## Understanding Cost Object Tracking

This chapter gives an overview of cost object tracking and discusses how to:

- Project budget calculation and management.

- Purchase price variances tracking by cost object and component.

- Freight cost management.

### Cost Object Tracking

Cost object tracking is the most critical part of JD Edwards EnterpriseOne Advanced Cost Accounting (ACA). If costs are not monitored in detail, information is not available for managerial accounting and activity-based costing. Every transaction that is applicable to a specific customer, product, item number, or other criteria must have the appropriate cost object value.

To facilitate cost object tracking, the cost management constant for activating cost objects must be turned on. This setting opens additional fields for the five different cost objects that are available in ACA and enables transactions to be entered with cost objects attached. Cost object edits are also important to cost object tracking. If cost object edits are not set up properly, the resulting output might be unpredictable.

For example, ABC Company wants to know the profitability of individual product lines. Using ACA, the company can set up a cost object for product lines, and track costs and revenues that are associated with each specific product. It can also allocate indirect costs that are based on a business driver, such as warehouse square footage. Profitability by product can be obtained because all of the costs and revenues have been accounted for at the product level.

You can capture cost object information when you enter transactions in multiple systems, such as purchase orders, receipts, invoices, and so on. When you create journal entries, you can update, verify, and post cost object information. These transactions can be used in managerial accounting or activity-based costing through the Cost Analyzer table. This step is, perhaps, the most important step in the cost management cycle because the system updates the records with cost object information in the other systems with which it interfaces, such as the JD Edwards EnterpriseOne Accounts Receivable and JD Edwards EnterpriseOne Inventory Management systems.

See Also

Understanding Journal Entries

### Project Budget Calculation and Management

Using JD Edwards EnterpriseOne Advanced Cost Accounting, you can calculate project budgets and then compare them with actual costs and expenses to determine whether a project is on budget. By breaking down costs by cost object, you can determine which parts of a project meet budgetary requirements and which are over or under budget. You can then make more informed decisions about future production, such as where to add resources or where to reduce them. You might also determine that you need to adjust the cost structure of your manufacturing process.

For example, when you analyze cost objects, you might determine that you are exceeding the budget for materials that you use to manufacture a bicycle. You could find new suppliers to provide the materials at a lower cost to bring costs to the amount that you budgeted. Alternatively, you could conclude that while the materials are over budget, the personnel costs are under budget and you do not need to make any adjustments. Using the information gathered from your analysis of the cost objects, you can more effectively manage the budgets for your projects.

### Purchase Price Variances Tracking by Cost Object and Component

JD Edwards EnterpriseOne Advanced Cost Accounting uses data from Oracle's JD Edwards EnterpriseOne Procurement system to track purchase price variances by cost object and component.

The item master record contains the unit cost of each component that you purchase to use in the manufacturing process. You can use the unit cost of components from an item master record to determine the purchase price of cost objects. After you determine the purchase prices of cost objects, you can follow fluctuations in those prices over time. You can analyze the cost objects to locate the components that contribute to the variance, and thereby make more informed purchasing decisions.

### Freight Cost Management

The transportation of materials to manufacturing facilities and the distribution of goods to customers are the largest costs incurred by manufacturing and distribution companies. Managing those costs effectively is critical to the profitability of those companies.

You assign freight costs to cost objects to perform profitability analysis, which provides management with the information needed to make freight-related decisions.

Freight cost management is a three-step process:

1. Assign freight costs to cost objects.

2. Track freight variance by cost object.

3. Add freight costs to sales orders.

Assign Freight Costs to Cost Objects

Freight costs are either billed by the supplier or incurred by the distributor. Using JD Edwards EnterpriseOne Advanced Cost Accounting, you can assign the freight costs to the cost object. After you record the freight costs, you can track the freight costs associated with cost objects, such as the freight costs for a particular model of bicycle.

Track Freight Variance by Cost Object

After a voucher is entered in the Transportation system, you can match the voucher amount to outstanding shipping charges using the Match Voucher to Open Freight program (P0411). If the amounts on the voucher that you entered and the amounts on the invoice that you receive from the supplier are not the same, you can enter an adjustment for the freight variance using the Work with Freight Audit History program (P4981).

After you enter the adjustment, the system writes the adjustment record to the Freight Audit History table (F4981), which you then post to the Account Ledger table (F0911). The Voucher Match program (P4314) retrieves the adjustment records to create vouchers in the JD Edwards EnterpriseOne Accounts Payable system.

Add Freight Costs to Sales Orders

When you sell an object, you might charge a freight cost to ship the object to the customer. You add freight costs to sales orders to determine the actual costs of providing goods to customers. When you define a cost driver for freight costs, you base the driver on the F4981 table.

See Also

Adjusting the Freight Audit History