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Changing the WIP Calculation Basis on Manufacturing Orders

by Paul Ovigele

August 7, 2011

Paul Ovigele, Ovigele Consulting

If you use the Cost Object Controlling submodule of Product Cost Controlling then you probably calculate Work-in-Process (WIP) on a periodic basis. WIP basically takes the difference between the debits and credits (if any) on an incomplete order and books the balance to a balance sheet account and an offsetting profit and loss account. I have used the term “Manufacturing Orders as a generic term that encompasses the different types of cost objects used in manufacturing such as production orders, process orders, cost collectors, etc. The standard logic for WIP calculation (using a “Product Cost by Order Scenario”) is as follows:

Status

Status Description

System Action

PREL

Partially released

WIP is calculated on the basis of actual costs

REL

Relea sed

WIP is calculated on the basis of actual costs

DLV

Delivered

WIP is canceled and a variance is calculated

TECO

Technically completed

WIP is canceled and a variance is calculated

The above statuses are set on the manufacturing order at certain points during the production process. As shown, WIP is only calculated when an order has a status of (PREL) partially released or released (REL), otherwise a variance is calculated. Some companies however, want to have more control over the calculation of variances and therefore only want a variance calculation to take place when an order is set to the status TECO (technically complete). In order to achieve this you would therefore need to change the system action of the status DLV (delivered) so that WIP is calculated instead of a variance. To do this you need to go to transaction OKG3 or via the following menu path:

Controlling -> Product Cost Controlling -> Product Cost by Order -> Period End Closing -> Period End Closing -> Work in Process -> Define Valuation Method (Actual Cost).

Note however, that a limitation of the above IMG menu path is that you cannot drill into the different lines. You should therefore use the transaction code instead. You then see will see the screen “Change View “Simplified Maintenance of Valuation Methods”: Overview. Locate the relevant results analysis key for WIP calculation (the standard “product cost by order” results analysis key is: “000002 – WIP Calculation at Actual Costs”, but this could vary depending on the setup in your company so make sure you us the correct RA key that is linked to your order type - see transaction OKZ3). Double-click on relevant line (make sure you activate the “Expert Mode” indicator” if it is not active) and you will be taken to the screen “Change View Valuation Methods: Overview”, where you will see the four statuses mentioned above, assigned to the RA Key. Double-click on the line that has status DLV and you will be taken to the screen “Change View Valuation Methods: Details”. Go to the “RA Type” field in this screen and change it from “Z - Cancel Data of WIP Calculation and Results Analysis” to “F - WIP Calculation on Basis of Actual Costs” and save your settings. You will then be able to calculate WIP on manufacturing orders that have a status of DLV and only calculate variances on orders with a status of TECO.

For more infrormation on how to optimize your SAP Financials landscape, I've put together my top tips in the book 100 Things You Should Know About Financial Accounting with SAP  which is published by SAP Press:

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COMMENTS

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GeertP

10/28/2015 1:42:20 PM

Hello Paul, Same remark as Brad below. I managed to suppress the error message 363 and to calculate the WIP amount. But when calculating the production variances, SAP calculated variances as well for the order because it was in status DLV. When posting the settlement, as well WIP as variance were posted. Do you have any further suggestions? This is a requirement I regularly get from my customers. Regards, Geert.

BodineBrad

5/28/2015 7:48:41 AM

Hello Paul - I appreciate this informative article. We have a business requirement to post to WIP while the process order is in DLV status, and only settle the variance and final settlement at the TECO order status. I tried setting DLV status in OKG3 to "F - WIP Calculation on Basis of Actual Costs". However, when running the WIP Calculation, I still get the error message "363: Production Order has status DLV/TECO: Set "cancel WIP"". Do you have any further suggestions? Many thanks, Brad


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