TechZook

 Process flow in SAP MTS from FI and CO standpoint

This article explains the process steps and the corresponding flow of values in SAP make-to-stock business scenario. The exact sequence may vary from business to business.

1. Costs are posted to non-production cost centers (example, administrative and service cost centers)
   These are the indirect costs. For example, the costs incurred to pay salaries to the HR staff, who are not directly involved in the production activities, or the costs incurred to keep the lights and water running in the office cafeteria constitute indirect costs. 
   
   
2. Costs are moved from the non-production cost centers to the production cost centers
   In order to inventorize the non-production costs, these are moved to the production cost centers. This is achieved through distribution and/or assessment functionalities available in SAP.
3. Raw material is issued to the production order.
   Raw material consumed in the production process is issued to the production order. Following Journal entry is recorded by the system:
   
   Expense account (P&L) debited
                                              Raw material Inventory(balance sheet) credited.
   
   Cost object in the PL line item is production order which gets debited during this transaction.  
   
   
4. Direct cost posting from production cost center to production order.
   This is done via activity postings. For example, costs associated with wages posted to production cost center are moved to production order through activity type labour.
   
   This leads to a controlling only posting where production order is debited and production cost center is credited. This posting is done at the planned activity prices. For example, if planned rate for activity power is EUR 0.2/KWH and 100 units of activity have been consumed, 20 Eur worth of costs will be transferred from production cost center to production order.
5. Goods receipt from production order.
   Good received from production order leads to following journal entry in the system:
   
   Finished goods Inventory (Balance sheet) debited
                                                     Change of goods manufactured (P&L) credited
   As a widely accepted practice, finished good material is maintained with the standard price valuation. This ensures that the variance postings do not lead to incredulous inventory valuations for finished goods.
   
   
6. Goods Issue to the Customer
   
   Cost of Goods Sold (PL) debited
                                               Finished Goods Inventory (credited)
   Cost of Goods Sold is recorded in CO-PA.
   
   
7. Invoice to the customer
   
   Customer Account (debited)
                                        Revenue  (credited)
                                        Tax Liability (credited)
   Revenue is recorded in CO-PA
   
   
8. Overhead calculation
   
   There can be several overheads such as lubricant costs, Quality control costs, R&D costs, building depreciation, pension plans etc which may be required to be inventorised. This is done using overhead costing sheet or template allocation in SAP.
9. Work in Progress
   
   If the order is not yet technically complete, work in progress calculation at the end of the month, generates a work in progress accounting entry.
   
   

   If the debits posted to the production order are higher than the credits from goods receipts, the system reports work in process.
   
   Work in Progress (Balance sheet) debited
                                                                  Change in WIP (PL) credited

   If the debits posted to the production order are less than the credits from goods receipts, the system creates reserves for unrealized costs.
   
   
   

10. Actual Activity price calculation and production order revaluation
    
    It is possible that the actual price of the activity consumed during a period does not match the planned price. For example, the planned power activity price was 0.2 EUR / KWH, however during the period, 1500 KWH of power was consumed and the expense incurred to the electricity distributor was EUR 1000, then actual activity price is 1000/1500 = 0.66 EUR.
    
    System can determine the actual activity price and then perform production order evaluation so as to bring the correct cost on the product.
    
    
11.  Variance Calculation
    
    If the order status is now technically completed, result analysis is done to calculate the variance. This variance determines the difference between the costs loaded on the production order and the standard price of the finished good inventory multiplied by the units of inventory received from the production order.
    
    Variance is recorded in CO-PA. In CO-PA, the variances can be allocated to products, customers, sales regions, or other combinations of characteristics.