You are on page 1of 52

Cost Cutoff Date for 11i

Inventory Organizations
Eric Guether Opnext, Inc.
Learning Objectives
• As a result of this presentation, you will
be able to understand:
– How to defer costing of transactions through
use of the Cost Cutoff Date (CCD)
– Importance of CCD when updating standard
costs
– Impact of CCD & uncosted transactions on
Inventory reports
– Impact of CCD & uncosted transactions on
intercompany sales & payables
Speaker’s Qualifications
• Eric Guether
– IT Director at Opnext in Eatontown, NJ
– Manages Opnext’s Oracle 11i system
– Provides user support for 11i modules, Oracle
Alert and Discoverer 9i Desktop
– Member of NJOAUG
– Certified Public Accountant (CPA)
Presentation Agenda
• Introduction
• Business Case
• Solution: Cost Cutoff Date
• Transaction Examples
– Inventory Miscellaneous Receipt
– Purchasing Receipt into Inventory
– WIP Workorderless Completion
• Lessons Learned
– Impact on Inventory Reports
– Impact on Intercompany Sales & Payables
Introduction: Who Is Opnext?
• Designer & maker of “opto engines”
– Active fiber optic components
– Wafer fab and assembly
• Pre-IPO spin-off of 2 Hitachi businesses
– Manufacturing in Yokohama & Komoro, Japan
– Headquarters in Eatontown, NJ
• Sales in U.S., Canada, Europe, Japan,
and Hong Kong
– Customers include Cisco, CIENA, Lucent,
Alcatel, Fujitsu, NEC, Siemens, and Kodak
Examples of Opnext Products
Laser Diode Modules Transmitters Receivers

10GbE XENPAK
Transceivers Modules
11i EBS at Opnext
• Upgraded to release 11.5.8 in Oct. 2003
• Multiorg, single global instance
– American English with Japanese NLS
– Separate operating units and inventory orgs
for U.S., Japan & Europe
– Standard costing in all orgs
• Financials, OM, Inventory & Cost Mgmt.
used globally
• Discrete MFG (BOM, WIP, MRP/MPS) &
Purchasing for Japan & U.S.
Business Case
• Company practice is to update standard
costs every 6 months as of:
– April 1st [Cost Period: April 1, 2005 to Sept. 30, 2005]
– October 1st [Cost Period: Oct. 1, 2005 to March 31, 2006]
• New costs not finalized until after April 1st /
October 1st
• Standard cost updates typically occur
around April 10th or October 10th
• All transactions in the new 6-month cost
period need to be valued at the new costs
Dilemma Before Release 11.5.7
• Record early April / October transactions
(quantities) in the new cost period before
the standard cost update
• Value those early April / Oct. transactions
after the standard cost update at the new
costs
• Cannot simply shut-off the Cost Manager
– Need to cost any March / September
transactions created in early April / October at
the old costs prior to standard cost updates
Initial Workaround
• Opnext’s only workaround under 11.5.3
• Record April / October inventory, WIP,
shipping, and PO receiving transactions
off-line (outside of 11i EBS) until
completion of standard cost updates
• Retroactively record early April / October
transactions in 11i EBS after completion of
standard cost updates
Workaround Issues
• Unnecessary control weaknesses
• Risk of data inaccuracy
• Extra, unnecessary data entry for users
• Unreliable / unusable inventory quantities
in 11i EBS for a week or more
• Shipping and export documents had to be
prepared manually (not via 11i EBS) for a
week or more
Solution: Cost Cutoff Date
• Inventory organization parameter
• Introduced in release 11.5.7
• Intended to keep “new period” transactions
uncosted until you finish your standard
cost updates for the org
• Controlled simply by the entry of one Cost
Cutoff Date for the org
Parameter Setup
• Organization Parameters –> Costing
Information tab
Functionality
• Entirely met Opnext’s needs:
– Completely eliminated the need to record
transactions outside of 11i EBS
– Allowed transactions (quantities) to be
recorded immediately in the new period while
deferring their costing until frozen costs have
been updated
– Valued uncosted transactions using the new
frozen costs
Functionality (Continued)
• Transactions in the org with G/L date:
– On or after the Cost Cutoff Date (CCD)
parameter value will not be costed
– Before the CCD value will be costed, even if
created on or after the CCD
• Once the CCD has been changed to a
later date, any uncosted transactions
whose G/L date < new CCD will be costed
at the current frozen cost the next time the
Costing Manager runs
Functionality (Continued)
• If the Cost Cutoff Date = 01-APR-2005,
transactions with G/L Date of:
– 01-APR-2005 or later will not be costed
– 31-MAR-2005 or earlier will be costed, even if
created on or after 01-APR-2005
Database Perspective
• When the CCD is deferring the cost of a
transaction, the transaction has:
– A record on the
MTL_MATERIAL_TRANSACTIONS table
• Allows the transaction quantities to be recognized
by the EBS 11i modules
– Its COSTED_FLAG = ‘N’
• Indicates that the record has not yet been costed
• As long as the flag = ‘N’, no accounting entries
[“distributions”] have been created yet
Cost Update Sequence
• Complete all March trx by early April
– Valued at current frozen costs = “old” costs
• Begin entry of April-dated trx on 01-APR
• Close the March period in early April
• Perform std. cost updates (early/mid April)
• Change the CCD to a later date
– Example: 01-OCT-2005
• Cost Manager then costs all existing April-
dated transactions at updated frozen costs
Example # 1: INV Misc. Receipt
• Scenario where CCD will not defer costing
• Receive 10 units of item LASER123
• Standard Cost
– $1,200 per unit through end of March
– $1,000 starting April 1st (updated on 04-APR)
• Transaction date, 31-MAR-2005, is before
the cutoff date of 01-APR-2005
• Creation date, 01-APR-2005, is on the
cutoff date
Example # 1 Transaction
Example # 1 Chart
• 10 units received and recorded upon entry
• Costed upon entry at old cost of $1,200
Example # 1 Results
• Transaction costing is not deferred,
because transaction (G/L) date is before
the Cost Cutoff Date
– Creation date of transaction does not matter
• Costed at old cost of $1,200, which is still
the current frozen cost
– Standard cost update did not occur yet;
occurs on 04-APR
• Material distributions created as soon as
the transaction is costed
Example # 2: INV Misc. Receipt
• Scenario where CCD will defer costing
• Receive 5 units of item LASER123
• Standard Cost
– $1,200 per unit through end of March
– $1,000 starting April 1st (updated on 04-APR)
• Transaction date, 01-APR-2005, is equal
the cutoff date of 01-APR-2005
• Creation date, 01-APR-2005, is on the
cutoff date
Example # 2 Transaction
Example # 2 Cost Update
• To change the unit cost for LASER123
from $1,200 to $1,000
Example # 2 Change Cutoff Date
• Change CCD on April 4th to 01-OCT-2005
Example # 2 Distributions
Example # 2 Chart
• Quantity of 5 units recorded immediately
• Costing deferred until 06-APR
Example # 2 Results
• Transaction costing is deferred, because
transaction (G/L) date is on the Cost
Cutoff Date
– Creation date of transaction does not matter
• Costed at new cost of $1,000, which is the
current frozen cost when the cutoff date is
changed on 06-APR to a future date
• Material distributions created on 06-APR
once the transaction is costed
INV Trx Affected by CCD
partial list; not complete
• Miscellaneous / Account Alias Transactions
• Subinventory Transfer
• Interorg Transfer
• Receiving
• Pick Confirm
• Pick Release
• Create Intercompany AR Invoices
Other Trx Affected by CCD
partial list; not complete
• Purchasing module
– PO Receiving (including PPV)
– Returns to Supplier
• WIP module
– Discrete WIP assembly completion
– Discrete WIP component issue
– Workorderless completion
Example # 3: PO Receiving
• Receive & deliver to INV (no inspection)
• Receive 200 units of item DIODE-5002
• PO Unit Price = $0.90
• Standard Cost
– $1.25 per unit through end of March
– $1.00 starting April 1st (updated on 04-APR)
• Transaction date, 02-APR-2005, is after
the cutoff date of 01-APR-2005
• Creation date = transaction date
Example # 3 Transaction
Example # 3 Chart
• Quantity of 200 units recorded immediately
• Costing deferred until 06-APR
Example # 3 Results
• Transaction costing is deferred
• Costed at new cost of $1.00 per unit
• Material distributions created on 06-APR
once the transaction is costed
• Purchase Price Variance (PPV) calculated
at $0.10 per unit
– Difference between PO unit price of $0.90
and new cost of $1.00, not old cost of $1.25
Example # 4: WOC
• Workorderless Completion (WOC)
– Transaction Type = WIP Assembly Completion
• Three Transactions in One
– Receive 10 units of final product TRM999 into
inventory
– Consume 10 units of component LASER123
from inventory
– Create accrual distribution for Outside
Processing (OSP) resource charge
• Transaction date 03-APR-2005 > CCD
Three Transactions in One

Final Product
Added to Inventory

WORKORDERLESS
COMPLETION
Liability Accrued
Component
for Outside
Consumed from
Processing
Inventory
Charge
Example # 4 Costs
• Component Standard Cost
– $1,200 per unit through end of March
– $1,000 starting April 1st (updated on 04-APR)
• Outside Processing Charge
– $50 per unit through end of March
– $30 starting April 1st (updated on 04-APR)
• Final Product Standard Cost
– Derived from Assembly Cost Rollup
– $1,250 through end of March [$1,200 + $50]
– $1,030 starting April 1st [$1,000 + $30]
Example # 4 Transaction
Example # 4 New OSP Charge
Example # 4 Cost Rollup
Example # 4 Results
• Transaction costing is deferred in:
– INV module for final product completion and
component consumption
– WIP module for OSP routing resource charge
• Costed at new cost of $1,030 per unit
• Material distributions created on 06-APR
once the transaction is costed
Lessons Learned: Reports
• When so many transactions are uncosted
for days or weeks, some INV reports in
11.5.8 show inaccurate historical balances
• Reports affected:
– Transaction Value Historical Summary
– Transaction Balance Historical Summary
– Period Close Value Summary
• Cause: Reports fail to estimate cost of
some uncosted WIP transactions when
backing into historical balance
Report With Error

• Uncosted WIP component issue of


LASER7777 for $480,000 is missing from
Job or Schedule column
• 28-FEB value of $-480,000 is incorrect;
should be zero
Correct Version of Report

• Once the cutoff date is changed to a later


date and all uncosted transacted are
costed, these reports show accurate
information when rerun
Lessons Learned: Intercompany
• The “Create Intercompany AR Invoices”
program does not create a record until its
parent record has been costed
– Parent record = “Sales order issue” material
transaction type [action = “Issue from stores”]
• Therefore, the CCD indirectly defers
creation of intercompany A/R invoices in
the new cost period, because the CCD is
directly defers costing of the parent record
Lessons Learned: Intercompany
Intercompany Invoicing Process Flow For
Japan Customer Sale Sourced from U.S. Inventory Org

Parent Record:
Trx type = “Sales
order issue”
Action = “Issue from
Japan stores”
Customer
1. Japan Customer 2. Product Shipment
Sales Order [global drop
sourced from shipment to
U.S. "BEI" Org 6. Customer customer from
Payment 3. Customer U.S. "BEI" Org]
OM Invoice

5. I/C A/P Invoice


created in US
JAPAN SALES JAPAN SALES MANUFACTURING
Operating Unit
Operating Unit
7. Payment or
I/C Netting

4. I/C A/R Invoice


created in U.S. MFG
Intercompany (Continued)
• The deferring of the I/C A/R invoice creation
allows Opnext to update the price list used
to value the I/C sales & payables
– Opnext’s intercompany prices are derived from
standard costs and updated every 6 months at
the start of a new cost period
– New prices have 03-APR or 03-OCT start date
• Creation of the I/C A/P invoice is dependent
on creation of the I/C A/R invoice, so CCD
indirectly affects A/P too
Price List for I/C A/R Invoices
Additional Resources
• Metalink note # 213628.1: “What is the Cost
Cutoff Date?”
• Metalink bug # 3585271: “INVTRHAN:
HISTORICAL DATA QTY=0 BUT THE VALUE IS > 0”
• Metalink bug # 3480557: “11I INCIAR GETS APP-
5706 WHEN RUN ON END DATE OF PRICES APP-05706”
• 11i Inventory User’s Guide: Chapter 14 –
“Intercompany Invoicing”
• Connection Point 2004 presentation:
“Workorderless Completion for Simple
Outside Processing in 11i WIP”
Q&A
Thank You!

You might also like