Actual costs are determined through purchase prices, actual expenses, and confirmed production quantities. Actual costs are compared to standard costs through variance analysis to make management decisions and to determine profitability.
Table 5.1 shows the debit and credit accounts and cost objects at each step in a production process. This chart also shows the integration of the profit center master data and which profit center is used on each posting.
Table 5.1: Production actual cost flow
Make-to-stock cost flow
In the make-to-stock production process, production or process orders are the manufacturing order types that collect costs during production. Materials are produced based on a set production plan using MRP (material requirements planning), and not based on actual customer demand.
Accounting documents are posted throughout the month to both overhead cost centers and production cost centers in a plant. These are known as direct postings.
As discussed in PRODUCT COST PLANNING, costs are planned by cost center to determine plan vs. actuals, variances, under/over absorption, and activity rates used in production. We can see the cost center variances in Figure 5.1 that are determined when direct postings are accumulated and these variances can be posted to CO-PA. Cost center variances result from, under or over absorption of overhead costs and production cost center’s resources.
We also discussed cost allocations in and their two methods: assessments and distributions. This is where we send overhead costs to production cost centers to be included in the plan vs. actual comparison and activity rate calculation.
An arrow in Figure 5.1 shows activity confirmations, where the activity rates set up in production cost centers are used when activities are confirmed on orders. The work center’s cost center is credited and the order is debited for activity usage.
As materials are received, a goods receipt posting is made to raw material or semi-finished goods inventory on the balance sheet. Any purchase price variance for a standard cost item is posted to a P&L purchase price variance account. PPV’s can be analyzed and capitalized to the balance sheet if desired. When materials are backflushed or issued to production, they are issued at their MAP or standard cost depending on price control. The order is debited for the material expense and the inventory account is credited.
Figure 5.1: Make-to-stock cost flow
As materials are produced on an order, they are confirmed and posted to semi-finished good or finished good inventory on the balance sheet. When materials are sold to a customer, a post goods issue posting is made to debit inventory.
If an order is not in status TECO or DLV at month end, meaning the order is not yet complete, it goes through WIP calculation. When an order is TECO or DLV in a subsequent month, the WIP balance is cancelled and production variances are settled to COPA. Further details on WIP, variances, and settlement can be found in Actual Allocations in this chapter.
You use a valuated sales order stock if you want the goods movements to have corresponding postings in Financial Accounting (FI).
A sales order stock is assigned exclusively to a particular sales order and sales order item and cannot be used for other sales orders or sales order items. Sales order stocks can be for independent requirements as well as for the dependent individual requirements of the individual requirements material (finished product). For this reason, the material components can only be used to manufacture the material ordered by the customer and listed in a particular sales order item, and the material manufactured can only be delivered to the customer in the context of the sales order item.
The make-to-order process is slightly different from the make-to-stock process. Make-to-order manufacturing is used for custom products that are produced based on specific customer sales orders. Make-to-order products use, configurable materials in SAP. These materials allow customization by each sales order and do not receive a standard cost rollup like non-configurable materials. Instead, a cost estimate is performed by sales order item.
One of the key decisions in the make-to-order process is whether to use valuated or non-valuated sales order stock. Valuated sales order stock is the most commonly used scenarios and requires an accounting document at each material movement. Non-valued sales order stock does not result in an accounting document at each material movement and the valuation of the order is performed during a step called results analysis at month end. Since valuated sales order stock is by far the most common scenario, we are going to cover that process flow in detail here (see Figure 5.2).
Figure 5.2: Make-to-order cost flow
The make-to-order process is the same as the make-to-stock process until the finished goods are delivered to inventory. Since the finished material was produced specifically for a customer, the goods receipt places the stock into sales order stock. The stock is linked to the sales order that created the production order to produce the material.
Once the finished inventory has been received into sales order stock, the order can be delivered to the customer. The cost of sales posting occurs at order delivery using the sales order item cost estimate.
Upon customer shipment, the invoice is processed and revenue is posted to COPA. This links the cost of sales posting to the sales order revenue in COPA.
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