ProductCosting Material Ledger

Product Costing & Material Ledger

Product Costing Overview
Acquire an overall perspective of Product Cost Planning within R/3. Observe a product life cycle from the perspective of Product Cost Planning.Acquire an overall perspective of product cost object controlling within R/3. Understand the period oriented product cost controlling.Obtain an understanding of the functions in the material ledger.Analysis of product costs.

Material Ledger Overview
Obtain an understanding of the actual costing function in the material ledger.Know how to revaluate inventories of semi finished products, and finished products with calculated actual costs or accrue variances.Analysis of actual product costs.

SAP Modules - Overview

Sales &

Distribution

SD

MM

PP

QM

PM

HR

FI

CO

AM

PS

OC

IS

Materials

Mgmt.

Product

Planning

Quality

Mgmt.

Plant Maint.

Human

Resources

Financial

Accounting

Controlling

Fixed Asset

Mgmt.

Project

System

Office &

Comm.

Industry

Solutions

SAP R/3

CO Components

Profitability Analysis


Profit Center Accounting

Human

Resources

Financial

Accounting

FI

S&D

Sales and

Materials

Management

Materials

Management

CO

PA

CO

OM

EC

-

PCA

Distribution

Cost Element Accounting

CO

CEL

Financial

Accounting

Cost Element Accounting

Cost centers

Internal

orders

Profitability

segment

Asset

Revenues

Expense

Activity

types

Internal Orders

Company Code (9100 A Ltd, 9200 A1 Ltd)

Operating concern (9100 A group)

Overhead Cost Controlling

Product Cost

Controlling

Standard

Cost Estimate

CO Production
Order

Controlling area (9100 A group)

HR

MM

SD

Why utilize Product Costing?
Product Costing is the backbone of a strong standard cost system. This is the process by which production activities are recorded at standard values and variances from actual costs are isolated.For planning purposes, the corporation wants a preliminary target of what they think it will cost to produce X units of a product.To set attainable standards by which efficiencies within the production operations can be measured.To provide feedback to management on the actual performance of the production process in relation to those targets. Identified variances may indicate inefficiencies that have to be investigated. Corrective action may have to be taken.

Product Costing

Process ends with initial containment (packout)

Optimized Production Operations

Improve and Control

Operations

Disposition &

Contain Product

Prepare

Production

Plan & Commit

Resources

Make

Product

Manage Process and

Product Documentation

OPTIMIZED

& FIRM

SCHEDULE

Costing Methodology

Material Master

Price Control

Standard Price

(S-Price)

-Constant

-Recommended for all material
types

Moving average price
(V- Price)

-Adjusted with every receipt

-If at all, only to be used for raw
materials and materials procured
externally

Costing Methodology

The method of valuing inventory of a material is determined when extending/creating the material master.

Price that changes in consequence of usage and entry of invoices. Calculated by dividing the value of material by the quantity in stock. Automatically recalculated based on activity.

Constant price without considering usage or invoices. Material stock valued at the same price over an extended period. Price variances are posted to price difference accounts; not affecting the standard price.

Posting Example: Moving average price 1

Stock

GR/IR Account

Vendor

ProcedureStockStock valueV price

Begin. inventory: 100 PC at 2.00 100200.-2.00

Goods receipt: 100 PC at 3.00200500.-2.50

Invoice receipt: 100 PC at 4.00200600.-3.00

Goods issue: 150 PC at 3.00 50 150.-3.00

1

2

3

300,-

2

400,-

300,-

4

3

If the invoice receipt is for 100 units, the stock coverage

is 200 units:

all differences stock

3

Stock Coverage

ok

Stock

1

200,-

300,-

100,-

2

4

3

450,-

Consumption

450,-

4

The example above demonstrates how the material stock value and material price can mirror the actual prices of a material with a valuation at the Moving average price (V).

With the scenario of invoice receipt after goods receipt, the GR/IR account is charged with the goods receipt amount (300-) as an offsetting entry to the inventory posting during goods receipt.

The GR/IR clearing account is settled at the purchase price during a good receipt, while the vendor account is updated at the invoice price (400-).

During both receipt postings (goods receipt and invoice receipt), the Moving average price (V) in the material master is adjusted (2.00 to 2.50 to 3.00)

If a goods issue occurs now, this is valuated with the current Moving average price (3.00).

The Moving average price (V), therefore, is more useful if you want your material stock values and material prices to reflect the most up-to-date data.

With a delayed invoice receipt

Of 100 units:

a shortage of 50 units

price differences despite MAP


Stock

Price difference

GR/IR account

Vendor

ProcedureStockStock ValueV Price

Begin. inventory:100200.-2.00


Goods issue: 150 PC at 2.50 50 125.-2.50

Invoice receipt: 100 PC at 4.00 50175.-3.50

1

2

3

1

200.-

300.-

50.-

2

300.-

2

50.-

4

4

400.-

300.-

4

Consumption

375.-

3

3

375.-

4

4

Stock Shortage

In both cases, however, the use of the Moving average price (V) can lead to price difference postings in the material master.

The main disadvantage of using the moving average price is that the price used to valuate a material consumption is almost completely dependent on the time at which the goods issue is posted in the system. If, for example, an invoice receipt is posted for an externally procured material after a goods issue was entered, that invoice value is not reflected in the value of the material issued. For this reason, the issued material is not valuated at its actual procurement costs.

This case of stock shortage is illustrated in the posting example above. The invoice receipt (4) in this example is first posted after the material was already issued (3). After a subsequent system-internal stock coverage check, the price difference of 100.- is only partially debited to the material (50.-). The rest (50.-) flows into a price difference account.


ProcedureStockStock ValueV Price

Begin. inventory:100200.-2.00



Goods issue: 200 PC at 2.20 100 220.-2.20



With multiple delayed

invoice receipts:

Danger of Incorrect Valuation!

Even though all receipts between 2.- and 3.- were valuated!

80.-

in stock

60.-

in stock

Stock Coverage

In particular, the Moving average price (V) can lead to unrealistic material prices in cases of multilevel production or when there are variances that do not appear immediately. Such unrealistic prices occur, for example, when, in the context of stock coverage, a subsequent adjustment to the material stock occurs using an incorrect base quantity.

In the current period, there are a number of goods receipts for a material that are valuated with the Moving average price (V).

Afterwards, a goods issue occurs for 200 units of this material.

Then, the invoice receipts for the goods receipts above are posted whose invoice price varies from the purchase order price in both cases.

Because there is a stock coverage at the time of invoice receipt in both cases (stock quantity is at least as large as the invoice quantity) , the price variances of all invoices are completely adjusted to stock. The existing stock quantity is adjusted with a variance of 140.

This results in a valuation of the remaining material stock and material consumption at an unrealistically high price (3.60).

Characteristics of Price Control V
The stock value is adjusted each time goods are receivedReal-time price fluctations are posted to stock Price difference postings only take place in exceptional casesPrice fluctuations cannot be adjusted to the finished products of higher levels (S price)Only recommended for raw materials or goods procured externally (real-time price for goods receipt known) False entries with severe consequences (compounded errors)Danger of incorrect valuations with delayed invoice receipt
Moving average price

The illustrated situation demonstrates how the decision to use the Moving average price (V) in order to have your material stock values and material prices reflect the most up-to-date data can be a mistaken one.

For this reason, SAP recommends only using the Moving average price (V) for material valuation with raw materials and trading goods, because the delivered prices for these are usually known close to the time of the goods receipt.

For materials produced in-house, such as semi-finished and finished products, there is a great risk that, at period-end closing, a large number of variances from order settlements (follow-up costs) are posted to a relatively small stock which can lead to either price variances or faulty valuations.

A further disadvantage of the Moving average price (V) is that incorrect entries (i.e. typing errors during posting) that are only first recognized later can lead to an unrealistic stock value. Subsequent goods issues would then be valuated with these incorrect prices (error compoundment).

Posting Example: Standard Price

Stock

Price difference

GR/IR account

Vendor

ProcedureStockStock ValueStandard Price

Initial situation:100200.-2.00

Goods receipt: 100 at 2.40200400.-2.00

Invoice receipt: 100 at 2.20200400.-2.00

1

2

3

1

200.-

200.-

2

240.-

2

2

40.-

3

3

3

20.-

220.-

240.-

The following applies to valuation at the standard price:

All stock postings occur at the standard price.

Variances are posted to price difference accounts.

Variances are updated.

Price changes can be observed.

If a material has standard price control, the value of the material is calculated with the standard price For subsequent goods movements or invoice receipts with a price that varies from the standard price, the differences are posted to a price difference account. These variances are not included in the material valuation.

This situation is illustrated in the slide. A goods receipt posting with a price of (2.40) that is not the same as the standard price (2.00) leads to price variances that are carried on a price difference account (+40.-). The subsequent invoice receipt with a varying price (2.20) is also not posted to material stock; instead, the variance is written to the price difference account (-20.-).

Characteristics of Price Control S
All stock postings take place at the standard pricePrices remain constant throughout at least one periodPrice fluctuations do not debit/credit the cost objects (e.g. orders)
consistant controlling with the standard price as a bench markCalculation of the standard prices with cost component splitsRecommended for all material types
Price differences cannot be subsequently adjusted to the ending inventories or the consumed products (sales, production withdrawals)
Standard Price

If material valuation takes place at the standard price, all goods movements are valuated at this same price. The standard price control makes a consistant controlling of the production process possible; variances within production are transparent. The use of a periodic price is particularly recommmended for periodic controlling.

The standard price can also be used as a benchmark by which you can measure different methods of production, or compare the contribution margins of a material in different market segments in Profitability Analysis (CO-PA).

One disadvantage of standard price control is that the variances or price differences cannot be allocated to the subsequent production levels. This is becomes increasingly problematic with each additional production level in multilevel production. In this case, a time-relevant cost controlling for the finished product cannot be guaranteed.

Period-End Closing: Valuation Problems

Valuation Period

Distribution of
Price Differences?

Actual Prices?

Finished Products

Ending Inventory:
Raw Materials

Raw Materials II

Raw Materials I

D

While the danger exists of an incorrect valuation carried out with the moving average price, both valuation strategies lead to variances, the assignment of which causes problems, particularly at period-end. The material stock value does not reflect the current procurement costs, as variances from the standard price are collected in a price difference account in Financial Accounting and do not lead to a correction of the material stock account.

With multilevel production, the variances can no longer be assigned to the products that should carry them. The assignment of these price differences to the ending inventories of raw materials, semi-finished products and finished products is just as impossible as a corresponding assignment to the sold or discontinued goods.

With a multilevel production structure, variances can appear on different objects due to fluctuations in external procurement and internal production costs. Because these variances of a standard cost accounting cannot be posted to the material stock, they are, as a rule, posted to Profitability Analysis at period-end. Even though they can be divided into different variance categories ( price variances, quantity variances, etc.) in Profitability Analysis, they cannot, however, be assigned to their corresponding products.

In Financial Accounting, these variance categories correspond to the balance of a price difference account that, from an external accounting point of view, cannot be proportionally allocated to ending inventory (assets) or consumption (period expense).

Costing Methodology

Valuation Method by Material:

Finished GoodsStandard w/ ML

IntermediatesStandard w/ ML

Raw MaterialMoving Average Actual

PackagingMoving Average Actual

Organizational unit dividing up a company for the purpose of valuating stocks in a standardized and consistent manner.
Level at which material value is managed.The valuation area may is defined:
- by plant

Valuation Area

Product Cost Flow

BOM

Routing

CO-

CCA

CO-

PA

CO-

PC

Act1

Act2

Cost
Object

Cost

Center X

Cost

Center 1

Cost

Center2

F. Goods

Inventory

Production

orders

MAT

Manufacturing Cost

MM: RM

Cost

Center Y

Cost

Center 3

Production

Cost Center

VAR.

VAR...

VAR...

Product Cost Flow

Plant Cost View

Sales & Mktg. View

Mfg. Cost Center

(Activity Types)

Utilities

Salaries

Supplies

Maintenance

Depreciation

Training

Direct Conversion

Insur. & Taxes

Laboratory/QC

Waste Treatment

Shops & Stores

General Services

Indirect Conversion

Total Product Cost

Mach. Hrs.

or

lbs.

Produced

Lab tests

Setup Hrs.

P A

(Profitability Analysis)

Raw Matl 1 & 2 Costs

Pkg. Matl Costs

Costs to Produce

Product testing costs

Change Over costs

(setup costs)

Routing

Product Unit Cost

Cost of Goods Mfg.

Raw Matl 1 Costs

Raw Matl 2 Costs

Pkg. Matl Costs

Routing

Mach. Hr. Costs

Lab Tests Costs

Mach. Setup Costs

Process Order

Raw Matl 1

Raw Matl 2

Pkg Matl

BOM

(Cost Component View)

(SAP Value Fields)

Three Views Available:

1. Cost Component

2. Cost Element

3. Cost Itemization

Cost of Goods Sold

Fixed & Variable Cost

Fixed & Variable Cost

Product Costing At A Grp

Product Cost Planning: Overview

Functions of Product Cost Planning:
Product Cost Planning with reference to cost objectProduct cost planning with quantity structure with structures provided by PP (Production Planning) moduleDetermination of the cost of goods manufacturedProduct Cost Planning supplies information for other modules:Update of prices in a material masterUpdate of the cost of good sold with the detailed structure of cost component (grouped cost elements)Standard (material) cost estimate as the base for calculation of production variances
Overview

As a vital element of Product Cost Controlling, Product Cost Planning is gaining in importance. The material cost estimate can be used as a tool for cost planning and the pricing of materials in order to determine the cost of goods manufactured or the cost of goods sold.

Product Costing: Overview

Standard Cost Estimate

(once a year)

Prepare Product Cost
Collector

Production Costs

Receive Finished Stocks

Month End Closing

Post Materials Costs

Debit Secondary cost

Credit Production Output

WIP Calculation

Variance Calculation

Settlement

Preliminary Costing

Create Cost Object

Release cost estimate with quantity structure

Mark cost estimate with quantity structure

Create Cost estimate with quantity structure

What is a Product Cost Estimate?

Cost Estimate With Quantity Structure

Utilizes a Bill of Material (BOM) and routing, I.e. Master Recipe for costing purposes. Integrated with Production Planning (PP).

Additive

You use additive costing to enable you to manually add costs that cannot be calculated by the system to a material cost estimate.

A tool for planning costs and establishing prices for materials. It is used to calculate the cost of goods sold for each product unit.

Cost Estimate WITHOUT Quantity Structure

Utilizes a material master data and activity types entered manually into cost estimate.


Quantity structure

Valuation

Cost estimate
with quantity
structure

Price update

Costing
variant

Report

Material costs

Production costs

Overhead

Cost estimate
without qty
structure

Overview

Product Cost Planning is positioned at the interface between the Logistics (only MM in that scenario) and Controlling modules, and accesses the relevant data from both.


Start of
Year 2

Ad hoc

New
product

Start of
Year 1

Technical
change

Simulation
Costing

Standard Cost
Estimate

Current
Cost Est.

Modified
Std Cost Est.

Inventory Cost
Estimate

Standard Cost
Estimate

Inventory Cost
Estimate

Time

You can cost a material in different ways during planning and production, depending on the purpose of costing. The different cost estimates are represented in Customizing by different costing variants.

The cost estimates and their purposes are as follows:

Simulation Costing calculates the costs of a cost object without access to BOMs and routings, and without using the data in the material master. The base object cost estimates in this component are used for simulation purposes and as a template.

Standard cost estimate. Updates the standard price of a material.

Modified standard cost estimate. Valuates a costing structure that has changed during the production process. Uses the same prices as the standard cost estimate

Current cost estimate. Valuates a structure that has changed during the production process, but uses the current prices

Inventory cost estimate. Valuates the materials in inventory for the commercial and tax balance sheets.



(once a year)

Release cost estimate with quantity structure

Mark cost estimate with quantity structure

Create Cost estimate with quantity
structure

Material cost estimates with q. s.

Used for:

BOM

Routing

Quantity Structure

Costing Results

Items

M Material

E Activity
E Activity

G Overhead

Cost
Elements

400000 Raw materials

943201 Production hours
943901 UT: Cooling Var.

Costing

Values

600 000SAR

610 000SAR
612 000 SAR

SAR

Purchase price

Activity Type Price

Overhead

Valuation

Standard Cost
Estimate

Stock Valuation

Profit & Loss
Statement

Standard cost estimate with quantity structure:

Created during costing run for each finished good and semi-finished product

Provides split and balanced information of cost items, quantities and prices that are planned to occur during production a product

Variable and fixed costs coming from BOM and routing

The special procedure of save/ mark/ release

Result saved as standard price in material master record

Base for quantity, price and resource variance analysis

May be changed once a period (month) before any material posting;

Only one quantity structure (mixed quantity structure) assigned is valid over the period

Changes in quantity structure do not influence cost estimate released

Material cost estimates with q. s.

Internal
Activity

Overheads

Material

External
Activity

Internal
Activity

Overheads

-

External
Activity

Internal
Activity

Overheads

Material

External
Activity

Internal
Activity

Overheads

Material

External
Activity

-

-

Material

-

Product W

Product Z

Product S

W

Z1

Z 2

S1

S2

S3

Costing structure - Total

Costing structure Upper level

Costing structure Lower level



Costing structure of a material cost estimate can be exploded through the manufacturing levels.

The purpose of cost rollup is to include the cost of goods manufactured of all the materials in a multilevel production structure within the costs of the material located at the top of the structure. The costs are rolled up automatically using the costing levels.

Costing Variant

Valuation
Variant

Quantity Structure
Determination

Costing Variant

Prices

Quantities

Cost of Goods
Manufactured

Costing Variant is a key that determines how a cost estimate is performed and valuated.

Costing Variant

COSTING
VARIANT

Strategy for
transfer of
the existing
cost estimates

Determination of :
Bills of Material Routing
Defaulted dates for
costing

Costing Sheet

Determination of:
prices update
in material master
Valuation control for:

- materials

- internal activities
- external activities

- subcontracting

- overheads via
costing sheet

Depending on the object being costed, either the functions of either unit costing (without quantity structure) or product costing (with quantity structure) can be used.

In a cost estimate with a quantity structure, the costing variant determines the following:

Which dates are valid for the cost estimate itself and for exploding and valuating the quantity structure

How the BOMs and routings are selected to create the quantity structure

Which prices are selected to valuate the quantity structure

How overhead is calculated

Cost Component Structure

A costing variant is linked to the following control parameters:

Costing type (which price and valuation view) is to be updated

Valuation variant (how to valuate materials, internal and external activities, assignment of costing sheet)

Date control (date defaults)

Quantity structure control (BOM and Routing determination)

Transfer control (strategy sequences for transfer of the existing cost estimates into one under calculation).

Quantity Structure for Product Cost Planning

Data that is stored in the database for long periods of time is referred to as master data

This permanent (yet changeable) data is created for:

Materials, Work Centers, etc.

Accurate master data reduces:

Creation time for documents

Amount of errors in the process

Quantity Structure for Product Cost Planning
Material master dataAccounting viewsCosting viewsMRP viewsBOM - Bill of MaterialBOM type & identificationBOM headerMaterial dataRouting - tasks listRouting type & identificationRouting headerOperation dataMaster RecipeRecipe headerOperationsMaterials listWork Centers / ResourcesBasic dataCostingProduction VersionValidity PeriodProduction line
Master data are maintained within defined time frame. Changes to the crucial fields are time dependent.

Quantity Structure: Material Master Data

Material Master Data:
Material Master Data is an object in SAP R/3 that consists all relevant data for raw materials, semi-finished and finished products divided into views.Views:PurchasingStorageSalesAccountingCostingMRPValuation classPrice controlPrice determinationPriceStockValue of the stockPlan priceCost estimate resultsPeriodic unit price

Contains data specific to materials

Contains data vital for Product Costing

Is the central source of information about a material

The material master record comprises business-functional views of material master data such as:

Sales

Purchasing

Logistics

Production

Finance

Quality

For Production Planning SABICs model, the relative views are MRP, Accounting and Costing views.

Material cost estimates - quantity struc.

Product cost planning with quantity structure:
Materials Cost Centers / Activity Types Primary Costs
Quantity * material price =
cost of goods manufactured due to the consumption of raw materials.

Quantity * activity price =
cost of goods manufactured due to the internal activities during the production process.

Cost of goods manufactured due to the manually entered cost elements or mathematical operation.

USE:
- for the products (materials) in the system
without PP module
- in case of external MRP system
- to update standard price

The cost estimate without quantity structure is a tool for planning costs and establishing prices for materials without reference to quantity structure data from Production Planning (PP and PP-PI). It is intended for materials with insufficient or no quantity structure data.

Material costing without a quantity structure enables you to:

Plan costs for raw materials, internal activities, and external activities for a product in the form of a unit cost estimate

Assign overheads to the product in the production and material areas

Assign the calculated costs to the cost components as well as when saving them

Group the costs of the materials used for semifinished products into cost components

A cost estimate without quantity structure can access data in the following modules:

Materials Management (MM), such as material master records and services

Production Planning (PP), for example work centers and resources

Controlling (CO), such as cost centers and activity types

Costing Variant

COSTING
VARIANT

Strategy for transfer of
the existing cost estimates

Defaulted dates for
costing

Costing Sheet

Determination of:
prices update
in material master
Valuation control for:

- materials

- internal activities
- external activities

- subcontracting

- overheads via
costing sheet

Costing Variant is a key that determines how a cost estimate is performed and valuated.

Depending on the object being costed, either the functions of either unit costing (without quantity structure) or product costing (with quantity structure) can be used.

In a cost estimate with a quantity structure, the costing variant determines the following:

Which dates are valid for the cost estimate itself

Which prices are selected to valuate the structure

How overhead is calculated


A costing variant is linked to the following control parameters:

Costing type (which price and valuation view) is to be updated

Valuation variant (how to valuate materials, internal and external activities, assignment of costing sheet)

Date control (date defaults)

Quantity Structure: Production Version

Product

Bill of Material
Usage Alternative
Routing
Group Group counter
Production Version
ID, Production line, Validity period.
Product Cost Estimate
Quantity structure determination for cost estimateValidity period definition
Production versions combine a specific BOM alternative with a specific rate routing/recipe.

For one material, you can have several Production Versions for various validity periods and lot-size ranges

Production versions facilitate different situations:

Production using different resources

Production using different processes or procedures

Production versions are valid for an Affiliate plant, so different versions can apply to different Affiliates

Quantity Structure: Procurement Alternatives
Quantity structure determination for mixed cost estimate.
Procurement alternatives are used in case of:

Different processes to manufacture a product

Different sources for procuring a material

These different manufacturing processes or supply sources can produce different prices for the same material. You can avail yourself of mixed costing to determine a price for this material. To be able to create the mixed price, there must exist a procurement alternative for each of the production processes (production versions) or supply sources.

Quantity Structure: Mixing Ratios

Product

Mixed Product Cost Estimate
Quantity structure determination for mixed cost estimateValidity period for mixing structure
In order to calculate a mixed price for the material, you must create procurement alternatives for the individual manufacturing processes and procurement options.

The mixed price is created by weighting the procurement alternatives using equivalence numbers. This section tells you how to define mixing ratios for the procurement alternatives.

Costing vs. Quantity Structure

RAW MATERIALS

BILLS
OF
MATERIAL

PRODUCTION
COST
CENTER

Utilities Overhead
ACTIVITY TYPES

WORK CENTER /
RESOURCE

ROUTING

PRODUCT COST
ESTIMATE

Consumables

Maintenance

Labor

Depreciation

Electricity

SERVICE
COST CENTER

Logistic data (quantity structure) together with controlling data (valuation structure) create a base for product cost valuation (costs of goods manufactured).

Costing Structure

-

-

Costing Structure for Product Cost Planning

Master Data

+

+

Materials

Activity Types

+

Cost Elements

+


+

Cost Centers



Cost centers, activity types, cost elements, etc.




Costing Structure for Product Cost Planning
Material master dataAccounting viewsCosting viewsCost CentersValidity periodCategoryFunctional areaActivity TypesValidity periodActivity unitAllocation cost elementCost ElementsValidity periodCategory


Material, Cost Centers, etc.




Costing Structure: Material Master Data

Material Master Data is an object in SAP R/3 that consists all relevant data for raw materials, semi-finished and finished products divided into views.Views:PurchasingStorageSalesAccountingCostingMRPValuation classPrice controlPrice determinationPriceStockValue of the stockPlan priceCost estimate resultsPeriodic unit price

Contains data specific to materials

Contains data vital for Product Costing

Is the central source of information about a material

The material master record comprises business-functional views of material master data such as:

Sales

Purchasing

Logistics

Production

Finance

Quality

For Production Planning SABICs model, the relative views are MRP, Accounting and Costing views.

Costing Structure

Cost

Elements

A cost centers is an organizational unit within a controlling area that represents a clearly delimited area of responsibility where costs are monitored against a plan.

They represent a defined location of cost incurrence.

Items in a chart of accounts that are relevant to cost, are referred to as cost elements. They are used for entering all costs within the entire cost accounting system.

Secondary costs elements are used exclusively in CO to identify internal cost flows such as assessments or settlements. They do not have corresponding general ledger accounts in FI and are defined in CO only.

Cost Center

Cost Center

The cost center master record represents the main organizational unit in

Controlling. A grp department units will have their own cost center number. Each

department will plan and monitor their yearly budget / expenditure on their

respective cost centers.

Cost Element

Before you can create primary cost elements in CO, you first need to create them

as G/L accounts in FI. To be able to post to a primary cost element, you require a

cost-carrying object (such as a cost center) to identify the origin of the costs.

Examples of primary cost elements are material costs and salary costs.

Secondary costs elements are used exclusively in CO to identify internal cost flows

such as internal activity allocation between production cost centers and product cost
collectors. They do not have corresponding general ledger accounts in FI and are defined in CO only.

Planning Overview

Profitability Segment

Company
General

Service

C. Center

Executive Management

Admin.
C. Center

Maintenance

Prod. Support

Production C. Center

Product Cost Estimate

COGS

Projects

Primary Cost Pools Cost Centers - collect primary expenses which are not attributed to a particular cost object e.g. Communication, Medical expenses, Rents, Insurance, Housing Maintenance etc. The accumulated primary cost will be distributed to the receiving objects on appropriate bases.

Executive Cost Centers - includes the cost of senior management of the affiliate, legal office,internal audit, strategic planning and other expenses associated with these functions. Executive Overheads are assessed to appropriate Profit Centers (at Product group level per company Code) for PCA Reporting.

Administrative Support Cost Centers - all administrative cost centers in the affiliates (except executives, legal, strategic planning, internal audit) are included in the product cost. The admin overheads are allocated to cost centers via indirect activity allocation based on appropriate basis.

Service Cost Centers - examples are, Maintenance, Utility Facilities,Engineering etc, they usually exchange services between each others also. The direct service cost is allocated to receiver objects (e.g. cost centers, product cost collectors) based on unit of consumption or other appropriate bases via direct activity allocation.

Production Support Cost Centers - are fully dedicated for production, but serve more than one production cost centers. The costs are allocated (distributed) in full to receivers based on unit of consumption or other appropriate bases.

Production Cost Centers - include all direct overheads of the production unit that are not charged directly to product cost collector via production orders. The cumulated cost is charged to production order based on consumption, production volume via direct activity allocation.

Costing Structure

Activity types define the type of activity that can be provided

by a cost center (work activity, production hours, and so on).

Activity Type

Activity Types

Activity types define the type of activity that can be provided by a cost center (work

activity, machine hours, and so on). Activity outputs supplied by one cost center (the

sending cost center) to other cost centers, orders, product cost collectors, or processes, represent the

utilization of resources for this sending cost center. You valuate activities using a

price calculated on the basis of certain business or management information.

Cost center

h

Cost center:
Machine

Planned costs:

430000 (salaries) 44,000

440000 (miscl.)

10,000

473120 (telephone) 30,000

Plan activity qty: 100 h

Planned costs: 84,000

Calculated
Price: 840

Activity Price Calculation

:

Apportionment of cost center costs

to activity types according to

particular criteria

Activity Price Calculation

1PDH01

1

2

100

Even if you have planned prices manually, you may still be interested to know to what extent this price corresponds to a price that was calculated by the system on the basis of the planned activity of the cost center. To this end, you can carry out a price calculation. However, before you can achieve satisfactory results, there are certain things to consider and certain settings that need to be make and these can only be sketched very briefly here.

Under planned cost splitting, activity-independent planned costs belonging to a cost center are assigned to the individual activity types. The activity-independent costs need to be split between the activity types to enable the price of the activity units to be calculated. At its simplest, planned cost splitting involves the use of an equivalence figure.

During price calculation, the SAP R/3 system automatically calculates the plan prices for productive and non productive hours for defined cost centers. You can have the system calculate plan activity types for every cost center and activity type. The R/3 System calculates the price by, for example, dividing the plan costs by the plan activity.

Costing Structure

Steam service
1203004

943954 UT: Steam fix

Product
22000057 - TEG

Product
22000058 - LLDPE

..

Distribution

Activity

Allocation

943954
via
Routing

Cost Splitting

Planning

1203000
Utilities (Common)

Product
Cost Estimate

Activity Types Used:

1UTSTF Steam - fixed

Original CE

1UTSTF Steam - fixed

1UTSTV Steam var.

2

3

5

Primary costs planning on all

Cost Centers.

1

Planned Price Calculation

Prices for 1UTSTF are

calculated.

4

1. Assign CC 1203004 to Splitting

Structure U4 Steam service

2. Perform cost splitting

1203000

..

..

Methods of allocation costs, such as: distribution, indirect activity allocation and direct activity allocation are used in A grp since there is a need to keep track of primary costs for cost component views in Product Costing (CO-PC).

Assessment is used for allocations without any relations to production cost centers or support / service cost centers. Mostly applicable for non-manufacturing affiliates.

In an internal activity allocation, the quantity of the activity, such as the number of steam tones, is entered into the R/3 System. The system calculates the associated cost based on the activity price and generates a debit to the receiver and a credit to the sender for both the quantity and costs. Internal activity is allocated using secondary cost elements, which are stored in the master data of the activity types as default values.

You can restrict the use of the activity type to certain types of cost centers by entering the allowed cost center categories in the activity type master record. You can enter up to eight allowed cost center categories, or leave the assignments "unrestricted" by entering an asterisk (*).

The activity type category is used to determine whether, and how and activity type is entered and allocated. For example, you can allow some activities to be allocated directly, but specify for others that they are either not allocated, or allocated indirectly only.


Used for:

Costing Results

ID

101

110
111

Cost Component

Raw Materials

Catalyst
Chemicals

Costing

Values
Fixed & Variable

600 000SAR

0SAR
0SAR

SAR

Purchase price

Activity Type Price

Overhead

Valuation

x

Quantity

Standard Cost
Estimate

Stock Valuation

Profit & Loss
Statement

Cost component structure controls how the results of activity price calculation or material costing are stored.

The cost component structure groups cost elements into cost components to show the following information:

Activity prices for an activity type

Cost of a process

Planned cost of a product

In Product Cost Controlling (CO-PC), the cost component structure determines the attributes for passing on the following costs:

Material costs passed on to material valuation as the standard price or inventory price

Cost of goods manufactured passed on to Profitability Analysis


Raw Materials

Utilities

Personnel Exp.

Depreciation

Primary cost elements

Product Cost Planning

Cost Centers

Utilities

Personnel Exp.

Depreciation

Structure of primary
costs

CO-

PC

CO-

OM

Raw Materials

Internal
Activity
Allocation

Structure of primary
costs

Z9
A Grp-Primary

Cost components group cost elements that:

Makes the costs of a material, an activity type, or a process transparent

Groups the costs of a material according to the requirements for material valuation and profitability analysis

There are to cost component structures:

Structure of primary costs A Grp - Primary Cost Component Split)

Primary Cost Component Split groups the planned costs of a product according to primary costs.

Plan and actual splitting the primary costs is carried out in the same way as the cost component split for costs of goods manufactured : the costs are divided into cost components, to which intervals of primary costs are allocated.

Cost component structure is assigned to the costing variant.



(once a year)

Release cost estimate with quantity
structure

Mark cost estimate with quantity
structure

Create Cost estimate with quantity structure

Price update
Standard price
Only one validated standard price per product per period,

The price represents most desired (or most likely) costs

Only one price per product over the year (recommended)

Determined during costing runs for Z9P1 costing variants - standard cost estimate is populated in appropriate valuation views

Includes variable and fix cost elements

Base for variances calculation; which is then posted to FI and CO-PA

Used for stock valuation of finished goods and semi-finished products

Stored in material master data (accounting view) in Legal, Group and Profit Center valuation views after releasing the cost estimate

Price update
Future price
Future standard price

Stored in material master data (accounting & costing view) in Legal, Group and Profit Center valuation views after marking the cost estimate.
Previous price
Replaced standard price by current one due to releasing the cost estimate

Stored in material master data (accounting & costing view).

Price update

Material Master Data

Standard Price

10

10

15

Future Current Previous

10

15

Analysis of Costing Results



Marking Standard Cost Estimate

Stock Revaluation

Releasing Standard Cost Estimate

Once you have carried out a cost estimate for a material, you can transfer the costing results to the material master as above prices in described sequence.

Price update procedures

MM & CO postings

- Various analysis available

Product Costing

- SPC1 SPC3 cost estimates, verification, save

- Organizational measures: marking and releasing

- Cost estimate marking

- Cost estimate release

Master & control data definition

- Material Master Data

- CO Production Order incl. Unit Costing

Period-end closing tasks
Work-in-process postings Inventory deviations postings Variances processing and analysis
- Settlement processing

The price update is one of many crucial elements in the Product Costing process flow.

Costing run
Costing run
You can use the costing run to process mass data. It enables you to cost, mark, and release more than one material at the same time.

Every processing step involved in costing with quantity structure is performed by the costing run, from the same screen.
Costing run consists of:
General data (organizational units, selection criteria)

Selected materials

Exploded BOMs

Costing run results

Price update results

Costing run

Marking and releasing costing run results
(price update)

Execute costing run

Selection
of
all materials

Partial selection
of materials

BOM explosion

Costing Run Creation

Company Code

Costing variant

Dates

Costing
Run

Materials

$

$

$

$

$

$

$

$

$


Prepare Cost Object

Production Costs

Receive Finished Stocks

Month End Closing

Post Materials Costs

Debit Secondary cost

Credit Production Output

WIP Calculation


Settlement

Preliminary costing

Create cost object

Cost Object Controlling: Overview

Functions of Cost Object Controlling:
Supporting make-or-buy decisionsDetermining price floorsPerforming complex cost analysis Determining inventory values
Overview

As a vital element of Product Cost Controlling, Cost Object Controlling is gaining in importance.

The Cost Object Controlling component is designed to answer the question: "What costs have been incurred for which objects?" To answer this question, the component assigns the costs incurred in the company to the companys output. The output of a company can consist of materials manufactured in-house, individual orders, or intangible goods.

This component offers real-time cost management functions that determine the cost of goods manufactured in all plants.

The Cost Object Controlling component enables you to determine the cost of goods manufactured or the cost of goods sold for the manufacturing or service output of the company.


Cost Object Controlling Scenarios:
Product Cost by PeriodProduct Cost by Period is used for recurring periodic cost control of products that are manufactured in the same way over a longer period of time.Product Cost by OrderProduct Cost by Order is mainly used to control the costs of individual production lots.
In Product Cost by Order, the manufacturing orders themselves are the cost objects. Costs charged to manufacturing orders are usually analyzed and settled by lot. This means that variances can only be analyzed after the entire planned production quantity has been put into inventory.

In contrast to Product Cost by Order in which you analyze costs by lot, in Product Cost by Period you analyze costs by period. This means that you collect the costs on a cost object over an extended period of time, and analyze the debits and credits in each period.

You can also combine both approaches: costs by manufacturing orders and costs by period. In such an approach you will assign production or process orders to product cost collectors and deal with incurred costs as in Product Cost by Period.

Product Cost by Order or by PeriodFull settlement (by Order)Periodic settlement ( by Period)
Actual costs =
Work in process

Actual costs -
Goods receipts =
Work in process

Actual costs -
Goods receipts =
Variances

Releasing an order

Partial delivery

Delivered /
Technically completed

Actual costs -
Goods receipts =
Work in process +
Variances

Period 1

Period 2

Period 3

Actual costs -
Goods receipts =
Work in process +
Variances

Actual costs -
Goods receipts =
Work in process +
Variances

Time

Time

As you use Product Cost by Order the Full settlement rule is used for production orders.

As you use Product Cost by Period the Periodic settlement rule is used for product cost collectors.


Product Cost by Order

Type of settlement
rule

Work-in-Process

Variances

Settlement

Hierarchy of
Cost Objects

FULL

PERIODIC

WIP calculated on base
of actual costs

Variance

=

Actual Costs

-

Goods Receipts

Variance

=

Actual Costs

-

Goods Receipts

-

WIP

Should be periodically

Impossible

Possible

Funkcje

Functions

Product Cost by Period

of target costs

Must be periodically


Functions of Product Costs by Period:
Create product cost collectors.Create a preliminary cost estimate for product cost collectors.Calculate and analyze target costs and actual costs for product cost collectors.Calculate or update the work-in-process inventory and the finished goods inventory.Calculate and analyze variances for each period.Transfer data to: Financial Accounting, Profitability Analysis, Profit Center Accounting and Material Ledger.
A preliminary cost estimate for a product cost collector can calculate the costs for the production process (that is, on the basis of a particular production version or for a particular combination of BOM and routing). In repetitive manufacturing, you can therefore create cost estimates for specific production versions.

During the period, all transactions involving products produced in-house in the Logistics module are valuated using the results of the standard cost estimate. If a material with standard price control is delivered to stock, for example, inventories of this material are valuated with the standard price determined by the standard cost estimate.

The results of the standard cost estimate can also be used to determine the following data for each production order or product cost collector at the end of the accounting period: variances, scrap and work in process.


Production postings (backflush)


Product Costing

- Z9P1, Z9P2, Z9P3 costing run, verification, save





- Material Master Data, BOMs and Routings

- Product Cost Collectors incl. PREM costing


- Inventory deviations postings

- Variances processing and analysis


Functions of Product Costs by Period

Actual Overview

Profitability Segment

Company
General

Common

Services

Executive Management

SBU / Sales
C. Center

R&T

C. Center

Maintenance

Production C. Center

Product Cost Collector

Variances

Projects

Overhead
Variances

Primary Cost Pools Cost Centers - collect primary expenses which are not attributed to a particular cost object e.g. Communication, Medical expenses, Rents, Insurance, Housing Maintenance etc. The accumulated primary cost will be distributed to the receiving objects on appropriate bases.

Executive Cost Centers - includes the cost of senior management of the affiliate, legal office,internal audit, strategic planning and other expenses associated with these functions. Executive Overheads are assessed to appropriate Profit Centers (at Product group level per company Code) for PCA Reporting.

Administrative Support Cost Centers - all administrative cost centers in the affiliates (except executives, legal, strategic planning, internal audit) are included in the product cost. The admin overheads are allocated to cost centers via indirect activity allocation based on appropriate basis.

Service Cost Centers - examples are, Maintenance, Utility Facilities,Engineering etc, they usually exchange services between each others also. The direct service cost is allocated to receiver objects (e.g. cost centers, product cost collectors) based on unit of consumption or other appropriate bases via direct activity allocation.

Production Support Cost Centers - are fully dedicated for production, but serve more than one production cost centers. The costs are allocated (distributed) in full to receivers based on unit of consumption or other appropriate bases.

Production Cost Centers - include all direct overheads of the production unit that are not charged directly to product cost collector via production orders. The cumulated cost is charged to production order based on consumption, production volume via direct activity allocation.


Prepare Cost Object

Preliminary costing

Create

Objects in Cost Object Controlling
Product cost collectors in the following production environments:In order-related production (that is, when you are using production orders) when you want to analyze the costs by period rather than by lotIn process manufacturing (that is, when you are using process orders) when you want to analyze the costs by period rather than by lotIn repetitive manufacturing you always use product cost collectors as the cost objects.
Product cost collector is a cost object in the Product Cost by Period component.


Product

Bill of Material
Usage Alternative
Routing
Group Group counter
Production Version
ID, Production line, Validity period.
Product cost collector is a cost object in the Product Cost by Period component that collects the periodic actual costs incurred in the production of a material. When you use a product cost collector, the product becomes the main cost object.

Product cost collectors are independent of the production type.

For Controlling (CO) purposes in Finance, a product cost collector is created to collect production costs by period, rather than by production order confirmation

It may be a requirement for the PP Master Data Controller to work with the CO Master Data Controller to create and maintain this cost collector


Master

Recipe


Product

Production

Version

PROCESS ORDER 2

Operation List/Routing

MaterialsList/BOM

Resource
Requirements

Operation 10

Operation 20

Phase A

Material Y

Material X

PROCESS ORDER 1

Process Orders assigned to one Product Cost Collector via the same Production Version.

This scenario is applicable for process manufacturing (that is, when you are using process orders) when you want to analyze the costs by period rather than by lot.

Process Orders in such a case is not debited and credited although scrap determination is still conducted on a process order. All postings are transferred directly to an assigned product cost collector and this object is taken into consideration during period-end closing.

Linking the manufacturing order to the product cost collector at this point is only possible if the manufacturing order does not yet have any actual costs.

A product cost collector may already exist, but because the production version or the BOM/routing combination in the manufacturing order has changed, you need to link the manufacturing order to a different product cost collector. In this case a new linkage is only possible if no costs have been caused by the product cost collector.

Preliminary costing



Product Costing

- SPC1 SPC3 costing run, verification, save






- Product Cost Collectors with Preliminary costing (PREM)





Preliminary costing with a relation to whole process.

Preliminary costing
Costing variant PREM - preliminary costing:
Created during product cost collector creation

Created per each production version

Provides split and balanced information of cost items, quantities and prices that are planned to occur during production of a product

Variable costs coming from BOM and routing

Result used mainly for actual activities postings

May be used for further analysis up to cost management requirements

May be changed all the time in the way of changing (updating) Product Cost Collector; i.e. different quantity structures allowed over the period

Changes in BOMs take effect immediately, i.e. cost estimate update not required

Changes in routings take effect after cost estimate update

Preliminary costing


Item Plan Actual

Materials 4.000

Internal activities2.500

Overheads 1.500

EDC 0.500

Ethylene 2.000

Caustic Soda 1.500

Total8.000

A preliminary cost estimate for a product cost collector can calculate the costs for the production process (that is, on the basis of a particular production version or for a particular combination of BOM and routing). In repetitive manufacturing, you can therefore create cost estimates for specific production versions.

Simultaneous costing actual costs



Product Costing

- Z9P1 Z9P3 costing run, verification, save






- Product Cost Collectors with Preliminary costing (PREM)





Simultaneous costing with a relation to whole process.

In Cost Object Controlling, actual costs for cost objects are recorded during simultaneous costing.

Simultaneous costing actual costs


Item Plan Actual

Materials 4,000 4,600

Internal activities 2.500 2.800

Overheads 1.500

EDC 0.500 0.600

Ethylene 2.000 2.200

Caustic Soda 1.500 1.800

Total8.000 7.400

Confirm order operation

Record consumption & output

Record process data & batch characteristics

Final Confirmation & Back Flush

Production output & Back Flush

Deal with Back Flush & transaction errors

Adjust theoretical yield & consumption to actual

During the repetitive production process, the backflush takes place whereby raw materials and utilities consumed are automatically issued according to the standards in the BOM and recipe/routing.

If there are any failed postings when the backflush of material consumption takes place (for example, because of stock record errors), the cause of the error is dealt with and the posting re-submitted.

A process order is partially confirmed during production

When the process order is complete, a final confirmation of output and resource usage is made.

Where process measures are defined in the process order, the operator records any required data in the order

Any waste or scrap lost during the process is recorded via goods receipt.

Where the output of packaged product is not a full pallet/container, the output of loose bags / part containers is not recorded. The loose bags are retained until the next run when a full pallet can be made up and recorded.

Any differences in consumption between the standard quantities in the order ( standard quantities are copied from the BOM and routing/recipe) and the actual quantities reported from the process meters will be manually corrected.

The true output from the bulk process is adjusted after the packaging operation when the yield is accurately known.

The results from the output & resource consumption updates the stock records of materials and bulk product, creates the valuation of production, and posts SAP reporting data.

Confirmation Types & Functions - Process Orders

Order header

Order header

Operations

Operations

Components

Components

n

n

Backflush components

Backflush utilities

Reduce capacity requirements

n

n

Individual confirmation

n

Collective confirmation

n

Milestone confirmation

n

Progress confirmation

n

Order confirmation

n

Confirmation with reference

n

Individual order confirmation

n

Collective confirmation

n

Milestone confirmation

Confirmation types

n

Partial confirmation

n

Final confirmation

n

Partial confirmation

n

Final confirmation

Confirmation status

Confirmation status

Costs Material

Labor

...

Costs Material

Machine

Utility

20

50

100

n

Confirm with goods movement

n

Defaults for remaining time

n

Check operation sequence

n

Check delivery tolerances

n

Plant data collection interface

n

Backflushing

n

Reduce capacity requirements

n

Determine actual costs

n

Output goods receipt

n

Determine actual costs

Confirmation functions

Partial operation confirmation is done on a daily basis until whole order is completed.

This is similar to the REM back flush activity.

The confirmation triggers good receipt and issue of components by an order operational back flush.

Final confirmation is conducted when all operations in the order are completed.

Back Flushing (Repetitive Orders)

Order quantity = 10 PC

Required qty = 20 PC

Operation 30

Component XY

Back Flushing

Operation 30

Yield = 5 PC

10 PC of Component XY

to be back flushed

Goods issue

Component XY = 10 PC

Warehouse

Backflush takes place daily. At the end of the month, make corrections for any of the following;

Total quantity received

Total components issued

Total activities or utilities posted

The correction procedure is to choose the last back flush performed for the material, and reverse it

The last back flush is performed again but adjusting quantities needed to complete the mass balance for the month.

For example:

During the month a total yield of 6000 tonnes was back flushed, but at the month-end only 5980 tonnes was measured. The last back flush of 600 tonnes is reversed, and resubmitted as 580 tonnes.

Similarly, if the total component quantity issued was measured at month-end to be 1000 KG but only 800KG has been recorded by back flush, then the last back flush is reversed and resubmitted with the component quantity increased by 200KG.

Utilities can be adjusted in the same way.

If there is no need to change a production quantity by reversal of the back flush but additional components were used in production, then a component back flush only can be used to post additional quantities.

Values may be calculated from the BOM or Routing.

Final Confirmation & Technical Completion

Final confirmation

Settlement can be carried out

Technical completion

Production order

status:

Delivered

Order status:

Delivered

Order header

Operations

Operations

Components

Components

PRTs

PRTs

Costs

Costs

20

50

100

Production order

status:

Technically

completed

Order status:

Technically

completed

Order header

Operations

Operations

Components

Components

PRTs

PRTs

Costs

Costs

20

50

100

Final confirmation is made when every operation in the order has been completed.

confirmations can be reversed if required

Technical completion is used if the order is terminated prematurely. Technical completion prevents further activities being posted to the order; however the order is still open for financial settlements.

Technical completion may also be reversed.

As we use process orders assigned to product cost collectors production costs are settled on periodic basis.

System first checks the status of the manufacturing order and then the status of the product cost collector. The status of the product cost collector overrides the status of the manufacturing order. The relevant status for period-end closing in Cost Object Controlling is the status of the product cost collector.

Failed Transactions and Corrections

Incorrect or missing data for components and activities prevents processing of the back flush transaction

These errors must be corrected before postings can be made for materials and activities

When the errors have been eliminated, the theoretical yield and consumption may be adjusted and the results recorded

Failed transactions most frequently occur because of stock record error. After correcting the error, the failed transaction can be resubmitted

Summary
Non-feedstock raw materials are staged daily to the production area for planned manufactureAs each production quantity is confirmed, a back flush of the proportional quantities of raw materials and utilities consumed is recorded The results from the output receipts, plus material & resource consumptions, update the stock records and provide valuation of production according to standard cost approach.

List of Transactions
Simultaneous costing transactions:
MF60 Stage Materials

MFBF Back Flushes

MF41 Month-End Corrections

COR6 Confirm Orders & Back Flush

COR2 Reverse Confirmations

Demonstrate how to stage material for preparation before production using transactions: MF60_01, MF60_02 and MF60_03

THEN

Demonstrate production receipts by back flush (repetitive manufacturing) and confirmation (process orders) using transactions: MFBF_01 and COR6

THEN

Show how to handle errors and failed transactions using transactions: MF41, MFBF_02 and MFBF_03

THEN

Demonstrate how to reverse confirmations using transactions: COR2_01 and COR2_02

Product: MEG 22000055; Plant: 1200; Storage locations:1200 to 1204.

Actual costs

Material is assigned to a CO Production Order

Material

STATUS CREATED
This status does not allow for any actual postings
CO Production Order
Step 1 Order creation
- Maintenance of Master Data
Status - CREATED

Actual costs
CO Production Order
Step 2 Order release
- Maintenance of Master Data
Status - RELEASED

Material

STATUS - RELEASED
This status allows for actual postings

Actual costs
CO Production Order
Step 3 FI postings
- Actual Postings
Status - RELEASED

Material

Order

Outside Services
430004

430004 + 5.000,-

5.000,-

FI

CO

Actual costs
CO Production Order
Step 4 Direct activity allocation
- Actual Postings
Status - RELEASED

Material

Order

430004 + 5.000,-

Cost Center / Activity

943201 - 7.500,-

943201 + 7.500,-

150 * 50 = 7.500,-
quantity * price = cost

Actual costs
CO Production Order
Step 5 Goods Issue to Order
- Actual Postings
Status GOODS MOVEMENT POSTED

Material

Order

430004 + 5.000,-

943201 + 7.500,-

100 * 11 = 1.100,-
quantity * price = cost

Raw Materials Consumed
400000

Inventory Raw Materials

119400

1.100,-

1.100,-

400000 + 1.100,-

FI

CO

Actual costs
CO Production Order
Step 6 Goods Receipt from Order into Warehouse
- Actual Postings
Status PARTIALLY DELIVERED

Material

Order

430004 + 5.000,-

943201 + 7.500,-

100 * 50 = 5.000,-
quantity * price = value of the goods receipts from order

Production Output
462001

Finished Products
119430

5.000,-

5.000,-

400000 + 1.100,-

462001 - 5.000,-

FI

CO

Actual costs - Summary
The results from the output receipts, plus material & resource consumptions, update the stock records and provide valuation of production according to standard cost approach.


Month End Closing

Settlement


WIP
Calculation

Period and year-end closing
Period-end closing:
Product Cost Collectors are only included in the period-end closing process if the status of the order is not one of the following: LKD (Locked), CLSD (Closed), DLFL (Deletion flag), DLT (Deleted).

If you dont enter a production process in the individual processing mode of the period-end closing transaction, but only enter the data for the material and plant, this period-end closing transaction will be performed for all production processes for that material.

Functions available in period-end closing: overhead calculation, WIP calculation, variance calculation, settlement.


Product Cost by Order

Type of settlement
rule

Work-in-Process

Variances

Settlement

Hierarchy of
Cost Objects

FULL

PERIODIC

of actual costs

Variance

=

Actual Costs

-

Goods Receipts

Variance

=

Actual Costs

-

Goods Receipts

-

WIP

Should be periodically

Impossible

Possible

Funkcje

Functions

Product Cost by Period

of target costs

Must be periodically

CO Production Order
Step 7 Work-in-Process Calculation
- Period-end closing
Status RESULTS ANALYSIS CARRIED OUT

Material

Order

430004 + 5.000,-

943201 + 7.500,-

400000 + 1.100,-

462001 - 5.000,-

WIP Report:
Work-in-Process
13.600 - 5.000 = 8.600

CO Production Order
Step 8 Settlement
of - Period-end closing
Status RESULTS ANALYSIS CARRIED OUT

Material

Order

430004 + 5.000,-

943201 + 7.500,-

400000 + 1.100,-

462001 - 5.000,-

Work In Progress (WIP)
462201

119460

8.600,-

FI

8.600,-

CO

WIP is being updated on the order as statistical value for information purposes.

CO Production Order new period
Step 9 Repetition of the steps from 3 to 7
- Actual Postings
Status PARTIALLY DELIVERED or DELIVERED

Order

As a result of the actual postings in the new period there is a new balance on the order.

Material

430004 + 5.000,-

943201 + 7.500,-

400000 + 1.100,-

462001 - 5.000,-

400000 + 5.000,-

462001 - 7.000,-

CO Production Order period 2
Step 10 Work-in-Process Calculation (variant 1)
Status PARTIALLY DELIVERED

WIP Report (cumulated):
Work-in-Process
18.600 - 12.000 = 6.600

Work-in-Process
in previous period
13.600 - 5.000 = 8.600
Cumulative: 15.200

Order

Material

430004 + 5.000,-

943201 + 7.500,-

400000 + 1.100,-

462001 - 5.000,-

400000 + 5.000,-

462001 - 7.000,-

CO Production Order Period 2
Step 11 Settlement (variant 1)
Status RESULTS ANALYSIS CARRIED

Material

Order

119460

462201

FI

6.600,-

6.600,-

CO

430004 + 5.000,-

943201 + 7.500,-

400000 + 1.100,-

462001 - 5.000,-

400000 + 5.000,-

462001 - 7.000,-

As WIP is reported as cumulative value.

CO Production Order period 2
Step 12 Calculation of Variances and Settlement (variant 2)
Status TECHNICALLY COMPLETED

Price Difference - Production Difference
464018

Production Output
462001

FI

6.600,-

6.600,-

Material

Order

CO

430004 + 5.000,-

943201 + 7.500,-

400000 + 1.100,-

462001 - 5.000,-

400000 + 5.000,-

462001 - 7.000,-

Negative variance:

Actuals > Plan.

As a result of a posting the balance of the order was posted to production difference account and cumulated WIP was reversed.

WIP
462201

WIP
119460

8.600

8.600

Variance: Integration
Materials

Labour

Depreciation

Goods Receipt

Variance

800

1.200

400

2.400

- 2.000

400

Material CATALYST

Quantity prod.: 10 pcs

Actual Costs


Material Master

Accounting View

Standard Price

200

Settlement

Target Cost Ver. 0

Price 150

Quantity 50

Structure 200


Variance400

Accounting

Stock

Price difference

2.000

400

FI

Stock

MM

CO-

PC

Materials

600

Labour

1.100

Depreciation

300


10pcs * 200

CO-

PA


Variance

Category

PA Assignment
lines

Value Field

Cost Element

Group

+

+

+

You can settle (transfer) the production variances calculated in Product Cost Controlling for product cost collectors (settled periodically) and CO production orders to CO-PA. The individual variance categories (such as material price variance, material quantity variance, etc.) are transferred separately.

The PA transfer structure A1 consists of items called assignment lines. In these assignment lines you assign a cost element group and a variance category to a value field of the operating concern. To assure correct settlement to Profitability Analysis, you must assign each combination of the cost element group and the variance category to one value field in the operating concern.

Note the following when you use a PA transfer structure:

Every debit cost element must be in the PA transfer structure. You can either group all cost elements into a cost element group or define a number of groups for materials, internal activities, business processes, other overhead costs, etc. These groups are entered under the section cost elements.

Every variance category must be represented in the PA transfer structure. The variance categories are specified by the system and are entered under the source section.

Each debit cost element or combination of cost element group and variance category can only be assigned to one value field (n:1 relation).

The PA transfer structure A1 is assigned to the settlement profile PP01 which is defaulted for order types: RM01 - PCC for Repetitive Manufacturing, RM02 - PCC for Process Orders and CP01 -).


CO-

PC

Material: MEG

Quantity: 10 pieces

Actual costs 2.400,-

Goods receipt -2.000,-

Variances/WIP 400,-

Actual costs

Product cost collector

Period accounting

Revenue

Sales deductions

Overheads plus Variances

+/- Change in Stock

= Result of a period

Company Code

Profit Center

Cost of goods sold

Revenue

Sales deductions

Manufacturing costs by
standard price
(Contribution margin I)

Variances


Company Code

Profitability
Segment

Settlement

CO-
PC

PrCtr 1

PrCtr 1

FI

EC-

PCA

CO-

PA

FI



Item Plan Actual

Materials 4,000 4,600

Internal activities2.500 2.800

Overheads 1.500 1.600

EDC 0.500 0.600

Ethylene 2.000 2.200

Caustic Soda 1.500 1.800

Total8.000 9.000

Revaluation

Process costs

Overheads

Periodic Costs

%

%


Work-in-Process

Overheads

Process costs

Revaluation

Periodic

costs

Calculations
and
analysis

Postings
FI/CO

Settlement

Scrap

Variances

Period-end closing


CO-

PC

Material: MEG

Quantity: 10 pieces

Actual costs 2.400,-

Goods receipt -2.000,-

Variances/WIP 400,-

Actual costs

Product cost collector

Period accounting

Revenue

Sales deductions

Overheads plus Variances

+/- Change in Stock


Company Code

Profit Center

Cost of goods sold

Revenue

Sales deductions

Manufacturing costs by
standard price
(Contribution margin I)

Variances


Company Code

Profitability
Segment

Settlement

CO-
PC

PrCtr 1

PrCtr 1

FI

EC-

PCA

CO-

PA

FI

Variances are written of f at this stage which will be adjusted during Material Ledger closing.


Variance

Category

PA Assignment
lines

Value Field

Cost Element

Group

+

+

+

You can settle (transfer) the production variances calculated in Product Cost Controlling for product cost collectors (settled periodically) and CO production orders to CO-PA. The individual variance categories (such as material price variance, material quantity variance, etc.) are transferred separately.

The PA transfer structure A1 consists of items called assignment lines. In these assignment lines you assign a cost element group and a variance category to a value field of the operating concern. To assure correct settlement to Profitability Analysis, you must assign each combination of the cost element group and the variance category to one value field in the operating concern.

Note the following when you use a PA transfer structure:

Every debit cost element must be in the PA transfer structure. You can either group all cost elements into a cost element group or define a number of groups for materials, internal activities, business processes, other overhead costs, etc. These groups are entered under the section cost elements.

Every variance category must be represented in the PA transfer structure. The variance categories are specified by the system and are entered under the source section.

Each debit cost element or combination of cost element group and variance category can only be assigned to one value field (n:1 relation).

The PA transfer structure A1 is assigned to the settlement profile PP01 which is defaulted for order types: RM01 - PCC for Repetitive Manufacturing, RM02 - PCC for Process Orders and CP01 - Standard CO production order (SABIC).

Material Ledger: Overview

Functions of Material Ledger:
Cost accounting using actual pricesStoring values of stock in three different valuations (legal valuation, valuation for reporting purposes, and profit center valuation) in multiple currencies.
Overview

As a vital element of Product Cost Controlling, Material Ledger is gaining in importance.

The material ledger is a tool that collects data for materials whose master data is stored in the material master. On the basis of this data, the material ledger calculates prices for the valuation of these materials. The material ledger creates the basis for actual costing and makes stock valuation in up to three currencies and/or valuations possible.

Material Ledger: Overview

Functions of Material Ledger:
Cost accounting using actual pricesStoring values of stock in three different valuations (legal valuation, group valuation for reporting purposes, and profit center valuation) in multiple currencies.
Overview

As a vital element of Product Cost Controlling, Material Ledger is gaining in importance.

The material ledger is a tool that collects data for materials whose master data is stored in the material master. On the basis of this data, the material ledger calculates prices for the valuation of these materials. The material ledger creates the basis for actual costing and makes stock valuation in up to three currencies and/or valuations possible.

What is the Material Ledger/Actual Cost Concept?

The Material Ledger(ML) is a tool within the CO Module that collects all transactional data for materials whose master data is stored in the material master. It acts as a subledger for selected materials that captures all goods movements, invoice values, transfers and price changes. On the basis of this data, the material ledger calculates and maintains the actual cost for these materials. This actual cost can then be utilized to valuate the material stock accounts.

Objectives of the Material Ledger

1. Actual Costing.

During the period, valuation of all goods movements is done with the preliminary valuation price which is normally the standard price. All variances from the preliminary valuation are maintained in the ML. At period end, revaluation of ending inventory can be performed with the determined actual price. This is not mandatory. Actual prices can be calculated for statistical purposes only.

2. Parallel currencies and/or valuations of material stocks.

All goods movements in the ledger can be maintained in 3 currencies. The values are translated into other currencies using the historical exchange rates. Prerequisite for usage of transfer pricing functionality.

Benefits of the Material Ledger
Variances of Finished Goods
Variances

ProductCosting Material Ledger

Documents

Transcript of ProductCosting Material Ledger