Understanding Cost Types

OPM supports Actual, Standard, and Lot costing calculation types for items. Define a cost type as one of the following:

• Standard 
• Actual Cost 
• Lot Cost 

Cost type codes identify specific groups of cost data according to their purpose. You can define unlimited number of cost types in OPM to differentiate the cost type used for inventory valuation versus simulated costs developed for Sales or Management purposes.

Standard Costing

If you select this costing type, then you enter the costs of raw materials, for example, based on estimates. OPM calculates product costs based on formula, routings, recipe details, and other indirect costs such as standard overheads.

The item costs are established for a specific costing period and remain the same during the period. Calculations are based on these standard values, regardless of real costs (that is, actual transaction costs) of items. The standards can be established based on estimates derived from historical information or actual costs calculated in prior costing periods or years.

When inventory is valued in the OPM Subledger, appropriate variances are generated between the standard cost and the actual consumptions and usages recorded on the transactions.

Standard Cost Data

OPM uses the following data to calculate standard costs:

• Formulas 
• Routings 
• Recipes 
• Validity Rules 
• Overheads 

Actual Costing

Actual Costs of items are developed using the actual business transactions. The product costs are not based on the formula, routing and recipe details but rather based on actual consumptions of materials and resource usage recorded in the production batches

The costs are calculated using one of several weighted average or last cost methods by aggregating transactions recorded over a cost period.

The cost calculation method selected for raw materials need not have to be the same as the one selected for products. You can mix and match various methods and decide on a combination that best suits your needs.

Actual Cost Methods Supported

The following are the Actual Cost Types Methods that are supported:

• Period moving average cost (PMAC) 
• Period weighted average cost (PWAC) 
• Perpetual weighted average (PPAC) 
• Last transaction (LSTT) 
• Last invoice (LSTI) 

Last Transaction and Last Invoice methods are supported only for Raw Materials.

Cost Calculations

You can use three different time frames to develop actual Cost averages:

• Current period data only 
• Current period data with the beginning inventory balance 
• Current period data averaged with actual cost data from the beginning of the cost calendar 

For example, assume you have a steady level of production for 10 straight periods in a cost calendar. If production skyrockets in the 11th period, then production costs for that period skyrocket as well.

OPM uses one of the following types to figure raw material cost so that those costs are redistributed and leveled, over a greater period of time:

• Period Moving Average Cost (PMAC) 
• Period Weighted Average Cost (PWAC) 
• Perpetual Average Cost (PPAC) 

Note: With actual costing, items for which there are no transactions in a calendar period will have cost components moved and carried over from the previous period to the current period. This insures that all cost items have an actual cost within the period processed.

You can have raw materials calculated based on Period Weighted Average Cost (PWAC) and products based on Period Moving Average Cost (PMAC).

Actual Costing Basis

The following paragraph describes transactions that are used as basis for actual cost calculations:

Purchase Order Receipts: The raw material estimate price established on a PO is used as the price for receipts

Invoices Recorded in Accounts Payable: The estimated price on a PO can be different from the actual amount paid to the Supplier when an invoice is received. OPM captures the actual, final prices paid for raw materials on the invoices and the price on the invoice overrides the price recorded on the receipt.

Production Batches: OPM calculates the actual cost for a finished product based on actual ingredient consumption and resource usages recorded in production batches.

The product material costs are based on the actual raw material usages in batches and the cost calculated for the raw materials. The product resource costs are calculated based on resource usages and the nominal cost established using resource costs setup.

Expense Allocations: Expenses accrued in General Ledger can be allocated to specific items as indirect overhead costs.

Overheads: You can assign and apply overhead costs to either raw materials or finished goods. The overhead cost calculation for actual cost rollups is identical to that used for standard cost rollups.

Actual Cost Adjustments: Actual Cost Adjustments let you fine tune the final component cost of an item, based on individual business situations.

Options for Smoothing: You can use three different time frames to develop average actual costs:

• Current period data only 
• Current period data average with the ending inventory valuation from the last period 
• Current period data averaged with actual cost data from the beginning of the cost calendar 

For example, assume you have a steady level of production for 10 straight periods in a cost calendar. If production soars in the eleventh period, then production costs for that period also soars.

OPM uses one of the following types to calculate raw material cost so that these costs are redistributed and leveled over a greater time frame:

• Period Moving Average Cost (PMAC)
• Period Weighted Average Cost (PWAC)
• Perpetual Average Cost (PPAC).

Note: With actual costing, items for which there are no transactions in a calendar period will have cost components moved from the previous period to the current period. This insures that all cost items have an actual cost within the period processed.

The raw material calculation and product calculation types can be different. For example, raw materials can be calculated based on Period Weighted Average Cost (PWAC) and products based on Period Moving Average Cost (PMAC).



Inventory Transfers: Inventory can be transferred from one organization to another using a simple Inter-Organization Transfer or usingInternal Orders where necessary supporting documents are required. Actual Cost will consider the inventory transfers between process inventory organizations within the same Legal Entity at the source organization cost. For transfers that go across Legal Entities, transfer price is used. For transfers that originate from a discrete inventory organization to a process inventory organization, transfer price is used regardless of whether the transfer is within or across Legal Entities.

Lot Cost Type

The Lot Costing, also known as Specific Identification Type costing, lets you calculate and store costs at the lot level. Each lot has a unique cost associated with it and it retains this cost until the entire lot is consumed. The lot costs are computed on a perpetual basis, in other words, there is no concept of a cost period as in standard or actual cost methods.

The transactions that are used as basis for lot cost calculations are:

• Purchase order receipts 
• Production batch 
• Overheads 
• Lot Cost adjustments 
• Inventory Transfers 

OPM also supports Lot Split, Lot Merge, and Lot Translate.