Jun 8, 2016

Three types of Cost Adjustments in OPM Financials...

There are three types of cost adjustments possible in OPM (Oracle Process Manufacturing) Financials. These are:
  1. Average Cost Adjustment
  2. Value Adjustment
  3. Unit Cost Adjustment
Average Cost Adjustment is like a logical inventory transaction. In this you enter the unit cost of the item to be adjusted as well as the quantity of items. This adjustment will work like any regular material transaction as far as cost is concerned. 

OPM Actual Cost Process Engine uses the following formula to calculate the cost of the item in case of an Average Cost Adjustment.


The following two examples will illustrate the concept of Average Cost Adjustment.

Example 1: (Transactions in the current period)
Prior Period Quantity = 1000
Prior Period Cost        = 12
Current Period Receipt Quantity = 500
Current Period Receipt Unit Cost = 10
Current Period Cost Adjustment Quantity = 200
Current Period Adjusted Cost / Unit = 3 (Increase)
Current Period PMAC Cost = ([1000 X 12] + [500 X 10] + [200 X 3]) / (1000 + 500 + 200) = 13.53

Example 2: (No transactions in the current period)
Prior Period Quantity = 300
Prior Period Cost = 3
Current Period Adjustment Quantity = 50
Current Period Adjustment Unit Cost = 0.75
Current Period PMAC Cost = ([300 X 3] + [50 X .75]) / (300 + 50) = 2.68

Value Adjustment is used in cases where you want to adjust the value of the entire inventory at a particular amount. In this case you do not enter any quantity in the transaction since the entire inventory is adjusted. 

OPM Actual Cost Process Engine uses the following formula to calculate the cost of the item in case of an Value Adjustment.

 
The following two examples will illustrate the concept of Value Adjustment.

Example 1: (Transactions in the current period)
Prior Period Quantity = 1000
Prior Period Cost        = 12
Current Period Receipt Quantity = 500
Current Period Receipt Unit Cost = 10
Value Adjustment = 7000
Current Period PMAC Cost = ([1000 X 12] + [500 X 10] + 7000) / (1000 + 500) =16

Example 2: (No transactions in the current period)
Prior Period Quantity = 300
Prior Period Cost = 3
Value Adjustment = 100
Current Period PMAC Cost = ([300 X 3] + 100) / (300) =3.33

In case of Unit Cost Adjustments, the system uses a two step process to calculate the unit cost of the item. 

In step 1, the system calculates the unit cost of item without considering the Unit Cost Adjustments. In the step 2, the cost calculated in step 1 is added to the unit cost adjustment to calculate the final cost of the item. The formula to calculate the item cost is shown in the diagram below.



The following example will illustrate the concept of Unit Cost Adjustment.

Example 1: (Transactions in the current period)
Prior Period Quantity = 1000
Prior Period Cost        = 14
Current Period Receipt Quantity = 500
Current Period Receipt Unit Cost = 11
Current period adjustment quantity = 300
Current period adjustment cost = 4 (Increase)
Value Adjustment = -7000 (Decrease)
Unit Cost Adjustment = 2.5
Step 1: Current Period PMAC Cost (Without Unit Cost Adjustment) = ([1000 X 14] + [500 X 11] + [300 X 4] - 7000) / (1000 + 500 + 300) = 7.61
Step 2: Current Period PMAC Cost (With Unit Cost Adjustment) = 7.61 + 2.5 = 10.11

1 comment:

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