Defining Fixed Overheads

Use the Fixed Overheads window to set up and maintain overheads. An overhead is a cost associated with a resource other than the resource usage assigned in the routing. Assume you need a laborer to clean MIXER1 after each use. To account for the cost of cleanup, instead of adding another component cost to each item that uses MIXER1, you can assign a overhead to the items being produced by that laborer on MIXER1. 

The overhead assignment would be the time it takes the laborer to clean MIXER1 multiplied by the cost per hour for the laborer. In addition, you can add other costs into the overhead (for such things as cleaning agents).

To reflect overheads in the cost of a product or an ingredient, first create the overhead using this window. In order to assign overheads to resources, you must first set up a resource to be used as the overhead. As in the example above, this would be the MIXER1 resource. You must then define a cost for that resource. Then, when assigning overheads, you will assign the amount of that resource needed to perform the overhead. As in the example above, you may need to use .25 hours of MIXER1 for cleanup.

The following fields are required on the Fixed Overhead window and must be set up prior to defining overheads. The application where each field is set up is shown in parentheses:

• Item (Oracle Inventory)
• Inventory Organization (Oracle Inventory)
• Calendar/Period
• Cost Type
• Resource (OPM Process Planning)
• Cost Component Class
• Cost Analysis Code
  
  Note: You cannot add new cost overhead information for a period that is closed.

To define fixed overheads:

1. Navigate to the Fixed Overheads window.
2. Enter the Item code for the product or intermediate to which this overhead is assigned. For example, if the product Blue Paint uses MIXER1 as a resource, and you assign a overhead for cleanup of MIXER1 to the process for making Blue Paint, then enter the item code for blue paint.
3. Enter a valid Calendar code. The overhead only applies to this item when associated with this calendar.
4. Enter a valid Period code within this calendar. The overhead will only apply to this item when associated with this calendar/period.
   
   Note: Overhead details in a closed period can only be viewed and cannot be edited.
5. The Cost Type for the specified calendar displays.
6. Base Currency Code displays the base currency of the legal entity. This field is for display only.
   

Overhead Details

7. Enter the code for the Resource overhead. For example, if the product Blue Paint uses MIXER1 as a resource, and you assign a overhead for cleanup after each use of MIXER1, then enter the code for MIXER1.
8. Enter Component Class Code you defined as overhead usage for this resource.
9. Enter the Analysis Code under which this overhead appears in cost details.
10. Enter the number of this resource used in the production of the item inResource Count. For example, if it takes one laborer to cleanup MIXER1 after each use, then enter 1 (laborer). This number is multiplied by the Resource Usage to calculate the total resource usage.
11. Enter the amount of the resource used for this overhead in Resource Usage. For example, if it takes one laborer .25 hours to cleanup MIXER1 after each use, then enter .25.
12. Enter the unit of measure in which this resource is yielded in Resource UOM.
13. Enter the amount of the item yielded in this production process (the item entered in the Item field) during that .25 hours of resource usage in Item Quantity.
14. Enter the unit of measure in which this overhead is measured (for example, pounds) in Item Unit of Measure.

Defining Resource Costs

Define your resources with appropriate units of measure, component classes, and cost analysis codes. To reflect resource costs incurred during production in the product cost, set up routings and define the amount or number of resources used. Outside production, set up overheads to reflect the amount of resources other than the production or ingredients used in the product; you can then include overhead costs in the cost of producing the product.

In either case, you must first define nominal usage costs associated with the resources. You define resource costs for a legal entity and calendar and period basis. The cost component class assigned to the resource, and the currency associated with the organization, are displayed on this window. Prior to defining resource costs, define the resource code identifying the resource.

Resource cost is calculated based on the routing, operation, and overhead definition setup.

Prerequisites

Define Resources

To define resource cost:

1. Navigate to the Resource Cost window.
2. Enter the Legal Entity for which you are defining the resource cost.
3. Enter the code for the Organization for which this resource cost is effective. You can leave the organization field blank, to set up the resource cost for the Legal Entity, or enter the organization to setup for each organization. The resource cost setup at the organization level takes precedence over the cost setup at the legal entity level.
4. Enter the code identifying the Resource for which you are defining costs.
5. Enter the cost Calendar for which this resource cost will be effective.
6. Enter the cost calendar Period for which this resource cost will be effective.
7. If you are displaying costs for a formula item, ingredient, or product, then the Component Class displays the component class associated with the cost shown on this line. This field is display only.
8. Base Currency displays the legal entity's base currency. This field is display only

Cost Details

9. Enter for which cost type this resource cost is defined in the Cost Type field.
10. Description displays the description of the cost type.
11. Enter the Nominal Cost for this resource for using it for one unit of measure. For example, if you are defining the resource cost for a mixing machine, and its usage is measured in hours, then enter the cost of using the resource in per unit.
12. Enter the unit of measure in which usage of this resource is measured in UOM. The default value is the unit of measure initially defined for this resource. You can edit the value within the same unit of measure class. You define the unit of measure for the resource on the Resources window.
13. Status is not used currently.

Selecting Resource Cost

The Resource Cost Selection lets you select the criteria for populating the Resource Cost List window.

To select a resource cost

1. Navigate to the Resource Costs window.
2. Select Resource Cost List from the Actions menu.
3. Enter all or part of a valid cost Calendar code for which the resource cost will be effective.
4. Enter all or part of a valid cost calendar Period code.
5. Enter each Cost Type for this resource, along with the appropriate unit cost.

Selection Range

6. Enter the code for the From Organization for which this resource cost will be effective.
7. Enter the code for the To Organization for which this resource cost will be effective.
8. Enter the code identifying the From Resource for which you are defining costs.
9. Enter the code identifying the To Resource for which you are defining costs.

Viewing Resource Cost List

The Resource Cost List produces a list of all resource costs, by organization. This can aid you in determining if one or more resource costs must be modified.

To obtain a list of resource cost:

1. Navigate to the Resource Costs window.
2. Select Resource Cost List from the Actions menu.
3. Organization displays the selected organization code.
4. Resource displays the selected resource.
5. Description displays the description of the resource.
6. Cost displays the cost of the resource.
7. Unit Of Measure display the initial unit of measure for the resource.

Defining Cost Factors

You can set up the cost factors using the Cost Factors window.

Note: Refer to the Cost Factors Setup in Oracle Purchasing User's Guide for details.

To define cost factors:

1. Navigate to the Cost Factors page. The Cost Factors page appears displaying all of the cost factors.
2. Click Create. The Create Cost Factor page appears.
3. Enter the code for the cost factor in the Code field. This code will appear in the Charge Type list of values in the Shipments Workbench.
4. Select Active for the Status.
5. Enter a name for the cost factor in the Cost Factor Name field.
6. Select the basis for pricing using the Pricing Basis field. Per-Unit appears by default for the pricing basis.
7. Enter the description for the cost factor in the Description field.
8. In the Cost Management region,
   
   1. Select the Allocation Basis for the cost factor. Options are: Quantity, Value, Volume, and Weight.
   2. Select the Cost Component Class and Cost Analysis Code.
   3. Select the Acquisition Cost Indicator as Expense to not apply the cost factor in cost calculations or Inventory to apply the cost factor in cost calculations.
9. Click Apply.

Defining Source and Target Variable Overhead Components Associations

The overhead percentage is applied to each of the defined source component class costs and analysis codes. The result is stored in the target component class and analysis code.

In the source component class field, you can select component classes with the usage types of material. In the target component class field, you can only select component classes with the usage type of Overhead Detail.

The source cost component class, analysis code, and overhead code must be a unique combination. You can map this unique component class and analysis code combination to any target cost component class and analysis code. This flexibility lets the same source cost component class and analysis code to be mapped to different target cost component class and analysis code for different overhead codes. Similarly, different source cost component class and analysis code can be mapped to the same target cost component class and analysis code for different overhead codes.

When the cost rollup process is run, the system looks for any percentage overhead record defined for any of the ingredient items. If a overhead percentage is defined, then the system applies the overhead percentage to the cost of the source cost component class, and analysis code combination of the ingredient item and then posts the amount under the target cost component class and analysis code.

To define source and target variable overhead components:

1. Navigate to the Source and Target Variable Overhead Components window.

Overhead Source

2. Enter the Component Class code that identifies the cost component to be applied to the percentage overhead. In the source component class field, select component classes with the usage types Material, Resource, Overhead, Expense Allocation, or Standard Cost Adjustment. Required
3. Enter the code that identifies the cost Analysis Code to be applied to the percentage overhead.
4. Enter or select a Overhead code to be used where percentage will be applied to the specified cost component.

Overhead Target

5. Enter the code that identifies the cost component to store the result of the percentage overhead as it is applied to the source cost component in Component Class. In the target component class field, you can only select component classes with the usage type Overhead Detail. Required
6. Enter the code that identifies the cost Analysis Code to store the result of the percentage overhead as it is applied to the source analysis code.

Defining Overhead Percentage

You can define the actual overhead percentage value for a given overhead code. The overhead percentage is defined for a given calendar, period, cost types, and overhead code. The overhead entities defined on the Overhead Selection Priorities window is used to define overhead percentages.

This window displays the GL Business Class and GL Product Line fields, if you had selected them as one of the priorities in the Overhead Priorities window.

To define overhead percentages:

1. Navigate to the Overhead Percentages window.
2. The Legal Entity displays. The overhead percentages you define using this window are assigned to the legal entity.
3. Enter the name of the cost Calendar (for example, enter 1997) for which overhead percentage is being defined. Required.
4. Enter the cost Period for which the overhead percentage is being defined. Required.
5. Enter Standard as the Cost Type code to be used. Only the Standard Cost type is supported. Required.
6. Enter or select a Overhead Code for which percentage will be specified. The system then looks for all the entities that have selection priorities assigned to them for the specified overhead code and legal entity for the given calendar and displays them. Choose any values for these priorities for which you are defining the overhead percentage. Required.
   
   Note: Depending on the specified Overhead Code, the system retrieves and displays all the entities that have selection priorities assigned to them on the Overhead Priorities window.
   
7. Enter the Percentage value associated with the overhead code and entities to be applied to items component costs. The cost components that the percentages are applied to are specified in the Source and Target Percentage Overhead Component window. When cost rollup is run, all the items specified for rollup belonging to the specified overhead selection entities will have the specified overhead percentage value applied to the costs. For example, if you enter 4% overhead value for the overhead code SHR, with Organization ORG1 and Inventory Organization WH1. When the cost rollup process is run, all the items belonging to the ORG1 organization and the WH1 inventory organization will have 4% overhead cost added to their costs.

Defining Overhead Priorities

The usage of percentage overhead code is categorized by attaching it to one or more of the following entities in the required order:

• Inventory Organization
• Item
• Item GL Category
• Item Cost Category
• GL Business Class
• GL Product Line

For each entity, you can assign different overhead priorities for a given legal entity code and a percentage overhead code. You can assign numerical sequential values for the given overhead entities. Only the priority entities that have values assigned impact the specific overhead percentage definition. The remaining entities do not appear on the Overhead Percentage window and does not impact cost rollup and how percentage overhead cost is calculated for the percentage overhead code.

To define overhead selection priorities:

1. Navigate to the Overhead Selection Priorities window.
2. Enter the Legal Entity for which you are defining overhead priorities. Required.
3. Enter the Overhead Code for which you are defining overhead priorities. For example, enter SHR for the Shrinkage. Required.

Priorities

4. After the overhead code is entered, the attributes associated with the indicated overhead code are displayed in Overhead Entities. Starting with the number 1 (1=highest priority), enter a priority number next to each field to be used for defining and retrieving costing overhead percentages. If a field does not have a number, it will not be used for overhead percentage definition and retrieval. None of the fields are mandatory but at least one field is required in order for the record to be saved. Do not use the same priority for two fields. Required.
   Following is a list of all attributes:
   
   • Inventory Organization
   • Item
   • Item GL Category
   • Item Cost Category
   • GL Business Class
   • GL Product Line

Defining Percentage Overhead Codes

This window helps you maintain percentage overhead codes, descriptions, usage levels, basis level, and optional descriptive flexfield information. The percentage overhead code contributes to the cost of an item.

The usage level (listed below) specifies at what level cost is affected by the percentage overhead code:

• Applied to Ingredient but added to Product (that is, Consumption)
• Applied to Item and added to itself (that is, Direct or Production)

The basis level lets you specify if the percentage overhead should be applied to this level item cost or to the total item cost.

Based on the selected basis option, the Cost Rollup process applies percentage overhead rules either to this level cost components or to all cost components of the item cost.

If you have already set up percentage overhead codes, then select the basis value for these codes. If you do not select the basis value, then the Cost Rollup process considers Total Cost as the default value and applies percentage overheads to the total item cost.

To define percentage overhead codes:

1. Navigate to the Percentage Overhead Codes window.
2. Enter a unique Code that identifies a percentage overhead. For example, SHR. Required.
3. Enter a description for the code in Description. For example, enter Shrinkage for the percentage overhead code SHR. Required.
4. Usage lets you enter at what level cost is affected by the percentage overhead code. The percentage can either be applied to an ingredient but added to the product or applied to an item and added to itself. Required. The two usage options are:
   
   • Applied to Item and added to itself (that is, Direct or Production)
   • Applied to Ingredient but added to Product (that is, Consumption)
   These options let you add percentage overhead cost to an item when it is either produced or consumed. For example, if Item A has associated overhead costs when it is produced, then a percentage overhead code with the usage indicator "Applied to Item and added to itself" should be defined. The percentage overhead incurred on producing Item A is determined by applying overhead percentage to component costs of Item A and added to the cost of Item A. Similarly, if Item A has a type of percentage overhead cost which is incurred during consumption, then define a separate percentage overhead code with usage indicator "Applied to Ingredient but added to Product". In such a case, any product which uses Item A as an ingredient will have percentage overhead costs added to its cost.
5. Basis lets you enter if the percentage overhead should be applied to this level item cost or to the total item cost.
   
   • This Level Cost - Applies percentage overhead rules to this level cost components of the item cost.
   • Total Cost - Applies percentage overhead rules to all the cost components including this level and the lower level of the item cost.
6. The double brackets ([ ]) identify a descriptive flexfield that lets you add data fields to this window without programming.

Assigning Ledgers

You assign valuation methods to ledgers.

To assign valuation methods or ledgers

1. Select Assign Valuation Methods from the Fiscal Policies window.
   The selected Legal Entity displays.
   The primary ledger and cost type selected in the fiscal policy for inventory valuation display in this window but you cannot change the cost type here.
2. Enter the secondary ledger in Ledger Code.
3. The ledger Description displays.
4. Enter a different Cost Type to use for simulation.
5. The cost type Description displays.

Defining Fiscal Policies

The Fiscal Policy options define the Legal Entity-wide parameters that determine the cost type that will be used for inventory valuation, the default material and overhead cost components and analysis codes for actual cost processing, additional cost types used for costing simulations

Following are the procedures to establish fiscal policy options. The "Event Fiscal Policies” and “Assign Additional Ledger Valuation Methods” topics provide mote details on setting up additional details for a Legal Entity.

To define fiscal policies:

• Navigate to the Fiscal Policies window:

OPM Financials: Setup --> Fiscal Policies

• Enter the Legal Entity name for which you are defining fiscal policy options. Required.
• Enter the name of the default Ledger for this fiscal policy company.
• Displays the Base Currency code for this company.
• Enter the cost type to use for inventory valuation in Valuation Method.
• Indicate if the fiscal policy is based on costs from the previous cost period or the current period in Cost Basis.

Default Material Component

• Enter the default material component that identifies the cost component to be applied to the fiscal policy in Component Class. Required
• Enter the code that identifies the cost Analysis Code to be applied to the fiscal policy.

Default Overhead Component

• Enter the default overhead component that identifies the cost component to be applied to the fiscal policy in Component Class. Required
• Enter the default overhead Analysis Code that identifies the cost analysis code to be applied to the fiscal policy.

Fiscal Policies Actions Menu

• Event Fiscal Policy - The Event Fiscal Policy lets you customize certain features of the Subledger and Journal Update process.

Defining Event Fiscal Policies

This topic describes event fiscal policy.

1. Navigate to the Event Fiscal Policies by clicking the option or selecting it from the Actions menu.
2. Enter the Legal Entity for which you are defining the event fiscal policy. Required.
3. Enter the predefined Event Entity.
4. Enter predefined event class assigned to the event entity in Event Class.
5. Indicate whether purchase price variance is to be recognized for booking inventory at standard cost or at the PO Unit Price in Purchase Price Variance . The valid options are:
   
   • Book INV at Item Cost (PPV)
   • Book INV at Receipt Price (no PPV)
   • Book INV at Invoice Price
   
   Note: If you use standard costing, you can set the PPV option to either book at Item Cost (PPV is generated) or Book at Receipt Price (no PPV is generated for Receipts). If you use Actual Costing, it is recommended that you set the option to Book at Receipt Price for easier reconciliation at month end.
   
6. Landed Cost Charges indicate whether freight, storage, taxes, and special charges accrue to the item's AP account or if it has its own accrual account. The valid options are:
   
   • Accrued to Item A/P Account
   • Accrued to Accrual Account

Defining Costing Organization Associations

OPM maintains separate item costs for each inventory organization. However, you can have a situation in which multiple inventory organizations transact the item, but the item costs in all of those organizations are the same. In such cases, OPM lets you create a costing organization and share it with other inventory organizations.

OPM lets you associate a single costing organization with multiple inventory organizations through costing organization associations. Each association is assigned a date effectivity rage which dictates when the association is valid. OPM uses these associations to determine the organization to which actual cost calculations is updated.

You can establish organization associations for standard or actual costing. Organization associations are not mandatory. Costing organization costs are only effective for items in those inventory organization linked to it.

Note: The start and end dates should encompass a complete Costing Period for which the association needs to be effective. For example, if the Costing Period start on 01-Jan-2006 and ends on 31-Jan-2006, the association effective dates must be 01-Jan-2006 and 01-Feb-2006 to completely include the last day of costing period.

To define costing organization:

• Navigate to the Cost Organization Associations window:

OPM Financials: Setup --> Cost Organizations

• Enter a valid organization code that is the costing organization in Cost Organization. You define organizations on the Organization window. The organization description from the Organization window displays automatically. Required.
• The Legal Entity linked to the organization displays. You cannot edit this field.

Associated Organizations

• Enter the Inventory Organization that you are linking to this costing organization. You can link an inventory organization to one costing organization for a date range. Required.
• The organization description from the Organizations window displays automatically in Name. You cannot edit this field.
• The cost or inventory organization association is effective only during the date range that you enter. Indicate the opening date in the effectivity range in Start Date. Required
• The cost or inventory organization association is effective only during the date range that you enter. Indicate the closing date in the effectivity range in End Date. Required.

Defining Cost Analysis Codes

An individual component cost identified by a particular cost component class can be further broken down using cost analysis codes for more granular tracking of costs. The cost analysis codes are used to group component costs from multiple cost component class types to provide an alternate view of the total cost. For example, you can define direct or indirect analysis codes for each cost component. 

Consider the following example:

• Item: ABC 
• Inventory organization: A 
• Cost Calendar/Period: June, 2001

Component	Analysis	Value
MATERIAL	DIR	$18.765948788
LABOR	DIR	$22.150682432
INDIRECT EXPENSE	IND	$13.502400000
PACKAGING	DIR	$ 5.765980654
Total Item Cost	n/a	$60.185011874

DIR = Direct CostsIND = Indirect Costs

As shown in the example, you can assign the same analysis code to multiple cost components.

Defining Cost Analysis Code

• Navigate to the Cost Analysis Code window. 
• Enter the Code to identify the cost analysis type. For example, DIR for Direct Costs, or IND for Indirect Costs. Required. 
• Enter a Description for the analysis code. For example, enter Value Added or Non-value Added. Required.

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.

Defining Component Groups

Component groups lets you collect specific material and or resource component costs for category groupings (for example, material costs and resource costs). Components groups can be used for custom reporting and analysis.

To define component group:

1. Navigate to theComponent Group window.
2. Enter the Component Group into which material and/or resource costs are collected for reporting purposes. Required.
3. Enter a brief Description of the component group you are adding. Required.

Setting the Period Status

• Select Period Status from the Assign Cost Calendars window.
• The specified Legal Entity and Cost Type display.

Periods Details 

• Enter the Period.
• Enter the Description.
• Enter the date on which this calendar becomes effective in Start Date. Required.
• Enter the date until which this calendar is effective in End Date. Required.

• Never Opened
• Open
• Frozen
• Closed

• Period Status displays the status of each period in the cost calendar.

Flexibility in Restricting Cost Updates

Transactions (regardless of cost type) can be made to Open calendar periods. OPM gives you the capability to Freeze existing costs from further modifications (such as cost rollups, actual cost processing, and cost updates) in a specific calendar period. However, new item cost transactions may be added. You can also Close a period, which prevents any further costing changes to be made within the specified period.

Never Opened: Indicates that the period is not opened for transactions yet. You cannot establish costs or run any cost processes in a never opened period.

Open Periods: The status of each new period you define defaults to Open, which means that all daily transactions can be updated to the period. Each period remains open until the Final Cost Update (see "Cost Update") is run successfully.

Frozen Periods: When you do not anticipate further changes to transactions, you can automatically Freeze the period by running the Final Cost Update. In a frozen calendar period, no further modifications (such as cost rollups, actual cost processing, and cost updates) can be made to existing, updated costs. However, newly-created component cost details can be entered, (selectively) rolled up, then updated and included without affecting those costs already frozen.

Note: You cannot delete the frozen cost periods.

Closed Periods - You should consider closing a costing period only when you are sure that there are no more cost changes to be made. Select Close from the Actions menu to close a costing period.

Closing a period prevents any modifications to be made to the costs within the period, effectively locking them from further changes. No new item costs may be entered, no rollups may be performed, and no cost updates may be performed for the period. You cannot reopen an already closed period for a transaction.

Assigning Calendar to Legal Entity

To assign calendar to a legal entity 

• Select Assignments from the Cost Calendars window. The Calendar and Description are default from the Cost Calendar window. 

Assignments Details Panel

• Enter the Legal Entity to which you want. 
• Enter the Cost Type code to be used as a default for this cost calendar. This is a required field.
• Enter the Description.

Defining Cost Calendars

You maintain costs by defining the costing calendars. A cost calendar can be shared across multiple cost types and legal entities. A cost calendar can span multiple years. For each costing calendar, you can define an unlimited number of costing periods. Each period is assigned a period status to indicate costing activity that is permitted.

• Never Opened - the period was never opened. You cannot establish costs or run any cost processes in a never opened period. 
• Open - all activity is allowed. 
• Frozen - no updates can be made for existing items (however, new item costs can be entered or calculated and their costs updated). 
• Closed - no activity is performed in a closed period. Periods cannot be reopened for costing activity once they are closed. 

The costing calendar is completely separate from the fiscal calendar and the periods therein. Cost Calendars support multiple legal entities and cost type. If you are using the Period Moving Average Cost, then use the same start and end dates for the period as the fiscal financial calendar defined for your Legal Entity’s Primary Ledger in GL

Defining Cost Calendar

To define a cost calendar:

• Navigate to the Cost Calendars window. 

OPM Financials: Setup > Cost Calendars

• Enter the name of the cost Calendar (for example, enter 2007). This is a required field.
• Enter a brief Description of the cost calendar. For example, enter Fiscal Year XXXX
• Enter the date on which this calendar becomes effective in Start Date. Required. 

Cost Calendar Details (Periods Region)

• Enter a code to identify the Period which can be any code you wish. If the cost calendar represents a 12-period fiscal year, you might want to enter 1 through 12. Required. 
• Enter a brief Description of this calendar period. For example, if this is the first period of a fiscal calendar, enter January. Required. 
• Enter the Start Date of this calendar period. 
• Enter the last date of this calendar period in End Date. 

Cost Calendar - Additional Menu Features - Actions Menu

• Close Period - Select this option when you are sure that there are no more cost changes to be made. Select Close Period from the Actions menu to close a costing period and assign it Closed status. Close all the previous periods before closing the current period.

Defining 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.

Defining Cost Types

• Navigate to the Cost Types window.

OPM Financials: Setup > Cost Types

• Enter the Cost Type to represent code that identifies the costing method to be used in cost calculations. For example, enter ACTUAL for actual costing. This is a required field.
• Enter a brief Description of the cost type. For example, enter Actual Costing Type for the standard cost type. This is also a required field.
• Indicate the Cost Method you are defining:

• Standard Cost

• Actual Cost

• Lot Cost 

• Usage indicates if the cost type is for general or lab use. The general usage type is set by default. 

• If you set the usage to General use, then the cost rollup considers only Production and Costing Recipes with Validity Rules at Status 'Approved for General Use' or 'Frozen' for processing. 

• If you set the usage to Lab use, then the cost rollup considers recipes with validity rules with the “Approved for General Use” status and preferred to the production or costing recipes if they exist

The usage field is valid only for the standard cost method only. If you are using the actual or lot cost type, then this field is disabled.

• Raw Material Calculation Type. This field is available only if you are defining the Actual Costing type in the Cost Type field. Indicate the type of raw material cost calculations that occur for this actual costing type. The valid options are:

• Period moving average cost (PMAC) 

• Period weighted average cost (PWAC) 

• Perpetual weighted average (PPAC) 

• Last transaction (LSTT) 

• Last invoice (LSTI)

The type descriptions (shown in parentheses) are abbreviations for these calculation types. The lookup displays both the calculation type and the abbreviation. This field is Required but it is not applicable for Lot Cost type and it is disabled. 

• Product Calculation Type is available only if you are defining the Actual Costing type in the Cost Type field. If you want OPM to derive actual costs for product components, indicate the type of calculations to perform. The valid options are:

• Period moving average cost (PMAC)

• Period weighted average cost (PWAC)

• Perpetual weighted average (PPAC)

The type descriptions (shown in parentheses) are industry standard abbreviations for these calculation types; the lookup displays both the calculation type and the abbreviation.  Product Calculation type are not applicable and they are disabled. 

• Lot Cost Type

• Start Date is only available for Lot Cost types. Enter a start date. The start date is used to collect all transactions that happened after the specified date for lot cost calculation purposes. If this field is left blank, then the Lot Cost process uses all transactions in the system for the legal entity for which the Lot Cost process is run. If you have several years worth of transaction data, a large number of transactions may be processed resulting in poor performance of the Lot Cost process. 

• Alternate Cost Type: Only Standard and Actual cost types are allowed. Under Lot Costing, you can have a subset of lot controlled items costed at the lot level. For other lot controlled items and non-lot controlled items, the alternate cost type is used to determine the cost the items.

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.