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order when WIP is created as it is a financial entry and the balance is already held in the order. The COGM
account is defined in GBB / VKA and it is the account that should be credited when finished or semi finished
goods are received in stock from the order. The change in stock account (BSV) is debited when the materials are
issued to production or cost center. The change in stock account for raw materials is RM Consumption Account,
for semi finished goods the same may be defined in the following way.
Strategy 1:
Define 1 single account as 'Increase / Decrease in SFG' and define it as COGM account in GBB / VBO as well as
change in stock account in BSV.
Strategy 2:
Define 2 different accounts in GBB / VBO and BSV and group them at one place in your financial statement
version so that the net change is always reported.
Remember, WIP and Semi finished goods are not same from SAP point of view. The COGM account for WIP is
maintained in OKG8 and do not create a cost element for the same.
For Finished Goods maintain COGM account in GBB / VBO and nothing is to be maintained in BSV.
Major challenge we faced was resistance from end users, lack of confidence on the new system by
the external and internal stake holders. Finally after working so hard on the various points raised by
the internal as well as external team, we succeeded.
In this blog I would like to highlight the most important challenge we faced. Mainly they are two in
number;
1) Clarity on COGM, COGS & Production Order Price Difference general ledger accounts.
1) COGM, COGS & Production Order Price Difference general ledger accounts.
First let me try to explain the GL entries posted during various stages starting from Raw Material
receipt to Finished Good sales.
Step 5: Semi Finished Good 1 used as raw material for the production of Semi Finished Good 2
Step 6: Semi Finished Good 2 used for the production of Finished Good
Part 5: Sales
Debit Credit
Table 1.0
Debit Credit
Table 2.0
Debit Credit
Table 3.0
GL Entries during Step 4: Raw Material used for the production of Semi Finished Good 1
Debit Credit
Table 4.0
GL Entries during Step 5: Semi Finished Good 1 used as raw material for the production of Semi
Finished Good 2
Debit Credit
Table 5.0
GL Entries during Step 6: Semi Finished Good 2 used for the production of Finished Good
Debit Credit
Table 6.0
Debit Credit
Table 7.0
Debit Credit
COGS XXX
Table 8.0
Debit Credit
Table 9.0
Live posting example during sales invoice release from accounts using VFX3.
GL Entries during Step 10: Customer Payment
Debit Credit
Table 10.0
Now let us try to understand COGM, COGS and Production Order Price Difference Accounts;
Finished and Semi Finished Material will be valuated at "Standard Price" for all COGM, COGS and Closing
Stock calculation.
a) Goods Produced
I have broken down the COGM entries for clear understanding. Please find the below screen shots.
The below attached image shows how the Production Order Settlement amount of 1,403,463.52 has been
arrived.
If ML is not activated we will not be able to apportion the total variance between stock, COGM and COGS. We
follow the below mentioned procedure to split the variance.
In the first column the total variance for each product has been entered. Second column we enter the total
quantity produced for the material. So Total Variance / Production Quantity = Variance Per Ton.
You have the quantity for Closing Stcok, COGM and COGS of the material. Multiply it with Variance per ton.
Closing Stock Quantity * Variance Per Ton
When a finished or semi finished good is produced i.e after confirmation stock of the finished or semi finished
good will be Debited and cost of manufacturing the finished or semi finished good will be Credited with document
type "WA". (Refer Table 6.0)
Entires will be posted against the particular material i.e with material number.
Figure 1.0
When a Semi finished good is issued against a production order Stock of the semi finished good is credited and
cost of manufacturing the semi finished good is debited with document type "WA". (Refer Table 6.0)
Entires will be posted against the particular material i.e with material number.
Figure 2.0
When a finished / semi finished good "A" Quantity is produced at "X" rate and reversed "B" Quantity at "Y" rate,
the quantity will be reversed at "Y" rate and the difference in price "X - Y" will be posted in Price Difference and
COGM account.
(For GL entries posted when Raw Material is Issued to Production of Semi Finished Good refer Table 4.0)
Debit Credit
Table 11.0
1.1.d) Entries posted during settlement of Production Orders ( Variance)
During settlement of production order variance will be posted to Production Order Price Diff Account and COGM
Note: There is no hard and fast rule for analysing COGM. Analyse COGM based on the analysis I have given
above, if any other entries are posted we have to analyse those entries one by one.
Let me explain the entries. "FG1" produced is (Execute Transaction Code MB5B for movement type 101 + 102 )
28,507,148.10 AED.
"FG1" issued to production order is (Execute Transaction Code MB5B for movement type 261 + 262 )
28,480,013.2 AED.
For calculating Cost of Goods Sold materials will be va;luated at standard price maintained in the material
master.
Execute Transaction Code MB51 for movement type 601 + 602. Also consider price difference during sales
reversal.
Both the 601 & 602 values should match with COGS general ledger (If no price diference for sales reversal is
there).
Figure 4.0
Figure 5.0
1.3) Production Order Price Difference Account
But in most of the cases if we apply the formula the closing stock will not match. All material movement has to be
considered while calculating closing stock of material.
Table 12.0
If we substitute the values in the formula the closing stock will not match. We need to consider all material
movements.
Material Opening Receipt Issue Price Diff. (0 Qty) Material Transfer Closing
Table 13.0
In my previous blog "ERP Post Implementation Challenges’ - Part 1" I have explained the concept of COGM,
COGS and deriving the closing stock. In this blog I will be concentrating on the Reconciling GL, Raw Material
Consumption, Semi Finished / Finished Goods Production and Vendor Invoice.
Reconciliation 1:
Opening Stock + Raw Material Receipt - Raw Material Consumed = Raw Material Closing Stock
Reconciliation 2:
Reconciliation 3:
Raw Material Consumed = Raw Material Issued for the Production of Finished Good
Reconciliation 4:
Reconciliation 1: Opening Stock + Raw Material Receipt - Raw Material Consumed = Raw Material
Closing Stock
As explained in my Previous Blog "ERP Post Implementation Challenges’ - Part 1" all material movements
should be considered for calculating the closing stock of material.
The Raw Material received should be matching with the invoice received from the vendors. I have done quite a
lot of research to generate report on the list of invoices received against a material.
Material Receipt (MB5B) with movement type 101+102 = Stock GL of Raw Material + Price Diff GL of Raw
Material with Type "WE"
There can be invoice and Credit/Debit notes posted against the material.
Joining Condition:
Tables RBKP-RSEG -> Joining Fields BELNR,GJAHR
Figure 1.0
Figure 2.0
To generate Credit Note / Debit Note list generated against the material:
Joining Condition:
Tables RBKP-RBMA -> Joining Fields BELNR,GJAHR
Figure 3.0
Figure 4.0
Reconciliation 3: Raw Material Consumed = Raw Material Issued for the Production of Finished Good =
Raw Material Consumption GL
Raw Material will be consumed for the production of Semi / Finished Good, which will be created against Process
Order. The total raw material consumed against a process order can be generated from transaction code KOB1.
Raw Material 1 (RM1) is used for the production of three Finished Good (FG1, FG2, FG3)
Total Raw Material RM1 issued during the period is 106,136.00 TO. This is the quantity used for then production
of 473,424.00 TO of FG1, FG2, FG3.
Figure 5.0
Table 1.0
From transaction KOB1 we will be able to equate the Finished Good Produced and Raw Material Consumed
quantity.
Figure 6.0
Figure 7.0
Raw Material (RM1) Consumption GL should be updated with the value of 1,061,360.00
(Report from FBL3N Raw Material (RM1) Consumption GL + Raw Material (RM1) Price Difference GL)
Fugure 8.0
Figure 9.0
Generally We can reconcile opening, receipt, issue Closing by inputting values in the table listed below;
Issu
e To
Cost
Cent Physic
Mat Issue To er al
Receipt Producti Invent
Price on Order 201 ory GL
Mater (101+102 Revaluvat MIR + Postin Consumpt
ial Opening 0 Qty ) ion 7 261 + 262 202 g ion Sales Closing
A B C D E F G H I J K
(A+B+C+
D) -
D+E+F+G (F+G+H+
FG1 A B C D E F G H +H J J)
Table 2.0
Figure 11.0
Debit Credit
Table 3.0
FBL3N GL Report
Table 4.0
WIP
Basically you have 2 environments in the books: P&L and Balance Sheet.
You start doing something during the month so you consume costs (materials, activity, OVH, etc.).
If you finish and sale it till the end of the period the whole thing will go to your P&L.
If not, all costs you consumed have to go to the stock (Balance Sheet).
So, you have to credit a P&L account and debit a BS account. Normally you might want to credit the whole
production order since virtually the whole thing went to the stock and nothing left on the shopfloor. And when you
decide to continue your work, you take out the stuff from stock and do your work.
Now, the problem with SAP that there is no standard mechanism which will reverse this WIP posting with the
production order assigned. That is why the WIP posting happens beyond production order and that's why you
can't create cost element.
I fyou want to check what is in your WIP you can go to FBL3N and run a report for the P&L/WIP account which
you will find in OKG8, where you configure these postings.
The accounts for WIP should not be defined as cost element in CO to avoid that WIP is posted incorrectly into
CO.
A cost element requires account assignment to a cost object. So if you define the WIP account as a cost element
you need to assign a cost object for this which will result in duplicate costs in CO
Example: settlement of order 'XYZ': WIP was posted on account '1111' (Stock change -WIP). Since '1111' is also
a cost element and the CO account assignment is order 'XYZ' again, we have an inconsistent scenario: cost
which are already posted on the order now come in 'through the backdoor' again as additional cost.
I believe SAP issues error message KQ119 (G/L account cannot be created as a cost element) in such cases.
Dear Andy
In product cost by order scenario the WIP or Variance calculation is dependent on order status. If the Order has a
status of REL or PDLV, the system will calculate WIP and if the order status is DLV or TECO the system will
calculate variance on this order. At the time of calculation of WIP or Variance no accounting entry i generated but
when you settle the order at that time FI documents are passed in the books.
Ans1- In product cost by order WIP or variance is calculated based on the actual cost debited to the order and
value of GR made to the order. System does calculation by the formula GR value-(GI value+Activity value+
Overheads)
Ans2- As I said at the time of calculation no FI entries are passed but at the time of settlement FI entries are
generated. The method of calculation is the same as described in Ans1.
Ans3- Entry at WIP settlement WIP (P&L) a/c Dr and WIP Offsetting(B/S a/c) Cr.
and if there is already a WIP posted for this order then at settlement WIP entry is reversed provided we have
calculated WIP again the the month of settlement of variance
Note for Anand: Dear Anand we need to calculate WIP again in the period when the order status is changed to
DLV or TECO otherwise system will not pass reversal entry of WIP. Kindly test it in your IDES and let me know if
you find something on the contrary