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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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compare standard to fifo costing

Compare Standard to FIFO Costing

OAUG Cost Management SIGJune 18, 2013

slide2

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
slide3

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
slide4

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
slide5

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

slide16

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
slide17

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
slide18

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)
slide19

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
slide20

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
slide21

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
slide23

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

slide25

Dave Sweas

  • dave.sweas@marketsphere.com
  • 312.357.4428
  • 708.287.6099