Product Costing: Analyze the Financial Entries in Make-to-Stock. Birgit Starmanns SAP Marketing

Transcription

1 Product Costing: Analyze the Financial Entries in Make-to-Stock Birgit Starmanns SAP Marketing

2 Agenda Financial Excellence with SAP Solutions The End-to-End Process Plan to Manufacture: The Process Introduction to the Example Value Flow Product Costs in Period 1 Month-End Postings for Period 1 Postings in Period 2 Wrap-Up 2013 SAP AG. All rights reserved. 1

3 Financial Excellence with SAP Solutions Introduction

4 Finance: Balancing Efficiency with Being a Strategic Advisor to the Business External Internal Key CFO priorities Ensure Regulatory Compliance and Effective Risk Management Outperform Financial Objectives and Create Sustainable Value Deliver Superior Service at Reduced Cost 2013 SAP AG. All rights reserved. 3

5 SAP Solutions for Finance and How They Are Delivered Ensure Regulatory Compliance and Effective Risk Management Treasury and Financial Risk Management Manage Enterprise Risk and Compliance Accounting and Financial Close Outperform Financial Objectives and Create Sustainable Value Manage Financial Performance SAP enterprise performance management (EPM) solutions SAP governance, risk, and compliance (GRC) solutions SAP ERP Financials including Controlling modules and Partner solutions Deliver Superior Service at Reduced Cost Invoice to Pay Receivables Management Travel Management Real Estate Lifecycle Management Shared Services On premise On demand On device In memory 2013 SAP AG. All rights reserved. 4

6 The Accounting and Financial Close End-to-End Process Financial Accounting Entity Close Corporate Close Reporting and Disclosure Product Costing is part of the Financial Close General Ledger Intercompany Reconciliation Reporting and Analysis On-going General Ledger entries (sales, manufacturing, etc.) affect product costing Entity close includes month-end product costing and valuation processes Sub-Ledgers Entity Close Management Consolidation Notes Management Disclosure Management Financial Close Governance Internal Controls Master Data Governance for Financials 2013 SAP AG. All rights reserved. 5

7 The End-to-End Process Plan to Manufacture: The Process

8 Product Costing for Manufacturing Strategies Make-to-Stock Standard Products No Product Variants Make-to- Multiple Product Variants Mass-Customization Engineer-to- Customer-Specific Design/Engineering Product Costing n n n n Integration of demand (sales) and supply (manufacturing) Costing methods in sync with manufacturing strategy Real-time update of costing throughout each manufacturing step Updates to SAP General Ledger and controlling objects 2013 SAP AG. All rights reserved. 7

9 Plan-to-Manufacture The Process Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Role of Controlling (CO) in Plan-to-Manufacture Process: n Sets standard costs for all products to be manufactured (product cost estimate) n Values inventory of unfinished and finished goods, including work-in-process n Includes activity costs in inventory values via confirmation step n Sets standard activity rates n Calculates scrap and variances at period close n Assigns production variances to inventory and cost of goods sold at period close (actual costs) n Calculates true actual costs at period close 2013 SAP AG. All rights reserved. 8

10 Plan-to-Manufacture Requirements Planning Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to- Stock MRP run for project MRP run for sales order item MRP run for material 2013 SAP AG. All rights reserved. 9

11 Plan-to-Manufacture Cost Objects During Execution Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to- Stock Multilevel dependent requirements. orders settle to project stock. Multilevel dependent requirements. orders settle to sales order stock. Single-level requirement with settlement to stock 2013 SAP AG. All rights reserved. 10

12 Plan-to-Manufacture Cost Estimates Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to- Stock Top-down planning of project budget, and bottom-up planning of operative tasks. Reserves for imminent loss posted to FI if planned costs are greater than planned revenues (results analysis). Create cost estimate based on configuration in sales order. Cost estimate can be used as basis for pricing in SD. Cost estimate for production order created automatically. Standard costs based on standard cost estimate for material. Cost estimate for production order created automatically. Planning variances can be calculated by comparing the two cost estimates. Cost estimate for before release to 2013 SAP AG. All rights reserved. 11

13 Plan-to-Manufacture Goods Issue Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to- Stock Goods issued to production order. Multilevel reporting of project and dependent orders. Work-in-Process calculated at period close. Goods issued to production order. Multilevel reporting of sales order and dependent orders. Work-in-Process calculated at period close. Goods issued to production order, and reporting by production order. Work-in-Process calculated at period close. Work-in-Process by 2013 SAP AG. All rights reserved. 12

14 Plan-to-Manufacture Confirmation Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to- Stock Output quantities, scrap quantities, and rework quantities recorded in Operation is linked to a work center Work center is linked to a cost center Activities performed by work center are planned as activity types Activity price is per cost center/activity type determined in Cost Center Accounting quantities are valued with activity price order is debited (value added in production), and cost center is credited Cost Center reporting reporting 2013 SAP AG. All rights reserved. 13

15 Plan-to-Manufacture Goods Receipts Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to- Stock Deliver to project stock. Stock values are updated based on the production order cost estimates. Deliver to sales order stock. Stock value based on sales order cost estimate, production order cost estimate, standard cost estimate (manual), or user exit. Deliver to material stock. Stock value based on standard cost estimate. Status final delivery required for variance analysis. Calculation of target costs based on delivered quantity (goods receipt) 2013 SAP AG. All rights reserved. 14

16 Plan-to-Manufacture Settlement Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Engineer-to- Make-to- Make-to-Stock Revenue recognition based on results analysis. Reserves for imminent loss and unrealized costs cancelled. Reserves for warranty costs remain. Work-in-process cancelled. Value of scrap determined. Value of variances calculated, assigned to categories (price, variance, resource usage, etc.), and settled to CO-PA. Work-in-process cancelled. Value of scrap determined. Value of variances calculated, assigned to categories (price, variance, resource usage, etc.) and settled to CO-PA. Variances and Scrap 2013 SAP AG. All rights reserved. 15

17 Plan-to-Manufacture Costing Run Master Data (Bill of Material, Routing, Work Center) Demand Creation and Planning Convert to Planned Convert to Goods Issues Confirmation Goods Receipts Settlement/ Costing Run Costing Run Alternative Valuation Run Determine price differences for each raw material (via purchasing) and each manufactured product, and assign differences to inventory and cost of goods sold Perform alternative valuations to take account of balance sheet valuation methods, such as FIFO, LIFO, lowest value, etc., and of alternative activity rates or to smooth out periodic price differences Material price analysis via material ledger Costing run for revaluation of inventory 2013 SAP AG. All rights reserved. 16

18 Summary: Controlling Objects in Product Costing MTS (Discrete) MTS (Repetitive) MTS (Process) MTO (Valuated) ETO (Valuated) Characterized by Standard product, production by period Standard product, continuous production Standard product/coproduct, batch production Product with selectable options by the customer Product engineered for customer needs Standard cost Standard BOM and routing Standard BOM and routing Standard BOM and routing Use of variant configuration Use of project for budget and operations Cost object order Product cost collector and cost object hierarchy Process order order created by sales order item Project (WBS elements, networks) created by sales order item Work in process (WIP) Debits (resources) minus credits (finished goods), balance is WIP Backflushing (debits and credits posted simultaneously), no WIP balance Debits (resources) minus credits (finished goods), balance is WIP Debits (resources) minus credits (finished goods), balance is WIP Results analysis calculation (methods include percent complete, earned value) Finished goods received into Unrestricted inventory Unrestricted inventory Unrestricted inventory Sales order stock for a customer To project stock for a customer 2013 SAP AG. All rights reserved. 17

19 Introduction to the Example

20 Make-to-Stock Manufacturing Example Music Player No Configuration Options Music Player Components In the Bill of Material Tasks In the Routing Overhead Rates Back Panel $25 Setup Hours $20 Material OH 25% Front Panel $25 Labor Hours $20 Labor OH 25% Internal Drive $70 Machine Hours $25 Machine OH 75% Admin OH 25% Total Standard Cost: $500 Total Material Cost: $120 Total Activity Cost: $180 Total Overhead Cost: $ SAP AG. All rights reserved. 19

21 Make-to-Stock Sample Scenario Make-to-stock scenario One production order Four overhead cost centers Assumes standard cost in place for product What is covered? Financials postings of each manufacturing step FI postings Balance sheet P&L CO postings Cost elements Controlling objects 2013 SAP AG. All rights reserved. 20

22 Steps in the Manufacturing Process with the Associated Financial Postings Period postings Posting to cost centers Raw materials issued from inventory to the production order Activities allocated from the production cost center to the production order Finished goods are received into inventory from the production order Month-end postings Apply overhead from the manufacturing cost center to the production order Calculate work-in-process for the production order Post cost center variances Calculate production order variances Run settlement to post WIP and variances of the production order to the G/L General Ledger Accounts (FI) Balance Sheet/Profit and Loss Statement Secondary Cost Elements Tracking Transfers Between Controlling (CO) Objects Controlling Objects (CO) Cost Centers/ s for Make-to-Stock 2013 SAP AG. All rights reserved. 21

23 Organization of the Sample Scenario in This Session General Ledger Accounts (FI) B/S P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) 2013 SAP AG. All rights reserved. 22

24 Value Flow Product Costs in Period 1

25 Steps in the Manufacturing Process Period Postings A. Posting to cost centers 1. Posting costs to service/administrative cost centers 2. Allocating from service/administrative cost centers to production overhead cost centers 3. Posting of costs to the production cost center B. Raw materials issued from inventory to the production order C. Activities allocated from the production cost center to the production order 1. Setup labor hours 2. Labor hours 3. Machine hours E. Finished goods are received into inventory from the production order (Period 2 only) General Ledger Accounts (FI) Balance Sheet/Profit and Loss Statement Secondary Cost Elements Tracking Transfers Between Controlling (CO) Objects Controlling Objects (CO) Cost Centers/ s for Make-to-Stock 2013 SAP AG. All rights reserved. 24

26 A-1: Posting Costs to Service/Administrative Cost Centers A-1 Direct postings Cost Center General Ledger Accounts (FI) B/S A/P A P&L (Primary Cost Elements) Salary Exp A Controlling Objects (CO) Secondary Cost Elements (CO) Utilities CCtr A SAP AG. All rights reserved. 25

27 A-2: Allocating Costs to Overhead Cost Centers General Ledger Accounts (FI) A B/S Cost Center Allocations from cost centers Overhead P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) Utilities CCtr A Mat'l OH CCtr A Mach OH CCtr A Labor OH CCtr A Mfg Admin OH CCtr A Utilities Assessment A A SAP AG. All rights reserved. 26

28 A-3: Posting of Costs to the Cost Center General Ledger Accounts (FI) A-3 Direct postings Cost Center B/S A/P A P&L (Primary Cost Elements) Salary Exp A Controlling Objects (CO) Secondary Cost Elements (CO) CCtr A SAP AG. All rights reserved. 27

29 B: Raw Materials Issued from Inventory to the Raw Materials Inventory B Issue Raw Material to General Ledger Accounts (FI) B/S Raw Mat'l Inv B 120 P&L (Primary Cost Elements) Raw Mat'l Consum B 120 Controlling Objects (CO) Secondary Cost Elements (CO) B 120 xxxxxxxxx Raw Material 2013 SAP AG. All rights reserved. 28

30 C-1: Activities Allocated from Cost Center to (Setup Labor Hours) Activity (Setup) confirmation Cost Center C-1 General Ledger Accounts (FI) B/S P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) CCtr C-1 20 C-1 20 xxxxxxxxx Setup hours Setup Hours C-1 20 C SAP AG. All rights reserved. 29

31 C-2: Activities Allocated from Cost Center to (Labor Hours) Activity (Labor) confirmation Cost Center C-2 General Ledger Accounts (FI) B/S P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) CCtr C-2 40 C-2 40 xxxxxxxxx Labor hours Labor Hours C-2 40 C SAP AG. All rights reserved. 30

32 C-3: Activities Allocated from Cost Center to (Machine Hours) Cost Center Activity (Machine) confirmation C-3 General Ledger Accounts (FI) B/S P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) CCtr C-3 60 xxxxxxxxx C-3 60 Machine hours Machine Hours C-3 60 C SAP AG. All rights reserved. 31

33 Period 1 Postings Prior to Month-End (Process Steps) A Direct Postings A Cost Center Allocations from Cost Centers Overhead A-3 Direct postings Cost Center C-1 C-2 C-3 Raw Materials Inventory B Issue raw material to order Activity (Setup) confirmation Activity (Labor) confirmation Activity (Machine) confirmation 2013 SAP AG. All rights reserved. 32

34 Value Flow Month-End Postings for Period 1

35 Steps in the Manufacturing Process Month-End Postings F. Apply overhead from the manufacturing cost center to the production order 1. Apply material overhead 2. Apply machine overhead 3. Apply labor overhead 4. Apply administrative overhead G. Calculate work-in-process for the production order 1. Calculate WIP for open production order (Period 1 posted at settlement) 2. Cancel WIP for confirmed production order (Period 2 posted at settlement) S. Post cost center variances (manual clearing) T. Calculate production order variances for confirmed production order (posted at settlement) Run settlement of production order (posts WIP, variances) General Ledger Accounts (FI) Balance Sheet/Profit and Loss Statement Secondary Cost Elements Tracking Transfers Between Controlling (CO) Objects Controlling Objects (CO) Cost Centers/ s for Make-to-Stock 2013 SAP AG. All rights reserved. 34

36 F-1: Apply Overhead from Manufacturing Cost Center to (Material OH) Overhead General Ledger Accounts (FI) B/S F-1 Material OH Allocation Controlling Objects (CO) P&L (Primary Cost Elements) Secondary Cost Elements (CO) Mat'l OH CCtr F-1 30 F-1 30 xxxxxxxxx Material OH Material OH F-1 30 F SAP AG. All rights reserved. 35

37 F-2: Apply Overhead from Manufacturing Cost Center to (Machine OH) Overhead General Ledger Accounts (FI) B/S F-2 Machine OH Allocation P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) Mach OH CCtr F-2 45 F-2 45 xxxxxxxxx Machine OH Machine OH F-2 45 F SAP AG. All rights reserved. 36

38 F-3: Apply Overhead from Manufacturing Cost Center to (Labor OH) Overhead General Ledger Accounts (FI) B/S F-3 Labor OH Allocation P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) Labor OH CCtr F-3 15 xxxxxxxxx F-3 15 Labor OH Labor OH F-3 15 F SAP AG. All rights reserved. 37

39 F-4: Apply Overhead from Manufacturing Cost Center to (Admin OH) Overhead General Ledger Accounts (FI) B/S F-4 Admin OH Allocation P&L (Primary Cost Elements) Controlling Objects (CO) Secondary Cost Elements (CO) Mfg Admin OH CCtr F-4 60 F-4 60 xxxxxxxxx Admin OH Admin OH F-4 60 F SAP AG. All rights reserved. 38

40 G: Calculate WIP for Open Calculate WIP G-1 Work-in-Process Secondary Cost Elements (CO) Results Analysis RA - Valuated G RA - Material G G-1 RA - Calculated RA - Machine G-1 60 Controlling Objects (CO) xxxxxxxxx B 120 Raw material C-1 20 Setup hours C-2 40 Labor hours C-3 60 Machine hours F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH RA - Labor G-1 40 RA - OH Material G-1 30 RA - OH Labor G-1 15 RA - Setup G-1 20 RA - OH Machine G-1 45 RA - OH Admin G SAP AG. All rights reserved. 39

41 Run Settlement of (Posts Work-in-Process) General Ledger Accounts (FI) Calculate WIP G-1 Work-in-Process B/S WIP Inventory G1 390 P&L (Not Cost Elements) WIP Offset G1 390 Controlling Objects (CO) xxxxxxxxx B 120 Raw material C-1 20 Setup hours C-2 40 Labor hours C-3 60 Machine hours F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH Secondary Cost Elements (CO) 2013 SAP AG. All rights reserved. 40

42 S-1: Post Cost Center Variances Material OH (Manual Clearing) General Ledger Accounts (FI) Material CC variances Overhead S-1 Controlling Objects (CO) P&L (Not Cost Elements) OHCCtr Vars S P&L (Primary Cost Elements) OHCCtr Offset S Secondary Cost Elements (CO) Mat'l OH CCtr S SAP AG. All rights reserved. 41

43 S-2: Post Cost Center Variances Machine OH (Manual Clearing) General Ledger Accounts (FI) Machine CC variances Overhead S-1 Controlling Objects (CO) P&L (Not Cost Elements) OHCCtr Vars S P&L (Primary Cost Elements) OHCCtr Offset S Secondary Cost Elements (CO) Mach OH CCtr S SAP AG. All rights reserved. 42

44 S-3: Post Cost Center Variances Labor OH (Manual Clearing) General Ledger Accounts (FI) Labor CC variances Overhead S-1 Controlling Objects (CO) P&L (Not Cost Elements) OHCCtr Vars S P&L (Primary Cost Elements) OHCCtr Offset S Secondary Cost Elements (CO) Labor OH CCtr S SAP AG. All rights reserved. 43

45 S-4: Post Cost Center Variances Admin OH (Manual Clearing) General Ledger Accounts (FI) Admin CC variances Overhead S-1 Controlling Objects (CO) P&L (Not Cost Elements) OHCCtr Vars S P&L (Primary Cost Elements) OHCCtr Offset S Secondary Cost Elements (CO) Mfg Admin OH CCtr S SAP AG. All rights reserved. 44

46 S-5: Post Cost Center Variances (Manual Clearing) General Ledger Accounts (FI) P&L (Not Cost Elements) Cost Center Cost Center Variances S-5 ProdCCtr Vars S P&L (Primary Cost Elements) ProdCCtr Offset S Controlling Objects (CO) Secondary Cost Elements (CO) CCtr S SAP AG. All rights reserved. 45

47 Period 1 Postings After Month-End (Process Steps) A-1 Direct postings Cost Center Raw Materials Inventory A-2 Allocations from cost centers B F-4 F-3 F-2 F Overhead Admin OH allocation Machine OH allocation Labor OH allocation Material OH allocation Cost center variances Cost center variances Cost center variances Cost center variances A-3 Direct postings Activity (Setup) confirmation S Cost Center S-2 S-3 S-4 C-1 C-2 C-3 Activity (Labor) confirmation Activity (Machine) confirmation Cost center variances S-5 Issue raw material to order Calculate WIP G-1 Work-in-Process 2013 SAP AG. All rights reserved. 46

48 Period 1 Postings After Month-End (FI) General Ledger Accounts (FI) B/S Raw Mat'l Inv. A/P WIP Inventory Period 1 B 120 A G1 390 A P&L Salary Exp Raw Mat'l Consum WIP Offset * Period 1 A B 120 G1 390 A ProdCCtr Offset ProdCCtr Vars OHCCtr Offset OHCCtr Vars * * Period 1 S S S S S S S S S S * Not a cost element 2013 SAP AG. All rights reserved. 47

49 Period 1 Postings After Month-End (CO) Controlling Objects (CO) Utilities CCtr Mat'l OH CCtr Mach OH CCtr Labor OH CCtr Mfg Admin OH CCtr Period 1 A A A A A A F-1 30 F-2 45 F-3 15 F-4 60 S S S S CCtr xxxxxxxxx Period 1 A B 120 Raw material C-1 20 C-1 20 Setup hours C-2 40 C-2 40 Labor hours C-3 60 C-3 60 Machine hours S F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH 2013 SAP AG. All rights reserved. 48

50 Value Flow Postings for Period 2

51 Steps in the Manufacturing Process Period Postings (Period 2) A. Posting to cost centers 1. Posting costs to service/administrative cost centers 2. Allocating from service/administrative cost centers to production overhead cost centers 3. Posting of costs to the production cost center B. Raw materials issued from inventory to the production order C. Activities allocated from the production cost center to the production order 1. Setup labor hours 2. Labor hours 3. Machine hours E. Finished goods are received into inventory from the production order (Period 2 only) General Ledger Accounts (FI) Balance Sheet/Profit and Loss Statement Secondary Cost Elements Tracking Transfers Between Controlling (CO) Objects Controlling Objects (CO) Cost Centers/ s for Make-to-Stock 2013 SAP AG. All rights reserved. 50

52 E: Finished Goods Are Received into Inventory from the General Ledger Accounts (FI) Finished Goods Inventory E Receive finished goods into inventory B/S Fin Gds Inv E 500 P&L (Primary Cost Elements) Mfg Output - Std E 500 Controlling Objects (CO) Secondary Cost Elements (CO) E xxxxxxxxx 500 Receive fin goods 2013 SAP AG. All rights reserved. 51

53 Period 2 Postings Before Month-End (FI) General Ledger Accounts (FI) B/S Raw Mat'l Inv. A/P WIP Inventory Period 1 B 120 A G1 390 A Period 2 B 50 A A P&L Salary Exp Raw Mat'l Consum Period 1 A B 120 A Period 2 A B 50 A WIP Offset ProdCCtr Offset ProdCCtr Vars OHCCtr Offset OHCCtr Vars * * * Period 1 G1 390 S S S S S S S S S S * Not a cost element 2013 SAP AG. All rights reserved. 52

54 Period 2 Postings Before Month-End (CO) Controlling Objects (CO) Utilities CCtr Mat'l OH CCtr Mach OH CCtr Labor OH CCtr Mfg Admin OH CCtr Period 1 A A A A A A F-1 30 F-2 45 F-3 15 F-4 60 S S S S Period 2 A A A A A A F F-2 45 F-3 15 F CCtr xxxxxxxxx Period 1 A B 120 Raw material C-1 20 C-1 20 Setup hours C-2 40 C-2 40 Labor hours C-3 60 C-3 60 Machine hours S F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH Period 2 A B 50 Raw material C-2 60 C-2 60 Labor hours C-3 60 C-3 60 Machine hours E 500 Receive fin goods F Material OH F-2 45 Machine OH F-3 15 Labor OH F Admin OH 2013 SAP AG. All rights reserved. 53

55 Steps in the Manufacturing Process Month-End Postings (Period 2) F. Apply overhead from the manufacturing cost center to the production order 1. Apply material overhead 2. Apply machine overhead 3. Apply labor overhead 4. Apply administrative overhead G. Calculate work-in-process for the production order 1. Calculate WIP for open production order (Period 1 posted at settlement) 2. Cancel WIP for confirmed production order (Period 2 posted at settlement) S. Post cost center variances (manual clearing) T. Calculate production order variances for confirmed production order (posted at settlement) Run settlement of production order (posts WIP, variances) General Ledger Accounts (FI) Balance Sheet/Profit and Loss Statement Secondary Cost Elements Tracking Transfers Between Controlling (CO) Objects Controlling Objects (CO) Cost Centers/ s for Make-to-Stock 2013 SAP AG. All rights reserved. 54

56 G: Cancel WIP for Open Secondary Cost Elements (CO) Results Analysis Work in Process Cancel WIP G-2 Controlling Objects (CO) xxxxxxxxx B 120 Raw material C-1 20 Set-up hours C-2 40 Labor hours C-3 60 Machine hours F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH RA - Valuated G RA - Material G RA - Labor G-2 40 RA - OH Material G-2 30 G-2 RA - Calculated RA - Machine G-2 60 RA - Setup G-2 20 RA - OH Machine G-2 45 B 50 Raw material C-2 60 Labor hours C-3 60 Machine hours RA - OH Labor G-2 15 RA - OH Admin G-2 60 E 500 Receive fin goods F Material OH F-2 45 Machine OH F-3 15 Labor OH 2013 SAP AG. All F-4 rights reserved Admin OH 55

57 T: Calculate Variances for Confirmed Controlling Objects (CO) xxxxxxxxx B 120 Raw material C-1 20 Setup hours C-2 40 Labor hours C-3 60 Machine hours F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH B 50 Raw material C-2 60 Labor hours C-3 60 Machine hours E 500 Receive fin goods F Material OH F-2 45 Machine OH F-3 15 Labor OH F Admin OH Calculation of Variances Variances: ProdOrd Costs vs. Std. Cost E Standard Cost T Prod. Ord. Variances Material 120 Qty - Matl 50 Setup 20 Qty - Setup 0 Labor 60 Qty - Lab 20 Machine 100 Qty - Mch 40 OH Mat 3025% Inpt - Matl 12.5 OH Mach 7575% Inpt - Mch 15 OH Labor 2025% Inpt - Lab 10 OH Admin 7525% Inpt - Adm 27.5 Total Std 500 Total Vars SAP AG. All rights reserved. 56

58 Run Settlement of (Posts Work-in-Process and Variances) General Ledger Accounts (FI) Manufacturing variances T B/S P&L (Primary Cost Elements/ *Not Cost Elements) WIP Offset * G2 390 WIP Inventory G2 390 Mfg. Output - Var T 175 Variance * T 175 Controlling Objects (CO) Secondary Cost Elements (CO) T xxxxxxxxx 175 Settle variances 2013 SAP AG. All rights reserved. 57

59 Period 2 Postings After Month-End (Process Steps) A-1 Direct postings Cost Center Raw Materials Inventory Finished Goods Inventory A-2 Allocations from cost centers E B F-4 F-3 F-2 F-1 Receive finished goods into inventory Overhead Activity (Setup) confirmation Work-in-Process Cost Center Activity (Labor) confirmation Activity (Machine) confirmation 2013 SAP AG. All rights reserved. 58 A-3 Admin OH allocation Machine OH allocation Labor OH allocation Material OH allocation Issue raw material to order Calculate WIP G-1 Cost center variances Cost center variances Cost center variances Cost center variances Direct postings S-2 S-1 S-3 S-4 C-1 C-2 C-3 Cancel WIP G-2 Cost center variances Manufacturing variances S-5 T

60 Period 2 Postings After Month-End (FI) General Ledger Accounts (FI) Raw Mat'l Inv. Fin Gds Inv. A/P WIP Inventory B/S Period 1 B 120 A G1 390 A Period 2 B 50 E 500 A G2 390 A P&L Salary Exp ProdCCtr Offset ProdCCtr Vars OHCCtr Offset OHCCtr Vars * * Period 1 A S S S S A S S S S S S Period 2 A S S S S A S S S S S S Raw Mat'l Consum Mfg Output - Std Mfg. Output - Var Variance WIP Offset * * Period 1 B 120 G1 390 Period 2 B 50 E 500 T 175 T 175 G2 390 * Not a cost element 2013 SAP AG. All rights reserved. 59

61 Period 2 Postings After Month-End (CO) Controlling Objects (CO) Utilities CCtr Mat'l OH CCtr Mach OH CCtr Labor OH CCtr Mfg Admin OH CCtr Period 1 A A A A A A F-1 30 F-2 45 F-3 15 F-4 60 S S S S Period 2 A A A A A A F F-2 45 F-3 15 F S S S S CCtr xxxxxxxxx Period 1 A B 120 Raw material C-1 20 C-1 20 Setup hours C-2 40 C-2 40 Labor hours C-3 60 C-3 60 Machine hours S F-1 30 Material OH F-2 45 Machine OH F-3 15 Labor OH F-4 60 Admin OH Period 2 A B 50 Raw material C-2 60 C-2 60 Labor hours C-3 60 C-3 60 Machine hours S E 500 Receive fin goods F Material OH F-2 45 Machine OH F-3 15 Labor OH F Admin OH T 175 Settle variances 2013 SAP AG. All rights reserved. 60

62 Wrap-Up

63 What Happens Next? X: Finished Goods Are Delivered to Customer Finished Goods Inventory X Deliver finished goods Sales General Ledger Accounts (FI) B/S P&L (Primary Cost Elements/ *Not Cost Elements) X 500 Cost of Goods Sold * Fin Gds Inv X 500 Controlling Objects (CO) Secondary Cost Elements (CO) 2013 SAP AG. All rights reserved. 62

64 Y: Customer Is Invoiced General Ledger Accounts (FI) Sales Sales Y Invoice Customer A/R B/S Y 750 P&L (Primary Cost Elements/ *Not Cost Elements) Sales Discounts Revenue * * Y 800 Y 50 Controlling Objects (CO) Secondary Cost Elements (CO) 2013 SAP AG. All rights reserved. 63

65 Summary Benefits Integrated process Financial and controlling processes automatically follow with logistics processes Detailed analysis of production costs, WIP, and variances Follows controlling concept of analyzing details in management accounting, not in the G/L 2013 SAP AG. All rights reserved. 64

66 Where to Find More Information: Books R/3 Simplification Group, SAP Labs, Inc., Product Costing Scenarios Made Easy 3.x 4.x (Dallas, TX: Johnson Printing Service, 1999). Currently out of print, used copies sometimes occasionally available on Amazon.com Janet Salmon, Controlling with SAP Practical Guide (SAP PRESS, August 2011). Birgit Starmanns, Elizabeth Milne, and James Fisher, Accelerated Financial Closing with SAP (SAP PRESS, expected Summer 2013) SAP AG. All rights reserved. 65

67 Where to Find More Information: Web, Social Media CFO and Finance Leader Center: sap.com: Subscribe to our monthly newsletter: You can also follow us on: list=pl4474c3d66b0f41bf community/epm community/erp/financials 2013 SAP AG. All rights reserved. 66

68 7 Key Points to Take Home Costing support for all manufacturing strategies (make-to-stock, make-to-order, assemble-toorder, repetitive, process, engineer-to-order, etc.) provides flexibility for all types of manufacturing requirements Understanding the big picture, integrated view ensures an accurate reconciliation of manufacturing costs with financial statements Product costing is integrated into the SAP ERP environment, so postings that occur in logistics (sales, manufacturing, etc.) are immediately reflected in accounting Postings to the P&L, for primary cost elements, reflect actual expenses incurred in the manufacturing process Management accounting and postings to secondary cost elements allow companies to track costs as they flow through various controlling objects in the manufacturing process Month-end processes are in place to ensure compliance with financial reporting regulations, while maintaining the management view of the manufacturing process SAP continues to work on enhancements for inventory valuation to support changing legal requirements and evolving corporate requirements 2013 SAP AG. All rights reserved. 67

69 Thank you Birgit Starmanns Senior Director SAP Marketing, Finance Solutions SAP 3412 Hillview Avenue Palo Alto, CA E birgit.starmanns@sap.com

70 2013 SAP AG. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by SAP AG and its affiliated companies ("SAP Group") for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries. Please see for additional trademark information and notices SAP AG. All rights reserved. 69