Work in Process in Product Cost by Period

Use

The WIP calculation function valuates the work in process (unfinished products).

In the Product Cost by Period component, work in process is valuated at target costs. The operation
quantities confirmed for the manufacturing orders or production versions (only in repetitive
manufacturing) that are not scrap are valuated at target cost in accordance with the valuation
variant for work in process and scrap.

You can calculate work in process at target costs for the following objects:

 Product cost collectors

 Production orders with quantity structure

 Process orders

Integration

You can use the Schedule Manager to assist you in performing the period-end closing activities. For
more information, refer to the following sections:

Scheduler

Monitor

Flow Definition

To be able to use the multilevel worklist to reprocess the objects that have errors, you must use
the Schedule Manager with the flow definition. For more information, see the following section:

Multilevel Worklist

The difference between the work in process in the current period and the work in process in the
pervious period corresponds to the inventory change to unfinished products. The difference
between the work in process in the current period and the work in process in the pervious period
corresponds to the inventory change of unfinished products. Settlement to FI capitalizes the
inventories of unfinished products. The system debits the Unfinished Products account (balance
sheet account) and credits the Inventory Change account (income statement account). If the work in
process determined in a period is less than the amount determined in the previous period, the
system cancels the inventory of unfinished products in the same amount when you settle.
Settlement is performed in accordance with the posting rules defined in Customizing. The posting
rules specify which FI accounts are posted during settlement. The number of the order for which
work in process is transferred into financial accounting is displayed in the Assignment field in the
financial accounting document. This ensures that the postings to financial accounting can be
explained.

Note also the capabilities of User-Defined Error Management (see also below in this section).

Prerequisites

For product cost collectors, default rule STR (with strategy for tracing factor determination) is preset.
For manufacturing orders that you want to settle by period, you must make sure that default rule
PP2 (Production Material Periodic Settlement) is specified in the order type.
You must make sure of the following:

 That the following steps have been carried out in Customizing for Product Cost
Controlling under Product Cost by Period Period-End Closing Work in Process :

o Define results analysis keys

In Product Cost by Period, use results analysis key 000003 (WIP calculation at target costs).

o Define results analysis versions

o Define valuation methods (target costs)

o Define valuation variant for WIP and scrap (target costs) (optional)

In the valuation variant for WIP and scrap, you specify whether you want to calculate the target
costs for the valuation of work in process on the basis of:

 A preliminary cost estimate for the product cost collector or for the
manufacturing order

 An alternative material cost estimate

 A standard cost estimate for the material (if a valuated sales order stock is
being used, the system accesses the cost estimate on which the standard
cost is based)

o Assignment of valuation variant for WIP

o Define line IDs

o Define assignment

o Define cost elements for WIP calculation

o Define update

o Define posting rules for the settlement of WIP

In the posting rules, you specify the G/L accounts to which you want to settle the work in process.

 That reporting point backflushes (in repetitive manufacturing), operation confirmations

Note

In repetitive manufacturing, you must specify in the repetitive manufacturing profile that you want
to use reporting points. You do this in Customizing for Product Cost by Period under Simultaneous
Costing Check Control Data for Repetitive Manufacturing Profiles.

Make sure that you have specified a control key with milestone confirmation for at least one
operation. If only one operation has been defined as a milestone, it should normally be the last
operation in the routing.

The reporting points can be mandatory or optional. For information on mandatory and optional
reporting points, refer to the document Repetitive Manufacturing.
  That the reporting points or milestones are flagged as relevant to costing

 That the reporting point structure or milestone structure that you are using in production
matches the reporting point structure or milestone structure used to calculate the target
costs.

For example, it may be problematic to valuate the work in process on the basis of the standard cost
estimate for the material when the standard cost estimate is based on a different reporting point
structure than that of the run schedule header.

In repetitive manufacturing, when you change the reporting point structure you can use flexible
reporting points to convert the reporting point backflushes and update the preliminary cost estimate
for the product cost collector.

SAP recommendations in repetitive manufacturing environments:

o Create a separate product cost collector for each production version.

o Create a preliminary cost estimate for the product cost collector.

o Have the activity quantities that are to be confirmed defaulted on the basis of the
routing used for the preliminary cost estimate.

o Valuate the work in process and scrap variances on the basis of the preliminary cost
estimate for the product cost collector.

o If the reporting point structure is changed, use flexible reporting points and update
the preliminary cost estimate

 The task list type, task list group, and group counter of the routing on which the calculation
of target costs for the valuation of work in process is based must match the task list type,
task list group, and group counter of the routing for which actual data were entered. Note
also the capabilities of user-defined error management.

For example, this means that for the valuation of work in process on the basis of a preliminary cost
estimate for the product cost collector, the task list type, task list group, and group counter of the
preliminary cost estimate must match the task list type, task list group, and group counter specified
in the manufacturing order.

If you are using manufacturing orders as cost objects and analyze them by period, make sure that
the work in process is valuated at target costs on the basis of the preliminary cost estimate for the
manufacturing order. You make this setting with the valuation variant for work in process at target
costs and scrap.

 Make sure that the cost estimate used to calculate the target costs has an itemization. For
this reason you may need to create the following:

o The standard cost estimate for the material with an itemization

o The alternative material cost estimate for the material with an itemization

o In sales-order-related production with a valuated sales order stock, the sales order
cost estimate with an itemization

Note
If you want to valuate the work in process on the basis of a preliminary cost estimate for the
production order or process order, the system generates an itemization dynamically when it
calculates the WIP. This may adversely affect performance.

 That the material components listed in the BOM are assigned to the operations in which
they are used (optional)

 That the Material origin indicator is selected in the costing view of the master records of the
materials that are most important for cost accounting (optional)

 That a cutoff period is defined to protect the data of the previous period from being
overwritten

The cutoff period divides the life cycle of the production order into open and closed periods.

o The work in process calculated up to the cutoff period is not changed the next time
WIP is calculated.

o The work in process calculated for later periods is overwritten by the current WIP
calculation.

To prevent data that has already been posted from being changed, you usually define the cutoff
period as the period preceding the results analysis period.

Example

For a product cost collector, work in process is calculated in May, June, and July. The valuation for
July should not change the work in process for May and June.

You set the cutoff period to period 06 and calculate work in process for results analysis period 07.

 That the definition of the controlling area in Customizing for General Controlling was
checked

The currency type of the controlling area (under Basic data) controls which currency is allowed as
the controlling area currency and whether this currency can differ from the currency of the company
codes assigned to that controlling area. You can use the All currencies indicator (under Control
indicators) to specify whether the values are updated only in the controlling area currency or also in
the transaction currency and the object currency.

WIP is always calculated in the controlling area currency and settled to Financial Accounting in the
company code currency. If you are costing across company codes with different currencies, the WIP
is also updated in the company code currency.

 That settings are made in reporting that enable you to display the work in process

Definition of Work in Process with Requirement to Capitalize

In Customizing for Product Cost Planning, you define which values must be capitalized for inventory
valuation, commercial-law physical inventory valuation, and tax-law physical inventory valuation
under Basic Settings for Material Costing Define Cost Components. Cost components show the
breakdown of the costs calculated in the cost estimate.
The line IDs for WIP calculation are normally grouped the same way as the cost components
in Product Cost Planning. For example, the same cost element interval is usually assigned to the line
ID raw materials as is assigned to the cost component raw materials.

Costs are only included in WIP calculation if they are assigned to a line ID.

In Customizing, you specify the following for each line ID:

 That the work in process can be capitalized

 That part of the work in process can be capitalized

 That no work in process can be capitalized

Functions to Perform Before WIP Calculation

Before calculating the work in process, you should perform Template Allocation, Revaluation at
Actual Prices, and Overhead Calculation if applicable.

If you have assigned actual costs to a cost object hierarchy, perform actual cost distribution before
WIP calculation.

Status

Only those orders that have a valid results analysis key and that do not have the status DLFL
(Deletion flag) or DLT (Deleted) are included in WIP calculation.

Note

You can significantly improve the performance of WIP calculation by setting the status DLFL for the
following orders:

 The order is delivered or technically completed

 Variances have been calculated for the order

 You do not anticipate any follow-up costs for the order

You can remove the deletion flag after it has been set, for example if follow-up costs are incurred for
the order. The deletion indicator, however, cannot be removed.

See also: Reorganization of Product Cost Collectors