costing

Oracle Process ManufacturingCosting Methods

A.F.Ferguson & Co.

Agenda

• Overview of Costing Methods

• Procure to Pay Accounting Entries

• Material Issuances & WIP Accounting Entries

• Sale Order Issue Accounting Entries.

Overview of Costing Methods

Overview of Costing Methods

Oracle provides following costing methods for valuation of Finished Goods.

Periodic Moving Average Cost (PMAC)

Periodic Perpetual Average Cost (PPAC)

Periodic Weighted Average Cost (PWAC)

Periodic Moving Average Cost (PMAC)

• OPM calculates the average cost for the period while moving previous period's cost with last period's inventory balance and cost:

• PMAC is calculated by dividing the result of -- the quantity of the prior period inventory balance multiplied by the prior period cost, plus the sum of the transaction quantity multiplied by price -- by the prior period inventory balance plus the sum of transaction quantity, as shown in the following illustration.

• Where:

• Prior Period Inv Balance - This is the prior period inventory balance.

• Prior Period Cost – This is the prior period actual cost.

• Trans Qty - Receipt Transaction Quantities within the costing period.

• Price - Receipt estimated prices or AP invoice final prices within the costing period.

PMAC (Example)

Periodic Perpetual Average Cost (PPAC)• The perpetual weighted average cost type computes the

average cost for the entered receipts and quantities within the defined boundaries of the cost calendar.

Where;

• Trans Qty - Receipt Quantities from the start of the costing calendar to the end of the current period.

• Price - Receipt estimated prices within the costing calendar.

PPAC (Example)

Periodic Weighted Average Cost (PWAC)• This is the strict average cost of the raw material during the period, based on

the total estimated receipt (or invoiced) price for the entire inventory quantity. The period weighted average cost is a strict average cost for the period based on Period Total Quantity and Estimated or Final Prices.

• PWAC is calculated by dividing -- the sum of the transaction quantity multiplied by price -- by the sum of transaction quantity, as shown in the following illustration:

• Where:

• Trans Qty is Receipt Quantities or AP interfaced quantities within the costing period

• Price - Receipt estimated prices or AP invoice final prices within the costing period

PWAC (Example)

Cost Components

• Material Cost

• Resource Cost

• Overheads Cost

• Cost Allocated through GL Expense Allocations.

• Invoice Price Variance

• Exchange Rate Variance

• Unit Cost Adjustments

Example• Material Cost in Ammonia can be derived from following: Natural Gas feed

Natural Gas fuel

Steam

Process air

Demin water

Electric Power

instrument Air

Plant Air

cooling water

Nitrogen

Catacarb-400 H

Catacarb-100 H

Antifoam-WBU

Potassium Carbonate

hydrazine

Trisodium phosphate

Activated carbon

• Resource Cost can be used to track cost of a particular resource

• Cost Allocated though GL Expense Allocation will include;

Salaries Basic

Overtime

Cash Benefits

Retirement Benefits

Insurance

Depreciation

Natural Gas - Fixed charges

PFL Foreign Eng./ Tech

Maintenance Stores & POL

Hired Labour

Travelling

Overview of Procure to Pay Entries

Brief Overview of Procure to Pay Entries• Enter PO: Accounting Impact Nil

• Enter a receipt:

Inventory Receiving Account-Dr.

AP Accrual Account-Cr.

• Delivery to Stock:

Inventory Account-Dr.

Inventory receiving account-Cr.

• Enter PO Matched Invoice:

AP Accrual Account-Dr.

Supplier Liability Control Account-Cr.

• Enter payments against the invoice:

Supplier Liability Account-Dr.

Cash / Bank Account-Cr.

Material Issuances & WIP Accounting Entries

Miscellaneous Receipts, Account Receipts, Account Alias Receipts

Account Title Debit Credit

Inventory [Transaction Qty x Organization Total Item Cost]

Offset Account [Transaction Qty x Organization Total Item Cost]

Account Title Debit Credit

Inventory [Transaction Qty x Organization Total Item Cost]

Offset Account [Transaction Qty x Organization Total Item Cost]

Miscellaneous Issue, Account Issue, Account Alias Issue

WIP material chargingJournal Line Type Debit Credit

INV [Actual Ingredient Input Qty x Batch Organization Total Item Cost]

WIP [Actual Ingredient Input Qty x (Organization Item Total Material Cost)]Resource charging

Journal Line Type Debit Credit

RCA [Actual Ingredient Input Qty x Batch Organization Total Item Cost]

WIP [Actual Ingredient Input Qty x (Organization Item Total Material Cost)]

Completion entryJournal Line Type Debit Credit

INV [Actual Product Output Qty x Organization Total Item Cost]

WIP [Actual Product Output Qty x (Organization Item Material Cost + Organization Item Resource Cost)]

OVH [Actual Product Output Qty x (Organization Item Overhead Cost)]

ALC [Actual Product Output Qty x (Organization Item GL Allocation Cost

Accounting Entries for Average Cost AdjustmentAccount Title Debit Credit

INV Adjustment Quantity * (Adjustment Cost - Item Cost)

CAD Adjustment Quantity * (Adjustment Cost - Item Cost)

Accounting Entries for Value AdjustmentAccount Title Debit Credit

INV Adjustment Value

CAD Adjustment Value

Accounting Entries for Unit Cost Adjustment

Account Title Debit Credit

INV Actual Cost Calculation Quantity * Unit Cost Adjustment

CAD Actual Cost Calculation Quantity * Unit Cost Adjustment

Sale Order Issue

Accounting Entries in case of Sale Order IssueJournal Line Type Debit Credit

Deferred COGS Transaction Qty x Item Cost

INV Transaction Qty x Item Cost

Journal Line Type Debit Credit

COGS Transaction Qty x Item Cost

Deferred COGS Transaction Qty x Item Cost

Costing Method Finalized in FFCL

• PMAC is the finalized costing mechanism in Fatima Fertilizer Company .