Product Costing

Agenda What is Product Costing in SAP All-in-one? Elements of product costing Detail within each Example of system postings

What is Product Costing in SAP All-in-one?

It is the valuation of • material components • internal activities (labour and machine time), and• external activities (subcontractors)

on a production order (discreet manufacture) or run schedule header

(repetitive manufacture) by utilising material prices, activity rates and subcontract costs. Plan and Actual values are recorder and reported with Variances Variances are disposed of as per Company policy

What is Product Costing? (contd) The components are costed as per the costing method (standard or

weighted average), by reading the values stored in the Material Masters.

The internal activities are costed as the product moves through the Routing operations performed in the Work Centres in the factory, by applying rates calculated via the Cost Centre to which the Activity Type is attached.

Subcontract costs can be posted directly to the product cost collector, or allocated thereto via Activity Types.

Overheads can be absorbed into the product cost via Activity Types or Surcharges calculated using Costing Sheets

Elements of Product Costing Order Types Costing Variants Activity Types Cost Components Costing Sheets Cost Estimates Preliminary Costing Costing Run Settlement Profile Settlement Structure Settlement Rule Variances

Order typesCO-OPA

PS CO-PC Internal Orders

SM

PP

PM

IM

SD Order (make to

order)

OPA is the 'Repository' of all

orders.There are three main

types of orders, namely :

1) PS, with one order per WBS number2) PC, with a Bom

and Routing3) Internal Orders,

with various options.

Costing Variants A Costing Variant is defined as :

• An alphanumeric key PL02• A Name Current Standard

It Contains, under Details :• Costing Type (Where)• Valuation Variant (What)• Quantity Structure Determination ID (How)• Transfer Control (What)

Other Aspects :• Date Control (When)• Order Type Determination (What)

Costing Type (e.g. 01) :

Tells the system which field to update in the material master (or PP Order) when a cost estimate is run, e.g.

• std cost estimate - material, • production order - actual, or • production order - planned

Valuation Variant (e.g. PL1)

Defines how the material, activities, subcontractors and overhead surcharges will be valued, using strategy sequences for each, e.g. first use 1, if it has no value, use 2, and so on.

Example :Material material master frozen standardActivities planned rateSubcontractors net purchase priceOverhead Surcharges costing sheet PP-PC2

Quantity Structure Determination ID (e.g. PC01)

Defines, for each plant, how the system is to find valid alternative BoM’s in multi-level BoM’s, e.g.

PC01 - Std quantity structure determination (SAP Default).

Transfer Control (e.g. PL02)

Tells the system what value to pick up, upon the transfer of a product, when costing a product which contains parts which are costed elsewhere (in the same plant or in different plants), e.g.

Single plant transfer strategy priority 1 = current std cost estimate Cross-plant transfer strategy priority 1 = current std cost estimate

Date Control (e.g. PC01)

Tells the system : From which date the result of the Costing Run is valid, e.g. start of

next month To which date the result of the Costing Run is valid, e.g. end of

financial year The BoM and Routing date that is valid for the Costing Run, e.g. start

of next month The date that must be used for picking up material and activity

values, e.g. the date the costing run is executed.

Order Type Determination (e.g. PPC01)

Tells the system which Order Type to use for product costing, e.g. PPC1 (production order-actual)

NOTE : Create one Costing Variant for Current and one for Future standard

cost Create one Costing Variant for Planned costs, and one for Actual costsExample : PL01(future std) and PL02(current std) are used to calculate cost

estimates for the material master, whereas PL03(plan) and PL04(actual) are used for calculating plan and actual

costs on PP production Orders.

Activity Types Activity Types are the SAP mechanism to cost the operations

performed in a work centre, and are used by the PP Module for shopfloor control and capacity planning.

An Activity Type is defined per operation in the work centre, and is linked to the Cost Centre that accumulates the costs associated with that work centre.(It is specified in the work centre master, and is planned and posted to on the cost centre)

A Planned rate is calculated per Activity Type by dividing the costs on the cost centre by the anticipated quantity - it is based on planned capacity to ensure full absorption.

As expenses are posted by cost element, and not by Activity Type, only one true Actual rate can be calculated per cost centre - several can be derived via actual cost splitting (CCA functionality).

Cost Components

The Cost of a product is usually made up of material, labour, overhead and subcontract costs.

A Cost Component Layout/Split allows one to record and report the Cost broken down into each of these Components.

You have to define the Origin of each Cost Component, which is usually a Cost Element Group associated with that Component.

Costing Sheets

A Costing Sheet is used to allocate indirect overhead to a product.

A specified percentage of overhead is applied to the product based on material issues or labour activity charges on the production order.

Cost centres containing the indirect overheads are credited.

Cost Estimates A Cost Estimate is the planned cost of a production cost carrier. It utilises the BoM and Routing to arrive at the planned cost, which can be

transferred into the material master as a Planned Price to be utilised in Product Costing to valuate the material.

There are several types:• Current Cost EstimateYou create a current cost estimate in certain decision-making, such as in situations

where you have to decide between producing in-house and procuring externally• Modified Standard Cost EstimateYou create a modified standard cost estimate if the basic costing data has changed

during the planning period. • Inventory Cost EstimateThe inventory cost estimate is used to calculate valuation bases for tax-based and

commercial inventory valuation

Cost Estimates (Contd)

You specify which cost estimate is to be considered the Standard Cost Estimate

If you mark a standard cost estimate, it is transferred into the material master record as the future standard price (costing and accounting view)

If you release a standard cost estimate, it is transferred into the material master record as the current standard price.

Preliminary Costing Used to calculate the planned costs on a production order for

a product that does not have a material master Types of preliminary costing are Product Costing (using BoMs

and Routings) and Unit Costing (without BoMs and Routings) Unit Costing is based on data in MM and CCA. You enter

material components, activities, etc. in the list screen of the unit cost estimate

Base Object Costing uses the functionality of Unit Costing , with a Base Planning Object operating essentially as a spreadsheet used to calculate product costs without BoMs and Routings.

Costing Runs

The Costing Run enables you to cost multiple materials at the same time.

It reproduces the entire process of costing a product with a BoM.

It can be executed in Background mode - for large volumes of materials.

You can use the results to mark and release several standard cost estimates at once.

Settlement Profile

Specifies how the actual costs must be settled, i.e. • must be settled in full, • can be settled, • must not be settled.

Specifies valid receivers (one or several) Specifies the default settlement structure Specifies the default PA settlement structure Specifies the Origin structure Contains other indicators and parameters, i.e.

• document type, • retention period, • method/type of settlement, e.g. %, amount.

Settlement Structure Contains a Settlement Assignment, which contains: The Origin, which is made up of the cost element/group posted onto the

order that are to be used as the source of the settlement values The Settlement Cost Element, which is the cost element on which the

settlement is posted. The Account Assignment Category, which specifies the type of receiver as

e.g. • asset, • network, • order, • profitability segment, • cost centre, • GL account.

Settlement Rule

Is defined in each order, and contains the Distribution Rule, with • the specific receiver • percentage to be received, and• settlement type, i.e. PER or FUL

Variances Variances can be defined as

• Standards VariancesThese are the differences between the ‘Frozen’ or current

standard and the planned standard on the production order• Actuals VariancesThese are the differences between the planned and actual

values on the production order• Standard/Actual VariancesThese are the differences between the ‘Frozen’ or current

standard and the actuals on the production order

Variances (Contd)

Variances are calculated at two levels :• Variances from Planningbeing the differences between the standard cost

estimate (current standard), and the target costs on the production order

• Production Variancesbeing the differences between the production

order target and actual costs

Variances (contd) : Target Costs SAP Calculates Variances as being the difference

between target and actual costs With Activity-independant costs, target costs are

equal to the planned costs With Activity-dependant costs, the system

calculates the target costs for each cost centre in each period, by adapting the planned costs to the actual activity, e.g.

(actual activity/planned activity) x 100.

Variances (Contd) Variances from Planning :

• Lot Size variance, being batch quantity differences• Resource Usage variance, being replacement parts differences• Quantity variances• Remaining variance, being rounding, or the balance of variances not

categorised as above

Production Variances :• Price variance• Lot Size variance• Resource Usage variance• Quantity variance• Remaining variance

Variances (Contd) Scrap is excluded when calculating production variances Variances are generally calculated cumulatively as soon as the

status for the production order is set to ‘delivered’ With Standard Costing, variances are expensed With Moving Average Costing, variances are settled to stock The Variance Variant determines which variance categories are

calculated. Variances can either be expensed or capitalised, and can be

calculated cumulatively or periodically. You select one of each option for all variances - you cannot select these options for variances individually.

Example of System Postings

FI CO

CCAPC/OPA

PADebit CreditAccount

300 000

320 000

110 101

400 020

325 000

420 000

621 500

891 000

Description

Inv-RM

Bank

RM Cons

Salaries

Machine Hr

Inv-WIP

Inv * WIP

Inv-FG

(1)

(1)(2)

(2)

(3)

(3)

(2)

(3)

(-4) (4)

(5)

(5)

(6)

(6)

(7)

895 000 Bk to store (7) (-7)

(-8) (8)Var to PA

CC Asses-PA (-9) (9)710 000

(6)(-5)

Material with a Quantity Structure

Serial # A

Serial # B

Serial # C

Quantity 1

Quantity 1

Quantity 1

Standard Cost

Material Master

Storage Location

Serial Number

Table

Total = 3Standard

BoM

Configurable MaterialsStandard Cost

Estimate

Configurable BoM

Characteristics

Sales Order BoM

Planned Production Order

Characteristic Values

Material Master for Variant of

Configurable BoMSales Order

Optional

Object Dependencies

Sales MRP

Work Centers & Routings

Cost Centre

Work Centre

Standard Value Key

Standard ValueParameter

Activity Type Formula

Cost Centre

Expense

Scrap

Packaging

Freight

Subcontract

Variance

EXPENS

VARIAN

FRGHT

ZOLNER

CASING

SCRAP HUNG06

HUNG05

HUNG04

HUNG03

HUNG02

HUNG01

Activity TypeRate

RoutingOperation

1 EA

1 EA

1 EA

1 EA

1 EA

1 EA

Standard ValueEfficiency Rate

100%

100%

100%

100%

100%

100%

Activity Type

Note : (a)One can onlyassign 1 Cost Centre to a

Work Centre, but manyWork Centres can have the

same Cost Centreassigned.

(b) The Formula in theWork Centre is usually

Activity Rate * StandardValue per Routing, but it

could be OperationQuantity

Costing Sheet

Base 1 : Coel 400000(in receiver)

Credit 1 : Coce PurchasingCoel 670000

Over 1 : 10% of line 10

Credit 2 : Coce FinanceCoel 671000

Over 2 : 10% of line 30

Base 2 : Coel 400000 to499999

Costs 4xxx 1000 Costs 4xxx 2000 Costs 4xxx 2000

Secondary Alloc (500)

O/head Recov (500)

Secondary Alloc (500)

O/head Recov (600) Secondary Alloc 500

Secondary Alloc 500

Activity Recv (3000)

Purchasing CostCentre

Finance CostCentre

ManufacturingCost Centre

Production OrderCosting Sheet 1

10

30

20

40

Calculation Base

Overhead Key Credit Key

Material Issues (per BoM)400 000 $5000

Subcontract Costs420000 $1000

Activity Charge $3000

Overhead Charge670000 $500

Overhead Charge671000 $600

10% of$5000

10% of$6000

Summary

Order

Order Type

Bill of Material

MaterialMaster

SettlementRule

Routing

CostingVariant

SettlementProfile

Costing Sheet

SettlementStructure

Cost Centre

Work Centre

Activity Type