Integration between the General ledger and the Production control modules

  • 9 minutes

As a Functional Manufacturing consultant, you should be aware of the relationship between the Production control module and other modules in Supply Chain Management. This topic explains the integration between the General ledger module and the Production control module.

The production order life cycle formally begins with the creation of the production order and ends with a finished, manufactured item that is ready for the customer. When a step in the life cycle is completed, the production order reflects this with a status change.

Each step in the life cycle is associated with the following activities:

  • Monitoring and controlling the production
  • Estimating and calculating costs
  • Scheduling orders
  • Starting and ending actual production

The production order contains information about what is to be produced, how much (quantity), and the planned finish date. The system assigns an order status to each step in the life cycle of the order. The status shows where the item is in the production process. When an order is first created, it is automatically assigned the status of Created.

To help you understand the interactions between the General ledger and Production control modules, this unit reviews the production statuses with an emphasis on how each step pertains to financial data or interacts with the general ledger.

Create and estimate

The first two steps of the production order life cycle are Create and Estimate.

  • Create - When creating production orders, you can specify the settings that determine how production order transactions are posted to the ledger. These settings pertain to production orders that are created manually or automatically from a sales order or master planning schedule.
  • Estimate - This step involves the calculation of the most likely material, labor, and route consumption for the production. You can create inventory transactions, which are issue transactions for raw materials with the status of On order and receipt transactions for the BOM with the status of Ordered. You can also create purchase orders and sub-productions for the production order, and reserve items and calculate the price of the finished goods based on parameter settings.

Schedule

The next step in the production order life cycle is Schedule. After the production order has been estimated, it is scheduled. Production orders can be scheduled based on operations scheduling, job scheduling, or both.

  • Operations scheduling - This scheduling provides a rough, long-term plan. By using this method, you can assign start and end dates to production orders. If the production orders are attached to route operations, you can assign them to cost center groups.
  • Job scheduling - This scheduling method provides a detailed plan. Each operation is broken down into individual jobs with specific dates, times, and assigned resources. If finite capacity is used, jobs are assigned to resources based on availability. You can view and change the schedule in the Gantt chart.

Release and start

The next steps of the production order life cycle are Release and Start.

  • Release - In this step, the system releases the production order when the schedule is realistic and finalized. At this time, you can print production order documents such as the job card, the route card, and route job. At this stage, the status of the production order changes to indicate that the production can start.
  • Start - When a production order is started, you can post costs against the order. You can automatically allocate estimated material and route costs to the order when it is started. This allocation is known as pre-flushing or auto consumption.

You can manually allocate material to the order by creating picking list journals and then allocate labor and other route costs to the order. If using operations scheduling, you can allocate these costs by creating a route card journal. If using job scheduling, you can allocate these costs by creating a job card journal.

Report as finished

The next step of the production order life cycle is Report as finished. When the production order is reported as finished, the quantity of finished goods completed is updated in the Inventory and Warehouse management module. If you use work-in-process (WIP) accounting, the system uses the standard cost from the On-hand page to create a ledger journal to reduce the WIP accounts and increase the inventory of the finished goods.

When the cost of a production order is calculated, the actual cost of the production is posted and the posting that occurs during reporting-as-finished is reversed. If the material and labor costs that are associated with production are not already allocated in a journal or by pre-flushing, they can be automatically allocated by back-flushing. This involves the post-deducting of inventory transaction processes.

End

The next step in the production order life cycle is End. Before you end production, the system calculates actual costs for the produced quantity and all estimated costs of material, labor, and overhead are reversed and replaced with actual costs.

If you select the End job check box when processing Reported as finished for the job, the production order status changes to Ended. This status prevents any additional costs from being inadvertently posted to a completed production order.

When a production is reported as finished, it means that finished items have reached inventory and become available to ship. The value of these items is posted to the account that is specified in the Report as finished field. Debit the amount on this auxiliary account and calculate the amount by multiplying the quantity with the standard cost price. This account functions as an auxiliary account because the amount is only posted on this account until costing takes place. To balance the books, credit the same amount to the account specified in the Report as finished offset account field.

Default ledger settings

You can define a ledger setting as your default value on the Production control parameters page by selecting Production control > Setup > Production control parameters > General tab, and then selecting the setting in the Ledger posting field. The default value will be automatically assigned to all subsequent production orders that were created from a sales order line, master planning, or sub production orders.

Screenshot of the Production control parameters page highlighting the Ledger posting field.

When you create a production order manually on the Create production order page, the value in the Ledger field will also be pre-populated with the default value. You can override it by selecting another value from the list of options.

Inventory posting profiles

The inventory posting profile controls which main accounts will be used with each posting update in the inventory subledger and the general ledger.

Inventory management > Setup > Posting > Posting

Screenshot of an Inventory posting profile on the Posting page.

 

Production groups

Production groups establish a relation between production orders and the ledger accounts. You can use this option when configuring the production control parameters to use the Production group option. When this option is selected, the Production group in Production control > Setup > Production is mandatory on the production order, and all posting profile information will come from the selected production group.

Screenshot of the Production groups page.

The Production groups page is used to develop a list of production groups that you can select from to create production orders.

You can also use this page to assign ledger settings to all production orders that are included in the production group, when you use the production group settings as the posting principle.

When ledger settings are specified on the production group, all production orders in the group are posted to the ledger by using the same criteria as defined for the group. In other words, this posting profile is applied as a default to all orders that are part of the production group and controls how posting is performed and how costs are calculated.

Production journals

The production journals are used to report item consumption, route consumption, and finished items. They are a direct link to the ledger system because posting these journals involves posting to the ledger. Journal transactions are posted in the General ledger based on the ledger setting for the production order.

Production journal types

Production journals contain a record of each of the different types of item transactions that occur when you are working with production orders. These item transactions have a direct effect on the company's financial records. Locate the production journals by selecting Production control and then Setup > Journals, and then selecting the journal type from the list.

Screenshot of the Journal type dropdown list.

The production journal types include the following:

  • Picking list - This journal is a record of the raw materials that are drawn out of inventory.
  • Route card - This journal is a record of the route consumption.
  • Job card - This journal is a record of the resource consumption by using feedback job cards.
  • Report as finished - This journal is a record of all finished items.

When a production journal posts, all item transactions are automatically transferred to the general ledger. Information that is posted from various journals in the system is used in the general ledger when company-wide financial transactions are calculated.

Feedback on consumption during production

If you want, you can direct the system to update production journals to provide feedback automatically after production is started. You can do this by selecting the relevant option on the Production control parameters page in Production control > Setup.

Screenshot of the Automatic BOM consumption dropdown list.

The following options can be selected in the Automatic BOM consumption field:

  • Flushing principle - You can select individual items in the BOM to be released manually. All other items for which manual release is not selected are released automatically.
  • Always - All items are released automatically.
  • Never - All items are released manually.

The following options can be specified in the Automatic route consumption field:

  • Route group dependent - If automatic consumption is selected in the routing group feedback and you include the setup and processing times, the route has automatic consumption. If not, the consumption must be entered manually.
  • Always - All route consumption is entered automatically.
  • Never - All route consumption is entered manually.

Production cost posting

Production costs are posted every time a journal is posted. The production costs accumulate in the Items in production and Work in process accounts until the production order is complete.

Production orders that are not ended have estimated production costs based on estimated quantities, and individual costs of quantities reported as finished are posted. However, the realized production cost is not calculated until the production order is ended. When the production order is ended, the final production cost is calculated by using actual production amounts.