Finance Design for repetitive Manufacturing using product cost collector
Product cost collector is normally used for repetitive manufacturing or continuous manufacturing environment. This is a scenario where the machine keeps of churning finished items. Here the costing is periodic.
Another common use when cost on the individual production order is very low and it makes sense to do the costing on the basis of period using product cost collector. This is because they are short lived and too similar to do detail variance analysis on individual order. In this case, the production order is just for logistic purpose, for controlling “product cost collector” is used. For manufacturing folks in the shop floor it looks live normal production order which allow scheduling, converting planned order to production order through MRP etc, however the difference that the production order have no settlement rule and costing functions are inactive.
However, production order is not always required. And Product cost collector can be used for logistical purpose too.
In this blog we are going to look into the scenario where “product cost collector” is used both for logistical purpose and for costing.
To begin with, create configure an order type for product cost collector with a settlement profile. From controlling perspective, they are treated as master which are just created once and left. They are not suppose to created every year or period.
Further assign the RA key and costing variants for every plant to this order type.
It’s critical that all the Product cost collector has preliminary costing, for which a settlement profile is needed. This is different from the settlement profile for standard cost. However, both can be configured similarly with similar valuation variant. Please note that standard cost is required here as well. Further, simul costing is used for valuation of product cost collector. The valuation variant in the simultaneous cost is needed to value the actual cost of material, labor activity, Overhead costing sheet, cost of external process and sub-contracting.
For product cost collector, the behavior is different as compared to costing by order, In costing by order, WIP is not calculated until fully delivered or technically complete. However, in costing by period, it calculates WIP and variance at the same time every period. Consequently, RA key must be configured to all WIP calculation at target cost.
Material Master setting for product cost collector for Repetitive manufacturing.
The material master must be flagged with repetitive manufacturing and with REM profile.
REM profile is very important piece of configuration which controls the back flushing point among other things. It also control how GR, GI will be controlled during back flushing. Further, it controls whether it for Make to order or it’s for make to stock. They are configured by Tcode OSPT.
Back flushing points are milestone in routings which controls when the blackflusing should be done
Some snippet are as follows.
It confirm how the labor activity allocation or other activity allocation are posted during back flushing.
Controls the GR and GI postings
The product cost collector can be either created at the material level for plant or at the production version level. It’s good idea to create at production version level if you have alternative BOM or routing. In the material master, the production version is assigned as follow.
KKF6N :Create Product collector
A product cost collector is mandatory for every begin the process and it required for every material. Also, preliminary cost estimate is required which ideally should be recalculated every year. It provides an order number and gets various field updated with configuration. As ideally, it’s created for every production version of the material.
MF30 – Creating preliminary cost estimate
Similar to standard cost preliminary cost should be updated every year. This can be done at plant level for all the cost collectors.
MFBF Back Flushing
Back flushing if the most important transition for the manufacturing operation for the repetitive manufacturing. This transaction allows the backflush at the reporting points per routing. Good are issued, finished good receipted and scrapping – all happens with this transactions. Also, it allows the labor hours to be confirmed by backflusing.
Although template allocation and revaluation at actual price can be done for product cost collectors. I am skipping them for simplicity.
Actual Overhead calculations.
Depending updating the costing sheet assigned to the costing variant in simultaneous costing, the overhead is calculated. This OH debits the cost on the product cost collector and credit the overhead cost centers per the credit defined in the costing sheet.
Work in progress
Work in progress is valuated at the target cost. Normally the first priority for valuation of target cost is the preliminary cost estimate of product cost collector. However, priority can be modified as per below configuration.
For product cost by period, WIP and variance are created simultaneously. It’s calculated by deducting WIP and scrap from the target cost. The variance caused are examined and allocated in various category by input/output variances.
This is the different from costing by order where WIP is calculated until the order has the status final delivery or technically complete, once he order gets those status variance is calculated.
Variance can be broken down in variance categories which was posted in COPA value fields. The input variance are input price variance, input quantity variance, resource usage variance and remaining variance. Output variances are output price variance, mixed price variances, Lot size variance and remaining variances.
The final step in period cost by period is settle the product cost collector every period.
If the price control indicator is S, the variance is posted to price difference account. In COPA, the variance is broken down in various value fields depending on PA transfer structure settings. If the price control is V, the variance goes to inventory account, if there’s sufficient inventory.
In terms of COPA, variance category are posted in various value fields in COPA. They provide very powerful analytics where net margin can be analysed with the variance details. The variance category can be rolled up which can help in decision making to reduce the variance.
Repetitive manufacturing is normally used when good are made in mass and it’s really requires leaner costing and accounting design. Here we are moving away from managing individual production order to managing a product in each period. It really simplifies the costing design and data load on the system.