After our Go-Live we had gone through various tough stages while trying to stabilise the system.

Major challenge we faced was resistance from end users, lack of confidence on the new system by the external and internal stake holders. Finally after working so hard on the various points raised by the internal as well as external team, we succeeded.

In this blog I would like to highlight the most important challenge we faced. Mainly they are two in number;

          1) Clarity on COGM,  COGS & Production Order Price Difference general ledger accounts.

          2) Trying to equate the formula

          Opening Stock + Receipt – Issue = Closing Stock

1) COGM,  COGS & Production Order Price Difference general ledger accounts.

Let us start with COGM;

There will be mainly two entries posted in Cost of Goods Manufactured;

1)    During Production Order Confirmation

2)    During Production Order Settlement

First let me try to explain the GL entries posted during various stages starting from Raw Material receipt to Finished Good sales.

The postings can be divided into various Parts;

Part 1: Raw Material Receipt  

               Step 1: Raw Materials are received. (Goods Receipt – MIGO_GR)

Part 2: Vendor Payment

               Step 2: Invoice Receipt

               Step 3: Vendor Payment

Part 3: Raw Material Issue to Production

               Step 4: Raw Material used for the production of Semi Finished Good 1

                               Step 5: Semi Finished Good 1 used as raw material for the production of Semi Finished Good 2

                               Step 6: Semi Finished Good 2 used for the production of Finished Good

                  Part 4: Finished Good received in Inventory

Part 4:                      Step 7: Finished Good Receipt

                 Part 5: Sales

                                Step 8: Sales Delivery

                                Step 9: Billing released from Accounts

                                Step 10: Customer Payment

Part 1: Raw Material Receipt  

                 GL Entries during Step 1: Raw Materials are received at Inventory

Debit Credit

Stock of Raw Material       XXX

Raw Material GR/IR   XXX

Table 1.0

Part 2: Vendor Payment

           GL Entries during Step 2: Invoice Receipt

Debit Credit

Raw Material GR/IR XXX

Vendor Account XXX

GL Entries during Step 3: Vendor Payment

Debit Credit

Vendor Account XXX

Bank Account XXX

Table 3.0

                Part 3: Raw Material Issued to Production

GL Entries during Step 4: Raw Material used for the production of Semi Finished Good 1

Debit Credit

Raw Material Consumption XXX

Stock of Raw Material XXX

Stock of Semi Finished Good 1 XXX

Debit Credit

COGM of Semi Finished Good 1 XXX

Table 4.0

GL Entries during Step 5: Semi Finished Good 1 used as raw material for the production of Semi Finished Good 2

Debit Credit

Stock of Semi Finished Good 2 XXX

COGM of Semi Finished Good 2 XXX

COGM of Semi Finished Good 1 XXX

Stock of Semi Finished Good 1 XXX

Table 5.0

GL Entries during Step 6: Semi Finished Good 2 used for the production of Finished Good

Debit Credit

Stock of Finished Good XXX

COGM of Finished Good XXX

COGM of Semi Finished Good 2 XXX

Stock of Semi FInished Good 2 XXX

Table 6.0

Part 4: Finished Good Received in Inventory

GL Entries during Step 7: Finished Good Receipt

Debit Credit

Stock of Finished Good XXX

COGM of Finished Good XXX

COGM of Semi Finished Good 2 XXX

Stock of Semi FInished Good 2 XXX

Table 7.0

Part 5: Finished Good Sales

GL Entries during Step 8: Sales Delivery

Debit Credit

COGS XXX

Stock of Finished Good XXX

Table 8.0

GL Entries during Step 9: Billing released from Accounts

Debit Credit

Customer Account XXX

Finished Good Sales XXX

Table 9.0

GL Entries during Step 10: Customer Payment

Debit Credit

Bank Account XXX

Customer Account XXX

Table 10.0

Now let us try to understand COGM, COGS and Production Order Price Difference Accounts;

Finished and Semi Finished Material will be valuated at "Standard Price" for all COGM, COGS and Closing Stock calculation.

1.1) COGM: Cost of Goods Manufactured

Transactions hitting COGM account are;

a) Goods Produced

b) Goods Issued to Production Order

c) Reversal of Goods Produced

d) Entries posted during settlement of Production Orders ( Variance)

1.1.a) Goods Produced:

               When a finished or semi finished good is produced i.e after confirmation stock of the finished or semi finished good will be Debited and cost of  manufacturing the finished or semi finished good will be Credited with document type "WA". (Refer Table 6.0)

Entires will be posted against the particular material i.e with material number.

 

                                                                       Figure 1.0

1.1.b) Goods Issued to Production Order:

When a Semi finished good is issued against a production order Stock of the semi finished good is credited and  cost of  manufacturing the semi finished good is debited with document type "WA". (Refer Table 6.0)

Entires will be posted against the particular material i.e with material number.

 

                                                                        Figure 2.0

1.1.c) Reversal of Goods Produced:

When a finished / semi finished good "A" Quantity is produced at "X" rate and reversed "B" Quantity at "Y" rate, the quantity will be reversed at "Y" rate and the difference in price "X - Y" will be posted in Price Difference and COGM account.

GL entries posted will be;

(For GL entries posted when Raw Material is Issued to Production of Semi Finished Good refer Table 4.0)

Debit Credit

COGM of Semi Finished Good XXX

Stock of Semi Finished Good XXX

Stock of Raw Material XXX

Raw Material Consumption XXX

Production Order Price Diff Account XXX

Table 11.0

 

1.1.d) Entries posted during settlement of Production Orders ( Variance)

During settlement of production order variance will be posted to Production Order Price Diff Account and COGM

KIndly chek my blog "Understanding Production Order Variance Part - 1 " (http://scn.sap.com/community/erp/manufacturing-pp/blog/2012/03/13/understanding-production-order-variance--part-1).

Note: There is no hard and fast rule for analysing COGM. Analyse COGM based on the analysis I have given above, if any other entries are posted we have to analyse those entries one by one.

Let me try to explain COGM entry for one material.

COGM entry posted for material "FG1" is 27,134.90 AED.

Let me explain the entries. "FG1" produced is (Execute Transaction Code MB5B for movement type 101 + 102 ) 28,480,013.2 AED.

"FG1" issued to production order is (Execute Transaction Code MB5B for movement type 261 + 262 ) 28,507,148.10 AED.

COGM -> 28,480,013.2 - 28,507,148.10 = 27,134.90

1.2) COGS: Cost of Goods Sold

For calculating Cost of Goods Sold materials will be va;luated at standard price maintained in the material master.

Execute Transaction Code MB51 for movement type 601 + 602. Also consider price difference during sales reversal.

Both the 601 & 602 values should match with COGS general ledger (If no price diference for sales reversal is there).

                                                                         MB5B 601 + 602 Report

                                                                                  Figure 4.0

                                                                           FBL3N COGS Report

                                                                               Figure 5.0

1.3) Production Order Price Difference Account

KIndly chek my blog "Understanding Production Order Variance Part - 1 " (http://scn.sap.com/community/erp/manufacturing-pp/blog/2012/03/13/understanding-production-order-variance--part-1).

2.0) Closing Stock:

Formual for closing stock;

( Opening Stock + Receipt ) - Issues =  Closing Stock

i.e Opening Stock + COGM = Closing Stock

But in most of the cases if we apply the formula the closing stock will not match. All material movement has to be considered while calculating closing stock of material.

Let us try to analys few Scenarios:

Scenario 1: Material Stock Transfer

Let us consider two materials RMOPCK2 and RMSRCK1

Material Opening Receipt Issue Closing

FG1 276,120.06 116,157,464.09 115,882,172.88 814,101.12

FG2 0.00 7,868,063.25 7,616,416.50 0.00

Table 12.0

If we substitute the values in the formula the closing stock will not match. We need to consider all material movements.

Material Opening Receipt IssuePrice Diff.

(0 Qty)Material Transfer

Closing

FG1 276,120.06 116,157,464.09 115,882,172.88 37,161.73 225,528.12 814,101.12

FG2 0.00 7,868,063.25 7,616,416.50 (251,646.75) 0.00

Table 13.0

Formula modified as below;

( Opening + Receipt + Price Diff. + Material Transfer ) - Issue = Closing Stock

Sustituting the Valyues

FG1 -> (276,120.06 + 116,157,464.09 + 37,161.73 + 225,528.12) - 115,882,172.88 = 814,101.12

FG2 -> (0.00 + 7,868,063.25 + 0.00 + (251,646.75)) - 7,616,416.50 = 0

Useful Transaction Codes:

MB5B - Material Movement Report

MB51 - Material Movement Report

FBL3N - General Ledger Report

ERP Post Implementation Challenges – Part 2 Reconciling GL, Raw Material Consumption, Finished/Semi Finished Material Production, Vendor InvoicePosted by Ranjit John in SAP ERP Financials on Apr 2, 2012 11:27:13 AM

In my previous blog "ERP Post Implementation Challenges’ - Part 1 " I have explained the concept of COGM, COGS and deriving the closing stock. In this blog I will be concentrating on the Reconciling GL, Raw Material Consumption, Semi Finished / Finished Goods Production and Vendor Invoice.

Let me divide the topic into;

Reconciliation 1:

     Opening Stock + Raw Material Receipt - Raw Material Consumed  =  Raw Material Closing Stock

Reconciliation 2:

     Receipt of Raw Material = Invoice received from Vendor

Reconciliation 3:

     Raw Material Consumed = Raw Material Issued for the Production of Finished Good

                                         = Raw Material Consumption GL

Reconciliation 4:

     Raw Material Closing Stock =  Stock GL of Raw Material

Now let us analyze each scenario;

Reconciliation 1: Opening Stock + Raw Material Receipt - Raw Material Consumed   =   Raw Material Closing Stock

As explained in my Previous Blog "ERP Post Implementation Challenges’ - Part 1 " all material movements should be considered for calculating the closing stock of material.

Reconciliation 2: Receipt of Raw Material = Invoice received from Vendor

     The Raw Material received should be matching with the invoice received from the vendors. I have done quite a lot of research to generate report on the list of invoices received against a material.

   Material Receipt (MB5B) with movement type 101+102 = Stock GL of Raw Material + Price Diff GL of Raw Material with Type "WE"

To find the list of Invoice generated against the Raw Material:

There can be invoice and Credit/Debit notes posted against the material.

To generate Invoice list generated against the material:

We have to combine few tables for generating the report.

Execute SQVI and create a query with the following data.

Tables: RBKP, RSEG, LFA1

Joining Condition:

Tables RBKP-RSEG -> Joining Fields BELNR,GJAHR

Tables RBKP-LFA1 -> Joining Fields LIFNR

Tables RBKP-LFA1 -> Joining Fields LIFNR

Figure 1.0

Figure 2.0

To generate Credit Note / Debit Note list generated against the material:

We have to combine few tables for generating the report.

Execute SQVI and create a query with the following data.

Tables: RBKP, RBMA, LFA1

Joining Condition:

Tables RBKP-RBMA -> Joining Fields BELNR,GJAHR

Tables RBKP-LFA1 -> Joining Fields LIFNR

Figure 3.0

Figure 4.0

Debit / Credit will be recorded as "S" or "H"

Reconciliation 3: Raw Material Consumed = Raw Material Issued for the Production of Finished Good   = Raw Material Consumption GL

Raw Material will be consumed for the production of Semi / Finished Good, which will be created against Process Order. The total raw material consumed against a process order can be generated from transaction code KOB1.

Let me explain with an example:

Raw Material 1 (RM1) is used for the production of three Finished Good (FG1, FG2, FG3)

Material Process Orders Quantity Produced

FG1 10000035 67,981.00

FG2 11000035 343,842.00

FG3 12000035 61,601.00

Total Raw Material RM1 issued during the period is 106,136.00 TO. This is the quantity used for then production of 473,424.00 TO of FG1, FG2, FG3.

Figure 5.0

Table 1.0

(Report from MB51 movement Type 101 + 102)

From transaction KOB1 we will be able to equate the Finished Good Produced and Raw Material Consumed quantity.

Figure 6.0

Figure 7.0

 

Raw Material (RM1) Consumption GL should be updated with the value of 1,061,360.00

(Report from FBL3N Raw Material (RM1) Consumption GL + Raw Material (RM1) Price Difference GL)

Fugure 8.0

GL Entries Posted During the Process;

Raw Material Consumed for Production of Finished Good

Reconciliation 4: Closing Stock = Stock GL of Material

Generate Closing Stock report for Material from MB5B

Figure 9.0

Stock Report of Material From FBL3N

Figure 10.0

Generally We can reconcile opening, receipt, issue Closing by inputting values in the table listed below;

 

Material

Opening

0 Qty

Mat Receipt

(101+102)

Price Revaluv

ation

MIR7

Issue To

Production

Order

261 + 262

Issue To Cost Center

201 +

202

Physical

Inventory

Posting

GL Consum

ptionSales Closing

A B C D E F G H I J K

FG1 A B C D E F G HD+E+F+

G+HJ

(A+B+C+D) -

(F+G+H+J)

1,683,916.80

54,700.53

7,539,313.34

256,027.28

670.28

7,543,679.84

0.00 0.007,800,377.40

161,430.24

1,828,847.87

 

Table 2.0

0 Quantity - Execute Transaction MB5B. Sort Based on Movement Type

0 Quantity Included Price Revaluation & MIR7 entries

0 Qty of FG1 Entry:

  0 Qty Other        =   54,700.53 +

Price Revaluation =  256,027.28

0 Qty                   -> 310,727.81

Figure 11.0

Debit Credit

Raw Material Consumption XXX

Stock of Raw Material XXX

Stock of Finished Good 1 (FG1) XXX

COGM of Finished Good 1 (FG1) XXX

Table 3.0

Important Transaction Codes:

Transaction Code Description

MB5B Material Report

MB51 Material Report

FBL3N GL Report

FBL1N Vendor ReportKOB1 Production ReportMCBE Material ReportMC.A Material ReportMC+E Sales ReportSQVI Dynamic Query

Table 4.0