Entering content frameFunction documentation Work in Process in Product Cost by Period 

Use

The WIP calculation function valuates the unfinished products (work in process).

In the Product Cost by Period component, work in process is valuated at target costs. The operation quantities confirmed for the

manufacturing orders or production versions (only in repetitive manufacturing) that are not scrap are valuated at target cost in accordance with the valuation variant for work in process and scrap.

You can calculate work in process at target costs for the following objects:

  • Product cost collectors
  • Production orders with quantity structure
  • Process orders

Integration

You can use the Schedule Manager to facilitate the period-end closing process. For more information, refer to the following sections:

Scheduler

Monitor

Flow Definition

To be able to use the multilevel worklist to reprocess the objects that have errors, you must use the Schedule Manager with the flow definition. For more information, see the following section:

Multilevel Worklist ff.

The difference between the work in process in the current period and the work in process in the pervious period corresponds to the inventory change of unfinished products. The difference between the work in process in the current period and the work in process in the pervious period corresponds to the inventory change of unfinished products. Settlement to FI results in capitalization of the inventories of unfinished products. The system debits the Unfinished Products account (balance sheet account) and credits the Inventory Change account (income statement account). If the work in process determined in a period is less than the amount determined in the previous period, the system cancels the inventory of unfinished products in the same amount when you settle. Settlement is performed in accordance with the posting rules defined in Customizing. The posting rules specify which FI accounts are posted during settlement. The order number for which work in process is transferred into financial accounting is displayed in the Assignment field in the financial accounting document. This ensures that the postings to financial accounting can be explained.

Note also the capabilities of

User-Defined Error Management (see also below in this section).

Prerequisites

For product cost collectors,

default rule STR (with strategy for tracing factor determination) is preset. For manufacturing orders that you want to settle by period, you must make sure that default rule PP2 (Production Material Periodic Settlement) is specified in the order type.

You must make sure of the following:

  • That the following steps have been carried out in Customizing for Product Cost Controlling under Product Cost by Period
® Period-End Closing ® Work in Process:
Define Results Analysis Keys

In Product Cost by Period, use results analysis key 000003 (WIP calculation at target costs).

    • Define Results Analysis Versions
    • Define Valuation Method (Target Costs)
    • Define Valuation Variant for WIP and Scrap (Target Costs) (optional)

In the valuation variant for WIP and scrap, you specify whether you want to calculate the target costs for the valuation of work in process on the basis of:

    • A preliminary cost estimate for the product cost collector or for the manufacturing order
    • An alternative material cost estimate
    • A standard cost estimate for the material (if a valuated sales order stock is being used, the system accesses the cost estimate on which the standard cost is based)
    • Assignment of Valuation Variant for WIP
    • Define Line IDs
    • Define Assignment
    • Define Cost Elements for WIP Calculation
    • Define Update
    • Define Posting Rules for the Settlement of WIP

In the posting rules, you specify the G/L accounts to which you want to settle the work in process.

  • That reporting point backflushes (in repetitive manufacturing), operation confirmations (with production orders), or confirmations at the level of phases (with process orders) are used to confirm yields and scrap quantities

Note

In repetitive manufacturing, you must specify in the repetitive manufacturing profile that you want to use reporting points. You do this in Customizing for Product Cost by Period under Simultaneous Costing ® Check Control Data for Repetitive Manufacturing Profiles.

Make sure that you have specified a control key with milestone confirmation for at least one operation. If only one operation has been defined as a milestone, it should normally be the last operation in the routing.

The reporting points can be mandatory or optional. For information on mandatory and optional reporting points, refer to the document Repetitive Manufacturing.

  • That the reporting points or milestones are flagged as relevant to costing
  • That the reporting point structure or milestone structure that you are using in production matches the reporting point structure or milestone structure used to calculate the target costs.

For example, it may be problematic to valuate the work in process on the basis of the standard cost estimate for the material when the standard cost estimate is based on a different reporting point structure than that of the run schedule header.

In repetitive manufacturing, when you change the reporting point structure you can use flexible reporting points to convert the reporting point backflushes and update the preliminary cost estimate for the product cost collector.

SAP recommendations in repetitive manufacturing environments:

  • The task list type, task list group, and group counter of the routing on which the calculation of target costs for the valuation of work in process is based must match the task list type, task list group, and group counter of the routing for which actual data were entered. Note also the capabilities of user-defined error management.

For example, this means that for the valuation of work in process on the basis of a preliminary cost estimate for the product cost collector, the task list type, task list group, and group counter of the preliminary cost estimate must match the task list type, task list group, and group counter specified in the manufacturing order.

If you are using manufacturing orders as cost objects and analyze them by period, make sure that the work in process is valuated at target costs on the basis of the preliminary cost estimate for the manufacturing order. You make this setting with the valuation variant for work in process at target costs and scrap.

  • Make sure that the cost estimate used to calculate the target costs has an itemization. For this reason you may need to create the following:
    • The standard cost estimate for the material with an itemization
    • The alternative material cost estimate for the material with an itemization
    • In sales-order-related production with a valuated sales order stock, the sales order cost estimate with an itemization

Note

If you want to valuate the work in process on the basis of a preliminary cost estimate for the production order or process order, the system generates an itemization dynamically when it calculates the WIP.

This may adversely affect performance.

  • That the material components listed in the BOM are assigned to the operations in which they are used (optional)
  • That the Material origin indicator is selected in the costing view of the master records of the materials that are most important for cost accounting (optional)
  • That a cutoff period is defined to protect the data of the previous period from being overwritten

The cutoff period divides the life cycle of the production order into open and closed periods.

    • The work in process calculated up to the cutoff period is not changed the next time WIP is calculated.
    • The work in process calculated for later periods is overwritten by the current WIP calculation.

To prevent data that has already been posted from being changed, you usually define the cutoff period as the period preceding the results analysis period.

Example

For a product cost collector, work in process is calculated in May, June, and July. The valuation for July should not change the work in process for May and June.

You set the cutoff period to period 06 and calculate work in process for results analysis period 07.

  • That the definition of the controlling area in Customizing for General Controlling was checked

The currency type of the controlling area (under Basic data) is used to control which currency is allowed as the controlling area currency and whether this currency can differ from the currency of the company codes assigned to that controlling area. You can use the All currencies indicator (under Control indicators) to specify whether the values are updated only in the controlling area currency or also in the transaction currency and the object currency.

WIP is always calculated in the controlling area currency and settled to Financial Accounting in the company code currency. If you are costing across company codes with different currencies, the WIP is also updated in the company code currency.

  • That settings are made in reporting that enable you to display the work in process

Definition of Work in Process with Requirement to Capitalize

In Customizing for Product Cost Planning, you define which values must be capitalized for inventory valuation, commercial-law physical inventory valuation, and tax-law physical inventory valuation under Basic Settings for Material Costing ® Define Cost Components. Cost components show the breakdown of the costs calculated in the cost estimate.

The line IDs for WIP calculation are normally grouped the same way as the cost components in Product Cost Planning. This means that the same cost element interval is usually assigned to the line ID raw materials as is assigned to the cost component raw materials.

Costs are only included in WIP calculation if they are assigned to a line ID.

In Customizing, you specify the following for each line ID:

  • That the work in process can be capitalized
  • That part of the work in process can be capitalized
  • That no work in process can be capitalized

Functions to Be Performed Before WIP Calculation

Before calculating the work in process, you should perform Template Allocation, Revaluation at Actual Prices, and Overhead Calculation if applicable.

If you have assigned actual costs to a cost object hierarchy, perform actual cost distribution before WIP calculation.

Status

Only those orders that have a valid results analysis key and that do not have the status DLFL (Deletion flag) or DLT (Deleted) are included in WIP calculation.

Note

You can significantly improve the performance of WIP calculation by setting the status DLFL for the following orders:

    • The order is delivered or technically completed
    • Variances have been calculated for the order
    • You do not anticipate any further follow-up costs for the order

You can still withdraw the deletion flag after it has been set, for example if follow-up costs are incurred for the order. Deletion indicators, however, cannot be withdrawn.

See also:

Reorganization of Product Cost Collectors

Features

Calculation of Work in Process at Target Costs: Example

This example calculates the WIP and the scrap variance.

Prerequisites

Operation scrap of 20% was planned for operations 10 and 20. At operation 10, 312 kilograms of scrap (actual scrap = planned scrap) was confirmed. At operation 20, 300 kilograms of scrap were confirmed. Since the target scrap quantity is 212.5 kilograms, this results in a scrap variance quantity at operation 20 of 87.5 kilograms. For information on scrap variances, refer to the following section:

Scrap Variances

Determination of Reference Quantities for Work in Process at Target Costs

This graphic is explained in the accompanying text

The quantities of WIP at the operations are determined as follows:

WIP quantity at operation 10:

Yield at operation 10 1,250

- Yield at operation 20 850

- Actual scrap quantity at operation 20 300

= WIP quantity 100

 

WIP quantity at operation 20:

Yield at operation 10 850

- Yield at subsequent operation 0

- Actual scrap quantity at subsequent operation 0

= WIP quantity 850

Theoretically, it would be possible to determine the value of the work in process across all operations as follows:

100 x Target Costs at Op. 10 + 850 x (Target Costs at Op. 10 + Target Costs at Op. 20)

 

However, the system determines the value of the work in process on the basis of a reference quantity.

 

Reference quantity at operation 10:

Confirmed yield of operation 1,250

- Actual scrap quantity of subsequent operations* 300

- Quantity of goods received 0

= Reference quantity 950

*(cumulative scrap quantity across all operations)

 

Reference quantity at operation 20:

Confirmed yield of operation 850

- Actual scrap quantity of subsequent operations 0

- Quantity of goods received 0

= Reference quantity 850 kilograms

The system determines the value of the work in process across all operations as follows:

950 x Target Costs at Op. 10 + 850 x Target Costs at Op. 20

 

Note

The valuation of WIP quantities leads to the same result as the valuation of reference quantities. The system calculates the work in process using the reference quantities. The quantities physically present at the operations are the WIP quantities.

 

Calculation Example

Operation

Target costs per unit produced

WIP quantity

Reference quantity

10

EUR 2

100

950

20

EUR 2

850

850

 

Calculation on basis of WIP quantities:

 

100 x Target Costs at Op. 10 + 850 x (Target Costs at Op. 10 + Target Costs at Op. 20)

= 100 * 2 + 850 (2+2)

= 100*2 + 850 * 4

= 400 + 3400

= 3.600

 

Calculation on basis of reference quantities (method used by system):

950 x Target Costs at Op. 10 + 850 x Target Costs at Op. 20

= 950 * 2 + 850 * 2

= 1,900+ 1,700

= 3,600

 

The target costs for the valuation of the work in process are calculated automatically when the WIP is calculated. The planned values (such as the standard costs) are converted to the yield of the operation.

The cost estimate used to valuate the work in process may contain costs that are not relevant for inventory valuation, such as sales and administration costs. In a product cost estimate with a quantity structure, these costs are shown in a separate cost component view. Costs that are not relevant to inventory valuation are not used for the valuation of the work in process.

Calculation of Target Costs on Basis of Standard Cost Estimate for Material

If you confirm on the basis of a standard cost estimate for the material and valuate work in process and scrap correspondingly, there are a number of different cases:

Case 1:

The current routing for the production version and the standard cost estimate for the material:

  • Access the same BOM
  • Have the same task list type
  • Have the same routing group
  • Have the same group counter

The work in process and scrap can be correctly valuated.

Case 2:

The current routing for the production version and the standard cost estimate for the material:

  • Access the same BOM
  • Have the same task list type
  • Have the same routing group
  • Have different group counters, but the reporting point structure is similar

You can use user-defined error management to ensure that work in process and scrap variances are calculated. Valuation of work in process and scrap produces meaningful values.

Case 3:

The current routing for the production version and the standard cost estimate for the material:

  • Access the same BOM
  • Have the same task list type
  • Have the same routing group
  • Have different group counters, and the reporting point structure is completely different

You can use user-defined error management to ensure that work in process and scrap variances are calculated. It is technically possible to valuate the work in process and scrap, but the result will not be meaningful.

Case 4:

The current routing for the production version and the standard cost estimate for the material:

  • Access the same BOM
  • Have different task list types, or
  • Have different routing groups

In this case it is not possible to valuate work in process or scrap at all.

Note

To avoid the problems of cases 3 and 4, SAP recommends confirming and valuating work in process and scrap on the basis of the preliminary cost estimate.

Update of Work in Process

The work in process is updated to the product cost collector or manufacturing order under secondary cost elements of cost element type 31. Secondary cost elements of cost element type 31 are results analysis cost elements.

Special Requirements

Production Orders without Quantity Structure

The work in process for production orders in Controlling must be valuated with the actual costs. The settlement type must be Full settlement.

Production Orders with Quantity Structure, and Process Orders

WIP calculation at target costs for production orders and process orders is not recommended.

If you want to valuate work in process for production orders and process orders at target costs, remember that the routing or master recipe on which the production order or process order is based must be the same as the routing or master recipe that is used in the cost estimate on which WIP calculation is based. If these routings or master recipes are not the same, the system cannot calculate work in process or unplanned scrap. In this case, variance calculation would not produce meaningful results.

Special Requirements for WIP at Target Costs with a Valuated Sales Order Stock

In the Product Cost by Period component, you can only calculate work in process at target costs with a valuated sales order stock for production orders and process orders. If you are using product cost collectors in sales-order-related production (sales-order-related production with repetitive manufacturing), you cannot calculate work in process. This is because R/3 does not support reporting point backflushes in sales-order-related production in repetitive manufacturing. In addition, product cost collectors are always debited and credited at the same time (see also:

Product Cost Collectors in Sales-Order-Related Production).

If you are using a valuated sales order stock and want to valuate work in process on the basis of production orders or process orders at target costs calculated using the standard cost estimate, remember that the system accesses the cost estimate used to calculate the standard cost. Read the following sections:

Valuated Sales Order Stock: Valuation and Standard Price with Valuated Sales Order Stock.

If the standard price was calculated in a sales order cost estimate, you can only calculate work in process if each of the following is true:

  • You have created a
sales order cost estimate with the costing method product costing, or an Structure linkorder BOM cost estimate
  • An
  • itemization was generated for this cost estimate
  • The sales order cost estimate has been marked

Note

If you are using a valuated sales order stock and calculate the target costs using a sales order cost estimate, valuation is made using only the operational currency.

If you have calculated the standard price in a production order cost estimate rather than in a sales order cost estimate, you can calculate work in process at the target costs calculated on the basis of planned prices because an itemization is generated dynamically by the system.

Note

Dynamic generation of itemizations for preliminary order cost estimates can adversely affect performance in WIP calculation.

If you have calculated the standard price in a Structure linkstandard cost estimate for the material because the material is also controlled by collective requirements, the work in process can be calculated at target costs on the basis of a standard cost estimate if both of the following requirements are met:

  • The standard cost estimate has been marked and released

If you are using a valuated sales order stock, work in process at target costs can only be valuated on the basis of standard costs if a goods receipt has been entered for the finished product, since the standard price for the customer stock segment is updated due to the first goods receipt. If no goods receipt has been entered for the customer stock segment and if you want to valuate the work in process at target costs on the basis of standard costs, you cannot calculate work in process. Instead, the balance of the manufacturing order goes into the variances and is passed on when you settle to a price difference account.

Analysis of Work in Process

To analyze the work in process, use the explanation facility in WIP calculation. This allows you to determine which operations had work in process and the values for the work in process.

WIP calculation only considers the yield; actual costs for scrap and variances are ignored.

Improving Performance

You can use parallel processing to reduce the runtime of the WIP calculation process.

  • If you perform WIP calculation outside the Schedule Manager, enter a server group for background processing.
  • If you perform WIP calculation using the Schedule Manager, set the Parallel processing indicator in the selection screen of the program when you create the job variant. An entry field then appears in which you enter the server group.

Schedule Manager: Multilevel Worklist

You can view and edit the objects with errors that were processed with the individual functions. You use the multilevel worklist for this purpose. The multilevel worklist enables you to edit the faulty objects of an individual processing step (that is, a single function) or of an entire processing step sequence.

A prerequisite for using the multilevel worklist is that you are using the Schedule Manager in conjunction with a flow definition.

See: Integration in this section.

User-Defined Error Management

You can influence the messages output in the log of WIP calculation by using user-defined error management.

See: Integration in this section.

Work in Process in the Information System

When the WIP is calculated, the system sets the status RESA (Results analysis carried out). The system uses this status to select the orders for which work in process has been calculated.

This data is included in summarization. You can create summarization hierarchies in the information system to view the cumulative variances by plant or controlling area, for example.

Constraints

If you have already entered an actual credit by means of a goods receipt posting for an order (product cost collector or manufacturing order) that is to be settled by period, but the order was not debited with actual costs, the balance of the order is not shown as negative work in process (reserves for unrealized costs). The balance of the order goes into variance calculation instead.

If a routing of a manufacturing order specifies a sequence of operations defined as a parallel sequence, the system cannot include the confirmed quantities in WIP calculation. Therefore no work in process at target costs can be calculated. If you are using reporting points in repetitive manufacturing, parallel sequences are not possible. This constraint is therefore irrelevant in repetitive manufacturing.

In joint production, you cannot calculate work in process at target costs.

You always calculate work in process at target costs in the operational valuation view. Transfer prices are not supported.

Product Cost Collectors in Sales-Order-Related Production

See above under Special Requirements for WIP at Target Costs with a Valuated Sales Order Stock

See also:

For more information on repetitive manufacturing, see the following section:

Recommendations and Notes for Repetitive Manufacturing Environments

For information on the default rule and the settlement type, refer to the following section:

Product Cost by Period or Product Cost by Order?

For information on the control parameters for Cost Object Controlling, see the following section:

Control Parameters in Cost Object Controlling

For information on deletion flags and deletion indicators, refer to following section:

Reorganization of Manufacturing Orders

For information on the valuation strategy with a valuated sales order stock, refer to the following section:

Valuated Sales Order Stock: Valuation

Standard Price with Valuated Sales Order Stock

For information on calculating variances and scrap with valuated sales order inventories, see the following sections:

Variances and Scrap with a Valuated Sales Order Stock

For information on the valuation variant for work in process and scrap, refer to the following sections:

Variance calculation

Target Cost Versions in Variance Calculation

For information on the Customizing settings for WIP calculation, see the IMG for Product Cost by Period under Period-End Closing

® Work in Process.

For information on viewing the work in process in the information system, see the documentation

Structure linkProduct Cost Controlling Information System and the implementation guide (IMG) for the Product Cost Controlling Information System.

For information on further performance improvements in CO-PC, see the following section:

Performance in Product Cost ControllingLeaving content frame