FG and SFG - costing

[Former Member]

Hi Experts,

To meet some client requirements and with some restrictions on material ledger, we are considering to have SFG and FG at moving average prices. Yes I have read and understood OSS note 81682, but I think the issues mentioned there can be overcame with the following solution. Can anyone of you review and tell me the loop holes if any.

1. Every SFG and FG will be confirmed and taken into stock @ existing MAP. This will be taken into a specific batch.

2. Everyday a scheduled program will be run to pick up the production orders with at least 1 qty confirmed. Do the TECO for the production order, settle it through KO88 and remove the TECO status to REL status. So that when I settle the production order the variances will flow only to the quantities existing to the production order. Or it will apportion the variance to inventory and P/L based on the quantity in stock relevant to the particular production order only.

3. To ensure that only correct raw material quantities are flowing into the production order, back flushing is activated at all levels.

With this solution if one production order is partially confirmed and consumed to the next level before settling the same, those items will move at existing MAP. Also activity price variances will have to be monitored regularly and changed prospectively for the next period.

Best Regards

Vimal Vijayan

[ajaycwa1981]

Hi Vimal

I would say its a half hearted approach...

Variances are calculated at month end after all allocations and act price calculations are done.. By that time, the Stock would not exist fully and the Variance of 100 units may get inventorized on say, 10 units... Even though you do TECO, variance will still be calculated

I would strictly adivse against this

br, Ajay M

[Former Member]

Hi Ajay,

I'm not settling the production orders together at the month end. I'm settling them for every confirmation.The variance will be calculated and settled to the entire inventory lying in stock.

There are very remote chances that the stock of one production order will get consumed before i settle it. Even if a very small quantity gets consumed, this will not affect the inventory in a very massive way. So my inventory valuation and consumption will be more or less correct.

Do you agree?

Best Regards

Vimal

[ajaycwa1981]

Hi Vimal

I would still say it is half hearted approach...

Majority share of expenses like Salary, electricity, Depreciation, etc are booked at month end... So, true variances can be calculated only after month end....

With your approach - What you will be inventorizing is Variance based on actual material cost + overhead at Standard rates... I hope you would agree on this

Before going with this approach - Take the approval of your Business people in Finance... Else, you may come at the receiving end in future

br, Ajay M

[Former Member]

Hi Ajay,

Yes. I agree. Inventory cost = Actual raw material cost+ Standard Activity price. But in my case raw material cost (highly fluctuating) only is 80% of FG inventory cost. Again activity prices are almost standard and less fluctuating and hence this approach. Ofcourse this is vetted by finance department. But is there any other better solution than this?

Best Regards

Vimal

[ajaycwa1981]

Hi Vimal

The ideal solution is ML.... This would serve the exact purpose in a scientific way....

W/o ML - Whatever we choose will be half hearted approach... This approach seems OK, if it has been vetted by finance

br, Ajay M

[Former Member]

Thanks for the support Ajay.

Best Regards

Vimal