Bring Work in Process to Actual Costing Using the Material Ledger

  • by Vanda Reis, SAP America
  • October 23, 2009
Discover a development in work in process (WIP) functionality called WIP revaluation. See how you can use this functionality to fully absorb material and activity type variances in actual costing.
Key Concept

SAP developed work in process (WIP) revaluation functionality in 2003 to address Brazilian legislation related to actual costing. It was not initially released for other countries. Since SAP R/3 4.7, Financials Extension 2.00 and higher, WIP revaluation is available and released for all countries.

Work in process (WIP) inventory is the calculation of the cost of unfinished products. You can determine it two ways: by calculating the difference between the actual cost charged to an order and the actual cost credited to the order, or by valuation of the yield confirmed to date for each reporting point less the relevant scrap. Both are based on standard values for consumed materials and activity types.

To bring WIP to actual costing, SAP has a special development you can add to the Material Ledger cockpit called WIP revaluation. If you are already using the Material Ledger and actual costing, WIP revaluation could be useful in these two scenarios:

  1. In the case of partial delivery from a production or process order, all variances of materials and activity types are rolled up only to the partially delivered product. This can lead to distortion of the actual costing of the product and the WIP therefore remains valuated at the standard price.

  2. If no product is delivered in the period, the variances cannot be rolled up and remain as not allocated in the material ledger, the materials price difference accounts, and on the cost centers of the activity types. (For more about this scenario, see SAP Note 908776.)

With the WIP revaluation functionality, in the case of partial delivery, all variances of materials and activity types are divided between delivered product and WIP. If no product was delivered in the period, all variances of materials and activity types go to WIP.

Many organizations, especially those with a long production lead time and consequently a relevant WIP value, find that it is more desirable to assign variances to the standard WIP calculated during the period-end closing process.

I’ll show you how to do this by following a simple example using CDs. Before I get to the example, I’ll review some prerequisites you need.

Vanda Reis

Vanda Reis has been with SAP for five years and with SAP products since 1998. Her expertise is product costing and material ledger areas, where she has helped many organizations set up and optimize their processes. She has also worked in different areas within SAP, such as Catch Weight Management, SAP Solution Manager, and consolidations. Vanda holds a computer science degree with specialization in strategic management. She is member of PMI, holding an associate project management certification.

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