALUE IS > 0

Metalink bug # 3480557: 11I INCIAR GETS APP-5706 WHENRUN ON END DATE OF PRICES APP-05706

ORAtips October 2005 Article: 11i Inventorys CostCutoff Date Defer CostingUntil Your Standard Costs

Have Been Updated! by Eric Guether

OAUG Connection Point 2004 presentation:Workorderless Completion for Simple Outside

Processing in 11iWIP by Eric Guether

Documents

Cost Cut Off Date 001