Costing Sequence Determination for Inter-Organization Transfers
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Solution Overview
Problem
Complex scenarios involving inter-organization transfers of goods between multiple cost groups complicate the determination of a proper costing sequence, leading to inaccurate absorption cost calculations due to unclear dependencies and initiation points in the costing process.
Innovation Solution
A computer-implemented method is introduced that creates a processing sequence with hierarchy levels based on Bill of Materials (BOM) levels, ensuring items are costed in an iterative process starting from the highest BOM level, with lower levels processed subsequently, and items are only costed once their sub-assemblies and components have been previously costed.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If conventional costing methods are used for inter-organization transfers, then simplicity is maintained, but accuracy of absorption cost calculations deteriorates due to unclear dependencies and initiation points
Solution Approach 1:
The patent segments the costing process into distinct hierarchy levels based on Bill of Materials (BOM) structures. Each level represents a specific stage in the costing sequence, dividing the complex inter-organization transfer problem into manageable segments that can be processed systematically from lowest to highest BOM level, ensuring accurate dependency resolution.
Solution Approach 2:
The patent implements preliminary action by establishing a predetermined costing sequence based on BOM hierarchy levels before performing absorption cost calculations. The system pre-determines which cost groups should be processed first (lowest BOM level) and which should wait (higher BOM levels), eliminating the ambiguity of initiation points and ensuring accurate cost flow tracking.
2Productivity
If items are costed simultaneously across all cost groups, then processing speed is improved, but accuracy deteriorates due to negative inventory balances and incorrect cost dependencies
Solution Approach 1:
The patent implements a dynamic costing approach where the processing sequence is determined by BOM hierarchy levels rather than static simultaneous processing. The system dynamically adjusts which cost groups are processed at each iteration, allowing parallel processing within the same hierarchy level while maintaining proper sequential dependencies across levels, thus balancing speed and accuracy.
Solution Approach 2:
The patent ensures continuity of useful action by implementing an iterative costing process that continues across multiple passes through the hierarchy levels. Each iteration processes all items at the current level, and the process seamlessly transitions to the next level, maintaining continuous cost calculation flow without interruption or recalculation, which preserves both speed and accuracy.
3Ease of manufacture
If the costing sequence starts from the highest BOM level, then finished product costing is simplified, but component cost accuracy deteriorates due to unavailable sub-assembly costs
Solution Approach 1:
The patent inverts the conventional costing approach by processing from the lowest BOM level upward rather than from the highest level downward. This inversion ensures that component and sub-assembly costs are calculated first, providing accurate basis costs for finished products. The system reverses the traditional flow to establish proper cost dependencies, where each level builds upon the accurately determined costs of previous levels.
Data Source
AI summary
Embodiments of the present invention are directed to a method for sequencing cost calculation. In one embodiment a processing sequence, comprising a plurality of hierarchy levels, is created for a plurality of cost groups. The processing sequence is used in an iterative process for calculating the cost of an item of the plurality of cost groups. In embodiments of the present invention, the iterative process is repeated until the costs of a plurality of items of the plurality of cost groups have been calculated.