CO PC made easy

Product costing flow: overview: .................................................................................... 2 Product costing flow for discrete manufacturing w/o PA............................................ 2 Overview: ................................................................................................................... 2 Processing throughout a period ................................................................................. 3 Series A: posting to cost centers:........................................................................ 3 Step B: raw material is issued from inventory to the PRD order.......................... 3 Series C: activities are allocated from PRD cost center to the PRD order. ......... 3 Step E: FGs are received into inventory from the PRD order.............................. 3 Month-end processing: .............................................................................................. 3 Series F: Apply overhead from the overhead cost centers to the production order. ............................................................................................................................ 3 Series G: WIP for the production order: .............................................................. 3 Series S: post cost center variances:.................................................................. 4 Step T: production order variances (posted at settlement) .................................. 4 T-accounts: ................................................................................................................ 4 Product costing flow for discrete manufacturing with PA: ......................................... 9 Product costing flow for repetitive manufacturing with PA ........................................ 9 Overview: ................................................................................................................... 9 Processing throughout a period: .............................................................................. 10 Series A: posting to cost centers....................................................................... 10 Step B: Raw material is issued from inventory to the run schedule/production cost collector:.................................................................................................... 10 Series C: activities are allocated from the production cost center to the run schedule/production cost collector.................................................................... 10 Step E: Finished goods are received into inventory from run schedule/production collector ............................................................................................................ 10 Step X: deliver product to the customer: ........................................................... 10 Step Y: invoice the customer:............................................................................ 10 Month-end processing ............................................................................................. 10 Series F: apply overhead from the manufacturing overhead cost centers to the product cost collector:....................................................................................... 10 Series R: assess cost center variances: ........................................................... 10 Step T: Calculate production cost collector variance with the cost object hierarchy (posted at settlement) ........................................................................................11 End period: run settlement of the cost object hierarchy to settle production cost collectors(posts T)..............................................................................................11 Summary of this scenario: ........................................................................................11 T-accounts: ...............................................................................................................11 FI/CO reconciliation: ................................................................................................ 13 Cost-based PA ......................................................................................................... 14 CO-PA fields updated by an invoice......................................................................... 14 Co-PA fields updated by period-end controlling processes ...................................... 14

Cost object hierarchy ............................................................................................... 14 Product costing flow for make-to-order production with valuated stock and PA ... 14 Product costing flow for make-to-order production with PA .................................... 14 Product costing flow for assemble-to-order production with PA ............................. 14 Product costing flow for engineer-to-order with PA .................................................. 14

Product costing flow: overview:

1. 2. 3. 4. 5. Product costing flow for discrete manufacturing w/o PA Product costing flow for discrete manufacturing with PA: Product costing flow for make-to-order production with valuated stock and PA Product costing flow for make-to-order production with PA Product costing flow for assemble-to-order production with PA

6. Product costing flow for repetitive manufacturing with PA Product costing flow for engineer-to-order with PA

Product costing flow for discrete manufacturing w/o PA

Overview:

Processing throughout a period

Series A: posting to cost centers: The following is a list of the types of possible postings 1. posting of costs to service or administrative cost centers Often, these costs are incurred regardless of whether the production line is running. In this cost center design, the costs are managed at a cost center level, and allocate their costs to the manufacturing overhead pools (also cost center) 2. allocating from service and administrative cost centers to manufacturing overhead pools This allocation may be accomplished with direct activity allocation postings or cost center assessments and distributions. 3. posting costs to the production cost center Production workers salaries are directly posted to the PRD cost center. The PRD cost center will later supply resources, such as labor and machine time, to PRD order. These resources are represented by activities. The rate of these activities may be manually entered or calculated by the system based on the planned expenses and planned hours available in the cost center. Step B: raw material is issued from inventory to the PRD order. The raw materials may be issued in one of the following ways 1. As a manual goods issue 2. With backflushing 3. Automatically when the first operation is confirmed, if materials are allocated to the operation. For 2&3 only if there is a problem with the quantity of previously issued component

Series C: activities are allocated from PRD cost center to the PRD order.
Step E: FGs are received into inventory from the PRD order. An automatic goods receipt is possible when the final operation is confirmed.

Month-end processing:
Series F: Apply overhead from the overhead cost centers to the production order. 1. Overhead, which are indirect costs related to the direct cost such as material, machine, is applied to the PRD order. This cost is a percentage of the direct costs that have already been posted the PRD order. Material overhead such as material handling or quality inspections. Machine overhead: maintenance or utility consumption 2. If this step is run many times during the same period, only the overhead difference from the previous run is applied to the PRD order. Series G: WIP for the production order: 1. The balance of all open production orders must be moved to the B/S at period-end, since the PRD order costs are tracked on the P&L statement. This movement ensures that material issued to the PRD order remain in inventory and are not written off before production is complete. Dr/Cr: WIP-inventory(B/S account), Cr/Dr: product cost-factory output(WIP)(P&L account)

2. when displaying PRD order costs, the WIP posting to the G/L is not displayed. WIP amount (order is open): costs debited minus standard cost of completed FGs credited .RA cost elements: separate cost elements, called results analysis(RA) cost elements, track the WIP amounts. These amounts are used to make the entry to the G/L, but not directly posted to the PRD order. 3. Calculate WIP(posted at settlement): with a status of REL-released. 4. Cancel WIP (posted at settlement): with a status of DLV or TECO. Series S: post cost center variances: These variances can be cleared by manually posting a financial entry. The side of the journal entry that clears the cost center entry use a cost element. The other side uses a G/L account that is not a cost element(cost center variance). Step T: production order variances (posted at settlement) 1. The variances calculated determine the reason for the variances. 2. Variances are only calculated and stored on a PRD order when the orders status is DLV or TECO. Run settlement of PRD orders (Posts G, T) The steps illustrated by the T-accounts include: Period 1: A B C F G1 Settlement S Period 2: A B C E F G2 T Settlement S

T-accounts:
1. T-accounts: FI GL accounts Balance sheet P&Lstatement

The WIP offset account(511000), the production variance account(531000), the cost center variance account(532000, 533000) are not created as cost elements in CO. 2. T-accounts: CO secondary cost elements

3.

T-accounts: CO controlling objects

Material costs are directly posted to the production order Labor and machine time are posted to the production cost center, then to the production order from the production cost center. Overhead are posted to the manufacturing pool cost centers, then allocated to the production order from the manufacturing pool cost center. After the controlling objects are cleared with the production order settlement and the manual clearing the cost centers, no balance existed on these controlling objects ( debits credits = 0). 4. T-accounts: FI/CO reconciliation

Conclusions: There is a net impact of zero on the production process for the production order. Only variances have a P&L impact. The variances on the controlling objects are the same as the variances in the G/L accounts.

Product costing flow for discrete manufacturing with PA: Product costing flow for repetitive manufacturing with PA

Overview:

The production cost collector is the focus of the direct, controllable costs incurred during the repetitive manufacturing process. The cost collector is a Controlling (CO) production order that is linked to the run schedule header. Direct manufacturing costs, such as materials and resources, are incurred during the production of a finished product or a semi-finished product (subassembly). The indirect costs associated with the products cost are: 1. Collected using the systems overhead costing capabilities 2. Allocated to the production cost center 3. Allocated (in direct proportion) to the direct costs posted to the production cost collector The differences between SAPs product costing process and most U.S. legacy systems are that: In R/3, inventory does not flow through cost centers Instead of cost centers, our production cost collectors capture the products total cost in the repetitive environment. In most U.S. systems, until variances are recognized, production costs remain on the balance sheet In most legacy systems, production costs are moved from the raw materials inventory

account to the WIP account to the FGs inventory account. In R/3, using CO, the production costs associated with an order are temporarily tracked on the profit and loss (P&L)statement. This process allows for greater flexibility when accounting for value-added costs. At monthend, these production costs are moved to a WIP balance sheet account. In the repetitive environment in this example, backflushing is used so no WIP balances need to be processed. In this example, since backflushing is used and all goods issues, activity confirmations, and receipts into inventory occur in one step, all remaining balances on the cost collector are calculated as variances. WIP does not need to be calculated, since there is no timing difference between debits (goods issues and activity confirmations) and credits (goods receipts) to the production cost collector. This business process may not reflect every manufacturing scenario. For example, backflushing may not always be used, so material components are issued to the production cost collector as they are used, which requires a WIP calculation. There may also be differences in the cost center design between companies. In such cases, the following scenario should be modified.

Processing throughout a period:

Series A: posting to cost centers See: posting to cost centers
Step B: Raw material is issued from inventory to the run schedule/production cost collector:

See: Raw material issue In this example, all required components are issued to the run schedule using backflushing. The goods issue occurs at the same time that resources (activities) are confirmed and posted, and the FGs are received into inventory.
Series C: activities are allocated from the production cost center to the run schedule/production cost collector

Step E: Finished goods are received into inventory from run schedule/production collector

The inventory value is updated with the actual quantity produced by its standard cost. This goods receipt automatically posts the financial and material documents. Receiving the product into inventory at a moving average cost is possible. Step X: deliver product to the customer: At this time, the cost of sales is posted to the G/L using standard value, but there is no posting to cost-based CO-PA. Step Y: invoice the customer: At this time, the revenue is posted to the G/L and to CO-PA, the cost of sales that has already been posted to FI, posted to co-based CO-PA with the invoice data, so that the cost of the product is matched with the revenue.

Month-end processing
Series F: apply overhead from the manufacturing overhead cost centers to the product cost collector: See overhead: Series R: assess cost center variances: 1. These variances are assessed to CO-PA at the end of the month where they can be

allocated to products, product lines, customers, geography or other combinations of dimensions (characteristics) tracked in CO-PA. The assessment takes place only in CO, so no posting is made to the G/L. Optionally, these variances can also be reflected in FI by manually posting a financial entry. However, the assessment to CO-PA already clears the cost center, so if this posting were desired, neither G/L account should be a cost element, and the FI/CO reconciliation would change.

2.

Step T: Calculate production cost collector variance with the cost object hierarchy (posted at settlement) 1. Variances are calculated on the cost object hierarchy. 2. Variance keys should not be defaulted into the production cost collectors from the material master, and all variance keys must maintained at the cost object level. 3. Variances are posted to the G/L during settlement of the cost object hierarchy. The actual financial transactions still occur at the production cost collector level. 4. During settlement, variances are posted to CO-PA when they are posted to the G/L. The variances are posted to CO-PA when they are incurred, not when the product is sold. End period: run settlement of the cost object hierarchy to settle production cost collectors(posts T) When settlement of the cost object hierarchy is run at the end of each period, the variance values of each production cost collector that is linked to the cost object hierarchy are posted to the FI module and CO-PA.

Summary of this scenario:

1. The graphic of this scenario illustrates steps A to Y. The T-accounts reflect the postings made during the repetitive manufacturing process using: One utilities cost center Four manufacturing overhead cost centers One production cost center. One production cost collector, linked to the cost object hierarchy. since backflushing is used, there is no timing difference between the goods issue, activity confirmation, and goods receipt, so no WIP resides on the cost collector. All remaining costs on the production cost collector after confirmation are variances, which are calculated and posted during settlement.

2.

T-accounts:
T-accounts: FI G/L accounts:

T-accounts: CO secondary cost elements:

T-accounts: CO controlling objects

FI/CO reconciliation:
1. 2. When CO-PA is used, the cost center variances are not directly reflected in variance accounts in FI, but are analyzed in CO or CO-PA. The manufacturing process managed by the production cost collector should have a net zero impact on the P&L. The only impact should be the calculated production variances that are written off, and which are posted at settlement. In this example, cost center variances are not reclassified in the P&L. One the manufacturing process is complete, variances in the CO objects must be cleared using period-end processes. Variance calculated on the production cost collector are settled to a variance account and to CO-PA. cost center variances are assessed to CO-PA, but the variances reported in CO reporting and CO-PA reporting are the same. T-accounts: FI/CO reconciliation:

3.

4.

Cost-based PA CO-PA fields updated by an invoice Co-PA fields updated by period-end controlling processes Cost object hierarchy

Product costing flow for make-to-order production with valuated stock and PA

Product costing flow for make-to-order production with PA

Product costing flow for assemble-to-order production with PA

Product costing flow for engineer-to-order with PA