Settling Production Orders in SAP FICO

In SAP FICO, settling production orders is a critical process that ensures the costs associated with production are properly assigned to the correct cost objects, such as cost centers or finished goods inventory. Settling production orders allows you to transfer costs from work-in-progress (WIP) to the final cost objects and ensures that all cost-related transactions are posted accurately. This article will guide you step-by-step on how to settle production orders in SAP FICO with examples for better understanding.

Step 1: Understand the Purpose of Settling Production Orders

Production orders in SAP FICO accumulate costs during the production process. These costs may include material costs, labor costs, and overheads. The settlement process ensures that the accumulated costs are moved from the production order to the correct accounting objects, such as cost centers, finished goods inventory, or profitability segments.

The main objectives of settling production orders are:

• Transferring production costs to inventory or other cost objects.
• Clearing the WIP (Work in Progress) accounts to reflect the actual production cost.
• Ensuring the accurate reflection of actual costs in financial accounting and cost controlling.

Step 2: Set Up the Settlement Profile

Before settling production orders, you need to configure a settlement profile. The settlement profile defines how costs should be settled, such as which cost objects should receive the settlement and which costs should be transferred. The settlement profile is assigned to production order types.

• Go to transaction OKO7 to define the settlement profile.
• Enter the settlement profile code (e.g., "0001") and assign the relevant settlement rules for your production order type.
• Define the settlement method, such as settling to finished goods inventory or a cost center.

Example: For production orders related to finished goods, you may use a settlement profile that settles costs to the Finished Goods Inventory account.

Step 3: Set Up the Settlement Rules

The settlement rules specify how the costs should be allocated when the production order is settled. These rules define the recipient of the costs, such as a cost center, asset, or inventory account. They also determine whether the costs will be capitalized or expensed.

• Go to transaction CO88 to define the settlement rules for production orders.
• Enter the production order and select the settlement method. Choose whether to settle to inventory, cost center, or profitability segment.
• Specify the percentage of costs to be allocated to each recipient.

Example: If you have 100 units of a finished product and the production order has incurred $5,000 in costs, you may choose to settle 80% of the costs to Finished Goods Inventory and 20% to a cost center for overheads.

Step 4: Review the Production Order Costs

Before settling a production order, it's important to review the costs that have been accumulated during the production process. This includes checking the material costs, labor costs, overheads, and any other expenses associated with the order.

• Go to transaction CO03 to display the production order.
• Review the costs posted to the order under the Costs tab. This tab will show the costs incurred for materials, labor, and overhead.
• Ensure that all necessary costs are captured and posted before proceeding with the settlement.

Example: A production order for 100 units of a product may have $3,000 in material costs, $1,000 in labor costs, and $1,000 in overhead costs. These costs should be verified before the settlement process.

Step 5: Settle the Production Order

Once you have reviewed the costs and set up the settlement profile and rules, you can proceed with settling the production order. The settlement process transfers the costs from the production order to the specified accounts, such as finished goods inventory or cost centers.

• Go to transaction KKS1 to settle the production order.
• Enter the production order number and the settlement period.
• Click Execute to perform the settlement process.

Example: After confirming the production order "PO1001," you proceed to settle the order. The costs of $5,000 will be transferred to the Finished Goods Inventory account as defined in the settlement rules.

Step 6: Verify the Settlement Results

After settling the production order, it’s important to verify that the settlement has been completed correctly. This involves checking the updated balances in the accounts and confirming that the costs have been posted correctly to the relevant cost objects.

• Go to transaction KSB1 to display the cost postings related to the production order.
• Review the cost center or finished goods inventory to ensure that the production costs have been correctly posted.
• Check the general ledger to confirm that the financial postings reflect the correct amounts for the settled costs.

Example: After settling "PO1001," the $5,000 in costs should now appear as a credit to the WIP account and as a debit to the Finished Goods Inventory account in the general ledger.

Step 7: Handle Partial Settlement (If Necessary)

In some cases, you may need to perform a partial settlement of a production order, especially when only part of the production has been completed. SAP allows you to settle the production order incrementally until the full settlement is completed.

• To perform a partial settlement, go to transaction KKS1 and enter the percentage of costs to be settled.
• Enter the partial settlement amount and execute the settlement.
• Repeat the process until the entire order is settled, if needed.

Example: If only 50% of the production is completed, you can settle 50% of the total costs. Later, when the order is fully completed, the remaining 50% can be settled.

Step 8: Post-Settlement Activities

After the production order has been settled, there may be additional activities required for closing the order and updating financial statements.

• Reconcile the settled costs with inventory and financial reports.
• Post any remaining adjustments to clear WIP accounts if necessary.
• Ensure that the correct profit and loss entries are made based on the settled production costs.

Example: After settling the order, the costs of $5,000 should be reflected in the balance sheet under Finished Goods Inventory. Additionally, any discrepancies in WIP accounts should be reviewed and cleared during the period-end closing process.

Conclusion

Settling production orders in SAP FICO is an essential step in ensuring that production costs are accurately transferred to the appropriate accounts. By following these steps—setting up the settlement profile, defining settlement rules, reviewing costs, and performing the settlement—you can maintain accurate cost reporting and inventory tracking. Regularly monitoring and verifying the settlement process ensures that your financial and cost accounting records remain accurate and up-to-date.