Understanding Results Analysis for WIP
Understanding Results Analysis Key for Calculating WIP
Introduction and Configuration Guide
Work in process (WIP) inventory forms a part of the w orking capital or current assets of a firm appearing in their balance
sheet. Work in process or progress are partially completed goods, parts, or subassemblies that are no longer part of the
raw materials inventory and not yet part of the finished products inventory. Fundamental Principle of International
Accounting Standard 2 states that Inventories are required to be stated at the low er of cost and net realisable value (NRV).
The guidance on measurement of cost of inventories is that, cost should include all:
a)
costs of purchase (including taxes, transport, and handling) net of trade discounts received
b)
costs of conversion (including fixed and variable manufacturing overheads) and
c)
other costs incurred in bringing the inventories to their present location and condition
With SAP, the raw materials gets transferred to finished goods via production orders or process order. In this process,
typically, the production order is created to w hich raw materials are issued, all activities performed in the process are
charged along w ith any overheads that is apporopriate the production order. Production is ongoing, and it is quite natural
that at month end, w e end up w ith some open production orders. SAP in its product costing functionality, provides the
feature to calculate the value of WIP. This w ill be derived based on the careful definition of Line IDs in line w ith the cost
components. The WIP shall be the total debits cost in the order as reduced by the credits for goods receipt.
Key elements of WIP Results Analysis Configuration.
Step 1
Define Results Analysis Key OKG1.
Here you just give a name, four letter key w ith its description.
Step 2
Create cost elements of type 31 the following minimum
1.
a.
i.
1.
Valuated Actual cost, say for eg. 990001.
2.
Calculated Costs, say 990002.
3.
WIP account 990003
4.
WIP Reserve 990004
5.
WIP Reserve 990005
Step 3
Define RA version, OKG9, Enable Transfer to Financial Accounting (checkbox)
Under extended control, you may enable checkboxes relating to



Generate line items
Assignment/RAkey
Update / RAkeyEnter the cutoff period for actual RA/WIP, the effective date before w hich any WIP data if existed, w ill not be
altered.
Step 4
In OKGC, define the valuation method for WIP.
Here, you specify that WIP calculation mode is one w hen the order has the staus REL.
The calculated WIP shall be cancelled w hen the order status changes to DLV or TECO. You maintain this data for CO area,
RA version and RA key combination.
Step 5
SPRO>Controlling>Product Cost Controlling>Cost Object Controlling>Product
cost by order>Period End Closing>Work in process>Define Line IDs.
The line IDs are similar to cost component, that you create during cost estimates like a) 010 for Material b) 020 for Labor
and c) 030 for Overhead to say the least.
Besides these, create one more line ID say 999 for the Settled Cost, w hich appear as credit w hen you make a goods
receipt.
Create additional WIP type 31 cost elements and their corresponding Reserve account for the above#### WIP Material
990006
1.
a.
i.
1.
WIP Material Reserve 990007
2.
WIP Labor 990008
3.
WIP Labor Reserve 990009
4.
WIP Overhead 990010
5.
WIP Overhead Reserve 990011
Step 6
Now you assign the source cost elements OKGB, that are expected in the
production order to various line ID as created above.
You maintain this data for CO area, RA version and RA key combination.
You use masking w hen you mention w hich cost
element to be assigned to various IDs. You can also direct various cost element, if it comes w ith a combination of par ticular
cost center and activity type to a particular Line ID. If you need to keep it simple, just enter +++++++ for cost centers,
activity types and Business processes. Cost elements can be masked as follow s; for eg. All cost primray cost elements for
materials, if they start from 210001 to 219999, the you can mask them like 00021+++++.
Give the line ID in the column
Required to Capitailze.
Step 7
Define the update. OKGA You maintain this data for CO area, RA version and RA
key combination.
Here you specify w hich line IDs are to be grouped under w hich cost elements and their reserve account. You connect the
cost elements created in step 5 to the line IDs. The category for the line IDs for material, labor and overhead shall be K, t hat
stand for cost. The line ID 999 settled cost shall be maintained as category A, (settled cost). When you assign A, you w on't
have to maintain any cost elements for WIP and reserve creation.
Step 8
Define posting rules for WIP calculation OKG8
You do this for Controlling area, company code, RA version. Maintain this for RA category WIPR (WIP cost, Required to be
capitalized) and RUCR (Reserve for unrealized cost). You maintain the P& L account (changes to stock) and the balance
sheet (WIP)account.These G/L accounts are posted in Financial Accounting.
Step 9
Ensure number range assignment for the WIP transactions under appropriate
head OKG6:
KABG Automat. WIP/results analysis
KABM Manual WIP/results analysis
KSWP Prim. Target Cost Calc. (WIP)
KSWS Sec. Target Cost Calc. (WIP)
Period end WIP calculation Process
The process of running WIP is the t-code KKAX for individual order processing and KKAO for collective order processing.
The system debits the WIP account and credits Inventory Change account. This entire WIP is reversed and a new entry is
passed the follow ing month. When the order is fully delivered no additional WIP entries are passed.
Note:
The RA Key shall be entered in the production order, under the control tab. This can be defaulted through order type.