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Managing Dynamic Overheads During Product Shipment

The document discusses how to manage dynamic overheads during product shipment in Oracle Fusion Cloud Order Management, specifically for capital products. It highlights the need for an extension to account for variable outgoing charges like transportation and service fees, which impact the cost of goods sold (COGS) and profit/loss statements. The proposed solution involves enabling extensive flex fields for sales orders and integrating with the general ledger to ensure accurate financial reporting.

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17 views3 pages

Managing Dynamic Overheads During Product Shipment

The document discusses how to manage dynamic overheads during product shipment in Oracle Fusion Cloud Order Management, specifically for capital products. It highlights the need for an extension to account for variable outgoing charges like transportation and service fees, which impact the cost of goods sold (COGS) and profit/loss statements. The proposed solution involves enabling extensive flex fields for sales orders and integrating with the general ledger to ensure accurate financial reporting.

Uploaded by

neel.mothe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Managing Dynamic Overheads During Product Shipment

How to account for capital product outgoing overheads in Oracle


Fusion Cloud Order Management

Whenever capital products — such as automobiles, semiconductor


machines, and heavy construction equipment — are sold, any dynamic
overhead expenses that were incurred need to be accounted for. Also
known as outgoing charges, such expenses include transportation fees,
service charges, free parts, and installation charges. These overheads,
which can be substantial in nature, are considered dynamic because they
may be subject to change depending on customer negotiations, company
policies, and shipping locations. Because they add to the overall product
cost, they must be recognized as costs of goods sold (COGS), which has a
direct impact on profit and loss (P/L) statements.

However, Oracle Fusion Cloud Order Management (OM) does not provide
dynamic expense coverage; it only accounts for overheads that are static
in nature or based on an overall product percentage basis or so. To
overcome this gap, Inspirage has developed an extension for OM that
enables dynamic overhead reporting. By adding these dynamic outgoing
charges to the overall COGS once the sales order is processed (on SO line
close), revenue and COGS will be aligned — and the P/L statement will
reflect accurate numbers.

Below is the accounting used for these different scenarios:

 Product sold to a customer (revenue recognition)

 Dr Cr

AR X

Revenue X

 Product sold to a customer (COGS recognition for the product cost


only)

 Dr Cr
COGS X

Deferred COGS (or INV


X
Valuation)

 Product sold to a customer (COGS recognition for the outgoing


charges)

 Dr Cr

COGS (for different outgoing


X
charges)

Overhead absorption
X
(transportation)

Overhead absorption (services) X

Overhead absorption (installation) X

Overhead Absorption
X
(Components)

In the scenario, the SO (Sales Order) and line must be created for the
product to be sold, and the picking and shipping process must be
completed to close the line. The revenue must then be recognized. COGS
entries are generated for the product sold, and a report must be
generated showing that the SO line for the product has been closed.

To overcome the dynamic overhead, the following actions must be taken:

 Enable the EFF (Extensive Flex Fields) at the sales order line with the
outgoing charges attributable to transportation fees, service
charges based on negotiations, free parts, and installation charges
 All these charges must be added at the time of the sales order
creation, based on unit bases rather than the total number of units
sold

 The sales order line must be picked and shipped

 The line’s status must be closed

 Revenue must be recognized based on the line close

 A report must be generated showing the SO line status as closed,


the customer details, and the dynamic charges for each line with
the charges’ name and amount

Since accounting for these charges is not yet complete, an extension must
be built to call the general ledger (GL) API, which will post the entries to
GL with the following entries:

 Summary of all dynamic charges in the sales order line

 The GL date (must be the sales order line close date)

 The GL category (“outgoing charges”)

 All transactions in the “unposted” status will later be posted


manually

These GL transactions, which should have the SO number and the charges
to recognize, can then be put in “posted” status to avoid manual
intervention in the future. As a result of employing dynamic entry in
Oracle Fusion Cloud Order Management to account for sales order
overheads, your P/L statement will reflect accurate numbers, as revenue
and COGS are posted in alignment.

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