During the production process,product cost collectors and manufacturing orders are debited with actual costs. Each time goods are received into inventory, the system valuates the receipt and credits the product cost collector or manufacturing order accordingly. The actual costs posted to an order can be more or less than the value with which an order was credited when the goods receipt was posted. When you settle, this difference between the debit and credit of the order is transferred to Financial Accounting (FI). Settlement also feeds data from Cost Object Controlling to other components.
The following can happen during the settlement process:
- The order balance can be reduced to zero by transferring to Financial Accounting (FI) the difference between the preliminary inventory valuation (goods receipt) and the actual costs incurred. The price difference can also be transferred to Profit Center Accounting (EC-PCA) and Actual Costing/Material Ledger (CO-PC-ACT).
- The total variance can be transferred to profitability segments in Profitability Analysis (CO-PA). This enables you to see an additional contribution margin in CO-PA. You can transfer the individual
The variances settled to CO-PA are normally broken down into variance categories. However, you can also settle the order balance to CO-PA.
- The work in process can be transferred to Financial Accounting (FI) and Profit Center Accounting (EC-PCA) in accordance with the posting rules in Customizing.
You can use the Schedule Manager to assist you in performing the period-end closing activities. For more information, refer to the following sections:Scheduler Monitor Flow Definition
If you use the Schedule Manager with the flow definition, you can reprocess the faulty objects with the multilevel worklist. For more information, see the following section:Multilevel Worklist
Settlement of the work in process calculated by the WIP calculation function capitalizes the unfinished goods inventories in Financial Accounting. This data may also be transferred to EC-PCA.
Settlement of the order balance (in the Product Cost by Period component, the order balance less the work in process) results in the following events in FI:
- If the material is valuated at the standard price, the price difference (order debit - goods receipt - work in process) is transferred to a price difference account without affecting the profit.
- If the material is valuated at the moving average price, the price difference is transferred to the inventories, a new moving average price is computed, and the inventory is revaluated.
For information settlement to FI, refer to the following section:Cost Object Controlling from an Accounting Point of View.
If the Actual Costing / Material Ledger (CO-PC-ACT) component is active, you can settle the balance to that component and then revaluate the inventories in that component's period-end closing functions.
For materials with price control indicator S, you can settle the total variance calculated by the variance calculation function to a profitability segment in CO-PA.
You can useuser-defined error management to influence which system messages permit (or prevent) settlement of work in process and scrap.
Based on the settings in Customizing for Product Cost Controlling, the system assigns a settlement rule to the product cost collector or manufacturing order. This settlement rule contains a distribution rule, which in turn specifies a settlement type. The settlement type controls whether the variances are calculated by period or cumulatively. You specify which settlement type is part of the settlement rule in Customizing for Product Cost Controlling underDefine Default Values for Order Types.
When you create an order or product cost collector, a settlement rule is initially displayed that usually contains the settlement receiver material.
If you want to settle variances to CO-PA, the system generates a second distribution rule the first time an order or product cost collector is settled, which contains the settlement receiver profitability segment. The profitability segment contains the characteristics of Profitability Analysis.
- In Product Cost by Period the default rule STR (with strategy for tracing factor determination) is specified for the product cost collector in the order type (such as order type RM01). For manufacturing orders that you want to settle by period, you specify default rule PP2 (Production Material Periodic Settlement) in the order type. Both default rules are linked to settlement type PER (periodic). This means that the settlement rule for the order will contain settlement type PER (periodic). Periodic settlement is mandatory when you are using product cost collectors and cost object hierarchies.
- In Product Cost by Order you should always specify default rule PP1 (Production Material Full Settlement) in the corresponding order types (such as PP01 for lot-based production orders).
SAP recommends full settlement of manufacturing orders for costing-based analysis at the level of production orders and process orders. The reason for this recommendation is that with periodic settlement, the work in process and the scrap are valuated at target costs. This can cause problems if the cost estimate used to valuate the work in process and scrap is based on a different routing than that of the manufacturing order.
You must also carry out the following steps in Customizing for Product Cost Controlling under Period-End Closing ® Settlement:
You specify in the settlement profile whether settlement is allowed, which receivers are allowed for settlement (such as material, sales order, profitability segment) and which allocation structure and PA transfer structure you want to use. If you want to settle variances to CO-PA, you must set the Variances indicator in the settlement profile.
- Maintain Settlement Cost Elements
In this step you define primary settlement cost elements for receivers in external accounting (such as material) and secondary settlement types for receivers in internal accounting (such as profitability segment).
- Create Allocation Structure
In the allocation structure in Cost Object Controlling, you specify which costs are settled to the settlement receiver. It groups the debit cost elements and assigns each settlement assignment to a settlement cost element. You must make sure that the following requirements are met:
- Every debit cost element must be in the allocation structure.
The allocation structure may have to contain the cost elements under which costs are distributed from the cost object hierarchy to the product cost collectors.
It is sufficient to enter a cost element group.
- Each debit cost element can only be assigned to one settlement cost element
To settle the difference between the debit and credit to the material, you specify in the allocation structure all cost elements with which an order was debited. Material account determination in MM determines the primary cost element (such as 895000 for change in stock) under which the credit is written to the order.
You create a primary settlement cost element for the settlement of the difference between the debit and credit of the order. You create this primary settlement cost element for the relevant inventory change account in FI. To determine which primary settlement cost element you must create, go into Customizing for Materials Management under Valuation and Account Assignment ® Account Determination ® Account Determination without Wizard ® Create automatic postings. Choose Account assignment and access the detailed screen for the transaction Offsetting entry for inventory posting (GBB). Check the entries in the columns Debit and Credit for the account modification constant AUF and, if applicable, for account modification constant AUA. Enter primary settlement cost elements for the accounts listed in the Debit and Credit columns.
For settlement to a material, you do not need to assign a settlement cost element to the receiver category material.
If you are using a nonvaluated sales order stock or a nonvaluated project stock and are settling the order costs to a sales order item or a project, you must specify in the allocation structure the settlement cost element under which the data is written.
For a production order whose costs are assigned to a sales order item, costs are incurred for raw materials, internal activities and overhead. These costs are assigned to a cost element group.
– If the Settlement with original cost element indicator is set, then after settlement you will see the on the sales order item the individual debit cost elements for the raw materials, internal activities, and overhead costs.
– If the Settlement with original cost element indicator is not set, then after settlement you will see the on the sales order item all costs for the production order under a settlement cost element.
You define a source structure if you want to settle the costs incurred for the order to different receivers depending on the cost element. The source structure divides the debit cost elements according to source assignments. The source structure can be used in joint production, for example. Unless you are manufacturing co-products, you usually do not need a source structure in Cost Object Controlling.
- Create PA Transfer Structure
The PA transfer structure consists of one or more items. These items are called assignment lines. In an assignment line, you assign a cost element group and a variance category to a value field of the operating concern in CO-PA. To ensure correct settlement to CO-PA, you must assign each combination of the cost element group and the variance category to one value field in the operating concern.
Note the following:
- Every debit cost element must be represented in the PA transfer structure.
If you are using a cost object hierarchy, the PA transfer structure may have to contain the cost elements under which costs are distributed from the cost object hierarchy to the product cost collectors.
- Every variance category must be represented in the PA transfer structure.
- The debit cost elements must have the category cost elements.
- The variance categories must have the category variances.
- A given debit cost element or combination of cost element group and variance category cannot be assigned to more than one value field.
If you want to settle variances to CO-PA, you must first perform variance calculation for the order on the basis of target cost version 0. Only the variances calculated with target cost version 0 are relevant to settlement.
For settlement of the work in process, specify posting rules in Customizing for Product Cost Controlling under Period-End Closing ® Work in Process. In the posting rules, you specify the G/L accounts to which you want to settle the work in process.
Before settlement, you should calculate the WIP and the variances.
Settings for Settlement to CO-PA
To be able to settle variances to CO-PA, you must carry out the following steps in Customizing for Controlling under Profitability Analysis ® Structures:
- Make sure an operating concern is defined.
- Make sure that characteristics (such as material, customer, and division) and value fields (such as input price variances and input quantity variances) have been entered in this operating concern.
To make sure that the results of the standard cost estimate are transferred to CO-PA, you must also carry out the following steps:
Go into Customizing for Controlling under Profitability Analysis ® Master Data ® Valuation:
- Specify that the standard cost estimate is to be used as a basis for material valuation in Profitability Analysis under Valuation Strategies ®
In Customizing for Product Cost Controlling (CO-PC), make sure that:
- The receiver profitability segment is allowed in the settlement profile
- The Variances indicator is set in the settlement profile
- An allocation structure is specified in the settlement profile
- A PA transfer structure is specified in the settlement profile
- A settlement structure is defined
- A PA transfer structure is defined
Settings for Settlement of Cost Object Hierarchies in Product Cost by Period
In Product Cost by Period you can use cost object hierarchies to collect actual costs that cannot be assigned directly to particular product cost collectors or manufacturing orders.
You can either settle the costs assigned to the cost object hierarchy directly from the cost object hierarchy, or first distribute the costs to the objects assigned to the cost object hierarchy before you settle. You control whether distribution is active in Customizing under Product Cost by Period® C ost Object Hierarchies ® Define Cost Object Categories for Cost Object Hierarchies.
·Settlement of a cost object hierarchy without prior distribution
The actual costs are passed to a price difference account and the variances to a profitability segment. You can choose between:
- Manual account assignment
If you are using manual account assignment, you must define the settlement rules for the cost object hierarchy. In the settlement rule, you enter the price difference account for the material assigned to a cost object node (such as 231000 expenses from price differences) as the receiver. In the allocation structure, you enter the price difference account for the income (such as 811000 income from capitalization of settled orders) as a primary settlement cost element.
- Settlement through material account determination
If you are using settlement through material account determination, you must do the following:
- In the allocation structure, enter a secondary settlement cost element for receiver type KTR (cost object). The settlement of the orders assigned to the cost object hierarchy and cost object nodes to the highest node of the hierarchy is updated under this secondary settlement cost element.
- In Customizing for Materials Management under Valuation and Account Assignment ® Creating automatic postings, check the entries for the transaction key PRK (price differences cost object hierarchy). Choose Account assignment and access the detailed screen for the transaction Price differences (cost object hierarchy) (PRK). This selects the price difference account to which the highest node of the cost object hierarchy settles. Also check the entries for the transaction Price differences offsetting entry cost object hierarchy (KTR). This transaction makes an offsetting entry for the posting to the price difference account.
You define the type of settlement in Customizing under Product Cost by Period
Read the following sections:Settlement Rules for Cost Object Hierarchies Period-End Closing for Cost Object Hierarchies Without Distribution Period-End Closing for Cost Object Hierarchies with Distribution
·Settlement of a cost object hierarchy with prior distribution
If distribution is active, the actual costs collected at the level of the cost object hierarchy are distributed to the assigned orders and transferred to inventory during order settlement.
For the settlement of cost object hierarchies, a standard settlement profile CKPH01 (standard profile cost object) is specified. This settlement profile contains predefined settings for the settlement of cost object hierarchies. Check whether the standard settlement profile meets your requirements.
You can specify the settlement profile as a default value in the cost object profile. To do this, go into Customizing for Product Cost by Period under Cost Object Hierarchies® Define Cost Object Profiles for Cost Object Hierarchies. You can specify the cost object profile as a default value in the cost object category.
The settlement rule of a product cost collector or manufacturing order assigns the costs to be settled in accordance with the settings in the settlement profile and in dependence on the logistical and cost accounting scenario.
Settlement Receivers Depending on the Scenario
The order is settled to:
The make-to-stock inventory (receiver = material)
Sales-order-related production with a valuated sales order stock
The valuated sales order stock (receiver = material)
Engineer-to-order with a valuated project stock
The valuated project stock (receiver = material)
Sales-order-related production with a nonvaluated sales order stock
The sales order item (receiver = sales order)
Engineer-to-order with a nonvaluated project stock
The WBS element
Settlement of Product Cost Collectors and Manufacturing Orders
Settlement of Work in Process
The system settles the work in process in accordance with the posting rules. When WIP is calculated, the following posting is made in Financial Accounting: Unfinished Goods Inventory is debited and Unfinished Goods Inventory Change is credited. If the work in process determined in a period is zero, the work in process is canceled during the settlement process. In this case the following posting is made in Financial Accounting: Inventory Change is debited and Unfinished Goods Inventory is credited.
Settlement to FI
For information on the posting logic, refer to the following section:Costing Object Controlling from an Accounting Point of View
Settlement of the Difference Between Debit and Credit of an Order (Total Variance)
Depending on the material’s price control indicator, settlement generates the following postings in FI: The price control indicator influences which FI accounts are used for the posting.
The price control indicator is in the accounting view of the material master record. This price control indicator can be specified as a default value for each material type in Customizing for Materials Management (MM).
- If the price control indicator in the material master record is set to S (standard price), a price difference account is debited with the difference between the actual debit and the actual credit for the goods receipt for the period.
The material is not revaluated when the variances are settled to FI. During settlement, the system calculates a new statistical moving average price and writes this price to the accounting view of the material master record.
The following posting is made in Financial Accounting:
The price difference account is debited and the inventory change account is credited.
This posting does not affect net income.
·If the price control indicator in the material master record is set to V, the material stock account for the material produced is debited with the difference between the actual debit and the actual credit from goods receipts for the period.
The system recalculates the moving average price and the total value of the inventory, and updates the results to the accounting view of the material master record. The material is revaluated and a document on the revaluation generated in FI. The Total stock field in the accounting view is the total number of units of the material in inventory (such as 100 units). This quantity is automatically valuated with the new moving average price. The new value of all inventories is shown in the accounting view of the material master record in the Total value field.
The following posting is made in Financial Accounting:
The inventory account is debited and the inventory change account is credited.
This posting affects net income.
With materials whose price control indicator is set to V, if the inventory quantity is greater than or equal to the quantity produced by the order, the full variance is posted to inventory (that is, to the material stock account).
If no goods receipt took place in the period, the actual costs are settled to the price difference account. Settlement does not change the moving average price. This occurs in the following situations:
- In the Product Cost by Period component (periodic settlement and work in process at target costs) when there are both variances and work in process in the period but there is no goods receipt to offset the variances
- In the Product Cost by Order component (periodic settlement and work in process at actual cost) when the status of the order is TECO (technically completed) and no good receipt has been entered during the period but additional actual costs have been incurred
Special Features with Materials with Price Control Indicator V and Stock Shortage
If there is a stock shortage (that is, the quantity in inventory is less than the quantity that the order put into inventory), this may result in unrealistic prices.
If the inventory quantity is less than the quantity produced, only the shortage is posted to inventory. The remaining amount is posted to a price difference account.
If you have created more than one order for the same material, each time an order is settled the system checks whether the inventory level is higher than the order quantity, and settles the order costs accordingly. Under certain conditions, this may result in the remaining inventory being valuated more than once.
Note also the recommendations regarding the choice of price control for materials (see also:Standard Price Versus Moving Average Price; Basic Decisions in Cost Object Controlling).
The master record of material FERT X specifies price control V.
Before orders 1 and 2 transfer their output into inventory, the inventory level of FERT X is 100 units. The moving price is USD 100.
Order 1 produces 100 units of FERT X and transfers 100 units into inventory.
Order 2 produces 100 units of FERT X and transfers 100 units into inventory.
250 units of FERT X are removed from inventory. This leaves 50 units of FERT X in inventory.
The total variance for order 1 is USD 100. The system compares the quantity produced with the quantity in inventory, and calculates that the quantity in inventory is half of the quantity produced. The variances are frequently settled to a price difference account and frequently settled to a material stock account.
Order 2 also has a total variance of USD 100. The system proceeds the same way as for order 1: it compares the quantity produced with the quantity in inventory. The variances are frequently settled to a price difference account and frequently settled to a material stock account.
This means that the inventory is debited with the total variance of both orders. The moving average price changes accordingly.
If you want to valuate materials at actual cost, you can use the application component Actual Costing/Material Ledger.
Special Requirements for Settling Product Cost Collectors
If you have collected actual costs on a product cost collector, the costs may have to be distributed during settlement. This may be necessary in cases where product costs (that is, the costs of a material or of a particular production version of a material) are collected on a product cost collector and the product cost collector:
- Has delivered to more than one sales order stock
- Has delivered to the make-to-stock inventory and to valuated sales order stocks
- Has delivered to more than one valuation type
This means that to distribute the costs to the individual value segments, the delivered quantity must be identified by valuation type and stock segment (such as quantities delivered to a sales order stock and to make-to-stock inventory, or separated by batches). This identification is made using a procurement alternative. The procurement alternative is updated at the time of the goods receipt for a material. From the data of the procurement alternative, the system can determine the data relevant for apportionment (sales order item, project, valuation type). If you are in a sales-order-related production environment, are using a valuated sales order stock, and have defined that the valuation is to take place without reference to a sales document or project, the delivery value of the valuated sales order stock is added to the delivery value of the make-to-stock inventory.
During settlement, the system apportions the balance of the product cost collector to the different valuation types and stock segments (make-to-stock inventory, valuated sales order stock) in accordance with the delivery values. The distribution rule is generated in accordance with the delivery values of the period to be settled automatically during settlement. The system creates equivalence numbers in accordance with the delivery values and transfers them into the dynamic distribution rule. Apportionment in accordance with delivery values affects the following:
- The (statistical) moving average price (see also:
The delivery values updated in the controlling area currency are included in the apportionment.
If you are using transfer prices, the system includes the delivery values updated in version 0 (operational valuation view).
Settlement to EC-PCA
If you are using EC-PCA, the work in process and the difference between the debit and the credit (i.e., the order balance) is also settled to EC-PCA.
Settlement to CO-PA
When the first settlement takes place, the system generates a distribution rule for settling the variances to CO-PA. The system automatically generates the distribution rule on the basis of the settings in Customizing. During the first settlement of an order, the system generates the profitability segment (a grouping of the relevant characteristics for CO-PA) and updates it to the distribution rule as the settlement receiver. You can view this distribution rule after settlement by calling up the settlement rule and choosing Settle variances. Every subsequent settlement passes the variances to the profitability segment that was generated automatically with the first settlement.
If you want to change the characteristics for Profitability Analysis later on, you must change the validity period of the first distribution rule such that it becomes invalid at the next settlement. When you settle, the system generates a new distribution rule with a new profitability segment and passes the variances to that profitability segment.
In CO-PA you can define reports that present this data according to your requirements.
Settlement of Scrap Variances
In the R/3 system you can determine the value of the unplanned scrap by means of the variance calculation function.
In the standard system, the actual costs incurred on an order are allocated in full to the material stock account. If scrap occurred during the manufacture of a material, this results in an unrealistically high moving average price when the variances are settled. For materials with price control indicator set to V this will result in unrealistically high inventory values in FI. To prevent this, if you are using manufacturing orders as cost objects you can manually adjust the percentage value of the existing distribution rule to the yield quantity and create a new distribution rule for the scrap incurred. You enter a cost center as the settlement receiver for the new distribution rule.
If you are collecting costs on a product cost collector, you cannot post the scrap to a cost center.
For settlement to CO-PA you can assign a separate value field to the variance category Scrap in the PA transfer structure. This value is updated separately in CO-PA.
Special Features of Product Cost by Sales Order with Valuated Sales Order Stock
The balances of the manufacturing orders or of the product cost collector assigned to a sales order item can be transferred to the sales order item that carries costs and revenues. This is appropriate when you want to see the total costs on the sales order item (price differences for externally procured materials are always posted to the sales order item that carries costs and revenues).
For information, see also:Valuated Sales Order Stock
You proceed as follows:
You can post the variances that were incurred on production orders to the sales order item. This posting is not a statistical posting. The procedure is as follows: You create a cost element for the price difference account. When the production order is settled, actual costs are automatically posted to the sales order item in the amount of the price difference, using the corresponding cost element.
Note the following: If you don’t specify in the settlement profile for the production order that the variances are not transferred from the production order into CO-PA, you will settle the variances to CO-PA twice: once from the production order (broken down into variance categories), and once from the sales order item. The settlement rule still references the material and not the sales order item.
See also:Product Cost by Sales Order
General Information on Settlement
During the settlement process, the business transactions that result in costs for an order (reporting point backflushes, overhead, goods movements, and so forth) are blocked. This ensures that all relevant costs for the period are included in settlement.
If costs are posted in a period after settlement for that period has taken place, you must carry out settlement for the period again. If you do not settle the costs and close the period against changes, those costs can no longer be settled.
You can post the settlement on the last day of the period, or specify a different posting date. The posting date must lie within the period for which overhead is calculated.
Remember that you cannot archive orders or cost object nodes until you have settled all actual costs.
You can use parallel processing to reduce the runtime of the settlement process.
- If you perform settlement outside the Schedule Manager, enter a server group for background processing.
- If you perform settlement 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 the multilevel worklist is that you are using the Schedule Manager in conjunction with a flow definition.
See: Integration in this section.
Transfer Prices: Multiple Valuation Views
If you are using transfer prices, you can update work in process at actual costs in multiple valuation views. For more information, see the following section:Transfer Prices in Cost Object Controlling
For information on the required Customizing settings, refer to the sections in the Implementation Guide for Product Cost Controlling in Cost Object Controlling under Product Cost by Period or Product Cost by Order® Period-End Closing ® Settlement.
For information on the settlement rule of the product cost collector, refer to the following section:Creating Product Cost Collectors
For information on cost object hierarchies, see the following document:Cost Object Hierarchy ff.
For detailed information on settling cost object hierarchies, see the IMG for Product Cost Controlling in Cost Object Controlling under Product Cost by Period® Cost Object Hierarchies ® Define Cost Object Profiles for Cost Object Hierarchies and Define Cost Object Categories for Cost Object Hierarchies.
For information on work in process, refer to the following sections:Work in Process in Product Cost by Period WIP in Product Cost by Order
For information on settlement rules for settling the work in process, refer to the sections in the IMG for Product Cost Controlling in Cost Object Controlling under Product Cost by Period or Product Cost by Order® Period-End Closing ® Work in Process ® Define Posting Rules.
For information on variance calculation, refer to the following section:Variance Calculation ff.
You can link manufacturing orders to collective orders. If you create a collective order with the standard logic, settlement of all orders in the collective order takes place as described in this section. If you create a collective order with special logic, settlement takes place as described in the following section:Collective Orders with Special Logic
For information on valuated sales order stocks, refer to the following section:Valuated Sales Order Stock
This section contains information on how the sales order stock is valuated separately from or together with the make-to-stock inventory.
For information on standard price calculation with a valuated sales order stock, refer to the following sections:Valuated Sales Order Stock: Valuation Standard Price with Valuated Sales Order Stock
For information on nonvaluated sales order stocks, refer to the following section:Special Case: Nonvaluated Sales Order Stock
For information on standard cost estimates, costing variants, costing types, cost components, and cost component structures, refer to the section CO-PC-PCP Product Cost Planning.
For information on inventory valuation with period prices, refer to the section Actual Costing/Material Ledger.
For information on material account determination, refer to the Implementation Guide (IMG) for Materials Management under Valuation and Account Assignment ® Account Determination ®Create automatic postings.
For information on CO-PA, see the IMG and the document Profitability Analysis.
For information on further performance improvements in CO-PC, see the following section: Performance in Product Cost Controlling