How to account for capital product outgoing overheads in Oracle Fusion Cloud Order Management

Whenever capital products — such as automobiles, semiconductor machines, and heavy construction equipment — are sold, any dynamic overhead expenses that were incurred need to be accounted for. Also known as outgoing charges, such expenses include transportation fees, service charges, free parts, and installation charges. These overheads, which can be substantial in nature, are considered dynamic because they may be subject to change depending on customer negotiations, company policies, and shipping locations. Because they add to the overall product cost, they must be recognized as costs of goods sold (COGS), which has a direct impact on profit and loss (P/L) statements.

However, Oracle Fusion Cloud Order Management (OM) does not provide dynamic expense coverage; it only accounts for overheads that are static in nature or based on an overall product percentage basis or so. To overcome this gap, Inspirage has developed an extension for OM that enables dynamic overhead reporting. By adding these dynamic outgoing charges to the overall COGS once the sales order is processed (on SO line close), revenue and COGS will be aligned — and the P/L statement will reflect accurate numbers.

Below is the accounting used for these different scenarios:

• Product sold to a customer (revenue recognition)

• Product sold to a customer (COGS recognition for the product cost only)

• Product sold to a customer (COGS recognition for the outgoing charges)

 
In the scenario, the SO (Sales Order) and line must be created for the product to be sold, and the picking and shipping process must be completed to close the line. The revenue must then be recognized. COGS entries are generated for the product sold, and a report must be generated showing that the SO line for the product has been closed.

To overcome the dynamic overhead, the following actions must be taken:

• Enable the EFF (Extensive Flex Fields) at the sales order line with the outgoing charges attributable to transportation fees, service charges based on negotiations, free parts, and installation charges
• All these charges must be added at the time of the sales order creation, based on unit bases rather than the total number of units sold
• The sales order line must be picked and shipped
• The line’s status must be closed
• Revenue must be recognized based on the line close
• A report must be generated showing the SO line status as closed, the customer details, and the dynamic charges for each line with the charges’ name and amount

Since accounting for these charges is not yet complete, an extension must be built to call the general ledger (GL) API, which will post the entries to GL with the following entries:

• Summary of all dynamic charges in the sales order line
• The GL date (must be the sales order line close date)
• The GL category (“outgoing charges”)
• All transactions in the “unposted” status will later be posted manually

These GL transactions, which should have the SO number and the charges to recognize, can then be put in “posted” status to avoid manual intervention in the future. As a result of employing dynamic entry in Oracle Fusion Cloud Order Management to account for sales order overheads, your P/L statement will reflect accurate numbers, as revenue and COGS are posted in alignment.

Inspirage can help

As the Integrated Supply Chain Specialists, with recognition from Gartner, IDC, and winners of Oracle’s 2021 Game Changer Award for SCM Service Delivery Partner of the Year, Inspirage is uniquely qualified to be your success partner. Whether you are upgrading your on-prem system or have decided to move to the cloud where continuous improvement is built-in, our team is prepared to guide you on your transformational journey.