Costing Module is based on

1. Purchasing
2. Inventory
3. Work in Process
4. Order Management Transactions
Costing Type
1. Average
2. Standard
A cost structure is the collection of definitions and methods used to cost inventory, bills of
material, and work in process. The cost structure is composed of:
Organizations
Cost organizations and shared costs
Cost elements
Sub-elements
Activities
Basis types
General Ledger accounts
The two item attribute controls, Costing Enabled and Inventory Asset Value determine
whether you share costs. This can be found in Costing tab of Item Master.
Cost Elements
Product costs are the sum of their elemental costs. Cost elements are defined as follows:
Material
The raw material/component cost at the lowest level of the bill of
material determined from the unit cost of the component item.
Material Overhead
The overhead cost of material, calculated as a percentage of the total
cost, or as a fixed charge per item, lot, or activity. You can use
material overhead for any costs attributed to direct material costs. If
you use Work in Process, you can also apply material overhead at
the assembly level using a variety of allocation charge methods.
Resource
Direct costs, such as people (labor), machines, space, or
miscellaneous charges, required to manufacture products.
Resources can be calculated as the standard resource rate times the
standard units on the routing, per operation, or as a fixed charge per
item or lot passing through an operation.
Overhead
The overhead cost of resource and outside processing, calculated as
a percentage of the resource or outside processing cost, as a fixed
amount per resource unit, or as a fixed charge per item or lot passing
through an operation.
Overhead is used as a means to allocate department costs or
activities. For example, you can define multiple overhead
subelements to cover both fixed and variable overhead, each with its
own rate. You can assign multiple overhead subelements to a single
department, and vice versa.
Outside Processing
This is the cost of outside processing purchased from a supplier.
Outside processing may be a fixed charge per item or lot processed,
a fixed amount per outside processing resource unit, or the
standard resource rate times the standard units on the routing
operation. To implement outside processing costs, you must define a
routing operation, and use an outside processing resource.

Sub-Elements
You can use subelements as smaller classifications of the cost elements. Each cost element
must be associated with one or more subelements. Define subelements for each cost
element and assign a rate or amount to each one. You can define as many subelements as
needed.
Material
Classify your material costs, such as plastic, steel, or aluminum.
Sub-element
Define material subelements and assign them to item costs.
Determine the basis type (allocation charge method) for the cost and
assign an appropriate amount.
Material Overhead
Define material overhead subelements and assign
Sub-element
them to item costs. Determine the basis type for
the cost and define an appropriate rate or amount,
such as purchasing, freight, duty, or material
handling.
Resource
Define resource subelements. Determine the basis
Sub-element
type for the cost and define an appropriate rate or
amount. Each resource you define is a subelement,
can be set up to charge actual or standard costs,
and may generate a rate variance when charged.
Overhead
Define overhead subelements and assign them to
Sub-element
your item costs. Determine the basis type for the
cost and define an appropriate rate or amount.
Overhead subelements are applied in the routing
and usually represent production overhead. You
can define overheads based on the number of units
or lot moved through the operation, or based on
the number of resource units or value charged in
the operation.
Outside Processing
Define outside processing subelements. Determine
Sub-element
the basis type for the cost and define an
appropriate rate or amount. This subelement is
associated with the outside processing cost element
and represents service provided by suppliers. Each
outside processing resource you define is a
subelement, may be set up to charge actual or
standard costs, and may generate a purchase price
variance when charged.

Activity - An action or task you perform in a business that uses a resource or incurs cost.
You can associate all product costs to activities. You can define activities and assign them to
any subelement. You can also assign costs to your activities and build your item costs based
on activities.
Basis Type
Basis types determine how costs are assigned to the item. Basis types are assigned to
subelements, which are then assigned to the item. Each subelement must have a basis type.
Examples: one hour of outside processing per basis item, two quarts of material per basis
lot. Basis types are assigned to subelements in three windows and, for theoverhead
subelement, a setting established in one window may not always be applicable in another.
(This refers specifically to the overhead subelement, not the material overhead subelement.)

Basis types in Subelement and Routing Windows.

Basis types assigned to subelements in subelement and routing
windows are the defaults for the purpose of routing. Basis types
Resource Units and Resource Value, when assigned to an overhead
subelement (Routing only in the table below), are available to flow
through to routing, but are not available in the Item Cost window.
Basis types in the Item Cost window
When you are defining item costs, for any overhead subelement with a
previously assigned basis of Resource Units or Resource Value, that
basis is ignored, and only item or lot appears in the basis popup
window. This does not change the assigned basis for the purpose of
routing.
The following table details the basis types available for use with each
subelement.