ERP Glossary - C: Cost Accounting to Cycle Count

Cost Accounting

Cost accounting is the process by which direct costs are combined with indirect costs to arrive at a consistent and believable product cost. The art lies with the indirect costs. Everyone could agree on how much nine ounces of stainless steel costs in a product; how much of the quality assurance department, or machine depreciation should be assigned to a product, and on what basis?

Cost Pool

The aggregation of multiple cost inputs into a single larger sum, which are then cut into smaller pieces and doled back out to cost centers. For instance, the unequal costs of HR, Accounting, development, and engineering might be aggregated into a single overhead cost, and then reallocated to three production departments in a split of 50%-25%-25% (or any other three-way split that adds up to 100%).

Credit

The business agreement by which goods or services are provided in advance of receiving cash payment from the customer. Credit is most common in business-to-business relationships; consumers wanting credit are typically required to use credit cards, in which a third party actually provides the credit, removing risk from the seller.

CRM (Customer Relationship Management)

CRM - while literally, a process - is most frequently referred to in context of a group of software applications aimed at improving customer-facing business processes. CRM is typically a bolt-on application to an ERP system, and focuses on - but is not limited to - lead management, sales force automation, customer service and support, and sales analytics.

CTO (Configure to Order)

Configure to order is a variation on Make to Order or Assemble to Order, in that it is normally configured by an ordering customer; the configurations are not necessarily sub assemblies as in Assemble to Order, but can be attributes, like color, size, or texture; and configuration is normally applied as variations to a standard base product of some kind.

Current Assets

Current assets are assets which are expected to be turned into cash in less than a year. Examples of current assets include cash, accounts receivable, inventory, prepaid expenses, and marketable securities.

Current Liabilities

Current liabilities are amounts owed to outside vendors or lenders that must be paid within one year. Examples of current liabilities are all accounts payable; any short term notes; or accruals for an upcoming expense payment.

Customization (ERP)

Customization of ERP is the rewriting of, or additional to, standard code, in order to accomplish some task not possible in the "out-of-the-box" version. Customizing requires some degree of control and discretion, since each customization represents a potential future problem with upgrading, patching, or interacting with other third party software. Typically, there will always be tension during an ERP implementation as to whether it is more appropriate to customize ERP or to change business practices to conform to the "out of the box" process.

Customization (product)

Customizing product has implications to both material naming strategies in ERP and order entry strategies, since the concept involves the willingness to create a one-of-a-kind product, which has value to only one customer, for one specific use. Customization of this nature has different financial risk, and invites the possibility of an infinite amount of product material numbers under standard conventions.

Cycle Count

Cycle counting is a process by which inventory is subdivided into smaller pieces, and each smaller piece is reconciled on a scheduled frequency (generally 12, 26, or 52 weeks). The purpose of cycle counting is to uncover and resolve process problems in inventory accuracy, but more often, cycle counting simply comes to replace quarterly or yearly inventories, without the benefit of increased inventory accuracy.

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Tom Feltham

About the author…

Tom Feltham was Editor at ERP Focus for three years from 2013-2016. Tom still keeps tabs on the ERP software market and occasionally puts pen to paper when inspiration strikes.

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Tom Feltham