SAP CO-PC Make-to-stock cost flow

Free Book Excerpt Practical Guide to SAP CO-PC (Product Cost Controlling) by Tanya Duncan.

In the make-to-stock production process, production or process orders are the manufacturing order types that collect costs during production. Materials are produced based on a set production plan using MRP (material requirements planning), and not based on actual customer demand.

Accounting documents are posted throughout the month to both overhead cost centers and production cost centers in a plant. These are known as direct postings.

As discussed in Chapter 2, costs are planned by cost center to determine plan vs. actuals, variances, under/over absorption, and activity rates used in production. We can see the cost center variances in Figure 5.1 that are determined when direct postings are accumulated and these variances can be posted to CO-PA. Cost center variances result from under or over absorption of overhead costs and production cost center’s resources.

We also discussed cost allocations in Chapter 2 and two methods: assessments and distributions. This is where we send overhead costs to production cost centers to be included in the plan vs. actual comparison and activity rate calculation.

An arrow in Figure 5.1 shows activity confirmations, where the activity rates set up in production cost centers are used when activities are confirmed on orders. The work center’s cost center is credited and the order is debited for activity usage.

Figure 5.1: Make-to-stock cost flow

As materials are received, a goods receipt posting is made to raw material or semi-finished goods inventory on the balance sheet. Any purchase price variance for a standard cost item is posted to a P&L purchase price variance account. PPV’s can be analyzed and capitalized to the balance sheet if desired. When materials are backflushed or issued to production, they are issued at their MAP or standard cost depending on price control. The order is debited for the material expense and the inventory account is credited.
As materials are produced on an order, they are confirmed and posted to semi-finished good or finished good inventory on the balance sheet. When materials are sold to a customer, a post goods issue posting is made to debit inventory.

If an order is not is status TECO or DLV at month end, meaning the order is not yet complete, it goes through WIP calculation. When an order is TECO or DLV in a subsequent month, the WIP balance is cancelled and production variances are settled to COPA. Further details on WIP, variances, and settlement can be found in section 5.4 in this chapter.

Keep reading in Practical Guide to SAP CO-PC (Product Cost Controlling) by Tanya Duncan.