Flow of entries in Product Costing

[Former Member]

Hi Exeprts,

I would like to know one clarification regarding JE in Product costing

Example : Ram Materials issues against Prod Order Rs.1000

Labour Utilized Rs.500

Overheads Applied Rs.250

So the the product worth is Rs.1750\- and receiving this as inwards in to FG stock

Please explain me the entries in this flow from Mat Issue to Sale of the Material.

I will give good points to your answer.

[Former Member · Accepted solution]

Preconditions:

- This is a typical posting pattern for Make-to-stock products

- FG is valuated with Standard price (S)

- Standard price for FG is Rs. 1750, therefore no production cost variance exists.

- Labour and Overheads costs are internally allocated from cost centers/overhead orders.

- You can got to transaction code OBCY to make/check assignment of GL account to Transaction Key/Modification Key.

They are usually defined for combination of Valuation Group/Valuation Class for each Chart of Accounts.

<Posting during production process>

1. Issue of Raw Materials to Prod. Order.

GL Account(Transaction Key - Account Modification Key) - Account Assignments

DR Raw Material Cost (GBB-VBR) - Prod. Order

CR Raw Material (BSX) - N/A (BS account)

2. Allocation of Labor and Overhead costs (usually by confirmation) are posted under secondary cost elements

and no GL posting is made. Controlling documents are posted as follows:

Labour Costs (secondary cost element assined to the activity type)

DR. Prod. Order

CR. Cost Center

Overhead Costs (cost element specified in customizing)

DR. Prod. Order

CR. Assigned Overhead Object (cost center/internal order)

3. Final Goods Receipt to Inventory

GL Account(Transaction Key - Account Modification Key) - Account Assignments

DR Finished Goods(BSX) - N/A (BS account)

CR Offsetting Entry for Inventory Posting (GBB-AUF) - Prod. Order

You can also find information in the following section of SAP online help:

SAP Library> SAP ERP Central Component> Controlling(CO)> Product Cost Controlling(CO-PC)>

Cost Object Controlling> Actual Costs in Cost Object Controlling> Goods Receipts in Cost Object Controlling

<Postings during sales process>

1. Shipping

GL Account(Transaction Key - Account Modification Key) - Account Assignments

DR Cost of Goods Sold(GBB-VAX) - N/A, unless you make the account a cost element

CR Finished Goods(BSX) - N/A (BS account)

2. Billing

GL Account

DR Customer

CR Sales (specified in SD setting)

I hope this helps.

Edited by: Yukie Okane on Dec 2, 2008 6:31 AM

[Former Member · Accepted solution]

Hi Yukie,

My doubt here is how this offsetting entry will be nullified

3. Final Goods Receipt to Inventory

GL Account(Transaction Key - Account Modification Key) - Account Assignments

DR Finished Goods(BSX) - N/A (BS account)

CR Offsetting Entry for Inventory Posting (GBB-AUF) - Prod. Order

Waiting for Your Reply,

[Former Member · Accepted solution]

Hi,

The GL account for 'Offsetting Entry for Inventory Posting (GBB-AUF)' will not be nullified automatically. That means, the GL accout will have balance.

The balance of the offsetting account should equal to total of all the production costs (raw material costs, labor costs, other overhead costs, etc) that also do have balance.

Using your example and assuming you only have one production order, the account can be reconciled as follows:

Total of production costs in production orders:

Raw material costs Rs.1000

Labor costs Rs.500

Overhead costs Rs.250

• Labor and Overhead costs are posted to cost centers/internal orders with primary cost element. From GL point of veiw, these GL accout should be used to reconcile.

Total of these postings equal the amount posted to the Offsetting Account, Rs.1750.

If you want to bring the balance of these accounts to 0, you can create entry in FI such as.

DR Offsetting Account Rs.1750

CR Raw material costs Rs. 1000

CR Labor costs (GL account for it) Rs.500

CR Overhead costs (GL account for it) Rs.250

Most of my customer would not mind having balances for each of these accounts as long as they can check balance is 0 at the total level.

[Former Member · Accepted solution]

Hi Yuvie,

Thanks for your reply and my query has been solved and I have awarded the points to you also.

[Former Member]

The issue of Raw Materials to the Production Order results in a credit to R/M Inventory and a debit to R/M consumed. The application of labor to the Production Orders results in a credit to the Cost Center used in the Activity Type through the Secondary Cost Element associated with the Activity Type and a debit to the Production Order using the Activity Type Secondary Cost Element. Overhead is applied to the Production Order through a Secondary Cost Element which credits the 'originating' Cost Center and debits the Production Order. Goods are received into Inventory which credits the Production Order and debits Finished Goods Inventory. At month-end WIP is calculated for those items that are still on the Production Order and variances are calculated which will credit/debit the Production Order and debit/credit the appropriate Production Variances account.

[Former Member]

Hi,

What is the entry at the time of FG receipt is it FG a/c Dr and Production Order Cr and what GL this produciton order will have ? And how COGS will be booked in FI ?

Please clarify these .

[Former Member]

1) Cr. ROH ( balance sheet acct) Dr. finished good ( balance sheet)

Dr. ROH consumption acct ( P&L) Cr. plant activity finished good ( P&L)

This step represents taking out ur ROH and making finished good out of it.

2) Cr. finished good (balance sheet)

Dr. COGS

This is when you do post goods issue is done. Hope this helps.

[former_member184655]

Dear Edukondalu Pericherla ,

Product Cost = Materials Cost(ROH + HALB Materials Cost)Activity Cost (Operation Cost)Overhead

Cost.

1.Raw materials cost are generally entered as Planned price along with the valid from date in Costing 2

view,and price control indicator is "V".Origin group has to be given to all the Raw materials in costing 1

view.

2.For HALB Materials Price control indcator will be S for Inhouse manufactured & V for externally

processed materials (Sub-Contracted Items) respectively.Also assign Overhead group for all Inhouse

manufactured items.

3.No need to enter any value for the materials having S as the price indicator and for Sub-contracted

items that's F30 also no need to enter any cost in the material master.

4.Activity cost is the cost incurred in performing individual operation.This cost is captured via the work

center which we mention in each operation in the routing of that product.A Cost centre and an

appropriate activity type is assigned in the work centre.

5.Proper Cost should be assigned for the combination of Activity type and Cost centre.

6.Overhead cost is the indirect cost that we capture according to the customer's requirement.

7.If certain items for certain products alone should not be considered for costing means,then we can

achieve this using costing relevancy indicator in the BOM and for the activity(operation's mentioned in

routing) which should not be considered for costing also can be mapped by removing the costing

relevancy indicator in routing.

Overhead group is aasigned in Costing1 view.

8.Creating Cost center - KS01

9.Create Activity Type - KL01.

10.Assiging Rates for a cost center/activity type combination in T code KP26.

11.Cost estimate Related T codes are CK40N,CK11N,CK24.

12.UseCK40N always,so that you can do the costing ,mark the price and release the same.Generally

Cost Rollup will be taken for Finished product so that the sytem automatically calculates for the Semi-

Finsihed products standard cost.

13.IF you use CK11N,then only costing will be done,but for marking and release you have to use CK24.

14.For each Production order type in T code OPL8 Order Type Dependent Parameters - Under

controlling tab - Costing variant Planned and actual has to be assigned.

15.In REM scenario - Product Cost Collector has to be created using T code KKF6N for all Inhouse

Manufactured assemblies.

Check these links [What's Order settlement?|]

Steps For Order Settlement

You should follow following steps for Order Settlement after confirmation :

1. After Final Confirmation of Order ( Status : CNF) make GR for for order using Tcode : MIGO / MB31

so Production Order Status will be DLV.

2. Then complete the order technically by using Tcode : CO02--> Functions ( Menu)---> Restrict

Processing -

---

> Technically Complete. You can carry out TECO for multiple Orders in Tcode : COHV

(Mass Processing).

3. Over head calculation- KGI2 or CO43

4. WIP calculation - KKAX or KKAO

5. Variance - KKS2 or KKS1

6. Settlement - KO88 or CO88.

I hope this helps you.

Regards

Mangalraj.S

[Former Member]

I want flow of Journal Entries in Finance for above example not descriptive expalnation .