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Compare Standard to FIFO Costing

Compare Standard to FIFO Costing. OAUG Cost Management SIG June 18, 2013. Contents - . Presenter Introduction What is EBS Discrete FIFO Costing? EBS Standard and FIFO : A Comparison FIFO Cost - Implementation Considerations Change from Standard to FIFO Cost Org Question and Answer.

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Compare Standard to FIFO Costing

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  1. Compare Standard to FIFO Costing OAUG Cost Management SIGJune 18, 2013

  2. Contents - • Presenter Introduction • What is EBS Discrete FIFO Costing? • EBS Standard and FIFO: A Comparison • FIFO Cost - Implementation Considerations • Change from Standard to FIFO Cost Org • Question and Answer

  3. Presenter Introduction - Dave Sweas, CPA • Senior Solution Architect - MarketSphere Consulting, LLC • EBS functional experience: Since 1995 (Industry, Big 5, middle market consultancies) • EBS Concentration: Core Financials, Discrete Cost, Project Mfg., OPM Cost/SLA, Cost Management SLA • Industry experience: General Accountant, FA, AP, Budgets, Cost Accounting Manager, Plant Controller, Supply Chain Cost Analyst, Profitability Analyst • Advisory approach to implementation • Core strength: Converting “ERP/EBS-speak” into accountant-friendly language

  4. What is EBS Discrete FIFO Costing? • FIFO Cost Method flag - Inventory Org level (permanent) • Available in R12 and 11i • “Classic” definition of first-in-first-out inventory & COGS costing • Layered Cost concept – Basic example: • Item A purchases: 100 qty at $1.00, then 100 qty at $1.20 • Result: Two 100-qty Layers at two different values • 150 qty consumed into WIP, and W/O Completion: 100 qty from Layer 1 at $1.00, 50 qty from Layer 2 at $1.20 • Total Completion value = $160, $60 of Item A on-hand

  5. What is EBS Discrete FIFO Costing? • Applies to all items within a FIFO Org • Costing method only; not automatically tied to physical flow of goods • Seeded Cost Types: “FIFO” and “FIFO Rates” • Key inquiries and reports: Layered Cost Transaction Detail, Layered Cost Elemental Report, Item Cost History, MADS / MADD detail (the latter is same report as in Std Cost Org) See next section for Standard to FIFO comparison

  6. EBS Standard and FIFO: A Comparison

  7. Standard vs. FIFO

  8. Standard vs. FIFO

  9. Standard vs. FIFO

  10. Standard vs. FIFO

  11. Standard vs. FIFO

  12. Standard vs. FIFO

  13. Standard vs. FIFO

  14. Standard vs. FIFO

  15. FIFO Cost - Implementation Considerations

  16. Current Landscape – Discrete Manufacturers • Fluctuating raw material prices, escalation in recent years • Material cost avg. 65-80% of COGS value • Competitive - Hold line on pricing --“margin squeeze” • Need for improved GM/contribution margin info greater than ever • PPV – Often largest variance vs. standard; difficult to meaningfully allocate to COGS • Limitations of EBS period-end actual costing model • Accounting departments- Expectation with ERP: “Do more with same / fewer resources” • Lean concepts being driven firm-wide

  17. FIFO Cost Org: Key Factors to Consider • Discrete Org Cost Methods are permanent • Overall PO price maintenance – Critical • BOM / Routing maintenance up-to-date? • Cost Rollups (what-if’s, new products, etc.) can be run in a FIFO Org • In general: The fewer the raw material SKU’s and greater the price fluctuations, the better the fit • In general: The more backflush, the better the fit

  18. FIFO Cost Org: Key Factors to Consider • Process automation - Cost accounting (FIFO = no Rollup for new products, eliminates revaluation) • The more Resources = WIP Move, better the fit • Variance capture in GL needed? Variances for management reporting purposes only? • Conduct cost method requirements workshop, all parties involved • Beware of “accepting the past” (challenge long-time accounting processes)

  19. FIFO Cost Org: Key Factors to Consider • Focus on COGS valuation (less so on inventory valuation): • COGS – Analysis • Inventory - Reporting • FIFO costing may not be acceptable for some industries • Consult internal / external auditors first: e.g., GAAP- & IFRS-compliance, prior year restatement considerations, relevancy of physical flow of goods

  20. FIFO Cost Org: Key Factors to Consider • Vertical integration – The greater the number of Inter-Org Transfers, the more coordination needed • Distributors – Overall, easier to implement FIFO than manufacturing • Physical flow of goods sync with FIFO Layers

  21. FIFO Costing and Physical Flow of Goods • EBS FIFO Layers are consumed without regard to Lots, Serial Numbers, etc. or other physical flow • Within normal range of inventory turns, in a discrete manufacturing environment the difference tends to be acceptable: • All factors (variances) considered, generally more comprehensive COGS valuation than standard costing • Other factors (low number of raw materials, back-flush vs. push) can offset need to match Material flow with Cost Layer consumption

  22. Change from Standard to FIFO Cost Org

  23. Change from Standard to FIFO Cost Org • Changing the Cost Method flag not supported ** • Convert and validate Items, BOMs, Routings • Convert on-hand qtys • PO’s and SO’s in-process need to be pointed to new Org • Close as many WIP Jobs in old Org as possible ** FYI – This change is supported in EBS Process Organization

  24. Question & Answer 24

  25. Dave Sweas • dave.sweas@marketsphere.com • 312.357.4428 • 708.287.6099

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