Calculating Work in Process (WIP)

Calculation of WIP means valuating the unfinished goods. In the Product Cost by Period scenario, the system valuates the WIP at target cost. To do this, the difference of the confirmed actual quantities (including yield and scrap quantity) between an operation and the previous operation leads to the actual WIP quantity at the previous operation. The WIP quantity is multiplied with the calculated cost for all operations up to the operation, the WIP quantity has been calculated. In Customizing, you can use a valuation variant to define which cost estimate must be used to calculate the target costs for valuating WIP and the scrap. If you are using a product cost collector, in many cases it is appropriate to calculate the target costs using preliminary costing within the product cost collector. When you settle the WIP, the inventory for unfinished goods will be actualized in Financial Accounting (FI).

You specify a valuation variant to choose the cost estimate for valuating WIP and the scrap variances at target cost.

Target costs can be calculated on the basis of the following:

• Planned costs calculated in preliminary costing for the manufacturing order, or for the product cost collector
• Based on an alternative material cost estimate (such as a modified standard cost estimate or an actual cost estimate), defined with costing variant and costing version in the valuation variant (customizing)
• The current standard cost estimate, as released and updated in the material master of the product

Customizing – Assignment Table

You assign the following cost elements to line IDs:

• All cost elements with which an order is debited and credited.

• With WIP at target cost, all cost elements in the costing used for calculating target costs for valuating WIP (such as all cost elements listed in the preliminary cost estimate for the product cost collector).

  You can split the cost of each line item, which consists all cost of the assigned cost element into the following:

  • Required to be capitalized

  • Option to be capitalized

  • Cannot be capitalized

  Local accounting rules determine which splits for WIP cost are allowed or required.

  In the following customizing table, UPDATE, you can assign the line IDs and its assigned costs to different accrual cost elements for WIP - Reporting in CO.

You can mask your entries. The entry 941+++++ includes the cost elements from 94100000 to 94199999. If you want particular cost elements to be treated separately. The opportunity to mask depends on the Chart of Accounts.

Customizing – Update Table

With a results analysis category, you specify how the results analysis is handled, and the results analysis cost elements (type 31) posted on the cost object.

You must create line IDs of category K(costs) for valuation-relevant costs, such as direct material costs. Another line ID category, for example, is N, which relates to costs not to be included.

• Work in process involves valuating unfinished goods at target costs in the Product Cost by Period scenario.
• Work in process is calculated until the order status is delivered or technically completed.
• The system calculates Work in process by subtracting confirmed yield quantities between operations.
• Work in process quantity is multiplied by the calculated cost for all operations up to the current operation.
• Work in process is settled to Financial Accounting as inventory for unfinished goods.