Fusion Cost Accounting Setup

8
Lesson 8: Cost Accounting

Setup
Part 3: Cost Accounting
Supply Chain Managerial Accounting Course
Copyright © 2016, Oracle and/or its affiliates. All rights reserved.

Objectives
After completing this lesson, you should be able to:

• Explain key costing accounting setup tasks
• Set up core Cost Accounting
• Use Quick Setup to configure Cost Accounting
• Explain Subledger Accounting and how it is used by Cost
Accounting
• Identify key decision points when setting up Cost Accounting
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. 8-2
Topics
• Cost Accounting Setup Overview

• Setting Up Cost Accounting
• Using Quick Setup to Configure Cost Accounting
• Subledger Accounting and Cost Accounting
• Key Implementation Decision Points
Cost Accounting Setup Overview
• Methods
– Actual (FIFO) – Cost methods are at the item level.
– Perpetual Average – Default cost methods: Org and item category
– Standard – SetID: Reuse common setup across orgs.
• User-defined Cost Tracking Granularity:
– User-defined cost element granularity: material, landed costs, overheads,
resource costs
– Cost layer granularity: item, lot, serial, subinventory, grade
– Ability to track actual cost and internal profits through the supply chain
– Tracking costs in primary or secondary Unit of Measure (UOM)
• Multiple Cost Books
– Supports multiple currency reporting
– Supports multiple local and regulatory financial reporting requirements
• Rapid Implementation
Key Setup Entities
Entity Definition
Cost Organization A grouping of inventory organizations for the purposes of
administration and cost sharing
Cost Book An entity that acts as a container for cost accounting
data, and can help provide multiple representations of
cost accounting data
Cost Element User-defined level at which costs are tracked
Cost Component Predefined and user-defined costs from external sources
Valuation Structure Definition of inventory control attribute that is used for
sharing costs
Cost Profile Definition of cost accounting policies
Prerequisites
Set up the enterprise structure, including the following:

• Legal entity
• Business units (the profit center setting is mandatory)
• Inventory organizations
• Set IDs (not required if seeded sets are used)
Organization Hierarchy
Cost Org at Business Unit Level
US Inc
US
West
1 Legal Entity Central

Plant 1 Plant 2
WH
1 or 2 BU
Cost Org at Inventory Org Level
Multiple Plants
US Inc
US
West
Central
Plant 1 Plant 2
WH
Cost Accounting Implementation Setup Options
• Manual Setup
– User visits individual UIs to create setups.
– Setups need to be created sequentially.
• Quick Setup
– Uses defaults to create all mandatory costing setups from a
single user interface
– Can be enhanced or modified by users before using them
Topics

Setting up Cost Accounting
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Example
Setup required to
introduce new cost
Setting Up New Cost Organization organization
Shared Setup
Manage
Manage
Cost
Cost
Component
Elements Manage Manage
Mappings Manage Manage Cost
Cost Manage Cost Default
Cost Organization
Profiles Organization Cost
Books Relationships
Manage Profiles
Valuation
Structure
Setups are required only Cost Organization to Cost Organization to

once per Set ID usage. Inventory Organization Cost Book
They can be shared across Relationship Relationship
cost organizations

Cost Elements: Definition
• Definition of costs through user-defined cost elements

• Behavior of cost element determined by element types
• Cost details from source systems captured through cost
components
• Cost components mapped to appropriate cost elements
• Overhead cost elements mapped to expense pools for
overhead absorption
• User-defined views of cost through analysis groups, used for
cost analysis and reporting

Cost Element: Example
Cost Component Cost Element Cost Element Analysis Groups

Type
Marginal Costing Cost Sheet
PO Price Direct Material Material Variable Direct Costs
Non Recoverable Indirect Material Material Variable Direct Costs

Tax
Transfer Price Direct Material Material Variable Direct Costs
Handling charges Overhead Variable Factory

Overheads
Inspection Overhead Fixed Factory
Overheads
Direct Labor Labor Resource Variable Direct Costs

Manage Cost Elements

Demonstration: 8-1
• Creating user-defined cost elements.

Manage Cost Component Mappings
are used to define cost component
groups, which map cost components to
cost elements, and to map source cost
elements to destination cost elements
when items are transferred from one
inventory org to another. The mapping
group is referenced later by item cost
profiles, which are used to specify cost
policies for items.
The Cost Component Codes tab is

used to map cost components from
external sources to a cost element that
was previously created in Costing. For
example, the user could specify that
the Price attribute on a PO is mapped
to a Material cost element in Costing.

The Cost Elements tab is used to map

cost elements in one inventory org to
cost elements in another inventory org.

Valuation Structure: Definition
• A valuation structure determines the level of cost sharing.

– Cost sharing levels: Cost organization, inventory organization,
subinventory, locator, grade, lot, and serial
• A valuation unit is a set of values for the control attributes that
are defined by the valuation structure.
– Example: Inventory organization M1, lot#12233, subinventory
FG
– Created manually or automatically based on valuation structure
definition

Valuation Structure
Valuation Units and Valuation Structure define

Configurable Cost Calculation Levels the level of granularity at which item costs will be
calculated and maintained. These levels could be
a combination of any one or more inventory
Inventory attributes.
Valuation Units Issue Trx
Inventory Org
Subinventory
Lot Valuation Structure

Cost
Inventory Org Processor
Locator Subinventory
Grade
Serial Number
Inventory Org - Miami
Subinventory A $12.00
Subinventory B $9.50
Subinventory C $16.00

Manage Valuation Structures
Manage Valuation Structures is used to specify
the level at which item costs are maintained.
It allows a user to create a costing level by using
previously defined key flexfields. As shown in
this screenshot, the user creates a valuation
structure that is later referenced in a valuation
unit that is associated to items via a cost profile
such that the logistics transactions for those
items costed at the cost org/inventory
org/subinventory level. The available options are
serial, lot, grade, locator, subinventory, inventory
org, and cost org.

Demonstration: 8-2
• Creating a valuation unit and a valuation structure.

Cost Profile: Definition
• Set of attributes that determines the cost computation rules

• Set ID enabled to help share cost profiles across cost
organizations
• Cost calculation levels configured by using a valuation
structure and a valuation unit
• Cost calculation rules:
– Cost method (Standard, Average, and Actual)
– Costing unit of measure (Primary, Secondary)
• Cost granularity through user-defined cost elements (cost
component mapping)
• Defined at different levels:
– Cost organization: Cost book by using default cost profiles
– Item category by using default cost profiles
– Item by using item cost profiles
Cost Profiles: Relationships
Cost Profile
Valuation Structure Cost Elements Cost Policies
• It determines the cost-sharing • Definition of cost breakdown • Cost method

level. • Unlimited cost elements • Costing unit of measure
• One or more of these attributes representing cost granularity (Primary/Secondary)
can be used to share costs: • Behavior of cost element • Policy for handling negative
– Cost Organization determined by element types: inventory, partial completions,
– Inventory Organizations – Material scrap
– Subinventories – Overhead
– Locators – Resource
– Grade – Profit in Inventory
– Lot / Serial

Manage Cost Profile
Manage Cost Profile is used to specify
accounting, cost valuation, cost structure, and
transaction costing rules for items. When a cost
profile is associated to an item in a cost
organization, the resulting association is referred
to as an Item Cost Profile. Asset cost profiles are
associated with asset items. Expense cost
profiles are associated with expense items.

Manage Default Cost Profiles
Manage Default Cost Profiles is used to default a
cost profile when new items are created. It can
also be use d to default a cost profile based on
an item’s category.

Demonstrations: Overview
• 8-3: Creating a cost profile.

• 8-4: Using default cost profiles for newly created items.

Manage Cost Organizations Manage Cost Organizations is used to create or
edit cost organizations, which are a key entity in
Costing. They are used to set cost processing
policies for inventory orgs and items, and to
facilitate application searching and reporting.
This setup creates a Cost Org and specifies the
legal entity it is associated with.

Manage Cost Organization Relationships
Manage Cost Organization Relationships is used

to associate inventory orgs and cost books with
a cost org. The Inventory Org tab allows users to
specify which inventory orgs are associated with
the cost org. An inventory org can belong to only
one cost org.

Cost Books
Multiple Representations of Product Cost
Inventory
Transactions
Cost
Processors
Currency Method Absorption Financial Ledgers
Cost Book 1 USD Average Full Primary Ledger – US GAAP
Cost Book 2 Euro FIFO Full France Euro Reporting
Cost Book 3 USD Actual None Management – Lean
Corporate Reporting Requirements
GAAP Cost Book 1 supports US GAAP reporting that is Lean Cost Book 3 supports Lean reporting
used for external US-based regulatory reporting. that is used for internal “plain English”
performance benchmarking and
reporting.
Euro Cost Book 2 supports European foreign currency
reporting requirements.

Manage Cost Books
Manage Cost Books is used to create cost
books, which are a key entity in Costing. Costing
and accounting are performed in the context of a
cost org-cost book combination. A cost
organization may have one primary and multiple
secondary cost books. This setup simply creates
a cost book name.

Manage Cost Organization Relationships:
Associate Cost Books Manage Cost Org Relationships is used to
associate inventory orgs and cost books to a
cost org. The Cost Book Org tab allows users to
specify which cost books are associated with the
cost org. This setup also allows the user to
specify whether accounting will be created in the
cost book and to specify which costing process
period end validations will be performed in the
cost org or cost book.

Demonstration: 8-5
• Creating a new cost organization and defining cost

organization relationships.

Manage Expense Pools
Manage Expense Pools is used to create
expense pools and to associate them with cost
elements. They are used in downstream cost
accounting reports to group overhead
accounting entries for analysis of the accuracy of
the overhead rates that are used to absorb
overhead in asset and expense items.

Demonstration: 8-6
• Creating a new overhead expense pool.

Topics


Using Quick Setup to Configure Cost Accounting
• Costing setups are

created from a
Create Cost Map Cost
single user Organization (user- Create Cost Book. Organization to
entered name). Cost Book.
interface by using
default values.
• A user is expected
Map Cost Elements
to enter basic Create Cost
Elements.
to Cost Create Cost Profile.
Components.
information, and the
rest is automatically
generated.
• The data that is Create Default Cost
Profile.
Create Valuation
Structure.
created can be
extended and
modified, if
necessary.

Configuring Cost Management Using Quick Setup
User enters Cost

Organization Code, Name,
and Cost Method.
A user enters the following:

• Cost Organization Code
• Cost Organization Name
• Cost Method
The system automatically creates all other setup entities.

Setup Data Created By Using Quick Setup
Entity Pre-seeded Data Comment
Set Enterprise (already set up)
Cost Organization User Entered Value Uses the cost organization

name and code entered
Cost Book Primary
Cost Elements Direct Material
Indirect Material
Direct Equipment
Direct Labor
Manufacturing Overheads

Setup Data Created By Using Quick Setup
Entity Pre-seeded Data Comment
Cost Component Group Default Component Mapping
Cost Profile Codes Standard Costing - Asset Created based

on the cost
Standard Costing - Expense method chosen
in the Quick
Setup UI
Actual Cost - Asset
Actual Cost - Expense
Perpetual Average - Asset
Perpetual Average - Expense
Valuation Structure Cost Org – Inventory Org

Demonstration: 8-7
• Configuring Cost Accounting by using Quick Setup.

Manage Accounting Overhead Rules

Demonstration: 8-8
• Creating a new overhead accounting rule.

Scheduled Processes
• Use primarily for background tasks such as interfacing records

from and to other Oracle applications, cost processing,
creating distributions, and so on.
• Run the Cost Processor from the Create Cost Accounting
Distributions task:
– Set up user-defined schedules.
– Run for several cost organization – cost book combinations.
– Run only for the processes that you want.
– Set up rules for cost cutoff date to manage transaction
processing dates.

Scheduled Processes
Process Name Comment
Transfer Transactions from Inventory to Costing
Transfer Transactions from Receiving to Costing
Transaction Transactions from Payable to Costing

Transfer Transactions from Production to Costing Run from work
execution.
Import Revenue Lines Run from Receivables.

Topics


Using Subledger Application (SLA) for Cost Accounting
Cost Accounting uses Subledger Accounting to create accounting

entries and transfer them to GL.
Transfer to
Source Cost SLA Create
Distributions General
Transaction Transaction Accounting
Ledger

Create Accounting

Demonstration: 8-9
• Running the Create Accounting process.

Review Journal Entries

Demonstration: 8-10
• Viewing SLA accounting entries.

Topics


Decision Points: Cost Accounting
vf/ Decision Drivers
Cost Organization – Inventory 1) What are the boundaries of P&L responsibility within a legal entity? A cost org can
Organization Relationships be as large as a business unit or as small as an inventory organization.
2) Do you need to share costs across inventory organizations?
3) Do you want common control over cost accounting for a group of inventory
organizations?
Cost Organization – Cost Book 1) Do you want to report to secondary ledgers in addition to the primary ledger?
Relationships 2) Do you want to simulate item cost with a different set of cost accounting policies?
3) Do you want to report in another currency?
Cost Organization Set 1) Do items have the same set of policies across cost organizations?
2) Are cost element definitions standardized across cost organizations?
3) Do organizations want privacy of cost policies from one organization to another?
Valuation Structure 1) What should be the level of granularity of average cost?
2) Is there a cost sharing requirement?
3) Consider item attributes – lot enabled items may require lot level costing.
Cost Profile 1) Do items share the same cost policies, such as cost method?
2) Do any items require a special configuration?
3) Do you process expense items in addition to asset items?
Cost Profile Assignment 1) Do all items in a cost org-cost book share the same cost profile?
2) Do all items in an item category in a cost org-cost book share the same cost
profile?
3) Does an item have a specific cost profile?
4) How frequently are new items introduced into supply chain process?

Decision Points: Cost Accounting
Topic Decision Drivers
Cost Analysis Groups, Analysis 1) Do you want to regroup item cost structure into alternate forms to support specific
Codes decision-making scenarios?
Overhead Absorption Rules 1) Are overhead costs incurred for all or specific transaction types?
2) Do different items or item categories require different overheads?
3) Do you want some of the overheads capitalized or expensed?
4) Which expense pools do you want to absorb with your overhead rules?
Scheduling Cost Accounting 1) At what frequency do the transactions need to be cost accounted?
Interfaces and Cost Processes 2) Do you have multiple cost books enabled for the same cost organization?
3) Do you manage cost accounting of multiple cost organizations together?
4) What are the practices during period end to reconcile the inventory valuation and
manage backdated transactions?

Summary
In this lesson, you should have learned how to:

• Explain key costing accounting setup tasks
• Set up core Cost Accounting
• Use Quick Setup to configure Cost Accounting
• Explain Subledger Accounting and how it is used by Cost
Accounting
• Identify key decision points when setting up Cost Accounting

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8

Lesson 8: Cost Accounting

Copyright © 2016, Oracle and/or its affiliates. All rights reserved.

After completing this lesson, you should be able to:

• Cost Accounting Setup Overview

Set up the enterprise structure, including the following:

1 Legal Entity Central

• Cost Accounting Setup Overview

Copyright © 2016, Oracle and/or its affiliates. All rights reserved. 8 - 10

Setups are required only Cost Organization to Cost Organization to

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• Definition of costs through user-defined cost elements

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Cost Component Cost Element Cost Element Analysis Groups

PO Price Direct Material Material Variable Direct Costs

Non Recoverable Indirect Material Material Variable Direct Costs

Handling charges Overhead Variable Factory

Direct Labor Labor Resource Variable Direct Costs

Copyright © 2016, Oracle and/or its affiliates. All rights reserved. 8 - 13

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• Creating user-defined cost elements.

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The Cost Component Codes tab is

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The Cost Elements tab is used to map

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• A valuation structure determines the level of cost sharing.

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Valuation Units and Valuation Structure define

Lot Valuation Structure

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• Creating a valuation unit and a valuation structure.

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• Set of attributes that determines the cost computation rules

Valuation Structure Cost Elements Cost Policies

• It determines the cost-sharing • Definition of cost breakdown • Cost method

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• 8-3: Creating a cost profile.

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Manage Cost Organization Relationships is used

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Corporate Reporting Requirements

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• Creating a new cost organization and defining cost

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• Creating a new overhead expense pool.

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• Cost Accounting Setup Overview

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