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Essential Flaw of Material Ledger

May 03, 2017 at 12:54 PM

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[Costing sheet overhead on procured material, cost component split]

The countries where cost of sales accounting is the basic accounting principle, cost of manufacturing (COGM) is composed of the purchased goods cost, labor cost, machine cost, rent, electricity cost, depreciation cost, personnel cost, and so on.

For example, rent, depreciation cost are not represented by activity type. These are represented by Costing sheet. Percentage by condition type is allocated to production order, and cost center is credited. At the month end, variance between cost center actual and cost center credit is captured as cost center variance. Ideally this should be zero, in other words, cost incurred at factory cost centers are all allocated to production order. Manufacturing cost (COGM) on production order is ultimately settled to finished products. If the product is sold, that is called cost of sales (COGS cost of goods sold). This is a SD/MM functionality, and costing based CO-PA is the module to capture this COGS. Cost center does not help here.

Now, the raw material warehouse, they are busy handling purchased goods. Personnel cost, rent, other office costs at the warehouse, these overhead should be included in the cost of raw material. We can include such cost in the cost estimate using costing sheet. Cost component split represents the distinction of purchase cost and this overhead.
This warehouse overhead cost should be charged in proportion to the volume of purchase goods brought in to the warehouse, or brought out from warehouse. Some raw materials are used in numbers of products. Some are only to limited specific products. How many pieces of this raw material is consumed in the finished product, you need to search through the BOM structure. And actual overhead cost allocation is only made to the production order ie. finished product. In cost estimate, you can include the warehouse overhead in raw material by using costing sheet, but this overhead cost is not charged on raw material in actual situation. This is my first question. Q1) How is it possible to credit actual overhead on raw material warehouse cost centers?

Q2) At the procurement process, this raw material warehouse overhead should not be a cash out to suppliers. For example,
100 JPY is the price of the raw material (acct payable to suppliers)
5 JPY is the warehouse overhead
105 JPY is our standard price of the raw material (inventory).
Payment to supplier should be 100 JPY. But if I change the purchase order price to 100 JPY, 5 JPY all goes to purchase price variance. It is an overhead, not price variance. How to rectify this? (without using those BAdi or userexits.)

Q3) So we tested the Freight Provision feature of MM module.
MM condition type sets off this costing sheet overhead portion at the goods receipt.
Dr) 105 JPY Raw material (standard price)
Cr) 100 JPY is for Goods Receipt Invoice Receipt acct
Cr) 5 JPY is Freight provision.
Now at the Invoice Receipt, we hoped the accounting entry should be like this.
Dr) 100 JPY is for Goods Receipt Invoice Receipt acct
Cr) 100 JPY Account Payable to suppliers.
But in fact, below is the accounting entry generated.
Dr) 100 JPY is for Goods Receipt Invoice Receipt acct
Dr) 5 JPY Freight provision.
Cr) 105 JPY Account Payable to suppliers.
How to rectify this? (without using those BAdi or userexits.)

Q4) The cost component split of this raw material looks below.
100 JPY is the purchase price of the raw material
5 JPY is the warehouse overhead
105 JPY is the standard price of the raw material
When we do the material ledger closing, actual cost component split looks like this.
105 JPY is the purchase price of the raw material
0 JPY is the warehouse overhead
105 JPY is the standard price of the raw material
How to rectify this? (without using those BAdi or userexits.)
It is embarrassing to explain this to our customers.

I have a feeling, SAP does not understand the concept of cost of sales accounting principle. France, Germany, European accounting does not follow cost of sales. Their income statement is more periodic base, and cost of sales is calculated by purchase cost less inventory movement. It is not a coincidence, that IFRS could not agree on income statement structure, and periodic result has to be measured in balance sheet side.

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