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Calculation-Basis-on-Manufacturing-Orders

Changing the WIP Calculation Basis on

Manufacturing Orders
by Paul Ovigele
August 7, 2011

Paul Ovigele, Ovigele Consulting

If you use the Cost Object Controlling submodule of Product Cost Controlling then you probably calculate
Work-in-Process (WIP) on a periodic basis. WIP basically takes the difference between the debits and
credits (if any) on an incomplete order and books the balance to a balance sheet account and an offsetting
profit and loss account. I have used the term Manufacturing Orders as a generic term that encompasses
the different types of cost objects used in manufacturing such as production orders, process orders, cost
collectors, etc. The standard logic for WIP calculation (using a Product Cost by Order Scenario) is as
follows:

Status Status Description System Action

PREL Partially released WIP is calculated on the basis
REL Relea sed WIP is calculated on the basis
DLV Delivered WIP is canceled and a varianc
TECO Technically completed WIP is canceled and a varianc
The above statuses are set on the manufacturing order at certain points during the production process. As
shown, WIP is only calculated when an order has a status of (PREL) partially released or released (REL),
otherwise a variance is calculated. Some companies however, want to have more control over the
calculation of variances and therefore only want a variance calculation to take place when an order is set to
the status TECO (technically complete). In order to achieve this you would therefore need to change the
system action of the status DLV (delivered) so that WIP is calculated instead of a variance. To do this you
need to go to transaction OKG3 or via the following menu path:
Controlling -> Product Cost Controlling -> Product Cost by Order -> Period End Closing -> Period End
Closing -> Work in Process -> Define Valuation Method (Actual Cost).
Note however, that a limitation of the above IMG menu path is that you cannot drill into the different lines.
You should therefore use the transaction code instead. You then see will see the screen Change View
Simplified Maintenance of Valuation Methods: Overview. Locate the relevant results analysis key for WIP
calculation (the standard product cost by order results analysis key is: 000002 WIP Calculation at
Actual Costs, but this could vary depending on the setup in your company so make sure you us the correct
RA key that is linked to your order type - see transaction OKZ3). Double-click on relevant line (make sure
you activate the Expert Mode indicator if it is not active) and you will be taken to the screen Change
View Valuation Methods: Overview, where you will see the four statuses mentioned above, assigned to the
RA Key. Double-click on the line that has status DLV and you will be taken to the screen Change View
Valuation Methods: Details. Go to the RA Type field in this screen and change it from Z - Cancel Data of
WIP Calculation and Results Analysis to F - WIP Calculation on Basis of Actual Costs and save your
settings. You will then be able to calculate WIP on manufacturing orders that have a status of DLV and only
calculate variances on orders with a status of TECO.
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