Example for Product Cost by Sales Order with Valuated Sales Order Stock: Quantity and Value Flow

Prerequisites

The following statements apply only when the sales order item carries costs and revenues:

This example uses a valuated sales order stock.

Example

BOM of Individual Requirements Material FERT X

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.

Cost Estimates for Standard Price Calculation with Valuated Sales Order Stock: Valuation Basis

The above illustration shows the cost estimates for calculation of the standard prices of HALB Z, HALB Y, and FERT X.

The cost estimate of the collective requirements material HALB Z is a cost estimate with quantity structure that is created for the material. In this example, it is the basis for calculating the standard price of HALB Z.

For individual requirements materials, the standard price can be calculated in a sales order cost estimate or in a preliminary cost estimate for the manufacturing order.

The cost estimate of the individual requirements material FERT X is a sales order cost estimate that is used to calculate the standard price for FERT X.

The cost estimate for the individual requirements material HALB Y is also a sales order cost estimate used to calculate the standard price for HALB Y.

The standard price calculated in this way serves the following purposes:

• To valuate the sales order stock at standard cost
• To calculate the variances for the production orders of the sales order item

Quantity and Value Flow

Starting Point

Your customer orders 10 units of finished product FERT X. You create sales order number 4815. Item 010 of the sales order is for 10 units of FERT X and is marked as a cost object. The system generates production order number 01 for 10 units of FERT X from the sales order item. Because you are in an assembly processing environment, 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 is also a individual requirements material, the system generates another production order 02 for 10 units of HALB Y through requirements planning.

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 HALB Z, valuated, to your make-to-stock inventory. The goods movement results in a corresponding inventory posting in Financial Accounting (FI) (the inventory account for HALB Z is debited and Inventory Changes is credited).
2. Production order 02 produces 5 units of HALB Y and delivers them to the valuated sales order stock. The goods movement results in a corresponding inventory posting in FI. The funds commitment in inventory is shown on the sales order item as statistical information.
3. A requirement for statistical postings in Controlling is that you represent the material stock accounts as a cost element of cost element category 90 in Controlling.

4. Production order 01 withdraws 5 units of individual requirements material HALB Y from the valuated sales order stock. The production order is charged with actual costs. The goods movement results in a corresponding inventory posting in FI. The funds commitment in inventory is shown on the sales order item as statistical information.
5. Production order 01 withdraws 5 units of collective requirements material HALB Z from the make-to-stock inventory. The production order is charged with actual costs. The goods movement results in a corresponding inventory posting in FI.
6. Production order 01 produces 5 units of FERT X and places them in the valuated sales order stock. The goods movement results in a corresponding inventory posting in FI. The production order is credited accordingly. The funds commitment in inventory is shown on the sales order item as statistical information.
7. Assume you have arranged for partial delivery to the customer. Consequently, 3 units of FERT X from the valuated sales order stock are delivered to the customer (movement type 601).

The goods movement results in a corresponding inventory posting in FI. Inventory Change from Sale of Products is debited and Inventory is credited.

The sales order item is debited with the actual costs. The funds commitment in inventory goes down accordingly.

The debit uses the cost element that corresponds to the account for the cost of sales (such as for inventory changes from the sale of goods). This is an account in the income statement that is created as a primary cost element (such as account "893015 Inv. change-cost of own goods sold with cost elem."). This account is selected through automatic account determination in MM. It is found through transaction GBB and account grouping code VAY. Account grouping code VAY is relevant when the sales order item carries costs and revenues. If the sales order item does not carry costs and revenues, account grouping code VAX is used (see also: Example for Valuated Sales Order Stock: Quantity and Value Flow).

Note the following:

In sales order costing, there are a number of special processing requirements regarding the account grouping code. For information, see: Overhead in Sales-Order-Related Production.

No invoicing takes place in this period.

Explanations

Valuation of the Inventories

The inventories are valuated at standard price. In our example, the standard price is calculated in a sales order cost estimate.

Funds Commitment in Inventory (Statistical Actual)

To enable you to see the current amount of committed funds in the sales order stock, the inventory values are also shown on the sales order item as statistical actual values. These statistical actual values rise or fall in accordance with the value in the corresponding balance sheet account in FI.

Period-End Closing

• WIP calculation at the level of the production orders

Work in process is calculated in the Product Cost by Order component at the level of the production orders. The work in process is calculated during the period-end closing process and settled to the material stock accounts for unfinished goods.

Our example has no work in process on the production orders.

• Variance calculation

With a valuated sales order stock, you can determine the variances at the level of the production orders. Depending on the target cost version, the variances are calculated as the difference between the target costs and the control costs. For the total variance and the production variance, the control costs are the actual costs less the work in process and scrap.

• Settlement of work in process and variances

The variances calculated on the production orders are settled during the period-end closing process for the Product Cost by Order component.

No data has yet been transferred to Profitability Analysis (CO-PA) because both the actual revenues and the cost of sales are zero. The actual revenues and the (standard) cost of goods manufactured of sales are transferred to Profitability Analysis when you invoice. Settlement of the production order also transfers the variances to CO-PA.

• You can assign costs associated with a particular sales order item (such as special direct costs) directly to that sales order item.
• You can perform results analysis at the level of the sales order item, for example to calculate the value of the goods that have been delivered but not yet invoiced (goods in transit). You can then transfer the results analysis data to FI, CO-PA, and EC-PCA when you settle.
• If you use a valuated sales order stock, in many cases you will not need a sales order item that carries costs and revenues.

Inventory Postings in Financial Accounting

IC = Inventory change

The goods issue postings and goods receipt postings for the valuated sales order stock automatically result in corresponding postings in Financial Accounting in real time.