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Oracle Apps Tutorial: R12 Changes to

the Cost Management Module (up to


R12.2)
On March 31, 2012, in New Oracle R12 Features, Oracle Cost Management, Oracle E-Business Suite, Oracle
R12, by ssutphin

Looking at the R12 changes to Cost Management, I found that they fall into the following
categories: accounting, integration with other modules, costing, reporting, accruals, periodend, and data architectural changes. Lets start off with one of the biggest changes, the
accounting for cost of goods sold (COGS).

Accounting
Cost of Goods Sold Recognition
In R12, Oracle linked the revenue cognition with the COGS Recognition. If you do not recognize
revenue when you ship an item then you should not recognize the cost of goods. This requires
the Cost Management module to first book COGS to a deferred account when an item is
shipped and then reverse the deferral when the revenue is recognized. When the revenue is
recognized is based on revenue contingency rules that can either be entered into OM or can be
apply when they are imported into AR.
For example, if your customer takes title of the item when they receive the item, rather than
when you ship the item, then you will need to incorporate the delivery time into your revenue
recognition rule. Oracle Revenue Management allows you to create rules to defer for a set
number of days. This rule can be associated with an OM line or a customer ship-to site. When
the set number of days have elapsed, then Oracle Receivables when book the revenue. Cost
Management gathers this information and will book the cost of goods entry.
Now there are now two flows in the COGS recognition. The first flow, the shipping and invoice
flow, starts with the shipment of the item and books the deferred revenue and COGS. The
second flow, the revenue and COGS recognition flow, starts with the release of the revenue
contingency and books the revenue and COGS. In R12, all shipments will go through these two
steps even if there isnt a revenue rule.

Shipping and Invoice Flow

Shipping and Invoice Accounting Flow

Shipment Flow Steps


1.
2.

Shipping sends a Sales Order Issue transaction to Inventory


Cost Manager generates the material distribution
Dr Deferred COGS $XX.XX
Cr Inventory $XX.XX
3. Create Accounting used the material distribution to create a journal entry
4. OM sends an invoice line to AR
5. AR applies a revenue contingency rule to the invoice when the invoice is imported. If there is
a revenue contingency, revenue will be deferred.
Dr AR Trade $XX.XX
Cr Deferred Revenue $XX.XX
6. Create Accounting uses the invoice distribution to create a journal entry
7. Subledger journal entries are interfaced to GL

Revenue and COGS Recognition Flow

Revenue and COGS Recognition Flow

1.

Revenue contingency expires or is removed and the Revenue Recognition program has
run
Dr Deferred Revenue $XX.XX
Cr Revenue $XX.XX

2.
3.
4.
5.
6.

Create Accounting uses the invoice distribution to create a journal entry


Cost Management runs the programs to gather revenue information
Cost Management runs the COGS recognition program to create the COGS recognition
logical material transaction
Create Accounting used the material distribution to create a journal entry
Subledger journal entries are interfaced to GL

Integration with other Modules


New Integrations

In R12, there are three new modules that integrate with Cost Management Subledger
Accounting, Oracle Process Manufacturing, and Landed Cost Management.
The integration with Subledger Accounting changes the flow of the journal entries from
Inventory, Receiving, and WIP. The Create Accounting program will use the material and
receiving transactions and WIP distributions to create journal entries. When you look in the
General Leger, you will see that journal entry source also change to Cost Management. There
have been two changes since the initial release of R12. In R12.1.1, Oracle moved the
accounting rules for the Global Accounting Engine to Subledger Accounting and in R12.1.2,
Oracle created a new program to allow you to upgrade historic transactions and generate
journal entries in Subledger Accounting. These upgraded journal entries will not be sent to the
General Ledger.
When Oracle moved the Process Manufacturing module functionality into the standard discrete
manufacturing inventory module, the Cost Management need to extend its functionality to
handle the new transactions.

In R12.1.1, Oracle introduced the Landed Cost Management Module to allow you to incorporate
other types of costs into your item cost. To handle the new transactions, Cost Management
need to extended

Enhanced Integrations
With new R12 enhancements to Work in Process (WIP); Enterprise Asset Management (EAM);
Inventory; and Shop Floor, Cost Management need to be enhanced to handle these new
transactions.
Module

Enhancement

WIP

Component yield and fixed component usage


on WIP job

EAM

Direct delivery on PO service lines, Install base


convergence, budgeting and forecast support

Inventory

Costing for Chargeable Subcontracting


inventory orgs

Shop Floor (12.1.3)

Encumbrance accounting support for PO with


shop floor destination

Costing

Cost Rollup
If you use the Bill of Materials module, R12 has changed the program used to perform a cost
roll-up. The new program is called Supply Chain Cost Rollup. In additional to this new program,
R12 also changed the Cost Rollup reports
Old Program/Report

New Program/Report in R12

Assembly Cost Rollup

Supply Chain Cost Rollup

Consolidated Bill of Material

Supply Chain Consolidated Bill of Material

Indented Bill of Material

Supply Chain Consolidated Indented Bill of Material

Periodic Costing
R12 introduced several enhancements to periodic costing. These enhancements include:

Support for inter-org transfer accounting


Improved costing algorithm
Support for material overhead rules
Support for EAM
Support for WIP job final completion costs
Support for completion costs based on required quantity
Support for scrap absorption
Support for iterative periodic costing for Brazil 12.0.4
Introduction of an iterative periodic costing manager 12.1.1

Reporting
In R12, Oracle created new inventory value reports. These reports now can be run using an
as-of date. If you enter an as-of date, the inventory value will display the inventory value
up to that date. These new reports are:
Old Report

New Report

Inventory Value Report

Inventory Value Report by Subinventory

Inventory Value Report Warehouse


Management

Inventory Value Report by Cost Group

All Inventories Value Report

All Inventories Value Report by Subinventory

All Inventories Value Report Average


CostingAll Inventories Value Report
Warehouse Management

All Inventories Value Report by Cost Group

Elemental Inventory Value Report

Elemental Inventory Value Report by


Subinventory

Elemental Inventory Value Report Average


CostingElemental Inventory Value Report
Warehouse Management

Elemental Inventory Value Report by Cost


Group
Inventory Master Book Report (R12.1.2) *

* The Inventory Master Book Report was created to meet the Italian and Chinese legal
reporting requirements.

Accruals

Accrual Reconciliation and Write-Off


In R12, there are three changes to the accrual reconciliation and write-off process. The first is a
new load program that will allow you to run it independently from the accrual reconciliation
report. The load program can also be run in refresh mode, rather than reloading all the data.
The second change is the new reconciliation reports. There are three reconciliation reports
Accrual Reconciliation Summary, Payables and Purchase Order Accrual Reconciliation Report,
and the Miscellaneous Accrual Reconciliation report. These reports use the Oracle XML
publisher and can be exported to Excel for further analysis. The third change is the new
accrual write-off forms.

Period End Accruals


Oracle changed the period-end accruals to calculate the accrual at the PO distribution line level
instead of the PO shipment line level. This will create a more accurate accrual entry because it
will use the accounting at the distribution level instead of allocating the shipment level accrual
to the distribution lines.

Period End Processing


In R12, Oracle introduced three changes to help with identifying transactions that would
prevent you from closing the period. The first is the ability to drilldown to transactions from the
Accounting Periods form. The second is a Period Close Pending Transaction report and the last
a more pro-active tool. It is a new workflow that can notify users if a transaction fails the
costing process.

Architecture Changes
Architectural changes in the Financial suite have been incorporated into Cost Management.
These changes include a change to operating unit to legal entity relationships, the introduction
of Multiple Organization Access Control, and the introduction of invoice lines in Accounts
Payable.