Example: Value Flow with Work in Process at Target Costs
Process Flow in Logistics
Two operations are confirmed for a run schedule header. In the first operation, a yield of 10 units is confirmed. In the second operation, a yield of 5 units is confirmed. Five units are transferred into inventory.
According to the preliminary cost estimate for the product cost collector, the cost for the first operation is USD 1600 (direct materials cost + direct production cost). The cost for the second operation was calculated in the preliminary cost estimate for the product cost collector as USD 400. Overhead is determined to be 25% based on the direct manufacturing costs.
The work in process is USD 900. This value comprises the direct material costs and the direct manufacturing costs (USD 800) for the five units confirmed as yield in the first operation and the overhead (USD 100) calculated on the basis of the direct production costs in the first operation.
In the next period, the remaining operations are confirmed and the goods are transferred into inventory. The goods received are valuated at standard price. Work in process is calculated for all operations and immediately canceled.
The work in process for the order in this period is zero. In this period, the work in process from the previous period is canceled.
Process Flow in Accounting
The system performs the following postings in the first period:
On the basis of the confirmations:
The product cost collector is debited with actual costs of USD 1200 (production costs for 10 units in the first operation and 5 units in the second operation).
The cost center to which the work center is assigned is credited.
On the basis of the goods issue:
The product cost collector is debited with USD 800 in actual costs.
The inventory account of the withdrawn material is credited.
The inventory change account in the income statement is debited.
On the basis of the overhead calculation process:
The product cost collector is debited with USD 350 in actual costs.
The cost center whose costs were allocated by the overhead calculation process is credited.
On the basis of the goods receipt (partial delivery):
The product cost collector is credited with USD 1400.
The inventory account of the material being manufactured is debited.
The plant activity account in the income statement is credited.
On the basis of the settlement of the work in process:
The unfinished goods inventory account (work in process) is debited with USD 900.
The income statement account for inventory changes is credited.
In the second period, the system performs the following postings:
On the basis of the confirmation:
The product cost collector is debited with USD 400 actual costs.
The cost center to which the work center is assigned is credited.
On the basis of the overhead calculation process:
The product cost collector is debited with USD 100 in actual costs.
The cost center whose costs were allocated by the overhead calculation process is credited.
On the basis of the goods receipt (partial delivery):
The product cost collector is credited with USD 1400.
The inventory account of the material being manufactured is debited.
The plant activity account in the income statement is credited.
On the basis of the settlement of the canceled work in process:
The unfinished goods inventory account (work in process) is credited with USD 900.
The income statement account for inventory changes is debited.
Note
The accounts for the goods movements and settlement of the actual costs are determined through automatic account determination in Customizing for
Materials Management
(MM).
The accounts for the settlement of the work in process are specified in the posting rules in Customizing for
Product Cost Controlling
.