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BOM of Finished Product FERT X (Individual Requirements) and Valuation Basis of Semifinished Product HALB S (Collective Requirements)

 

This graphic is explained in the accompanying text

The above illustration shows the BOM of finished product FERT X. FERT X is an individual requirements material, which means that it is manufactured for a specific customer rather than for the normal make-to-stock inventory. FERT X consists of individual requirements material HALB Y and collective requirements material HALB Z. HALB Z, in turn, consists of two collective requirements raw materials ROH A and ROH B. HALB Z is manufactured on the basis of a production order created independently of sales orders. This production order delivers the material to the make-to-stock inventory.

The above illustration also shows the standard cost estimate for the collective requirements material HALB Z.

 

Quantity and Value Flow

This graphic is explained in the accompanying text

This flow of quantities and values results from the fact that with a nonvaluated sales order stock, individual requirements materials used in production orders are withdrawn from inventory unvaluated. Since the actual costs on production orders for individual requirements materials are therefore incomplete, all production orders created for the sales order stock (even those for lower-level BOM items) are settled to the sales order item during period-end closing. The sales order item therefore always shows the actual costs of the production orders belonging to the item, and not the planned costs of the material.

Since the update of planned costs is based on the update of actual costs for reasons of comparability, a standard cost estimate for material FERT X would not show the complete costs either. It would therefore be inappropriate to use such a standard cost estimate to calculate the standard price.

The inventories are valuated during results analysis.

The costs on the sales order item are calculated on the basis of the actual cost of goods manufactured.

Starting Point

Your customer orders 10 units of finished product FERT X. You create sales order number 4815. Item 010, which carries costs and revenues, lists 10 units of FERT X. The system generates production order number 01 for 10 units of FERT X from the sales order item. Because you are an assembly processor, the production order is generated directly and no requirements planning or associated generation of planned orders takes place. Since FERT X contains HALB Y which also is an individual requirements material, the system automatically generates another production order, number 02, for 10 units of HALB Y.

Production order 4711 has no reference to the sales order. It was created to manufacture 20 units of collective requirements material HALB Z.

Business Transactions in the First Period

  1. Production order 4711 delivers 20 units of ROH A and 20 units of ROH B from your make-to-stock inventory to manufacture 20 units of HALB Z. The goods movement results in a corresponding inventory posting in Financial Accounting.
  2. Production order 4711 transfers 20 units of HALB Z, valuated, to the make-to-stock inventory. The goods movement results in a corresponding inventory posting in Financial Accounting.
  3. Production order 02 produces 5 units of HALB Y. The goods receipt for these 5 HALB Y delivers to the sales order stock and is not valuated. There is no posting in Financial Accounting. The actual costs remain on production order 02 until settlement at the end of the period.
  4. Production order 01 withdraws 5 units of collective requirements HALB Z from your make-to-stock inventory. The costs for the 5 units HALB Z are now on the production order. The goods movement results in a corresponding inventory posting in Financial Accounting.
  5. Production order 01 withdraws 5 units of individual requirements material HALB Y from the nonvaluated sales order stock. Now the costs are not on production order 02 but still on production order 01. For this reason the material costs for HALB Y in production order 01 do not appear in the cost of goods manufactured for FERT X. No posting takes place in Financial Accounting when the 5 units of HALB Y are withdrawn from stock.
  6. Production order 01 produces 5 units FERT X and delivers them to the nonvaluated sales order stock. No FI accounts are affected. The actual costs on production order 01 remain on production order 01 until settlement at the end of the period.
  7. You deliver 3 units of FERT X to your customer. The goods movement does not affect any accounts in FI.
  8. You invoice your customer for 3 units of FERT X in the total amount of USD 45. The sales revenues are posted in Financial Accounting and assigned to the sales order item.
  9. Period-End Closing

    Settlement of the Production Orders to the Sales Order Item

  10. You settle production order 02 to sales order item 010.
  11. You settle production order 01 to sales order item 010. This settlement is made under the source cost element or under a settlement cost element. This means that the cost of goods manufactured for HALB Y cannot be seen as the costs for a semifinished product but instead are shown under the sales order item, for example under a raw material cost element.
  12. Results Analysis

    To valuate the nonvaluated sales order stock, you perform results analysis at the end of the period. Results analysis uses the revenue-based method in this example.

    Definitions:

    POC = Planned revenue / Actual revenue

    Calculated costs = POC x Planned costs

    Calculated revenue = Actual revenue

    Profit = Actual revenue – Calculated cost of sales

    Capitalized costs = Actual costs – Calculated costs

    The following values are calculated:

    POC = 45 / 150 = 0.3

    Capitalized costs = 75 – 36 = 39

    Calculated costs = 0.3 x 120 = 36

    Calculated revenue = Actual revenue = 45

    Profit = 9

    Settlement of Results Analysis Data

  13. You settle the capitalized costs (WIP) to Financial Accounting. You now make the corresponding inventory posting in Financial Accounting. If you are using Profit Center Accounting (CO-PCA), you also settle the capitalized costs to CO-PCA.
  14. In this case you also settle the calculated cost of sales to Profitability Analysis.
  15. If you are using Profitability Analysis, you now settle the actual revenues to Profitability Analysis. The actual revenues have already been posted in Financial Accounting in real time.

 

Postings in Financial Accounting

This graphic is explained in the accompanying text

When the goods issues and goods receipts for the normal warehouse inventory of the collective requirements material are entered, the corresponding postings in Financial Accounting are made automatically.

With a nonvaluated sales order stock of the individual requirements material, the goods movements do not result in postings in Financial Accounting. The postings of the inventory changes are made here at the end of the period after results analysis and settlement of the capitalized costs. If there are a number of different materials in a sales order, they are valuated as a total. This total includes both finished products and semifinished products. With a nonvaluated sales order stock, you therefore perform a collective valuation at the end of the period. Individual valuation is not possible.

 

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