01/02/13 Document Display

Periodic Costing Troubleshooting [ID 456199.1]

Modified: 05-Jul-2012 Type: TROUBLESHOOTING Status: PUBLISHED Priority: 3

In this Document

Purpose
Troubleshooting Steps
General Questions
Inter-org Transaction Type
FOB Point
PAC Process
References

Applies to:

Oracle Cost Management - Version 11.5.10.0 to 12.1.2 [Release 11.5 to 12.1]

Information in this document applies to any platform.
Concurrent Processes
Cost Management-> Periodic Costing -> Periodic Cost -> - Periodic Acquisition Processor
Cost Management-> Periodic Costing -> Reports -> Periodic Absorption Cost Processor
Cost Management-> Periodic Costing -> Periodic Cost -> Periodic Cost Processor
Cost Management-> Periodic Costing -> Periodic Cost -> Periodic Cost Distribution Processor

Purpose

Checked for relevance on 17-APR-2012

The intention of this document is to provide information on using the functionality of Periodic Average Costing.

This involves performing the standard periodic costing setups as described in the white paper Costing by
Acquisition: A Brief Guide to Periodic Average Costing (PAC) for Purchased Items. In addition, there will be setups,
which are specific to Periodic Absorption Cost Process.
Periodic Absorption Cost Process involves launching three periodic processors: Periodic Absorption Cost Processor,
Periodic Cost Processor and Periodic Distribution Processor.

Periodic Costing enables customers to value their transactions on a periodic basis. Periodic Costing is required by
law in the following countries:

Brazil
Spain
Colombia
France

The main objectives of periodic costing are:

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.

GLOSSARY:

Absorption Costing
An approach to inventory valuation in which variable costs and a portion of fixed costs are assigned to each unit of
https://support.oracle.com/epmos/faces/ui/km/SearchDocDisplay.jspx?_adf.ctrl-state=58ehbvpc1_197 1/6
01/02/13 Document Display

production. (APICS Dictionary, 2003).

Bill of Materials (BOM)

A list of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly showing the
quantity of each required to make an assembly. (APICS Dictionary, 2003).

Cost Group
One or more premises of a company (e.g. manufacturing plants and/or warehouses) considered as a unit for
costing purposes. All the premises belonging to the same cost group will carry the same unit cost.

Cost Owned Transactions

A transaction that carry its own value such as Purchase Order Receipt. These transactions will be considered in the
calculation of the average cost of an item.

Cost Derived Transactions

A transaction that derives its costs from the average cost of an item, such as a miscellaneous issue or a sales order
issue.

Inter-Organization Transfer
In the context of this document, a transfer between two facilities of the same company (e.g.: warehouses or
manufacturing plants).

Periodic Average Cost

Average of all cost owned transactions related to a period of time. There are different known methods, such as
periodic moving average and periodic weighted average cost.

Inventory Organization
In the context of this document, any premise of a company, such as a warehouse or manufacturing plant.
Periodic Moving Average Cost (PMAC).

The Periodic Moving Average Cost computes the average cost for the period while moving previous period's cost
and inventory balance with the current period's inventory balance and cost.
PMAC = ((Prior Cost * Prior Quantity) + (inter-organization receipt qty * PMAC cost of the corresponding shipment
cost group) / (Prior Quantity + inter-organization receipt qty)
Where:

Prior Quantity: Previous Period Quantity + S Trans Qty

Prior Cost: (Previous Period Quantity * Previous Period Cost) + S (Trans Qty * Unit Cost)) / Prior Quantity

Previous Period Cost: The previous period Item cost.

Trans Qty: Receipt Transaction Quantities not including inter-organization receipts in the current period.
Unit Cost: Receipt estimated prices or vendor invoice final prices within the costing period.

Periodic Costing Tables

CST_PAC_PERIODS - Holds the information about periodic costing open and closed periods for each legal entity and
Cost Type association.
CST_PAC_PROCESS_PHASES table holds the status for each process phase in a particular period and organization
cost group.
CST_PAC_ITEM_COSTS stores the item cost and quantity in a period and organization cost group.
CST_PAC_ITEM_COST_DETAILS table stores item cost details for a period and organization cost group.
https://support.oracle.com/epmos/faces/ui/km/SearchDocDisplay.jspx?_adf.ctrl-state=58ehbvpc1_197 2/6
01/02/13 Document Display

CST_PAC_QUANTITY_LAYERS stores the layer quantity of an item by period. In the periodic LIFO method, multiple
layers may exist in the same period.

CST_AE_HEADERS

CST_AE_LINES

Troubleshooting Steps

General Questions

1. Is it possible to setup both PAC and perpetual costing method for same inventory organization?

Yes. Create a PAC organization cost group for an inventory organization. Define a perpetual costing method for
that inventory organization. Run PAC processes for the organization cost group to obtain PAC item cost for that
inventory organization.

2. Is it necessary that transactions have to be costed in perpetual costing before these

transactions are PAC costed?

The PAC method is independent of perpetual costing method Standard, Average, LIFO, and FIFO. PAC is on top of
perpetual costing method across multiple inventory organizations. Therefore, PAC can be run irrespective of
transactions being costed in perpetual.

3. Perpetual cost manager is down. All the transactions are struck in perpetual. Is it possible to
run PAC?

Yes. You can run PAC even if perpetual cost manager is down. PAC method is independent of perpetual costing
method.

4. Periodic Acquisition Cost Processor is executed. However, Acquisition cost is not displayed in
Periodic Item Cost Screen, until Periodic Cost Processor is run.

This is a limitation in current functionality. Acquisition Cost Processor computes acquisition cost for each PO
receipt. It do not summarize at the item level for the cost group. There are no reports or user-friendly screens to
view the acquisition cost alone after the periodic acqusition cost processor is executed.

5. In an average costing organization, miscellaneous receipts are created without any user-
defined cost from the miscellaneous transaction screen. In PAC, all these miscellaneous
receipts are processed as cost derived transaction instead of cost owned receipts.

In PAC, cost owned transactions are the transactions having its own cost irrespective of whether it is a receipt or
issue transaction. Cost derived transactions are the transactions, which takes the pre-calculated PAC item cost.
Cost derived transactions; derive the cost from the computed PAC item cost, calculated from all the cost owned
transactions. Therefore, miscellaneous receipts without any user-defined cost were processed as cost derived
transactions, even though they are receipts.

Similarly, miscellaneous issues with user-defined cost are processed as cost owned transactions.

6. How are the sub-inventory transfers within the same inventory organization processed.

Sub inventory transfers are processed as cost derived transactions.

7. How are the inter-org transactions within same cost group processed?

Inter-org transactions within same cost group are processed as cost derived transactions.

8. How are the inter-org transactions across cost groups processed?

Direct interorg receipts across cost groups are processed as cost owned transactions.

https://support.oracle.com/epmos/faces/ui/km/SearchDocDisplay.jspx?_adf.ctrl-state=58ehbvpc1_197 3/6
01/02/13 Document Display

Direct interorg issues acorss cost groups are processed as cost derived transactions.

Intransit shipment with FOB: Shipment transactions are processed at the shipping cost group as cost derived and at
the receiving cost group as cost owned.

Intransit shipment with FOB: Receipt transactions are processed at the shipping cost group as well as as receiving
cost group as cost derived transactions.

Intransit receipt with FOB: Shipment transactions are processed at the receiving cost group as cost derived
transactions.

Intransit receipt with FOB: Receipt transactions are processed at the receiving cost group as cost owned and at the
shipping cost group as cost derived.

NOTE: Cost owned inter-org transactions are costed at the perpetual cost of the shipping cost group instead of PAC
item cost of the corresponding cost group. This is a gap in core PAC, since PAC is processed by cost group.

This gap is addressed in Iterative Periodic Average Cost (IPAC) method in R12 RUP4 (only for Brazil) and R12.1 (for
all customers).

In EBS 11.5.10, Periodic Absorption Cost Processor (PACP) will address the above gap.

Inter-org FOB PAC Process

Transaction Point
Type
Direct Inter-org shipment N/A Cost derived at shipping cost group

Direct Inter-org receipts N/A Cost owned at receiving cost group

Intransit inter-org shipment Shipment Cost derived in shipping cost group; cost
owned in receiving cost group

Intransit inter-org receipt Shipment Cost derived in receiving cost group

Intransit inter-org shipment Receipt Cost derived in shipping cost group; cost
derived in receiving cost group

Intransit inter-org receipt Receipt Cost owned in receiving cost group; cost
derived in shipping cost group

9. Why is expense account used on asset inter-org transactions

What is the Intended Functionality / Behavior.

Expense account is used as offset account for interorg txns (direct or intransit) within same PAC cost group.
.
PAC accounting template for asset item, asset sub inventory for inter-org transactions within same PAC cost group
is given below:

Intransit Shipment txn (21-13-21)

DR Inventory Offset Account obtained from PAC Category accounts - MTL accounts - Expense account
CR Inventory valuation Account obtained from PAC Category accounts - MTL accounts of each cost element
.
https://support.oracle.com/epmos/faces/ui/km/SearchDocDisplay.jspx?_adf.ctrl-state=58ehbvpc1_197 4/6
 01/02/13 Document Display

Intransit Receipt txn (12-13-12)

DR Inventory valuation Account from PAC Category accounts - MTL accounts of each cost element
CR Inventory Offset Account obtained from PAC Category accounts - MTL accounts - Expense account
.
For same cost group transfers, regardless of whether the transfer is direct or intransit, we make a debit/credit to
an offset account and a debit/credit to inventory account for asset sub inventories.
.
NOTE: In EBS R12 onwards, Inventory Offset Account field has been removed from the Periodic Account
Assignments form. Inventory_offset_account will not be set up. Instead, we will use the expense account from PAC
Category.

10. Is it necessary to close all inventory organization periods, before closing PAC period.

Yes. It is important that all the open periods of inventory organizations belonging to PAC cost groups have been
closed, before closing PAC period.

11. Periodic Cost Update New Cost or %ge change do not change the PAC item costs of the
current onhand PAC inventory in the current PAC period.

This is true. Periodic Cost Update New Cost or %ge change is intended to change the PAC item costs of the
beginning balance of the current PAC period, which is equal to ending balance of previous PAC period. Whereas,
Periodic Cost Update Value Change is meant to change the periodic costs of current on hand PAC inventory in the
current PAC period, which include the onhand balance of all the cost, owned transactions and beginning balance.

12. What is the difference between PAC and Average Costing?

PAC- Periodic Average Costing is a period end weighted average cost across all the inventory organizations in a
given PAC cost group. It is important to note that all the cost owned transactions are processed first to calculate
accurate PAC item cost at the of PAC period. All the cost derived transactions (sales order issues, misc. issues
with no user-entered value, interorg shipments) are issued at one single PAC item cost in that PAC period.

Average Costing is a perpetual average cost for a single inventory organization. Transactions are costed in real-
item. Most of the time, transactions are costed in the same order of its creation. This means, issue transactions
(sales order issues, misc. issues, interorg-shipments, others) are computed at differeent average costs at that
moment.

13. Unable to run PAC Distribution Processor. Setup error encountered.

PAC Distribution Prcoessor is an optional process. It is important that you setup all the material PAC accounts, material
category accounts, and PAC accounting library to perform transfer to GL, before closing PAC period.

14. How do you link resource rates, department overheads, outside processing costs for PAC.

Define Periodic Rates cost type. In Org Cost Group / Cost Type Association screen, define PAC Cost type and associate
periodic rates cost type.

15. In Org Cost Group / Cost Type Association screen, there is an indicator for Material Relief
Algorithm. Can you explain the functionality?

Material Relief Algorithm indicator to Use Pre-defined Materials, or Use Actual Materials. This indicator is
introduced in R12.

If there have been no prior WIP transactions for the chosen Cost Type in all previous periods, then you can use the
relief algorithm option to relieve material using the quantity that is actually used, or using the quantity defined in the
BOM. If there are WIP related transactions based on actuals, then relief costs for all subsequent transactions cannot
be based on BOM. The relief algorithm is only applicable for components. Resource and overhead are always
relieved using the actual quantity. Prior to R12, PAC used to relieve material based only on actuals.

16. In Org Cost Group / Cost Type association screen, there is an option to enter Process Upto
Date. Can you explain the purpose of this field?

This is to run PAC for partial period processing. You may run a partial period by entering the date in the parameter
https://support.oracle.com/epmos/faces/ui/km/SearchDocDisplay.jspx?_adf.ctrl-state=58ehbvpc1_197 5/6
01/02/13 Document Display

Process Upto Date field in the PAC processors.

References

NOTE:559123.1 - FREQUENTLY ASKED QUESTIONS PERIODIC AVERAGE COST AND PERIODIC ABSORPTION
COSTING (PAC/PACP/IPAC)

https://support.oracle.com/epmos/faces/ui/km/SearchDocDisplay.jspx?_adf.ctrl-state=58ehbvpc1_197 6/6