As an option to the mandatory perpetual costing system, which uses either the standard or average or FIFO (First-In First-Out) or LIFO (Last-In First-Out) costing methods, Cost Management provides support for two methods of Periodic Costing:
Periodic Average Costing (PAC)
Periodic Incremental LIFO (Last-In First-Out)
Periodic Costing is an option that enables you to value inventory on a periodic basis. There are three principal objectives of Periodic Costing:
To capture actual acquisition costs based on supplier invoiced amounts plus other direct procurement charges required by national legislation or company policy
To capture actual transaction costs using fully absorbed resource and overhead rates
To average inventory costs over a prescribed period, rather than on a transactional basis
You must set up a perpetual costing method (standard or average or FIFO or LIFO) for each inventory organization that you establish in Oracle Inventory. In addition, you have the option to use Periodic Costing.
You can choose to create Periodic Costing distributions and send them to the General ledger after a Periodic Costing run. You can also disable the perpetual costing General Ledger transfer, electing instead to produce accounting entries only after a Periodic Costing run.
Prior to Release 12, the Periodic Cost Processor computed the assembly unit cost based on actual quantities issued to the job, and not Bills of Material (BOM) requirements. You now have the option to adopt BOM requirements in PAC costing. With the functionality for defining an item as lot-based made available in BOM, the Periodic Cost Processor supports lot-based components.
Oracle maintains the perpetual system and the periodic system (if one is enabled) separately and produces separate reports.
You may want to use Periodic Costing if:
You want to incorporate acquisition costs in your inventory valuation, possibly to set standards or update perpetual standard costs.
You are in a country with a fiscal requirement to transact and/or report on inventory costs using one or both Periodic Costing methods.
Periodic Costing lets you cost items from one or more inventory organizations on a periodic basis. This cost is based on invoice price if the invoice is available; otherwise, the purchase price is used for purchased items. For manufactured items, Periodic Costing is the sum of the actual cost of resources and materials consumed.
Acquisition Costing: The Periodic Costing processor uses acquisition costs (including additional charges such as freight, customs, and insurance) to value receipts and returns. If no invoice is matched to the receipt at the time the cost processor is run, the PO price is used. You can view receipts that use PO Cost and make any corrections necessary.
Full Absorption: Using periodic rates cost types, you can create rates that fully absorb resource and overhead costs. The Periodic Cost processor uses these rates to cost Inventory and Work in Process (WIP) transactions.
Shared Periodic Costs: You can share Periodic Costs across a group of inventory organizations within a Legal Entity. Perpetual cost methods for the individual organizations in the legal entity can be a mixture of standard cost and average cost.
Reports: In addition to inventory valuation reports, you can run reports to see the detailed cost of receipts and identify receipts that used the PO price instead of the invoice price.
Flexible use of Cost Methods: You can use either or both Periodic Incremental LIFO and Periodic Average Costing to cost the inventory transactions of a period. You can view the results and produce inventory valuation reports using either method.
Periodic Costing Distributions: You can choose to post periodic distributions or perpetual costing distributions to the General Ledger. While it is not recommended, you could also post both distributions to the General Ledger.
Full absorption of material and resource cost into the final assembly cost: Periodic Costing relieves the remaining job balance into the final assembly cost.
Relieve material charges using predefined (BOM) quantity or actual quantity: Customers can choose to relieve component charges using the quantity defined in the job's bill, or using the actual quantity of components issued to the job.
Scrap Absorption: For Scrap Absorption there are two solutions as follows:
If you choose to have the completion cost derived based on the job's bill (standard quantity completion algorithm), then you can use the final completion flag to relieve the additional scrap value out of the job.
If you choose to have the completion cost derived based on actual material usage, then the scrap value will be automatically absorbed by completions performed after the scraps.
Support for Material Overhead Absorption Rules for PAC: You can define Material Overhead Absorption Rules for controlling material overhead absorption. See: To define material overhead absorption rules. These rules are respected in PAC as well.
eAM Support in PAC: You can associate eAM-enabled organizations to be included in the cost group setups so that you can use PAC.
You can manually change the periodic cost of an item by performing a periodic cost update.
Periodic Costing provides similar features to perpetual average costing, but with certain restrictions. See Updating Periodic Costs.
In order to use Periodic Costing, the following requirements must be met:
Only one master item organization exists for each organization cost group. Only one master item organization is recommended per database instance.
An organization cost group must be assigned to a single legal entity. A legal entity can contain several organization cost groups.
An inventory organization can be associated with only one organization cost group.
Frozen and average cost types cannot be used for Periodic Costing.
Cost types used for Periodic Costing must be multiorg and non-updatable.
Periodic Rates cost types must be multiorg and updatable.
Cost types used for Periodic Costing cannot be disabled.
Organization cost groups cannot be disabled.
The Actual Cost extension is not allowed for cost derived transactions, WIP Assembly Completion, and WIP Assembly return.
Oracle Bills of Material must be installed.
Cost owned transactions are transactions that carry their own costs and are used to compute an average unit cost, which is applied to cost derived transactions.
Examples:
PO receipt transactions
WIP completion transactions
Interorg transfers between cost groups
WIP labor/resource transactions
Cost-derived transactions are transactions that are transacted at the newly computed average unit cost of the period.
Examples:
Material issues
Issues to WIP
Returns to WIP
Returns from customer
Note: Returns from customer are only cost derived if they have no reference to sales orders. If they do reference sales orders, then they are costed at the original sales order issue cost.
A periodic rates cost type is the cost type that stores the material overhead, resource, outside processing, and overhead rates for a specific legal entity/cost type association. This is similar to the Average Rates cost type in perpetual average costing.
The periodic rates cost type is defined in cost setup like any other cost type. It is associated with a legal entity/cost type using the Org Cost Group/Cost Type Associations window. You can update the periodic rates cost type field. For example, you can update the periodic rates each period. Each legal entity/cost type combination can have its own periodic rates cost type or share a periodic rates cost type. See: Defining Cost Types.
Period end cost layers contain the recorded weighted average cost of all items purchased and produced in a period. Layers will remain in the system permanently.
Delta quantity refers to the net quantity of a year's production. For example, if 10 items were produced, 5 bought and 12 issued, the delta quantity is 3.