In this post, I will how cost groups are used in the Oracle Inventory, Warehouse Management (WMS), and Project Manufacturing modules.  When you setup an inventory organization, Oracle will assign a default cost group to your organization.  This cost group holds the inventory valuation accounts and for actual costing methods (like average, FIFO, and LIFO) holds the items cost.  When an item is transacted in the Inventory module, Oracle looks to this cost group to determine the accounting and cost.  To enable more than one cost group per inventory organization, you need to use either the Warehouse Management (WMS) module or the Project Manufacturing module.  These modules allow you to override the default cost group’s accounts and allow you the ability to track cost at a lower level.
In Project Manufacturing, you will setup cost groups and link them to projects (via the project parameters form). When you create a transaction in a Project Manufacturing enable inventory organization, you must enter the project number in a special locator.
In WMS, you can use cost group rules to determine the cost group based on a number of different attributes.  These attributes include supplier, customer, item, locator, item status, and item category.
Let’s take a look at the difference between an inventory organization without WMS or Project Manufacturing and one with WMS or Project Manufacturing.  Both organization will buy two identical items from different vendors and sell them to two different customers.
Example 1:  Inventory Organization with the Average Costing Method
Transaction 1:  Buy 100 units @ $10/unit from Vendor A
Transaction 2:  Buy 100 units @ $20/unit from Vendor B
Transaction 3:  Sell and Ship 100 units @ $30/unit to Customer Z
Transaction 4:  Sell and Ship 100 units @ $30/unit to Customer X
In this organization, all 200 units would be received into inventory and averaged together.  Then when the items are shipped to the customer, the average cost ($15/unit) would be applied to each order.
Example 2:  Project Manufacturing Inventory Organization with the Average Costing Method
Transaction 1:  Buy 100 units @ $10/unit from Vendor A for Project A
Transaction 2:  Buy 100 units @ $20/unit from Vendor B for Project B
Transaction 3:  Sell and Ship 100 units @ $30/unit to Customer Z for Project A
Transaction 4:  Sell and Ship 100 units @ $30/unit to Customer X for Project B
In this organization, project A’s 100 units would be received into inventory and averaged together ($10/unit) and project B’s 100 units would be received into inventory and averaged together ($20/unit) .  Then when the items are shipped to the customer, project A would have an average cost of $10 and a higher margin than project B.  The units from both projects could be indistinguishable and in the same physical location in the warehouse.  But, in the system, they are tracked separately.