Calculating WIP for Production in SAP FICO

Work in Progress (WIP) refers to the inventory of partially finished goods that are in the production process but have not yet been completed. In SAP FICO, calculating WIP is crucial for accurate financial reporting and inventory management. This article provides a step-by-step guide on how to calculate WIP for production in SAP FICO with examples to ensure accurate tracking of production costs.

Step 1: Understand WIP Calculation in SAP FICO

In SAP, WIP is calculated based on the costs incurred for partially completed goods. These costs include direct costs such as raw materials and labor, as well as indirect costs like overheads. The WIP calculation is typically carried out at the end of a period to adjust for any unfinished production orders.

The WIP calculation involves:

• Determining the value of the unfinished goods in production.
• Calculating the cost incurred up to the point of completion for each production order.
• Allocating the appropriate WIP value based on the percentage of completion of each order.

Step 2: Configure WIP Calculation in SAP

Before calculating WIP, you need to configure the system to ensure that the WIP functionality is active in SAP FICO. To do this:

• Go to transaction OKG2 to define WIP settings for your company code.
• In the configuration screen, select Work in Progress (WIP) and activate the necessary settings for WIP calculation.
• Ensure that the appropriate cost elements and accounts for WIP are mapped to reflect the WIP adjustments during the period-end closing.

Example: In transaction OKG2, you define the WIP account as 123456 and the WIP cost element as 567890 to track the WIP adjustments.

Step 3: Define Costing Variants for WIP

To calculate WIP correctly, the system needs to know how the costs are allocated during production. This is done using costing variants, which define the method for calculating costs and determining the value of WIP. The costing variant helps to determine whether to use standard costing, actual costing, or another method.

• Go to transaction OKKV to define or modify the costing variant for WIP calculation.
• Choose the appropriate costing variant (e.g., "0001" for standard costing) and ensure it is set up to allow WIP calculation.
• Ensure that the costing variant links to the correct costing sheet and overhead rates for calculating WIP during the period-end closing process.

Example: In costing variant "0001," the standard costing method is applied, and WIP is calculated based on the overhead cost allocation defined in the costing sheet.

Step 4: Calculate WIP Using Production Orders

Once the configuration is done, WIP can be calculated using production orders. During production, costs are accumulated in production orders. These costs need to be assessed for unfinished production orders at the end of each period.

• Go to transaction KKS1 to start the WIP calculation for production orders.
• Enter the period for which you want to calculate WIP and select the relevant production orders.
• Click on Execute to run the WIP calculation.

Example: In transaction KKS1, WIP for the production order "PO1001" is calculated for the month of December, considering the percentage of completion and the incurred costs.

Step 5: Review WIP Calculation Results

After executing the WIP calculation, you need to review the results to ensure that the WIP value has been correctly calculated and allocated to the appropriate accounts.

• Go to transaction KSB1 to view the WIP calculation results for individual production orders.
• Check if the WIP amounts are correctly allocated to the WIP accounts and if the costs are calculated based on the percentage of completion.
• Ensure that the WIP values are reflected accurately in the cost accounting and financial statements.

Example: After running the WIP calculation for production order "PO1001," the system shows that 60% of the production costs have been completed. The WIP value for this order is calculated accordingly and allocated to the WIP account.

Step 6: Post WIP to Financial Accounting

Once the WIP values are calculated and reviewed, they need to be posted to the financial accounting module for accurate reporting. This ensures that the WIP value is reflected in the balance sheet under inventory.

• Go to transaction KKAX to post the WIP to financial accounting.
• Enter the necessary information such as production order numbers, WIP amounts, and the relevant posting period.
• Click Post to record the WIP adjustments in the system.

Example: After reviewing the WIP calculation for order "PO1001," you post the WIP of $5,000 to the WIP account in the general ledger using transaction KKAX.

Step 7: Monitor and Adjust WIP Regularly

WIP should be monitored and adjusted regularly to ensure that it accurately reflects the progress of production. If necessary, adjustments can be made to the WIP amounts based on changes in the production process, cost allocation, or inventory values.

• Regularly run the WIP calculation (transaction KKS1) to ensure that the WIP amounts are up-to-date and reflect the true status of production.
• Adjust the WIP amounts if there are discrepancies or if the percentage of completion changes significantly.

Example: If production order "PO1001" is completed in the next period, you adjust the WIP for this order accordingly and remove the WIP amounts that were previously posted to the financial accounts.

Step 8: End of Period Closing for WIP

At the end of the period, the WIP calculations need to be finalized. This process involves reconciling the WIP amounts, ensuring that all costs are allocated correctly, and preparing for the next period’s production.

• Go to transaction KKAK to perform the WIP clearing process at the end of the period.
• Check the WIP amounts and ensure that they match the actual production costs before clearing the WIP account.
• Post the final WIP adjustments to clear any unposted or outstanding WIP amounts.

Example: At the end of the quarter, WIP for production orders is cleared by posting the final adjustments, ensuring that WIP accounts are accurately reflected in the balance sheet.

Conclusion

Calculating WIP for production in SAP FICO is a critical process for tracking unfinished goods and ensuring accurate financial reporting. By following these steps, you can effectively configure WIP calculations, review results, and post WIP to financial accounting. Regular monitoring and adjustments of WIP ensure that your production costs are accurately captured, helping your organization maintain control over inventory and cost management.