Sap Modulo Pp

Every PP, FI and CO user in any Manufacturing Industry will be facing a tough time during periodend

processing every month. Production Order Variance posted against each process orders will

have to be examined, explained & investigated thoroughly. Major questions arising will be;

• From Where the Variance has come

• How to Categorize the variance

• How to cut down the variance.

• Impact of variance on COGM, COGS & Closing Stock, has to be answered to the management.

We have faced all these scenarios and after months of deep research in this field I came across

few conclusions.

For better understanding I will divide this blog into two categories;

• Category A: Basic understanding of Production Order

• Category B: Co-relating Category A scenarios with real life scenarios.

Now let us examine the main points under Category A:

The ultimate end point of any industry is sales. For selling the product several process has to be

carried out. The success of any management depends on how well they forecast the sales, plan and

schedules the activities.

Figure 1.0

Let us divide the process as given below;

1) Initial Planning

2) Cost Estimates

3) Actual Posting

4) Period – End Processing

1) Initial Planning:

Forecasting the sales for future. Sales and Operation Planning, Long term planning, Cost center

planning should be well

The major points to be considered here are;

a) a) Master Data:

a.1) Material Master:

All the required information to manage a material.

Transaction Codes: MM01, MM02, MM03

a.2) Bill of Material (BOM):

Structured hierarchy of raw materials necessary to create a Finished / Semi Finished

Good.

Transaction Codes: CS01, CS02, CS03

a.3) Routing:

List of tasks containing standard activity times required to perform operations to create a

Finished / Semi Finished Good.

Transaction Codes: CA01, CA02, CA03

a.4) Product Cost Collector:

Collects actual costs during the production of a material.

Transaction Codes: KKF6N

a.5) Recipe:

Recipes comprise information about the products and components of a process, the process

steps to be executed, and the resources required for the production.

Transaction Codes: C201, C202, C203

b) Overhead Costs:

All indirect cost like power, canteen etc.

Transaction Codes: KZS2

b.1) Calculation Base:

A base is a group of cost elements to which overhead is applied

b.2) Overhead Rate:

Overhead rate is a percentage factor applied to the value of the calculation base (group of

cost elements).

b.3) Credit Key

During Overhead calculation, a manufacturing order in product cost collector is debited, and a

cost center is credited. The credit key defines which cost center receives the credit.

C ) Cost Component:

The cost component split allows a cost estimate to group costs of similar types of components, such

as material, labor, and overhead.

d) Costing Variant:

The costing variant contains information on how a cost estimate calculates the standard price.

e) Standard Cost Estimate:

The Standard Cost Estimate is involved in variance analysis because it is used for stock valuation.

When a production or process order delivers production to inventory, it receives a credit based on

standard price. Total variance is the difference between actual costs debited to the order and costs

Preliminary Cost Estimate is involved with production, variance calculation and valuating scrap

variance and WIP.

g) Mixed

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