Work in process (WIP) configuration in SAP CO-PC

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Define results analysis keys

Work in process (WIP) inventory forms a part of the working capital or current assets of a firm appearing in their balance sheet.
Each order that results in WIP must receive a results analysis key in order to have WIP calculated. The results analysis key can be defaulted by order type and plant. SAP provides four standard results analysis keys. No additional configuration is typically required in this transaction because the standard results analysis keys are sufficient for each type of order (see Figure 5.21).

                             Figure 5.21: Results analysis keys

Define cost elements for WIP calculation

This configuration item leads you to transaction KA06 to create secondary cost elements that are used in WIP calculation. The standard SAP system come with a variety of predefined results analysis cost elements to see primary and secondary cost elements broken apart separately. For example, WIP cost elements should have cost element type 31 (results analysis for orders/projects).

Define results analysis versions

In this configuration, you assign a results analysis version to each controlling area. You indicate whether the RA version is relevant to settlement and whether data is transferred to financial accounting. Both of these checkboxes should be checked in most cases.
Further settings can be made in the extended control section, but typically they do not need to be changed. Since results analysis is performed for internal purposes, you don’t need to create separate cost elements for various elements of data. The technical results analysis cost element contains all the elements of results analysis data in one account.All results analysis keys are rolled up under one results analysis version. We will see this integration when we configure valuation method for WIP (see Figure 5.22).

                                       Figure 5.22: Results analysis versions

Define valuation method 

The following SAP configuration steps guides you how to define valuation methods in SAP step by step. You can define valuation method by using one the following navigation methods.

  • IMG Path: -SPRO => SAP Reference IMG (F5) => Financial Accounting => Financial Accounting Global settings => Company code => parallel accounting => Foreign currency valuation => Define valuation methods.
  • Transaction code: – OB59.

In definition of valuation methods, you create a link between the controlling area, results analysis key, results analysis version, and system status. This linkage can be seen clearly in the screenshot in Figure 5.23.

                                           Figure 5.23: Valuation method for WIP

When configuring valuation methods and selecting new entries, a pop-up box asks you whether you are valuing WIP at target or actual costs. In product cost by period (repetitive manufacturing), SAP wants us to value WIP at target costs. In product cost by order, SAP wants us to value WIP at actual costs. This is because WIP is a clear equation of debits minus credits for product cost by order, but it is determined by the quantities confirmed at operations for product cost by period.
The various statuses represent if an order is released, completely delivered, technically complete, or partially released. If the order is in status PREL or REL, SAP calculates WIP. If the order is in status DLV or TECO, SAP cance previously determined WIP because the order is now complete and ready for variances and settlement.

Define valuation variant for WIP and scrap

If desired, you can configure a valuation variant that will value the WIP and scrap variances at target costs. The target costs can be calculated based on a preliminary cost estimate, a standard cost estimate, or an alternative cost estimate. If you select an alternative cost estimate, you must indicate the costing variant and version to be used. This is only required for product cost by period, not product cost by order or product cost by sales order (see Figure 5.24).


                                    Figure 5.24: Valuation variant for scrap and WIP

Assignment of valuation variant for WIP

If you elected to configure a valuation variant for WIP in the previous section, you must assign that valuation variant to a controlling area, results analysis version, and results analysis key in this transaction.

Define line IDs

Line IDs are used to group WIP for posting to COST ELEMENTS. A secondary cost element should have been created in the previous step for each line ID. In addition to the example in Figure 5.25, using primary and secondary costs for line IDs, you could also use line IDs for different types of cost components like raw materials, overhead, external activities, etc.

                                       Figure 5.25: Define line IDs

Define assignment

This configuration assigns cost elements to line IDs. One of the nice features of the system is the ability to control whether WIP is capitalized. You can choose a percentage of each line ID to capitalize or not capitalize. For example, you can indicate that 100% of WIP from direct material costs can be capitalized and 0% of WIP from indirect costs can be capitalized.
In order to indicate a range in any field, you can mask the entries by using “+” as a wildcard entry. For example, 00004+++++ will select all cost elements from 400000 to 499999 (see Figure 5.26).

                                               Figure 5.26: Define assignment

Define update

Next, we specify the results analysis cost element, which WIP should be updated, and assign each line ID to a category (see Figure 5.27). There are various categories in this configuration indicated below:
A: Settled costs
D: Special costs
E: Revenues
F: Customer down payments
G: Direct revenues through special costs
K: Costs
N: Costs not to be included
P: Costs of complaints and commissions
U: Same as N, processing in customer enhancements possible

                       Figure 5.27: Define update

Define posting rules for settling WIP

The final WIP configuration to perform is defining posting rules for settling WIP to a P&L and balance sheet account. When you create the posting rule, you indicate the results analysis category that is relevant:
WIPR: WIP with requirement to capitalize costs
WIPO: WIP with option to capitalize costs
WIPP: WIP with prohibition to capitalize costs
Typically you use WIPR as the RA category to capitalize WIP costs to the balance sheet and post stock changes to the P&L.
If you are calculating WIP at actual costs, the system creates reserves for unrealized costs, or orders where credits exceed debits. The following results analysis categories can be used when defining posting rules for settling WIP:
RUCR: Reserves for unrealized costs to be capitalized
ROCU: Reserves for unrealized costs with optional to capitalize costs
RUCP: Reserves for unrealized costs with prohibition to capitalize.

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