Oracle Cost Mgmt (CST) Overview

 

APPLICATION NAME

SHORT NAME

PRODUCT CODE

APP ID

Cost Management CST BOM 707

 

 

Oracle Cost Management is a full absorption, perpetual, and periodic cost system for purchasing, inventory, work in process, and order management transactions. Cost Management supports multiple cost elements, costed transactions, comprehensive valuation and variance reporting, and thorough integration with Oracle Financials.

Cost Management automatically costs and values all inventory, work in process, and purchasing transactions. This means that inventory and work in process costs are up-to-date, and inventory value matches the cumulative total of accounting transactions.

Cost Management provides flexible cost setup features, including multiple cost elements and unlimited subelements, unlimited resources and overheads, and unlimited activities. You can use one or more of the following cost elements: material, material overhead, resource, outside processing, and overhead. Subelements enable you to analyze costs in greater detail. For example, you can have multiple material overhead subelements, such as purchasing, material handling, freight, duty, and so on. This flexibility enables you to accurately define and maintain costs and associate them with items.

Cost Management provides flexible account setup, including accounts by organization, subinventory, and work in process accounting class so that you can distribute costs to the proper expense accounts and capture valuation in the proper asset accounts.

Cost Management provides comprehensive valuation and variance reporting. Perpetual inventory and work in process balances are maintained on-line. Multiple variances are supported: purchase price, standard cost, cycle count, physical inventory, work in process usage, and work in process efficiency.

Cost Management also provides extensive cost simulation, copying, and editing capabilities that enable you to project costs and keep them accurate.

Cost Management supports flexible period-based accounting that lets you transact in more than one open period at the same time. You can reconcile and analyze one open period while conducting business in a subsequent period. Additionally, you can transfer summary or detail account activity to Oracle General Ledger at any time and close a period at any time.

Costing Methods

Cost Management supports four perpetual costing methods: Standard Costing, Average Costing, FIFO Costing, and LIFO Costing. You can use the Average Costing method for one organization and the Standard Costing method for another organization.

You can use FIFO Costing, which is based on the assumption that the first inventory units acquired are the first units used. You can use LIFO Costing, which is based on the assumption that the last inventory units acquired are the first units used. Cost Management also supports Periodic Costing.

 

Cost Structure

A cost structure is the collection of definitions and methods used to cost inventory, bills of material, and work in process. The cost structure is composed of:

  • Organizations

  • Cost organizations and shared costs

  • Cost elements

  • Subelements

  • Activities

  • Basis types

  • General Ledger accounts

Inventory Organizations

In Oracle Manufacturing, each inventory organization must have a cost structure that you define. Organizations can have their own cost structure or can share attributes of a similar cost structure. See:Defining Organization Access, Oracle Inventory User's Guide .

Before you set up Inventory, Bills of Material, or Work in Process, examine the current cost structure of your organization(s) to determine which costing features and functions to use.

Cost Organizations and Shared Costs

You can share costs across standard cost organizations as long as the child cost organizations have not enabled WIP. You cannot share costs across average costing organizations.

The two item attribute controls, Costing Enabled and Inventory Asset Value, determine whether you share costs. If you plan to share costs across standard costing organizations, then set the control level for these attributes to the item level. The organization that holds the costs is called the cost master organization.

Costs are maintained by the cost master organization and shared by the child cost organizations. All reports, inquiries, and processes use the shared costs. You cannot enter costs into the child cost organizations.

 

Note: The cost master organization can be a manufacturing organization using Work in Process.

 

You can also set up average cost organizations even if you share standard costs with another group of organizations. The average and standard costing organizations can share the same item master organization. However, the average cost organization does not share costs.

For each organization to create and maintain its own costs, set the control level for Costing Enabled and Inventory Asset Value item attributes to the item/org level. Even if each organization holds its own costs, multiple organizations can share the same common item master. See: Defining Items, Oracle Inventory User's Guide.

Cost Elements

Product costs are the sum of their elemental costs. Cost elements are defined as follows:

  • Material - The raw material/component cost at the lowest level of the bill of material determined from the unit cost of the component item.

  • Material Overhead - The overhead cost of material, calculated as a percentage of the total cost, or as a fixed charge per item, lot, or activity. You can use material overhead for any costs attributed to direct material costs. If you use Work in Process, then you can also apply material overhead at the assembly level using a variety of allocation charge methods.

  • Resource - Direct costs, such as people (labor), machines, space, or miscellaneous charges, required to manufacture products. Resources can be calculated as the standard resource rate times the standard units on the routing, per operation, or as a fixed charge per item or lot passing through an operation.

  • Overhead - The overhead cost of resource and outside processing, calculated as a percentage of the resource or outside processing cost, as a fixed amount per resource unit, or as a fixed charge per item or lot passing through an operation. Overhead is used as a means to allocate department costs or activities. For example, you can define multiple overhead subelements to cover both fixed and variable overhead, each with its own rate. You can assign multiple overhead subelements to a single department, and vice versa.

  • Outside Processing - This is the cost of outside processing purchased from a supplier. Outside processing may be a fixed charge per item or lot processed, a fixed amount per outside processing resource unit, or the standard resource rate times the standard units on the routing operation. To implement outside processing costs, you must define a routing operation, and use an outside processing resource.

Subelements

You can use subelements as smaller classifications of the cost elements. Each cost element must be associated with one or more subelements. Define subelements for each cost element and assign a rate or amount to each one. You can define as many subelements as needed.

  • Material Subelements - Classify your material costs, such as plastic, steel, or aluminum. Define material subelements and assign them to item costs. Determine the basis type (allocation charge method) for the cost and assign an appropriate amount. See:Defining Material Subelements.

  • Material Overhead Subelements -

    Define material overhead subelements and assign them to item costs. Determine the basis type for the cost and define an appropriate rate or amount, such as purchasing, freight, duty, or material handling.

  • Resource Subelements - Define resource subelements. Determine the basis type for the cost and define an appropriate rate or amount. Each resource you define is a subelement, can be set up to charge actual or standard costs, and may generate a rate variance when charged. See: Defining a Resource, Oracle Bills of Material User's Guide.

  • Overhead Subelements - Define overhead subelements and assign them to your item costs. Determine the basis type for the cost and define an appropriate rate or amount. Overhead subelements are applied in the routing and usually represent production overhead. You can define overheads based on the number of units or lot moved through the operation, or based on the number of resource units or value charged in the operation. 

  • Outside Processing Subelements - Define outside processing subelements. Determine the basis type for the cost and define an appropriate rate or amount. This subelement is associated with the outside processing cost element and represents service provided by suppliers. Each outside processing resource you define is a subelement, may be set up to charge actual or standard costs, and may generate a purchase price variance when charged. See: Defining a Resource, Oracle Bills of Material User's Guide.

 

Note: Negative item costs are not supported in Oracle Cost Management.

 

Reference: oracle.com