Product Cost by Sales Order

Purpose

This component provides cost management functions for sales orders. The sales document items (items in inquires, quotations, or sales orders) function as your cost objects for which you can calculate costs and revenues both in your plan and actuals.

If you have already created a sales document item that carries costs and revenues for an inquiry or quotation, the subsequent sales document item (such as the sales order item) references the previous one. This enables you to manage the costs of the entire sales and distribution process.

The Product Cost by Sales Order component is recommended for complex make-to-order environments.

You can use the Product Cost by Sales Order component in the following situations:

This component allows you to do the following:

Depending on the type of processing, you valuate your inventories at the level of the orders assigned to the sales order item using the functions of Product Cost by Order component, or at the level of the sales order item itself.

Implementation Considerations

You should implement this component in the following situations:

You use the Product Cost by Sales Order component in conjunction with individual requirements materials.

If you are in a mass production environment on the basis of sales orders and are using a valuated sales order stock, you can manage your costs at the product level instead of at the sales order level.

Integration

You normally use this component in conjunction with the Product Cost by Order component. It is recommended that you use production orders and process orders with the settlement rule GES (full settlement). This settlement rule more accurately reflects the character of make-to-order production with its emphasis on cumulative cost analysis.

Production on the basis of sales orders is often preceded by make-to-stock production, whose cost situation can be analyzed in the Product Cost by Order and Product Cost by Period components.

To calculate planned costs for materials, you can implement the Product Cost Planning component.

The Product Cost by Sales Order component accesses master data in Controlling (CO), Sales and Distribution (SD), Materials Management (MM), and Production Planning (PP) or Production Planning Process Industries (PP-PI).

If you are not using Sales and Distribution, you can create a customer requirement for the material in Production Planning. The costs and revenues can be assigned to this requirement and analyzed in the information system. When you close the period, you can perform results analysis for the customer requirement.

You can display the costs in the Product Cost Controlling Information System.

Features

The Product Cost by Sales Order component enables you to do the following:

At the end of the period you can:

You can implement the Product Cost by Sales Order component in different ways. The R/3 System supports the following types of processing:

Valuated Sales Order Stocks

If you have a valuated sales order stock but are not using your sales order items as cost objects, you do not manage your costs at the sales order level but at the product level. In that case, you are not costing sales orders but products. The flow of values corresponds to that of make-to-stock production, while the cost accounting method costs the products. If you are using a valuated sales order stock but without sales order items that carry costs and revenues, the cost of sales is transferred to Profitability Analysis at the time of billing. If the price control indicator of the affected materials is set to S, you can also settle any variances calculated to Profitability Analysis at the end of the period. You can therefore calculate a profit at planned costs and a second profit at actual costs. This eliminates the need for the two-stage settlement procedure needed for a valuated sales order stock with sales order items that carry costs and revenues.

Valuated Sales Order Stock in Conjunction with a Sales Order Item That Carries Costs and Revenues

You collect costs and revenues on a sales order item. If you are using a valuated sales order stock, the unfinished products are valuated by calculating WIP on production orders. The valuation of materials that have been manufactured but not yet delivered is made at the time of the goods receipt posting for the production order. Therefore, in contrast to the nonvaluated sales order stock, you do not have to first carry out results analysis at the end of the period before you can capitalize the inventories of the sales order in Financial Accounting. However, if you have already delivered the material to the customer but have not yet invoiced, you perform results analysis in order to capitalize the delivered goods in your balance sheet.

You flag the sales order item as carrying costs and revenues in the following situations:

The flow of values for the valuated sales order inventory with a sales order item that carries costs and revenues is the same as that in make-to-stock production, while the costing method is that of the Product Cost by Sales Order component.

Use of the Valuated Sales Order Stock

You should use a valuated sales order stock in the following cases:

A valuated sales order stock offers you further advantages such as efficient cost management processes in mass production environments using sales orders, simplified inventory processing with individual requirements materials, and similar processing in sales-order-based and make-to-stock production environments.

If you have been using a nonvaluated sales order stock up to now, you should first investigate the cost effectiveness of converting to a valuated sales order stock.

Nonvaluated Sales Order Stock in Conjunction with a Sales Order Item That Carries Costs and Revenues

If you have a nonvaluated sales order stock and a sales order item that carries costs and revenues, you collect costs and revenues on a Controlling object assigned to the sales order. To capitalize the sales order stock in Financial Accounting, you must perform results analysis at the end of the period. Therefore, if you are using a nonvaluated sales order stock and you want to capitalize the sales order stock, you must always use a sales order item that carries costs and revenues.

You control whether the sales order stock is valuated or nonvaluated in Customizing for Product Cost Controlling under Cost Object Controlling ® Product Cost by Sales Order ® Control of Sales-Order-Related Production ® Check Requirements Classes with the Valuation indicator.

You control whether the sales order item is the cost object in Customizing for Product Cost Controlling under Cost Object Controlling ® Product Cost by Sales Order ® Control of Make-to-Order Production ® Check Account Assignment Categories with the indicator Consumption posting.

Constraints

You cannot calculate variances for the sales document item.

You cannot calculate work in process for the sales document item.

The nonvaluated sales order stock has the following additional restrictions that do not apply to a valuated sales order stock:

In the following sections, the term production order refers to process orders as well.

See also:

For more information on Cost Object Controlling with valuated sales order stock without sales order items that carry costs and revenues, see the following sections:

Cost Object Controlling in Mass Production Environments Using Sales Orders

Valuated Sales Order Stock: Valuation

Checklist for Product Cost by Sales Order

Variances and Scrap with a Valuated Sales Order Stock

See also the following documents:

Product Cost by Order

Product Cost by Period

The document Product Cost by Order is also relevant if you are interested in the Product Cost by Sales Order in conjunction with the Product Cost by Order component.

For more information on the master data in Controlling and Production Planning, as well as other basic information, see the following section:

Cost Object Controlling

For detailed information on master data in Sales and Distribution, as well as other information on sales and distribution processing, see the document SD Sales and Distribution Processing.

You can display the data in Controlling in the information system in a number of different reports. For more information, see the document Product Cost Controlling Information System.

For detailed information on Profitability Analysis, see the document CO Profitability Analysis.

For detailed information on Profit Center Accounting (CO-PCA), see the document EC Enterprise Controlling.

In engineer-to-order environments, you link a project to the sales order. The necessary information on cost management for a project, see the document Project System.