Introduction

The target audience of this article are accountants or economists involved in processes of calculation the actual cost and cost variances of produced finished and semi-finished goods.

Finished and semi-finished goods should be recorded in accounting at their actual cost. However, it is often not possible to determine the actual cost of production at the time of release because all costs incurred (direct and indirect) have not yet been determined. Thus, companies resort to the standard method of accounting for finished and semi-finished goods produced.

If a company is international, however, there is often a requirement to account for standard cost, taking into consideration variances. However, in “classic” standard cost accounting, variances in costs are not allocated to products and actual cost at the product level is not calculated.

It turns out that “on top of” accounting for the production and movement of goods at standard (or normative) cost for Russian accounting purposes it is necessary to:

• calculate the actual cost of materials to be used in production after all costs for the reporting period have been collected;
• calculate and reallocate accumulated variances from standard cost to finished goods and semi-finished goods;
• as a result, obtain the actual cost of production calculated by the boilerplate method at the required level of details.

In most cases, accountants carry out calculations in Excel spreadsheets. Preparing such reports is resource-intensive and requires careful attention to eliminate errors in formulas and calculations. A lot of manual iterations cause feelings of stress, dissatisfaction with the system and the process to follow month after month, year after year…

What if manual work, manual manipulation of data is moved to your ERP system? What if all the mandatory manual activities will be automated and the results will be displayed in easy-to-understand reports? Have you thought about it before?

The following are the actual cost and variance calculation capabilities of JD Edwards that can be implemented as part of a solution tailored to the realities of your business.

To find out what the JD Edwards system is and for answers to frequently asked questions, visit our website here.

Solution description

The automation solution includes:

• collection of variances between the standard cost and the actual cost incurred;
• calculation of actual cost values for an item or item group (according to the method chosen by the company):
• Production cost is the cost of manufactured finish/semi goods in the current month;
• Cost of sales – total cost of sales (including the effect of finished goods balances from the previous month).
• calculation of the amount of variance between standard and actual costs in the following blocks and generation of accounting records for totals:
• Production output;
• Production losses;
• Cost of sales (including returns);
• Month-end balances.

In addition, the solution contains:

• visualisation of the solution through visual and understandable reports;
• the possibility of creating technical postings with closing balances in terms of actual cost and the linkage to the item number, allowing the values to be fixed in the system;
• the possibility for the user to select an appropriate launch mode (proof or final) and, for example, not to create postings before the reports and calculations have been reviewed and checked.

Prerequisites and preparation

The following aspects should be taken into consideration as preparation:

• Account setup. Appropriate attributes must be set up via the Category Codes on the account level in order to define these accounts in which variances in the Material and Works areas will be accumulated. The system will use the configured Category Codes to collect data, as variances.
• Technical accounts setup. Technical accounts are required to save information based on the results of calculating the actual cost on Materials and Works areas for the Balances at the end of the month (data from these accounts will be used as Balances at the beginning of the month to calculate the actual cost in the next financial period).
• Definition of transaction types. The program logic should contain a calculation algorithm by transaction type to accumulate information on specific transactions. For example, the Production output block should contain transactions with type IC (Inventory Completion), the Production losses block should contain transactions with type IA (Inventory Adjustment), PI (Physical Inventory), IS (Inventory Scrap), etc.
• Definition of the matrix by types of cost. The cost matrix should define the relationship between the types of cost used for amounts accumulation by transactions and the types of cost components (to separate out Materials and Works).
• Definition of exceptions. Nomenclature items relating to finished and semi-finished goods, as well as nomenclature items to be excluded from the calculation, must be defined via special attributes on the nomenclature level (usually using the Master Data settings).

Stages in calculating the cost of production

Calculation of the actual cost and variance consists of the following stages:

Stage 1. Data collection by standard cost

Standard Cost of production is defined based on data from system databases and populated in blocks provided below, which will be used in the following stages:

• Balances at the beginning of the month;
• Production output;
• Production losses;
• Cost of sales;
• End of month balances.

Stage 2. Calculation of variances for manufactured semi-finished products in the current month

Accumulated variances are collected by Material and Works areas for finish and semi-finished goods. Variances for production consist from two parts:

• Cost variances in the price of purchased materials;
• Cost variances in production (difference between planned and actually issued materials and/or man-hours, and other costs).

Stage 3: Calculation of actual cost

Step 3.1. Calculation of actual production cost

Once the variance amounts have been identified and calculated, the total value (hereafter = total = t) of the actual cost of finished and semi-finished goods produced appears:

SCt + Variances = APCt,

where  SCt – total standard cost of Production output (data from Step 1);
              Variances – total accumulated variances by Material and Works areas for finish and semi-finished goods (data from Step 2);
              APCt – total actual production cost value of finish and semi-finished goods produced.

Next, calculate the actual production cost (APC) for the Production output for each item (this can be also a product group) of finished and semi-finished goods (hereafter = item = i):

APCt / (SCt * SPCi) = APCi,

where  APCt – total actual production cost of finished goods produced (the result of the previous calculation);
              SCt – total standard cost of finished goods produced (the data from Step 1);
              SPCi – standard production cost of item or group of items;
              APCi – actual production cost of item or group of items.

Step 3.2. Calculation of the actual cost of sales

Calculation of the actual cost of sales (ACS) in the Cost of sales block by following formula:

(QBi * ACSBi) + (QPi * APCi) + (QPLi* APCi) / (QBi + QPi + QPLi) = ACSi,

where  QBi – quantity of an item or group at the month beginning;
              ACSBi – actual cost of sales at the beginning of the month for item or group of items;
              QPi – quantity produced item or group of items;
              APCi – actual production cost of item or group of items;
              QPLi – quantity produced losses of article or group;
              ACSi – actual cost of sales of the item or group of items for the current month.

Stage 4: Calculation of the differences between standard and actual costs for all blocks

Step 4.1. Calculation of the differences in the Production output block and as a result amount of variances for accounting records by following formula:

(APCi – SPCi) * QPi = Variances for the Production output block,

where  APCi – actual production cost of item or group of items;
              SPCi – standard production cost of item or group of items;
              QPi – quantity produced item or group of items;
 

Step 4.2. Calculation of the differences in the Production losses block and as a result amount of variances for accounting records by following formula:

(APCi – SPCi) * QPLi = Variances for the Production Losses block,

where  APCi – actual production cost of item or group of items;
              SPCi – standard production cost of item or group of items;
              QPLi – quantity produced losses of article or group;

Step 4.3. Calculation of the differences in the Cost of sales block and as a result amount of variances for accounting records by following formula:

(ACSi – SCSi ) * QSi = Variances for the Cost of sales block,

where  ACSi – actual cost of sales of item or group of items;
              SCSi – standard cost of sales of item or group of items;
              QSi – quantity sold of article or group.

Step 4.4. Calculation of the differences in the End of Month Balances block and as a result amount of variances for accounting records by following formula:

(ACSi  – SCSi ) * QEi = Variances for month-end balances block,

where  ACSi – actual cost of sales of item or group of items;
              SCSi – standard cost of sales of item or group of items;
              QEi – quantity at the end of the month for item or group of items.

Stage 5: Creation and posting calculated variances and month-end balances in actual cost.

A report that calculates variances by blocks has the ability to select a launch mode (proof or final) in order to be able to verify the data before transactions will be posted. When choosing the final launch mode, the following records will be created in the system:

• accounting records with variances between the standard and actual costs;
• technical postings with balances at the end in actual cost of sales for item or group of items.

Thus, we have briefly reviewed the main aspects of the process of calculating the actual cost and variances, which undoubtedly plays an important role in the life of any manufacturing company and can be greatly simplified and automated using the capabilities of the JD Edwards system or other ERP solution.

For more than ten years, Kertios Consulting has been helping its clients in the Russian market with the development and automation of business processes, incl. calculating the actual cost and variance, in the JD Edwards system.

Find out more about:

• Strategies for the development of JD Edwards system in 2021
• Our JD Edwards Implementation Proposals

Your opinion is important to us! Contact us to share your experience with this article and / or ask additional questions that Kertios will be happy to answer.

Introduction

The topics discussed in this article were collected by the Kertios Consulting ERP team during the implementation, deployment and support of the JD Edwards system in Russia. The questions come from our existing and potential clients. We always try to give the most objective answers based on our experience and deep understanding of the Russian JD Edwards market. Our team is always open to hear about your opinion or experience on topics related to the JD Edwards system.

How long has JD Edwards been present on the Russian ERP systems market?

JD Edwards has been in the global information systems market for over 40 years. In Russia, the system first became popular in the early 2000s and is actively used in various sectors of the economy to this day.

The first companies in Russia to implement the JD Edwards system in the early 2000s were GUM Trading House, the oldest shopping mall in Russia, and Caterpillar Tosno, a manufacturer of construction and mining equipment. To this day, these companies use the JD Edwards ERP system to manage their business processes.

Since 2005, the ERP system JD Edwards belongs to Oracle, which has been carrying out its continuous development and updates in many countries, including Russia. More information is available on the company’s official website on the page JD Edwards EnterpriseOne.

What size companies is JD Edwards suitable for?

JD Edwards is ideal for medium to large sized companies. The ERP system is especially effective for companies with a developed branch network and international corporations because JD Edwards allows you to scale your enterprise solution to other departments. This approach significantly reduces the project budget compared to a new system implementation.

To estimate the budget for the implementation of an ERP system, various methods are used, one of which is based on the principle of determining the project budget as 10% of the company’s revenue. Focusing on this amount, it is possible to move on to the next step – estimating the costs of implementing the ERP system.

One of the most popular methods used in calculating the costs of implementing an ERP system is the Total Cost of Ownership (TCO) method. The essence of this method is to calculate the maximum total cost of all costs for an ERP system that will arise during the entire period of its operation. Costs are divided into fixed and recurring costs. Fixed costs are carried out at the stage of system implementation, as a rule, once at the beginning. These include: the cost of developing and implementing a project, initial software purchases, hardware purchases, and outsourcing. Ongoing costs — the costs of keeping the system running — are required all the time while the system is running. These include: updating and upgrading the system, system administration, application development and additional settings, user training.  Having information about the budget that can be allocated for implementation, and information about the fixed costs based on TCO, the business owner can make an informed decision about the company’s readiness to launch an ERP system implementation project.

Kertios Consulting provides a full package of services for assessing and planning a future project for scaling or implementing a JD Edwards system. More information is available on the website under the section JDE Roll-out pre-project.

What industries is JD Edwards designed for?

JD Edwards has more than 80 modules that allow you to manage the business processes of a company in any industry. Historically, the system has a strong position in the market for solutions for areas such as manufacturing, distribution and retail, real estate, and service delivery.

For the manufacturing industry, the system allows you to manage the complete production cycle, from maintaining a catalog of manufactured goods and specifications, forecasting future demand, calculating the need for components and resources, issuing purchase and production orders, and ending with the sale of finished products to the end customer, reflecting the entire cycle of operations in financial block of the system. In this case, it is possible to take into account both the standard and the actual cost of the finished product, which is controlled by the system settings.

For the distribution and retail industry, JD Edwards is fully equipped with the functional and technical requirements to effectively customize the company’s business processes. You will be able to: integrate the system to receive orders from customers and automatically place orders to suppliers; use JD Edwards power to calculate pricing using discount and bonus programs; manage the warehouse, taking into account the system recommendations for the distribution of goods and the formation of a batch for shipment. At the same time, the processes of import and export operations are supported thanks to the customs management module.

JD Edwards provides comprehensive property and rental management capabilities throughout the asset lifecycle. You will be able to carry out: planning, search, selection of objects; maintain a unified register of real estate and lease agreements; automatically draw up invoices and settle accounts with counterparties; generate reports; predict costs and benefits. At the same time, the real estate management module is fully integrated with the financial block of the system and the service management module.

For an expanded list of industries in which the JD Edwards system is used, please visit the JD Edwards System Implementation section JDE Implementation.

How are JD Edwards updates conducted?

Oracle is continuously developing and updating the JD Edwards system in Russia. Functional service packs are released two to three times a year. They contain a description of all changes and their impact on the system. The client independently decides to install the package. Once a year, a comprehensive update package is released, which includes all the changes that were relevant at the date of its release.

In June 2021, Oracle announced the release of the JD Edwards EnterpriseOne Tools Release 9.2.5.4 functional package. It contains a set of improvements and fixes in the field of digital business transformation, user interaction with the system, system automation, security, and platforms, continually certified by JD Edwards, that offer the choice and control over the underlying computing architecture on which you run your EnterpriseOne system. The next all-in-one update, which will contain all previously released feature packs, is scheduled for release in November 2021.

It is important to note that as of the end of April 2021, the roadmap published by Oracle includes plans to develop and support the JD Edwards system until at least 2031. Information is available on the official website of Oracle – Support Announcement 2031.

Does JD Edwards take into account the requirements of Russian accounting and taxation standards?

The JD Edwards system in the basic delivery option has a number of primary documents, applications and mechanisms that are responsible for organizing accounting and tax accounting in accordance with Russian requirements. Examples of such functionality: invoice, waybill (TORG-12), mechanisms for working with the purchase journal and the sales journal, etc. However, the list of primary documents is limited and, as a rule, does not fully cover the needs of a specific customer. Furthermore, the format of the documents do not always meets the requirements of legislation and business practice adopted in Russia.

Kertios Consulting provides a Russian localization package for clients who want to use JD Edwards software in Russia, complying with all the requirements of Russian legislation and the rules of accounting and taxation. The Russian localization package contains updated forms of primary documents in accordance with the latest changes in legislation, as well as interactive applications for conducting specific Russian transactions, such as VAT deductions and corrections to the Purchase Journal / Sales Joural.

Kertios Consulting’s offer includes: a package of primary documents for sales (TORG-12, TTN, TN, invoice, prepayment invoice, act of performed services, corrective invoice); reconciliation of settlements with suppliers and customers; integration with the client bank; accounting for prepayments from clients in foreign currency or standard unit; package of primary documents for the warehouse (TORG-13, M-11, TTN, Russian inventory count); management of mutual settlements with customs; accounting of fixed assets; separate VAT accounting; VAT declaration; accounting entries at the end of the month (RAS); combined accounting under RAS and IFRS / GAAP standards.

For more information on the offer of Kertios Consulting and a detailed description of the Russian localization package, please visit the website in the Russian Localization section.

Are there examples of successful implementation and application of JD Edwards in Russia?

Today in Russia many companies have a successful long-term experience of working with the JD Edwards system. In particular, Kertios Consulting has more than 10 JD Edwards implementation, deployment, and support projects completed in Russia in its portfolio.

Among the customers those that conduct their business in the field of production and distribution prevail. These projects typically involve automating business processes to manage the supply chain, production, sales, warehouses, as well as finance and accounting, where companies face the most difficulties of keeping records in accordance with local accounting and tax requirements. The localization package allows you to take into account the Russian specifics, which is confirmed by more than one successfully implemented project.

Many projects are initiated with the aim of scaling the corporate JD Edwards solution to the divisions of international companies operating in Russia. But, in addition to scaling projects, there are examples of new implementation of the JD Edwards system. Among these customers are companies from the banking sector, trade, pharmaceuticals, services and other industries. They have successfully automated their JD Edwards business processes for property management, service delivery, repairs, counterparty management, asset management and reporting.

For more information about Kertios Consulting and the implemented projects related to the JD Edwards system, follow the link – JD Edwards from Kertios.

How does JD Edwards comply with the Russian law on personal data protection?

Throughout the territory of the Russian Federation, there is a law FZ-152 on personal data, which regulates all issues related to the processing (receipt, storage, transfer, deletion) of personal data of individuals by legal entities. Among other conditions imposed by the law on enterprises, in relation to personal data, there is a requirement to collect and store (if necessary) personal data of individuals only on the territory of the Russian Federation.

This requirement imposes restrictions on the architecture of information systems, since the servers used for the primary collection and storage of personal data cannot be located abroad. The JD Edwards system is positioned by Oracle as a local application, which makes it possible to comply with legal requirements if the system and data storage are located on the territory of an enterprise located in Russia.

The situation is more complicated with foreign companies that scale the JD Edwards system to their divisions in Russia, since access to the ERP and database for entering and storing personal data is carried out remotely. Kertios Consulting offers a solution to this issue by using a hybrid architecture, in which the initial collection and storage of personal data is carried out in Russia using a server dedicated for this purpose. The subsequent transfer of personal data to the central storage is not limited by law. When collecting data, it is recommended to obtain consent from the owners of the personal data for their cross-border transfer. This approach allows you to fully comply with the requirements of the legislation of the Russian Federation.

This week Oracle User Club in Paris (Club utilisateurs de solutions Oracle) organized a special Salon that took place in the Pavilion “Gabriel” on the Champs-Élysées. Frederic Glenat, the Director of Kertios Consulting Moscow branch and the Head of the international ERP / HCM practice, took a flight to Paris to participate in this event together with Xavier Boissonnet, the General Director of Kertios.

The main topic of this event was to discuss the benefits of innovation in the daily life of organizations. Specialists from Oracle, as well as representatives of companies that have chosen solutions from Oracle for the digital transformation, demonstrated their presentations.

Earlier in 2019, Kertios also took part in the event of “Club utilisateurs de solutions Oracle”, when our client AfrAsia Bank was nominated for the French Trophées Oracle award, entered in the Top 5 of Oracle HCM Cloud Users, and was invited to an official ceremony organized for the finalists of this award.

It was extremely pleasant, after long months of lockdowns and exclusively online meetings, to finally meet and talk live with our partners from Oracle and potential clients.

Kertios Consulting has sponsored the publication of the annual catalog of the Lyceum Alexandre Dumas, which is under the patronage of the French Embassy. The Lyceum was opened in 2005 for French citizens living and working in Moscow. Kertios Consulting always actively supports various events related to the development of French culture in Russia. In addition, our company has been a member of the Franco-Russian Chamber of Commerce and Industry for many years.

In February 2021, Kertios Consulting HR team completed the second phase of the Oracle HCM Cloud roll-out project at a large telecom company in a CIS country. We have previously reported on the start of this ambitious project and participation of Kertios Consulting in it.

The main objective of the validation phase was to analyze the materials of the global template, identify discrepancies with the local team and approve the final project scope.

As part of the process validation phase, the following tasks were delivered by our consultants:

• Preparation and delivery of 10 validation sessions in 3 areas (Core HR, Absences and Time&Labor, Compensation and Benefits);
• Preparation of a detailed report on the results of the sessions;
• Organisation of additional sessions on open questions;
• Creation a list of customizations and gap analysis;
• Creation a list of required integrations;
• Definition of a directory list and its content.

The third phase of the project for system design and configuration started in March 2021.

The full-scale launch of the Oracle Cloud system is planned for January 2022.

1. When?

March 31, 2021 10:00 am (Moscow Time)

2. Who can be interested in this Webinar?

As a target audience for this event we see those, how are interested in increasing efficiency of IT a company. It could be:

• CEO
• CFO
• CIO
• System architect
• Accountants

3. Agenda

4. Organization

The webinar will be conducted on Zoom platform. The link will be provided to you after registration.

5. Registration

To take part in the webinar you need  to complete the following registration form.