Lesson 4 of 5
Settlement of production orders
11 min
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Calculation tells you the numbers; settlement puts them in the books. For production orders, settlement does two things depending on status: for open orders it transfers WIP to financial accounting; for finished orders it cancels earlier WIP and transfers the variance. After settlement of a finished order, the order balance is zero.
The settlement rule of a production order
A production order for stock normally settles to the material it produces. The settlement rule is created automatically from the order type; SAP's material describes the default rule PP1 (production material, full settlement) for settlement type FUL. Because finished goods are valued at the standard price, the variance cannot go to the material's inventory value; it goes to a price difference account instead.
- OverheadActual overhead applied with the costing sheet
- WIPCalculated for open orders; cancelled for finished ones
- VariancesCalculated for DLV and TECO orders
- SettlementWIP and variances posted to FI; balance to zero for finished orders
- ReviewSettlement log, WIP and price difference accounts, order balances
What settlement posts
| Period | Order state | Posting (USD) |
|---|---|---|
| June | Open, WIP 31,200 | Debit unfinished goods inventory 31,200 · Credit change in WIP 31,200 |
| July | Delivered, WIP cancelled | Debit change in WIP 31,200 · Credit unfinished goods inventory 31,200 |
| July | Delivered, variance 2,900 | Debit price differences 2,900 · Credit change in finished goods inventory 2,900 |
Settlement postings for order 1001200 (simplified accounts).
SAP's learning material describes the variance posting for a material with price control S: debit price differences, credit finished goods inventory change, with the order's profit center updated. In SAP S/4HANA the material ledger is active, and settlement also updates it with the price difference.
Variances by category in the income statement
A single price difference line says USD 2,900. With a price difference splitting profile, set up in Customizing (Define Accounts for Splitting Price Differences), settlement posts each variance category, optionally by cost element group, to its own G/L account. The income statement then shows input price, quantity and other variances separately, and margin analysis receives them by category through the Universal Journal. Costing-based CO-PA, if still active, receives them through its own value field mapping.
| Account | Without splitting (USD) | With splitting (USD) |
|---|---|---|
| Price differences (single account) | 2,900 | — |
| Variance: input price | — | 0 |
| Variance: input quantity | — | 2,120 |
| Variance: resource-usage | — | 300 |
| Variance: remaining input | — | 480 |
Running settlement
Settlement runs per order or collectively. Classic SAP GUI transactions commonly used are KO88 for one order and CO88 for production orders in a plant; many companies schedule the whole sequence in the Schedule Manager, which SAP's material shows with steps for overhead, WIP, variances and settlement. As with any settlement, run a test first and read the log for orders that could not be settled.
After settlement: close the order
Once a finished order is settled and its balance is zero, it should be closed so nothing else can post to it. A late invoice for external processing or a forgotten confirmation that lands on a closed order is rejected and has to be redirected, which is better than reopening a variance that has already been reported. Contoso's closing checklist includes a monthly list of DLV and TECO orders with zero balance that are not yet closed, and a list of orders closed in the period, so Dan can see that the order population is shrinking as it should.
What would you do?
After the July close, the price difference account shows USD 2,900 for order 1001200, but the unfinished goods inventory account still holds the order's June WIP of USD 31,200. What most likely happened?
- Production orders for stock settle to the material; variances go to price differences.
- Settlement posts WIP for open orders, cancels it for finished ones, and transfers variances.
- A price difference splitting profile posts variance categories to separate accounts.
- Keep the sequence: overhead, WIP, variances, settlement; read every log.
Check your understanding · not graded
Lesson check
1. For a material with standard price control, where does settlement post the variance?
2. What does a price difference splitting profile do?
3. What should a finished order's balance be after settlement?
4. Which SAP GUI transaction is commonly used for collective settlement of production orders in a plant?