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, you cannot change the method after the system creates Periodic Costing GL transactions. This is according to IFRS guidelines.
When deciding whether to use WAVG or FIFO, consider the differences in the two methods:
• RCT-PO and RCT-WO are valued the same way for both costing methods.
• Issuing transactions for FIFO means that the system considers unconsumed quantity and uses average cost from the oldest prior periods where there is still a balance available. Using FIFO, the balance can be split into several periods for unconsumed quantity.
• Your country’s legal requirements may dictate which costing method to use; for example, Brazil’s laws require that WAVG provide costing, while Italy requires FIFO.
• For IFRS, both WAVG and FIFO are compliant to use for inventory valuations so long as reporting is consistent. For country legal requirements, you cannot change costing methods over time.
• If you use FIFO, you must consider the number of cost calculation periods to define for each GL calendar period. In practice 1, 2, or 3 buckets or weekly buckets (4 to 5) are used per GL period.
• Determine whether to operate in adjustment mode or in 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 to 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. QAD recommends that you use a a simulation cost set as this does not get changed during the initialization process.
The initialization process considers these unit costs as the cost to use for opening balances during Periodic Costing calculations; in other words, Periodic Costing uses the previous period costs to determine how to value the initial inventory balance. You can still make corrections afterward using the Periodic Costing adjustment functions.
• 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.
Also, ensure that the cost set template has the same element structure as that of the cost set from which you plan to copy. When children cost sets are created, the system copies the cost in the cost 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. There are no unposted GL transactions from the operational modules; so, the system reports no transactions in the queue. Ensure that the trial balance in the Inventory Valuation as of Date Report (3.6.15) or in the Inventory Valuation as of By Location (3.6.16) matches.
• When labor rates are not set up in the PC Cost calculation cost set of the work centers, then labor values in for semi-finished goods and finished goods are 0s (zeros).
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 that they can be easily identified separately from material cost.
• Ensure that the following are set up in QAD EA before you use Periodic Costing:
• Domains, domain periods, and domain GL accounts
• Entities and entity periods
• Create an entity period (this opens sub-ledgers GL, SO, IC, and WO; but PC remains disabled)
• GL accounts, sub-accounts, and cost centers