Sale order costing process : Help required

[Former Member]

Hello All,

Belatted Happy New Year 2011 to all.

I have a question related to Sale Order Costing. It goes like this,

My client is into Pipe coating business who receives the pipe from the customers, coats it as per there requirements and despatches it thereon. There is no concept of FG here as its only the service he is doing on it and also when he receives the pipe there is no raw material cost on it. Raw materials for him would be chemicals etc which he uses to coat the pipe.

And also this demands variant configuration from SD and PP angel.

As this scenario is customer specific, it demands Sale Order based costing(Sale order cost estimate).

My doubt is, how the sale order costing process goes with.

In general scenarios, Make to stock, we use production order based costing where standard cost estimate is calculated for planned cost and actuals are incurred on PO settling the variance to COPA

Similarly how the costing goes with if Sale order cost estimate is used. What i think is, here instead of Standard cost estimate for plan, we will go with Sale order cost estimate at sale order level, and incur actual cost at production order and settle the cost of Production order to Sale order. Correct me if i am wrong, and request you ppl there to explain me the process of costing in the scenario said above.

apart from that, my client wants the flexibility to change the cost estimate at quotation level.

Please suggest me with solution explaining the process of costing here.

Thanks in advance,

Ravi Kumar

[ajaycwa1981 · Accepted solution]

Hi Ravi

Your understanding of the scenario is very much right...

In your case, you need to have sales order as cost object...

Process

Your stock would be non valuated stock, because the FG is not your stock.. You are just doing a service

Based on the characteristics chosen in the Sales orders, system would determine the Sales order BOM

Based on sales order BOM, Sales order cost estimate would be calculated....

You would receive the Customer pipe in your stock against the sales order... It would be a non valuated GR... You can track the Qty only

Sales order would trigger a production order... The prod order can have its planned cost, which is only for information sake

The Customer Pipe, Chemicals would be issued to prod order to coat the pipe... And also Labor/machine hrs may be confirmed

There after your production order would be settled on Sales order

Then you would do PGI (Post Goods Isue).. This will not trigger any accounting doc

Then you do billing... The sales revenue would be posted on the sales order

Then you settle the sales order to COPA.. This will close the cycle

Configuration

The IMG Settings required would be as below

1. You would use account assignment category (AAC) E

2. Create a Requirement class with

a. AAC = E.... (Means sales order is CO Object)

b. Valuation Indicator = BLANK (Means Non Valuated Stock)

c. Costing ID/Costing Method = As per your choice to calculate the Sales order cost estimate

3. Assign this req class to Requirement Type

4. Give this req type to your PP/SD team.. They would assign it to Strategy group / Item Category to determine it in the sales order

Regards

Ajay M

[Former Member · Accepted solution]

Hi Ajay Sir,

Thanks for your quick reply,

FI:

I want to understand the scenario in terms of FI, when financial entries will get generated.

As told, pipes would be non valuated stock here as they are directly supplied by the customer, so no inventory will come into picture both wen received frm customer and even when they are issued to Production order.

Similarly even there is no FI entry generated when Good receipt is done against production order becoz all the cost collected on production order will be settled against sale order(correct me if i am wrong). But when chemicals and other materials which are my client own inventory are issued to PO for production process which is Coating here, there will be consumption account entry(FI entry gets generated here).

Also at the time of PGI, COGS will not get debited bcoz no FG inventory again(correct me if i am wrong).

Then if this is so, from where will the price of the the coated pipe will be picked from and at what time FI entries get generated.

Please tell me the complete flow of Accounting entries and at what time they are generated.

CO:

At production order level, what are the expenses posted, and there are no WIP or variance on PO level as there is no GR against it.(correct me)

Are Material consumption exp, and overheads are posted on Sale order or production order.

Will there be any Variances on Sale order

Thanks In Advance,

Regards,

Ravi Kumar

[ajaycwa1981 · Accepted solution]

Hi Praveen

Your understanding on FI part is absolutely perfect!

There would be no entry generated at PGI... However, the cost incurred in production order is settled upon Sales Order.. So, this is your COGS... The PA transfer structure in your sales order settlement profile should be designed in such a way that you map this cost to a COGS value field

CO:

At production order level, what are the expenses posted, and there are no WIP or variance on PO level as there is no GR against it.(correct me)

At prod order, the expenses would be your chemicals consumed + any activities confirmed like labor/machine hr.... No WIP/Variance arises because GR is non valuated

Are Material consumption exp, and overheads are posted on Sale order or production order.

They are posted on Prod order...

Will there be any Variances on Sale order

NO, there wil be no variance any where

Regards

Ajay M

[Former Member · Accepted solution]

Hi Ajay Sir,

Thanks for your reply once again.

Till now the process which you told is very clear.

In general MTS scenario we run standard cost estimation and mark, release to FG material master which will not be the case in my scenario.

Can u tell me when my sale order cost estimation is triggered, when triggered will that flow to Production order as target cost.

What i understand is with the setting of Requirement class (Costing), when sale order is created at that time only sale order cost estimate is triggered(Correct me), then we post actuals on Production order, settle them to Sale order.

when PO is settled inwhat form cost are settled on SO, i,e in each cost component detail or consolidated amount.

WIP is calculated at sale order level right(correct me) based on the status.

One more question is, when sale order cost estimate is done, will that flow to Quotation also, if thats the case can we edit SO Cost estimate at Quotation level, if no then any other possibility.

Thanks in advance Sir,

Regards,

Ravi Kumar

[ajaycwa1981 · Accepted solution]

Hi Ravi

1. Sales order cost estimate is triggered when you save the sales order

2. Prod order will settle every cost element to Sales order...

3. WIP can be calculated at Sales order.. However, your scenario does not justify WIP calculation.. So, dont have any RA key at sales order.. No need to calculate WIP

4. Quotation is one step beofre sales order.. Quotation can have its own cost estimate... SAles order cost estimate cant flow to quotation, in my opinion

Hope this addresses your concerns

Ajay M

[Former Member · Accepted solution]

Hi Ajay Sir,

Thanks for your quality inputs which is helping me very much to adress clients issues.

As said, to settle Sale Order to COPA, COGS value field is to be created and assigned in the PA transfer structure,

if I wantd to see the COGS cost cost component wise, what I should do.

will Cost will be settled to Sale order from PO cost component wise: I dont think so(correct me)

If i wanted to see COGS cost component wise in COPA report what config I have to do.

Please let me know on this.

Also can i cost quotation using sale order cost estimate which is used to cost Sale order.

I studies that sale order cost estimate with product costing method can be edited using Unit costing, but problem would be Cost component split will not be transferred to COPA.

Help on this also required

Thanks & Regards,

Ravi Kumar

[ajaycwa1981 · Accepted solution]

HI Ravi

Absolutely no problem!

Your production order would settle to order by individual cost element...

1. Have 2 different settlement profiles, one for Prod order and another for COPA

2. In Allocation Structure of settlement prof for prod order - Tick "By Cost element" in the "Settlement tab"

This would settle each cost element to sale order

3. Now, create multiple assignments in the PA transfer structure of sales order...say, raw material, labor, power, overhead, etc

Map the respective cost elements to respective assignments and specify a different value field per assignment

It will be done!

Regards

Ajay M

[Former Member · Accepted solution]

Hi Ajay Sir,

Thanks for your inputs, its really very useful.

Regarding COPA, is it possible to tranfer Actual cost wat ever incurred in the particular month or year to COPA.

Client requirement is to see the actual cost incurred coating wise in COPA.

Pls suggest.

Thanks & Regards,

Ravi Kumar

[ajaycwa1981 · Accepted solution]

Hi

In your case, as I said, prod order will be settled on Sales Order and Sales order will be settled to COPA...

The Controlling entity/object would be sales order....

Regards

Ajay M

[Former Member · Accepted solution]

Hello Sir,

I understand the Sale order is the controlling object under my scenario,

Now, when we settle the cost on sale order to COPA will that be actual cost incurred on sale order.

The doubt is, raw material cost will get from consumption, but how abt activity prices, it will be actual hoursplanned rate, here there is a variance though the variance if exists will be settled to COPA. Is there any possibility to tranfer actual activity cost, ie actual hours confirmedactual rate. Please confirm.

Next question is, when we do sale order cost estimate will it include admin & selling exp as COGS has to be taken for billing.

In general scenarios MTO, Material master is updated with COGM, but when PGI happens system will give COGS, but how it will be picked up. Here COGS will mean COGM+ADmn & Selling expenses.

Kindly clarify.

I will b posting the questions still further, please as now, kindly clarify in future too.

Thanks,

Ravi Kumar

[ajaycwa1981 · Accepted solution]

Hi

Yes, you can execute CON2 to revalue the prod orders with actual activity cost.... After CON2, when you settle prod order to sales order, it will include the actual activity cost...

In Sales order costing, you can use a Costing Variant and attach costing sheet to it.... It will calculate overhead as per the logic you define in Costing Sheet...

In MTO also, PGI triggers COGM only because PGI happens at Std Cost... The selling & admin exp are allocated to COPA separately

I would suggest you to close the thread as your initial query in this thread is addressed... This will give a chance to others as well to participate

Regards

Ajay M

[Former Member · Accepted solution]

Hello Sir,

Thanks for the quick reply, and for the useful info provided. I will close the issue.

Regards,

Ravi Kumar