Thursday, January 12, 2023

Maximo Prorate or Allocate Service Costs (Landed or Freight Cost) on POLINES in PO

What are Service Costs ? 

Service Cost includes Landed Cost, Freight Cost, Storage Cost, Managerial Personnel Cost, Advertisement Expenses, Customs Duty, Insurance Cost, Clearing Charges, Ground Maintenance, Plant Security Services etc. 

Why allocation of Service Cost is required ?

Allocation splits the standard service cost across stock tracked items on purchase order. We can allocate landed cost to PO line items even after the PO is invoiced. But, the POLINE item should not be consumed or shipped from the storeroom.

If we purchase an item in Inventory storeroom, unit cost is the cost price of the item. But there are other costs associated with purchasing items such as shipping cost etc.,  

Landed costs are a way to distribute these extraneous costs as they allow us to record the total cost of inventory per unit. It records the accurate profit reporting. 

How Services are represented in Maximo ?

Maximo enables the user to allocate or distribute the standard service cost on PO or Invoice approval.

Service Items are created in Service Items application. Services can be requested from internal or external vendors. When they are requested from Internal Vendor, we can record actual costs on Work orders without creating a PR. They are not linked to an Asset, it often include labor, tools and materials billed as single unit.

Service Item can be associated with vendors to restrict the access. 

Steps to prorate or allocate service cost on PO application

An Organization level MAXVAR variable INVOICEMGT is used to choose which application is used to prorate service cost. By default, the value is 1 where Invoice application is used for prorating. If you want to use it for PO application, set the value to 0 using below sql script.

UPDATE MAXVARS SET VARVALUE = 0 WHERE VARNAME = 'INVOICEMGT' AND ORGID = 'XXX';

Restart of server is required to reflect the changes in Maximo system

Create a PO with 3 POLINES each of quantity as 1: 
1. Item 1001 of unit cost 10
2. Item 1002 of unit cost 15
3. Standard Service Cleaning of unit cost 30 with Prorate Service ? checkbox selected



When you approve this PO, the cost of the standard service line will be distributed to all other POLINES. 
 
Calculation of prorated cost on polines
Prorate Factor = TotalProrateCostOfAllStandardServiceLines / TotalMaterialCostOfAllLines
                          =  30 / (10+15) = 1.2

TotalMaterialCostOfAllLines - i) must include only POLINES of type ITEM; 
ii) Exclude POLINES of direct issue items, services & materials and 
iii) Maxvar PRSPECIALDIRECT value should be set to 0. 

PRSPECIALDIRECT - specifies whether standard service costs are to be charged only to 'Direct Issue' line items in invoice. 

Prorate Cost  = Unit Cost * Prorate Factor
Loaded Cost = Unit Cost + Prorate Cost 

After PO Approval , the distribution of cost will be like


Item 1001 - Unit Cost= 10; Prorate Cost= 10 * 1.2 = 12; Loaded Cost= 10+12 = 22


Item 1002 - Unit Cost= 15; Prorate Cost= 15 * 1.2 = 18; Loaded Cost= 15+18 = 33


Standard Service - Unit Cost = 30 ; Prorate Cost = -30 (negative);  Loaded Cost = 0 (distributed to all item lines ) 

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