Cost Cutoff Date

Navigation: Inventory Super User> Setup> Organization> Parameters>Costing Tab.

What is the Cost Cutoff Date?

When the cost processors are run, users specify the cost cutoff date option and the cutoff date for all cost organization books that are being processed. The cost cutoff date is the last day on which the cost processor will process transactions for an accounting period.

What is the cost cutoff date option?

You can set the cutoff date option to User-Defined or Auto. The User-Defined option requires you to specify the cutoff date; while the Auto option saves you the effort of redefining the cutoff date which is automatically moved forward by the cost processor. Under the Auto option, the cost processor moves the cutoff date forward up to the last date of the earliest open cost period, and then it stops until the period is closed. After the period is closed, the cost processor advances the cutoff date into the next open period, and so on. However if a transaction is successfully preprocessed after the cutoff date, then the cutoff date for that cost organization book moves forward to the date of the last successfully preprocessed transaction; this could happen, for example, if the cutoff date option was originally set to User-Defined and subsequently changed to Auto.

 

What are backdated transactions?

One of the purposes of the cost cutoff date is to allow backdating of transactions. For example, if you set the cost cutoff date to October 31, you can still process October transactions that were entered in November for the period ending October 31 by backdating them to October 31 or earlier. However, when the cost cutoff date advances forward to a date past October 31, the transactions can no longer be backdated to October 31 or earlier, and they are processed with the forward date. If you set a cost cutoff date at October 31, the cost processor will queue up but not process any transactions with a date after October 31. If you subsequently need to backdate transactions to a date before October 31, you can process these transactions before any transactions with dates of November 1 and beyond. You can also backdate transactions to any date after October 31, with the assurance that these transactions will be processed in the correct order when the cost cutoff date moves forward.

What is the costing date of transactions?

The costing date of transactions is normally the same as the transaction date, except for backdated transactions. If there are any previously costed transactions (that is, the cost processor has processed transactions whose date is earlier than the date of the backdated transactions), then the costing date of the backdated transactions is set as the cost processor run date.

Note: The cost cutoff date only affects the accounted date of the transaction. It does not affect the inventory transaction date, or the inventory quantity reported for a given date.

Backdating of Transactions: Examples:

By setting the cost cutoff date for a cost accounting period, you can manage which transactions are processed in that period, including backdated transactions. The following examples illustrate how the cost processor sets the accounted date for backdated transactions. Assume that the current date is November 2, the cost cutoff date is October 31, and the following costed and uncosted transactions are in process:



Below, the inventory transaction is backdated to position A. The transaction will be costed with accounting date B before the transactions 2 and 3 are processed.



Below, the inventory transaction is backdated to position C. The transaction will be costed with accounting date C after the transactions 2 and 3 are processed.



Below, the inventory transaction is backdated to position D. The transaction will be costed with accounting date D after the cost cutoff is moved past October 31.

 

How to use Cost Cutoff Date?

This functionality was developed to allow businesses the option of changing labor rates and overhead rates at the beginning of the accounting period while transactions in the next period wait for these new costs to be completed.     This will allow period close, cost updates, and rate changes to occur without impacting or interrupting business operations.  When using the Cost Cutoff Date, all cost processing for the new accounting period is stopped for that organization.  This allows the accountants the opportunity to close the previous period.  Once the new costs are set, then the costing is started for the new period.  This occurs by changing the cost cutoff date to a date in the future.

If this field is left blank, then the old cost processing will occur.  If the field is populated, then no processing of costs will occur from that date onwards.  The cost cutoff date will use midnight as the start of the period and also inventory quantities are recorded at midnight.  With this new functionality.

This option is much useful with the Organization that a Standard Costing as their costing method.

The Standard Cost Update can now run in one organization while other organizations are still costing transactions.  Standard Cost Workers are launched based on organization, so this improves the speed of costing transactions. To use this Feature: For standard costing organizations if the start of the new costs is to be January 1 2012, that is the date that is entered. New standard costs can then be established prior to January 2012, in December 2011 for example. These costs will not impact the December costing activities as they will not be active until Jan 1 2012. No transactions that occur after the start of the day January 1, 2012 are costed.

This will allow the accountants to complete the costing for the December transactions, close the period, and run the reports for review. A standard cost update can be performed using the new cost type for January 2012.  This will update the cost of the costed items up to the end of the day (midnight) December 31, 2011.  The reports can then be re-run with the same quantity and newly updated costs. Still NO January 2012transactions will be costed.

This is true whether it takes a few days in the next period or a few weeks to finish the costing of the previous period.  The uncosted transactions will remain in the MTL_MATERIAL_TRANSACTIONS with costed_flag = N waiting for a cost worker to process them.  The Cost Manager will spawn no cost worker until the Cutoff Date is changed. To cost the January 2012 transactions once December 2011 is properly closed, the Cost Cutoff Date is changed. This can be changed to the start of the next period or next quarter or next year---whenever the rates need to be changed next.  Once changed the cost processing begins for the transactions that have been waiting.  For standard costs the processing of the transactions is immediate.

For Average, FIFO, and LIFO costing the process takes longer because of the need to process the transactions sequentially to keep the costs accurate.  For Average, FIFO, LIFO cost organizations , Rate Cost Types are created and the old rates are copied to that new cost type.  This rate will not be used for cost processing until the Cost Cutoff Date is changed.  The cost type and the cutoff date need to be changed to allow the new costs to be used and the transactions can be processed for the new period.   For Shipping transactions, the costs also use the cutoff date.  The shipment in the new period will be uncosted. If another organization receives the shipment, the receipt will also be uncosted.  This is due to the fact that the receiving transaction requires the accounting distribution from the sending organization.  In standard costing, once the cutoff date is changed, the shipments are costed immediately.  In Average FIFO LIFO costing, the first uncosted transactions will cause an error. Once the cost cutoff date is changed and the errored transaction reset, the transaction will be costed first for the shipment and then for the receipt.  All subsequent transactions will then be processed as well.
Important Note: If this functionality is not required or desired, the Cost Cutoff Date field must be BLANK. If there is a date entered in that field, no costing will occur on transactions for that organization from that date onwards..

Content: Extract from Metalink Note.
Thanks & Regards,
S.Grace Paul Regan