product cost by sales order - conceptual clarity required

[Former Member]

Hi,

We are a manufacturing company with both Make to Stock and Make to Order Scenarios. In cost object controlling, we have made the settings for product cost by order. Now, the question is whether product cost by sales order is a mandatory setting in MTO scenario. I understand this is a conceptual question but i never got the clarity after reading help files, threads and blogs.

I'll put down my understanding - pls correct me.

If i do the product cost by sales order, there will be a statistical cost object ie sales order. Now every cost incurred (with a component split) will be recorded stastically in the sales order in case of production orders created from S.O.s

If I don't do the setting i cannot get a component wise split for the cost of sales order to do any analyses. but still I'll have the COGS which i'll capture to COPA and take the profitability.

Can you please give me some more clarity on this scenario? Are there any other factors/ advantages/mandates in product cost by sales order?

Best Regards

Vimal

[ajaycwa1981 · Accepted solution]

Hi Vimal

Prod Cost by SO is done in the case of MTO.. Here, you have 3 possible scenarios

A. Only Qty i.e. GR from Prod order is tagged to Sales Order.. Sales order is not a CO Object....

This scenario is as good as MTS... Only that GR is tagged to SO....

Your costs are collected on Prod order....

PGI uses GBB-VAX i.e. does not post to sales order... Billing updates revenue and COGS to costing based COPA

B. SO is cost obj with non valuated stock (SAP recommends this)

C. SO is cost obj with valuated stock...

B -

Prod Order is settled upon sales order.. GR from prod order does not update any acc doc

Sales order is settled to COPA.. Here you can use a PA Trf Str where in you have replicated your Cost Comp Str... i.e. You can create as many assignment lines in KEI1 as your CCS in OKTZ and assign each one of them to a separtae value field

No question of variances in this case

C

Prod order is not settled upon sales order.... GR from Prod order updates acc doc.... However, variance from prod order can be settled to the sales order if you create variance account as a cost element... Else, it is settled to COPA

Upon PGI, the COGS is posted to Sales Order as a single line item

Here, in your PA Trf Str, you would create an Assignment line and tick "Qty Billed/Delivered".... This would update the Billing Qty to COPA upon settlement of Sales order

This Qty update will trigger KE4R.... i.e. You need to assign CCS to VF in KE4R for PV=01 and Rec Type = C.... This would update the CCS in COPA as per the Sales Order cost estimate

The Costing Key in KE40 should refer to "Sales order cost estimate" and not "Std Cost estimate"

br, Ajay M

[Former Member · Accepted solution]

Thanks a ton Ajay,

Let me reiterate my understanding on the points clear to me now and get some more points clarified.

Product cost by sales order is not mandatory even in case of MTO scenarios.

CASE A : Here actually there is no product cost by sales order. Only point is that production order is tagged to a sales order for informatory purpose so that i can see my stock as reserved to a sales order (right?) . This i can achieve if i do not do any configuration in product cost by sales order. I just have to create the production order with respect a sales order (CO08).

Do i need to do anythign else in this scenario?

CASE B : Non valuated Stock : Production order confirmation will not increase my inventory and delivery will not decrease my inventory. Just the cost of the goods manufactured (in CCS format if required) will be statistically stored in Sales order and then settled to COPA.

Here the standard price of FG is not relevant because whatever is debited in production order goes to COPA. That's why you said there is no question of variance.

I think i'll have a tuf time to convince the process if I go for it. Do any indian accountants agree to do this? Anyways what happens on month/year end stock/wip etc?

CASE C : Valuated Stock : The only difference from CASE B is that the inventory will posted at Std price (on GR from P.O) and inventory will be credited and COGS will be debited on PGI. Also COGS will be posted as a statistical line item in Sales order.

All the variances can be either posted to sales order or COPA.

I did not completely understand about sales order cost estimate.

So one would use CASE A or CASE B if the requirement is view the cost/production data and inturn the profitability of a sales order in the format of cost component structure. This is the only objective of doing product cost by sales order. Pl confirm. If the client does not care to analyse the sales order with a CCS format of cost, I can happily go for case A even in MTO scenario. Kindly confirm.

Best Regards

Vimal

[ajaycwa1981 · Accepted solution]

Hi

CASE A: You still need to do config under Prod Cost by Sales Order... i.e. You need to configure Requirement Class and assign Acct Assgn Catg M in it so that Prod Qty is tagged to Sales order

Just creating a Prod order w.r.f sales order wont work.. Req Class Settings are MUST

CASE B: Your understanding is correct... Just a small correction....

Costs dont lie on SO statistically... They initially lie on Prod order and then Prod order settles the values to sales order (KO88)

Hence, costs on SO are REAL and not STATISTICAL

This is used where your Prod is completely MTO like Ship Making or Car making... you dont keep in stock after it is mfd...

RA can be done based on planned costs or revenues (WIP)

CASE C: Your understanding is correct... Just a small correction same as above.. SO will collect COGS not statistically, but REAL

In CASE A: Normal CK11N Std cost is used for inventory valuation

In CASE B: Sales order cost estimate is done for info sake.. Though Stock is not valuated

In CASE C: Sales order cost estimate is done... Stock valued using Sales order cost estimate, not CK11N price

br, Ajay M

[Former Member · Accepted solution]

Thanks again Ajay,

I think i got the clarity required on product cost by sales order.

Best Regards

Vimal

[former_member7439 · Accepted solution]

Hello

Just add for dimension for WIP.

In case A or B -WIP will be calculated for sales Order & not Prodcution order.Am i right?

[former_member1108130 · Accepted solution]

Yes, your understanding is correct.

[Former Member · Accepted solution]

Hi,

No the WIP will be calcualted at Production order level only i think.

in CASE A entire cost exist in Production order only so WIP should be through KKAX.

Thanks,

Sudha

[Former Member · Accepted solution]

Dear Ajay, please provide MTO end users document, it will be a great help to me,

Thanks,

Nilesh