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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 .