Subcontracting In SAP & Accounting Entries

Subcontracting is a very common Scenario in today's manufacturing industry.

Many business involve in manufacturing get many components and material produced
by sub-contractors in order to produce and deliver fine finish goods on time as
ordered by customers. (There are many threads and sources that help you to learn
theoretical aspects on subcontracting in real world and SAP. Therefore refer them for
theoretical understanding).
In

this

blog

I'm

few subcontracting

just

illustrating

Examples

scenarios and general

with

you
its

configuration. (In

the subcontracting
posting
this

blog

entries
I

do

process and

under
not

different

discuss

about

subcontracting with chargeable components).

Lets start from Subcontracting Process .. :)
Process of Subcontracting

Create Info Record ME11 An Info Record must have been created for the

material reference to subcontracting

Create Purchase Order ME21N With Item category L.

Good issuance to subcontractor i.e. Transfer Posting MB1B Transfer the

components from your storage location to the subcontractor using the movement
type 541 (at this point no accounting entry will be posted. only the stock transfer
will take place from current storage location to subcontracting vender)

Goods Receipt MIGO receive the end product (and components) to Stock,

movement types 101 for main material(end Product) and 543 for components

Subsequent Settlement if any MB04 Subsequent adjustment of components

other than the entries in GR(above 4)

Invoice verification MIRO Similar to normal invoice verification

If you are intending to implement subcontracting process comprehensively

in your organization make sure you have maintained all master data
requirements

related

to

subcontracting. For

example,

Procurement

Type

(External Procurement/Both), Special Procurement key (30) in addition to the Info

records, BOM explosion field should blank etc. Other data are similar to the rest of the
SFG/FG materials according to the nature of your subcontracting requirement and
valuation levels.
Note: Even without the aforesaid parameters you can execute the subcontracting
transactions but as mentioned it is not comprehensive and not correct as per
standard process which will cause errors for examples in standard costing run and
therefore the standard price of such material will be incorrect.
Let's take some simple example so that it will be easy for you to understand.
E.g.: 1 Material XYZ is sent to sub-contracting vender Tea-times (Z500) by High-times
(1000 -CC) for further processing.
Note: Cost of Sub-contracting end product (SFG/FG) will consist of its
component Cost which is sent for subcontracting and Sub contractors Price
(external service cost).
According to the above problem below are the component of sub-contracting product
i.e. FAB01 (SFG sent to subcontractor)
Sub- contracting Cost (External Service Cost)
To produce 10 PAA of XYZ Material below quantity of component (Items) required
FAB01 - 10Kg
Subcontracting cost $10($1 per PAA)
Standard Cost
The standard cost itemization can be shown as below.
Scenario 01 - Posting Schema for Standard Price Control Without Price
Differences
1.

Goods issue no entries posted

2.

Goods received - At good received below entries will be posted(refer E.g. 01)

Scenario 02 - Posting Schema for Standard Price Control With Price

Differences (Price change in Invoice)
Company receives an invoice with value $15, i.e. at each PAA $1.5
Accounts postings are similar till GR as in scenario 01. Only in Invoice verification the
price difference would arise.

Scenario 03 - Posting Schema for Standard Price Control With Price

Differences (Price Change at PO)
Below will be the Posting entries.
Goods Receipt

Subcontracting Configuration

In terms of configuration there are few.

1. Out of this automatic account determination in OBYC is important. It is mentioned
below.

External Service cost (Sub-Contracting Cost) Transaction FRL Sub

contracting Service Cost (P&L) a/c should be maintained with reference to the

valuation class.
Sub-contracting

Transaction BSV - Change in stock account

Consumption
for
subcontracting

Transaction

inventory

Change

a/c

determination
GBB with

General

Modification VBO with relevant valuation classes and GL a/c

And apart from that the other genera configuration mention below

GR/IR Clearing account Determination Transaction WRX GRIR Clearing a/c

Stock A/c determination Transaction BSX (Inventory posting) with Stock GL
accounts

2.

Automatic a/c assignment has to be done as well for the P&L accounts such as

External Cost, Inventory change a/c and consumption a/c. It is common that one Cost
center is assigned for these P&L a/c so end of the day the cost center will always
show a ZERO balance.
3. In CO

separate cost component

with

origin

group can be created

for

subcontracting in OKTZ. So that the sub-contracting cost can be separately shown

within cost component reports.
4.

In line with Cost component you can assign a separate Value field in COPA for

subcontracting. So all report will be in same line.