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New Location (CO) - Wants Costing at location/lot level

pfaloney

Well Known Member
We are adding a new location (Company Level) that wants to do costing at the Lot/Level. All other locations are either Standard Cost or Weighted average.

I am use to one costing method company wide (usually Standard Cost).

The plant will be using Item Numbers that are common across multiple locations (Different companies) which means site(s) could have Standard (Method 7) or Weighted Average (2) while this location would be Lot/Level (Method 6 maybe 9).

Is this even possible? We are currently on 9.0 and going to 9.2 later this year.
 
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pfaloney

Well Known Member
I think the issue is due to the Cost Level is at the Item Master level. Most items are set up for Item/Branch (2). These parts would have to be set up for Item/Branch/Location/Lot Level (3).

I think there is a concern that location with Standard and Weighted average costs would have different costs at the Lot/Location level within the Branch Plant.
 

RussellCodlin

Reputable Poster
I think the issue is due to the Cost Level is at the Item Master level. Most items are set up for Item/Branch (2). These parts would have to be set up for Item/Branch/Location/Lot Level (3).

I think there is a concern that location with Standard and Weighted average costs would have different costs at the Lot/Location level within the Branch Plant.
You can't use standard costing at costing level 3. Costing level 3 is used for actual costing.

As you have identified, the costing level is set at the item master so if they are sharing items then either the entire organisation moves to actual costing (good luck with that) or you create new items or do what I would do and tell them that costing is at branch level and can't be changed.
 

pfaloney

Well Known Member
You can't use standard costing at costing level 3. Costing level 3 is used for actual costing.

As you have identified, the costing level is set at the item master so if they are sharing items then either the entire organisation moves to actual costing (good luck with that) or you create new items or do what I would do and tell them that costing is at branch level and can't be changed.
Thanks. You gave me the information I needed and will make my managers very happy. Currently:

Plants use Standard Cost
Distribution Centers use Weighted Average.

For some reason, the plant coming onto JDE does it at what is equivalent to Level 3. Looks like they will have to change.
 

RussellCodlin

Reputable Poster
Depending on my mood I'd handle it one of two ways. Either do a change management activity to show the cost accountants the benefits of using standard costing in a manufacturing environment and how variance accounting enables effective management by exception. Alternatively I'd tell the cost accountants if they don't understand how to manage business performance with standard costing then they aren't really qualified to be cost accountants at a manufacturing plant and maybe they should be looking at another career. Actual costing belongs in the world of projects and engineering, not repetitive manufacturing.
 

pfaloney

Well Known Member
Depending on my mood I'd handle it one of two ways. Either do a change management activity to show the cost accountants the benefits of using standard costing in a manufacturing environment and how variance accounting enables effective management by exception. Alternatively I'd tell the cost accountants if they don't understand how to manage business performance with standard costing then they aren't really qualified to be cost accountants at a manufacturing plant and maybe they should be looking at another career. Actual costing belongs in the world of projects and engineering, not repetitive manufacturing.
There is an underlying Business Reason for it that I cannot get into
 

pfaloney

Well Known Member
Followup question.

If we continue with Cost Level 2 (Branch Plant). Can "Actual Cost" (9) or Lot (6) be used at the lot location level. This may meet their needs.
 
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RussellCodlin

Reputable Poster
There is an underlying Business Reason for it that I cannot get into
Ahh, your manager's manager has told them to just make it happen ;)

Don't really understand the question you're asking. You can either use standard costing at 2 or actual costing at 2/3. Actual costing at level two is effectively last in cost and causes all inventory to be revalued on work order completion/accounting.

Without actually understanding the problem that needs to be solved it is impossible to offer a workable solution, suggest you get in contact with a consultant in your area.
 

pfaloney

Well Known Member
The Location is a Distribution Center and essentially takes various components and "kits" it via a work order for the final shipment product. No labor is recorded against the work order. Sometimes they have "special order" from an outside source it the part is not in stock". In all cases, they want to use the cost from the source (whether internal or external) at the time of the receipt for the cost of the product on the sales and shipment. All other distribution centers use "Weighted Average".

In there lies the issue. The items at the Manufacturing is at Standard Cost, but they want to use "Actual Cost" for the same Items.
 

aaro

Active Member
Instead of work order, I think you might have to setup a sales kit BoM for the parent part# with stocking type K in DC to enter sales orders.
Regularly updating any standard cost changes to components in DC followed by cost simulation and subsequent cost freeze should meet the requirements.
Hope it helps! Thanks
 

pfaloney

Well Known Member
Instead of work order, I think you might have to setup a sales kit BoM for the parent part# with stocking type K in DC to enter sales orders.
Regularly updating any standard cost changes to components in DC followed by cost simulation and subsequent cost freeze should meet the requirements.
Hope it helps! Thanks
The Work Order portion is not an issue. It is a Cost Collection issue. The Items' Cost Level are Branch Plant (2) which is Standard Cost at the plants and Weighed Average at all Distribution Centers. This is a new Distribution Level which is coming on line later this year. For some reason, they are determined to do the costing at the Location/Lot level at cost at the time of receipt whether it is from a plant or purchased (essentially Actual Cost) which is not allowed at Cost Level 2.

I have provided documentation to that fact, but they now think they can used Costing Method 6 (lot) instead 9 (actual) cost. Not sure it will work.
 

RussellCodlin

Reputable Poster
Some relevant rules are:
You have to set the cost level at the item master so it cannot be different by branch
For manufacturing you can use 02, 07 or 09.
02 and 09 combined with cost level 3 basically gives you actual costing.
02 with cost level 2 gives you weighted average costing
09 with cost level 2 gives you last manufactured costing
01, 06 and 08 are inventory costing methods and are not supported by manufacturing accounting.
Costing method 06 requires cost level 3
If you use actual costing you need to complete transactions in chronological order and you also can't do partial completions or backflushing

I'd suggest they stick to standard costs and then look to see how they can manage the branch performance through the purchase price variance functionality. Maybe a more granular chart of accounts for that branch and make the AAI's more complex?? If they are hell bent on actual costing then you're probably going to have to use new item master records and manage the problems that come with that instead.
 

pfaloney

Well Known Member
Some relevant rules are:
You have to set the cost level at the item master so it cannot be different by branch
For manufacturing you can use 02, 07 or 09.
02 and 09 combined with cost level 3 basically gives you actual costing.
02 with cost level 2 gives you weighted average costing
09 with cost level 2 gives you last manufactured costing
01, 06 and 08 are inventory costing methods and are not supported by manufacturing accounting.
Costing method 06 requires cost level 3
If you use actual costing you need to complete transactions in chronological order and you also can't do partial completions or backflushing

I'd suggest they stick to standard costs and then look to see how they can manage the branch performance through the purchase price variance functionality. Maybe a more granular chart of accounts for that branch and make the AAI's more complex?? If they are hell bent on actual costing then you're probably going to have to use new item master records and manage the problems that come with that instead.
I assume you can use purchase price variance with "Weighted Average" which is the default for Distribution Centers?
 

RussellCodlin

Reputable Poster
No PPV is for standard cost.

Weighted average adjusts the unit cost to match the total inventory valuation for the item based on the last price paid. So if you have 2 items in inventory and they are valued at $1.00 each and then you purchase 1 more item at $2.00 then the unit cost changes to effectively equal (2 x 1.00 + 1 x 2.00)/3 = $1.33. If you then issue 1 item to a work order the actual A1 material cost will be $1.33

Standard cost, assuming that the items are costed at $1.00 each and you purchase one for $2.00, you'll end up with total inventory valuation of $3.00 plus a PPV of $1.00. If you then issue 1 item to a work order it will go in at an A1 material cost of $1.00.
 

pfaloney

Well Known Member
Thanks for all the help. I think I have the PM convinced that what the Distribution Center wants to do is not possible. Now we have to convince them.
 
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