All manufacturing companies struggle to define the unit cost of their products, even though this seems to be a simple task. Perhaps this is because determining the cost of an item is just a summary of all the incoming materials with a dash of some labor – and voila! You have the
calculated target cost.
Sounds good, right? Well, things always become more complex when you realize that the calculation of all costs is not at all straight forward. In fact, the more accurate you hope to be, the more complicated the task becomes.
You usually start by determining the standard cost of raw materials. This may seem to be easy until you ask yourself: “what happens with the bulk materials I don’t want to track?” These materials are also important in determining the total cost of the item.
If you skip this step, you’ll soon realize that the next step is to determine the labor costs. Again, you may think this is simple, but it gradually increases in complexity whenever you need more accuracy. You may start to feel like calculating an item’s standard cost will be a nightmare, so you decide that determining the item’s actual cost will be the solution to all of your problems.
Required Setup: Actual Cost
Here are the steps to follow when determining and implementing the Actual Cost method in Oracle JD Edwards (JDE):
When you are using actual cost for your finished goods, you need to make sure that no costs of the finished goods will enter in to conflict. It’s safe to have one cost at the levels of Branch Plant, Item, Location and Lot; this combination will allow you to use costs properly.
If you set inventory cost to 02 (the average cost), consider that this cost is not supported by Oracle even though, in my experience, it would work with actual cost calculation.
Remember that actual cost will not be updated unless you complete from a work order.
Add the standard routing containing all operations to build the item.
Add the standard BOM containing all materials to build the item.
Adding the standard WC rates or labor rates depends on the model you choose.
Freeze WC rates.
Manufacturing Accounting Setup:
- 3110 Inventory/Raw Materials
- 3120 Work in Process
- 3130 Sub-Assembly/Finished Goods
- 3210 Clear Work in Process (just for actual cost)
- 3401 Accruals
Variance DMAAIs will not be used since the system does not record any variance from standard cost calculations that is not needed for actual cost.
From here, you have all you need to start working with Actual Cost. With the Actual Cost method, you can add Parts list and Routing on the fly. The standard BOM and the standard routing will be added just for reference.
Now you have to decide which cost you will use to manage your raw materials. In general, you can follow some rules to determine how the available costs in Oracle JD Edwards (JDE) can be used. In my experience, no cost method is better than 01, 02 and 07 Costs as they can be managed in JDE and used with actual cost.
Here is a list of those costs:
Remember if you are using actual cost on the finish goods, 01 cost should only be used for purchased items.
Remember if you are using actual cost on the finish goods, 02 cost is used only for purchased items if you are using landed costs. The additional cost will not be updated to the WO once material is issued to the WO.