Understanding the Impact SAP's "Planned Scrap" Functionality Has on Your Cost of Goods Accounting

  • by John Jordan, ERP Corp
  • June 15, 2003
Many companies know how much scrap is routinely involved in the production of their assemblies and finished goods. R/3 provides a method of entering these known scrap amounts as planned scrap in logistics master data. Several potential advantages result in areas such as costing, production, and procurement.

Since no manufacturing process is perfect, there will always be some percentage of assemblies or components that does not meet the required production quality. Management accountants are concerned with how the cost of this scrap is reflected in the cost of goods manufactured. They are also interested in how scrap affects production costs and variances at month-end.

Many companies know how much scrap is routinely involved in the production of their assemblies and finished goods. R/3 provides a method of entering these known scrap amounts as planned scrap in logistics master data. Several potential advantages result in areas such as costing, production, and procurement.

SAP online documentation describes how the process of scrap works, without providing examples that can be easily followed from a costing perspective. I’m going to give you a short demo on the costing process with no planned scrap. You can then refer back to this scenario for comparison purposes when examining the effects of planned scrap on costing.

I’ll examine the effect of planned scrap on planned costs in standard cost estimates. I’ll then follow the production process and postings to a product cost collector1 before and after material movements occur, to illustrate the effect of scrap on the actual costing process.

John Jordan

John Jordan is a freelance consultant specializing in product costing and assisting companies gain transparency of production costs resulting in increased efficiency and profitability. John has authored bestselling SAP PRESS books Product Cost Controlling with SAP and Production Variance Analysis in SAP Controlling.

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