Inter-class UOM Conversions During Cost Factors Allocations in Landed Cost Management

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Inter-class UOM Conversions During Cost Factors Allocations in Landed Cost Management

Introduction
Landed Cost Management (LCM) application provides the ability to allocate cost factors or
charges to the LC shipment lines using the following allocation criteria: quantity, value, volume,
and weight.
This paper explains the calculation logic and the setup steps required by this process.
For additional information on Landed Cost Management product, please refer to the Landed
Cost Management Process Guide.

The Basics
The allocation of the charge line amounts to the shipment lines takes place
during the calculation stage on the LC shipment lifetime. The final result of
the allocation process is the creation of the allocation lines in the LCM data
model, which represents the portion of the charge amount that was allocated
to the shipment line. The sum of the allocations will result the total LC of the
shipment line.
Note: taxes can be added to the item landed cost, however, they are not
considered in this example.

The following logical steps explain the principles used during the allocation
process:

Identify the charge line amount

Whenever necessary, convert to functional currency

Identify the cost factor

Identity the allocation basis (quantity, value, volume, and weight)

Identify the UOM class associated with allocations basis

Identify the shipment lines which will receive the charge allocation

Identify the UOM from each shipment line

Whenever the shipment line UOM belongs to a UOM class that is different
from the UOM class associated with the allocation basis from the cost
factor, convert the shipment line quantity to the UOM class from the
allocation basis.

Prorate the charge line amount

Example
The following example shows how a freight charge is allocated (or how freight
charges are allocated, because we will use 4 charge lines in our example
down below) to three shipment lines.
TABLE 1: LINES TO BE CALCULATED BY LCM
LINE

ITEM DESCRIPTION

QUANTITY

LINE

BASE

RATIO

UOM

(QT)

PRICE

LINE

WEIGHT

LINE

VOLUME

VOLUME

(FUNCTIONAL

RATIO

(POUNDS)

RATIO

(CUBIT

(VOLUME)

CURRENCY)

(VALUE)

(WEIGHT)

FEET)

LC-CC - Compact car

33.33%

Each

15,000

87.46%

2,000

83.16%

250

92.58%

LC-CE - Car engine

33.33%

Each

2,000

11.66%

400

16.63%

20

7.41%

LC-CA CAR

33.33%

Each

150

0.05

0.02%

270.05

100.00%

0.87%

0.21%

alternator

TOTAL

100.00%

17,500

100.00%

2,405

100.00%

The line ratio presented in the table above is calculated by taking the line
measure (quantity, value, weight, and volume) and divided into the sum of all
lines. For instance, the value ratio for 1st line is:
LineRatio(value)

LineValue 15, 000

87.46%
TotalValue 17,150

Cost Factors Setup

The following cost factors were used in this example. Please notice the
allocation basis and the UOM class definitions.
TABLE 2: COST FACTORS SETUP
COST FACTOR NAME

ALLOCATION BASIS

UOM CLASS

FREIGHT - QT

Quantity

Quantity

FREIGHT - VOL

Volume

Volume

FREIGHT - WG

Weight

Weight

FREIGHT - VAL

Value

Not applicable

The UOM classes referred in the table above are defined the system profiles
bellow:

UOM Setup
The different physical property of each item requires the creation of interclass UOM conversions that are showed in the picture bellow.
As the system uses the primary UOM as the source for the inter-class
conversions, the conversion rate was created using the formula:

Conversion

1
PhisicalAttribute

In the example of the item LC-CC Compact Car, its volume in cubic feet is
250. Consequently, the conversion rate is:

Conversion

1
0.004
250

The following figure shows the inter-class conversions for all items in this
example.

LC Shipment
A new landed cost shipment was created with a simplified structure to make
the example simple and easy to read:

One line group

3 lines with 1 quantity (Each). Each is the primary UOM

Shipment Lines

Charge Lines

With the same intent to keep the simplicity, it was created four different
charge lines, one for each cost factor, with the amount of $100 in the
functional currency.
All charge lines are associated to shipment header; consequently, all shipment
lines from this shipment will receive allocations from the charge lines.

Calculation Results

The following picture shows the results from the landed cost calculation.
Note that the proration results from the charge line amounts to shipment
lines should match with the line ratios from table 1.

Conclusion
The LCM application is capable of prorating charge line amounts to the
shipment lines using multiple allocation criteria.