Accounting for Costs/COGS: Project Manufacturing Environment

The below is applicable for Customer Billable Contracts/Projects

Using Projects in a Manufacturing Environment has its own benefits and disadvantages.
_{But that is the subject of a different discussion topic. LoL.}

There is a lot of choice on how to setup accounting (based on the needs).
Below is the 80% scenario that will fit most organizations.

_{Let me know in comments if you have other methods that suit your organization.}

For expenditures that come into Projects & get accounted on the Project Costing side, accounting can be setup as below

Labor
Dr. Project WIP
Cr. Labor Clearing/Labor Applied/Payroll Clearing

Expenses
Dr. Project WIP
Cr. Expense Clearing/Expense Recovery
_{Choice of this Recovery Account needs to be made by taking a eagle’s eye view.
eg. Typically Expense Reports will have other legs of accounting happening on GL/AP side & the above needs to tie into the same.}

When a Project & Task is used on the Sales Order line (& right ‘Project Type Cost Exclusions’ setup), accounting can be setup as below

Sales Order Issue
Dr. Project WIP
Cr. Inv Valuation
This will result in the Costs making its way into Projects Expenditures as a ‘fyi’ Costs.

_{The choice above is based on the assumption that ‘Project WIP’ is not hit in any of the manufacturing value add transactions.
While some organization would like to recognize Project WIP as and when the Costs are incurred, unfortunately Oracle Fusion does not give enough hooks on the Cost Accounting SLA side to manage such an implementation (especially Work Order Accounting)
Further it will be a tad complicated since now we will need to understand whether the material cost already hit Project WIP or not (especially when the BOM is deep and/or hierarchical Work Orders are involved).
Mitigation : The costs will hit the project anyways, only that ‘Project WIP’ will not be hit.
If we really need to – we can evaluate monthly Project Balances & accrue(with reversal) them to Project WIP until Shipment happens.
And this can be achieved within the Project subledger (or) Directly in GL.
Conclusion : I do not see any dis advantage in doing it this way.}

COGS should be taken along with Contract Revenue.
This can be achieved by use of a Process Configurator (or) a OIC based simple customization to generate COGS Entries
_{{either as a Revenue Event(my personal preference because of the direct link to Revenue in all cases) (or) Project Expenditures}}.

I will write another article on how to achieve this using Process Configurator

Warning : We will need to ensure that a project/task is associated to only one Contract Line – else the COGS will get duplicated.
If there is a business need to associate a project/task(& as a result the Costs) to multiple Contract Lines – I would recommend including a logic to ensure COGS is not over stated.

COGS Accounting as below
Dr. COGS
Cr. Project WIP
The shipping costs that made their way into Project WIP should get relieved along with Revenue.

This completes the Costs to COGS cycle for typical Project Manufacturing Environment.