Tuesday, September 30, 2008
Oracle Cost Management - Standard costing
Standard costing is used by Customers who employ predetermined costs for valuing inventory and for charging material, resource, overhead, period close, and job close and schedule complete transactions. Differences between standard costs and actual costs are recorded as variances.
Manufacturing industries typically use standard costing. Costs of items can be shared across organizations using standard costing.
The unit cost of any item is the sum of the costs of all the cost elements.
There are 5 cost elements, which are defined as follows:
1. Material -- The raw material/component cost at the lowest level of the bill of
material determined from the unit cost of the component item.
2. Material Overhead -- The overhead cost of material, which can be used for any costs attributed to direct material costs.
3. Resource -- Direct costs, such as people (labor), machines, space, or miscellaneous charges, required to manufacture products.
4. Overhead -- The overhead cost of resource and outside processing, which is
used as a means to allocate department costs or activities.
5. Outside Processing -- This is the cost of outside processing purchased from a supplier.
Sub-elements can be used as smaller classifications of the cost elements. Each cost element must be associated with one or more sub-elements. An amount or rate is attached to each subelement.