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How to configure Mixed Costing

Company: SAP

Mixed costing is very useful in some cases. For example, it's the only way to release a standard cost estimate for each procurement alternative that is associated with a valuation type. Recently I got some requests to explain in details how the mixed costing works. I hope this blog can help to explain. The prerequisite for the mixed costing is as below: - A quantity structure type is configured in the customizing - This quantity structure type is associated to a costing version in the Customizing. - The Procurement alternatives for the material have bee defined - The mixing ratios for the procurement alternatives are defined based on the quantity structure type - The material is costed with the above-defined costing version. 1. Define the quantity structure type The path to configure mixed costing is as below (ECC 6.0):

The tcode for quantity structure type is OMXA.

Now I created the qty structure type "MIX". "Time Dependency" - This controls the time period in which the quantity structure will be used. It can be time indepenent, based on fiscal year, or based on each period. "Percent validation" - Tick this indicator if you want to ensure that the sum of the existing mixing ratios for a material and quantity structure type totals 100%. 2. Associate the quantity structure type to a costing version The path is right after that for the quantity structure type.

For the attached screenshot, the mixed costing will be called with the qty structure type MIX, when costing version = 1 & costing type = 19, or when costing version = 99 & costing type = 01 & valuation variant = 001. The system will not do mixed costing for the other combinations of costing version & costing type & valuation variant. In this transaction, you can also define: - Variant for transfer price determination - Exchange rate type for currency translation The configuration for the costing version can also be checked via costing variant configuration(tcode OKKN). It's a more convenient way as the configuration is based on the combination.

In the Assignment tab, click the costing version button.

You'll see for the costing variant PPC1 (costing type 01, valuation variant 001), costing version 99 is assigned the qty structure type "MIX". 3. Define procurement alternatives The tcode is CK91N. Here we need to create the procurement alt per material/plant. I created two proc alternatives for different versions. It's also possible to create alternatives for different valuation type/process cateogry/etc...

For process category - Production you can choose to create procurement alternatives for in-house production either with production versions or by using the BOM and routing. - Purchase order You can then enter a vendor and the relevant purchasing org in the initial screen. In the cost estimate for a procurement alternative with reference to a vendor, strategy "L" (price from purchasing info record) is always automatically set to highest priority strategy. If you want to have a different logic, you may consider note 636967 and 319832. You can also create an unspecified procurement alternative. To do this, do not enter a vendor or a purchasing organization. The material is then valuated with the prices in the material master and not using the purchasing info record. - Subcontracting In this case the system will require you to enter the information on the BOM, vendor and purchasing org. - Stock transfer You'll be required to enter the source plant 4. Define Mixing Ratios for the procurement alternatives The tcode is ck94

Here we can create the mixing ratios for the material per qty structure type. Since our Qty Structure type "MIX" is based on fiscal year, here we only need to enter the "fiscal year" information. If it's based on period, we need to create the mixing ratios for each period.

Here all the proc alt created via CK91N will be displayed. And you can assign the mixing radio to them as you want. - MR indicator Set this indicator if you want to include a procurement alternative in mixed costing. It will ensure this procurement alt will be included in a mixed costing (even with a weighting of 0). - Mixing Ratio This is the most import figure in this transaction. You can enter equivalence numbers or percentages. But if "Percent validation" is ticked for the qty structure type, the sum of the existing mixing ratios must totals 100%. 5. Cost the material with the above-defined costing version. Create a cost estimate for material YS-FRAME-01/plant IWS0 with costing variant PPC1 and costing version 99. The mixed costing is successfully carried out, as expected.

Please note, the costing lot size of mixed costing is different with the normal costing. For more information please refer to note 402440, which provided very detailed explanation of the logic together with some examples.

Mix costing on SAP

On this post I would like to have a look at the mix costing functionality offered by SAP. This functionality could be used to calculate the average standard cost for a material that is procured/produced using multiple sources. Lets look at it step by step. Step 1 Define Quantity Structure (Configuration) Define a quantity structure type as stated below. Menu path on SPRO - Controlling Product Cost Controlling Product Cost Planning Selected Functions in Material Costing Define Quantity Structure Types

Step 2 - Define Costing Versions (Configuration) Assign the quantity structure type to the costing version. Menu path on SPRO - Controlling Product Cost Controlling Product Cost Planning Selected Functions in Material Costing Define Costing Versions

Step 3 - Maintain Procurement Alternatives for the material (Master data) Maintain the procurement alternatives for the selected material using the transaction code CK91N. These would later be used to maintain the mixing ratios.

Step 4 Maintain the mixing ratio for the selected material (Master data) Maintain the mixing ratio for the material using the transaction code CK94.

Step 5 Execute the costing run Execute the costing run using either CK11N or CK40N. Now the costing run would calculate the standard cost based on mix ratio.

Mixed costing
Use
You can use this function when you use different production processes to manufacture a product use different sources for procuring a material

The costing of either of these alternatives leads to differing manufacturing costs or purchase prices. Within a mixed costing you can calculate a mixed price.

A mixed cost estimate allows you to calculate a mixed price. You can update the mixed price as a standard price, and also use this mixed price to valuate materials controlled with S price. If you display the itemization created with the cost estimate, you will see a special type of itemization. Each line in this itemization corresponds to exactly one procurement alternative that was created for the material costed. The individual procurement alternatives are identified under item category M (material). In addition to showing the procurement alternative, a flexible itemization can also show the equivalence numbers used to weight the procurement alternative in the mixed costing. For more information on mixed costing please refer to following link: Features of using Mixed Costing

(Steps to be followed) A quantity structure type is configured in the customizing OMXA This quantity structure type is associated to a costing version in the Customizing OKYD The Procurement alternatives for the material have been defined CK91N The mixing ratios for the procurement alternatives are defined based on the quantity structure type CK94 The material is costed with the above-defined costing version CK11N Activate Variance Category OKVG Create PA Transfer Structure KEI1

1. Define the quantity structure type (Tcode OMXA)

In change Mode; create the qty structure type "Z001".

"Time Dependency" - This controls the time period in which the quantity structure will be used. It can be time indepenent, based on fiscal year, or based on each period.

"Percent validation" - Tick this indicator if you want to ensure that the sum of the existing mixing ratios for a material and quantity structure type totals 100%.

2. Associate the quantity structure type to a costing version The path is right after that for the quantity structure type.

For the attached screenshot, the mixed costing will be called with the qty structure type Z001, when costing version = 1 will be used. The system will not do mixed costing for the other combinations of costing version & costing type & valuation variant. In this transaction, you can also define: - Variant for transfer price determination - Exchange rate type for currency translation The configuration for the costing version can also be checked via costing variant configuration(tcode OKKN). It's a more convenient way as the configuration is based on the combination. In the Assignment tab, click the costing version button.

You'll see for the costing variant PPC1 (costing type 01, valuation variant 001), costing version 1 is assigned the qty structure type "Z001". ALL ABOVE STEPS ARE ONE TIME CONFIGURATIONS.. FOLLOWING STEPS WILL BE FOLLOWED ON NEED BASIS (FOR MATERIALS, WE NEED TO RUN MIXED COSTING) 3. Define procurement alternatives The tcode is CK91N. Here we need to create the procurement alternatives per material/plant. I created two procurement alternatives for different versions. It's also possible to create alternatives for different valuation type/process cateogry/etc...

On selection of process category BF (production) system will popup above message, that will confirm; whether you you wanna use versions or you want to use BOM/Routing for creation of alternatives.

You need to click confirm after giving relevant production version, lot size and changeable name (optional, used to name this alternative, it can be changed afterwards)

For process category - Production you can choose to create procurement alternatives for in-house production either with production versions or by using the BOM and routing. - Purchase order You can then enter a vendor and the relevant purchasing org in the initial screen. In the cost estimate for a procurement alternative with reference to a vendor, strategy "L" (price from purchasing info record) is always automatically set to highest priority strategy. If you want to have a different logic, you may consider note 636967 and 319832. You can also create an unspecified procurement alternative. To do this, do not enter a vendor or a purchasing organization. The material is then valuated with the prices in the material master and not using the purchasing info record. - Subcontracting In this case the system will require you to enter the information on the BOM, vendor and purchasing org. - Stock transfer You'll be required to enter the source plant 4. Define Mixing Ratios for the procurement alternatives (Transaction Code CK94)

Here we can create the mixing ratios for the material per qty structure type. Since our Qty Structure type "Z001" is based on fiscal year, here we only need to enter the "fiscal year" information. If it's based on period, we need to create the mixing ratios for each period.

Here all the proc alt created via CK91N will be displayed. And you can assign the mixing radio to them as you want. - MR indicator Set this indicator if you want to include a procurement alternative in mixed costing. It will ensure this procurement alt will be included in a mixed costing (even with a weighting of 0). - Mixing Ratio This is the most important figure in this transaction. You can enter equivalence numbers or percentages. Butif "Percent validation" is ticked for the qty structure type, the sum of the existing mixing ratios must totals 100%. 5. Cost the material with the above-defined costing version. Create a cost estimate for material 10008/plant 1000 with costing variant PPC1 and costing version 1. The mixed costing is successfully carried out, as expected.

Please note, the costing lot size of mixed costing is different with the normal costing. For more information please refer to note 402440, which provided very detailed explanation of the logic together with some examples. Mixed Costing Variance Category must be activated before start of production run First Activate category under Tcode OKVG

Create PA Transfer Structure to transfer variance to COPA (profitability Analysis) in KEI1

Assign Source Mixed Price Variance

Assign value field to transfer structure of Mixed Price Variance

4
Mixed Costing in SAP is used in the following scenarios... Procurement : If Split Valuation is used Production : If multiple Production Versions exist for a material

To understand how Mixed Costing used in case of multiple Production Versions, go through the following thread... http://forums.sdn.sap.com/thread.jspa?threadID=1800011 In the same way, If a Raw Material is procured from different sources... - can be different vendors (all being domestic) OR - can be from Domestic market and foreign market (imports).. In any of the above two cases, the procurement price may vary among different sources, which will effect the costing of SFG/FG. For example: RM1 is used in SFG1

But, RM1 is procured both from domestic market and foreign market. Using splitvaluation, Material Master for RM1 is created using Valuation Categories (each valuation category representing one source of procurement) Now, let's assume that Annual Production Plan for SFG1 is 10000 TO and for this, you need 5000 TO of RM1. So, well in the beginning, you should have the % composition of domestic RM1 and imported RM1 to be used. (for ex: 60% - 3000 TO from domestic market and 40% 2000 TO from foreign market). Once this data is available, you need to create "Procurement Alternatives" in CK91 and "Mixing Ratios" in CK94. When you run the Standard Cost Estimate for SFG1 in CK11N, you will be able to see Cost Estimate at each Procurement Alternative level as well as Std Cost Estimate with weighted Average cost (which is final). Hope this clarifies.
5

Mixed Costing
Use
You can use this function when you use different production processes to manufacture a product use different sources for procuring a material

The costing of either of these alternatives leads to differing manufacturing costs or purchase prices. Within a mixed costing you can calculate a mixed price.

Prerequisites

You have defined the Procurement alternatives You have defined a quantity structure type in Customizing You have defined mixing ratios for the procurement alternatives in the application as based on the quantity structure type defined above You have assigned this quantity structure type to a costing version in Customizing You have carried out the material costing based on the above-defined costing version

For procurement alternatives with process categories Purchase order or Subcontracting: Check the settings for the valuation variant in Customizing for Product Cost Planning. In order for the system to be able to include the conditions of the different vendors, the strategy Price from purchasing info record must be used. If this strategy is entered, the valuation of procurement alternatives and configured raw materials will always be completed using this strategy first; in other words any specified strategy sequence will be ignored. This strategy can also be entered as the end of the sequence, if other valuations use other strategies.

Features
A mixed cost estimate allows you to calculate a mixed price. You can update the mixed price as a standard price, and also use this mixed price to valuate materials controlled with S price.

The mixed price is arrived at by applying a weighting factor for each of the cost estimates to the procurement alternatives using equivalence numbers. You create a mixed cost estimate as described in Creating a Cost Estimate with Quantity Structure. It is based on the costing version, to which the quantity structure type is assigned. The system first costs the procurement alternatives, before mixing the cost estimates (using the defined mixing ratios) and calculating the mixed price. All mixed cost estimates contain a cost component split, a costed multilevel BOM, and a special itemization. Each row of the itemization corresponds to a procurement alternative by means of the equivalence number with which the procurement alternative is weighted. There is also an indicator showing that a mixed cost estimate is involved. You can transfer the cost component split for the mixed cost estimate to the Profitability Analysis (CO-PA) module. For more information, see using Mixed Costing. Features of

You can execute more than one mixed cost estimate for the same plant material at the same time. Costing versions enable you to distinguish between different mixed cost estimates for the same material. You define costing versions in Customizing for Product Cost Planning. You specify which mixed cost estimate is to be used to update the standard price in the material master by marking and releasing. This is carried out with reference to a particular costing version. You can calculate mixed price variances between the standard price that was calculated by the mixed cost estimate and the calculated price of the procurement alternative. The mixed price variance is a separate variance category of the output side of an order (product cost collector or manufacturing order). Target cost calculationand target credit refer, in this context, to the cost estimate created for the respective procurement alternative. Actual credit of the order is calculated with the standard price arrived at from the mixed cost estimate. The mixed price variance is calculated from the difference between the actual credit of the mixed cost estimate and the target credit calculated based on the procurement alternative. For more information about variance calculation, see 5 Variance Calculation.

Define Origin Groups

Here you can create origin groups. These groups serve to further subdivide the material costs. For controlling purposes, materials assigned to the same cost element by automatic account determination can be seperated into origin groups. You enter the origin group in the costing view of the material master record. Account determinationassigns each material to a G/L account and thus also to a primary cost element. If an origin group is entered in the costing view of the material master record, the combination of origin group and cost element is updated in the Controlling module. If the Material origin indicator in the costing view of the material master record is specified in addition to the origin group, the costs are updated under the combination of material number and cost element in the Controlling component. Calculateoverhead

You can do the following for each cost element and origin group: If you have maintained origin groups for the raw materials, you can define a calculation base in the costing sheet for each group of raw materials. This enables you to define different overhead surcharges for each group of raw materials.

Make assignments to cost components

If you have maintained origin groups for the raw materials, you can create separate cost components for important materials or groups of materials. Calculate variances

Variances are calculated for each cost element. If you have maintained origin groups for the materials used, the variances (such as input price variances and input quantity variances) will be calculated not only for the relevant material cost element but also for each origin group assigned to that cost element.

Calculate work in process or results analysis data

For each cost element, you can specify whether the work in process for those costs can be capitalized in the balance sheet. If you have maintained origin groups for the materials used, you can specify this separately for each origin group.

Example for the Use of Origin Groups

Suppose you want to apply different overheads to the material costs for externally procured materials than for materials produced in-house, although the costs for both materials are updated under the same cost element. You define two origin groups in Customizing for Product Cost Controlling. For the externally procured materials, you enter the origin group EXTL in the costing view. For the materials produced in-house, you enter the origin group INHS in the costing view. You define two calculation bases for the same cost element interval. In the first, you enter the origin group EXTL. In the second, you enter the origin group INHS. You then define different overhead rates that refer to these two calculation bases in the corresponding costing sheet.

SAP Split Valuation for Materials

The SAP R/3 System allows you to valuate stocks of a material either together or separately, that is, according to different valuation criteria. Split valuation is necessary if, for example: 1. Stock from in-house production has a different valuation price than externally procured stock. 2. Stock obtained from one manufacturer is valuated at a different price than stock obtained from another manufacturer. 3. Different batch stocks of a material have different valuation prices. 4. Value damaged and repair part differently from a new part. To used split valuation, you have to activate it using 'OMW0'. To change split material valuation once it has been set, you must 1. 2. 3. 4. first post out all stocks (for example, to a cost center or with movement type 562) then change the control parameters if necessary, change the automatic account determination finally post the stocks back in again

In split valuation, you can distinguish between partial stocks of a material according to certain criteria and valuate them separately. The material stock is divided according to valuation category and valuation type. The valuation category determines how the partial stocks are divided, that is, according to which criteria.

The valuation type describes the characteristics of the individual stocks. With the function "Setting" you can determine: which valuation categories exist in your company (global categories) which valuation types exist in your company (global types) which valuation types belong to which valuation category which valuation categories exist in a valuation area (local categories) Your entries are only relevant if you set split valuation as active in the function "Global settings". In the standard SAP R/3 System, the following valuation categories are default settings : B procurement type with the valuation types: "EIGEN" for in-house production "FREMD" for external procurement H Origin X automatic valuation (only for batch) To select split valuation ('OMWC'), proceed as follows: 1. Determine the valuation categories and valuation types that are allowed for all valuation areas: global valuation categories via menu "Goto --> Global Categories" global valuation types via menu "Goto --> Global Types" 2. Allocate the valuation types to the valuation categories. a) Select "Goto --> Global Categories". b) Position the cursor on a valuation category and select "Goto --> Global Categories --> Assignments --> 'Types->Category'". c) Activate the valuation types you want. 3. Determine the local valuation categories for each valuation area. a) Select "Goto --> Local definitions". b) Position the cursor on a valuation area and select "Goto --> Local Definitions --> Allocate Categoires->Org.units (button Cats->(OU)". You obtain a list of the global valuation categories. c) Activate the categories to be used in this valuation area. The system creates the local valuation types based on the allocations under point 2. Only now can you create a master record with split valuation. Specifying Split Valuation by creating Material Subject to Split Valuation 1. Create a material master record, selecting the Accounting View 1. 2. Enter your data as required on the Accounting data screen, specifying a valuation category. (If you can't find the valuation category field, it might be hidden, use OMSR to define the Field Groups. Look for the field MBEW-BWTTY for Valuation category). 3. Be sure that the price control indicator is V for moving average price and enter a moving average price. 4. In the case of split valuation, you can create only one valuation header record with price

control V because the individual stock values are cumulated, and this total value is written to the valuation header record. This is where the individual stocks of a material are managed cumulatively. To do this, fill in the Valuation category field on the accounting screen when you create the material master record and leave the Valuation type field blank. 5. Save your data and the system creates the valuation header record. 6. The initial screen appears. 7. Extend the material by creating new material master records from the Accounting view 1. For the first material, specify a valuation type in the Organizational Levels dialog box and enter the respective accounting data on the data screen. Proceed likewise for the other materials, distinguishing between them by valuation type. To do this, call up the material in creation mode again. Due to the fact that a valuation header record exists, the system requires you to enter a valuation type for the valuation category. 8. Repeat step seven for every valuation type planned. You want to valuate the stock of material XYZ that you obtain from manufacturer A in Los Angeles at a different price than the stock you obtain from manufacturer B in Detroit. In this case, the valuation category is H for origin. Your valuation types can be LOS ANGELES and DETROIT. If a material is subject to split valuation, every quantity (sub-stock) of this material must be assigned to a valuation type (for example, country of origin). For every valuation type, there are two types of data in the system, as follows: Valuation data (for example, valuation price, total stock quantity, total stock value), which is defined for every valuation type at valuation-area level and applies to all dependent storage locations. Stock data, which, like batch data, is managed separately for each storage location. If a material that is subject to split valuation is also subject to management in batches, its stock data is not managed by valuation type, but rather by batch. Every batch is assigned to a valuation type. The stock quantity, stock value, and valuation price for all valuation types are managed cumulatively at valuation-area level. Must the Valuation Type Exist Before the First Goods Receipt? You can post the goods receipt of material of a certain valuation type only if the valuation data for this valuation type already exists, because the system valuates the goods receipt at the price defined in the valuation data. On the other hand, the stock data for the valuation type is created automatically during the first goods receipt into the storage location, if this is defined in Customizing for Inventory Management. Goods Movements with Materials Subject to Split Valuation If you want to enter goods movements for materials subject to split valuation, you must enter the valuation type in addition to the material number.

Enter the valuation type in the Batch field for MB01. In MIGO, there is a valuation type field in Detail data -> Material.
2

Re: Material Split Valuation : Procuremen t Domestic & Import

Posted: Apr 3, 2011 1:31 PM in response to: Hussein Merchant

Reply

Hi Hussein Two RMs are required - But its not a good option... It creates lot of probs in MRP if you have duplicate codes... Two FGs are not required if you go for 2 RMs.... a. You can create 2 BOMs... The RM will be different in each BOM b. Routing may be the same c. Create 2 Prod versions i.e. BOM 1 + Routing = PV1 and BOM2 + Routing = PV2 d. Create 2 Proc Alternatives in CK91N using the Prod 2 Versions e. Create a Mix ratio in CK94 i.e. weighing factor that you can assign to each PV f. Calculate cost from CK11N... Costs will be calculated separately for each PV and at the end system would apply the mix ratio specified in CK94 Eg: Cost of PV1 = 100 and Cost of PV2 = 120... If mix ratio is 50:50 - Then Std cost would be 110 (100 * 0.5 + 120 * 0.5) From my experience - I would advise you to drop your requirement and educate your client about the same... have one single raw material (you can use Split Valuatoin) and use the Average price for Std cost... While execution - The cost of consumption would be charged as per Domestic or Import... This would hence, reflect the price variance....

Material split valuation and costing We are using ECC6.0. We have activated split valuation for some matetrials and have maintained valuation category {"E"} as per requirement of the customer. Valuation Types that are maintained are : INH for Inhouse Production and "SUB" for Sub Contracting. We are facing following Problems: (1) We are not able to activate the Costing Views at Valuation Type Level and hence the requirements of the customer to do the valuation based on Price Available at Valuation Type Level( i.e. at INH & SUB ) is not possible and so to meet the requirement we must activate costing view at Valuation type level. (2) As recomonded by SAP all Semi finished goods are maintained at price control indicator "S". We have activated split valuation for some of the semi finished goods also and hence we are not able to create the Semi Finished Goods having Price control indicator as "S" at header level. The system is throwing the message saying: Only price control "V" is possible for split valuation;Message no. M3185. But the customer wants to create all Semi Finished Goods having price control indicator as "S" at header level. (3) While running standerd cost estimate(CK11N or CK40N) the system is not picking the rate maintained at Valuation Type Level i. e. either "INH" or "SUB". It is picking the price from the header level of the material master which is basically average of all the prices available at Valuation type Level (The price appearing at MAP field at higher level) . Re: Material split valuation and costing
Posted: Oct 3, 2007 10:27 PM in response to: Bijay Kumar Deo Reply

(1) We are not able to activate the Costing Views at Valuation Type Level True - Costing view will associate with the header level only. The ONLY material master views that will associate with valuation type is Accounting 1 and 2 - to allow

inventory valuation at that level. (2) As recommended by SAP all Semi finished goods are maintained at price control indicator "S".The system is throwing the message saying: Only price control "V" is possible for split valuation. True - only moving average is available at the header level because inventory is value only at the Valuation Type Level. The header represents the "Total qty" of material on hand (for ALL valuation types) and the standard price you see is the average value of that quantity, it is for reference only, not use in inventory valuation. 3) While running standard cost estimate(CK11N or CK40N) the system is not picking the rate maintained at Valuation Type Level i. e. either "INH" or "SUB". True - CK11 and CK40 work with "header data" You were unable to activate Costing 1 and 2 for Valuation types - therefore there is no "place" for cost estimates. Cost estimate data is maintained it the tables KEKO and KEPH - these tables do not have the key field "valuation type" - there for you cannot create it. In standard Costing - you must pick one method as the standard by which to procure and value the inventory and the other method of procuring inventory creates values at standard and generates variance.

Difference between Co-Product and Bi-Product with an example

By Prasobh If you look at a petro chemical refining industry their main input material will be "Crude oil" during refining they get "Petrol", "Diesel", "Kerosene", "Naptha" & "Water" etc... So the whole of the production cost should not go to "Petrol" alone, as Diesel, Kerosene and "Naptha" are also sellable. Water is not sold out, but is being used internal for the operation. In this scenario "Petrol". "Diesel", "Kerosene" and "Naptha" are defined as co-products in the material master. And the cost which needs to be distributed among them are in the ratio 30:30:20:20, so in the joint production details we select the apportionment structure, and here we define the equivalence number by entering the materials and numbers as required by us as 30:30:20:20. Now BOM is defined for the main product "Petrol" and Diesel", "Kerosene", "Naptha" and Water are defined in -ve quantity. Here the definition of water goes as "BiProduct". Crude oil is defined as component in +ve quantity. Now during order costing/product costing/settlement considers the entire cost of production based on the crude oil cost and infrastructure cost and it splits into the ratio defined in the equivalence number.

A co-product is specifically planned to take advantage of process contraints. A good example is casting/foundry industry,where mold size is fixed. If your mold box size is 10 X 10 ft and your casting size is 5 X 5 ft, you will pour less metal, get less Kg of output from your molding line,

and so on. Alternatively, you can design your mold in such a way that you produce the main casting in one portion, and also use the same mold to produce another casting e.g. small bearing, thus improving the mold utilisation.Since two products are produced at the same time using same work centre, the later is called as co-product.And hence the costs are allocated to the two in some specific ratio (e.g. 80-20) and settlement profile is created accordingly. By-product is an undesired item arising out of the process of manufacturing,and generally referred to as scrap.
3

Joint Production Costing

Use
Joint production is a production process that yields two or more products simultaneously. A production process can yield co-products and by-products (residual materials). The costs for such products can be calculated by means of a non-order-related material cost estimate. The co-products are valuated differently, depending on whether they are co-products or by-products.

Prerequisites
The prerequisites for joint production are fulfilled in the master data (material master and BOM):

For co-products, the Co-product indicator is set in the material master. In the BOM for the leading co-product, the by-products are represented by items with negative values. The Co-product indicator is also set for co-products in the BOM for the leading coproduct.

Features
Co-products are costed using production versions. These are processed and stored in the costing view of the material master. For more information, see Quantity Structure Control in Joint Production. How the costs are calculated depends on whether the product is a co-product or a by-product. The costs for co-products are calculated using the apportionment method, and those for by-products are calculated using the net realizable-value method. However, it should be noted that co-products designated as fixedprice co-products are costed in accordance with the net realizable-value method. The costs for fixed-price co-products and by-products are subtracted from the total costs. If a price is used from the material master, this value can be contained in a single cost component. If a fixed-price coproduct or by-product has its own cost estimate, the cost component split of the cost estimate is taken into account when the costs are deducted from the total costs. In the process, the costs in a cost component are deducted from the total costs in the cost component to which it belongs.

After the costs for by-products and fixed-price co-products have been taken into account, the total costs of the production process are apportioned for all cost components to the co-products. Equivalence numbers are used for the apportionment process. To apportion the costs, an apportionment structure is available. Each production version can have its own apportionment structure. You maintain the apportionment structure in the costing view in the material master. A cost component split is created for the costed co-product of a manufacturing process. The cost component split is created when the apportionment structure is applied to the total costs of the process. The system also creates an itemization and a costed multilevel BOM. When the costing result of a co-product is displayed, the other co-products are represented as individual lines with item category A. In such items of category A, the output quantity of the co-product has a negative quantity and negative value. The negative value is equal to the cost portion of the co-product that was calculated through the apportionment structure. By-products are displayed as items of category M, also with negative quantities and values.

For more information, see the following sections in the Product Cost Controlling Information System of the SAP Library:

CO-PC Information System Features of Joint Production Reports in Product Cost Planning

To cost a co-product using the recipe of a process material, you must create a costing view for the process material. For process materials (material type PROC), information is stored in the costing view of the material master for use when costing the co-products: For the application of overhead to co-products, the overhead group from the material master of the process material is used. (The overhead groups in the material master of the co-product are not included in this case.) The costing lot size of the process material is used when costing the co-products.

To calculate WIP and variances, all the co-products must be costed (not just the leading co-product), and the cost estimate saved. For more information, see in Joint Production in Cost Object Controlling. Special Features

Re: Examples for Co-Products, By-Products and Joint Production

Posted: Jun 16, 2011 7:43 PM in response to: Ben Hur Judo

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Hello Ben; By-product is a sub-material generated at the time of production. Example: I produced a steel plate and any leftovers that have generated a sub-item that can be used again or even be in the process of selling a product. Simply put a negative sign in this

material BOM from the main product that will be considered as by-product. Now, co-product has a bit more complex. The concept is a bit like the sub-product, however, the main production of a product, goes along with it, one or more co-products is also important as a main product. Besides you have to inform the BOM value negative, you need to tell that he is a co-product (the detail of the item BOM) and material Master Data (MRP4), making the Joint Production. The Joint Production is for you to say what percentage that represents the co-product at the end of the main product of the process, because, sometimes, 10% of the amount a co-product can gift 50% of the total value of the main product. Example: an order for production of gasoline, has a co-product is methane gas. That is, if I point out 1 ton of gasoline an OP, will go along with this process, 100 liters of gas (10% of the total gasoline). If it were a by-product, 10% of the actual value of the OP would be 10% of the amount. In the co-product is not so, because sometimes, these 10% of gas, representing 50% of the total. For this to work, you need to Joint Production. I hope I was clear and sorry for my rude English. More information: http://help.sap.com/saphelp_47x200/helpdata/en/b1/c04fc6439a11d18941 0000e829fbbd/frameset.htm

Define Overhead Groups

In this step you create overhead groups so that you can define conditions in the for the calculation ofoverhead that apply only to certain finished or semifinished products. These conditions are linked to overhead keys. The overhead key is selected through an overhead group specified in the material master record of the material to be costed. The overhead groups can also be used to select a template for the allocation of process costs. The template is selected using the combination of costing sheet and overhead key.

Example
Suppose you want to apply an overhead rate of 10% to one group of materials and an overhead rate of 20% to another group of materials. To do this, you create two overhead groups and two overhead keys:

Overhead group SAP10 SAP20

Overhead Percent key age SAP10 SAP20 10% 20%

You enter overhead group SAP10 in the master records of the materials in the first group, and overhead group SAP20 in the master records of all materials in the second group.

The costing sheet for overhead calculation is selected through the valuation variant . You create two lines in this costing sheet. In the first line, you link the percentage 10% to the overhead key SAP10. In the second line you link the percentage 20% to the overhead key SAP20.

Requirements
You must carry out the following step:

Define overhead keys

Actions
1. To create an overhead key: a) Choose New entries. b) Enter an alphanumerical key for the overhead group. c) Enter a name for the overhead group. d) Assign the overhead group to an overhead key. 2. Enter the overhead groups in the relevant material master records.

Further Notes
The default costing sheet for the sales order is proposed through the requirements class. This costing sheet can be transferred to the assigned manufacturing orders if theCopy costing sheet indicator in the requirements class is selected. For sales order costing with product costing, note the following:

The costing sheet is transferred from the sales order to the subordinate materials if the Pass on costing sheet from sales order indicator in the costing type is selected. Overhead for collective requirements materials is calculated in the costing sheet specified in the valuation variant.

Overhead Keys
Definition
Specifies which overhead is applied to a reference object (such as a material), thus forming the link between overhead conditions and the following: A particular material master record A particular cost object node of a cost object hierarchy A particular general cost object A particular sales order item

Use
You can define particular overhead conditions for certain reference objects. Overhead key for materials To link materials with certain overhead conditions, you must do the following: Enter an overhead group in the costing view of the material master record. Enter an overhead key in the costing sheet that is linked to this overhead group in Customizing for Product Cost Controlling.

Using the overhead key, the overhead is assigned to a particular material via the overhead group in the costing view of the material master. The overhead group and overhead key are included in the following: In Product Cost Planning in material costing In Cost Object Controlling: In a preliminary cost estimate for the product cost collector or for the manufacturing order In period-end closing for the product cost collector or for the manufacturing order

Overhead Key for Cost Object Hierarchies To link cost object hierarchies to overhead conditions, enter the overhead key in the cost object master record. The overhead key is included in the cost object node when overhead is applied at period-end closing. Overhead Key for Sales Order Items To link sales order items to overhead conditions, enter an overhead key for the sales order item. To do this, go into the sales order and choose Extras Account assignment. The overhead key is included in Product Cost by Sales Order In Product Cost by Sales Order, to calculate the planned costs When overhead is calculated at period-end closing

Overhead Key for General Cost Objects The overhead key is included: When planned costs are calculated for general cost objects At period-end closing

The standard system has various costing sheets containing an overhead key. You can apply overhead to materials by modifying these costing sheets to suit your needs.

You have defined two overhead groups in order to apply overhead to materials. These two overhead groups are linked to two overhead keys. An overhead of 10% is specified for overhead key 01. An overhead of 20% is specified for overhead key 02.

You have more than one plant. You want to apply overhead only if the material is assigned to a certain plant and overhead key. The system checks these dependencies when the overheads are calculated. If the dependencies are met, the system calculates an overhead percentage. You must define this percentage for each of your dependencies. Overhead Key for Base Planning Objects In base object costing, you enter the overhead key in the master data for the base planning object.