Compare Standard to FIFO Costing
OAUG Cost Management SIG
June 18, 2013
Contents 
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Presenter Introduction
What is EBS Discrete FIFO Costing?
EBS Standard and FIFO: A Comparison
FIFO Cost - Implementation Considerations
Change from Standard to FIFO Cost Org
Question and Answer
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Presenter Introduction - Dave Sweas, CPA
 Senior Solution Architect - MarketSphere Consulting, LLC
 EBS functional experience: Since 1995 (Industry, Big 5,
middle market consultancies)
 EBS Concentration: Core Financials, Discrete Cost, Project
Mfg., OPM Cost/SLA, Cost Management SLA
 Industry experience: General Accountant, FA, AP, Budgets,
Cost Accounting Manager, Plant Controller, Supply Chain
Cost Analyst, Profitability Analyst
 Advisory approach to implementation
 Core strength: Converting “ERP/EBS-speak” into
accountant-friendly language
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What is EBS Discrete FIFO Costing?
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FIFO Cost Method flag - Inventory Org level (permanent)
Available in R12 and 11i
“Classic” definition of first-in-first-out inventory & COGS costing
Layered Cost concept – Basic example:
• Item A purchases: 100 qty at $1.00, then 100 qty at $1.20
• Result: Two 100-qty Layers at two different values
• 150 qty consumed into WIP, and W/O Completion: 100 qty
from Layer 1 at $1.00, 50 qty from Layer 2 at $1.20
• Total Completion value = $160, $60 of Item A on-hand
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What is EBS Discrete FIFO Costing?
 Applies to all items within a FIFO Org
 Costing method only; not automatically tied to
physical flow of goods
 Seeded Cost Types: “FIFO” and “FIFO Rates”
 Key inquiries and reports: Layered Cost Transaction Detail,
Layered Cost Elemental Report, Item Cost History, MADS /
MADD detail (the latter is same report as in Std Cost Org)
See next section for Standard to FIFO comparison
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EBS Standard and FIFO: A Comparison
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Standard vs. FIFO
Functionality /
Business Need
Cost Rollup for inventory
valuation - New Make
item
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Need prior to WO
Not needed
Completion of any
item in BOM structure
Cost Rollup to recognize
Need
BOM, Routing, or Material
price changes, or for
periodic revaluation
Not needed
Cost Rollup “what-if’s” (in Supported
separate Cost Types)
Supported
Correct Make item cost
errors
Layer Cost Update (may
need to involve other
items)
Cost Rollup
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Correct Buy item cost
errors
Correct item cost and
update to Frozen
Layer Cost Update (may
need to involve other
items)
Cost Update – New Make
Item
Update to Frozen
Not needed
Cost Update - New Buy
item
Not needed if direct
entry to Frozen
Not needed
Supply Chain Cost Rollup
across Organizations
Supported
Supported for “what-if’s”
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Inter-Org Transfers
Transfer at standard
cost
Transfer FIFO Layer cost
(Note: Timing is critical)
Variance capture in GL
Supported (but some
custom reporting may
be desirable)
Not supported (need
custom reporting)
Material variances (e.g.
PPV, Usage), reflected in
Gross Margin
No (i.e., below Gross
Margin)
Yes
PO price maintenance
impact
Inaccuracies fall
through as PPV, no
effect on Assembly
costs
Inaccuracies affect related
Assembly costs
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Valuation of Completions: Completions valued at
WO Material pushed after Std. WIP Qty x
all Completions done
Component Std Costs,
usage difference to
Job Close Variance
Optional: Incremental
Completion Layers valued
at Std WIP Qty x
Component FIFO Costs.
Then, any Push after
Completions goes to Job
Close Variance
Valuation of Completions: Same as above
WO Material pushed
during Completions
Same as above (could
instead value Completion
at value of Material push)
Valuation of Completions: Completions valued at Completions valued at
WO Material backflush
Std. WIP Qty x
Std. WIP Qty x
Component Std Costs Component FIFO Costs
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Manual labor charge after
incremental Completion
(Resource Charge Type =
Manual)
Inv valuation = Std Qty
x Std Resource Rate,
diff vs. std to Job Close
Variance
Inv valuation = $0 for
Layer built from that
Completion, labor $$ to
Job Close Variance
Labor charge when
Resource Charge Type =
WIP Move
Inv valuation =
Routing Qty x
Resource Rate
Same way as Standard
BS inventory valuation
Need separate FIFO
(GAAP, / L-C-M, IFRS, etc.) reserve
Accepted (Note: Get upfront auditor verification)
Periodic inventory
valuation at actual cost
(via Cost Mass Edit)
Not needed
Supported (via Cost
Mass Edit and rollup
at BOM and Rtg qtys)
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Ability to vary GL
Supported
Accounts by Subinventory
Supported in WMS Org;
otherwise all Subinv have
same Elemental Accounts
(Note: R12 SLA addresses)
Display on Item Costs
Summary form
Standard cost rolled
up or entered
Average across all Layers
Ability to change Cost
Methods after Org in use
Not supported
Not supported
MOH absorption, MOH
Defaults (e.g. MOH based
on % of Material cost)
Supported
Supported
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
Outside Processing Inventory valuation
Supported (inventory
valuation at Std qty x
Std Resource Rate)
Supported (inventory
Layer valuation at WO
OSP qty x PO price)
Cost Copy – Items,
Resources, OH)
Supported
Supported (including from
FIFO and FIFO Rates Cost
Types)
COGS Recognition
Deferred COGS debit
upon ship, run three
Concurrent Requests
to move $$ to COGS
Same as Standard
R12 Cost ManagementSLA – Setups and Create
Accounting
Feature
Feature
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Standard vs. FIFO
Functionality /
Business Need
EBS Discrete
Standard Costing
EBS Discrete
FIFO Costing
MTL and WIP seeded Cost Supported
Management reports
Supported (plus several
FIFO Costing-related
inventory reports)
Pending Cost Update
Not supported
Supported
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FIFO Cost - Implementation Considerations
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Current Landscape – Discrete Manufacturers
 Fluctuating raw material prices, escalation in recent years
 Material cost avg. 65-80% of COGS value
 Competitive - Hold line on pricing --“margin squeeze”
 Need for improved GM/contribution margin info greater
than ever
 PPV – Often largest variance vs. standard; difficult to
meaningfully allocate to COGS
 Limitations of EBS period-end actual costing model
 Accounting departments- Expectation with ERP: “Do more
with same / fewer resources”
 Lean concepts being driven firm-wide
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FIFO Cost Org: Key Factors to Consider
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Discrete Org Cost Methods are permanent
Overall PO price maintenance – Critical
BOM / Routing maintenance up-to-date?
Cost Rollups (what-if’s, new products, etc.) can
be run in a FIFO Org
 In general: The fewer the raw material SKU’s and
greater the price fluctuations, the better the fit
 In general: The more backflush, the better the fit
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FIFO Cost Org: Key Factors to Consider
 Process automation - Cost accounting (FIFO = no
Rollup for new products, eliminates revaluation)
 The more Resources = WIP Move, better the fit
 Variance capture in GL needed? Variances for
management reporting purposes only?
 Conduct cost method requirements workshop, all
parties involved
 Beware of “accepting the past” (challenge longtime accounting processes)
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FIFO Cost Org: Key Factors to Consider
 Focus on COGS valuation (less so on inventory
valuation):
• COGS – Analysis
• Inventory - Reporting
 FIFO costing may not be acceptable for some
industries
 Consult internal / external auditors first: e.g.,
GAAP- & IFRS-compliance, prior year restatement
considerations, relevancy of physical flow of goods
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FIFO Cost Org: Key Factors to Consider
 Vertical integration – The greater the number
of Inter-Org Transfers, the more coordination
needed
 Distributors – Overall, easier to implement
FIFO than manufacturing
 Physical flow of goods sync with FIFO Layers
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FIFO Costing and Physical Flow of Goods
 EBS FIFO Layers are consumed without regard to
Lots, Serial Numbers, etc. or other physical flow
 Within normal range of inventory turns, in a
discrete manufacturing environment the
difference tends to be acceptable:
• All factors (variances) considered, generally
more comprehensive COGS valuation than
standard costing
• Other factors (low number of raw materials,
back-flush vs. push) can offset need to match
Material flow with Cost Layer consumption
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Change from Standard to FIFO Cost Org
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Change from Standard to FIFO Cost Org
 Changing the Cost Method flag not supported **
 Convert and validate Items, BOMs, Routings
 Convert on-hand qtys
 PO’s and SO’s in-process need to be pointed to
new Org
 Close as many WIP Jobs in old Org as possible
** FYI – This change is supported in EBS Process
Organization
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Question & Answer
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Dave Sweas
dave.sweas@marketsphere.com
312.357.4428
708.287.6099
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