Best Practices for Setup
The following topics describe best practices for setting up Periodic Costing for your business needs.
• Determine which periodic costing method to use.
Only one periodic costing method can be set up. Once you have chosen a specific method, such as WAVG or FIFO, you cannot change the method after the system creates periodic costing GL transactions. This is according to IFRS guidelines.
• Determine whether to operate in adjustment mode or complete mode.
In general, companies that have to report both standard cost reports and periodic cost reports should apply adjustment mode. When you only need to report periodic costing, then you can use the complete mode.
• Be consistent among costing and within the domain.
The setup of periodic costing is by domain. This means that all periodic costing considerations should be consistent for all entities and sites within the same domain. If you need different costing methods by entity, consider creating additional domains.
• Decide on a cost set to use for initialization.
It is important to decide which cost set to use and verify its accuracy. The reference cost set during initialization of Periodic Costing can be the standard cost set, the current cost set, or any simulation cost set.
The initialization process considers these unit costs as the cost to use for opening balances during Periodic Costing calculations when the first Periodic Costing period is in use; in other words, Periodic Costing uses the previous period cost to determine how to value the initial inventory balance. You can still make corrections afterward using the Periodic Costing initial cost adjustment transaction once started.
• Decide on a Periodic Costing cost set template.
Periodic Costing uses the template to create the periodic cost sets. Once you set up the template, you must ensure that all is correct because you cannot change templates once you use the template; however, you can add elements.
• Close sub-ledgers.
To use Periodic Costing, ensure that all sub-ledgers are closed for previous periods. You decide the GL period upon which Periodic Costing starts, then based on your decision, you close all sub-ledgers for all periods prior to the starting period. For example, to start Periodic Costing from December 2010, you must close all sub-ledgers for all periods prior to December 2010.
Also, ensure that all sub-ledgers are closed for all entities in the domain for the same periods. Periodic costing operates on domain level—not on entity level.
Note: Before the system can close the PC-created sub-ledger, you should ensure that other sub-ledgers have been previously closed.
• When labor rates are not set up, work centers are zeroes.
Labor and burden rates should be set up by period (period cost set). The system does not value labor transactions unless you defined labor and burden rates for the work center machines in the period to be calculated.
• Determine whether to group sites for determining periodic costs.
Grouped sites allow several sites to share one common cost. For example, when the company operates several sites within one physical location (plant), it is possible to group these sites to have the same cost for the items in all the grouped sites.
• Determine whether to set up additional cost elements.
You can use cost elements to capture logistics costs in separate elements so they can be easily identified separately from material cost.