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
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 Access .
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.
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, then 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 with 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, multiple organizations can share the same common item master. See: Defining Items.
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, then 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.
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.
Note: Negative item costs are not supported in Oracle Cost Management.
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 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 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.
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 Type | Material | Material Overhead | Resource | Outside Processing | Overhead |
|---|---|---|---|---|---|
| Activity | n/a | yes | n/a | n/a | n/a |
| Item | yes | yes | yes | yes | yes |
| Lot | yes | yes | yes | yes | yes |
| Resource Units | n/a | yes | n/a | n/a | Routing only |
| Resource Value | n/a | yes | n/a | n/a | Routing Only |
| Total Value | n/a | yes | n/a | n/a | n/a |
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.
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.
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
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
Note: You may optionally use resource units and resource value to earn material overhead when you complete units from a job or repetitive schedule.
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:
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:
activity occurances / # of items X activity rate
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), then elemental account visibility is maintained when transactions are processed.