Standard Cost Update

Laura MillerOracle

August 2001

Standard costs for items are usually set once a year, but can be set for a short timeperiod as well, depending on the business rules of the company. Actual costs ofproduction are measured against those standards, and variances are recorded bythe system. These variances are then reported to the General Ledger.

The Cost Update process requires that there is an open accounting period. Theupdate performs the following tasks:

- Moves the cost type to the frozen cost type- Creates item cost history- Submits adjustment reports- Creates accounting transactions- Can save update details for rerunning the adjustment reports

The variance amount that is created during the standard cost update is the newstandard cost minus the old standard cost. The actual cost of items is known, but itis not used for inventory purposes. The standard cost is determined by a companyto reflect all the costs of an item for a time period. This is the agreed on price thatwill be used for all reports and uses until the standard cost is updated.

If sharing costs across organizations, the cost update program automatically re-values on-hand balances in the organizations that share costs. The costs can onlybe updated from the master costing organization, which must be using standardcosts. If using Work in Process, the cost update re-values discrete job balances,and creates accounting adjustments.

Standard Cost update prints three reports:

Inventory Standard Cost Adjustment Report (CSTRUSIA)Intransit Standard Cost Adjustment Report (CSTRUSTA)WIP Standard Cost Adjustment Report (CSTRUSJA)

Purchased items use material and material overhead cost elements. For theseitems, resource costs are not used because these items generally do not consumeresources.

For items that have existing transactions, the frozen cost cannot be entered andsaved. The item must have a pending cost defined, and then the cost update isused to transfer the pending cost to the standard cost. Also, if the item is already ona bill of material that will be rolled up at a later time, then it is not necessary to createthe frozen cost for the purchased item.

Note: The Use Default Cost/Controls on the item cost screen must be set to NOwhen trying to create a pending cost if transactions already exist.

Manufactured items use the Bill of Material and routings to gather costs. A costrollup will compile all the cost of an assembly. These rolled up costs are thenupdated to standard costs. In addition to material and material overhead costelements, the costs of resources, overhead and outside processing are added tothe manufactured item. These are included in the overall cost of the item.

There are two seeded cost types in the system. Users can add as many cost typesas required, but these two type are seeded and cannot be deleted.

Frozen - These are the standard costs of items. These costs cannot berolled up because these are the end cost; the destination of rollups.

Pending - These costs are created when there are new parts or when theuser wants to add new costs ahead of the regular year end cost update.These costs are separate from frozen costs and can be transferred to frozenat any time by using the cost update process.

Rollup pending costs (or any other cost type), then perform the standard cost updatefrom pending to frozen. This will set the desired standard to be used for thespecified time period.

The item costs are broken down by these elements in subinventories and in Work inProcess. These costs can be broken into cost sub-elements for more detail:

Material - Raw material costs

Material Overhead - Extra costs associated with purchased items i.e., freight costs

Resources - People or machines used in manufacturing i.e., labor costs

Overhead - General costs of doing business i.e., depreciation, utilities

Outside Processing - Costs of subcontractor services i.e., painting

To divide costs across a business, subinventories and WIP classes are used. Eachhave their own set of accounts to hold costs. These accounts are setup in theorganization parameters.

WIP classes have two accounts: one for costs and one for variances. The first is thestandard cost, and the second is for the difference between the actual cost and thestandard cost. The Discrete Job Value report shows the costs incurred, the costsrelieved, and the resulting variances. This report can be used prior to closing jobs

to review variances that may occur for job closes and make the appropriateadjustments prior to the job close.

A WIP class is required for each type of workorder -- standard, asset non-standard,expense non-standard. A default class can be set in the parameters, but a WIPclass is mandatory.

Resources also use accounts to track the costs. Two accounts are used:

Variance account - This would be used if an actual rate was being enteredagainst a job. This is generally not done. The standard rate is used andrecorded against the WIP class.

Absorption account - This is used the most. It is credited by any resourceusage, i.e. labor. It is debited from other systems outside manufacturing, i.e.,payroll.

** It is best to run the cost update at the beginning of an inventory accounting periodbefore new transactions start for the period.

The cost transaction processors must be started before entering transactions. Ifthese are not started, then transactions will not be processed properly and will needto be resubmitted. All accounting processing uses the following processors:

Material Cost Transaction processor - Used by Inventory itemsResource Cost Transactions processor - Used by WIP transactions

These can be activated in the Request Interface Managers form:

Inv > Setup > Transactions > Interface Managers Special > Launch

The Cost Manager is a concurrent process that spawns workers that process thetransactions. The Cost Manager runs in the background at a set interval. Whentransactions are available for processing, the Cost Manager spawns theappropriate worker:

The Material Cost Worker validates costing data. If the data is okay, thecosted_flag is set to NULL and the rows are inserted into theMTL_TRANSACTIONS_ACCOUNTS table. These can then be transferred to thegeneral ledger. If the data is not okay, then the costed_flag is set = N or E and mustbe fixed and resubmitted for processing.

The Resource Cost Worker validates data and moves it toWIP_TRANSACTION_ACCOUNTS for transfer. If the data cannot be validated,

then the transactions will remain in the WIP_COST_TXN_INTERFACE table andwill need to be resubmitted.

Standard Cost update can be submitted even when running transactions, sinceaccounting transactions occur in a batch process. When submitting the cost updateit: will turn off the accounting, perform the revaluation and after completing therevaluation, it resubmits the accounting processors. Standard Cost Update isincompatible with Period Close, Job Close and GL transfer processes.

Steps to perform Standard Cost Update:

1. Rollup costs

2. Before running cost update, print and review reports:

The Standard Cost Adjustment Report shows the valuation changes forinventory, intransit, and work in process. This report can sort by item,category or subinventory.

The Cost Type Comparison Report displays differences in item costs for anytwo cost types. Comparisons can be performed on cost elements andsubelements, activities, operations, as well as this level/previous level costs.This report can be run for specific item, range of items or categories. Thereport can also include percentage cost differences, absolute amounts, orminimum unit costs.

3. Update to frozen costs.

This process copies the pending cost to frozen costs and prints the costupdate reports.

Options to update:- all costs to include a combination of overhead resource activity and

item costs- for specific item- range of items- specific category- zero cost items- items whose costs are based on rollup- items whose costs are NOT based on rollup

**Note: The update process commits to the database and changes the valueof inventory. It is recommended that this responsibility be assigned a highlevel of security. The Maintain Cost History Privilege must be included in theuser’s responsibility to perform this process.

4. Specify the general ledger account.

This is used by cost management to collect the changes in values andgenerate transactions that adjust the inventory accounts. Inventory is adjustedby subinventory and elemental cost accounts. WIP is adjusted by job andcost element accounts. WIP accounting class defines the adjustmentaccount used for discrete jobs.

5. Cost History

This is a history of each item that is in inventory. The history is held for eachcost update. This history can be viewed for each item in total and by costelement. This history can be purged when it is no longer needed.

Note: The Privilege to View Cost security function must be included in theuser’s responsibility to view the cost history.The Privilege to Maintain Cost security function must be included as part ofthe user’s responsibility

6. Cost Adjustment Reports

If the save option is chosen when running cost update, then the inventory andWIP on-hand quantities are saved. This can then be reprinted. This can beviewed using the View Standard Cost Update form. These reports can bepurged when no longer needed

Note: The Privilege to Maintain Cost security function must be included aspart of the user’s responsibility

Common Problems after running the Cost Update:

• The user has run cost update but not all costs have changed.

Explanation: Have not carried out the full procedure

Solution: 1 - Copy frozen costs to a new cost type 2 - Update the new cost type

3 - When happy compare with frozen costs4 - Update standard costs from new cost type

• Using the Discrete Job Value report and the detail and summary amounts, theydo not agree after a cost update although the total variance does.

The detail information (material & resources) is based on theCST_ITEM_COSTS table. The summary information is based on theWIP_PERIOD_BALANCES table. When you perform a cost update,the system updates the CST_ITEM_COSTS table to get the new values.

Since Cost updates do not update closed jobs, if you then print Discrete JobValue report for 'closed' jobs, then the summary and details differ. This isbecause Oracle WIP produces the Discrete Job Value report, when a discretejob is closed.

• Updating Standard costs and getting errorAPP-20501 CMCICU :error processing in main()

The current Inventory accounting period must be open in all child organizationsthat correspond to the master when updating costs for the master organization.

All child organizations must have the current Inventory Accounting period openwhen running a cost update for a master costing organization.

• Updating Standard costs and getting errorAPP-20501 CMCICU: error processing in mainThe logfile reveals: APP-20502 cmlogi has detected an internal data error

Check to see if one of the Inventory organizations has been disabled.

• If the standard cost update program is aborted then performance issues canoccur. Since costs are inserted with a cost_type_id = negative update_id andthen the changes occur, then the cost_type_ids will stay in the system. Runningthe following scripts can help keep the tables clean and increase performance:

delete from CST_ITEM_COSTSwhere cost_type_id <0;

and

delete from CST_ITEM_COST_DETAILSwhere cost_type_id <0;