Pac White Paper Final

8/6/2019 Pac White Paper Final

1/29

Periodic Actual Cost Processing LogicAn Oracle White Paper

June 2003


2/29

Periodic Actual Cost Processing Logic

Table of Contents1.0 Executive Overview ................................................................................... 12.0 Introduction................................................................................................. 23.0 FUNCTIONAL ASPECTS...................................................................... 24.0 PRE-REQUISITE...................................................................................... 2

4.1 Item Master & Item Validation Org:............................................................ 24.2 Cost Master: ................................................................................................ 34.3 Transaction Types in PAC logic: ................................................................. 3

4.3.1 Cost Owned Transactions: ................................................................... 34.3.2 Cost Derived Transactions................................................................... 3

5.0 PERIODIC COST PROCESSING LOGIC......................................... 36.0 SET UP ........................................................................................................ 5

6.1 Some Basic Setups...................................................................................... 56.2 Organization Cost Groups And Cost Types Matrix: .................................... 56.3 SETUPS...................................................................................................... 6

6.3.1 Basic Assumptions: .............................................................................. 66.3.2 Periodic Costing Setup ......................................................................... 66.3.3 BOM STRUCTURE: ........................................................................... 96.3.4 WORK CENTRE STRUCTURE:....................................................... 96.3.5 RESOURCE / OVERHEAD SETUP ................................................ 9

7.0 BUSINESS SCENARIOS....................................................................... 108.0 WATCH OUT FOR...................................................................................... 279.0 Conclusion: ................................................................................................ 28


1.0 EXECUTIVE OVERVIEW

Oracle Cost Management provides the functionality of Periodic costing in which users can maintain the cost ofthe item at fiscal cost group / Legal Entity level. The objective of this paper is to analyze in detail the functionalityof periodic actual cost processing logic and the basic setup required for implementing periodic average costing.This analysis will be presented in the form of a lab exercise.This paper is intended for users who already have basic knowledge of Oracle Cost Management functionality.


3/29

2.0 INTRODUCTION

Periodic Costing is an option that enables customers to value inventory on a periodic basis. As an option to themandatory perpetual costing system, which uses either the standard or average or FIFO or LIFO costingmethods, Oracle Cost Management provides support for two methods of Periodic Costing:- Periodic Average Costing (PAC)- Periodic Incremental LIFO (Last In First Out)This paper describes in detail the Periodic costing setup and the cost processing logicfortransactions infollowing scenarios:Cost for the Buy Item with invoice Match Option set as At Receipt and with allocated freight Charges.Cost for the Buy Item with invoice Match Option set as At PO and with allocated freight and miscellaneouscharges.Periodic Cost for Assembly Item covering different costing scenarios in WIP like having Assembly Return,Assembly scrap transactions, partial completion etc in a period.

Moreover in this paper we will basically analyze costing of various transactions in a period and how the costprocessor sequence these transactions while calculating the Periodic average cost for the Items.

3.0 FUNCTIONAL ASPECTSThere are three principal objectives of Periodic Costing:To capture actual acquisition costs based on supplier invoiced amounts plusother direct procurement charges required by national legislation or company policyTo capture actual transaction costs using fully absorbed resource and overhead ratesTo average inventory costs over a prescribed period, rather than on a transactional basisCustomers having Inventory organizations that are the same fiscal entity (have the same tax inscription number)need to have the same average cost (legal requirement). This means that to calculate the average cost of an itemthat belongs to more than one inventory organization, the average cost calculation algorithm has to work across allorganizations belonging to the Fiscal Cost Group. The inventory organizations belonging to the same Fiscal CostGroup will then share the costing structure and accounts.Periodic Costing is used by the customers who:Want to incorporate acquisition costs in your inventory valuation, possibly to set standards or update perpetualstandard costs.Are in a country with a fiscal requirement to transact and/or report on inventory costs using one or both PeriodicCosting methods.Note: Periodic Actual Costing is done at the Fiscal Cost Group level.

4.0 PRE-REQUISITE

4.1 Item Master & Item Validation Org:

Item Master Org is the item definition org. All the new organization get its item definitions from Item MasterOrg. It is possible to have a common item master organization across set of books/ Legal Entity / Operating Unit

structure since Inventory does not fall within the multi-org structure (data identification, security, etc is byinventory Organization, not Operating Unit). Also it is possible to assign any item from the Item Master org to thenew org & then change any org-controlled attributes separately in the new org.In our setup we will be using M_O as the Item Master Organization.When you define a multi-org enabled function - i.e. one where the data is segregated & secured by Operating Unit- you have to tell it which items are visible to it.This is achieved by referencing an organization in the set up of the function within the Operating Unit. For AP &PO this is via the Financial Options form. The module (AP, PO, OM etc) will derive information about the item


4/29

from this organization. Some of the information will be Set Of Books related (money values, account codes),some will be Operating Unit related (tax codes). So the values had better be valid for the Operating Unit. So theinventory organization referred to has to belong to the Operating Unit. This org is known as the Item Validationorg.In our setup for Operating Unit O_U we have defined O_1 as the item validation org.So, in summary:

Item Master can be anywhere within the Set Of Books / Multi-org structure. Determines which items can beassigned to your inventory organization.Item Validation must exist within the Operating Unit's SOB. Determines which items can be seen by AP / PO/OM/AR in that Operating Unit.

4.2 Cost Master:

When defining the Inventory Org, you either point to the Item Master org (as Costing Master) or the organizationyou are defining - there's no other choice and it is determined by item attribute settings (control at Master level orOrg level for the costing attributes).However, when WIP is installed you can only have the org be its own cost master.

4.3 Transaction Types in PAC logic:

Basically we categorize material transactions under following categories based on Transaction types:

4.3.1 Cost Owned Transactions:

The Cost Owned transactions carry its own transaction values and can be sub-divided into two sub-groups.a): These transactions will be processed first to calculate the period weighted average item costs (PWAC). Itincludes PO Receipt, Return To Vendor, PO Distribution Adjustment, MISC transactions with a value, and Inter-Organization Transfer.Referred in this paper as Group 1 transactions.b): WIP Scrap, Assembly Return, and WIP Completion. It is Cost Owned transactions, however, it requires toprocess previous level transactions first.

Referred in this paper as Group 1' transactions.

4.3.2 Cost Derived Transactions

Cost Derived transactions use system calculated PWAC which is based on Cost Owned transactions.Referred in this paper as Group 2 transactions.Group 2: Material Inventory Transactions to use above Period Average Costs. It includes Account Issues, WIPissues, Return from WIP, Material Issue, Cycle Count Adjustment, Physical Adjustment, Sub-Inventory Transfer,Sales Order Issues, and MISC transactions w/o a user entered value.

5.0 PERIODIC COST PROCESSING LOGIC

Periodic Costing allows you to cost items from one or more inventory organizations on a periodic basis. This costis based on invoice price if the invoice is available; otherwise, the purchase price is used for purchased items. Formanufactured items, Periodic Costing is the sum of the actual cost of resources and materials consumed.Weighted average actual cost of a manufactured item is a rollup of average actual resource cost, average actualoutside processing cost, average actual material cost and average standard overhead cost incurred up to a specifiedperiod for completing one unit assembly of that item.In Periodic costing WIP Module processes WIP related transactions, charges Materials to jobs and relieves costsfrom the jobs for completion, return or scrap.


5/29

Logically periodic cost processing can be categorized under following phases:a) Compute Acquisition CostThis cost is calculated cost for all purchased items in the period based on receipt-invoice matching. If the invoiceprice is not available, it uses PO price for acquisition cost.b) Current Period Beginning Balance:In general, the last period ending balance is the current period beginning balance. This is used in computing the

current cost of the item in the current period.c) Low Level ComputationIn this phase cost processor fetches items having WIP assembly completion, scrap or returns transactions andcalculate the low level code. The periodic cost manager processes transactions these transactions and other costderived transactions for these items based on low level codes starting from the lowest level.d) WIP Job Information:The WIP cost processor builds resource and overhead information for all relevant jobs. WIP Resource-Overheadcost is calculated based on move transactions quantity completed past each operation for a given job for theperiod and Resource/OSP charges based on periodic rates. For outside processing, the acquisition cost is taken.For each resource/OSP transaction, resource/OSP based overheads are applied to the WIP operation based onperiodic Rates for the resources charged. The move-based overheads are charges based on periodic Rates set up inthe periodic cost type for the inventory organization.WIP cost processor computes the net material quantity issued for this period (This information is build while

processing the component material transaction or backflush transactions). Adds the charges incurred in this periodto the beginning balance for the period (obtained from the prior period run). This is used to get the elemental jobvalue of each discrete job. If a job close transaction lies in the period it flushes out values for discrete jobs. It alsoflushes out the value from all jobs (non standard) that do not have an assembly reference.e) Cost Processing for Group 1 and 2The periodic cost manager initially calculates periodic weighted average cost for all the items having un-costedmaterial transactions, carrying their own acquisition cost (Group 1).While processing cost carrying transactions, they are ordered by transaction date and time.When the manager completes cost carrying transactions, it processes all un-costed cost derived transaction foritems having no completion transactions in the period i.e.. those transactions, which do not require to processprevious level transactions first, using the PWAC calculated above.Then periodic cost manager processes transactions for items having WIP assembly Completion, Assembly Scrap,and Return transactions, since previous level transactions are already processed for these items. Periodic cost

manager fetches remaining cost derived transactions based on low level codes starting from the lowest level.


6/29

6.0 SET UP

Figure 1:Basic Organization Structure

07/02/03

PAC ORG SETUP

S_O_B

Set of Books

L_E

Legal Entity

O_UOperating Unit

O_1

STD Discrete

O_2

Avg Discrete

C_GCost Group

M_OItem Master ORG

6.1 Some Basic Setups

Make Sure you set following Profile Options:GL SET OF BOOKS NAME: To S_O_B at Responsibility Level Your GL responsibility.MO: OPERATING UNIT: To O_U at Responsibility Level (FOR AP/PO/OM.etc).

Make Sure you open the following periods:- GL periods.- Inventory Period- Purchasing Period- Periodic costing Period

Before you start basic setups in Purchasing make sure you need to run Request Replicate seed data.

Now in Purchasing you need to do following setup:- For your User associate it with Employee. Check whether you have

associated this Employee with proper Job & Positions.- Need to associate this User with HR Organization also.- Now in Purchasing you need to setup the values for seeded Document types Standard PO, Standard

Requisition etc.- Need to do setup for Purchasing Options & Financial Options.

In Payables:- Need to do setup in Payables for Payables Option.- Make sure you set the correct Value for the profile MO: Operating Unit for the Payables

responsibility.- In Payables setup set the tolerance value for the Invoices.

In Bills Of Material and WIP- Make sure to set the BOM parameters (level) and WIP parameters for the newly created Orgs.

Please note that these are just few necessary setups, which were required for the scenario covered under thispaper. You might need to do further more setups depending on the scenarios you need to cover.

6.2 Organization Cost Groups And Cost Types Matrix:

Table 1 Organization Cost Group Cost Types Matrix

Cost Type Rate Cost Type Periodic Set of Books

Name Chart of Accounts Functional Currency Calendar Ca


7/29

Peri

MS_PAC MSA_PAC_R S_O_B Operations AccountingFlex

USD Accounting Month

Org Cost Group Cost Type

C_G MS_PAC

6.3 SETUPS6.3.1 Basic Assumptions:

1. There is one and only one Master Item Organization for each Organization type Cost Group.2. All inventory organizations can belong to one and only one Organization type Cost Group.3. When the user define Organization type Cost Group, it must be associated to specific Legal Entity.4. Frozen and Average Cost Types cannot be used for Periodic Costing, and it must be Multi-Org and

Non-Updatable.5. Periodic Rates Cost Type must be Multi-Org and Updatable.6. Cost Types used for Periodic Costing cannot be disabled.7. Organization type Cost Group cannot be disabled.8. Actual Cost extension is not allowed for Cost Derived transactions, WIP Assembly Completion, and

WIP Assembly return.

6.3.2 Periodic Costing Setup

i) Define Organization Cost Group:Create organization cost group MCG1Navigation Path:Cost Periodic Costing Setup Organization Cost Group

Cost group = C_GDescription = Cost Group 1 for L_ELegal entity = L_EItem Master Org = M_OSave.

Figure 2:Organization Cost Group

ii) Associate Organization Cost Group to OrganizationsAssociate organizations to C_G.Navigation Path:

Cost Periodic Costing Setup Cost Group/Cost TypeAssociations

Choose L_E from LOV for legal entity

Folder = Cost Group Associations

If Cost Group field does not display C_G, arrow up or down tohave it displayed.


8/29

Move cursor to Organization column, choose O_1 from LOV.

On next line, choose O_2 from LOV. Save

Figure 3:Org Cost Group / Cost Type Association

iii) Associate Cost Type to Legal Entity

Prerequisite:

1. Create cost types MS_PAC (to hold item cost).

Create cost types MSA_PAC_R (to hold resource and overheadrates)

2. Create calendars MS_PAC_MONTHLY

3. Create Set of Books S_O_B

Associate Cost Type to Legal Entity L_ENavigation Path:Cost Periodic Average Costing Setup Cost Group/Cost TypeAssociations

Choose L_E from LOV for legal entity

Tab = Cost Type Associations

Choose cost type MS_PAC from LOV

Cost Method - Choose Periodic Weighted Average from LOV

Set of Book = - Enter S_O_B or choose set of book from LOV

Periodic Rate Cost Type - Enter MSA_PAC_R or choose fromLOV

Save


9/29

Figure 4:Accounting Options in PAC

iv) Assign Accounts to Organization Cost Group/Cost Type AssociationAssign AccountsNavigation Path: Cost Periodic Costing Setup Periodic

Account AssignmentOpen the first periodic accounting periodCost Periodic Costing Periodic Close Cycle PeriodicAccounting Periods

Legal Entity = L_E (enter or choose from LOV)

Cost Type = MS_PAC (enter or choose from LOV)

Hit Enter or click on Find button

Select period APR-03 and click on Change Status button [This isthe period that you would like to first process Period AverageCosting. It does not have to be the very first period of thecalendar]

Click OK button in Caution window

Figure 5:Periodic Account Assignment

Cost group category level accounts: used to perform periodic inventory accountingbased on categories defined in the master item

organization for the cost group.


10/29

Cost group level accounts: used independently of the category to definevariance and inventory offset accounts.

6.3.3 BOM STRUCTURE:

Basically we will be doing all the transactions based on following Assembly structures for explaining the

periodic cost processing logic:

Figure 6:Assembly Structure for Item P

Assembly P

RS

Figure 7:: Assembly Structure for Item 'Z'

Assembly Z

X Y

6.3.4 WORK CENTRE STRUCTURE:

Figure 8 :: Work Centre Structure for Department D_1

R_m1

Rate :15/ Item

R_m2

Rate : 20 / Item

D-1

6.3.5 RESOURCE / OVERHEAD SETUP

Table 2: Resource / Overhead Details

Resources Basis Usage Availability Rate Cost Type


11/29

15/Item FrozenR_m1 Item 1 Available24Hrs 15/Ite

m

MSA_PAC_R

20/Item FrozenR_m2 Item 1 Available24Hrs 20/Item MSA_PAC_R

10/Item Pending O_m1 Item DepartmentD_1 10/Ite

m

MSA_PAC_R

7.0 BUSINESS SCENARIOS

In this white paper we will be focusing more on Transactions related to Oracle Work in Process. For having moredetails on understanding PAC logic for Purchased Items, users can also refer the white paper Note 236950.1.

To summarize the scenarios we are covering in this paper:Scenario 1: Cost for the Buy Item R & S with invoice Match Option set as At Receipt

Scenario 2: Cost for the Buy Item R & S with invoice Match Option set as At POand withallocated freight charges.

Scenario 3: Periodic Cost Calculation for Assembly Item P

Scenario 3.1: Completing WIP job with a scraped quantity. (Posted as variance at job close)

Scenario 3.2: Effects of Assembly return transaction on Periodic Cost Calculation for Assembly

Item.

Scenario 3.3: Completing WIP job with a scraped quantity (Posted against the scrap account)

Scenario 3.3.1: Doing Scrap transaction at the last Operation.

Scenario 3.3.2: Doing Scrap Transaction in first Operation.

Scenario 3.4: WIP transaction costing for Assembly Item with manual resource transactions

Scenario 3.5: A WIP Component Issue transaction for an Assembly Item:Completing WIP Non-Standard job with assembly associated

Scenario 4 : Effect of Driving inventory Negative in Periodic Average costing.

Scenario 5: Periodic Close Cycle.

Scenario 1: Cost for the Buy Item R & S with invoice Match Option set as At ReceiptStep a)Create PO for Item R for Qty 20 @100 and S for Qty 20 @150.

Receive the PO.


12/29

Figure 9:PO details for Item R & S

Step b) Create Invoice. (Allocated 10$ each as freight charges while creating the invoice with boththe lines of the PO # 9).

Figure 10:Invoice details

Step c) Match the Invoice. Run the Payables Accounting Process for creating Accounting.Periodic acquisition Cost Calculation Logic:Run the acquisition Cost Processor and Periodic Cost Processor and see the PeriodicCost for these items:

Calculation Logic:Acquisition Cost For Item R: -

(Invoice Amount Matched) / Total Quantity Received.= (2010) / 20= 100.5

Acquisition Cost For Item S: -

(Invoice Amount Matched) / Total Quantity Received.= (3010) / 20= 150.5

This will be the Periodic Weighted Average Cost (PWAC) since there is no beginning balanceQty for these Items.PWAC =(Beginning-Balance-Qty*Previous-Period-Acquisition-Cost+ReceivedQty*Acquisition Cost)

-------------------------------------------------------------------------(Beginning Balance Qty + Received Qty)

Figure 11 PWAC for Item R & S

After this we Created another PO for Item R for Qty 5 @105 $ and for S for Qty 5 @ 145 $


13/29

Created the invoice. Match the invoice with invoice amount of 540 and 740 respectively for itemR and S. Re-ran the acquisition Cost Processor and Periodic Cost Processor and now thePeriodic Cost for these items:Calculation Logic:

Acquisition Cost For Item R: -(Invoice Amount Matched) / Total Quantity Received.

= (540) / 5= 108

Acquisition Cost For Item S: -(Invoice Amount Matched) / Total Quantity Received.

= (740) / 5= 148

Now Periodic Weighted Average Cost (PWAC) for these Items will be calculated as follows:PWAC for Item R:

(20*100.5 + 108*5) / 25= 102.

PWAC for Item S:(20*150.5 + 148*5) / 25= 150.

Figure 12 :PWAC for Item R & S

Scenario 2: Cost for the Buy Item R & S with invoice Match Option set as At PO and withallocated freight charges:

Step a) Create a PO for item R for Qty 5 with PO Price as 102$ and Itemfor Qty 5 @150.Make sure that the Invoice Match Option is set toAt PO. Receive the PO.

Step b) Create an invoice. Match the invoice and allocate a freight charge of 10$ each on both the linesof PO 11.

Step c) Rerun the Periodic acquisition Cost Processor and Periodic cost processor to see the effect onthe periodic cost of Item R & S.

Figure 13 PWAC for Item R & S

Calculation Logic:Acquisition Cost For Item R: -

(PO Price) / Total Quantity Received.


14/29

= (510) / 5= 102

Acquisition Cost For Item S: -(PO Price) / Total Quantity Received.

= (750) / 5= 150

This shows that when the Invoice Match Option is Set to At PO then for periodic cost calculationsystem only looks at PO price not the Matched amount in the invoice.Now Periodic Weighted Average Cost (PWAC) for these Items will be calculated as follows: PWAC for Item R:

(25*102 + 102*5) / 30= 102.

PWAC for Item S:(25*150 + 150*5) / 30

= 150.Scenario 3. Periodic Cost Calculation for Assembly Item P

In this section we will be covering following scenarios for WIP transactions:Scenario 3.1: Completing WIP job with a scraped quantity.( Posted as variance at job close )

Step a) Create a Discrete Job for Assembly P for Qty 5 in Org O_1 (Std Costing)Step b)Go to Move transaction form. Scrap 1 Qty at Operation step 10. This will result in scraping

of component associated with this operation i.e.. R and for assembly P(Since the item S is attached to next operation it will not be back-flushed).

Step c) Complete rest 4 qty in the job.

Figure 14 Discrete Job Details

Step d) Rerun the Periodic acquisition Cost Processor and Periodic cost processor to see theEffect on the periodic cost of Item and see the results in Periodic Inventory Valuationreport and Periodic Material and Receiving Distribution Detail Report.

Figure 15 :PWAC for Assmebly Item 'P'

Cost of Item P = (150+102) Material

+


15/29

(15 + 20) Resource+

(10+10) Overhead= 307.

Note: Since we have not specified the scrap account during the scrap transaction, scrap cost

remains in the job and when we closed the job this will be posted as Variance.

Step e) Close the discrete job P_1 so as to post the scrap cost associated with the job asvariance.

Figure 16 : Periodic Actual costing WIP Value Report

Figure 17 Periodic Average Costing Inventory Value Report

Scenario 3.2. Effects of Assembly return transaction on Periodic Cost Calculation for Assembly Item.For covering this scenario we will take another Assembly Item Z for which in the previousperiod PER4-03, we have two Completed Jobs Z_1- in Org O_1 for qty 5 and Job Z_1- in OrgO_2 for Qty 5.

Step a) PWAC for Item Z in PER04-03 = 63.8085 and On-hand =10 Qtys.


16/29

Figure 18 PWAC for Assembly Item 'Z'

This PWAC for Item Z is calculated based on two WIP completion transactions in the CostGroup C_G.

- Completion transaction of Qty 5 in ORG O_1 @67.81- Another completion transaction in ORG O_2 @59.81

Hence PWAC for Item Z =(5*67.81 + 5*59.81) / 10

~ 63.81In periodic costing for calculating Periodic weighted average cost for an Item, cost managerfetches all the transactions existing in a cost group (across Orgs) for the item.

Step b) Current Period (PER6-03)Beginning Balance for item Z = 10 quantityPWAC = 63.8085$.In general, the last period ending balance is the current period beginning balance.

Step c) Now we will do a Misc. Receipt transaction for Assembly Item Z with Transaction Cost65$ for Qty 2 in average costingOrg O_2.

Step d) Re-run the Periodic acquisition Cost Processor and Periodic cost processor to see theeffect on the periodic cost of Item:This calculates the PWAC for item Z =(Beginning Balance Qty*Previous Period Acquisition Cost + Received Qty*Acqu.Cost)--------------------------------------------------------------------------------------------------------

(Beginning Balance Qty + Received Qty)= ( 10*63.8085 + 2*65 )/12= 64.007092$

Step e) Now we will do an Assembly Return transaction against the job Z_1 in Org O_2 forQty 3.The returns are done at the prior periods operation quantity and prior periods relievedcost. Therefore when there is a net return, the charges for this period have no bearing onthe return cost.In our case this return transactions will be costed at prior Periods relieved cost i.e. relievedcost for Job Z_1 in Org O_2 = 59.81Hence PWAC for Item Z will be calculated as :

= (12 * 64.007092 + (-3) * 59.81) / (12 + (- 3))~ 65.4066.


17/29

Figure 19 PWAC for Assembly Item 'Z'

Scenario 3.3: Completing WIP job with a scraped quantity (Posted against the scrap account)

Scrap transactions will be costed at a WIP average cost and will be costed before the completiontransactions so that the completion cost reflects scrap expense.

3.3.1: Doing Scrap transaction at the last Operation.Step a) Create a discrete job P_2 for qty = 5

Step b) Now do a scrap transaction at operation 20 for qty =1

Figure 20 Discrete Job Details for job P_2

3.3.2: Doing Scrap Transaction in first Operation.Step a) Create a discrete job P_3 with qty = 5 .Step b) Now do a scrap transaction at operation 10 for qty =1

Figure 21 Discrete Job Details for job P_3

Since the scrap transactions are done against the scrap account this time there wont be anyvariances posted against the jobs.


18/29

Figure 22 : Periodic Actual Costing WIP value Report

Point to be noted here is that the cost incurred / relieved is different in the two jobs (in spite ofsame quantitys being completed) because of the location where the scrap has been incurred.Now we will see how the cost of the Assembly Item P gets affected by completion of these two

jobs.Rerun the Periodic acquisition Cost Processor and Periodic cost processor to see the effect onthe periodic cost of Item:

Before we created above jobs PWAC for Assembly Item P was 308 and Total On-hand Qty inthe cost group level i.e.. in ORG O_1 and O_2 = 6. We got this PWAC cost because of Misc.receipt transaction for two Qtys of item P @310.

(Beginning Balance Qty*Previous Period Acquisition Cost + Received Qty*Acquisition Cost)-------------------------------------------------------------------------------------------------------------------

(Beginning Balance Qty + Received Qty)(4*307 + 2*310) / 4+2

= 308.Now for Item P we have following transactions in the period:

- Misc Transaction of Qty = 2 @ 310 $ in Org O_2

Figure 23 Distributions in Periodic Costing for Misc. Transaction in Org O_2

- Job ( P_2 ) Completion transaction of Qty 4 @ 307$ in ORG_1


19/29

Figure 24 Distributions in periodic costing for WIP completion transaction for Job P_2

- Job ( P_3 ) Completion transaction of Qty 4 @ 307$ in ORG_1

Figure 25 Distributions in Periodic costing for WIP completion transaction for Job P_3

- WIP Assembly Scrap transaction against job P_2 of Qty 1 @307 in Org_1

Figure 26 Distributions In Periodic Costing for Scrap transaction in Job P_2

- WIP Assembly Scrap transaction against job P_3 of Qty 1 @127 in Org_1

Figure 27 Distributions In Periodic Costing for Scrap transaction in Job P_3

Now, Beginning Balance Qty = 4.

Previous Period Acquisition Cost = 307.Hence, when we run the periodic cost processor, Periodic cost for item P will be calculated as follows:

(Beginning Balance Qty*Previous Period Acquisition Cost + Received Qty*Acquisition Cost)---------------------------------------------------------------------------------------------------------------------

(Beginning Balance Qty + Received Qty)


20/29

(4* 307 + 2*310 +4*307 + 4*307) / 4 + 2+ 4+ 4= 307.42857

Figure 28 : PWAC for Assembly Item 'P'

The Point to be noted here is that Scrap transactions are costed at a WIP periodic average costand are costed before the completion transactions so that the completion cost reflects scrapexpense.

Scenario 3.4 WIP transaction costing for Assembly Item with manual resource transactions:Unclose already closed job P_2 and do manual resource transaction for quantity 1 against this job.

This will result in additional resource variance incurred against the job when the job will be closedagain. Resource rates are picked up from the Period actual rates cost type (periodic rates defined atthe Legal entity cost type level.

Now Re-Run the Periodic acquisition Cost Processor and Periodic cost processor to see the effecton the periodic cost of Item :

The accounting distributions in periodic costing will be created a shown in figure below:

Figure 29 WIP Distributions in Periodic Costing for Job P_2

Distributions for completion transaction for 4 qtys of item P.


21/29

Figure 30 Distributions in Periodic Costing for Assembly Completion for Item 'P'

Distributions for scrap transaction of qty 1 for assembly item P

Figure 31 Distributions in Periodic Costing for Assembly Scrap Transaction for Item 'P'

Now point to be noted here is due to manual resource transaction resource cost incurred for completing5quantity of assembly item P has become 152$ as compared to previous figure of 140.

This is calculated as follows:Net resources charged to the job:R_m1 = 5 @ 15 = 75$R_m2 = 5 @ 20 = 100$R_m1 = 15$ (due to manual resource transaction)

So net resource charges for completing 5 quantity of item = ( 75 + 100+ 15 ) / 5 = 38$This will be the net unit resource cost for this job.

Now in job P_2, completion cost for the Assembly Item P for completing 4 qtys will be :Cost of Item P = (150+102) Material

+(38) Resource

+(10+10) Overhead = 310.


22/29

Hence the Periodic weighted average cost for the item P in period PER6-03will now be calculated asfollows:

(Beginning Balance Qty*Previous Period Acquisition Cost + Received Qty*Acquisition Cost)--------------------------------------------------------------------------------------------------------------------

(Beginning Balance Qty + Received Qty)= (4* 307 + 2*310 +4*307 + 4*310) / 4 + 2+ 4+ 4

= 308.2857.

Figure 32 PWAC for Assembly Item 'P'

Scenario 3.5: A WIP Component Issue transaction for an Assembly Item-Completing WIP Non-Standard job with assembly associated.

Nonstandard discrete jobs are very flexible and can be used to control a wide variety of manufacturingactivities. In this section we will take the scenario of Disassemble assemblies that explain how nonstandard discrete jobs can be used to manage disassembly operations.Disassemble Assemblies:Step a) Define a nonstandard discrete job: Make sure to associate this job with a Expensed

Non Standard Job accounting class.

Figure 33 Discrete Job Details for job P_N_2

Step b) Use the Operations window to manually create a single operation routing with theDisassembly standard operation as the only operation.

Step c) Use the Material Requirements window to manually create the componentrequirements.

The first requirement is "P" assembly itself at the Disassembly operation.Enter Push as the supply Type .Create negative component requirements including the components "R","S".


23/29

Figure 34 Material Requirement Details in job P_N_2

Step d) Use the WIP Material Transactions window to issue the "P" to theNon-Standard discrete job.

Step e) Use the Resource Transactions window to charge resource timeincurred during the dismantling Process.

Step f) Use the WIP Material Transactions window to "WIP Neg Comp Issue " "R" &"S" components.

Figure 35 WIP Negative componet issue transaction

Step g) Now since the disassembly process is over we will change the job status tocancelled no charges.

Figure 36 Job details showing the status as cancelled

When the disassembly process is over and all the components have been returned to inventory,you must change the job status to Cancelledno charges. The cost accountants can run a DiscreteJob Value Report to check all the charges.Step h) Now to analyze the cost for this job, it will have an ending balance for resource

and overhead cost incurred during assembly and disassembly process which will

be written off as an variance when this job is closed or at the period end whenexpense type Non standard jobs are automatically expensed.


24/29

Figure 37 Discrete Job Details report

Step I) To see the effect on periodic cost of the assembly item and its components Re-Run the Periodic acquisition Cost Processor and Periodic cost processorNow due to this Non-standard job, for assembly item P we have anothertransaction for Assembly Item P in the period PER6-03 i.e.. WIP ComponentIssue for Qty 2.

Distributions for this WIP Component Issue Transaction will be as shown below:

Figure 38 Distributions in Periodic Costing for WIP component issue for assembly Item 'P'

Now to analyze the PWAC cost calculation for Item P in this Period PER6-03

This time we will analyze the cost with cost element level details and with emphasis on sequencingof transactions by cost Manager.We have Following Transactions in this Period:i) Misc. Transaction with Qty 2.ii) WIP Completion Transaction with Qty 4 against job P_2iii) WIP Completion Transaction with Qty 4 against job P_3iv) WIP Component Issue transaction for Qty 2 against Non-Standard Job P_N_2. v) WIP Scrap transactions for Qty 1 for Job P_2.

vi) WIP Scrap transactions for Qty 1 for Job P_3.

Now as we have mentioned in our section on PERIODIC COST PROCESSING LOGIC Costprocessor first picks Cost-owning transaction in the period. Then if there are any WIP completionTransaction in the period it processes these transactions as per the low level code starting fromthe lowest level.Note: TL is This Level Cost for assembly and PL is Previous Level Cost.


25/29

i) In our case cost Processor will pick first miscellaneous transaction and will calculate the cost forthe transaction as follows:

Opening Balance Quantity = 4 (From Previous Period)Opening Balance Cost details:-------------------------------------Material Cost TL : 0

Material Cost PL : 252Resource Cost : 35 Prior CostOverhead Cost : 20

Transaction Cost Details:Receipt Quantity = 2

Material Cost TL : 310Material Cost PL : 0 Transaction Cost / Actual CostResource Cost : 0Overhead Cost : 0

New On-hand Quantity = 6

Material Cost TL : (0*4+ 310*2)/6 = 103.33Material Cost PL : (252*4 + 0*2)/6 = 168.0 New CostResource Cost : (35*4 + 0*2)/6 = 23.33Overhead Cost : (20*4 + 0*2)/6 = 13.33

ii) Then Cost Processor will process WIP Component Issue transaction for Qty = 2 .On-hand Qty = 6

Material Cost TL : 103.33Material Cost PL : 168.0Resource Cost : 23.33 Prior CostOverhead Cost : 13.33

Transaction Cost / Actual CostIssue Qty = 2

Material Cost TL : 103.33Material Cost PL : 168.0 Actual CostResource Cost : 23.33Overhead Cost : 13.33

New On-hand Quantity = 6 2 = 4 Qtys

Material Cost TL : 103.33Material Cost PL : 168.0 New CostResource Cost : 23.33Overhead Cost : 13.33


26/29

iii) After this Cost Processor will pick up WIP completion Transactions based onTransaction_id and Transaction_date.

First: WIP completion for Job P_2.On-hand = 4 Qtys

Material Cost TL : 103.33Material Cost PL : 168.0Resource Cost : 23.33 Prior CostOverhead Cost : 13.33

Transaction Cost / Actual Cost for Completion of 4 Quantitys in Job P_2

Material Cost TL : 0Material Cost PL : 252.0Resource Cost : 38.0 Actual CostOverhead Cost : 20

New On-hand Quantity = 8 Qty

Material Cost TL : (103.33*4+ 0*4)/8 = 51.67Material Cost PL : (168*4 + 252*4)/8 = 210 New CostResource Cost : (23.33*4 + 38*4)/8 = 30.67Overhead Cost : (13.33*4 + 20*4)/ 8= 16.67

Second: Completion Transaction for JOB P_3On-hand = 8 Qtys

Material Cost TL : 51.67Material Cost PL : 210.0 Prior CostResource Cost : 30.67Overhead Cost : 16.67

Transaction Cost / Actual Cost for Completion of 4 Quantitys in Job P_3

Material Cost TL : 0Material Cost PL : 252.0Resource Cost : 35.0 Actual CostOverhead Cost : 20

New On-hand Quantity = 8 Qty

Material Cost TL : (51.67*8+ 0*4)/12 = 34.44Material Cost PL : (210*8 + 252*4)/12 = 224.0 New CostResource Cost : (30.67*8 + 35*4)/12 = 32.11Overhead Cost : (16.67*8 + 20*4)/ 12= 17.78


27/29

Hence Periodic Weighted Average Cost (PWAC) for Item P = 34.44 + 224 + 32.11+17.78= 308.333

Figure 39 :PWAC for Assembly Item 'P'

Scenario 4: Effect of Driving inventory Negative in Periodic Average costing:

To analyse this scenario we will take Buy Item X, which has following On-handIn Org O_1 = 24In Org O_2 = 15.PWAC = 10.8085

Figure 40 PWAC for Buy Item 'X'

Now we will do the Misc. issue transaction for Quantity 40, driving Inventory negative at costgroup level.Rerun the Periodic acquisition cost processor and Periodic Cost Processor to see the effect oncost of the item.Again we will analyze the cost for this item with cost element level details and with emphasis onsequencing of transactions by cost Manager.

Opening Balance Quantity = 37 (From Previous Period)Opening Balance Cost details:-------------------------------------Material Cost: 8.78

Material Overhead: 2.03 Prior Cost

Now we have Following Transactions in this Period:a) WIP Component issue transaction for Quantity 1b) WIP Component Return transaction for Quantity 3c) Misc. issue transaction for Quantity 20 without user entered cost.d) Misc. issue transaction for Quantity 4 without user entered cost.e) Misc. issue transaction for Quantity 16 with user entered cost 11$.


28/29

Now as per Periodic cost processing logic, cost Processor will first pick cost-carrying transactioni.e.. Transaction (e) Misc issue for Qty 16 @11.Transaction Cost = 11$Issue Quantity = 16.

Material Cost: 8.56

Material Overhead: 2.44 Actual Cost

New On-hand Quantity = (37- 16) = 21.New Cost:

Material Cost: (8.78*37 + 8.56* (-16))/ (37+(-16)) = 8.94292468760554Material Overhead: (2.03*37 + 2.44*(-16))/ (37+(-16)) = 1.71968929415738

Then Cost Processor will process all the cost derived transactions in the period sequencing asper the transaction_id and transaction_date.Point to be noted here is even if inventory is driven negative periodic cost for all the costderived transactions is taken as prior relieved cost i.e..

Material Cost: 8.94292468760554Material Overhead: 1.71968929415738

Hence total Periodic Weighted Average Cost = 10.6626139817629

Figure 41 PWAC for Buy Item 'X'

Scenario 5: Periodic Close Cycle.Users can close a periodic period when following conditions are satisfied :

a) The GL accounting periods / Inventory periods in all the orgs under the same costgroup should have been closed.

b) There should not be any pending cost transactions in the period, all the three costprocessors i.e.. Periodic acquisition cost processor; Periodic Cost Processor and Periodicdistribution processor should have run successfully.

Cost associated with Non-standard jobs with no assembly will be flushed at the end of theperiod to recognize period expense.

8.0 WATCH OUT FOR

Here are some limitations that users will need to understand.

In Periodic Average Costing Cost is relieved based on the actual transactions as and not the standardrequirements (BOM/Routing). The concept of relieving cost based on standard requirements is germaneto perpetual average costing.

All assembly completion transactions within a period are costed at the same elemental per unit cost. Thiscost will be the average WIP value. However, net returns in a period will be valued at the average ofprior periods relief costs.


29/29

Discrete jobs cost will be flushed when a job close transaction is encountered. Cost associated with Non-standard jobs with no assembly will be flushed at the end of the period to recognize period expense.

For resource of type Person the cost defined in the periodic rates will be used. This is equivalent tosaying that a Person Type resource is costed at the period standard rate because for release 11.5 we donot maintain periodic employee rates.

Completions from non-standard jobs of an assembly will re-average the period cost of that assembly (i.e.they will be treated as product costs in that period). Costs incurred in non-standard jobs that do not havean assembly will be written off to period variances (i.e. they will be treated as period expenses).

A job that is closed in a period before the current period being processed is not propagated to futureperiods. If such a job is later reopened, it will accumulate new charges starting with zero value.

9.0 CONCLUSION:

All the cost carrying transactions are costed first then the cost processor using the periodic weightedaverage cost calculated for the items processes other cost derived transactions in a period.

The periodic cost manager initially fetches all uncosted material transactions and calculate thePWAC based on acquisition cost.

The returns are done at the prior periods operation quantity and prior periods relieved cost. Therefore

when there is a net return, the charges for this period have no bearing on the return cost. In Periodic Costing if inventory is driven negative the Periodic average cost for the item does not become

zero as in perpetual Actual costing, however it is stored at prior periods relieved cost for that item.


June 2003

Author: Mandeep Singh Ahluwalia

Oracle Corporation

World Headquarters

500 Oracle Parkway

Redwood Shores, CA 94065

U.S.A.

Worldwide Inquiries:

Phone: +1.650.506.7000

Fax: +1.650.506.7200

www.oracle.com

Oracle is a registered trademark of Oracle Corporation. Various

product and service names referenced herein may be trademarks

of Oracle Corporation. All other product and service names

mentioned may be trademarks of their respective owners.

Copyright 2003 Oracle Corporation

All rights reserved.

Documents

Pac White Paper Final