Period End Closing

Period End Closing

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Document Reference: Business Blueprint Strategy

Version Number: 1.0

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Date: 21/05/2003

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Issue Date Author Comments1.0 21.05.2003

Period End Closing

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Period End Closing

We perform the following activities at the end of the period:

Process cost allocation

Revaluation of activities at actual prices

WIP calculation

Variance calculation

Settlement

1. Period End Closing in Cost Center Accounting

Revaluation at Actual Prices

Cost accounting object uses an activity from a cost center to start with a plan price to allocate the activity. This is because the actual price is calculated during period-end closing.

In the actual price calculation, the SAP system performs an iterative calculation of the prices for the activity types. To do this, it uses the actual costs that were debited to the cost center or business process, and the activities actually incurred.

After actual price calculation, we can revaluate the objects at actual prices.

The system always determines the variances between the costs posted up to this point and the costs that occur under the new prices. The corresponding sender cost center is credited by the actual price revaluation and the receiver is debited accordingly.

Price calculation can be based on:

Period-based price

Average prices

Cumulative price

Period-Based Prices

The system divides the costs arising in each period by the activity. This can result in different prices in each period. If fixed costs remain constant throughout the fiscal year but the activity quantities fluctuate, the activity input valuation uses a relatively high price in those periods with lower activity quantities

Average Prices

The average price is based on the total costs from all periods divided by the total activity quantity of an activity type from those periods. This ensures that the activity inputs of all receivers are valuated with the same price, regardless of the period in which the activity input occurs.

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Period End Closing

Cumulative Prices

In cumulative price calculation the price for a period is based on the accumulated total costs and activity of all previous periods (the period entered in the To period field). In this way, price calculation allows for cost fluctuations in the periods.

When revaluation is carried out under the cumulative procedure, all the sender objects are fully credited in those periods that you specified for actual price calculation. In this process, the activity inputs are valuated with the new price in each selected period. Clearing entries are made in these periods to ensure that this equal valuation.

After revaluation, it is important that we execute settlement for all of the receivers again. This is an important requirement, as it is the only way that we can pass on revaluation data from a revaluated CO object to further CO objects.

Revaluating at Actual Prices 

Prerequisites

Before revaluating at actual prices, we should do the following:

1. SAP recommends us to set the period lock for actual activity allocation (RKL).

2. Set the period lock for actual indirect activity allocation (RKIL), so that we can carry out the following steps on solidly based costs. Should it still be necessary to carry out further activity allocations in Financial Accounting before settlement, we must carry out the following steps once again.

Carry out the splitting function.

Calculate the price. The actual price is used for revaluation

2. Work in Process in Cost Object Controlling – For Open Production Orders

The WIP calculation function valuates the unfinished products (work in process).

Work in process is the difference between the debit and credit of an order that has not been fully delivered.

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Period End Closing

Prerequisites

In the posting rules, we specify the G/L accounts to which we want to settle the work in process.

That a cutoff period is defined to protect the data of the previous period from being overwritten

The cutoff period divides the life cycle of the production order into open and closed periods.

o The work in process calculated up to the cutoff period is not changed the next time WIP is calculated.

o The work in process calculated for later periods is overwritten by the current WIP calculation.

Calculation of Work in Process

This method determines the work in process for each production order by calculating the difference between the actual costs incurred and the actual costs settled (that is, the difference between the debits for goods issues, internal activity allocations, external activities, and overhead on the one hand, and the credits for goods receipts on the other). Once the last part of the order lot has been delivered to stock, any remaining work in process must be canceled so that the order costs can properly be settled to stock.

The status of the order determines whether WIP calculation creates or cancels the work in process.

If the order has the status REL (released), the system can calculate work in process.

Once the order receives the status DLV (Delivered) or TECO (Technically completed), the work in process calculated in a previous period is canceled.

The cost estimate used to valuate the work in process may contain costs that are not relevant for inventory valuation, such as sales and administration costs. In a product cost estimate with a quantity structure, these costs are shown in a separate cost component view. Costs that are not relevant to inventory valuation are not used for the valuation of the work in process.

Calculation of Reserves for Unrealized Costs

When the system calculates the WIP, it may create reserves for unrealized costs for certain orders. This happens when the actual cost incurred to date for the manufacturing order is less than the credit posting at the time of the goods receipt. The system creates these reserves because higher costs than the actual costs to date are expected on the basis of the information in the standard cost estimate for the material that was used for material valuation. When we settle, reserves for unrealized costs usually result in the

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Period End Closing

system debiting the expense account (from reserves) in the income statement and crediting the reserves for unrealized costs in the balance sheet.

Update of Work in Process

The work in process is updated to the manufacturing order under secondary cost elements of cost element type 31. Secondary cost elements of cost element type 31 are results analysis cost elements.

The system can update the work in process and reserves not only as a sum but also split into fixed and variable costs. A requirement for this function is that the price control indicator in the material’s master record is set to S (standard price) and that a current standard cost estimate for the material exists.

Variance Calculation 

Variance calculation provides us with detailed cost information on products or manufacturing orders.

Variance calculation accomplishes the following:

Shows the amount of the variance between the target costs and the control costs (the control costs can be the net actual costs, for example)

Determines the difference between the actual costs debited to the object and the credit from goods receipts (total variance)

Valuates the unplanned scrap quantities with target costs to determine the scrap variances

Determines production variances and planning variances for informational purposes

Shows the causes of the variances and assigns the variances to different variance categories depending on the cause

The system updates the variances by object for each cost element, or for each cost element and origin.

Variance calculation provides you with the information you need before you can take steps to improve your cost situation.

Order Settlement

During the production process, Orders are debited with actual costs. Each time goods are received into inventory, the system valuates the receipt and credits the manufacturing order accordingly. The actual costs posted to an order can be more or less than the value with which an order was credited when the goods receipt was posted. When we settle, this difference between the debit and credit of the order is transferred to Financial Accounting (FI).

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Period End Closing

The order balance can be reduced to zero by transferring to Financial Accounting (FI) the difference between the preliminary inventory valuation (goods receipt) and the actual costs incurred.

o Settlement of the order balance and the variances

For manufacturing orders that have the status delivery completed or technically completed, the difference between the debit and credit of the order (the balance of the order) is transferred to Financial Accounting. Depending on the price control indicator of the material, the balance is settled to a price difference account or a stock account.

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Period End Closing

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