The production process in sap business one is actually quite simple to understand.

In this blog post, I will try to explain simply, to a layman.

Lets assume we have a bakery. We produce cakes.

How will we record the production process in SAP Business One?

To produce a cake certain cake X, several raw materials are required.

Examples of the main raw needed to produce our cake are:

1. Baking Flour
2. Sugar
3. Vegetable oil
4. Salt

To make things simple to understand, lets go with those 4 raw materials.

In our SAP Business One system, we have the four raw materials in stock sitting in one of our warehouses.

We receive an order from a client of Cake X.

In case we did not have the raw materials in stock, we would have to purchase them.

In this example, the assumption is we already have the raw materials in stock and a Bill of Materials of Materials is already set up in SAP for the specific quantities of the raw materials required to make the specific cake X.

1. The production team will post a production order for the cake.

2.  The production team will request for the required raw materials from the stores warehouse to the production floor.

3.  The stores team will issue out the requested raw materials to shop floor.

4. Production of the cake will take place physically

5. Once the production of the cake is done, the entries need to be posted in the system

6.   We start by consuming the raw materials actually used in the production of the cake by posting the issue from production document. This document will record the actual quantities that have been used in the production.

The journal entry for this document is:

• Credit the stock account – to consume the  raw materials e.g lets say the value of the raw materials consumed is 100
• Debit the WIP account – the WIP account is a control account that holds WIP value before the finished goods are posted in the system –  value 100

7.   Next we post the Receipt from production document in order to record the finished goods in the system.

The journal entry for this document is:

• Debit the stock account with BOM cost. For simplicity, lets assume the BOM cost is 90
• Credit the WIP with the 90. This clears the WIP account with 90 with a debit balance of 10.

8.  The next step is to close the production order.

It is important to close the production order as soon as possible so that the finished goods are costed and eventually sold with the correct value/cost to reflect the correct gross profit. Remember, in step 7, when we post the receipt from production document, our finished goods are valued at BOM cost but correct value for our finished good is the value of the raw materials used which is 100. Closing the production order takes care of this. Closing the production order also clears the WIP account.

The Journal entry when we close the production order will be:

1. Debit the finished goods stock account with 10
2. Credit the WIP account with 10

NB: Please note that you need to close the production order before transferring the finished goods from the warehouse where they were produced for them to actually be costed. What I mean, is, if we receive our finished goods in the shop floor warehouse before moving them to another warehouse for selling, closing of the production order needs to happen before the finished goods stock is moved.

If you transfer the finished goods before closing the production order, the finished goods will not be costed.

The resulting journal entry will be:

1. Debit  a WIP variance account
2. Credit WIP account to clear it

I am Caroline Ininga Majute,  a SAP Business One Consultant based in Nairobi, Kenya. For more inquires about sap business one, contact me at: [email protected]