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Subcontracting

Case:

I have an arrangement to manufacture one unit of a particular finished product (FG) with a Contractor. As per agreement, per unit subcontracting charge is Rs.50. I have made one PO (TC=ME21N) for the subcontracting charges and this PO is linked to BOM required for manufacture of FG. All the required raw materials are issued by me to the contractor against this particular PO for manufacture of FG (TC=MB1B & movement type 541). The total cost of raw material given to the contractor is Rs.750.

The price control of the FG is ‘S’ and current standard price in the material master is Rs.1000.

Kindly let me know the accounting entry that should happen at the time of making the GR of the FG.

RM Consumption A/C Dr. 750

Subcontracting Charges A/C Dr. 50

FG Stock A/C Dr. 1000

RM Stock A/C Cr. 750

GR/IR Cr 50

FG COGS Cr. 1000

OR

RM Consumption A/C Dr. 750

Subcontracting Charges A/C Dr. 50

FG Stock A/C Dr. 1000

RM Stock A/C Cr. 750

GR/IR Cr 50

FG COGS Cr. 800 (i.e. 750+50)

Price Difference A/C Cr. 200

Whether the price difference A/C will come into picture or not? If yes, when this price difference A/C will be hit- immediately at time of making GR or month end?

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4 Answers

  • Best Answer
    avatar image
    Former Member
    Aug 17, 2007 at 02:47 PM

    Hi Bijay,

    In Case of Standard Cost scenario the price differences will ht at two instances.

    1) At the time of initial goods receipt.

    2) During the mfg. process if the resources and materials are consumed more than the standard.

    Hence at the time of final goods mfg. there will not be any price difference.

    Note that COGS will always be at Std. Price.

    The price differences are reflected in the P&L Account.

    I.e your gross profit will always be at Std. Costs and the Net proft will always be at Actuals.

    Hope i'm clear to you.

    Regards,

    Vijay

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    Former Member
    Aug 18, 2007 at 06:53 AM

    price variance account will not come into picture at the time of subcontracting entries..Since FG is valued at STD cost, all entries relating to FG will flow at 1000 rs.

    1st entry given by you is correct..

    The difference of Rs. 200 will come into picture only when you update the STD price next time...(if the FG is in stock)

    Entry will be -

    Price variation / Consumption Account Dr. - 200

    FG stock Cr. - 200

    If the FG is sold immediately, price difference of Rs. 200/- will not come into picture at all. Net consumption booked will be Rs. 800 only.

    Regards

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  • Aug 18, 2007 at 10:28 AM

    Hi Amol,

    whether any separate T- Code is required to be executed so that peice difference can be updated in the stock value if the stock is there at the time of updation of STD cost through CK11N or CK40N?

    plz explain how the price difference (entry as given by u above) of Rs. 200 will come into picture? whether it will happen in background or a separate accounting document will be generated? whether this will happen at month end only?

    Regds,

    BKD

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    • Former Member

      You can update through CK11N or CK40N. If you want to update the price in between the month, you can use MR21 to update the price directly.

      As you said a seperate accounting document will be generated.

      Regards,

      Amol

  • Aug 21, 2007 at 05:46 AM

    Hi,

    thanks for helping me to solve the problem.

    Regds,

    BKD

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