Absorption Cost Calculation Using Iterative Tolerance Checking
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Solution Overview
Problem
Current methods for determining absorption costs in complex scenarios involving multiple inventory sites are inefficient, requiring numerous calculations and lacking effective tolerance verification mechanisms.
Innovation Solution
A computer-implemented method and system that calculates periodic moving average costs iteratively until a specified tolerance is met, optimizing the processing sequence and reducing unnecessary calculations by postponing tolerance checking until the end of each iteration.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If traditional absorption costing methods are used to determine costs for transfers between multiple inventory sites, then cost valuation is achieved, but the number of calculations becomes very large and computational efficiency deteriorates
Solution Approach 1:
The patent segments the computation process into iterative phases, where each iteration calculates costs for a subset of inventory sites and transfers. This breaks down the overwhelming total calculation into manageable segments that converge toward the final accurate cost valuation, resolving the contradiction between precision and productivity.
Solution Approach 2:
The patent implements periodic action through iterative calculations where tolerance verification is performed at specific intervals (at the completion of each iteration) rather than continuously throughout the computation. This periodic approach maintains measurement precision while dramatically improving computational efficiency by avoiding redundant calculations.
2Measurement precision
If tolerance verification is performed continuously throughout the calculation process, then cost accuracy is ensured, but computational time and resources increase significantly
Solution Approach 1:
The patent applies periodic action by performing tolerance verification only at the completion of each iteration rather than continuously during calculations. This ensures cost accuracy is maintained while significantly reducing computational time and resource consumption.
Solution Approach 2:
The patent maintains continuity of useful action by performing calculations without interruption within each iteration, only pausing for tolerance verification at iteration boundaries. This continuous calculation approach minimizes computational overhead while preserving accuracy through periodic checks.
3Measurement precision
If iterative calculations are performed without optimized processing sequence, then cost convergence is achieved, but the number of iterations required increases
Solution Approach 1:
The patent applies preliminary action by determining an optimized processing sequence for inventory sites before beginning iterative calculations. This preliminary ordering of sites based on their interrelationships reduces the number of iterations required for convergence, thereby improving productivity without sacrificing cost precision.
Data Source
AI summary
Embodiments of the present invention are directed to a computer-implemented method for determining absorption costs for transfers between a plurality of cost groups of a business operation. In one embodiment, a processing sequence for the plurality of cost groups is determined. For iteration (n) where n>1, a periodic moving average cost of a transferable item is then calculated for each of the plurality of cost groups according to the processing sequence, where the transferable item is to be transferred between the plurality of cost groups. A difference between the periodic moving average cost calculated in iteration (n) for each of the plurality of cost groups and a periodic moving average cost calculated in iteration (n−1) for each of the plurality of cost groups is then calculated. The steps of calculating the periodic moving average cost and calculating the difference are then repeated until the difference is within a specified tolerance.