Download
create overhead cost pools through oracle s massbudgets autoallocations n.
Skip this Video
Loading SlideShow in 5 Seconds..
Create Overhead Cost Pools Through Oracle’s MassBudgets & AutoAllocations PowerPoint Presentation
Download Presentation
Create Overhead Cost Pools Through Oracle’s MassBudgets & AutoAllocations

Create Overhead Cost Pools Through Oracle’s MassBudgets & AutoAllocations

366 Views Download Presentation
Download Presentation

Create Overhead Cost Pools Through Oracle’s MassBudgets & AutoAllocations

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Create Overhead Cost Pools Through Oracle’sMassBudgets & AutoAllocations Atlanta - OAUG November 21, 2003 Presenters: Michael Anenen & Paul Kraskiewicz

  2. Presentation Agenda • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets & AutoAllocations • Questions & Answers

  3. Presentation Agenda • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets & AutoAllocations • Questions & Answers

  4. Assess & Design Start with the End in Mind • Determine your Allocation Method • Traditional • Activity-Base Costing • Overhead Sub-Elements • Material Overhead • Resource / Department Overhead

  5. Assess & Design • Determine your Allocation Method • Traditional • Activity-Base Costing • Overhead Sub-Elements • Material Overhead • Resource / Department Overhead

  6. Basic Principals Estimate overhead costs for the coming year Estimate activity for the coming year Calculate application rate as Estimated Overhead Costs / Estimated Activity Apply overhead using actual activity and the application rate. If actual overhead > applied overhead, the difference is under-applied. Under-applied overhead reduces income Overhead Allocation Methods

  7. Activity-Based Costing Multiple Activity Based Rates Per Department Traditional Single Plant-Wide Rate Single Rate Per Department Overhead Allocation Methods

  8. Traditional Allocation All overhead costs are applied using the same rate. Activity is measured with a single concept, such as: Direct labor hours Direct labor dollars Machine hours Advantages: Simple Arithmetic Easy to understand Disadvantages: Little relationship between costs and activities Can lead to poor business decisions Overhead Allocation Methods

  9. Activity Based Allocation Overhead costs are divided into cost pools. Each cost pool has its own activity measure (cost driver). Number of purchase orders Number of setups Advantages: Closer causal links between costs and activity Better cost allocations Disadvantages: Complex calculations High start-up costs Overhead Allocation Methods

  10. APPLICABILITY OF OVERHEAD ALLOCATION METHODS

  11. APPLICABILITY OF OVERHEAD ALLOCATION METHODS

  12. APPLICABILITY OF OVERHEAD ALLOCATION METHODS

  13. Assess & Design • Determine your Allocation Method • Traditional • Activity-Base Costing • Oracle Overhead Sub-Elements • Material Overhead • Overhead

  14. Material Overhead Resource Overhead Oracle’s Cost Elements Material Outside processing Resource

  15. Oracle Cost ElementsMaterial Overhead & Overhead • Overhead (Resource): • This is the overhead cost of resource and outside processing. Overhead is used as a means to allocate indirect production costs. • Material Overhead: • This is the overhead cost of material, calculated as a percentage of the material cost or as a fixed charge per item, lot, or activity.

  16. Overhead Cost Elements Materialoverhead Resource overhead Material Mgmt Facility Freight-In Benefits Overhead Cost Sub-Elements Production Control MFG Engn’g Indirect Overhead Sub-Elements

  17. Presentation Agenda • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets & AutoAllocations • Questions & Answers

  18. OracleApplication Basis Types • Activity:Directly associate the activity cost with the item. • Item:Assign a fixed cost per item. • Lot:Assign a lot charge to items and operations. • Resource units:Charge overhead by multiplying the overhead amount by the number of resource units earned in the routing operation. • Resource value:Charge overhead by multiplying the overhead rate by the resource value earned in the routing operation. • Total value:Charge overhead by multiplying the total cost of the item by the material overhead rate.

  19. Overhead Cost Elements MaterialOverhead Resource Overhead Mat’l Mgmt: Activity: PO Process Facility: Resource Value Overhead Cost Sub-Elements And Application Basis Types Benefits: Resource Value Freight-In: Total Value (Buy Items) MFG Engn’g: Resource Units Prod. Control Activity: Planning Process Indirect: Resource Value Overhead ApplicationBasis Type (Example)

  20. Oracle’s OverheadApplication Method (Example)

  21. Overhead Rates Assigned

  22. Overhead Cost AppliedTo Item (Example)

  23. Need Overhead Cost Pools

  24. Presentation Agenda • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets & AutoAllocations • Questions & Answers

  25. Administration Budget Facility Budget Finance & IS Budget Manufacturing Organization Departmental Budget Material Overhead Cost Element Pools Overhead Cost Element Pools Facility Benefits MFG Engn’g Indirect Material Mgmt Freight-In Production Control Cost Pool AllocationStep-Down AllocationIndirect Overhead

  26. Cost Pool AllocationMany Departments

  27. Cost Pool AllocationMany Departments

  28. Facility Benefits MFG Engn’g Indirect Cost Pool AllocationIndirect OverheadWhat Is The Process? Administration Budget Facility Budget Finance & IS Budget Manufacturing Organization Departmental Budget Material Overhead Cost Element Pools Overhead Cost Element Pools Material Mgmt Freight-In Production Control

  29. SummarizeAgenda Items 1-2-3 • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets & AutoAllocations • Questions & Answers

  30. Summary - Agenda Items 1-2-3 • Design assessment > Keep the End in Mind • Overhead allocation principles • Allocation Methods: Traditional vs. Activity and the advantages and disadvantages • The applicability of overhead allocation methods • Oracle’s cost elements: MOH & ROH • Oracle’s application Basis Types • Step-down allocation process

  31. Presentation Agenda • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets & AutoAllocations • Questions & Answers

  32. Oracle’s MassBudgetsDefinition • A feature that allocates expenses across a group of cost centers, departments, divisions, and so on. It allows you to build a complete budget/Cost Pool using simple formulas based on actual results, other budget amounts, and statistics. • For example, you might want to allocate your facility overhead costs to each of your departments based on the square footage in each department.

  33. MassBudgets vs. MassAllocationsWhat is the Difference? • Same Functionality • MassAllocation’s Balance Types: • Actual • Encumbrance • MassBudget’s Balance Type • Budget only

  34. MassBudget’s Major Features • Allocate cost pools to many accounts using a single formula • Base your allocations on Current Period, Previous Period, or Year Ago, Same Period • Base your allocations on monetary or statistical account balances • Define your allocation formulas once, and use them as frequently as needed • Run MassBudgets multiple times without reversing the outdated amounts • Use MassBudgets to do rate-based, usage-based and step-down allocations • Include summary accounts or foreign currency amounts in your allocations

  35. MassBudgeting Process Step 1: Define Cost Pool Budget Step 5: Create MassBudget batches Step 2: Copy Operating Budget to Cost Pool Budget Step 6: Define aMassBudget formula per batch Step 3: Gather Allocation Bases (Statistical Data) Step 7: Validate MassBudget Batch formulas Step 4: Review and determine Allocation formulas Step 8: Generate MassBudget journals and Post

  36. Step 1:Define Cost Pool Budget Create a budget to represent a collection of estimated amounts for a range of accounting periods. You can use AutoCopy to create a new budget from an existing budget.

  37. Step 2:Copy Operating Budget Amounts • Hit AutoCopy Button • SelectSource Budget

  38. Step 3:Gather Allocation Bases (Statistical Data) • Review all required statistical accounts and enter additional values into the Account Segment. For example Headcount, Production Hours, Resource $ Value, etc. • Enter Budget amounts/journals for each account combination for all statistical data.

  39. Step 4:Determine Allocation Formulas • Review your requirements and determine the allocation formulas. For example determine your allocation basis to allocate IS overhead to other departments. • Define Rollup Groups and Summary Accounts for allocation purposes. • List the required MassBudget batches in sequence.

  40. Step 5:Create MassBudget Batches for Each Step-Level Group MassBudget batches by allocation level This assures accurate cost pools

  41. Step 6:Define MassBudget Formulas

  42. Step 7:Validate MassBudget Batch Formulas • After you define a new allocation batch, or change an allocation formula, you must validate the batch by running the MassBudget Validation program. The program verifies that your allocation formulas conform to the allocation formuladefinition rules.

  43. Step 8:Generate MassBudget Journals • Using budget journals maintain an audit trail for your budget balances. • Generate MassBudget Journals to create unposted budget journal batches based on your validated MassBudget formulas. The generated journal batch contains an entry for every allocation formula in the batch.

  44. UnderstandingOracle’s Formula Syntax Budget Pool (A)* [Usage Factor (B) / Total Usage (C)] OR Segment Assignments Types: - Looping >(Parent values only) - Summing >(Sum child values) - Constant >(Child Value or Parent with Summary Account) Target Account (T) Offset Account (O)

  45. Presentation Agenda • Assess & Design • Overhead Allocation Methods • Standard Cost Overhead Sub-elements • Oracle’s Overhead Application Basis Types • Cost Pool Allocation Process • Using Oracle’s MassBudgets& AutoAllocations • Questions & Answers

  46. Oracle’s AutoAllocation Definition • AutoAllocations is a powerful feature to automate journal batch validation and generation for MassBudgets. • Two types of AutoAllocation • Parallel AutoAllocation: Validates and generates all the journal batches in your AutoAllocation set simultaneously. • Step–Down:Create journal batches in a specific sequence. Order your journal batches so that the posted results of one step are used in the next step of the AutoAllocation set.

  47. Step 1: Define AutoAllocation Set Step 2: Submit AutoAllocation Step 3: Review Status of AutoAllocation Step 4: Post Generated Journals AutoAllocation Process

  48. Step1Define AutoAllocation Set

  49. Step 2:Submit AutoAllocation Set

  50. Step 3:View Status of AutoAllocation Set View Status for each Step