SAP ERP Manufacturing - Production

Planning (SAP PP): COST ELEMENT

POSTINGS ACCORDING TO OBJECT
TYPE: ORD - Order
Posted by Sagar Gaikwad 25 Jul, 2013
Transaction code - S_ALR_87013601 (Object type ORD - Order)

Abstract

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1. Various reasons for variances in cost elements.

2. Important settings to be done in Master data and configuration
3. Importance of Cost estimation for materials
4. Importance of Production order confirmations and settlements

Useful for PP, MM, FI/CO

BACKGROUND
The issue that currently exists in the financials is that:

There is a very large variance on the ORD Order object type (Transaction code S_ALR_87013601), which is extremely difficult to resolve.
Reasons for variance

Increase in stock and Decrease in

stock account gets updated only in case of production order confirmation. When
production order confirmation is done finished material would hit Increase in
stock account and component material consumption would hit Decrease in
stock account. Ideally finished material should have price equal to component
material + processing cost. But when I checked some of material BOM, I didnt
see any material with processing cost. So this means that if there is no any
processing cost then finished material should have price equal to component
A) Increase in stock and decrease in stock account difference:

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SAP ERP Manufacturing - Production Planning (SAP PP): COST ELEMENT POSTINGS ACCORDING TO
OBJECT TYPE: ORD - Order

material.If there is any difference in finished material and component material then month end settlement program
clear it off difference amount and posts it to G/L account 22010040 - Kitting Price Var (Price variance account).There are
around 249 Production orders where increase in stock and decrease in stock account has variance (amount
is -88986). This variance is due to following reasons-

1. Finished material and raw material price difference

2. Finished materials BOM are having error. All 249 production orders having differences because of 9 materials
having issues in BOM. Below is the file having all 9 materials with BOM and price details.

3. Some production orders not coming in month end settlement program. Reason behind that is some

material having valuation class X58. These are all those 9 materials mentioned above. And this
valuation class is not configured for price difference PRD (Cost (price) differences) posting key. This
means automatic account determination is not configured for X58. For rest of the valuation class it
is configured.
4. Some production orders not having Delivery completed status. Because of this these orders
not considered for settlement program. Either those orders should be changed to Technically
completed.
5. Settlement rule not assigned in production orders. Because of this these orders not considered for settlement
program.
6. Below given is the list of 249 Production orders having differences.

B) Capitalized Costs:

These postings are because manual cost allocation from internal order 20000 (Capitalized Overheads) to cost element
98000150.

CHALLENGES

1. In material master data for component material Backflush indicator should be set, if it is used in

2.

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finished material BOM. It should be set in material master MRP2 view. So that components will get
consumed automatically at the time of production order confirmation. There no need to consume it
manually.
If it is required to consume components manually then use transaction MB1A and movement type 961 only (not
261 movement type). As in this client 961 non standard moment type configured. This is linked to different cost
element other than 261 movement type cost element.
BOM given earlier for all 9 error materials need to be checked and if require then restructure.
Finished material and component material prices need to be checked.
Need to check why automatic account determination is not configured for transaction key PRDand valuation
class X58.
For all 9 error materials there is no any Cost estimation made before. But when I checked
configuration settings for Product cost controlling, I could see configuration is there. Need to check
whether material Cost estimation is maintained or not on regular basis. If not then this whole cost
estimation will come under separate task.

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SAP ERP Manufacturing - Production Planning (SAP PP): COST ELEMENT POSTINGS ACCORDING TO
OBJECT TYPE: ORD - Order
7. There is a batch job ZFIN_SETTLE_PROD_ORDS_CO88 which runs after one hour daily. It uses transaction
CO88 which is for differences settlement. This batch job settles the difference of these two accounts. There are
various reasons due to which batch job not picking production orders for settlement and balance is occurring.

8. Few of them listed out Most of the production orders confirmed in last year but differences
in those orders settled in this year. e.g. if any order is having value -2000 GBP in Increase
in stk account and 1500 GBP value in Decrease in stk account in year 2009. So there is
difference of -500 GBP. If this difference is settled in year 2010 it will post 500 GBP in
Decrease in stock account. When you check year to date balance it will show this 500 GBP as
balance. These differences (which are not actual difference) will be there till 2010 year end.

SOLUTION

1. Manual consumption made for components under incorrect movement type needs to be reversed in
current period (Using MBST or MIGO transaction). And then post the consumption using transaction MB1A
and movement type 961. So that entries will get posted to decrease of stock account.
2. To reduce Ultimate total difference we need to configure automatic account determination
for transaction key PRD (Cost (price) differences), valuation modification Z001, General
modification PRF, valuation class X58, G/L account for debit/credit 22010040 (Please check
G/L account if anything else is required to configure).
3. After PRD configuration we need to run settlement manually using transaction CO88 or KO88. So that
difference amount will get posted to G/L account 22010040 - Kitting Price Var (provided there will not be
any production order issues like order is not completed or settlement rule issues). This will clear difference
amount for 244 production orders.
4. After posting these settlements we need to check rest of the production orders those are
having problem and need to clear them. Those orders are having problems like Order is not
completed Settlement rule not maintained in order.
5. Most of the production orders confirmed in last year but differences in those orders settled in this year. e.g.
if any order is having value -2000 GBP in Increase in stk account and 1500 GBP value in Decrease in stk
account in year 2009. So there is difference of -500 GBP. If this difference is settled in year 2010 it will post
500 GBP in Decrease in stock account. When you check year to date balance it will show this 500 GBP as
balance. These differences (which are not actual difference) will be there till 2010 year end.

Process that needs to be followed

Standard process should be followed so that there would be minimum or no variances.

Some of the points listed below.
1. Material master data should be maintained properly i.e. Backflush indicator should be set
without any failure for production order related material.

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SAP ERP Manufacturing - Production Planning (SAP PP): COST ELEMENT POSTINGS ACCORDING TO
OBJECT TYPE: ORD - Order
2. Check material BOM periodically if there are any alternate BOM which is obsolete. If there is
any obsolete alternate BOM then make its status as Inactive and mark Deletion indicator for
it. Continuous update for BOM should be there.
3. Standard cost estimation should be configured and followed. So that prices of materials gets updated
correctly. If there is no any cost estimation for finished or semi-finished materials then there is every
chance of price conflict with their component material.
4. Production order settlements should be cleared in current year only without any failure. Otherwise if those
are cleared in next year they will make postings in Increase in stock or Decrease in stock account. And this
will reflect as a variance which is not actually variance but an entry against settlement.
5. All the data related to production order e.g. settlement rules, routing, material master should be properly
maintained/ configured.

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