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Product Costing

 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 types

Costing Variants

A Costing Variant is defined as :

An alphanumeric key A Name

PL02 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 Activities Subcontractors Overhead Surcharges

material master frozen standard planned rate net purchase price 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 costs Example :  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 Estimate
You 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 Estimate

You create a modified standard cost estimate if the basic costing data has changed during the planning period.

Inventory Cost Estimate

The inventory cost estimate is used to calculate valuation bases for taxbased 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 can be defined as Standards Variances These are the differences between the Frozen or current standard and the planned standard on the production order Actuals Variances These are the differences between the planned and actual values on the production order Standard/Actual Variances These 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 Planning being the differences between the standard cost estimate (current standard), and the target costs on the production order Production Variances being 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

Account Description Debit Credit CCA


300 000 110 101 420 000 400 020 621 500 325 000 891 000 320 000 895 000 710 000

Inv-RM Bank Salaries RM Cons Machine Hr Inv-WIP Inv * WIP Inv-FG Bk to store Var to PA CC Asses-PA

(1) (2) (3) (5) (6) (7)

(3) (1)(2) (2) (-4) (6) (5) (7) (-9) (3) (4) (6)(-5) (-7) (-8)

(8) (9)

Material with a Quantity Structure

Configurable Materials

Work Centers & Routings

Work Centre Routing Operation
Standard Value Key Standard Value Parameter Cost Centre Activity Type Efficiency Rate Formula Standard Value

Expense Variance Freight Subcontract Packaging Scrap


100% 100% 100% 100% 100% 100%


1 EA 1 EA 1 EA 1 EA 1 EA 1 EA

Cost Centre

Activity Type Rate

Activity Type

Note : (a)One can only assign 1 Cost Centre to a Work Centre, but many Work Centres can have the same Cost Centre assigned. (b) The Formula in the Work Centre is usually Activity Rate * Standard Value per Routing, but it could be Operation Quantity

Costing Sheet
Purchasing Cost Centre
Costs 4xxx 1000

Finance Cost Centre

Costs 4xxx 2000

Manufacturing Cost Centre

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)

Costing Sheet 1

Production Order

Calculation Base
Base 1 : Coel 400000 (in receiver)

Overhead Key
Over 1 : 10% of line 10

Credit Key
Credit 1 : Coce Purchasing Coel 670000

Material Issues (per BoM) 400 000 $5000 Subcontract Costs 420000 $1000 Activity Charge $3000

10% of $5000


Base 2 : Coel 400000 to 499999

Overhead Charge 670000 $500 Overhead Charge 671000 $600

10% of $6000


Over 2 : 10% of line 30

Credit 2 : Coce Finance Coel 671000

Settlement Structure Costing Variant Settlement Profile Order Type Costing Sheet

Cost Centre Order

Activity Type Settlement Rule

Bill of Material

Work Centre

Material Master