Chapter4: Cost Management

4.0Introduction
Cost Management automatically costs and values all inventory, work in process,
and purchasing transactions.
Cost Management provides flexible cost setup features, including multiple cost
elements and unlimited sub elements, unlimited resources and overheads, and
unlimited activities.
Cost Management provides flexible account setup, including accounts by
organization, sub inventory, and work in process accounting class so that you
can distribute costs to the proper expense accounts and capture valuation in the
proper asset accounts.
Cost Management provides comprehensive valuation and variance reporting.
Perpetual inventory and work in process balances are maintained on-line.
4.1Defining cost type
cost type is the set of costs uni!uely defined by name, for standard costing
frozen cost is already predefined.
"rozen standard costing is used to value transactions and inventory balances for
the organization.
To define Cost type#
$avigate to cost Management %esponsibility
&elect set ups
'pen the cost type window
Navigation: Cost Management>Set Up>Cost Type.

() *n the cost type window, +nter cost type $ame uni!ue to your
'rganization.
,) &elect the default cost type as frozen cost
-) Check whether to enable the cost type for multiple organizations
.) Check whether it is available for +ngg
/) &elect the Previous levels options
4.1 Define cost elements
Product costs are the sum of their elemental costs. Cost elements are defined as
follows#
Material
0he raw material1component cost at the lowest level of the bill of material
determined from the unit cost of the component item.
Material Overhead
0he overhead cost of material, calculated as a percentage of the total cost, or as
a fixed charge per item, lot, or activity.
Resoure
2irect costs, such as people 3labor), machines, space, or miscellaneous charges,
re!uired for manufacturing products.
Overhead
0he 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.
Outside !roessing
0his is the cost of outside processing purchased from a supplier.
Su" elements
4ou can use sub elements as smaller classifications of the cost elements.
+ach cost element must be associated with one or more sub elements.
2efine sub elements for each cost element and assign a rate or amount to each
one.
Material Su" elements

Classify your material costs, such as plastic, steel, or aluminum. 2efine material
sub elements and assign them to item costs.
To define Material sub elements
$avigate to Cost Management %esponsibility
&elect the set up function
5o to &ub elements
'pen the Material window.
() +nter a material sub element name and description and repeat the same for
another the sub element and save your work
Resoure Su" element
+ach resource defined is a sub element to the resource, depending the basis
type a rate is defined to each sub element.
$avigate to the %esources window in sub
() 6uery for the resources already defined,
,) Check the whether a standard rate check box is ticked or not
-) 5o to rates
.) &elect a cost type in the Cost type field
/) *n the resource unit cost, enter the unit cost for the resource on item basis.
Overhead Su" elements
2efine overhead sub elements and assign them to your item costs. 2etermine
the basis type for the cost and define an appropriate rate or amount. 'verhead
sub elements are applied in the routing and usually represent production
overhead.
To define Over head su" elements
$avigate to &ub elements and 'pen the 'verhead 7indow.
() +nter the $ame of the overhead in the overhead field.
,) &elect the type of overhead, material or 'verhead.
-) 5ive a description to the &ub element.
.) +nter the basis on which you want to charge this overhead.
/) &elect the rates tab to enter the rate to the overhead.
8) &elect the cost type defined for your organization
9) ssociate the 'verhead to a department and define the per item the
overhead cost.
:) &ave 4our 7ork.
;) *f you want associate this particular over head to resource select the
resource on the 'ver heads window
(<)+nter the resource in the resource column and save your work.
(()&imilarly other overheads for the organization can be defined can be
defined.
Material Overhead
2efine material overhead sub elements and assign them to item costs.
Material overheads can be defined from the overheads window, and associate
this material overhead to the item.
Out side !roessing su" element
.
0his sub element is associated with the outside processing cost element and
represents service provided by suppliers.
fixed rate can be defined from the resource window similar to the labor cost or
machine cost.
4.2 Define item costs
*n order to define the item cost, the cost should be associated with a cost type.
To define item ost
$avigate to the Cost Management %esponsibility
&elect the function *tem costs
'pen the *tem costs window
$avigation# Cost Management1*nventory=*tem costs=*tem cost
() &elect $ew for associating the item with cost type
,) +nter the *tem for which you want to enter the cost
-) ssociate this item with a cost type in the cost type window.
.) &elect the costs tab to enter the item costs
/) &elect the cost element and corresponding sub element and define the
unit cost of the item
4.# $ssem"ly rolls up ost
*n order to perform the assembly cost roll up, >ills of material and routings should
be defined for the assembly or "5 *tem.
full cost rollup first performs a bill of material explosion for assemblies. 0he
rollup process builds the cost of assemblies, starting with the lowest level, and
works up the structure to top-level assemblies. 0his method gives you the most
current bill of material structure and component costs.
To perform the assem"ly ost roll up
$avigate to Cost Management %esponsibility
5o to *tem costs
'pen the ssembly cost roll up.
Navigation: ost Mgmt !es"Item costs"#ssembly cost roll up
$ concurrent re!uest is triggered with three options
Cost roll up-$o report# %olls up costs and commits them to the database? does
not print a report.
Cost roll up-Print report# %olls up costs and commits them to the database? prints
report.
0emporary %oll @p APrint report. %olls up costs but does not commit them to the
database? prints report.
() fter you choose which type of roll up to be made
,) 2efine your ssembly %oll up cost options.
$% *n the Parameters window, select a Cost 0ype. 'nly costs within this cost type
are rolled up.
.) &elect a rollup option.
Full cost rollup: Performs a bill of material explosion for assemblies then
builds the cost of assemblies, starting with the lowest level, and works up the
structure to top level assemblies.
Singlelevel cost rollup: ssign new standard costs to the top assembly,
but not to the lowerAlevel assemblies.
/) &elect the range of items to roll up# ll items, by Category, by %ange of items,
a &pecific item, or Bero cost items only.
9) +nter the effective date and time to determine the structure of the bill of
material to use in the cost rollup. 4ou can use this to roll up historical and future
bill structures using current rates and component costs. 0he default is the current
date and time.
9) *ndicate whether to include unimplemented engineering change orders 3+C's)
in the rollup.
:) &elect an alternate bill name for the assembly to roll up the alternate bills for
the selected range of items. "or example, if you choose ll items in the %ange
field and select A<<( in this field, all items that have a bill associated with that
alternate name are rolled up. 0he primary bill is not rolled up if you select an
alternate bill.
;) &elect an alternate routing name for the assembly to roll up the alternate
routings for the selected range of items. "or example, if you choose all items in
the %ange field and select A<<( in this field, all items using routings with that
routing name are rolled up. 0he primary routing is not used if you roll up using an
alternate routing.
(<) *ndicate whether to include engineering bills in the cost rollup. *f you turn this
on, only assemblies with engineering bills are rolled up. 0he default is $o.
(() &pecify items to roll up#
C*f you selected &pecific *tem in the %ange field, select an item.
C*f you selected Category in the %ange field, select either a category set or
a specific category.
*f you select a category set, item costs are rolled up for items associated
with this category set. 0he default is the category set defined for your
costing functional area.
C*f you selected %ange of items, enter from and to values to specify the
range of items for which to roll up costs.
(,. Choose 'D to submit the re!uest.
$.4 &tandard 'pdate ost .
0he standard cost update procedure enables you to define and roll up pending
costs, simulate changes to standard costs
*f possible, run your cost update at the beginning of your inventory accounting
period before transactions have started for the new period
To 'pdate &tandard 'pdate cost.
$avigate to the Cost Management responsibility
&elect item costs
5o to standard cost update
'pen update costs
Navigation:
ost Management !esponsibility"Item costs"&tandard ost
update"'pdate costs.
@pdates the existing standard costs with the costs created in the new cost type
and creates the resulting adEustment accounting entries.
*f you use 7ork in Process, the cost update revalues discrete Eob balances,
creates accounting adEustments, and prints the adEustments along with the new
Eob values in its report.
() concurrent re!uest will run to update the costs.
,) +nter the parameters for the report.
-) &elect a Cost 0ype. Cost information 3a set of costs for items, activities,
resources, outside processing, and overhead) is copied from this cost type into
the Frozen cost type.
.) &elect an dEustment ccount. 0his account is used to collect the changes in
value to each item, and to automatically
/) 'ptionally, enter a 2escription.
8). &elect an *tem %ange option. 0he options are as follows#
All items: 0his is the default.
Based on rollup items: *tems that have based on %ollup turned on in the "rozen
cost type.
Category: ll items in a selected category.
Not based on rollup items: *tems that have based on %ollup turned off in the
"rozen cost type.
Range of items: %ange of items you specify.
Specific item: &pecific item you specify.
ero cost items: *tems with zero cost in the "rozen cost type.
9) &elect a &ort 'ption for the adEustment report. 0he options are as follows#
!tem: >y item
Category" !tem: >y category, then by item within the category
Sub inventory" !tem: >y sub inventory, then by item within the sub inventory
32efault)
:) *f you selected ll *tems for *tem %ange select an update option either
'verhead, resource, activity, and item costs, or %esource, overhead, and item
costs.
#ver$ead" resource" activity" and item costs:
Resource" over$ead" and item costs:
Activity and item Costs:
!tem costs only:
;). *f you selected Specific item for the *tem %ange, select the &pecific
*tem to be updated.
*f you selected Category for the *tem %ange, do one of the following#
C&elect a Category &et. 0he default is the category set defined for
the costing functional area.
C&elect a specific category.
(<). *f you selected Range of items in the *tem %ange field, select beginning and
ending *tem "rom and 0o values. &tandard costs are updated for all items in this
range, inclusive.
((). *ndicate whether to save details. &electing 4es saves a snapshot of the
inventory and work in process onAhand !uantities cost update details. *f you
select yes, you can rerun the adEustment reports as long as you choose to
maintain the details. 4ou can purge standard cost history to delete these details.