Average and Standard Costing in Oracle Apps

Standard and Average Costing Compared

Cost Management offers two perpetual costing methods: standard costing and average costing.

Average costing is used primarily for distribution and other industries where the product cost fluctuates rapidly, or when dictated by regulation and other industry conventions. Average costing eliminates the need to set standards. Average costing allows you to:

value inventory at a moving weighted average cost

track inventory and manufacturing costs without the requirement of having predefined standards

determine profit margin based on an actual cost method

measure the organization's performance against historical costs

include all direct costs of manufacturing an item in that item's inventory cost

Standard costing is used for performance measurement and cost control. Standard costing allows you to:

Defining Oracle Costing Information

   To define costing parameters and accounts:

1. Navigate to the Organization Parameters window.

2. Select the Costing Information tabbed region.

The costing organization that controls the costs in your current organization and the costing method are displayed. These fields are enterable only when you use this window for the first time during system setup. The costing organization can be the current organization itself (thus, it controls its own costs), or it can be the Item Master organization.

See: Cost Structure, Standard Costing, and Average Costing.

Updating Average Costs in Oracle Costing

For average cost organizations only, you can directly update the average cost of items to include additional costs, such as freight, invoice price variances, or job variances. You can update one or more cost elements or levels (this and previous) individually or to the total unit cost. Any change made to the total unit cost is spread to all cost elements and levels in the same proportion as existed prior to the update.