The change in stock for WIP is not created as a cost element
because the amount is not credited to production order when WIP is
created as it is a financial entry and the balance is already held
in the order. The COGM account is defined in GBB / VKA and it is
the account that should be credited when finished or semi finished
goods are received in stock from the order. The change in stock
account (BSV) is debited when the materials are issued to
production or cost center. The change in stock account for raw
materials is RM Consumption Account, for semi finished goods the
same may be defined in the following way.Strategy 1:Define 1 single
account as 'Increase / Decrease in SFG' and define it as COGM
account in GBB / VBO as well as change in stock account in
BSV.Strategy 2: Define 2 different accounts in GBB / VBO and BSV
and group them at one place in your financial statement version so
that the net change is always reported.Remember, WIP and Semi
finished goods are not same from SAP point of view. The COGM
account for WIP is maintained in OKG8 and do not create a cost
element for the same. For Finished Goods maintain COGM account in
GBB / VBO and nothing is to be maintained in BSV.I hope this
clarifies.ERP Post Implementation Challanges Part 1 Understanding
COGM, COGS, Price Difference & Closing Stock CalculationAuthor:
Ranjit Simon JohnAfter our Go-Live we had gone through various
tough stages while trying to stabilise the system.Major challenge
we faced was resistance from end users, lack of confidence on the
new system by the external and internal stake holders. Finally
after working so hard on the various points raised by the internal
as well as external team, we succeeded.In this blog I would like to
highlight the most important challenge we faced. Mainly they are
two in number;1) Clarity on COGM, COGS & Production Order Price
Difference general ledger accounts.2) Trying to equate the formula
Opening Stock + Receipt Issue = Closing Stock 1) COGM, COGS &
Production Order Price Difference general ledger accounts.Let us
start with COGM;There will be mainly two entries posted in Cost of
Goods Manufactured;1) During Production Order Confirmation2) During
Production Order Settlement First let me try to explain the GL
entries posted during various stages starting from Raw Material
receipt to Finished Good sales. The postings can be divided into
various Parts;Part 1: Raw Material Receipt Step 1: Raw Materials
are received. (Goods Receipt MIGO_GR)Part 2: Vendor PaymentStep 2:
Invoice ReceiptStep 3: Vendor PaymentPart 3: Raw Material Issue to
Production Step 4: Raw Material used for the production of
Semi-Finished Good 1Step 5: Semi Finished Good 1 used as raw
material for the production of Semi Finished Good 2Step 6: Semi
Finished Good 2 used for the production of Finished GoodPart 4:
Finished Good received in InventoryPart 4: Step 7: Finished Good
ReceiptPart 5: SalesStep 8: Sales DeliveryStep 9: Billing released
from AccountsStep 10: Customer PaymentPart 1: Raw Material Receipt
GL Entries during Step 1: Raw Materials are received at
InventoryDebitCredit
Stock of Raw MaterialXXX
Raw Material GR/IRXXX
Table 1.0Part 2: Vendor PaymentGL Entries during Step 2: Invoice
ReceiptDebitCredit
Raw Material GR/IRXXX
Vendor AccountXXX
Table 2.0GL Entries during Step 3: Vendor Payment
DebitCredit
Vendor AccountXXX
Bank AccountXXX
Table 3.0Part 3: Raw Material Issued to Production GL Entries
during Step 4: Raw Material used for the production of Semi
Finished Good 1DebitCredit
Raw Material ConsumptionXXX
Stock of Raw MaterialXXX
Stock of Semi Finished Good 1XXX
COGM of Semi Finished Good 1XXX
Table 4.0GL Entries during Step 5: Semi Finished Good 1 used as
raw material for the production of Semi Finished Good
2DebitCredit
Stock of Semi Finished Good 2XXX
COGM of Semi Finished Good 2XXX
COGM of Semi Finished Good 1XXX
Stock of Semi Finished Good 1XXX
Table 5.0GL Entries during Step 6: Semi Finished Good 2 used for
the production of Finished GoodDebitCredit
Stock of Finished GoodXXX
COGM of Finished GoodXXX
COGM of Semi Finished Good 2XXX
Stock of Semi FInished Good 2XXX
Table 6.0Part 4: Finished Good Received in InventoryGL Entries
during Step 7: Finished Good ReceiptDebitCredit
Stock of Finished GoodXXX
COGM of Finished GoodXXX
COGM of Semi Finished Good 2XXX
Stock of Semi FInished Good 2XXX
Table 7.0Part 5: Finished Good Sales GL Entries during Step 8:
Sales DeliveryDebitCredit
COGSXXX
Stock of Finished GoodXXX
Table 8.0Live posting example during sales delivery.
VL01N/VL02N.
GL Entries during Step 9: Billing released from
AccountsDebitCredit
Customer AccountXXX
Finished Good SalesXXX
Table 9.0Live posting example during sales invoice release from
accounts using VFX3.
GL Entries during Step 10: Customer PaymentDebitCredit
Bank AccountXXX
Customer AccountXXX
Table 10.0Now let us try to understand COGM, COGS and Production
Order Price Difference Accounts;Finished and Semi Finished Material
will be valuated at "Standard Price" for all COGM, COGS and Closing
Stock calculation.1.1) COGM: Cost of Goods ManufacturedTransactions
hitting COGM account are;a) Goods Producedb) Goods Issued to
Production Orderc) Reversal of Goods Producedd) Entries posted
during settlement of Production Orders ( Variance)I have broken
down the COGM entries for clear understanding. Please find the
below screen shots.
The above figure is divided into three sections;Section 1:
Materials ProducedSection 2: Materials IssuedSection 3: Production
Order SettlementThe below attached image shows how the Production
Order Settlement amount of 1,403,463.52 has been arrived.
If ML is not activated we will not be able to apportion the
total variance between stock, COGM and COGS. We follow the below
mentioned procedure to split the variance.
In the first column the total variance for each product has been
entered. Second column we enter the total quantity produced for the
material. So Total Variance / Production Quantity = Variance Per
Ton.You have the quantity for Closing Stcok, COGM and COGS of the
material. Multiply it with Variance per ton.Closing Stock Quantity
* Variance Per TonCOGM * variance Per TonCOGS * Variance Per
Ton1.1.a) Goods Produced:When a finished or semi finished good is
produced i.e after confirmation stock of the finished or semi
finished good will be Debited and cost of manufacturing the
finished or semi finished good will be Credited with document type
"WA". (Refer Table 6.0)Entires will be posted against the
particular material i.e with material number.Figure 1.01.1.b) Goods
Issued to Production Order:When a Semi finished good is issued
against a production order Stock of the semi finished good is
credited and cost of manufacturing the semi finished good is
debited with document type "WA". (Refer Table 6.0)Entires will be
posted against the particular material i.e with material number.
Figure 2.01.1.c) Reversal of Goods Produced:When a finished / semi
finished good "A" Quantity is produced at "X" rate and reversed "B"
Quantity at "Y" rate, the quantity will be reversed at "Y" rate and
the difference in price "X - Y" will be posted in Price Difference
and COGM account.GL entries posted will be;(For GL entries posted
when Raw Material is Issued to Production of Semi Finished Good
refer Table 4.0)DebitCredit
COGM of Semi Finished GoodXXX
Stock of Semi Finished GoodXXX
Stock of Raw MaterialXXX
Raw Material ConsumptionXXX
Production Order Price Diff AccountXXX
Table 11.01.1.d) Entries posted during settlement of Production
Orders ( Variance)During settlement of production order variance
will be posted to Production Order Price Diff Account and
COGMKIndly chek my blog "Understanding Production Order Variance
Part - 1 "
(http://scn.sap.com/community/erp/manufacturing-pp/blog/2012/03/13/understanding-production-order-variance--part-1).Note:
There is no hard and fast rule for analysing COGM. Analyse COGM
based on the analysis I have given above, if any other entries are
posted we have to analyse those entries one by one.Let me try to
explain COGM entry for one material.COGM entry posted for material
"FG1" is 27,134.90 AED.Let me explain the entries. "FG1" produced
is (Execute Transaction Code MB5B for movement type 101 + 102 )
28,507,148.10 AED."FG1" issued to production order is (Execute
Transaction Code MB5B for movement type 261 + 262 ) 28,480,013.2
AED.COGM -> 28,507,148.10 - 28,480,013.2 = 27,134.901.2) COGS:
Cost of Goods SoldFor calculating Cost of Goods Sold materials will
be va;luated at standard price maintained in the material master.
Execute Transaction Code MB51 for movement type 601 + 602. Also
consider price difference during sales reversal.Both the 601 &
602 values should match with COGS general ledger (If no price
diference for sales reversal is there).MB5B 601 + 602 Report
Figure 4.0FBL3N COGS Report
Figure 5.01.3) Production Order Price Difference AccountKIndly
chek my blog "Understanding Production Order Variance Part - 1 "
(http://scn.sap.com/community/erp/manufacturing-pp/blog/2012/03/13/understanding-production-order-variance--part-1).2.0)
Closing Stock:Formual for closing stock;( Opening Stock + Receipt )
- Issues = Closing Stocki.e Opening Stock + COGM = Closing Stock
But in most of the cases if we apply the formula the closing stock
will not match. All material movement has to be considered while
calculating closing stock of material.Let us try to analys few
Scenarios:Scenario 1: Material Stock TransferLet us consider two
materials RMOPCK2 and RMSRCK1MaterialOpeningReceiptIssue
Closing
FG1276,120.06116,157,464.09115,882,172.88814,101.12
FG20.007,868,063.257,616,416.500.00
Table 12.0If we substitute the values in the formula the closing
stock will not match. We need to consider all material
movements.MaterialOpeningReceiptIssuePrice Diff. (0 Qty)Material
TransferClosing
FG1276,120.06116,157,464.09115,882,172.8837,161.73225,528.12814,101.12
FG20.007,868,063.257,616,416.50(251,646.75)0.00
Table 13.0Formula modified as below;( Opening + Receipt + Price
Diff. + Material Transfer ) - Issue = Closing StockSustituting the
ValyuesFG1 -> (276,120.06 + 116,157,464.09 + 37,161.73 +
225,528.12) - 115,882,172.88 = 814,101.12FG2 -> (0.00 +
7,868,063.25 + 0.00 + (251,646.75)) - 7,616,416.50 = 0Useful
Transaction Codes:MB5B - Material Movement ReportMB51 - Material
Movement ReportFBL3N - General Ledger ReportIn my previous blog
"ERP Post Implementation Challenges - Part 1" I have explained the
concept of COGM, COGS and deriving the closing stock. In this blog
I will be concentrating on the Reconciling GL, Raw Material
Consumption, Semi Finished / Finished Goods Production and Vendor
Invoice.Let me divide the topic into;Reconciliation 1:Opening Stock
+ Raw Material Receipt - Raw Material Consumed = Raw Material
Closing StockReconciliation 2:Receipt of Raw Material = Invoice
received from VendorReconciliation 3:Raw Material Consumed = Raw
Material Issued for the Production of Finished Good= Raw Material
Consumption GLReconciliation 4:Raw Material Closing Stock = Stock
GL of Raw MaterialNow let us analyze each scenario;Reconciliation
1: Opening Stock + Raw Material Receipt - Raw Material Consumed =
Raw Material Closing StockAs explained in my Previous Blog "ERP
Post Implementation Challenges - Part 1" all material movements
should be considered for calculating the closing stock of
material.Reconciliation2: Receipt of Raw Material = Invoice
received from VendorThe Raw Material received should be matching
with the invoice received from the vendors. I have done quite a lot
of research to generate report on the list of invoices received
against a material.Material Receipt (MB5B) with movement type
101+102 = Stock GL of Raw Material + Price Diff GL of Raw Material
with Type "WE"To find the list of Invoice generated against the Raw
Material:There can be invoice and Credit/Debit notes posted against
the material.To generate Invoice list generated against the
material:We have to combine few tables for generating the
report.Execute SQVI and create a query with the following
data.Tables: RBKP, RSEG, LFA1Joining Condition: Tables RBKP-RSEG
-> Joining Fields BELNR,GJAHRTables RBKP-LFA1 -> Joining
Fields LIFNR
Figure 1.0
Figure 2.0To generate Credit Note / Debit Note list generated
against the material:We have to combine few tables for generating
the report.Execute SQVI and create a query with the following
data.Tables: RBKP, RBMA, LFA1Joining Condition: Tables RBKP-RBMA
-> Joining Fields BELNR,GJAHRTables RBKP-LFA1 -> Joining
Fields LIFNR
Figure 3.0
Figure 4.0Debit / Credit will be recorded as "S" or
"H"Reconciliation 3: Raw Material Consumed = Raw Material Issued
for the Production of Finished Good = Raw Material Consumption
GLRaw Material will be consumed for the production of Semi /
Finished Good, which will be created against Process Order. The
total raw material consumed against a process order can be
generated from transaction code KOB1.Let me explain with an
example:Raw Material 1 (RM1) is used for the production of three
Finished Good (FG1, FG2, FG3)MaterialProcess OrdersQuantity
Produced
FG11000003567,981.00
FG211000035343,842.00
FG31200003561,601.00
Total Raw Material RM1 issued during the period is 106,136.00
TO. This is the quantity used for then production of 473,424.00 TO
of FG1, FG2, FG3.
Figure 5.0Table 1.0(Report from MB51 movement Type 101 +
102)From transaction KOB1 we will be able to equate the Finished
Good Produced and Raw Material Consumed quantity.
Figure 6.0
Figure 7.0Raw Material (RM1) Consumption GL should be updated
with the value of 1,061,360.00(Report from FBL3N Raw Material (RM1)
Consumption GL + Raw Material (RM1) Price Difference GL)
Fugure 8.0GL Entries Posted During the Process;Raw Material
Consumed for Production of Finished GoodReconciliation 4: Closing
Stock = Stock GL of MaterialGenerate Closing Stock report for
Material from MB5B
Figure 9.0Stock Report of Material From FBL3N
Figure 10.0Generally We can reconcile opening, receipt, issue
Closing by inputting values in the table listed
below;MaterialOpening0 QtyMat Receipt(101+102)Price
RevaluvationMIR7Issue To Production Order261 + 262Issue To Cost
Center201 + 202Physical Inventory PostingGL
ConsumptionSalesClosing
ABCDEFGHIJK
FG1ABCDEFGHD+E+F+G+HJ(A+B+C+D) - (F+G+H+J)
1,683,916.8054,700.537,539,313.34256,027.28670.287,543,679.840.000.007,800,377.40161,430.241,828,847.87
Table 2.00 Quantity - Execute Transaction MB5B. Sort Based on
Movement Type0 Quantity Included Price Revaluation & MIR7
entries0 Qty of FG1 Entry:0 Qty Other = 54,700.53 +Price
Revaluation = 256,027.280 Qty -> 310,727.81
Figure 11.0DebitCredit
Raw Material ConsumptionXXX
Stock of Raw MaterialXXX
Stock of Finished Good 1 (FG1)XXX
COGM of Finished Good 1 (FG1)XXX
Table 3.0Important Transaction Codes:Transaction
CodeDescription
MB5BMaterial Report
MB51Material Report
FBL3NGL Report
FBL1NVendor Report
KOB1Production Report
MCBEMaterial Report
MC.AMaterial Report
MC+ESales Report
SQVIDynamic Query
Table 4.0
Calculation of COGM and COGS UseYou can use the Product Cost
Planning functions to calculate the cost of goods manufactured
(COGM) and cost of goods sold (COGS) for products such as materials
and services. The costs may then be analyzed and used in business
decisions (such as whether to make or buy). The cost of goods
manufactured is composed of material and production costs, process
costs and overhead (such as material and production overhead). The
cost of goods sold consists of the cost of goods manufactured
together with sales and administration overhead costs. FeaturesThe
following graphic shows how the COGM and COGS are calculated using
Product Cost Planning:
To calculate the COGM and COGS for materials, you can execute a
material cost estimate (with or without quantity structure). For
further information, see the following:
WIP I gonna try to explain it from bookkeeping point of view
(simplified version).Basically you have 2 environments in the
books: P&L and Balance Sheet.You start doing something during
the month so you consume costs (materials, activity, OVH, etc.).If
you finish and sale it till the end of the period the whole thing
will go to your P&L.If not, all costs you consumed have to go
to the stock (Balance Sheet).So, you have to credit a P&L
account and debit a BS account. Normally you might want to credit
the whole production order since virtually the whole thing went to
the stock and nothing left on the shopfloor. And when you decide to
continue your work, you take out the stuff from stock and do your
work.Now, the problem with SAP that there is no standard mechanism
which will reverse this WIP posting with the production order
assigned. That is why the WIP posting happens beyond production
order and that's why you can't create cost element.I fyou want to
check what is in your WIP you can go to FBL3N and run a report for
the P&L/WIP account which you will find in OKG8, where you
configure these postings. The accounts for WIP should not be
defined as cost element in CO to avoid that WIP is posted
incorrectly into CO.A cost element requires account assignment to a
cost object. So if you define the WIP account as a cost element you
need to assign a cost object for this which will result in
duplicate costs in COExample: settlement of order 'XYZ': WIP was
posted on account '1111' (Stock change -WIP). Since '1111' is also
a cost element and the CO account assignment is order 'XYZ' again,
we have an inconsistent scenario: cost which are already posted on
the order now come in 'through the backdoor' again as additional
cost.I believe SAP issues error message KQ119 (G/L account cannot
be created as a cost element) in such cases. Dear AndyIn product
cost by order scenario the WIP or Variance calculation is dependent
on order status. If the Order has a status of REL or PDLV, the
system will calculate WIP and if the order status is DLV or TECO
the system will calculate variance on this order. At the time of
calculation of WIP or Variance no accounting entry i generated but
when you settle the order at that time FI documents are passed in
the books.Ans1- In product cost by order WIP or variance is
calculated based on the actual cost debited to the order and value
of GR made to the order. System does calculation by the formula GR
value-(GI value+Activity value+ Overheads)Ans2- As I said at the
time of calculation no FI entries are passed but at the time of
settlement FI entries are generated. The method of calculation is
the same as described in Ans1.Ans3- Entry at WIP settlement WIP
(P&L) a/c Dr and WIP Offsetting(B/S a/c) Cr.Entry at variance
settlement : Variance a/c dr/cr and COGM cr/dr.and if there is
already a WIP posted for this order then at settlement WIP entry is
reversed provided we have calculated WIP again the the month of
settlement of varianceNote for Anand: Dear Anand we need to
calculate WIP again in the period when the order status is changed
to DLV or TECO otherwise system will not pass reversal entry of
WIP. Kindly test it in your IDES and let me know if you find
something on the contrary