5/26/22, 6:36 PM Understanding production order from finance point of view.

- TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

TECH CONCEPT HUB

Welcome to TECH CONCEPT HUB -IT Training Institute

 


Understanding production order from finance point of

view.

Share this:

New SAP CO training batch is starting 30th April, 2022.

Enquiry: +91 7262000918

Let's start with how to read a production order in sap.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 1/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

BOM, Routing and costing sheet is going to be used in production cost calculation.

RA key: Result analysis key is used for WIP calculation and posting.

Variance key: variance key is used for analysis of production variance. Production variance is broken
down in variance category for analysis purpose. Variance key defines the list of variance categories for
analysis purpose.

As per above production order, we will be producing 5 quantity of finished product. Below is our cost
projection, this cost expectation can also be referred as planned cost or target cost.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 2/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

Above picture showing target cost for producing 5 quantity of finished good.

But during actual production, raw materials consumed quantity might be different than planned
quantity. Similarly, activities actual quantity might be different from planned quantity. Hence actual
cost of production will be different from planned/ target cost of production.

Production order confirmation

As per production order, 5 quantities of finished goods are to be produced. I am assuming that
production is going for couple of days. At the end of every day, production manager is supposed to
update below information in sap:

What quantity of finished goods is produced?

Which raw material and in what quantity is consumed while producing the said quantity of finished
good?

Which activity and how much is performed while producing the said quantity of finished good?

Updating above information in production order is referred as production order confirmation.

Once order confirmation is saved, sap calculates cost involved (by valuating raw materials consumed
and activities performed as per actual costing variant).

Suppose, production manager confirms below:

Finished goods produced 2 kg

Ram materials consumed: Milk (3L), sugar (1kg), carrot (3kg), ghee (.4kg) and dry fruit (.4kg)

Activity performed: Cutting (1 hour), heating (3 hours)

As a result of above confirmation, below accounting document gets posted.

Accounting document for Ram material consumption (GL account picked from OBYC configuration)

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 3/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

Below controlling document is created when activity is confirmed:

Below is the financial document posted when 2 kg of finished goods is confirmed/ produced.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 4/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

Once above confirmation is performed in system, sap will calculate and update actual cost. Till now
actual cost is incurred only for producing 2 quantities of finished good.

Now let's check the cost in production order.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 5/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

For overhead calculation,

Online trainingwe need to perform
is available transaction
for all modules KGI2
of SAP. Phone: +91 7262000918

Overhead cost is calculated as per costing sheet. Overhead cost should be added in cost of
production. Below financial document gets posted

Cost element 1015 used for posting above document is maintained in costing sheet.

Now suppose month end has come and this production order is still under production process and not
yet completed. (Out of 5 ordered quantities, till now only 2 quantities is produced)

At month end, balance sheet needs to be finalized. Balance sheet needs to report real position of the
company’s assets and liabilities as on date. Hence how do we handle this production order which is
still under process and not yet completed?

Inventory which is produced is reported under balance sheet as inventory under current asset. In-
process production order is reported under balance sheet as work in progress (WIP). Hence sap
should have functionality to report WIP for production order which is not completed.

In SAP, WIP is handled in two steps

Step 1: Calculation of WIP amount

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 6/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

WIP Amount = total

Online debit in
training is production
available fororder – total credit
all modules of SAP.in Phone:
production+91
order
7262000918

For WIP calculation, T code is KKAX

When KKAX is executed, sap calculates debits and credits posted on production order and calculates
WIP amount.

Step 2: Posting accounting entry of WIP (T code is CO88)

For posting above accounting entry system needs accounts (WIP and Change in WIP) and amount
(WIP amount). Hence we need to tell sap two things:

1. How WIP amount is calculated?

- Out of so many cost components (raw material, overhead, activity cost etc.), which cost is to be
capitalized (considered for WIP calculation)?

- Out of cost (which is considered for WIP calculation), what portion is to be capitalized and what
portion is not to be capitalized?

- We need to maintain GL account for WIP and GL account for change in WIP.

Maintaining above information in sap can be referred as configuration for WIP.

In our example WIP of production order should be (121.6) a shown below

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 7/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Let’s execute KKAXtraining

Online for WIPis amount
availablecalculation:
for all modules of SAP. Phone: +91 7262000918

Now, let’s post accounting entry for WIP by executing CO88

Click on below link for detailed understanding of WIP configuration:

http://techconcepthub.com/understanding-configuration-needed-for-wip-in-sap-with-example/

Now let’s suppose production continued in next month and has completed. Production manager
confirms in sap that all 5 goods are produced and also confirms the quantity of ram material
consumed along with activity hours consumed.

Hence production manager does production order confirmation for remaining 3 quantities in sap.

Hence, for producing total 5 quantities of goods, below is the cost involved.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 8/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Same reflects in SAP

Online as shown
training in below
is available forscreenshot:
all modules of SAP. Phone: +91 7262000918

Overhead cost in production order is not revised automatically.

In order to recalculate overhead cost, we need to execute KGI2 again

If you are interested in knowing what document got posted as a result of executing KGI2, then below
document is posted only in controlling. No accounting entry is posted in finance.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stages-… 9/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

For this production order, production has completed. Like last month, this month also we need to
perform WIP calculation. But since production for the order is already completed, hence there is no
WIP or zero WIP.

In order to have zero WIP, already posted WIP has to be reversed.

Below screenshot after executing KKAX for WIP calculation:

WIP calculation is done. But we have not yet done WIP posting using CO88.

Earlier when CO88 was executed, WIP document was posted in finance. But now CO88 execution
will result in

1. Reversal of earlier WIP document: Net WIP has to be zero hence earlier posted WIP has to be
nullified by posting reversal.
2. Posting of production order variance: Earlier difference between debits and credits on the
production order was treated as WIP. But now since production is completed hence this
difference is treated as production variance. But before posting of production variance using
CO88, we need to perform production variance calculation using KKS2.

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 10/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

Let us perform production order variance calculation (T code: KKS2)

Now let’s perform production order settlement using CO88

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 11/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

As a result of CO88:
Online training is available for all modules of SAP. Phone: +91 7262000918

- Earlier calculated WIP is reversed.

- Production variance is settled to material.

If profitability analysis is active then along with above financial document, variance is also taken to
COPA for profitability analysis.

In this article, we tried to understand production order processing from finance point of you.

How COPA works will be explained in different article.

Let’s summarize what we learned

Production order processing from finance point of view

Thank you !

i i b hi i h il
techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 12/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

New SAPOnline
CO training batch
training is available for is starting
all modules 30th
of SAP. April,
Phone: +912022.
7262000918

Enquiry: +91 7262000918

Share this:

TECH CONCEPT HUB_ SAP Training Institute_ 5TH Anniver…

Anniver…

Enquiry
Name:*

Mobile number*

Email*

Message*
techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 13/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

Online training is available for all modules of SAP. Phone: +91 7262000918

CAPTCHA Code:*

Submit

 Training courses offered

› SAP
› UI5 / FIORI
› AWS (AMAZON WEB SERVICES)
› DEVOPS
› AZURE
› DATA SCIENCE
› BLOCKCHAIN
› RPA
› PROGRAMMING LANGUAGES
› POWER BI
› TABLEAU
› ADVANCE EXCEL

Tech Concept Hub – IT Training institute

305, 3rd Floor, Royal Tranquil, Konkane chowk, Pimple Saudagar, Pune - 411027 (Ph no: 7262000918)
› HOME

› ABOUT US

› FAQ

› PRIVACY POLICY

› CONTACT US

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 14/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

› for
Online training is available TRAINER APPLICATION FORM
all modules of SAP. Phone: +91 7262000918
› EXAM CENTER

  
· © 2022 TECH CONCEPT HUB · Powered by  · Designed with the Customizr theme ·

Back to top

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 15/16
5/26/22, 6:36 PM Understanding production order from finance point of view. - TECH CONCEPT HUB

techconcepthub.com/understanding-production-order-from-finance-point-of-view-what-financial-documents-are-posted-in-sap-at-different-stage… 16/16