Tuesday, April 23, 2013

Understanding Results Analysis for WIP



Understanding Results Analysis Key for Calculating WIP
Introduction and Configuration Guide

Work in process (WIP) inventory forms a part of the working capital or current assets of a firm appearing in their balance sheet. Work in process or progress  are  partially completed goods, parts, or subassemblies that are no longer part of the raw materials inventory and not yet part of the finished products inventory. Fundamental Principle of International Accounting Standard 2 states that Inventories are required to be stated at the lower of cost and net realisable value (NRV).  
 The guidance on measurement of cost of inventories is that, cost should include all:
 a)     costs of purchase (including taxes, transport, and handling) net of trade discounts received
 b)     costs of conversion (including fixed and variable manufacturing overheads) and
 c)     other costs incurred in bringing the inventories to their present location and condition
With SAP, the raw materials gets transferred to finished goods via production orders or process order. In this process, typically, the production order is created to which raw materials are issued, all activities performed in the process are charged along with any overheads that is apporopriate the production order.  Production is ongoing, and it is quite natural that at month end, we end up with some open production orders. SAP in its product costing functionality, provides the feature to calculate the value of WIP. This will be derived based on the careful definition of Line IDs in line with the cost components. The WIP shall be the total debits cost in the order as reduced by the credits for goods receipt.

Key elements of WIP Results Analysis Configuration.

Step 1         Define Results Analysis Key OKG1.
Here you just give a name, four letter key with its description.
Step 2         Create cost elements of type 31 the following minimum
        1.  Valuated Actual cost, say for eg. 990001.
        2. Calculated Costs, say 990002.
        3. WIP account 990003
        4. WIP Reserve 990004
        5. WIP Reserve 990005

Step 3         Define RA version, OKG9, Enable Transfer to Financial Accounting (checkbox)
Under extended control, you may enable checkboxes relating to  
 
  • Generate line items
  • Assignment/RAkey
  • Update / RAkeyEnter the cutoff period for actual RA/WIP, the effective date before which any WIP data if existed, will not be altered.
Step 4         In OKGC, define the valuation method for WIP.
Here, you specify that WIP calculation mode is one when the order has the staus REL.
The calculated WIP shall be cancelled when the order status changes to DLV or TECO. You maintain this data for CO area, RA version and RA key combination.

Step 5        SPRO>Controlling>Product Cost Controlling>Cost Object Controlling>Product cost by order>Period End Closing>Work in process>Define Line IDs.
The line IDs are similar to cost component, that you create during cost estimates like a) 010 for Material b) 020 for Labor and c) 030 for Overhead to say the least. 
Besides these, create one more line ID say 999 for the Settled Cost, which appear as credit when you make a goods receipt.
                 
Create additional WIP type 31 cost elements and their corresponding Reserve account for the above#### WIP Material 990006
        1. WIP Material Reserve 990007
        2. WIP Labor 990008
        3. WIP Labor Reserve 990009
        4. WIP Overhead 990010
        5. WIP Overhead Reserve 990011  
Step 6        Now you assign the source cost elements OKGB, that are expected in the production order to various line ID as created above.
You maintain this data for CO area, RA version and RA key combination.  You use masking when you mention which cost element to be assigned to various IDs. You can also direct various cost element, if it comes with a combination of particular cost center and activity type  to a particular Line ID. If you need to keep it simple, just enter +++++++ for cost centers, activity types and Business processes. Cost elements can be masked as follows; for eg. All cost primray cost elements for materials, if they start from 210001 to 219999, the you can mask them like 00021+++++.   Give the line ID in the column Required to Capitailze.

Step 7       Define the update. OKGA You maintain this data for CO area, RA version and RA key combination.
Here you specify which line IDs are to be grouped under which cost elements and their reserve account. You connect the cost elements created in step 5 to the line IDs. The category for the line IDs for material, labor and overhead shall be K, that stand for cost. The line ID 999 settled cost shall be maintained as category A,  (settled cost). When you assign A, you won't have to maintain any cost elements for WIP and reserve creation.

Step 8       Define posting rules for WIP calculation OKG8
You do this for Controlling area, company code, RA version. Maintain this for RA category WIPR (WIP cost, Required to be capitalized) and RUCR (Reserve for unrealized cost).  You maintain the P& L account (changes to stock)  and the balance sheet (WIP)account.These G/L accounts are posted in Financial Accounting.


Step 9        Ensure number range assignment for the WIP transactions under appropriate head OKG6:
KABG Automat. WIP/results analysis
KABM Manual WIP/results analysis
KSWP Prim. Target Cost Calc. (WIP)
KSWS Sec. Target Cost Calc. (WIP)

Period end WIP calculation Process
The process of running WIP is the t-code KKAX for individual order processing  and KKAO for collective order processing. The system debits the WIP account and credits Inventory Change account. This entire WIP is reversed and a new entry is passed the following month. When the order is fully delivered no additional WIP entries are passed.
Note:
The RA Key shall be entered in the production order, under the control tab. This can be defaulted through order type.

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