Proof of Concept

Proof of Concept
Execution Guide

Product Cost Planning &

Actual Costing
Proof of Concept

Table of Contents

1. Product Cost Planning Execution Guide - Proof Of Concept........................4

1.1. Production of Raw Brine Essentials for Planning Cost................................4

2. POC - Organisation Structure..............................................................5

3. Creation of Master Records for Production..........................................6

3.1. Creation of Raw Material Masters..............................................................6

3.2. Creation of Finished Good Material Master................................................11

3.3. Creation of Bill of Material......................................................................14

3.4. Creation of Work Centers.......................................................................16

3.5. Creation of Routing...............................................................................17

4. Product Cost Planning-Determining Planned cost per unit................20

4.1. Planning Cost Element wise data in Cost Centers......................................20

4.2. Viewing Cost Centre Report....................................................................22

4.3. Planning of activities at Production cost centers........................................24

4.4. Planning Output of Service Department Activities......................................27

4.5. Calculation of Planned Activity Prices of Production & service Cost Centers
& Validation of calculated results.............................................................30

4.6. Planning consumption of Service Cost Centers Activity output by

Production Cost Centers.........................................................................37

4.7. Execution of Plan Reconciliation..............................................................40

4.8. Execution of Plan Distribution Cycle.........................................................48

4.9. Entering Statistical Key Figures for Plan Assessment Cycle.........................50

4.10. Execution of Plan Assessment Cycle........................................................52

4.11. Updating Planned RM/PM purchase prices in Material Master......................54

4.12. Running & saving of Cost Estimate..........................................................57

4.13. Marking & Releasing of Standard Cost Estimate........................................61

5. Product Costing- Determining Actual cost per unit............................66

5.1 Purchase of Raw Material.......................................................................66

5.2 Goods Receipt......................................................................................68

5.3 Creation of Production Order..................................................................70

5.4 Releasing, Scheduling & Costing the Production Order...............................72

5.5 Goods Issue to Production Order.............................................................77

5.6 Confirmation of Quantity & Activity for Operations....................................80

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5.7 Goods Receipt of Finished Goods against Production Order.........................83

5.8 Creation of Sales Order..........................................................................86

5.9 Delivery of Finished Goods.....................................................................89

5.10 Picking of goods & Posting of Goods Issue................................................90

5.11 Billing..................................................................................................92

6. Glossary..............................................................................................93

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1. Product Cost Planning Execution Guide - Proof Of

Concept

1.1. Production of Raw Brine Essentials for Planning Cost.

Raw Materials Required

1. Raw Salt

2. Sea Water

Operations Departments Performing Operations

(Production Cost Centers)

1. Dissolving ------ Dissolver

2. Refining ------ Refinery

Support Departments

(Service Cost Centers)

1. Accounts,

2. Canteen,

3. Facilities,

4. Security.

Expected Output in POC for Planned Cost of Raw Brine in Rs./ KG

Name Total Cost Fixed Variable
Raw Materials 140.00 0.00 140.00
Dissolver Production OHS 26.80 26.80 0.00
Refinery Production OHS 52.71 52.71 0.00
Service CC Cost 15.86 15.86 0.00
Total Cost of Production 235.37 95.37 140.00

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2. POC - Organisation Structure

The following picture depicts the organization structure used for POC.

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3. Creation of Master Records for Production

3.1.Creation of Raw Material Masters

Use
The Parameters for Creating Raw Materials Master are defined here.

Procedure
Access the activity using one of the following navigation options:

MM01
Transaction Code

SAP EASY Access Logistics /Material Management/Material

Master/Material/Create(General)/Immediately

Or

Logistics /Production/Master data

/Master/Material/Create(General)/Immediately

Field Name Values

Industry Sector Chemical Industry

Material Type Raw material

Plant SA(number)

Storage Location MIT(number)

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Enter

Press Enter

Field Name Values

Views Basic Data 1, Basic Data2, Purchasing,

MRP1, MRP2, MRP3, Accounting 1,
Accounting 2, Cost estimate1, Costing 2,

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Field Name Values Values

Name Raw Salt Sea Water

Basic Unit Measure KG L

SPI1 SP11
Material Group

Tab Sales: general/plant

Availability Check KP KP

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Field Name Values Values

Trans Grp 0006 0006

Loading Grp 0003 0003

Tab MRP1

MRP Type PD PD

MRP Controller 001 001

Lot Size EX(Lot For Lot Order EX(Lot For Lot Order
Quantity) Quantity)

TAB MRP 2

000 000
Sched Margin Key

TAB MRP 3

KP (no Check) KP (no Check)

Availability Check

Tab Forecasting

N N
Forecast Model

Field Name Values Values

Tab Accounting 1

3000 3000
Valuation class

Price Unit 1 1

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Field Name Values Values

Price Control V(moving Average Price) V(moving Average Price)

Tab Cost Estimate 1

With Qty Structure Check Check

Material origin Check Check

3.2.Creation of Finished Good Material Master.

Use

The Parameters for Creating Finished Goods are defined here.

Procedure
Access the activity using one of the following navigation options:

MM01
Transaction Code

IMG Menu Logistics /Material Management/Material

Master/Material/Create(General)/Immediately

Or

Logistics /Production/Master data

/Master/Material/Create(General)/Immediately

Field Name Values

Industry Sector Chemical Industry

Material Type Finished goods

Plant SA(number)

Storage Location MIT(number)

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Field Name Values

Field Name Values

Material 123

Name Raw Brine

Basic Unit Measure Kg

SPI1
Material Group

Tab Accounting 1

7920
Valuation class
(Finished Goods)

Price Unit 1

ProductControl
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Note: For all other views, enter the details as given in 3.1.1 above.

3.3.Creation of Bill of Material

Use
The Parameters for Creation of BOM are defined here.

Procedure
Access the activity using one of the following navigation options:

CS01
Transaction Code

SAP EASY Access Logistics/production/Master data/Bill of

Material/Material BOM /Create

Field Name Values

Material No 123(Purified Brine)

Plant SA(Soda Ash)

BOM usage 1( Production)

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Press Enter.

Field Name Values Values

Item Category L(Stock Item) L(Stock Item)

Component 116(Raw salt) 120(Sea Water)

QTY 1 2

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Go to Menu-Header and enter the base quantity (Quantity to which all component
quantities in a BOM relate.)

Field Name Values

Base Quantity 1 Kg

Save the BOM created.

3.4.Creation of Work Centers

Use
The Parameters for creation of Work Center are defined here.

Procedure
Access the activity using one of the following navigation options:

CR01
Transaction Code

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SAP Easy Access Logistics/production/Master data/Work Centers/Work

Center/Create

Field Name Values Values

Work Center DISSOLVER Refinery

Work Center Category 001(Machine ) 001(Machine )

Person Responsible 001 001

Usage 001(Only routings) 001(Only routings)

Standard Value Key SAP1 SAP1

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3.5.Creation of Routing

Use
The Parameters for Creation of routing for FG 123 (Purified Brine) are defined here.

Procedure
Access the activity using one of the following navigation options:

CA01
Transaction Code

SAP EASY Access Logistics/Production/Master

data/Routings/Routings/Standard Routings/Create

Field Name Values

Material No 123

Plant SA

Press Enter.

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Assign the Operations in Routing as per the details given below:

Field Name Values Values

Work Center DISSOLVER REFINERY

Control Key PP01 PP01

Base Qty 10 10

Unit Kg Kg

Machine (ACT1) 10 -

Labour (ACT2) - 40

Unit H H

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4. Product Cost Planning-Determining Planned cost

per unit

4.1. Planning Cost Element wise data in Cost Centers.

Use
The Parameters for Planning Cost Element wise data in Cost Centers are defined
here.

Procedure
Access the activity using one of the following navigation options:

KP06
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/Cost & Activity Inputs/Change

Field Name Values

Layout 1-101

Plan Version 0 (Zero)

From & to Periods 1 to 12

Year 2005

Cost Center (from to) *

Activity Type (from - to) *

Cost Element (from to) *

Entry Free (not Form based)

Click on the Overview Screen Icon (Top Left of the screen)

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Entries are to be made as per layouts given below for each cost center.

To go to next Dept (i.e. Cost Center) use Black Down Arrow Icon (Third from Top
Left).

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4.2. Viewing Cost Centre Report

The data prepared on excel as shown below needs to be checked with SAP
Report

Cost Center
Group ===> Production Service
Total
Cost Center DISSO REFINA SEC FACILI
===> LVER RY ACTTS CANT UR TIES

Cost Ele.
CE Descrpn

430000 Salary 5000 8000 3000 2000 500 100 18600

453000 Maintenance 300 900 100 1300
416300 Water 200 1500 100 200 25 2025
416400 Gas 1000 2000 500 3500
0
TOTAL Own
Cost 6500 12400 3100 2800 500 125 25425

S_ALR_87013611
Transaction Code

SAP EASY Access Accounting/Controlling /Cost Center Accounting

/Information System/ Reports for Cost Center
Accounting/Plan Actual Comparison/Cost Centers
Actual Plan Variance

Field Name Values

Controlling Area TCL

Fiscal Year 2005

From & To Periods 1 to 12

Plan Version 0

Cost Center Group Can be given if required

Cost Element Group Can be given if required

Execute.

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4.3. Planning of activities at Production cost centers.

Use
The Parameters for Planning of activities (measurable Output) of Production Cost
Centers are defined here.

Procedure
Access the activity using one of the following navigation options:

KP26
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/ Activity Output Prices /Change

Field Name Values

Version 0

From Period 1

To Period 12

Fiscal Year 2005

Cost Center *

Activity type *

Entry Free

To go to next Dept (i.e. Cost Center) use Black Down Arrow Icon (Third from Top
Left). Enter the following data:

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Cost Centre /Field Name Values

Dissolver/ Plan Activity Under Act1 300

Refinery/ Plan Activity Under Act2 250

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4.4. Planning Output of Service Department Activities.

Use
The parameters for entering Plan Output Values of Service Departments Activities
are defined here.

(Note: Before starting this activity, it is necessary to complete the Cost Element wise
Planning for the relevant service cost centers thru transaction KP06 as explained in
3.1 above.)

Procedure
Access the activity using one of the following navigation options:

KP26
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/ Activity Output/Prices/ Change

Field Name Values

Version 0

From Period 1

To Period 12

Fiscal Year 2005

Cost Center or CC Group * Can be given as required

Activity type or Activity Type Group * Can be given as required

Entry Free

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To go to next Dept (i.e. Cost Center) use Black Down Arrow Icon (Third from Top
Left). Once you arrive at the required production cost Center update as below,

Field Name Values

Cost centre Facilities

Activity Type Cups

Plan Activity 125

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4.5. Calculation of Planned Activity Prices of Production & service

Cost Centers & Validation of calculated results

Use
The Parameters for Calculation of Planned Activity Prices of Production & Service
Cost Centers are defined here.

Procedure
Access the activity using one of the following navigation options:

KSPI
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/ Allocations/ Price Calculation

Field Name Values

All Cost Centers Production & Service CC group

(To be done separately for each)

Version 0

Period 1 to 12

Fiscal Year 2005

Test run First in Test Run and then post

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a) Production Cost Centers

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Go back. The system will ask whether to post these prices. If clicked on Yes, it will
post the prices (even though the report is executed in Test Run).

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Similarly, execute the planned price calculation for Service cost Centers.

b) Service cost Centers

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The Planned prices posted as above should be checked and validated through
transaction KP26. The relevant screen Shots are given below:

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4.6. Planning consumption of Service Cost Centers Activity output

by Production Cost Centers

Use
The parameters for Planning Consumption of Service Cost Centers Activity Output in
Production Cost Centers are explained here.

Procedure
Access the activity using one of the following navigation options:

KP06
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/Cost & Activity inputs/ Change

After you press Enter, system shows, by default, the first layout i.e. 1-101.

Click on Next Layout Icon to select the layout 1-102.

Field Name Values

Layout 1-102

Plan Version 0 (Zero)

From & to Periods 1 to 12

Year 2005

Cost Center (from to) * Prod CC Group can be selected

Activity Type (from - to) * As required

Cost Element (from to) *

Entry Free (not Form based)

Click on Overview Screen Icon (on Top Left corner of the screen)

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Enter the following values

Receiver Cost Centre Sender cost centre Planned Fixed

consumption

Dissolver Facilities 100

Refinery Facilities 50

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4.7. Execution of Plan Reconciliation

Use
Plan Reconciliation is executed to identify and reconcile mismatches, if any, between
Sender CCs Output and Receiver CCs Input.
The procedure for executing Plan reconciliation is explained here.

Procedure
Access the activity using one of the following navigation options:

KPSI
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/Planning Aids / Plan Reconciliation

Field Name Values

All Cost Centers Select

Plan Version 0 (Zero)

From & to Periods 1 to 12

Year 2005

Test Run Do in Test Run First

Details List Select.

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Execute.

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If the Results are correct, then Save it. (System posts the data even if it is executed
in Test Run)

Once these results are posted, system will automatically post the Plan Cost of
Service Cost Centers to Production Cost Center based on the Activity Consumption
planned by them. See the Cost Center Report Screen Shots given below.

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1. For all Cost Centers

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2. For Service Cost Center (i.e. Sender)

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3. For Production Cost Centers (Receivers)

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NOTE: If there are any differences in Plan Data between the Output of Service Cost
Centers & consumption of Production Cost Centers, it will be reflected in the Plan
Reconciliation Report. If the data is posted after execution of KPSI, system will
automatically adjust the values of output of Service Cost so as to match with
consumption by production cost centers.

Screen Shots relevant for automatic matching of Sender & Receiver Activity
Quantities are given below

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4.8. Execution of Plan Distribution Cycle

Use
The procedure for execution of plan Distribution Cycle is explained here.
After execution of distribution cycle, the sender cost centers cost will be allocated to
receivers cost centers, based on the criteria defined in the cycle. Ideally, the entire
cost of sender cost centre should be distributed to the receivers. In distribution,
sender cost centers cost is allocated to the receivers in the respective cost elements.
Hence, Secondary cost element is not required for distribution.

Procedure
Access the activity using one of the following navigation options:

KSVB
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/ Allocations/Distribution.

First execute in Test Run, analyze the results & then execute to post

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First execute in Test Run, analyze the results & then execute to post .Click on the
number in sender/receiver column to see the details of distribution. For checking
whether entire cost of Service CC has been distributed to other cost centers, go to
the cost centre report (S_ALR_87013611).

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4.9. Entering Statistical Key Figures for Plan Assessment Cycle

Use
The procedure for entering SKF for executing Plan Assessment Cycle is explained
here.

Procedure
Access the activity using one of the following navigation options:

KP46
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/ Statistical Key Figures/ Change

Give Parameters as per screen shots given below.

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4.10. Execution of Plan Assessment Cycle

Use
The procedure for execution of plan Assessment Cycle is explained here.
After execution of assessment cycle, the sender cost centers cost will be allocated to
receivers cost centers based on the criteria defined in the cycle. Ideally, the entire
cost of sender cost centre should be distributed to the receivers. In assessment, it is
allocated through a single line item (secondary Cost element) in the receiver cost
centre.

Procedure
Access the activity using one of the following navigation options:
KSUB
Transaction Code

SAP EASY Access Accounting/Controlling/Cost Center Accounting

/Planning/ Allocations/Assessment

Enter the parameters as per the screen shot given below

First execute in Test Run, analyze the results & then execute in production run to
post .Click on the number in sender/receiver column to see the details of
assessment.

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The result of the assessment cycle is as shown in the screen shot below. For
verification of the resultant output, go to the cost centre report (S_ALR_87013611).

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4.11. Updating Planned RM/PM purchase prices in Material Master

Use
The Parameters for updating the planned RM/PM purchase prices in Material Master
are defined here.
Prerequisites
1. For all the RM/PM codes, planned purchase prices should be available from
Purchase Department. These planned prices should be with reference to price
unit in Accounting 1 view of the Material master of the respective material.

2. Before updating the planned price field, it is necessary to know beforehand

the costing variant which will be used for annual planning and the planned
price field (in RM/PM Material Master) to which it is linked through valuation
variant. In our example, we have used Costing Variant ZPC5 in which pricing
strategy for materials as per valuation variant (TCL _New Valuation Variant)
is Planned Price3 or Moving average Price.

The relevant screen shots are given below:

Click on Valuation variant and view the pricing strategy for materials.

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Procedure
Access the activity using one of the following navigation options:

MM02
Transaction Code

SAP EASY Access Logistics/Materials management/Material Master

/Material/Change

Go to Costing 2 View of the material master and put the price in the planned price 3
field. Date should be first date of the year for which plan is to be prepared.

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Save it & do the same for other raw materials. When the number of RM/PM is large,
in that case we can use LSMW for mass upload. However, LSMW needs to be
created.

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4.12. Running & saving of Cost Estimate

Use
The Parameters for running & saving the Cost estimate for the material are defined
here.

The cost estimate determines what costs go into the standard price for the material.
Only those cost components, that are flagged as relevant for stock valuation, are
included in the standard price. A material cost estimate is used to calculate the
standard price which will be updated in the material master record.

Procedure
Access the activity using one of the following navigation options:
CK11n
Transaction Code

SAP EASY Access Logistics/Production-Process/Product Cost planning/

Material Costing/Cost Estimate with Qty
Structure/Create

Field Name Values

FG Material No. 123

Plant SA

Costing Variant ZPC5(as mentioned before)

Costing Version 1

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Give the Costing dates, Qty Structure date & Valuation Date & press enter

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Check the Standard Cost estimate results and verify it with the desired
result. Then Save it by clicking on the save icon.
The cost estimate must be executed with a costing variant (made for the specific
purpose like Annual Planning, Inventory Valuation, and Current Costing etc.) and
saved.
Once it is released thru transaction CK24, it will be updated in the Master record of
the FG/ SFG. Transaction CK24 is explained below.

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4.13. Marking & Releasing of Standard Cost Estimate

Use
The Parameters for Marking & release of the standard Cost estimate for the material
are explained here.

Once the standard cost estimate is released, the standard price will appear in the
Accounting 1 & Costing 2 view of Material Master. To view the cost component
structure, double click on the current period field.

Procedure
Access the activity using one of the following navigation options:
CK24
Transaction Code

SAP EASY Access Logistics/Production-Process/Product Cost planning/

Material Costing/Price Update

First click on marking allowance to allow release of standard cost for the current
period. This is to be done only once at the beginning of the period.

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Give the costing variant & version

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Save and go back to the main screen.

Give the material number and execute in test run first. Check it & mark. It will show
the future price calculated.

Now go back and click on release. Following screen shot shows the released standard
cost estimate.

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Check and save it. Cross check the updated price in the material master as shown in
the screen shot below.

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(Note: Please consider the values shown in the screen shot as only the reference
values. Do not cross check the same with the desired output. The purpose is to show
the flow of activities.)

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5. Product Costing- Determining Actual cost per unit

Purchase of Raw Material

Use
The Parameters for Purchase of Raw Materials are defined here.

Procedure
Access the activity using one of the following navigation options:

ME21N
Transaction Code

SAP EASY Access Logistics/ Materials Management / Purchasing /

Purchase Order / Create / Vendor /Supplying Plant
Known.

Field Name Values

Vendor 200000

Purchasing Org TCLP

Purc. Group SPI (SPI Purchase Group)

Company Code TCL

Material 116

PO Quantity 10 KG

Net Price 18

Material 120

PO Quantity 5L

Plant SA

Net Price 2

Delivery Date 30.08.2005

Press Enter.

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Under Material Data Tab: Uncheck nfo Update field.

Now Confirm the Net Price entered is same as displayed, else re-enter.

Press Enter

Save

Goods Receipt

Use

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The Parameters for Goods Receipt of Raw Materials are defined here.

Procedure

Access the activity using one of the following navigation options:

Transaction Code MIGO_GR (MIGO)

SAP EASY Access Logistics/ Materials Management / Purchasing /

Inventory Management / Goods Movement/ Goods
Receipt / Purchase Order / GR for Purchase Order.

Field Name Values

Purchase Order 4500000040

Posting & Document Date 25.11.2005

Press enter

Field Name Values

Stor Loc MIT

Check Item OK check box

Press Enter

Save

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Creation of Production Order

Use
The Parameters for Creation of Production Order are defined here.

Procedure
Access the activity using one of the following navigation options:

CO01
Transaction Code

SAP Easy Access Logistics/Production/Production

Control/order/create/with material

Field Name Values

Material 123(Raw Brine)

Production Plant SA

Order Type PP01 (Standard Production Order)

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Field Name Values

Total qty 10

Finish Date 07.10.2005

Releasing, Scheduling & Costing the Production Order

Release the Order

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Scheduling

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Carry out Costing

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Check the planned cost calculated as follows

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Check all the tabs on the main screen of the production order & save.

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Goods Issue to Production Order

Use
The Parameters for Goods Issue to Production Order are defined here.

Procedure
Access the activity using one of the following navigation options:

MB1A
Transaction Code

SAP Easy Access Logistics/Production/Production Control/ Goods

Movement/ MB1A Goods Issue

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Field Name Values

Document Date xx.xx.2005

Posting Date xx.xx.2005

Movement Type 261

Plant SA(number)

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Enter the details as given below:

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Click on the overview to check the issues made

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Save the document.

Confirmation of Quantity & Activity for Operations

Use
The Parameters for Confirmation of Quantity & Activity for operations to Production
Order are defined here.

Procedure
Access the activity using one of the following navigation options:

CO11N
Transaction Code

SAP Easy Access Logistics/Production/Production Control/

Confirmation / Enter/ For Operation / Time Ticket

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CO11N
Transaction Code

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Field Name Values Values

Order 1000045 1000045

Ope/Acty 0030(Dissolver) 0040(Refinery)

Confirm type Final confirmation Final confirmation

Quantity Confirmation 10(Order qty) 10(Order qty)

Activity Confirmation

Machine 2 H

Labor 1H

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Check the actual cost debited to the production order in the Cost Report.

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Goods Receipt of Finished Goods against Production Order

Use
The Parameters for Creation of Production Order is defined here.

Procedure
Access the activity using one of the following navigation options:

MB31
Transaction Code

SAP Easy Access Logistics/Materials Mgt/Inventory mgt/Goods

Receipt/For order

Enter the details as given below

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Save the document.

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Go to the Production order cost report and see the cost analysis

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Creation of Sales Order

Use
The Parameters for Creation of Sales Order are defined here.

Procedure
Access the activity using one of the following navigation options:

VA01
Transaction Code

SAP Easy Access Logistics/Sales & Distribution/Sales/Order/Create

Enter the details as given below

Field Name Values

Sold to party 48

PO number & Date xxx / xx.xx.2005

Payment terms As required

Item 0010

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Material 123 (Material Code)

Order Qty /UOM As required

Item Category TAN

Plant /Storage Location As required

Press Enter. Select the Line item & go to Item conditions for Pricing

Enter the Pricing conditions as per example shown below

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Save the sales order & note the order number.

Delivery of Finished Goods

Use

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The Parameters for Creation of Sales Order are defined here.

Procedure
Access the activity using one of the following navigation options:

VL01N
Transaction Code

SAP Easy Access Logistics/Sales & Distribution/Shipping &

transportation/Outbound delivery/Create/Single
document/VL01n

Enter the details as shown in the example below

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Save & note the delivery number.

Picking of goods & Posting of Goods Issue

Use
The Parameters for Picking of goods & Post Good issue are defined here.

Procedure
Access the activity using one of the following navigation options:

VL02N
Transaction Code

SAP Easy Access Logistics/Sales & Distribution/Shipping &

transportation/Outbound delivery/Change/VL02N

Put the delivery number and press enter

Go to the Tab for Picking & enter the quantity to be picked

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Click on Post goods issue. The message will be displayed for Outbound Delivery
Saved.

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Billing

Use
The Parameters for Creation of Billing Document (i.e. Invoice) are defined here.

Procedure
Access the activity using one of the following navigation options:

VF01
Transaction Code

SAP Easy Access Logistics/Logistics Execution /Outbound Process

/Goods Issue for Outbound delivery/Billing/ Billing
Document / Create

Enter the Details as per screen shot below.

Save the document & check the messages. If any errors are there, correct the same
& then Save. It will generate the Billing Document & also post the same in FI (i.e.
release of invoice to accounts).

Check the Accounting Document Posted.

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6. Glossary

Sr.No Terminology Meaning / Concept

1 Material Master A data record containing all the basic

information required to manage a material.

This data is sorted according to various

criteria including data of a descriptive nature
(such as size, dimension and weight) and
data with a control function (such as
material type and industry sector). In
addition to this data, which can be directly
maintained by the user, it also contains data
that is automatically updated by the system
(such as stock levels).

2 BOM It is a complete & formally structured list of

components of a product.

3 Cost Centre (CC) An organizational unit within a controlling

area that represents a defined location of
cost incurrence.

4 Activity Type A unit in a controlling area that classifies the

activities performed in a cost center

5 Primary cost Element Replica of GL Codes in Co. It is a Bridge

between FI & CO.

6 Secondary Cost Element It exists only in CO & is used for transferring

costs from one CO Object to other.

7 Distribution A process used for transferring cost from

one CC to another in the same cost element.

8 Assessment A process used for transferring cost from

once CC to another by using a Secondary
Cost Element.

7 Routing It defines one or more sequences of

operations for the production of a material

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To apply consumption accounting practice, the following will be the scheme of

accounting entries that will be configured in the system:

Transaction Accounting Entry

Purchase/Receipt of Inventory entry:

Goods
Material Inventory A/c Dr.
(Also considering Import
Cenvat Clearing A/c Dr.
purchase)
To GR/IR Inventory A/c
(Inventory value is booked
as per Purchase Order To Customs/Clg Provision A/c
terms) Purchase Statistical Entry:
Purchase Local/Import A/c Dr.
To Purchase Offset Loc/Imp A/c
Customs/Clg Purchase Local/Import A/c Dr.
To Customs/Clg Pur Offset Loc/Imp A/c

Logistic Invoice GR/IR Account Dr.

Verification
To Vendor Account
(Vendor Invoice)

Logistic Invoice Normal Entry

Verification
Customs/Clearing Provision A/c Dr.
(Customs/Clearing Invoice)
To Vendor Account
If Customs/Clg value > Pur Order Value
Material Inventory A/c Dr.
Cenvat Clearing A/c Dr.
To Customs/Clg provision account
Customs/Clg Purchase Local/Import A/c
Dr.
To Customs/Clg Pur Offset Loc/Imp A/c
If Customs/Clg value < Pur Order Value
Customs/Clg provision account Dr.
To Material Inventory A/c
To Cenvat Clearing A/c

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Customs/Clg Pur Offset Loc/Imp A/c Dr.

To Customs/Clg Purchase Local/Import A/c

Excise Invoice Cenvat Deposit A/c Dr.

Verification
Cenvat Held A/c (In case of capital pur) Dr.
To Cenvat Clearing Account

Period-end closing
entries

GR/IR Account Clearing Goods Received but Invoice not received

GR/IR Adjustment A/c Dr.
To Outstanding Purchase A/c
Invoice booked but goods not received
Goods-in-transit Stock A/c Dr.
To GR/IR Adjustment A/c
(This entry is provisional and is reversed in the
next posting period.)

Issue of Material to
Material Consumption A/c (P&L) Dr.
Production
To Material Inventory A/c
(to Process Order)

Work-in-process Stock (B/S) A/c Dr.

Realization of Work-in-
To Work-in-process stock change A/c (P&L)
process at period-end
To Applied Overheads A/c

Finished Goods Stock A/c Dr.

Receipt of Finished
Goods in Finished Goods To Cost of Goods Manufactured A/c
Stores
To Applied Overheads A/c

Finished Goods Cost of Goods Sold A/c Dr.

Despatched to Customer

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To Finished Goods Stock A/c

Sale of Finished Goods to Customer A/c Dr.

Customer To Sales A/c

Month-end entry for Price Variance A/c Dr/Cr

Variance calculation Cost of Goods Manufactured A/c Dr./Cr.

Monthly revaluation of Finished Goods Revaluation A/c Dr./Cr.

closing stock Finished Goods Stock A/c Dr/Cr.

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