Structuring Your Cost Management System

This chapter provides an overview of cost structure and discusses how to:

• Set up the cost structure.

• Review costing examples.

• Determine the cost structure strategy.

• Determine your negative inventory strategy.

• Select the method to number accounting lines.

Understanding Cost Structure

Costing structure determines how inventory transactions are calculated, where accounting entries are posted, and how many sets of books are maintained. PeopleSoft Cost Management gives you enormous flexibility in defining costing structure. You can choose to maintain any number of simultaneous books. Using different sets of books enables you to clearly track financial records, tax records, management records, and so on without any additional work. PeopleSoft Cost Management maintains all the books simultaneously.

PeopleSoft Cost Management also enables you to determine the type of costing by item, Inventory business unit, and cost book combination. This flexibility allows you to mix the type of costing within one inventory business unit. For example, one inventory business unit can have some items that use standard costing, other items that use actual costing, and so on. Also, one item can use different cost profiles in different business units.

In addition, the same item can be costed differently using different cost books within the same business unit. For example, an enterprise may want to track costs using local generally accepted accounting principles for financial reporting, and it may also want to track costs by using an internal activity based management model for decision-making purposes (product lines, marketing channels, target markets and so on). These two approaches can have different purposes and are often not compatible with each other; they each end with different answers as to what cost is. The power of the multiple book structure enables divergent cost approaches to be implemented in conjunction yet separate from each other.

This diagram illustrates the cost method relationships without using cost profile groups:

Cost method relationships without cost profile groups

The diagram displays the different parts of the PeopleSoft Cost Management costing structure and how these parts are related to each other.

Cost Type

Cost types define a working space for cost calculations. You can define several different cost types, such as, current, revised, and forecasted costs. You calculate the cost of makeable items using cost types. Also, purchased items using the standard cost method can use cost type to calculate a standard cost. For example, in a manufacturing environment, cost books can use different cost types, enabling you to use GAAP rates for financial reporting and ABM rates for manufacturing reporting.

Cost Books

Define a separate cost book for each type of accounting records that you wish to maintain. For example, define a cost book for financial records, another cost book for tax records, management decision-making, and so on.

Inventory Business Units

When you define an inventory business unit, you identify the general ledger business unit that accepts the financial data. In addition, you define one or more combinations of cost books and ledger or ledger groups. The cost book is used to store accounting entries that are generated by inventory transactions. Each book enables you to use different cost methods; for example, a financials book can use standard costing for items, and the tax book can use LIFO costing for items. You can define any number of simultaneous books to be used within an inventory business unit. Each inventory transaction that has a financial impact creates a separate set of accounting entries in each book that is assigned to it. The accounting entries are then posted to the specified ledger or ledger group (set of books) within PeopleSoft General Ledger.

Cost Profiles

Define the methods that are used to value the inventory items, such as standard costing, actual costing, and so on. In PeopleSoft Cost Management, you assign cost profiles to items to determine the cost method. There are a number of options for cost profiles that you may mix and match to suit your requirements. Different items or groups of items within a business unit may use different cost profiles and the same item in different business units may also use different cost profiles.

Cost Elements

Cost elements are used to categorize the different components of an item's cost, such as material, landed, conversions costs, and so on. Also, cost elements define the debit and credit ChartFields for each cost component of an item so that accounting entries can be created.

Business Unit Item Definition

The cost profile can be added here or appear default from a cost profile group that is defined at the item definition level.

This diagram illustrates the cost method relationships when using cost profile groups:

Cost method relationships using cost profile groups

Cost Profile Groups

Cost profile groups are an optional step that enables you to define item costing for both efficient order entry and control. A cost profile group joins together a cost profile and a cost book that can be attached to multiple items. The cost profile group is attached to the Item Definition page, and then the cost profile group appears by default on the item's definition by inventory business unit, the Define Business Unit Item component. If the item uses the same cost profile and cost book across several inventory business units, then the cost profile group reduces the time that is needed to define item costing. Also, when defining a cost profile group you have the option to prevent users from changing the default cost profile and cost book on the Define Business Unit Item component; giving you a level of control over item setup.

Common Elements Used in this Chapter

Setting Up the Cost Structure

The cost structure determines how inventory transactions are calculated, where accounting entries are posted, and how many sets of books are maintained.

To set up cost structure:

1. Establish the ledgers and ledger groups for the PeopleSoft General Ledger business unit or verify that the financials implementation team creates them.

2. Define the cost books at the setID level.

3. Define the cost types at the setID level.

4. Associate the cost books and cost types with the PeopleSoft Inventory business units and ledgers or ledger groups.

5. Define the cost profiles at the setID level.

   You determine the receipt cost method, cost flow, and deplete cost method for the items. For an item that is manufactured with PeopleSoft Manufacturing, a cost profile also determines the costing method that is used to value labor and machine costs.

6. Create cost profile groups at the setID level.

   This page combines the cost book and cost profile.

7. Associate the inventory items with a cost book and a cost profile.

   This can be done in the Define Item component or the Define Business Unit Item component.

8. Define the cost elements to categorize the different cost components for an item, including material, conversion, landed, and outbound costs.

9. Attach the cost element to the various PeopleSoft pages that generate costs.

   For the material costs of the item, add the cost element that is defined for material to the item by using the Define Business Unit Item-General: Common page.

Pages Used to Define Cost Structure

Establishing PeopleSoft General Ledger Business Units, Ledger Groups, and Ledgers

Before beginning the process of defining PeopleSoft Inventory business units, you need to establish PeopleSoft General Ledger business units, ledgers and ledger groups. Ledgers and ledger groups represent a set of books and store the posted financial entries (journal entries) by accounting period and fiscal year. Different ledgers can be defined for recording financial records, tax records, management reports, and so on.

See Also

Defining General Ledger Business Units

Linking Ledgers to a Ledger Group

Defining Ledgers for a Business Unit

Defining Your Cost Books

To define the types of accounting records to maintain, use the Cost Book (CM_BOOK_DEFN) component.

Define a separate cost book for each type of accounting records that you want to maintain. For example, define a cost book for financial records; another cost book for tax records, and so on.

You can create any number of books and assign the books to a PeopleSoft Inventory business unit. Each book enables you to use different cost methods; for example, a financials book can use standard costing for items, and the tax book can use LIFO costing for items. You can define any number of simultaneous books to be used. Each inventory transaction that has a financial impact creates a separate set of accounting entries in each book that is assigned to it. The accounting entries are then posted to the specified ledger or ledger group within PeopleSoft General Ledger.

Defining Cost Types

To define cost types, use the Cost Types component.

Access the Cost Types page.

Define different cost types, such as current, revised, and forecasted costs, to create a working space with which you can perform what-if analysis. You calculate the cost of a manufactured item based on cost types. Purchased or make items using the standard cost method can use cost types to calculate a standard cost. Cost types are used as a key to conversion costs and overhead conversion costs to calculate both standard cost and actual cost make items. The cost type is added to the Cost Rollup process page when calculating the standard cost of an item. For a manufactured item using an actual or average costing method, the cost type should be defined on the Inventory Definition-Business Unit Books page that is to be used by the Transaction Costing process when computing the item cost.

Select the method to calculate the cost of purchased components when computing the cost of an item. The method that you choose here applies to all cost versions using this cost type. Options for Purchase Cost Used include:

See Also

Adding Additional Costs

Defining Basic Business Unit Item Attributes

Associating Cost Books with PeopleSoft Inventory Business Units, Ledgers, and Ledger Groups

A critical step in designing the inventory business unit is to define the accounting links to the general ledger system. Use the Inventory Definition component to:

• Identify the PeopleSoft General Ledger business unit that accepts financial transactions by using the Inventory Definition - Business Unit Definition Page.

  Only one general ledger business unit can be defined per inventory business unit.

• Define one or more combinations of cost book and ledger or ledger group for the inventory business unit by using the Inventory Definition - Business Unit Books Page.

  When you attach a cost book, every financial transaction that is recorded in this inventory business unit creates accounting entries in that cost book. For example, let's assume that you identify two separate cost books, FIN and TAX, and an item is shipped from the inventory business unit. Two sets of accounting entries are recorded: one in the cost book FIN, and one in the cost book TAX. For each cost book that is defined for an inventory business unit, you must also define the ledger or ledger group that receives the accounting entries for the general ledger side. These ledgers and ledger groups must be part of the general ledger business unit that is defined for the inventory business unit.

• Identify the cost type for makeable items by using actual or average cost methods.

  If makeable items use actual or average costing methods, then enter a cost type for each cost book. The cost type is used by the Transaction Costing process when calculating the cost of an item that is manufactured in PeopleSoft Manufacturing. Cost types enable the Transaction Costing process to pick up the correct conversion rates and overhead conversion rates, plus any additional costs.

Designating the Primary Book

The inventory business unit must have at least one book. When you associate a cost book with a PeopleSoft Inventory business unit, one book must be designated as the primary book. This is done by associating it with the primary ledger or default ledger group for the PeopleSoft General Ledger business unit. These ledgers and groups are defined on the Ledger Group - Definition page. This page also contains a Keep Ledgers in Sync option.

If the Keep Ledgers in Sync option on the Ledgerfield is unavailable on the Ledger Group - Definition page, transactions are posted to all ledgers in the ledger group that you select for the book. Exactly one book for the business unit must be pointing to the default ledger group.

If the Keep Ledgers in Sync option is off, you can select the ledger within the ledger group to which you want to post transactions for the book. In that case, the primary book must be pointing to the primary ledger within the default ledger. With the option off, you can also leave the Ledger field blank and transactions are posted to all ledgers in the ledger group that you select for the book. In that case, the book must be pointing to the default ledger group.

If you select a primary ledger, it must use the base currency of the PeopleSoft Inventory business unit and PeopleSoft General Ledger business unit. If you select a default ledger group, the primary ledger of that ledger group must use the base currency of the PeopleSoft Inventory business unit and PeopleSoft General Ledger business unit.

Inventory Definition - Business Unit Books Page

Access the Inventory Definition - Business Unit Books page.

Cost Type	Enter a cost type for the inventory business unit cost book. This enables you to use different actual cost conversion rates and overhead conversion rates in different cost books. Cost types are user-defined, and different cost types can point to different conversion and overhead rate structures. Users may wish to use a set of GAAP rates for their GAAP cost type, full absorption rates for their FULLABS cost type, and activity-based cost rates for their ABM cost type. Books point to ledgers in the general ledger, so with this structure users can use different cost rates for their various books which may each have different management and financial reporting purposes. Books that use the frozen standard cost profile always simply use the frozen standard, which is an attribute of items in business units across all books. In other words, the cost types that make up the frozen standards are not affected by the entry in this field.
Create Accounting Entries	Select to have transactions in this book create accounting entries in the associated ledger or ledger group when the status of the book is active. This check box should remain selected unless you are an advanced user and you wish to turn off accounting entry creation for an alternative cost book.
Create Item Profiles	If one or more items do not have profiles in the book, you can check Create Item Profiles and the system creates the missing profile for those items in that book, if those items are already associated with a cost profile group. If they are not, when you try to save the new book as an active status book, an error message appears, and you must manually assign the profiles for those items for that book by using the Define Business Unit Item - General: Costing page. This check box is unavailable if every business unit item has a profile associated with that book. This option is not necessary if all items already have a cost profile.

In the Book Status field, enter the status of the book:

This table lists the conditions under which you can change the book status:

See Also

Linking Ledgers to a Ledger Group

Defining a Ledger Template

Defining General Ledger Business Units

Defining Item Cost Profiles

Defining Cost Profiles

To define cost profiles for items, use the Cost Profiles (CM_PROFILE_DEFN) component.

Access the Cost Profiles page.

The next step in setting up the system is to determine the methods that you want to use to value inventory items. In PeopleSoft Cost Management, you assign cost profiles to items to determine the costing of inventory transactions for that item. PeopleSoft Cost Management offers a number of options for cost profiles that you can mix and match to suit your requirements. Different items or groups of items within a business unit may use different cost profiles, and the same item in different business units may also use different cost profiles.

A profile determines the costing method that is used to value receipts, depletions, and inventory stock.

Receipt Cost Method

The Receipt Cost Method is the method that PeopleSoft Cost Management uses to account for receipts to inventory. Receipts from PeopleSoft Purchasing and completions from PeopleSoft Purchasing become putaways into PeopleSoft Inventory. PeopleSoft Cost Management tracks and accounts for each putaway. The Receipt Cost Method tells the system how the putaway is costed.

Cost Flow

The Cost Flow determines how you want depletions to occur. Although the choice is often a reflection of the physical flow of goods, the choice that you make here does not need to follow the true physical flow of items, especially when it is not practical or significant enough to track the specific flow of quantities. This is the accounting assumption for a particular book. As depletions from inventory are processed, PeopleSoft Cost Management uses this part of the cost profile to determine which putaway can be assumed to have satisfied the depletion and assign putaways to depletions.

For lot ID, FIFO and LIFO items, it may take more than one putaway to satisfy depletions. A fully satisfied depletion is referred to as a depleted depletion. That is, using the cost flow that is specified, PeopleSoft Cost Management found enough on-hand quantities in putaways to satisfy the depletion.

Deplete Cost Method

The deplete cost method is the method that is used to assign a cost to the depleted depletion. Options are:

Insufficient Qty Cost Option

If you are using the negative inventory feature in PeopleSoft Inventory, this option enables you to control how depletion transactions are costed when the item quantity dips into negative quantity. The options are:

Note. The negative inventory feature is activated by selecting the Allow Negative Inventory check box on the Inventory Definition-Business Unit Options page.

Note. If Periodic Weighted Average is entered as the Deplete Cost Method, then negative inventory depletion transactions cannot be costed before sufficient quantity has been received into the business unit. The Cost Profile can only use Don’t cost if insufficient qty or Cost to point of zero quantity as the Insufficient Qty Cost Option.

See Costing Negative Inventory.

Cost Element Option

This option is enabled when you select a deplete cost method of perpetual average or retroactive perpetual average.

Average cost at the cost element detail level only makes sense for items that consistently use the same cost elements for all putaways and if cost element level averages are required for reporting and accounting purposes.

Hold for Final Cost

The Hold for Final Cost check box delays the calculation of actual cost and standard cost variances for items until the final costs are received from PeopleSoft Payables or PeopleSoft Manufacturing. The benefit of this option is to minimize the number of extra accounting entries from PeopleSoft Cost Management. Without this option, the cost of the item is calculated when the item is put away into inventory at the currently available price (from the PO or production ID). This cost is later adjusted for any prices variances, such a, the invoice price or additional manufacturing costs. With this option and the Transaction Costing process run in Mid Period mode, the costing of all putaways and depleted depletions that are tied to unfinished costs (unvouchered and unmatched POs or production IDs with incomplete costs) are postponed. Costing of receipts and depletions is put on hold until the production is complete or PO, receipt, and vouchers are matched; this reduces the need for adjustments. If you run a period-end process, all transactions are costed by using the available cost, regardless of this check box setting.

For purchased items using actual cost, as vendor invoices (vouchers) are entered and matched to the PO and receipt ID by PeopleSoft Payables, PeopleSoft Cost Management is notified of the exact amounts that are vouchered for each receipt. PeopleSoft Cost Management is then able to adjust all receipts, depleted depletions, and variance calculations for costed transactions to the new revised cost and creates the necessary accounting entries for these adjustments. However, if you prefer to postpone the costing of quantity movements until the vouchers are been fully matched, you may select this option.

For makeable items, the Hold for Final Cost option delays the cost calculation of the manufactured item until the final costs from PeopleSoft Manufacturing for all components, conversion costs, or overhead costs are completed; reducing the number of variance adjustments that are needed. If you do not select the Hold for Final Cost option, then the Transaction Costing process calculates the cost of a manufactured item when the production ID is closed for accounting.

The Hold for Final Cost check box does not restrict the flow of item quantities through inventory. PeopleSoft Cost Management keeps track of uncosted and unaccounted-for quantity flows and catches the cost up with those flows as required by period-end requirements or when the final cost is determined, whichever comes first.

Writeoff PPV and ERV

For purchased items only, select this check box to record any differences between the purchase order price and the vouchered price in an expense account rather than catching up the adjustments with the inventory receipt and depletion transactions. This check box is only available if you have selected Actual for the Deplete Cost Method. The variance is inserted into CM_VARIANC_COST record using the transaction group 400 (standard cost variance receipts).

Storage Area Control for Costs

Check Storage Area Control for Costs if you want to apply the FIFO or LIFO depletion method at the storage area level. This means that the system uses FIFO or LIFO costing based on the receipts to the specific storage area from which the item is depleted. You can use storage area control with or without location accounting. However, if you use location accounting, it is strongly recommended that you use storage area control. If the FIFO or LIFO costing of depletions should apply to all receipts at the business unit level, this option can be set to off (unchecked).

Valid Profile Combinations

The combination of receipt cost method, cost flow, and deplete cost method that you select must match one of the valid combinations that appear at the bottom of the page.

If you select a receipt cost method of Non Cost, the system sets the cost flow and deplete cost method fields to Non Cost.

If you select a receipt cost method of Actual or Std Cost, neither the cost flow nor the deplete cost method can be Non Cost. Otherwise, an error message appears.

Cost Profiles - Manufacturing Page

Access the Cost Profiles - Manufacturing page.

Profile for Makeable Items

Select to define this cost profile for makeable items used in PeopleSoft Manufacturing. This check box activates the Labor Cost Method and Machine Cost Method fields for entry. For standard cost items, the relevant values are defaulted into the Labor Cost Method and Machine Cost Method fields and are not editable.

Labor Cost Method

If you use PeopleSoft Manufacturing, use this field to specify how labor costs are calculated. This cost profile should be attached to the make item.

Machine Cost Method

If you use PeopleSoft Manufacturing, use this field to specify how machine costs are calculated. This cost profile should be attached to the make item.

Valid Profile Combinations

The combination of receipt cost method, cost flow, deplete cost method, labor cost method, and machine cost method that you select must match one of the valid combinations that are displayed at the bottom of the page.

Creating Cost Profile Groups

To define cost profile groups, use the Cost Profile Group (CM_GROUP_DEFN) component.

Access the Groups - Books page.

Cost Profile Groups are designed to minimize the maintenance of item cost profiles by defaulting the proper cost profile into the business unit, item, and cost book combination. Cost Profile Groups are used to associate items with like costing profiles. First you give the cost profile group a description, then you associate it with a cost book and cost profile. By assigning the profile to the book and associating the book and profile to a cost profile group, all items that are assigned to that group use the specified cost profile as the default.

You can have any number of profiles to cost the items. Each profile can be associated to a unique book so that entries can be made to various ledgers based on different cost assumptions.

Associating Items With Cost Books and Cost Profiles

As items are added to inventory business units, it is required that a cost profile be defined for each cost book that is used by the business unit. This ensures a complete set of accounting entries for each book. Methods for adding the cost book and cost profile to the item within an inventory business unit include:

• Automatic Default Approach: Enter the cost profile group on the Item Definition - General: Common page as you define the item at the setID level.

  Then, when you create the item ID and inventory business unit combinations by using the Define Business Unit Item component, the cost book and cost profile that is defined for the cost profile group appear by default on the Define Business Unit Item - General: Costing page. Use this method if you plan to use the same cost book and cost profile for every inventory business unit where this item is used.

• Non-Automatic Default Approach: Enter the cost profile for each item ID and inventory business unit combination by using the Define Business Unit Item - General: Costing page.

  The cost book appears by default from the inventory business unit definition. Use this method if the cost profile that is used for the item varies by inventory business unit.

• Use a combination of both methods by moving the book and profile by default from the setID level and then changing the cost profile on any Define Business Unit Item - General: Costing page that does not follow the default method.

  Be sure to select Allow Overrides to Profile on the cost profile group if users at that item-in-business unit level should be able to modify cost profiles.

Note. An item cannot use a cost profile with the cost flow methods of lot ID or serial ID unless the item is defined as lot or serial controlled.

Note. On the Define Business Unit Item - General: Costing page, the Used in Mfg check box indicates that the item is used in manufacturing.

See Also

Defining General Item Information

Defining Item Cost Profiles

Associating Cost Books with a PeopleSoft Inventory Business Unit, Ledger, and Ledger Group

Using the Cost Elements Page

To define cost elements, use the Cost Elements component.

Access the Cost Elements page.

Use the Cost Elements page to define or maintain cost elements, which are used to categorize different components of an item's cost. An item's cost is calculated and maintained by cost elements. You can use cost element categories to define the costs at a summarized or very detailed level by using one or many cost elements. Cost elements also help define the ChartField combinations that are used to create accounting entries during the Accounting Line Creation process.

When defining cost elements, you must associate the element with a predefined cost category. Options are:

PeopleSoft Cost Management uses the cost categories throughout for reporting purposes. Additionally, the system uses only certain categories of costs for certain transactions. PeopleSoft Cost Management uses the costs that are associated with conversion, conversion overhead, material, inbound, landed, and other cost categories to value inventory and all the transactions. For shipments, outbound costs are also included.

Attaching Cost Elements to Generate Costs

Once you define the cost elements, attach the appropriate cost elements to the different costs that are generated by PeopleSoft Cost Management, including:

• Attach a default cost element to items by using the Define Business Unit Item page. This cost element is used when valuing receipts.

• Use landed cost elements to categorize landed costs by using the Misc Charge/Landed Cost Definition page.

• For a purchased item using standard cost:

  • If you are not using the Cost Rollup process, then define cost elements for the items by using the Item Production Costs page. This is not a recommended method.

  • If you are using the Cost Rollup process to calculate standard costs, then define cost elements on the Additional Costs by Item page.

• For makeable items, use the cost elements to define costing conversion rates, costing conversion overhead rates, additional costs by items, and forecasted purchase costs.

See Also

Using Standard Costing for Purchased Items

Creating Cost Conversion Rates

Creating Cost Conversion Overhead Rates

Forecasting Purchase Costs

Adding Additional Costs

Establishing Inventory Business Unit Pairs

Defining Basic Business Unit Item Attributes

Defining Miscellaneous Charges and Landed Costs

Reviewing Costing Examples

These examples illustrate how the costing structure operates. Transactions for PeopleSoft Inventory and PeopleSoft Manufacturing are inserted into the PeopleSoft Transaction History (TRANSACTION_INV) table. The Transaction Costing process in PeopleSoft Cost Management uses the transaction data along with the costing structure to determine the cost for each transaction.

The Transaction Costing process is discussed in detail in the Costing Transactions and Creating Accounting Entries chapter of this PeopleBook.

These diagrams illustrate how the Transaction Costing process uses the cost profile setup (receipt cost, cost flow, and deplete cost methods) to calculate transactions cost for:

• Lot control items.

• FIFO and LIFO items.

• Average cost items.

• Standard cost items.

See Also

Costing Transactions and Creating Accounting Entries

Setting Up the Accounting Rules Structure

Costing Lot Controlled Items

This example illustrates the records that are used while costing lot controlled items. For this example, this information is used:

This diagram illustrates the cost flow for a lot controlled item:

Lot ID costing example

Costing FIFO/LIFO Items

This example illustrates costing using the FIFO/LIFO methods. For this example, this information is used:

This diagram illustrates the cost flow for a FIFO or LIFO item:

FIFO and LIFO costing example

Costing Average Cost Items

This example details the perpetual and periodic average cost methods that are used in PeopleSoft Cost Management. For this example, this information is used:

For the TAX cost book, assume that the average is calculated only once, at the end of the period (periodic).

For the FIN cost book, assume that the average is calculated after each putaway.

Perpetual Average Is Calculated:

Periodic Average is Calculated:

This diagram illustrates the cost flow for a perpetual and periodic average cost item:

Average cost example

Costing Standard Cost Items

This diagram details the standard cost method used in PeopleSoft Cost Management. For this example, this information is used:

Standard costs used for item A:

This diagram illustrates the cost flow for a standard cost item:

Standard cost example

Determining the Cost Structure Strategy

This is a list of the different strategies for setting up the books and profiles, along with the steps that are necessary for each option. When deciding on an approach, be sure to consider future as well as current accounting and management requirements.

Using One Cost Profile and One Book

This method is employed for environments where all items use the same cost method. Additionally, if the financial reporting requirements are simple, you can utilize the single book/single profile setup. For example, if all the items use the same costing method for all business units and you want to use one cost book, the steps to set up PeopleSoft Cost Management are simple and straightforward:

• Define a single cost book.

• Define a single cost profile.

• Define a single cost group and assign the book and cost profile to that cost group.

• As items are created at the setID level, assign them the cost group.

• Define the PeopleSoft Inventory business units, and point to a corresponding PeopleSoft General Ledger business unit. Add the book to the PeopleSoft Inventory business units and point it to the primary ledgers that are in the default ledger groups for the PeopleSoft General Ledger business unit. If you manufacture items by using actual or average costing, also enter a cost type on the inventory business unit.

Now you are ready to add items to the PeopleSoft Inventory business unit. As you add items, the cost profile appears as the default value. No further set up is necessary.

Using Different Cost Profiles in a Business Unit

This option allows you to select a costing method on an item-by-item basis. This method may be utilized in environments where you might want to track the cost of selected items by lot or serial ID and others by FIFO or LIFO actual costs and still others by using a weighted average. In this instance, you need to create cost profiles for all the costing methods you want to employ and cost groups to categorize the items according to the various costing methods. To do this, perform these steps:

• Define a single cost book.

• Define the cost profiles.

• Define cost groups to categorize items according to the costing methods that are employed. Assign the book to each cost group. Select the appropriate cost profile for the cost group.

• As items are created at the setID level, assign them to the appropriate cost group.

• Define the PeopleSoft Inventory business units, and point to a corresponding PeopleSoft General Ledger business unit. Add the book to the PeopleSoft Inventory business units and point it to the primary ledgers in the Default Ledger Groups for the PeopleSoft General Ledger business unit. If you manufacture items by using actual or average costing, also enter a cost type on the inventory business unit.

Now you are ready to add items to the PeopleSoft Inventory business unit. As you add items, the cost profile appears as the default value. No further set up is necessary.

This diagram illustrates how to select a cost method on an item-by-item basis:

Selecting a costing method on an item-by-item basis

Using Different Cost Profiles in Different Business Units

This scenario allows you to cost an item differently in each business unit. You could, for example, use the standard cost method for all of the items that are in one business unit and FIFO actual in another. To set up this scenario:

• Define two or more books at the setID level. Each book could represent a costing method. By using the preceding example, you could set up a book called FIN_A and FIN_B.

• Define the different costing profiles that are used in each business unit. Examples are STD and FIFO.

• Define a cost group. You could create a single group or multiple groups, depending on whether all items use the same costing method within a business unit.

• Assign both books to the cost group, and then assign a profile to each book. For example, cost group MAKE is assigned Book FIN_A and FIN_B. FIN_A uses the STD profile and FIN_B uses the FIFO profile.

• Define the items at the setID. Assign the items to a cost group (MAKE in this example).

• Assign a book to a PeopleSoft Inventory business unit depending on the costing method that is used in the business unit. For this example, FIN_A is assigned to BU A; FIN_B is assigned to BU B.

• Add items to each business unit. As items are added to BU A, they are assigned a costing profile of STD. As items are added to BU B, they are assigned a costing profile of FIFO.

This diagram illustrates how to cost an item differently in different business units:

Costing an item differently in different business units

Using Multiple Simultaneous Costing Methods in One Business Unit

To support varying requirements for financial, government, and management reporting, you can maintain multiple books within a PeopleSoft Inventory business unit, with each book based on different costing methods. You can cost an item differently in the business unit's financial reporting book than you do in the tax or management reporting books. For example, you could use the actual LIFO method cost for tax reporting, and at the same time use the periodic average cost method for customer profitability analysis. When you use simultaneous costing methods, you generate accounting entries for each book.

The setup for using multiple books within a single business unit is similar to the setup in the preceding example. However, both books are defined in a single PeopleSoft Inventory business unit. As items are added to the business unit, they inherit the profiles for all the books. When transactions for the items are costed and the Accounting Line Creation process (CM_ALC) is run, accounting entries are created for each book using the appropriate costing method.

Determining Your Negative Inventory Strategy

PeopleSoft’s negative inventory feature enables you to move or ship stock that sends the item's quantity balance into negative numbers within the PeopleSoft system. Negative inventory is an optional feature that is activated at the PeopleSoft Inventory business unit level.

A negative inventory depletion transaction is a depletion transaction that drives the item quantity to a negative balance in the system even though physically the quantities did exist. Causes of negative inventory in the system could include:

• The receipt transaction is entered into the system after the shipment transaction.

• A bin-to-bin transfer is entered into the system after the consumption transaction.

• An error in entering transaction quantities.

Once PeopleSoft Inventory has shipped a negative inventory depletion transaction, you have options in PeopleSoft Cost Management on how to cost the transaction. Since there is no corresponding receipt or receipt cost to apply to the negative inventory depletion transaction, you can :

• Place the transaction on hold. You have the option to split the depletion transaction, cost up to the currently available quantity in the unit, then hold the negative inventory part of the transaction. Each time the Transaction Costing process is run, any negative inventory depletion transactions on hold are examined to determine if there is sufficient quantity available to satisfy the depletion. Once sufficient quantity is entered into the business unit through putaway and adjustment transactions, then the depletion transactions are costed.

• Cost the transaction based on the most current cost. If a portion of the stock is currently available in the unit, then the depletion transaction is split, one part is costed up to the currently available stock and the negative inventory part is costed based on the most current cost. Later, when sufficient quantity is entered into the business unit through putaway and adjustment transactions, then the Negative Inventory Resolver process within the Transaction Costing process can use the new receipt cost to adjust the negative inventory depletion records.

Users are cautioned that negative inventory is an invalid state and these conditions should be investigated and reconciled on a timely basis. The negative inventory options are provided as a convenience to users where, in the user’s judgment, the principle of materiality is not violated by the negative inventory state.

Setting Up Negative Inventory

The negative inventory feature is activated by selecting the Allow Negative Inventory check box on the Inventory Definition-Business Unit Options page. The Insufficient Qty Cost Option on the Cost Profiles page determines how the Transaction Costing process applies costing to negative inventory transactions.

Accounting for Transactions on Hold Due to Negative Inventory

If you allow negative inventory balances in the PeopleSoft Inventory business unit and you choose not to cost a negative inventory depletion transaction, then you will want to determine the approach to accounting for these held transactions at period end. These depletion transactions are not reflected in the financial records since they have not been processed by the Transaction Costing process, therefore, they are not passed downstream to the Accounting Line Creation process or the Journal Generator process. The options are:

• Use the Transaction Costing process to cost the depletion transactions once sufficient receipts exists. The Transaction Costing process will post the depletion transaction costs in the original period of the shipment, as long as that period is still open per the open period page for inventory and GL and per the ledger calendar. If the negative inventory balances are relatively small and do not impact the financial balances, then use the Transaction Costing process to update a prior period depletion transaction.

• Enter manual journal entries at period end to accrue negative inventory depletion transactions. Be sure to use the GL open period feature and set the open period lag days to zero so the cutoff day is the last day of the period. This enables you to enter manual journal entries in the closing period without concern that the Transaction Costing process will later post depletion transaction costs into this period, therefore doubling the accrual. By setting up the period end control in GL to zero lag days for inventory, the Transaction Costing process is prevented from posting delayed depletion transaction into the prior period and instead posts them into the current period.

See Also

Defining Cost Profiles

Costing Negative Inventory

Defining Accounting Calendars

Pages Used to Determine Your Negative Inventory Strategy

Selecting the Method to Number Accounting Lines

Within the Accounting Line Creation process, a substantial reduction in processing time can be achieved by using set-based processing to number the lines of the newly-created accounting entries. As delivered, the system uses row-by-row processing to create the sequential accounting line numbers. By performing additional set up steps you can switch from row-based processing to set-based processing to generate the line numbers.

Note. The set-based approach is optional. The delivered default option is the row-by-row approach.

Set-based processing of the line numbers can be accomplished by using the database platform’s approach and syntax to generate sequential numbers. All PeopleSoft supported database platforms have an approach for generating sequence numbers within the database. The Cost Accounting Creation process can take advantage of this feature with some minor additional set up steps.

The architecture of the set-based sequence approach is similar across all platforms with just a few changes for platform specific syntax:

• Create a temporary working table with an identity column or use a database specific rownumber function on the database platform, depending on the platform. The syntax is platform specific but the behavior is fairly common. The create table syntax is delivered as a special PeopleSoft Data Mover Script (DMS) for installation, however, some platforms will require further intervention by your database administrator.

• During the Accounting Line Creation process, the SQL statement to insert the data to the special temporary work table has slightly different syntax on different database platforms but the behaviors are very common across platforms. This syntax is delivered as part of the process logic and requires no special user intervention.

The set-based sequencing approach depends on a special installation process to set up the objects. The setup has the following steps on all platforms except Oracle:

1. Find the DMS for your specific database platform. The scripts are located on the scripts folder: <PeopleTools home>\scripts.

   Database Platform	PeopleSoft Data Mover Script
   Microsoft SQL Server	cm_id_create_mss.dms
   Sybase	cm_id_create_syb.dms
   DB2	cm_id_create_db2unix.dms
   OS390	cm_id_create_db2os390.dms
   Informix	cm_id_create_inf.dms
   Oracle	(no DMS needed)

2. Engage your Database Administrator and review the provided PeopleTools DMS. If your system uses customized ChartField column names, then the DMS must be modified manually. If the database is configured to use the unicode character set, then the DMS must be modified manually. Some platforms require tablespace names and other database administration parameters to be defined as part of the create table command.

3. Run the provided PeopleTools DMS to recreate the sequence numbering work table (the CM_ACCTG_LN_TM2 record) with an IDENTITY type column (or SERIES type column on Informix).

4. The Set based Sequencing check box on the Installation Options- Inventory page should now be available. Select the check box to use set-based sequencing.

On Oracle the installation process for set-based sequencing is just one step. Select the Set based Sequencing check box on the Installation Options- Inventory page. It is always available on an Oracle platform. The system uses a built-in database ROWNUM function and work table (the CM_ACCTG_LN_TMP record) as originally installed by PeopleTools.

At run time, the Cost Accounting Creation process checks for three specific issues before deciding to use set-based sequencing:

• Verifies the DMS has been run (This is always set for ORACLE).

• Verifies the Set based Sequencing check box has been selected on the Installation Options - Inventory page.

• Verifies the table structure of the sequence numbering work table (PS_CM_ACCTG_LN_TMP in Oracle and PS_CM_ACCTG_LN_TM2 in the rest of the platforms) and its sub record have not changed since the time the Set based Sequencing check box was selected.

The message log for the Cost Accounting Creation process displays which type of sequencing is being used to create accounting lines (row-by-row or set-based). This can be used to confirm the type of sequencing selected.

Note. Using the set-based processing method to generate the sequential accounting line number is significantly faster than row-based processing. However, set-based processing can produce gaps in numbering. For example, within one accounting entry with four lines, the lines can be numbered 1, 5, 6, and 11, rather than 1, 2, 3, and 4.

See Also

Setting Up Inventory Installation Options

Pages Used to Select the Method to Number Accounting Lines