Defining Cost Component Classes

The unit cost of an item is usually broken down into several buckets that can be attributed to the various sources that form the basis of the cost, for detailed tracking and analysis purposes. Cost Component Classes are used to identify the individual buckets or component costs that make up the total cost, for example, direct material costs, freight costs, labor costs, production or conversion costs and so on. 

Any number of cost component classes can be defined and used to break down the item costs. The cost component classes are classified into 5 different elements or usages: Material, Resource, Overhead, Expense Allocation and Standard Cost Adjustment types Costs from several ingredients, routings, overheads, and allocations can be summarized into one or more component classes.

The Cost Component Classes window supports multiple languages (MLS enabled). When you call this window, the Globe icon is enabled. If you have multiple languages installation, then you can select this option to enter the cost component class description in any of the installed languages.

Cost Component Class Examples

In a particular formula, you have two ingredients: one is a dry raw material (assigned a component class code called DRYMAT) and the other is a solution (assigned component class SOLMATL2). When you view the product costs, the Item Cost window shows DRYMAT and SOLMAT as the cost components, each with its respective cost.

You can associate the component class to multiple raw materials. For example, you can assign all dry raw materials to component class DRYMAT and all solutions to class SOLMAT. However, if a formula contains more than one raw material with the same component class, then the costs for each material is summarized and appears once under the component class on the Item Cost window.

For example, a formula containing two raw materials (class RAWMAT) appears as having only one raw material component class on the Item Cost window. The costs for both raw materials are summarized in the total for component class RAWMAT.

To define cost component classes:

• Navigate to the Cost Component Classes window.

OPM Financials: Setup --> Cost Component Classes

• Enter the code to identify the Component Class. For example, enter DRYMAT for raw materials, or SOLMAT for solutions (Required).
• Enter a Description for the component class. For example, enter Raw Materials or Solutions. (Required).
• You have the option of building component class association hierarchies for reference and reporting purposes. The Primary Component Class indicates the primary cost component class with which the component class you are defining now is associated. The default is the class code you specified in the Component Class. You can change the entry.
• Component Group is an optional entry that lets you further group the component classes for analysis and reporting purposes.
• Usage indicates if this cost component classification is being entered for use as a material, overhead, resource, or expense detail from routings. Select one of the following values (Required):
• Material
• Resource
• Overhead
• Expense Allocations
• Std Cost Adjustment 
• Once you set the usage indicator for a component class, it cannot be changed after costs have been defined using this component class.
• Once costs have been created or calculated using a component class, the usage cannot be changed.
• Enter the Sort Sequence for the component class. It indicates the order in which component classes displays on forms and reports. 1 is the first or top line and 2 indicates the second line, and so on. A zero (0) lets the application to determine the sort order. (Required)
• Product Cost Calculation indicator lets you flag those component costs to be excluded from the Cost Rollup process. Certain identifiable costs (for example, transfer costs) are for specific ingredient items, and are not required to be rolled up into the products. The valid values are:
• Include in Product Cost Calculation
• Exclude From Product Cost Calculation 
• Select Exclude From Product Cost Calculation if this is a non-product cost component class. The default, Include in Product Cost Calculation, applies if the component class must be included. This flag is not applicable for Lot Cost.
• Valuation Option indicator lets you identify whether the component class must be used for valuing inventory or not. The valid values are:
• Will be used for inventory valuation
• Will not be used for inventory valuation
• The valid values for Purchase Price Variance are:
• Include in Purchase Price Variance Calculation: Select the Include in Purchase Price Variance Calculation option (default), if the cost for this component class is used in calculating the inventory valuation for purchase price variance (PPV). 
• Exclude from Purchase Price Variance Calculation: Select the Exclude from Purchase Price Variance Calculation option, if the component class must not be used in PPV calculations.

To process indirect component for standard costing:

• Navigate to the Component Classes window.
• Choose Standard Cost Adjustment for Usage.
• After completing the Cost Component Classes window, open the Item Costs window by selecting Item Costs from the Inquiries menu.
• Complete the Item Costs window. Enter the unit cost reflecting the revision or adjustment indicated on the Cost Component Classes window. 
• When you add a new cost, it is recommended that you perform a cost rollup and cost update to calculate the revised unit cost and process the GL financial cost, respectively. See: Cost Rollup and Cost Update.
• Indirect Component Processing for Standard Costing
• When standard costs are used, you can update adjustments or indirect components of standard product costs separately without defining formula routings and/or overhead details. You can identify the standard indirect cost component, update non-direct materials and resources within production batches, and reconcile "batch close" variance at the close of a production batch.