PRODUCT COSTING IN SAP

ENVIRONMENT
By Yogesh Gadre
POINTS FOR DISCUSSION
Non ERP Environment
SAP - ERP
Product Costing
Cost Object Controlling
 Types of Enterprise System
Based on communication and data
management Enterprise software broadly
classified into two types

De-Centralized system

Centralized system also called ERP

 Decentralised System
In company with Decentralized system of Data
Management…..

Data is maintained locally at individual departments.

Departments do not have access to data of other departments

Business process with Decentralised
system
Finance
Dept
Inventory
HR Dept

Delay in response …..customer may

Highto High
data Manpower cost
turn ofmaintanenece
another
Loss High
supplier,
Repute cost
Material
leads
/ Legal due
to to
cost
action
Availibility
Sales duplication
“Loss of Revenue and Customer
of raw
Dissatifaction”
material

Production Shop Floor

Planning

Database not in
sync
Problems with Decentralized System

• Numerous disparate information systems

are developed individually over a period
of time

• Integrating data is time and money

consuming

• Inconsistency and duplication of data

• Lack of timely information leads to

customer dissatisfaction, loss of revenue
and Repute

• High Inventory , Material and resource

cost
Centralized System - ERP
Benefits with centralized System
• Data is maintained at central location and is shared with
various departments

• Real time information is available.

• No data duplication and avoids need for data reconciliation.

• Increased access to valuable corporate data delivers a clear

and global view of business

• Automating business processes such as invoicing and sales

and purchase orders within one systems improves
forecasting accuracy and reduces inefficiencies.
 Business Process with SAP
environment
Increase in Revenue / Customer Delight
Inventory Finance

No Data Duplication
Payment on time / Eliminates risk of legal action
Lower manpower cost
Human
Sales CENTRALISED Resource
DATA
STORAGE

Production
Shop Floor
Planning
 LEADING ERP SOFTWARES

• SAP ECC

• ORACLE E – Business suites

• DYNAMICS ( Micro soft )

• PEOPLE SOFT
SAP R/3
SAP Modules - Overview
SD FI
Sales & Financial
Distribution Accounting
MM CO
Materials Controlling
Mgmt.
PP AM
Product Fixed Asset
Planning Mgmt.

OC
SAP R/3 PS
Office & Project
Comm. System
IS PM
Industry Plant Maint.
Solutions
HR
Human QM
Resources Quality
Mgmt.
 Product Cost planning

• Product Costing part of controlling module , is

used to value internal cost of material and
production for profitability management
accounting

• It’s a tool for managing cost related to

manufacturing products or rendering services
Benefits Product Cost planning
• What is my Lowest Price limit for Sales
• Given fixed Sales price what is my
contribution margin
• Make or Buy decision
• Monitor your cost at every stage
• Provide feedback to management on
actual performance of production
process
 Product Cost planning

Type 1 – Without quantity structure

• Cost Estimates without Quantity
structure
- Utilizes a material data and activity
types entered manually in the cost
estimates.
 Product Cost planning

Type 2 – With quantity structure

• Cost estimates with quantity structure
- Utilizes Bill of Material ( BOM ) and
routing
 Select Material
Create Choose
Create Costing Save Cost estimate Save Base
Base planning Costing
Line Items Planning object
Object variant

Material Costing
Material Master

Material views at a Plant Level

Accounting view Costing View MRP View

Account
•Lot size
Determination
•Origin group •Special
Price Control
•Do not Cost procurement
Price
•Planned price •Production
•Tax based and commercial version
price
•Special Procurement Key

Key Attributes of Material

 PRICE CONTROL

Material Master
Price Control

Moving average price Standard Price

(V- Price) (S-Price)

- Adjusted with every receipt - Constant

- If at all, only to be used for raw - Recommended for all material
materials and materials procured types
externally
 Cost component Structure

Raw Material and SFG

Packing Material

Material Overheads
Salary and wages

Depreciation

Other cost
 Costing Run: Material Cost
BOM
Costing Variant
Quantity Structure
Control Valuation Variant

Material Master

Material Cost
Quantity X Price
 Costing Run: Activity Cost
Routing
Quantity structure
control
Operation 1

Costing Variant

Operation 2

Operation 3

Control Key
 Costing Variant
Strategy for Determination of :
Costing Sheet transfer of - Bills of Material
the existing - Routing
cost estimates

Determination of: Defaulted dates for

- prices update costing
in material master

Valuation control for:

- materials
- internal activities
- external activities
- subcontracting
- overheads via
costing sheet
 Steps in product costing

Cost center Planning

Activity Rate calculation
Quantity Structure
Costing Run
Releasing cost
 Steps in product costing
Cost center Planning

Cost planning by Cost – Plan all costs in

production cost center as well as service
cost center. Use plan assessment and
distribution to allocate

Cost planning by Activity – Plan activity

quantities or determine the rates based on last
year price.
 Steps in product costing
Activity Rate calculation

Manually creating activity rates base on last year

Activity rates are calculated based on planned

activity quantity and planned cost for the cost
center and cost elements combination
Steps in costing
 Steps in product costing
Product costing

CK11 N and CK24 to cost individual product

CK40 N to process mass data

Steps in Costing Run

- General Data
- Material Selection
- BOM exploded
- Costing
- Analysis
- Marking Cost estimates
- Releasing the cost
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
Steps in product costing
 Product Cost planning
Adjust costing
QTY STRU parameters

Routing
Execute Costing
Plan Run
Overhead
Rates
Plan prices Review
STD cost
of for
calculated
Material approval

Mark cost
Release cost
estimate
 Price update
Material Master Data
Analysis of Costing Results

Standard Price
Future Current Previous
10

Future Current Previous

Marking Standard Cost
Estimate 15 10

Future Current Previous

Releasing Standard
Cost Estimate 15 10

Stock Revaluation
 Cross Company Costing
Plant XXXX Plant YYYY

Finished Product XXXX

Semi finished product Y

Raw Material X

Semi finished Product Y Raw material Z

Special procurement
from other plant
Both Plants in different
Company Codes
Cross company code should be allowed in customizing

Both Company codes belong to same controlling area

Cost component split should be same for both the company codes
 Steps in product costing
Valuation
• Purchase Price
Quantity Structure • Activity Price
•Overheads

Costing

Costing Results

Items
Cost component
Material 1
Material 2
Material
Activity 1
Labour
Activtiy 2
Overheads
Overheads
 Cost Object Controlling

– Make to stock
Raw
Material

Production Order Variance

Activity
Confirmati
on

WIP COPA
 Actual costs
Production Order
Step 1 – Order creation
- Maintenance of Master Data
Status - CREATED

Material

STATUS – CREATED
This status does not allow for any actual
postings
 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
Production Order
Step 3 – FI postings
- Actual Postings
Status - RELEASED

Order
FI Material
Outside Services
430004
430004 + 5.000,-
5.000,-
 Actual costs
Production Order
Step 4 – Direct activity allocation
- Actual Postings
Status - RELEASED

Order
Material

430004 + 5.000,-
943201 + 7.500,-
Cost Center / Activity

150 * 50 = 7.500,-
943201 - 7.500,- quantity * price = cost
 Actual costs
Production Order
Step 5 – Goods Issue to Order
- Actual Postings
Status – GOODS MOVEMENT POSTED
Raw Order
CO
Materials Material
FI Consumed
400000
430004 + 5.000,-
943201 + 7.500,-
1.100,- 400000 + 1.100,-
100 * 11 = 1.100,-
Inventory
quantity * price = cost
Raw
Materials
119400

1.100,-
 Actual costs
Production Order
Step 6 – Goods Receipt from Order into Warehouse
- Actual Postings
Status – PARTIALLY DELIVERED
CO
Order
Production Material
FI Output
462001
430004 + 5.000,- 462001 - 5.000,-
943201 + 7.500,-
5.000,- 400000 + 1.100,-

Finished
Products
119430

5.000,- 100 * 50 = 5.000,-

quantity * price = value of the goods receipts
from order
 Period and year-end closing
Production Order
Step 7 – Work-in-Process Calculation
- Period-end closing
Status – RESULTS ANALYSIS CARRIED OUT

Order
Material

430004 + 5.000,- 462001 - 5.000,-

943201 + 7.500,-
400000 + 1.100,-

WIP Report:

Work-in-Process
13.600 - 5.000 = 8.600
 Period and year-end closing
Variance: Integration
CO-
CO-
Production order PC
Material CATALYST
Quantity prod.: 10 pcs
Standard Cost Estimate
Actual Costs
Materials 11
1100
00
Labour 75
7500
00
Material Master Other services 50
5000
00
Accounting View 13600
13600
Standard Price
100
13pcs * 1000 Goods Receipt - 13000
13000
Variance 600

Accounting
FI Price difference
Stock
13000 600 Profitability Analysis CO-
CO-
PA
MM Stock
Settlement Variance 600
Period and year-end closing