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Process 213

storage location employs a warehouse management (WM) system, then a
transfer requirement is created to trigger additional WM steps. We discuss
WM processes in Chapter 7.

Outcomes
The goods receipt step generates several signifi cant outcomes. To begin with,
the quantity on hand and the value of the inventory are updated in the mate-
rial master. The price control fi eld in the material master determines how the
material is valued (i.e., standard price or moving average price). Appropriate
general ledger accounts are also updated to refl ect the fi nancial consequences
of the goods receipt. For example, the inventory account determined by the
data in the material master is debited, and the manufacturing output settle-
ment account is credited. If the price control in the material master is set to
standard price and the actual production costs differ from this price, then this
difference or variance is accounted for when the order is settled. (We discuss
order settlement in the next section.) A corresponding FI document is cre-
ated. The manufacturing output settlement account represents a “cost of goods
manufactured” account. Other labels for this account include “plant activity
account” and “factory output account.” If the price control is set to moving
average price, then the material is valued at a price that is determined by the
system based on how the system is confi gured. Details of this technique are
beyond the scope of this book.
The postings related to our example are illustrated in Figure 6-33. Postings
are based on the target cost of the production order. Recall that planned cost
is the cost expected to be incurred when the planned quantity is produced.
In contrast, the target cost is the cost expected to be incurred for the actual
quantity produced. Note, however, that both planned costs and target costs
are based on the standard cost estimates, when the price control in the mate-
rial master is standard cost. In our example, the target cost is the same as the
planned cost because the actual quantity produced is the same as the planned
quantity. However, if the actual quantity produced had been 20 instead of 25,
then the target cost would be less than the planned cost. Specifi cally, the target
material cost would be $11,600, and the labor cost would be $500 (refer to
Figure 6-22, which illustrates cost calculations for 25 bikes).

Figure 6-33: Financial impact of a goods receipt

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