PP integration takes place mainly at these stages-

1) When you create and release the production order, the planned costs will be calculated from
BOM and Routing/Master Recipe master data.-Co document will be generated for Planned postings

2) When you issue goods (Raw materials) to production (against Production order) the FI and CO
entries will get generated -CO27
FI Entry- Consumption A/C Dr
To Inventory A/C Cr
CO primary cost postings will be triggered against the cost center.

3) When operations in routings are confirmed, the cost centers in the work centers will be charged
with the activity costs
here secondary cost postings will be triggered in the production cost centers.

4) After final confirmation of the operations, the GRN will takes place against the production order,
here also CO and FI documents will be generated -CO11
FI-Entry-
Finished Goods A/C Dr
To cost of goods produced A/C

5) If the production order is not confirmed fully, we have to run WIP at the month end-KKAO
FI entry- WIP A/C Dr
To Change in WIP A/ c Cr
The above entry will be reversed at the time of settlement of production order.

6) When the PO is technically completed, then settlement of PO takes place-K088

FI entry-
Price Difference (Goods) A/C
To cost of goods produced A/C

Adding to what is mentioned in above posts. Transaction OBYC (FI module) will help you to check the
configuration.
SAP provides quite mod101) solution for GL account assignment. It starts with various transaction
BSX, WRX etc...
Then flow goes to Valuation modifier --> Valuation Class (comes from material master) -->
Transaction Key.
And yes, movement types very important role in FI-MM integration.
e.g. material M1 will hit different GLs if movement type (e.g. Good issue -261 or Good receipt-101) is
different.

1. During goods issue to production:

Consumption of raw material - Dr
Stock account - Cr
2. During goods received from production:
Inventory account - Dr,
Cost of goods produced - Cr,
Price difference - Dr/Cr
What is Production Order Settlement?
Settlement is nothing but offsetting the costs to the FI portion. CO objects carry costs, which needs
to be re-assigned to the G/L accounts where it comes from.
CO never generates any data, it only tracks the same onto some objects which are analysed for
definite purpose of tracking the resources which are debits in FI as costs in G/L).

In simple words, the flow is like following -

1. Direct Costs are incurred (like material consumption) in form of issues to prod orders. These are
captured in G/L. Whenever you issue, consumption account is debited. But are also debited to prod
order as
Consumption...Dr
Inventory.......Cr

2. Indirect costs are incurred in form of debits to Cost centres in G/Ls. These are to be allocated &
absorbed in Products via Prod Orders. So, it is allocated to prod orders via diff media like costing
sheet or Indirect activity allocations.
Here again Prod order is debited with some amount.
When the costs are incurred these should be transferred further when the order is closed or
delivered to stock.
So, whenever you deliver the order, the following entry is generated-
Inventory....Dr
Cost of Prod /Mfg. Variance....Cr

If your Fin Goods' predetermined cost are same as that of actual costs incurred, there will no price
difference account affected. But when your plan cost (target cost) & actual costs are different; the
difference is OFFSET or SETTELLED
to price diff account as-
Cost of Prod / Mfg. Var....Dr
Price diff acc..........Cr
Note that Price diff accent is not created as COST ELEMENT.
If actual cost is less than target cost, entry would be reverse.

During production order settlement following Accounting Entry passed

Consumption Account Dr
To Price Difference Account Cr
Vice Versa Can also be possible
Consumption Account is picked from GBB-AUF & Price Difference Account is picked from PRD

From process order creation till variance settlement. Below mentioned the accounting entries
posted and OBYC settings.
Accounting Posting-
· Standard Cost of FG – 5
· MAP of RM- 10
· As per BOM 1 kg of FG required 1 kg of RM
· Process order is for 1 kg of FG

Accounting Entry:
At the goods issue to process order
DR- RM consumption ......... 40
CR- RM inventory ........................40
(RM issued qty * MAP)
OBYC –
RM inventory: BSX
RM Consumption: GBB- VBR

At the FG goods receipt

DR- FG inventory ..................... 5
CR- FG COGM.........................................5
(GR qty * Std cost)
OBYC-
FG Inventory: BSX
FG COGM: GBB- AUF

At the variance settlement

DR- Production Variance...................35
CR- FG COGM.......................................................35
(variance)
OBYC
Production Variance: PRD- PRF
FG COGM: GBB- AUF
FG COGM account is created under accounts group change in stock.
Production variance account is created as P&L account, but no cost element has been created.
Account production variance (This account is created to post variance at the month end). This
account is configured in PRD- PRF.
This account is created as P& L account, but no cost element is created for this.

PP Cycle:
Material Master - MM01
2: BOM creation - CS01
3: Work Center creation - CR01
4: Routing creation -CA01
5: PIR Generation -MD61
6: MRP Run - for Total Planning - MD01
for Single-Item, Multi-Level - MD02
7: Evaluation through MRP list and Stock requirement list -
MRP List -MD05,
Stock Requirements List - MD04
8: Conversion of Planned order to Production order - With a
planned order -CO40
With material - CO01
9: Order management - Change >With material CO02
10: Confirmations- For order CO15
For Operation -For time ticket -CO11N
11: Goods issue - MB1A--261Movement type
12: Goods receipt - For Order MB31
13: TECO or Close Order- from Prod. Order Header menu
14: KO88 Order settlement
15: KKBC_ord costing report
this is the pp cycle

Purpose - need to check, how settlement becomes not equal to zero. (I am facing this problem)
Ans :- For this issue u need to check cost structure setting whether it is maintain properly or not.
Check material master accounting & costing views.
Check activity type to cost center assignment in work center costing tab.
check setting in OPL8 tcode -> costing tab check your actual & planned variant, default rule.

Consumption of any material In SAP is basically deduction of the available stock quantity of that
material. When we issue material physically for manufacturing process, we have to do the same in
SAP also. During normal production process in any factory, broadly, material is issued to production
in below forms: -
1. CPL (Combined Pick List) based – there is a production order in SAP which contains all the
materials with quantities as called in Bill of Material (BOM), required for a assembly. In this case
material is consumed in production order, i.e. 261 movement is done for the materials issued to
production. Materials can be consumed in 261 movement using T-codes “MIGO” and “MB1B”. So,
whenever stores’ person issues material physically to production, he/she will execute 261
movement in SAP.
2. Requisition based – Materials where consumption pattern is hard to define (for e.g.: - grease,
hardware items, running length insulation tapes etc.) are physically issued as per the requirement
given by production persons. This stock is consumed on cost center by doing 201 movement in SAP.
201 movement is done using “MB1B”.
3. Automatic consumption/Backflush - Material consumption in production order can be automated
by using backflush. Materials for which backflush is activated are consumed automatically when
production order confirmation is executed in SAP. No need to do 261 movement separately using
MIGO or MB1B. Backflush can be activated during routing of material or it can be activated in
Material Master itself at plant level. Backflush is generally used wherever systems like KANBAN exist.
SAP PP and SAP FICO
Updating price in material master data.
Defining activity type in the cost center.
Assigning activity type to work center.
Cost Estimation.
Production cost controlling
Posting accounting activities related to goods movement, material request, etc.

Production Order Confirmation

When goods are produced physically at the shop floor, then production order must be confirmed.
During confirmation, components materials can be consumed automatically via back flush
mechanism and Goods receipt of material can be performed automatically via operation Control key
in Routing.
However, instead of auto goods movement, manual Goods Issue and receipt can be performed
separately from confirmation.
Any failed goods movement due to a deficit of component stock can be reprocessed manually.
Activity costs such as machine, labor, etc. will also be updated in the production order during
confirmation on an actual basis.
The order gets CNF (Confirmed) and DLV (Delivered) status after final confirmation and final Goods
receipt.
If confirmation is posted wrongly, then we can cancel the confirmation and post it again with correct
data.

Discrete cycle:
1. Sales & operation planning - which takes previous year history and calculate for the next year.
2. Demand management - demand runs with the data given by SOP and the sales order.
3. MRP - MRP runs with the demand data and creates planned order (in-house prod. material) &
purchase requisition (ext. proc. material)
4. the purchase requisition is converted into purchase order
5. planned order is converted into prod. order.
6. In shop floor GI mvt-261 is done against the prod. order and the FERT is received through GR mvt-
101
REM cycle:
Sales & operation planning - which takes previous year history and calculate for the next year.
2. Demand management - demand runs with the data given by SOP and the sales order.
3. MRP - MRP runs with the demand data and creates planned order (in-house prod. material) &
purchase requisition (ext. proc. material)
4. the purchase requisition is converted into purchase order
5. the backflush t-code MFBF is done against the planned order which does both GI/GR mvt-131
6. the post processing for components is done through MF47
Introduction to SAP PP (Production Planning)
What is Production Planning?
 Production Planning is the process of aligning demand with manufacturing capacity to create
production and procurement schedules for finished products and component materials.

 SAP PP is an important module of SAP. It tracks and makes a record of the manufacturing
process flows, for example, the planned and actual costs. Also, goods movements from the
conversion of raw material to semi-finished goods.

 It is fully integrated with the other SAP modules: SD, MM, QM, FICO & PM.

Organization Structure in SAP PP

In any live Production Planning module, locations of manufacturing plants and storage within the
plants, should be available in the system.
Importance of Plant and storage locations in Production Planning-
 All Production master data is created at Plant level.
 Planning activities are also performed at Plant level.
 Production Confirmation process and related goods movement occur at plant and storage
location level.

Master Data in SAP PP

Master data is generally static for any company and is very rarely changed depending on the
requirement. There are 5 master data to be maintained in Production Planning module.

1. Material Master
The material master contains information on all the materials that a company procures, produces,
stores, and sells. It is a number uniquely identifies a material master record, and hence a material.
Materials with the same basic attributes are grouped together and assigned to a material type such
as finished, raw material, etc.
It is used for the following purposes:
1. To purchase materials
2. For Goods Movement postings such as goods issue or receipt in inventory management and
for physical inventory postings
3. In invoice verification for posting invoices
4. In sales and distribution for sales order fulfilment process
5. In production planning and control for material requirements planning, scheduling, and
production confirmation processes.
2. Bill of Material (BOM)
A bill of material is a complete, formally structured list of the components together with the quantity
required to produce the product or assembly.
BOM's are used in material requirement planning and product costing.
You can also create up to 99 alternative BOMs for a single product.
For Products having variants, you can create Super BOM, which has all possible types of components
used to manufacture different types of variants, and the appropriate component is selected based
on characteristic chosen in the sales Order.
For example, Product Cycle can contain all types of frames (with different colors and sizes) and
desired frame is selected in production order based on color and size chosen in the sales order.
3. Work Center
A Work Center is a machine or group of machines where production operations are performed.
Work centers are used in task list operations (Routings).
It contains the data for
 Scheduling
 Capacity
 Costing

4. Routing
Routing is nothing but a sequence of operation performed at the Work Center. It also specifies the
machine time, labor time, etc. for the execution of operations.
It is also used for scheduling of operations and used in standard cost calculation of the product.
5. Production version
The production version is a combination of BOM and Routing data for production. It is a linkage
between BOM & Routing and determines the manufacturing process.
There can be multiple production versions as per different manufacturing process to produce the
product.
Production Planning Cycle
The Production Planning and Control consist of 2 obvious processes of Planning and Execution.
Planning
Production planning is generally done from budgeted sales plan. Planning is based on the Sales plan
to meet the sales requirements as per the production cycle times. Demand for the Product is
entered through demand management in the form of planned independent requirement (PIR). This
data from demand management becomes the input to Material requirement planning (MRP). MRP
checks for the availability of various raw materials used for production at different stages using the
master data such as Bill of material (BOM) and available current plant stocks.
In case of material shortage, Purchase requisitions are created for materials which are externally
procured, and planned orders are created for in-house produced materials.
These purchase requisitions and planned orders initiate the Procurement Cycle and the Execution
Cycle of Production respectively.
As MRP works with infinite capacities, capacity leveling must be done in order to avoid any capacity
bottlenecks.
Execution
These Planned orders are converted to Production orders and are scheduled as per the production
timings using master data such as routings.
Production Orders are released by the Production Supervisor on the shop floor, and material
availability checks can also be carried out to check if there are any missing components.
Production is carried out based on the activities maintained in the Routing where the master data
like Work Center is mentioned against each operation in the Routing.
Once the production is completed, the Confirmations of orders are executed, and goods movement
for material consumptions & goods receipt are posted against the Order. Hence, the Order gets the
Delivered (DLV) status, and the material is received into desired storage location.
Usually at the month end before doing order settlement, production order needs to be set to
technically completed status in order to calculate production variances by the controlling personnel.

Demand Management
The function of Demand Management is to estimate requirement quantities and delivery dates for
finished products and important assemblies. Demand Management uses PIR (planned independent
requirements) and customer requirements.
Planning strategies must be defined for a product. It represents the methods of production for
planning and manufacturing. There are two methods by which we can do this.
Make to Stock: Production of goods without having sales orders, i.e., stock is produced
independently of orders.
Make to Order: This strategy applies to the production of material for a specific individual sales
order or line item.
Material Requirement Planning (MRP)
MRP determines any shortages and creates the appropriate procurement elements. It does net
requirement calculation and generate planned orders for in-house produced materials and purchase
requisition for raw materials.
It does lead time scheduling and calculate production dates in planned orders.
It explodes the BOM and generates procurement proposals at each BOM levels.
Capacity Planning & Leveling
Capacity Planning is used to analyze the capacity overloads at work center and shift the orders to
avoid any capacity bottlenecks.
Capacity requirements are generated via MRP on Work Center and since MRP works with infinite
capacity and plans everything on work center without considering any capacity constraints. It is
required to level the capacity at the work center.
Capacity can be leveled at each work center through planning table in order to create constraint
production plan.
Production Orders
The output of MRP will be "Planned Orders", which needs to be converted to production orders for
further execution of the process.
The Production Order is firmed receipt element, which is not affected by MRP run, unlike Planned
Orders.
 Production Order is a document which specifies what material needs to be produced and in
what quantity. It also contains the BOM components and routing operation data to be
performed at the work center.
 Production Order is released for execution, and material availability checks can be carried
out which determines if there are any missing components.
Production Order Confirmation
When goods are produced physically at the shop floor, then production order must be confirmed.
During confirmation, components materials can be consumed automatically via back flush
mechanism and Goods receipt of material can be performed automatically via operation Control key
in Routing.
However, instead of auto goods movement, manual Goods Issue and receipt can be performed
separately from confirmation.
Any failed goods movement due to a deficit of component stock can be reprocessed manually.
Activity costs such as machine, labor, etc. will also be updated in the production order during
confirmation on an actual basis.
The order gets CNF (Confirmed) and DLV (Delivered) status after final confirmation and final Goods
receipt.
If confirmation is posted wrongly, then we can cancel the confirmation and post it again with correct
data.
Production Order Close
After the production order is delivered completely or we don't want to execute the order further
then Order should be technically completed.
After Order gets TECO status, it gets deleted from stock/requirement list and is no longer considered
in material requirement planning run. All dependent reservations also get deleted from the system.
Settlement Types of Production Orders - Process Orders - Product Cost Collectors

Purpose
The purpose of this page is to clarify the understanding of the system logic concerning the
settlement of production orders, process orders and product cost collectors.
Overview
The settlement rule for orders in CO-PC-OBJ is automatically created by the system and is normally
of settlement type PER or FUL to material. This document deals with the different types of
settlement rules.
1. Customizing for Production Orders / Process Orders
The default rule for the settlement rule is specified in Customizing for each plant and order type
(transaction OKZ3 or OPL8). If the default rule is PP1, all production orders for this plant and order
type receive the FUL rules. If the default rule is PP2, all the production orders for this plant and order
type receive PER rules.
2. FUL Rule to Material - controlling on a lot
If an order has a FUL rule for settlement to material, then this is make-to-stock production which is
lot-related.
The actual costs are only settled once the order has been finally delivered or technically completed.
This means that the prerequisite for settling actual costs is the DLV status and the delivery date
(AFPO-LTRMI) being set before the last day in the settlement period. Alternatively, the TECO is
required and the date of the technical completion (AUFK-IDAT2) must be set before the last day of
the settlement period.

2.1 Settlement before status DLV / TECO

For orders that have not yet been finally delivered or technically completed, the actual costs are not
settled. The balance remains on the order.
If required, you can calculate WIP with actual costs. To do this, you require a results analysis key on
the order. If you also want to post the WIP to FI you need to store posting rules in Customizing for
results analysis for all results analysis categories relevant to settlement (transaction OKG8), and you
need to select the "Transfer to Financial Accounting" indicator in the results analysis version
(transaction OKG9). The WIP posting is triggered by settlement. The balance remains the same on
the order even when WIP is created and settled.

2.2 Settlement after status DLV / TECO

If the order has been finally delivered (status DLV) or is technically completed (TECO), then the
actual costs are settled to stock or a price difference account, depending on the price control of the
material. The base quantity is always the total delivery quantity of the order. This also applies to the
settlement of subsequent debits.
If the material has price control S, then the actual costs are posted to the price difference account.
If it is set to V, then the actual costs are settled to the stock account, if the stock is covered (See note
2471234).
If the indicator is set to V, and the stock is NOT covered, then the actual costs are settled to stock for
the quantities that are still in the warehouse, the rest is settled to the price difference account.
Example: 10 pieces with variances of 150 USD are settled, and there are only two pieces left in the
warehouse. Then variances for these two pieces are settled to stock, being 30 USD. The remaining
120 USD are settled to the price difference account.
It is generally strongly recommended that you do NOT use the V price control indicator for FINISHED
products (for more information, see SAP notes 81682 & 2393887).
If you are using the account-based profitability analysis and the price difference account is a cost
element, then the price differences are automatically posted to account-based profitability analysis.
You can deactivate this logic using substitution (see SAP note 169688).
If a variance key has been selected on the order and variances have been calculated, then these are
transferred to costing-based profitability analysis. Prerequisites are listed in SAP note 35507.
If the order has posted WIP to FI before it reaches the DLV/TECO status, then the WIP is broken
down again in FI.

3. PER Rule to Material - controlling by period

If an order has the PER rule for settlement to material, then it is periodic make-to-stock production.
The actual costs are settled regardless of a status.
This means that you post the balance of the period (actual costs minus deliveries) to stock or the
price difference account. The base quantity is always the delivery quantity of the period.
If the material price control indicator is set to S, then the actual costs are posted to the price
difference account.
If the price control indicator is set to V, then the actual costs are settled to the stock account,
providing the stock is covered.
If the control indicator is set to V, and the stock is NOT covered, then the actual costs for the
quantities still in the warehouse are settled to stock, and the rest is settled to the price difference
account.
Example: 10 pieces with variances of 150 USD are settled, and there are only two pieces left in the
warehouse. The variances are settled to stock for these two pieces, being 30 USD. The remaining 120
USD are settled to the price difference account.
It is generally strongly recommended that you do NOT use the V indicator for FINISHED products (for
more information, see SAP note 81682).
If you are using account-based profitability analysis and the price difference account is a cost
element, the price differences are automatically posted to account-based profitability analysis. You
can also deactivate this logic using substitution (see SAP note 169688).
If you selected a variance key on the order, and variances have been calculated, then these are
transferred to costing-based profitability analysis. Prerequisites are listed in SAP note 35507.
If required, you can calculate WIP with target costs for the orders. To do this, you need to select a
results analysis key on the order. If you want to post the WIP to FI you need to store posting rules in
customizing (for results analysis) for all results analysis categories relevant to settlement
(transaction OKG8) and select the "Transfer to Financial Accounting" indicator in the results analysis
version (transaction OKG9). If you decide to calculate and post WIP, then the order balance less the
WIP from the period is settled instead of the whole order balance. The balance of the order after
settlement corresponds to the WIP.

4. PER/FUL Rule to Material and Sales Order / Project - MTO with valuated sales order stock /
project stock
A variant of the scenario described under point 2 and 3 is the make-to-order production with
valuated sales order and project stock.
In this case, the settlement rule also specifies settlement to material. In the detail screen of the
settlement rule, the sales order item or WBS element is also entered. Period-end closing takes place
in the same way as the business transactions described above.
The only differences regarding settlement are as follows:
 The make-to-stock warehouse inventory is not debited. Instead, make-to-order production is
debited.
 If the price difference account is a cost element and if the sales order is a CO object, then
the price differences are automatically transferred to the sales order item or the WBS
element (see SAP note 183250).
5. PER/FUL Rule to Sales Order / Project - MTO with unevaluated sales order stock / project stock
If a production order has a 100% rule for settlement to sales order/project, then it is unevaluated
sales order stock/project stock.
In this case, the order is treated like an internal order, meaning that it is settled periodically to the
sales order or project, regardless of the status.
For an unevaluated sales order stock, the sales order always has a CO object, and the goods receipt
on the production order is unevaluated. This means that the order is not credited when goods are
received. The entire order costs are transferred to the sales order or WBS element.
If you want to calculate WIP on the production order, and settle the order to the sales order or WBS
element after it has been finally delivered or technically completed, then you need to make the
usual settings (results analysis key, indicator in the results analysis version, posting rules), and also
set the "WIP on independent orders" indicator in the results analysis version (transaction OKG9).
Variances are not settled to costing-based profitability analysis.
6. PER Rule to Material for Product Cost Collectors - Repetitive manufacturing with controlling by
period
Product cost collectors have a 100% PER to material settlement rule. In the detail screen of the
settlement rule the 005 strategy is displayed. This means that processing is slightly different to
processing for PER to material (see above).
The actual costs and credits are posted on the product cost collector from the goods receipt for
different production orders. The deliveries can go to different stock segments if the material has a
separate valuation, or if the material is produced in-house or make to order. During settlement, the
value of the goods receipts for the period is dynamically calculated for the different stock segments.
The actual costs are distributed to the different stocks according to these values. If no goods were
received in a period, then the actual costs are posted to a separate price difference account (account
modification PRP). For more information, see SAP note 388457.
7. PER/FUL Rule to Order Position - Joint Production
Co-production is when two products are created simultaneously from the input materials. This often
takes place in the chemical industry, where an additional product is created with the main product
(e.g. in the production of automobile gas from oil). The SAP System differentiates between by-
products and co-products.
From a technical point of view, co-production is implemented in such a way that the order items
receive their own CO objects. This means that instead of a CO object for the production order, you
have N + 1 Co objects, so one for the order and N for the N co-products.
The value flow is as follows: The material consumption and activities are posted to the order header;
the goods receipts are posted directly to the order items. In period-end closing, the order costs are
initially posted proportionally to the items, using the preliminary settlement for co-products
(transaction CO8A, CO8B). The order items then settle to material. Further information can be
found in SAP note 402756 - Information: selection of orders in CO8A, CO8B.
When you create the production order, you create the following settlement rules for the above:
 The order has settlement rules for its order items with equivalence numbers. These numbers
are taken from the material master of the main product (view MRP 2, button "co-
production") and can be overwritten.
 The order items have settlement rules for 100% FUL/PER settlement to material. Therefore,
the order items behave like a normal production order with a material rule (see above).
This means that the order is settled periodically to its items regardless of the status. If the order
items have a 100% FUL rule to material, then the costs are only settled from the order item to
material when the order item and the order have the DLV status (all order items have been finally
delivered), or the order header has the TECO status. If required, you can calculate WIP on the order
items beforehand. TECO is set on the order HEADER level via CO02 or COHV. DLV is set on the order
items during material movement posting.
8. FUL Rule to Order - Collective orders without automatic goods movements
If a production order has a settlement rule for FUL settlement to another order, then it is most likely
to be a collective order without automatic goods movements. Collective orders are hierarchies of
production orders. The semi-finished products of the lower production orders are used directly for
the higher product.
You can enter settings in the order type (transaction KOT2) to determine whether collective orders
are represented in the system with or without automatic goods movements.
Processing with automatic goods movements means that when goods are received on the lower
orders, a goods receipt of this semi-finished product is automatically posted on the next order. All
orders in the collective order have a settlement rule for 100% FUL settlement to material and
behave as described above, for CO purposes.
Processing without automatic goods movement means that the goods receipt of the lower orders
takes place on the next order, without going via the warehouse. The orders in the collective order
have a settlement rule of 100% FUL settlement to the higher-level order. This means that they
initially behave like normal internal orders, and periodically settle the actual costs to the higher-level
order. The settlement is always made using a consumption account (see SAP note 82150). This
account is written when you create the collective order in the COBRA-KSTAR field. The settlement
structure is not interpreted. If you want to create and settle WIP on the orders, then the "WIP on
dependent orders" indicator must be set in the results analysis version (transaction OKP9).