Period-End Closing for Production Order in MTO Scenario

Objective

After completing this lesson, you will be able to calculate work in process and variances of production orders

Work in Process

The image depicts three columns representing different order statuses: Partially Released or Released (PREL), Partially Delivered (PDLV), and Delivered or Technically Completed (D-LV/TECO). Each column shows calculations related to actual costs, delivery value, work in progress at actual, and variances, visualizing different stages of order processing and cost tracking.

The system calculates WIP if the cost object does not have the Delivery Completed or Technically Completed status. Otherwise, the system calculates variances.

WIP – Product Cost by Order

The image depicts a flowchart illustrating the accounting process for a production order, including the debit and credit entries for various cost components such as material, labor, overhead, and inventory changes, as well as the integration with the financial accounting system and profit center in the general ledger.

If no goods receipt has been posted by period-end closing, the WIP represents the actual costs to date.

The system updates the financial accounts with the WIP when the order is settled.

If the amount for WIP is less than zero, the system will create reserves.

Variance Calculation

The image depicts a production order breakdown showing various cost components like material, internal activity, overhead, process, and their debit and credit values. It also shows the change in stock and variance amounts. This appears to be from an SAP product cost controlling module.

Variance calculation is an analysis tool for examining problematic variances more closely.

Production order variances result from either of the following:

Too many or too few costs debited
Too many or too few costs allocated

Variance Categories

The image displays diagrams explaining variances on the input and output sides of a process or calculation. It covers categories like input price, input quantity, resource usage, lot size, mixed price, output price, and remaining variances, illustrating potential sources of deviation from target values.

The system calculates the following variances based on the predefined variance:

Input price variance:
You enter raw material 1 in the standard cost estimate at EUR 10. You select the standard price in accordance with the valuation strategy. However, you valuate the goods movement with EUR 11 after issuing the material from stock. Hence, in accordance with price control, the moving average price is used for the valuation. This results in a price variance of EUR 1.
Input quantity variance:
You plan a machine time of 15 min. However, 17 min are confirmed. The activity price for the machine time is EUR 5/min. This results in a quantity variance of EUR 10.
Resource usage variance:
If you use raw material 2 instead of raw material 1, the system reports the costs for both raw material 1 and raw material 2 as resource-usage variances.
Input variance:
If you change the material price for raw material 1, the material overhead is higher than planned. The difference between the planned and actual material overheads is reported as an input variance.
Output price variance:
If you make a delivery to stock at a price that is not the standard price (such as the average moving price), the system reports the difference as an output price variance. This variance category can only apply to materials processed with a moving average price.
Remaining variance:
If the system cannot calculate any target costs, it reports only remaining variances.

Settlement

You can calculate variances that are relevant to settlement based on the cost estimate used for valuating the delivery to stock. If collective orders exist for a sales order, the delivery of semifinished products in the collective order is valuated using production order costing. Consequently, variance calculation requires information about whether the valuation is based on sales order costing, production order costing, or standard costing for the material. You can determine additional target cost versions for these variances for the information system. The variances appear only at production order level.

Variance calculation is not intended for sales order items.

How to Use Overhead and Template Allocation for Production Orders

DemoStart Demo

How to Calculate Work in Process and Production Order Variances

DemoStart Demo

Summary

Work in process is calculated when the order lacks the status delivered or technically completed.
Variances are calculated when the order has the status delivered or technically completed.
Variance categories on the input side are: input price variance, input quantity variance, resource usage variance and remaining variance.
Variance categories on the output side are: lot size variance, mixed price variance, output price variance and remaining variance.
Target costs for variances are based on the cost estimate used for valuating the sales order stock segment.

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