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 Parameters.
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, 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 between
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, they can share the same
common item master. See:Defining Items.
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, 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. See: Defining Overhead.
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.
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. See: Defining Overhead.
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.
Activities
An action
or task you perform in a business that uses a resource or incurs cost. You can
associate all product costs to activities. You can define activities and assign
them to any subelement. You can also assign costs to your activities and build
your item costs based on activities.
Basis
Types
Basis types
determine how costs are assigned to the item. Basis types are assigned to
subelements, which are then assigned to the item. Each subelement must have a
basis type. Examples: one hour of outside processing per basis item, two quarts
of material per basis lot.
Basis
types are assigned to subelements in three windows and, for the overhead
subelement, a setting established in one window may not always be applicable in
another. (This refers specifically to the overhead subelement, not the material
overhead subelement.)
Basis
types in Subelement and Routing Windows
Basis
types assigned to subelements in subelement and routing windows are the
defaults for the purpose of routing. Basis types Resource Units and Resource
Value, when assigned to an overhead subelement (Routing only in the table
below), are available to flow through to routing, but are not available in the
Item Cost window.
Basis
types in the Item Cost window
When you
are defining item costs, for any overhead subelement with a previously assigned
basis of Resource Units or Resource Value, that basis is ignored, and only item
or lot appears in the basis pop-up window. This does not change the assigned
basis for the purpose of routing.
The
following table details the basis types available for use with each subelement.
Basis
Types Available to Subelements
Basis
Type Material Material Overhead Resource
Outside Processing Overhead
Activity
Item
Lot
Resource
Units Routing only
Resource
Value Routing only
Total
Value
Item
Used with
material and material overhead subelements to assign a fixed amount per item,
generally for purchased components. Used with resource, outside processing and
overhead subelements to charge a fixed amount per item moved through an
operation.
Lot
Used to
assign a fixed lot charge to items or operations. The cost per item is
calculated by dividing the fixed cost by the item's standard lot size for
material and material overhead subelements. For routing steps, the cost per
item is calculated by dividing the fixed cost by the standard lot quantity
moved through the operation associated with a resource, outside processing, or
overhead subelement.
Resource
Value
Used to
apply overhead to an item, based on the resource value earned in the routing
operation. Used with the overhead subelement only and usually expressed as a
rate. The overhead calculation is based on resource value:
resource
value earned in the operation x overhead rate
Resource
Units
Used to
allocate overhead to an item, based on the number of resource units earned in
the routing operation. Used with the overhead subelement only. The overhead
calculation is based on resource units:
resource
units earned in an operation x overhead rate or amount
Suggestion:
You may optionally use resource units and resource value to earn material
overhead when you complete units from a job or repetitive schedule.
Total
Value
Used to
assign material overhead to an item, based on the total value of the item. Used
with the material overhead subelement only. Material overhead calculation is
based on total value:
Activity
Used to
directly assign the activity cost to an item. Used with the material overhead
subelement only. The material overhead calculation is based on activity:
Cost
Transfer and Distribution to the General Ledger
All costs
are maintained by cost element. If you assign a different account to each cost
element as you define your subinventories and WIP accounting classes (if you
use Work in Process), elemental account visibility is maintained when
transactions are processed.
If you
are using standard costing and assign the same account to more than one cost
element, you can choose to have the values of these costs elements summarized
before being transferred to General Ledger by setting the CST:Account
Summarization profile option to Yes. You can also choose to have elemental
visibility maintained by setting the CST:Account Summarization profile option
to No. If you are using average costing, elemental visibility is maintained
regardless of how this profile option is set.
