Outlining the MTS Production Process Steps

In product manufacturing, you want to know the different steps of a make-to-stock (MTS) scenario for a lot-based production. You want to cover the most common case to get introduced to Production Accounting’s process. You are also interested in outlining how the quantity structure is derived from bills of material (BOMs) and routings. You decide to use production orders as the cost objects.

See how a bike is manufactured following the discrete industry approach, from creating a production order through component assembly and inspection until receiving the manufactured bike in stock. Understand the underlying impacts from a controlling perspective.

You need to know how the production in a lot-based environment is organized, for a production order (similar for a process order).

Remember that the purpose is to manufacture materials (framesets for bikes) to be stored in anonymous stock (make-to-stock (MTS) scenario). The materials are produced through a production order for a certain production lot size. Here, you work with discrete manufacturing.

If you want to know more about the production side of this production process: Discovering the Basics of SAP S/4HANA Manufacturing

Different types of movement can directly impact postings in real-time on production orders:

• Direct financial accounting posting,
• Goods movements from inventory management (material staging when preparing the components to be used in the production flow, goods receipt, or goods issue),
• Confirmations in production planning (confirmation in quantities of production activities).

In the case of settlement based on business events, each of these movements is completed by automatic posting,through a settlement rule,in order to valuate real-time impacts on overhead, WIP, and finally variance calculation.

Let’s take the example of one production order to outline the different steps and posting impacts.

In order to follow at the order level, you can use the product cost by order method of analysis. You would go through the following different steps:

• Calculate the planned costs of the material. You do this by creating a cost estimate with a quantity structure.
• Create a production order with a quantity structure (BOM, routing). Its status is created. There is no actual posting yet on it.
• When the order is saved or released, you can already calculate a preliminary cost estimate using the order's quantity structure. It is used to calculate the planned costs for the order.
• Enter actual costs for the order. You can only post actual costs once the order is released. Actual costs arise when materials are withdrawn from the stock for the order or when production activities are performed and confirmed. In the first case, these movements are issued to the production order, meaning they reduce inventory and increase the production order's material costs. In the second circumstance, the cost center, which represents analytically the work center where the operation is realized and confirmed, is reduced, and the order is increased.
• Enter finished goods receipt. As soon as you confirm the last operation of your routing for some framesets and thus post the receipt of the goods, costs are passed on to stock. This goods movement is valued with a preliminary price (normally the standard price). The order is credited, and it debits inventory with the standard price of the finished goods. It can be a partial or final goods receipt. The order’s status will be set accordingly until the technically completed status.

With scope item 3F0: Event-Based Production Cost Posting (recommended), for calculation of production costs, at each business event (production activities like goods movement, activity confirmation, and goods receipts), you will get the automated postings of overhead, WIP, and, later, variance values. No period-end activities are needed. Impacts on reporting are immediate through market segments in margin analysis.

• Overhead costs are calculated and posted based on the different costs that are collected (such as production activities or goods movements) for the production order.
• WIP is calculated for partially completed production orders. It records the value of incomplete production as an asset, as long as the last bike hasn’t been confirmed and sent to stock.
• Variances between actual and standard costs are then calculated when the whole order quantity has been finished. When the order settlement is automatically triggered, settlement postings clear the production order and transfer costs to inventory or cost of goods sold.

A variety of apps are provided for these different steps, assigned to the SAP standard role SAP_BR_PRODN_ACCOUNTANT.

Monitoring:

• F6248 Production Cost Overview - Event-Based
• F5133 Event-Based Solution Monitor - Product Costing

Order analysis:

• F4059 Analyze Production Costs - Event-Based
• F3331 Analyze Costs by Work Center/Operation
• F4254 Order Costs Details - Event-Based
• F7311 Production Cost Summarization - Event-Based
• F3498 Work in Process - Event-Based

Postprocess and error handling:

• F5132 Manage Event-Based Posting Errors - Product Costing
• F3669 Postprocess Event-Based Posting - Product Costing
• F5763 Postprocess Event-Based Postings - Overhead Calculation