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Creating Burden Cost in Project Costing

Discussion in 'General' started by venkateswarlu.y@genpact, Nov 19, 2012.

  1. venkateswarlu.y@genpact

    venkateswarlu.y@genpact Active Member

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    Introduction
    This article will show you how to create the Burden cost over the Raw cost of the expenditure items in Project Costing
    Background

    Let us consider the Example of Employee Labour cost, if the Employee is related to TCS Mumbai- Thane VOLTAS branch. the Employee is working for same branch activities then the caluclated raw cost is similar to the Burden cost BUT if that resource is working under HYD-TCS Decan park project then the Thane branch will ask more employee rate than he works at their place. The Extra cost is always multiplied by Raw Cost.

    Here we are disucssing the same How we will caluclate the Burden cost in Project Accounting Module.
    The code

    Small Notes on Burdening in Project Costing.

    Burdening
    Burdening (also known as cost plus processing) is a method of calculating burden costs by applying one or more burden cost components to the raw cost amount of each individual transaction. We can then review the raw cost and total burdened cost (the sum of raw cost and burden cost) of each transaction.
    Oracle Projects displays the raw cost and burdened cost in expenditure inquiry windows, and shows the cost of each detail transaction in reports. We can choose to account for the individual burden cost components to either track the overhead absorption or to account for the total burdened costs. We can write custom reports using standard views to report all burden cost components for each detail transaction. Using burdening, we can perform internal costing, revenue accrual, and billing for any type of burdened costs that our company applies to raw costs. Oracle Projects calculates costs using the following formulas. (The formulas for cost also apply to revenue and billing amounts.) Oracle Projects calculates burden cost by multiplying raw cost by a burden multiplier.
    This calculation is represented in the following formula
    Burden Cost = Raw Cost x Burden Multiplier
    Oracle Projects calculates total burdened cost by adding burden cost to the raw cost
    amount. This calculation is represented in the following formula:
    Total Burdened Cost = Raw Cost + Burden Cost
    We use the burden multiplier to derive the total amount of the burden cost.
    The following illustration shows the burden calculation process.

    Burden Set up
    To implement Burdening in Oracle Projects, We must complete the following setup steps using the Projects Implementation Super User responsibility:
    • Define cost base and cost base types at the Site level.
    • Define burden cost codes at the Site level.
    • Define burden structures at the Site level.
    • Define burden schedules at the Site level
    We must also complete the following procedures using the System Administrator responsibility:
    • Set the profile option PA: Create Incremental Transactions for Cost Adjustments Resulting from a Burden Schedule Recompilation at the Operating Unit level.
    • Set the Profile Option PA: Report Separate Burden Transactions with Source Resources at the Operating Unit level.

    Cost Base and cost base type
    Cost bases refer to the bases of raw costs used for applying burden costs. We assign cost bases to burden structures, and then specify the types of raw costs that are included in the cost base along with the types of burden costs that are applied to the cost base.
    We can also use cost bases as groupings of expenditure types for use in billing extension calculations. These cost bases are not used for burdening, and are defined with a cost base type other than Burden Cost. When We assign these cost bases with a type other than Burden Cost to a burden structure, We can specify expenditure types for the cost base, but We cannot specify burden cost codes for the cost base since the cost base is not used for burdening.
    Cost base types refer to the use of cost bases. Oracle Projects predefines the cost base types Burden Cost and Other. Cost bases with the type Burden Cost are used in burden calculations. Cost bases with the a type other than Burden Cost are not included in burden calculations; these cost bases are used for grouping expenditure types for different purposes, such as for billing extension calculations.
    We define a cost base for a group of expenditure types or raw costs and assign it a cost base type that determines how the cost base is used. For example, if We assign a cost base type of burden to a cost base for labor costs, Oracle Projects burdens each labor raw cost with the additional specified cost to calculate the total burdened cost of the labor cost transaction. A cost base type of other uses the cost base to group expenditure types for billing extension calculations.

    Examples of cost base are Department Cost
    Labor, Labor - Faculty, Labor - Staff, Labour Costing, Total Costs, Material, Expenses, Project Manufacturing, Work Orders etc

    Burden Cost Code
    We use a burden cost code to define the expenditure type that We will use to burden the raw cost expenditure type when calculating total operating cost. For example, We can burden labor raw costs with overheads or material raw costs with handling charges. We can use burden cost codes for internal costing, revenue generation, billing, and burden cost recovery.

    We can have two different burden cost codes attached to a single Expenditure type ex. Two different burden cost codes: Fringe - Faculty & Fringe – Staff can be associated with a single Expenditure type of Fringe Benefits.
    But the reverse is not true i.e. we can’t have a single burden code associated with two different Expenditure types.
    To define a burden cost code:
    1. In the Burden Cost Codes window, enter the Burden Cost Code and a Description.
    2. Optionally assign an expenditure type to the burden cost code for creating separate burden transactions.
    The expenditure type We enter must have the Burden Transactions expenditure type class assigned to it. (Only expenditure types with the Burden Transactions expenditure type class assigned to them are displayed in the list of values for this field).
    3. Save Our work


    Burden Structures
    We define the cost buildup using a burden structure. A burden structure determines how cost bases are grouped and establishes the method of applying burden costs to raw costs. Expenditure types classify raw costs, and burden cost codes classify burden costs. The relationship between expenditure types and burden cost codes within cost bases determines what burden costs are applied to specific raw costs, and the order in which they are applied.
    Notes:
    To account for burden cost codes separately, We also define unique expenditure types to link to burden cost codes

    Notes :
    1. One expenditure type can be associated with only one cost base in a burden schedule
    2. When We make an expense, system checks if the project allows burdening. The burden schedule/structure is picked from the project/type. System checks the expenditure type in the structure and finds out the corresponding cost base. The cost base defines the burden charges applied to the expenditure type.
    3. The burden schedule determines the multiplier for each burden cost code in an organization.
    To define a burden structure:
    Navigate to the Burden Structures window.
    1. Enter the Header Information
    Enter a unique name and description for the burden structure.
    Select Additive if We want to apply each burden cost code assigned to a cost base using the same precedence when calculating burden costs. Additive schedules automatically provide a default value of 1 to each burden cost code in the structure. Select Precedence if We want to specify the order in which each burden cost code in a cost base should be applied to raw costs.
    Select allowed if users can use this burden structure when defining a burden schedule override for a project or task. Select Default if We want this burden structure to appear as the default structure for burden schedule overrides for projects and tasks. We can only select one default structure for burden schedule overrides.
    2. Cost Base Assignment
    Enter the names of the cost bases included in this burden structure.
    If We need to define additional cost bases, choose the Cost Bases button.
    Suggestion: After We enter a cost base, we recommend that We enter all of the associated expenditure types and burden cost codes for the cost base before We enter the next cost base.
    3. Burden Cost Codes
    Enter the burden cost codes associated with a particular cost base. If We are using a precedence based structure, enter the precedence in which We want to apply each burden cost code to raw costs within the cost base.
    If We need to define a new burden cost code, choose the New Burden Cost Codes button.
    4. Expenditure Types
    Enter the expenditure types associated with a particular cost base. Expenditure types represent the types of raw costs within a cost base.
    • Each expenditure type can belong to only one cost base having a type of Burden Cost within each burden structure so that transactions of that expenditure type are not burdened more than once.
    • If We do not assign an expenditure type to a cost base, transactions using that expenditure type are not burdened. The burdened cost for these transactions equals the raw cost of the transaction.
    Components of a burden structure
    Our company may have several different burden structures for unique business requirements. For example, We may use a different structure for internal costing than We use for government billing.

    The illustration Components of a Burden Structure shows a burden structure with the following cost bases:
    • The Labor cost base: includes the expenditure types Professional, Clerical, and Administrative.is assigned the burden cost codes Fringe, Overhead, and General and Administrative (G&A).
    • The Material cost base: includes the expenditure types Supplies and Construction Materials. is assigned the burden cost codes Material Handling and General and Administrative (G&A).
    • The Expense cost base: includes the expenditure types Travel and Meals. is assigned the burden cost code General and Administrative (G&A).

    Burden Structure Components
    An expenditure type classifies each detailed transaction according to the type of raw cost incurred.
    A burden cost code represents the type of burden costs We want to apply to raw costs. For each burden cost code in the burden structure, We specify what cost base it is applied to, the expenditure type or types it is linked to, and the order in which it is applied to raw costs within the cost base.
    A cost base is a grouping of raw costs to which We apply burden costs. A cost base assignment consists of expenditure types. We specify the types of transactions that constitute the cost base when We assign expenditure types to the cost base. These expenditure types assignments represent the raw costs to which We apply the burden costs of the cost base. If We exclude an expenditure type from all cost bases in a structure, the expenditure items that use that expenditure type will not be burdened (burden cost equals zero, thus burdened cost equals raw cost).
    In summary, cost bases are comprised of expenditure types and burden cost codes. Expenditure types represent the raw costs, and burden cost codes represent the burden costs that support the raw costs. Cost bases may be different within the context of different burden structures. For example, We may use a different definition of a labor cost base in a billing schedule than We would use in an internal costing schedule.
    A burden structure can be additive or precedence based. If We have multiple burden cost codes, an additive burden structure applies each burden cost code to the raw costs in the appropriate cost base. A precedence burden structure is cumulative and applies each cost code to the running total of the raw costs, burdened with all previous cost codes. The examples in the following two tables illustrate how different burden structures using the same cost codes can result in different total burdened costs.
    The following table shows the calculation of total burdened cost using the additive burden structure.

    Note: The order of the burden cost codes has no effect on the total burdened cost with either additive or precedence burden structures.


    Using Burden Schedules
    Burden schedules establish the multipliers used to calculate the burdened cost, revenue, or bill amount of each expenditure item charged to a project. We can define different burden schedules for use in internal costing, revenue accrual, and invoicing. When We define burden schedules, We specify the burden structure on which the schedule is based.
    We can use both burden schedules and bill rate schedules within a project to accrue revenue and invoice. We can also use a bill rate schedule for non-labor expenditure items, and use a burden schedule for labor expenditure items. We specify default burden schedules for each project type. We can use different schedules for different types of projects. We can override the default burden schedules for each project by using a schedule of multipliers negotiated for the project or task.

    Types of Burden Schedules
    There are two types of schedules We can use in Oracle Projects: firm and provisional. Use firm schedules if We do not expect Our multipliers to change. Generally, firm schedules are used for internal costing or commercial billing schedules. Because burden multipliers may not always be known at the time that We are calculating total burdened costs, We use interim, or provisionalmultipliers. Provisional multipliers are generally estimates based on a company's forecast budget for the year based on the previous year's results. When We determine the actualmultipliers that apply to costs (after the multipliers are audited), then We replace the provisional multipliers with the actual multipliers. Oracle Projects processes the adjustments from provisional to actual changes for costing, revenue, and billing.
    Defining Burden Schedule Versions
    We define schedule versions for a burden schedule to record the date range within which multipliers are effective. We can have an unlimited number of versions for each burden schedule, but use one active version at a given point in time. However, after We apply actuals, We can have one active provisional version and one active actual version existing at the same time within a schedule.

    In addition, We may have a number of versions for each quarter of the fiscal year in which Our company does business, especially for government billing projects. At the end of the year, when the government audits Our burden multipliers, We create a new version that reflects the actual billing rates. The following illustrations shows and example of the use of schedule versions
    In the illustration Burden Schedule Versions, a company defines provisional burden schedules on a quarterly basis, based on a forecast of budgeted costs. Each quarter, the company creates a new version of the burden schedule to reflect updates in the budget. At the end of the fiscal year, when the company is audited, actual multipliers are applied which reflect the true burdened cost of affected items.

    Assigning Burden Multipliers
    When We create burden schedules, We assign a multiplier to an organization and burden cost code. The multiplier specifies the amount by which to multiply the raw cost to obtain the burden cost amount.
    When We compile a burden schedule version, Oracle Projects calculates and stores the multipliers for each organization and burden cost code in a schedule version. Additional information stored includes compiled multipliers, which allow Oracle Projects to quickly determine burden cost amounts based on the burden multipliers used for a particular organization as of a particular date.
    Instead of performing a buildup of costs each time We calculate burden amounts, Oracle Projects uses the compiled multipliers to multiply the compiled multiplier by the raw cost to determine each burden cost component.
    Suggestion for Organizations that Have No Burden
    We may need to set up special procedures for organizations that have no burden. For example, Our company may use contractors that do not have a particular type of burden cost (such as fringe) applied to their raw cost. To implement this scenario, We can first set up a new organization for contractors. Then, create a zero burden cost amount by assigning that organization to the burden schedule and using a multiplier of zero for the burden cost of Fringe. Each time that burden cost for Fringe is calculated for the contractor's organization, Oracle Projects will multiply the contractor's raw cost
    multiplier by zero, resulting in a burden cost amount of zero, which reflects the true representation of the raw cost and burden multipliers.
    Assigning Burden Schedules
    We can assign burden schedules to project types, projects, and tasks. When We assign schedules to a project type, the schedules are the default schedules for projects and tasks that use the project type. Assigning burden schedules to project types allows We
    to implement company policies; for example, We can implement a policy that requires all projects of a particular project type to maintain the same multipliers for internal costing purposes.

    We can change the default schedule for a project or task. We can also override default schedules at the project and task level by using burden schedule overrides. Burden schedule overrides generally reflect multipliers that have been negotiated specifically
    for a particular project or task.
    Defining Burden Schedules for Project Types
    We define default standard burden schedules for each project type. These schedules default to each project defined with that project type. We can override the default schedules at the project and task level.
    Assigning Burden Schedules at the Project and Task Level
    When We assign a project type to a new project, Oracle Projects automatically provides default burden schedules from the project type. These schedules are also the default schedules for each top task added to the project, and schedules for a top task are the
    default schedules for loOur level tasks.
    The schedules used for burdening and billing are those assigned to the lowest task. Note: When We change the burden schedule assignment for a project that already has tasks set up, the schedules assigned to tasks that already exist do not automatically change. We may need to review schedules for the existing WBS to make sure they are correct.
    Assigning Fixed Dates for Burden Schedules
    We can assign fixed dates for each of Our burden schedules, just as We can for bill rate schedules. We can assign fixed dates only to firm schedules. We cannot use fixed dates with provisional schedules.
    The fixed date specifies the date for determining the schedule revision to use in calculations, regardless of the expenditure item date.
    We enter a fixed date for a cost burden schedule only if the project type definition allows We to override the cost burden schedule.
    We can enter schedule fixed dates for standard burden schedules only. Schedule fixed dates are not used for burden schedule overrides.
    Burden Multiplier Hierarchy
    Effective multipliers cascade down the Project Burdening Hierarchy, starting with the parent organization. If Oracle Projects finds a level in the hierarchy that does not have a multiplier defined, it uses the multipliers entered for the parent organization. Therefore, an organization multiplier schedule hierarchy is really a hierarchy of exceptions; We define only the multipliers for an organization if they override the multipliers of its parent organization.
    The following illustration shows an example of how multipliers are assigned for a multi-level organization.

    In the illustration Assigning Multipliers to Organizations, the parent organization, Headquarters (HQ), has two defined multipliers: Overhead (OH) with a multiplier of 2.0, and General and Administrative (G & A) with a multiplier of 3.0.
    • When Oracle Projects processes transactions for the East organization, no multipliers are found. Therefore, the system assigns the multipliers from the parent organization, Headquarters. However, when Oracle Projects looks for multipliers for the Boston and New York (NYC) organizations, a multiplier of 3.1 for General and Administrative is found for each organization. Therefore, the system uses the General and Administrative multiplier of 3.1 from these organizations.
    • When Oracle Projects processes transactions for the West organization, the multiplier of 2.3 for Overhead from the West organization overrides the multiplier of 2.0 from its parent organization, Headquarters. Since no multiplier is found for General and Administrative, the system assigns the multiplier of 3.0 from the Headquarters organization. No multipliers are found for the San Francisco (SF) and Los Angeles (LA) organizations. Therefore, Oracle Projects, assigns the multipliers from their parent organization, West.
    Suggestion for Burdening a Borrowed or Lent Resource
    When lending a resource to another organization for a specific project, We may want to burden the resource using the borrowing organization's multipliers. For example, the Los Angeles organization lends a resource to the New York City organization, and it is agreed that the borrowed resource is to be burdened using the New York City multipliers. For burdening, Oracle Projects uses the destination organization of an organization distribution override, in place of the expenditure organization, if an organization distribution override exists. If We want the project to have theNew York City burden multipliers use burdened costs of the borrowed
    resource from Los Angeles, then enter an organization distribution override with a source organization of Los Angeles and a destination organization of New York City.
    Assigning Burden Schedules
    We can assign burden schedules to project types, projects, and tasks. When We assign schedules to a project type, the schedules are the default schedules for projects and tasks that use the project type. Assigning burden schedules to project types allows We to implement company policies; for example, We can implement a policy that requires all projects of a particular project type to maintain the same multipliers for internal costing purposes.
    We can change the default schedule for a project or task. We can also override default schedules at the project and task level by using burden schedule overrides. Burden schedule overrides generally reflect multipliers that have been negotiated specifically for a particular project or task.
    Defining Burden Schedules for Project Types

    We define default standard burden schedules for each project type.
    These schedules default to each project defined with that project type.
    We can override the default schedules at the project and task level.
    Assigning Burden Schedules at the Project and Task Level

    When We assign a project type to a new project, Oracle Projects automatically provides default burden schedules from the project type.
    These schedules are also the default schedules for each top task added to the project, and schedules for a top task are the default schedules for loOur level tasks. The schedules used for burdening and billing are those assigned to the lowest task.
    Note: When We change the burden schedule assignment for a project that already has tasks set up, the schedules assigned to tasks that already exist do not automatically change. We may need to review schedules for the existing WBS to make sure they are correct.
    Changing Default Burden Schedules
    We can change the default burden schedules for a project or task.
    If We change the burden schedule for a lowest level task that has items processed, then the items are not automatically marked for reprocessing. Only new items charged to the task will use the new burden schedule. We can mark the items for recalculation in the Expenditure Inquiry window. This will cause the items to be reprocessed using the new burden schedule assigned to the task.
    Changing Cost Burden Schedule
    We can override the cost burden schedule if the project type definition allows We to override the cost burden schedule, and the project is burdened.
    Changing Revenue or Invoice Burden Schedule
    We can change the revenue or invoice burden schedule within a schedule type at any time.
    Changing the Type of Revenue or Invoice Burden Schedule Used
    We can change the burden schedule type of any task or project at any time. We may change a task from a burden schedule type of Bill Rate to Burden, even after We have defined bill rate overrides. These bill rate overrides will not be used in processing. We can also define burden schedule overrides and then change Our task to use a bill rate schedule. The burden schedule overrides will not be used.
    Overriding Burden Schedules
    We can define burden schedules at the project level to override the default burden schedules from the project type. We can also define burden schedules at the task level to override the default schedules
    from the project and project type.
    Defining Burden Schedule Overrides
    We can define a schedule of negotiated burden multipliers for Our projects and tasks which overrides the schedule that We assigned to the project and tasks. When We define burden schedule overrides, We cannot override just one multiplier for the standard schedule; We need to define an entire schedule for the project or task that overrides the standard burden schedule.
    Defining burden schedule overrides is similar to defining burden schedules. We specify the revisions and the associated multipliers. The revisions are created as firm revisions. We cannot apply actuals to provisional multipliers with burden schedule overrides. We can select only burden structures that
    are allowed for use in burden schedule overrides.
    The burden schedule overrides that We define are created as burden schedules in Oracle Projects. We must compile schedule revisions as We do with standard burden schedules.
    Attention: We do not define override multipliers by organization. The multipliers that We define are used for all items, regardless of the organization.
    Assigning Burden Schedule Overrides
    We can enter override burden schedules for a project or task in the Project, Templates window or the Tasks window. The burden schedule override option is available only if the project is burdened and the project type allows override of the cost schedule. We can also choose this option if the schedule
    type for labor or non–labor is Burden, if We want to allow overrides of revenue and invoice schedules.
    Adjusting Burden Schedule Overrides
    We can correct, adjust, and create new revisions for Our burden schedule override as We do for standard burden schedules.
    Determining Which Burden Schedule to Use
    The costing and revenue programs in Oracle Projects determine the effective burden schedule to use for burden cost calculations in the following order:
    • Task–level burden schedule override
    • Project–level burden schedule override
    • Task standard burden schedule
    Oracle Projects uses the first schedule it finds to process all items charged to that task.
    Distribute Costs and Interface Supplier Invoices from Payables The Distribute Costs programs and the Interface Supplier Invoices from Payables program use the overrides and schedules to burden transactions charged to projects that are defined to be burdened for internal costing based on the project type definition. These programs calculate the burdened cost for all transactions on these projects.


    References

    References: Oracle Metalink, www.metalink.oracle.com/
     

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