Managing Actual and Average Costing

This chapter provides an overview of average and actual costing and discusses how to;

Review actual and average costing for manufacturing.
Manage the actual costing method.
Administer the average cost methods.

Understanding Average and Actual Costing

PeopleSoft Cost Management provides flexibility when establishing and adjusting costs for makeable or purchased items. This chapter discusses features of PeopleSoft Cost Management that are related to the use of actual, and average costing methods that are used in either a manufacturing or distribution environment.

Actual costs for a production ID or production schedule are computed as part of the Transaction Costing process. Actual costs can be viewed by using the inquiry pages that are in this chapter. Changes to the actual or average costing can be accomplished by using the adjustment pages that are in this chapter.

Production IDs that are closed for accounting can be reopened for changes; the actual cost calculations of the Transaction Costing process handles these changes.

Common Elements Used in This Chapter

Book Name	The name of the cost book. Books identify the type of accounting records that are to be maintained, such as tax, managerial, or financial books. A book contains a set of accounting entries that are posted to the general ledger.
Cost Element	A code that is used to categorize the different components of an item's cost and also to define the debit and credit ChartFields for accounting entries.
Lower Level Costs	Costs that are associated with the components that are used on the assembly.
Reason Code	Categorizes why the adjustment occurred and can be used later for analysis. The reason type limits the selection to the appropriate reason codes for adjustments.
Source Code	Identifies an item as make, buy, floor stock, expense, or planning. This determines how the item is used for the Cost Rollup process and Update Production process (CEREVAL, SFPREVAL, CES5001).
Std UOM (standard unit of measure)	The standard unit of measure for this item established on the Item Definition - General: Common page.
This Level Costs	Costs that are associated with procuring distribution items.

Reviewing Actual and Average Costing for Manufacturing

PeopleSoft Cost Management provides you a number of ways to track actual costs of a production ID or production schedule.

For purposes of computing actual costs of production IDs, if any component items (make or buy) use an actual cost profile, then those final lower level actual costs are necessary for computing a final actual cost at the next level. PeopleSoft provides the actual cost inquiry to display production IDs with unfinalized costs as well as the dependencies underneath each level.

Before completing and finalizing a production ID’s costs, it is useful to see a projected actual cost variance with visibility into details where an entry that is expected per the standard may have incomplete or unreasonably different actual costs, or there are actual costs for details that are not expected. This is provided by the Compare Cost Measures component, where you can make corrections before posting the costs.

Pages Used to Review Actual Costs in Manufacturing Environments

Page Name	Object Name	Navigation	Usage
Actual Cost Inquiry	CM_ACTUALCOST_INQ	Cost Accounting, Item Costs, Review Costs, Actual Cost Inquiry, Production Selection	(Manufacturing environment only) For makeable items, you can view the actual cost of production based on the production ID or the combination of production area and item ID. This inquiry page displays the actual costs of production broken down by operation sequence, cost category, and conversion code. The production status, item ID, book name, and completed quantity are also displayed. The actual costs are calculated by the Transaction Costing process.
Proactive Production Cost - PID Cost	CE_PRDNID_COSTING	Cost Accounting, Item Costs, Review Costs, Proactive Production Cost Production Control, Define Production, Production IDs/Schedules, Production ID Maintenance. Select the Review Proactive Costing link.	For makeable items, this page provides advanced proactive visibility into the costing of a production ID during each phase of production. You can save the current costs under a cost measure type for reviewing and comparing on the Compare Cost Measure component.
Primary Products & Co-Product Cost	CE_OUTPUT_COST_SEC	Select the Primary Product & Co-Product link on the Proactive Production Cost - PID Cost.	View the projected costs for the primary product and co-products of this production ID.
Compare Cost Measures - Output Analysis	CE_COST_ANALYTICS	Cost Accounting, Item Costs, Review Costs, Compare Cost Measures, Output Analysis	Review and compare the cost calculations for the output from a production ID (products, co-products, and so on) at various stages of production. Cost comparisons can include the production ID as planned, as produced, the frozen standard costs, the actual production costs, or other stages of production.
Compare Cost Measures - Input Analysis	CE_COST_ANALYTICS2	Cost Accounting, Item Costs, Review Costs, Compare Cost Measures, Output Analysis	Review and compare the cost calculations for the input into a production ID (components, direct, and indirect costs) at various stages of production. Cost comparisons can include the production ID as planned, as produced, the frozen standard costs, the actual production costs, or other stages of production.
Sequences for the Cost Measure	CE_COST_MEASUR_SEC	Enter a value in the Cost Measure 1 or Cost Measure 2 fields of the Compare Cost Measures component. If more than one sequence has been created for this cost measure, the system takes you to this page.	Select the sequence number for viewing costs for this business unit, production ID, and item ID combination.

Capturing Production Costs

Access the Proactive Production Cost - PID Cost page.

For makeable items, this page provides proactive visibility into the costing of a production ID during each phase of production. By using this page, you can view and capture the current costs of a production ID based on the component list and operations list. The captured costs are a snapshot of the production ID's costs at a particular point in time, such as during the as planned stage (before the production ID is released and changed by production) or the as produced stage (after the production ID is changed during production). For any production ID, you can create multiple snapshots (or cost measures) and save them under a unique combination for cost measure, description, and sequence number. These cost measures can then be compared to each other and the actual or frozen standard costs of the production ID by using the Compare Cost Measures component. By breaking the costs out into as planned and as produced cost measurements, you can see the impact on anticipated costs throughout the life cycle of the production ID.

Cost Measure

Select a value to identify the current stage of the production ID costs. In the text field to the right, enter a description to uniquely identify these calculations. The selection here plus the description and sequence number uniquely identify these captured costs. The cost measure options are:

As Planned: Identifies these captured costs as the cost planning determines and before the production ID is changed by the production process. In other words, the operations list and component list are not changed from the planning stage. The as planned costs should be captured when the production ID has a status of firmed or greater.
As Produced: Identifies these captured costs as the production ID's current costs in the production cycle. As a production ID flows through the production process, the operations list, component list, and rates can change. This option indicates that these capture costs reflect costs after production took over from planning and (possibly) altered the production ID to better suit the current production environment.
Other: Identifies all other cost measures that you wish to save other than as planned and as produced.

Note. The selection in the Cost Measure field is descriptive only; it does not influence the calculation of costs.

Primary Products & Co-Products

Select to access the Primary Products & Co-Product Cost page to view the primary product and any co-products for this production ID.

Save this page to store the current cost calculations by cost measure type and sequence. The cost calculations are saved to the CE_PRDNID_COST record. These cost measures can be compared to each other and the actual or frozen standard costs of the production ID by using the Compare Cost Measure component.

Comparing Production Costs

Access the Compare Cost Measures- Output Analysis page or the Compare Cost Measures-Input Analysis page.

Review and compare the cost calculations for a production ID at various stages of production. Enter the business unit, cost book, production ID or production schedule for the production costs that you want to review.

Cost Measure 1 and Cost Measure 2

Enter the two cost measures to compare for this production ID or production schedule. Cost measures represent the current costs at various stages of production. Cost measures include:

Actual: The current actual costs of this production ID or production schedule.
As Planned: Cost captured before while the production ID still reflected the planned production and before changes in the production process. These costs are captured by sequence number by using the Proactive Production Cost - PID Cost.
As Produced: Costs captured after the production ID is released to production and altered to better suit the current production environment. These costs are captured by sequence number by using the Proactive Production Cost - PID Cost.
Frozen Standard: The frozen standard costs that are used for this production ID or production schedule.
Other: Cost captured (by sequence number) using the Proactive Production Cost - PID Cost for costs that are not identified as planned or produced.

Seq Nbr

Enter the sequence number that uniquely identifies the captured costs that use the Cost Measure of As Planned, As Produced, or Other.

Search

Select to display the costs for Cost Measure 1 and Cost Measure 2.

Managing the Actual Costing Method

This section provides an overview of the management of the actual cost method and discusses how to:

Specify the item information to adjust an actual cost item.
Specify the manufacturing information to adjust an actual cost item.
Manually adjusting actual cost items.

Understanding the Management of the Actual Cost Method

When the items are defined as actual cost, the Transaction Costing process:

For purchased items, values all receipts (putaways) at the purchase order price. The cost can be later adjusted to the voucher price when the voucher is matched, posted, and landed costs are extracted, unless you have selected the Writeoff PPV and ERV check box on the Cost Profiles page.
For makeable items, values the receipts (putaways) that are based on the completed production costs from the completed production ID or production schedule. If finished items are placed into inventory before the production ID or production schedule is complete, then an estimated cost is used at putaway. The cost is later adjusted to the completed production cost.
Values all depletions using the putaway cost (adjusted to the voucher price once it is matched, posted, and extracted). The choice of cost flow method on the cost profile page enables the system to track which putaways are used to satisfy each depletion. The system can track items by using lot ID, serial ID, FIFO, or LIFO.
Actual cost items can be updated to the voucher price once it is matched and posted. Putaways and depletions that were previously costed at the purchase order price are adjusted for the difference between the purchase order (PO) price and the voucher price. To delay costing actual cost items until the voucher price is available, select the Hold for Final Cost check box (on the Cost Profiles page) and run the Transaction Costing process with the Cost Mode of Mid Period.

You also have the option to not update actual cost items to the voucher price. Select the Writeoff PPV and ERV check box on the Cost Profiles page to record any differences between the purchase order price and the vouchered price in an expense account rather than updating the inventory receipt and depletion transactions. The variance is inserted into CM_VARIANC_COST record using the transaction group 400.

The receipt costs of an actual cost item can also be manually adjusted by using the Adjust Actual Cost component. You may need to adjust an item's cost due to entry errors, variances, and other causes. You can increase or decrease the item’s cost, or you can establish a new actual cost for an item. This component writes adjustments, using the transaction group 206, to the CM_USER_CST_ADJ record, where they are picked up by the Transaction Costing process.

Pages Used to Manage the Actual Costing Method

Page Name	Object Name	Navigation	Usage
Adjust Actual Cost - Item Selection	CM_COSTADJ_PARM	Cost Accounting, Item Costs, Update Costs, Adjust Actual Cost, Item Selection	Specify the item information to adjust an actual cost item.
Adjust Actual Cost - Production Selection	CM_ACTC_INQUIRY	Cost Accounting, Item Costs, Update Costs, Adjust Actual Cost, Production Selection	Specify the manufacturing information to adjust an actual cost item.
Adjust Actual Cost - Adjustment Detail	CM_COSTADJ_ACTUAL	Cost Accounting, Item Costs, Update Costs, Adjust Actual Cost, Adjustment Detail	Apply an actual cost adjustment to an item.

Specifying the Item Information to Adjust an Actual Cost Item

Access the Adjust Actual Cost-Item Selection page.

Use this page to search for the receipt to be adjusted. You can find the receipt by:

(required) Entering the business unit, cost book name, and item ID for which you want to update the actual cost.

You can select only those items that are actual costed in at least one business unit book.
(optional) Refining the search by selecting a specific Receipt No (receipt number).

You can include or exclude consigned receipts by selecting B (include both), N (exclude consigned items), or Y (include consigned items). You can also specify a receipt to a specific storage area.
Click the Search button after you make selections.

The system automatically displays the results of the search on the Adjustment Detail page.

Specifying the Manufacturing Information to Adjust an Actual Cost Item

Access the Adjust Actual Cost-Production Selection page.

Use this page to search for the receipt that is to be adjusted for production information. You can find the receipt by:

(required) Entering the business unit, and cost book name.
(required) Entering either a production ID or production area and item ID.
(optional) Entering a group ID for production schedules.
Click the Search button after you make the selections.

The system automatically displays the results of the search on the Adjustment Detail page.

Manually Adjusting Actual Cost Items

Access the Adjust Actual Cost - Adjustment Detail page.

The Adjustment Details page displays the results of the search from the Item Selection page or the Production Selection page. Use the different tabs on this page to display the receipts in date and time order, in receiver number order, in lot or serial ID order, or production ID or area order. Use this page to apply an actual cost adjustment to an item's receipt.

Adjustment Type

Select the cost adjustment type of either cost adjustment or value adjustment. Items that already have a value adjustment are unavailable for cost adjustments. You can make as many cost adjustments as you want, but the new cost is not visible on this page until the Transaction Costing process is run. After you make a value adjustment to a putaway, that item can have further value adjustments, but cost adjustments are not allowed after that time. The value adjustment is considered the superseding point of information; it is the value for this putaway. Once a manual adjustment is made, further adjustments from PeopleSoft Payables are not processed; the manual intervention takes precedence over system generated adjustments.

Cost Adjustment: Adjusts the cost for the specified items in the inventory balance and depletion records (if any of the quantity is shipped). A cost adjustment declares that the old cost is incorrect, and this is the correct cost.

Value Adjustment: Adjusts the value for the specified items that are currently on hand in the inventory business unit. Depletion records are not updated. A value adjustment declares that the old cost is correct, and depletions that are accounted for at the old cost had the correct cost, but now something has occurred that requires a change to the value of the existing on-hand quantity.

Use the Auto-adjust group box to apply one cost or percentage adjustment to all the selected receipt lines in the Item Adjustment Selection group box.

Adj Method (adjustment method)	To adjust the actual cost of an item, you have three options: Increase: The amount that you enter in the Increase Cost By field or the% Increase field is added to the current average cost. Decrease: The amount that you enter in the Decrease Cost By field or the % Decrease field is subtracted from the current average cost. Enter the amount as a positive number. New Cost: The amount that you enter in the New Cost field replaces the current average cost.
Adj Class (adjustment class)	Specify whether the entries are expressed in amount or percentage. This applies to the adjustment methods of increase or decrease.
	Click the Apply cost to all button to apply the new costs that are entered in the Auto-adjust group box to all of the receipt lines that are displayed.
	Click the Sum Adjusted btnbutton to display adjusted quantities for the item in the Total Qty OnHand, Total Qty Adjusted, and Total Costs Difference fields.

Use the Item Adjustment Selection group box to adjust individual receipt lines. Receipt lines appear based on the selection criteria from the Item Selection or Production Selection pages. The receipts lines can be adjusted individually by using the appropriate Increase(percent increase), Decrease (percent decrease), or New Cost fields on the selected row. To adjust several receipts at one time, use the Auto-adjust group box.

Sel

Select the receipt lines of the item that you want to adjust.

Administering the Average Cost Methods

This section provides an overview of the administration of the average cost methods and discusses how to:

Adjust perpetual weighted averages.
Adjust retroactive perpetual weighted averages.

Understanding the Administration of the Average Cost Methods

For average costing, you can select one of three costing methods:

Periodic Weighted Average	The weighted average is calculated only once, at the end of the period. All depletions during that period use this same average. Run the Transaction Costing process with a Cost Mode of Regular to calculate end-of-period averages. There is no cost adjustment page for periodic averages.
Perpetual Weighted Average	The weighted average is calculated at each putaway. The average cost that is applied to depletions could fluctuate throughout the period.
Retroactive Perpetual Weighted Average	The weighted average is calculated after each putaway, just like the perpetual average method; however, this weighted average cost is calculated at the end of the period and applied retroactively to the depletions. This method enables you to value each individual transaction by using the current perpetual average cost at depletion time, yet delay the calculation of the average until the end of a period, when more cost information is likely to be captured for a more accurate average cost. Run the Transaction Costing process with a Cost Mode of Regular to calculate retroactive perpetual average.

Based on the entry in the Cost Element Option field of the Cost Profiles page, the perpetual average costing methods can combine all costs into the primary cost element and calculate one average cost per item or break out the averages by cost element.

When the items are defined as average-cost items, the Transaction Costing process:

Values all receipts (putaways) at the purchase order price or the cost of production.
Values all depletions by using the periodic weighted average, the perpetual weighted average, or the retroactive perpetual average method. The choice of cost flow method on the cost profile page does not impact the weighted average calculations, but it is necessary for the system's background processes.
To apply purchase price variances and exchange rate variances to the perpetual average cost items, select the Apply Perpetual Average Adjs check box on the Transaction Costing process page. Putaways and depletions are adjusted for the difference between the PO price and the voucher price (price variance) and also any difference in the exchange rate that is used on the PO and the voucher (ERV). To delay calculation of the price and exchange rate variances, do not select the Apply Perpetual Average Adjs check box when running the Transaction Costing process.
For periodic weighted average items, no variances are computed. This method assumes that the invoices are matched, posted, and extracted within the same period that the PO is entered. When the Transaction Costing process is run, it picks up the invoice costs for putaway and average cost calculations. If the invoice costs are not available, then the PO costs are used but no variance later updates the average cost calculations for delayed invoice costs. The frequency of the periodic average computation is controlled by running the Transaction Costing process in Regular mode. When the Transaction Costing process is run in Mid Period mode, periodic averages are not computed and depletion transactions are not costed. The accounting for these transactions is postponed.

The cost of an average cost item can also be manually adjusted by using the Adjust Average Cost page and the Adjust Retro Costs page. When the system is running in a live environment, you may need to manually adjust an item's average cost due to entry errors, variances, and other causes. You can increase or decrease the item’s cost, or you can establish a new average cost for an item.

The Adjust Average Cost page and the Adjust Retro Costs page write the perpetual average adjustments to the average cost table, CM_PERPAVG_COST, and the average cost adjustment table, CM_COST_ADJB, where they are picked up by the Accounting Line Creation job.

All periodic average cost items are updated on the CM_PERDAVG_COST record during the Transaction Costing process whenever there is a receipt or depletion of any periodic averaged item. Each update puts a new row in the table, and all other previous rows are marked inactive, so only one row for the business unit and item ID is active. There is no cost adjustment page for periodic cost.

Note. Manual adjustments do not change the average cost that is stored in the AVERAGE_COST_MAT field of the BU_ITEMS_INV record. This field is appears in the Avg Matl Cost field of the Define Business Unit Item-General: Common page.

Pages Used to Administer the Average Cost Methods

Page Name	Object Name	Navigation	Usage
Adjust Average Cost	CM_COST_ADJ	Cost Accounting, Item Costs, Update Costs, Adjust Average Cost, Average Cost Adjustment	Adjust perpetual weighted averages for items.
ChartField Overrides	CM_COST_ADJ2	Click the ChartField Overrides link on the Adjust Average Cost page or the Adjust Retro Costs page.	Replace the ChartField combinations that are defined in the account distribution setup.
Adjust Retro Costs	CM_COST_ADJ_RETRO	Cost Accounting, Item Costs, Update Costs, Adjust Retroactive Cost, Adjust Retroactive Average	Adjust retroactive perpetual weighted averages for items.

Adjusting Perpetual Weighted Averages

Access the Adjust Average Cost page.

Use this page to adjust an item's current perpetual weighted average cost based on the business unit, cost book, item ID, and cost element. The cost adjustment and inventory revaluation are processed by the Accounting Line Creation job.

Note. Negative quantities are acceptable, but the unit cost cannot be negative. A message appears if this situation arises.

Qty Owned (quantity owned)	Inventory is classified as owned, nonowned, or consigned. If inventory is nonowned, it is not considered a part of the inventory value for the business unit; nonowned inventory does not affect costing, and in this case, the average cost. The owned quantity for an item is used to recalculate average cost. Consigned inventory from a vendor becomes owned inventory when it is consumed; at that time, it is included in average cost recalculation.
Weighted Average Adjust Type	Options are: Adj Value (adjustment value): Enter a new inventory value for the specified item. The adjustment is processed by the Accounting Line Creation process by using the value adjustment transaction (transaction group 205). Accounting entries are created to record the change in inventory valuation. The adjustment transaction records the difference between the old and the new weighted average cost for the current owned quantity on hand for the entire business unit. If the inventory business unit requires location accounting, the process writes an average cost adjustment transaction for each owned storage area containing a nonzero balance of the item. Change Avg (change average): Enter a new current average cost for the specified item. This option does not result in accounting entries, but the transaction is stored in the database for record keeping purposes. For example, assume that the balance of the item in PeopleSoft Inventory (average cost multiplied by on-hand quantity) does not agree with the item’s net balance in PeopleSoft General Ledger. Upon investigation, you discover that the general ledger (GL) balance is correct. Perhaps it is adjusted by using a manual journal entry. The change average option provides a method to change the average cost for perpetual inventory records.
ChartField Overrides	Select to change ChartField information, or you can select a SpeedType Key and the ChartField information appears as the default from the SpeedType. The SpeedType Key field only appears if SpeedType level is selected on the Inventory Definition - Business Unit Options page.
Adjustment Method	To adjust the average cost of an item, you have three options: Increase: The amount that you enter in the Increase field is added to the current average cost. Decrease: The amount that you enter in the Decrease field is subtracted from the current average cost. Enter the amount as a positive number. New Cost: The amount that you enter in the New Cost field replaces the current average cost.
Distribution Type	(Optional) User-defined codes that are a subset of transaction groups. This enables you to break down a transaction group into customized categories which can use different ChartFields by distribution type from the distribution accounting rules.

Use the Average Cost Adjustment/PPV report to view adjustments that this page creates.

Adjusting Retroactive Perpetual Weighted Averages

Access the Adjust Retro Costs page.

Enables you to update or add an average cost for the item in the retroactive perpetual average record. The entry is inserted into the actual cost table. The Transaction Costing process (in the regular Cost Mode) then recalculates the correct average for every depleted depletion transaction.

Qty Owned (quantity owned)	Inventory is classified as owned, nonowned, or consigned. If inventory is nonowned, it is not considered a part of the inventory value for the business unit; nonowned inventory does not affect costing, and in this case, the retroactive perpetual average cost. The owned quantity for an item is used to recalculate the retroactive perpetual average cost. Consigned inventory from a vendor becomes owned inventory when it is consumed; at that time, it is included in perpetual average cost recalculation.
Weighted Average Adjust Type	The options are: Adj Value (adjustment value): Enter a new inventory value for the specified item. The adjustment is processed by the Transaction Costing process and the Accounting Line Creation process by using the value adjustment transaction (transaction group 205). Accounting entries are created to record the change in inventory valuation. The adjustment transaction records the difference between the old and the new perpetual weighted average cost for the current owned quantity on hand for the entire business unit. If the inventory business unit requires location accounting, the process writes an average cost adjustment transaction for each owned storage area containing a nonzero balance of the item. Change Avg (change average): Enter a new current average cost for the specified item. This option does not result in accounting entries, but the transaction is stored in the database for record keeping purposes. For example, assume that the balance of the item in PeopleSoft Inventory (average cost multiplied by on-hand quantity) does not agree with the item’s net balance in PeopleSoft General Ledger. Upon investigation, you discover that the GL balance is correct. Perhaps it is adjusted by using a manual journal entry. The Change Average option provides a method to change the average cost for perpetual inventory records.
ChartField Overrides	Select to change ChartField information, or you can select a SpeedType Key and the ChartField information appears as the default from the SpeedType. The SpeedType Key field only appears if SpeedType level is selected on the Inventory Definition - Business Unit Options page.
Adjustment Method	To adjust the average cost of an item, you have three options: Increase: The amount that you enter in Increase Cost By is added to the current average cost. Decrease: The amount that you enter in Decrease Cost By is subtracted from the current average cost. Enter the amount as a positive number. New Cost: If there is no current perpetual average for this item, then you can enter an amount in theNew Cost field. This new cost is applied to the beginning of the period.
Distribution Type	(Optional) User-defined codes that are a subset of transaction groups. This enables you to break down a transaction group into customized categories which can use different ChartFields by distribution type from the distribution accounting rules.