JYOTIRADITYA,8712817833

Costing variant
The costing variant contains all the control parameters for costing. Separate costing variants can
be used for standard costing, preliminary costing of product cost collectors, and other valuation
strategies that are updated to planned price, tax, and commercial price fields on the material
master. Costing variants are configured in transaction OKKN or through the IMG menu path
SPRO • CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST
PLANNING • MATERIAL COST ESTIMATE WITH QTY STRUCTURE • DEFINE COSTING
VARIANTS.

The first screen (see Figure 4.1) displays all created costing variants. Many of these costing
variants are SAP standard. If a change is required, a new costing variant should be created with
a relevant description. To create a new entry, select NEW ENTRIES. To modify an existing
costing variant, select the line and then select the DETAILS button.

Figure 4.1: Costing variants

First, we will create the costing variant to be used to release standard cost estimates by
accounting. We define the costing type, valuation variant, date control, and quantity structure on
the control tab (see Figure 4.2).
 Figure 4.2: Change costing variant control tab

On the quantity structure tab, you generally leave the default settings (see Figure 4.3). There are
options to ignore product cost estimates without quantity structure and controls for transfer
control.
 Figure 4.3: Change costing variant quantity structure tab

On the additive cost tab, we indicate if additive costs should be included (see Figure 4.4).

Figure 4.4: Change costing variant additive costs tab

On the update tab, we indicate if saving is allowed. We also enable saving the error log,
determine whether default parameters can be changed by users, and if cost itemization should
be saved in addition to the cost component split (see Figure 4.5).
 Figure 4.5: Change costing variant update tab

On the assignments tab, no changes are required. You can click on the buttons to display or
change the related configuration assigned to the costing variant (see Figure 4.6).

Figure 4.6: Change costing variant assignments tab

On the miscellaneous tab, no changes are required. You can click on the buttons to display or
change the related configuration assigned to the costing variant (see Figure 4.7).

Figure 4.7: Change costing variant miscellaneous tab

Valuation variant
Valuation variants determine the strategy for costing runs. The valuation variant is configured in
transaction OKK4 or through the IMG menu pathSPRO • CONTROLLING • PRODUCT COST
CONTROLLING • PRODUCT COST PLANNING • MATERIAL COST ESTIMATES WITH
QTY STRUCTURE • COSTING VARIANT: COMPONENTS • DEFINE VALUATION VARIANTS.

The first screen in Figure 4.8 shows all valuation variants. To create a new valuation variant,
select NEW ENTRIES.
 Figure 4.8: Valuation variants

The valuation variant strategy sequence configuration searches for a relevant price until one is
found. If a material is produced, it will use this strategy sequence for each component material’s
price.
In the valuation variant shown in Figure 4.9, a non-produced material’s cost estimate will return
the planned price 1 price if it exists. If no planned price 1 exists, it will return the standard price. If
the material does not have a planned price 1 or standard price, it will return the moving average
price.
 Figure 4.9: Valuation variant material valuation tab

In the activity type/processes tab, you determine a strategy sequence and priority for determining
the activity rate. In the example in Figure 4.10, the plan activity price is taken as an average of all
fiscal year periods. You could select instead to take the plan price for the period, or the plan price
as an average of the remaining periods in the fiscal year. There are also several options to pull
the actual price of a previous period or the actual price for the period.

An interesting piece of configuration in the valuation variant is the use of the purchase
information record and pricing conditions. I used this configuration at a client recently to drive
intercompany purchased materials. The purchase information record (PIR) is a master record
that contains information about purchasing a specific material for a plant from a vendor.

To implement this option, choose the strategy in the valuation variant price from purchasing info
record. Then continue to select the option quotation price via condition table in the sub-strategy
sequence. In costing sheets, you can assign pricing conditions to a valuation variant for use in
costing purchased materials.
 Figure 4.10: Valuation variant activity types/processes tab

In the subcontracting tab, you determine a strategy sequence and priority for determining the
price for materials that are subcontracted. In the example in Figure 4.11, the net quotation price
is selected. There are several other options to pull the net, effective, or gross price from the
quotation or purchase order.
 Figure 4.11: Valuation variant subcontracting tab

In the external processing tab, you determine a strategy sequence and priority for determining
the price for operations that are externally processed. In Figure 4.12, you can see that the new
quotation price is selected. There are several other options to pull the net, effective, or gross
price from the quotation or purchase order.
 Figure 4.12: Valuation variant external processing tab

In the overhead tab, a costing sheet can be applied to finished and semi-finished materials,
material components, and/or subcontracted materials. In the example in Figure 4.13, a costing
sheet is applied to finished and semi-finished materials.
 Figure 4.13: Valuation variant overhead tab

In the miscellaneous tab, you can click through to the assignment of price factors for relevancy to
costing configuration (see Figure 4.14).

Figure 4.14: Valuation variant miscellaneous tab

Costing types
Costing types indicate which price to update. Costing types are configured in transaction OKKI or
through the IMG menu pathSPRO • CONTROLLING • PRODUCT COST CONTROLLING •
PRODUCT COST PLANNING • MATERIAL COST ESTIMATE WITH QTY STRUCTURE
COSTING VARIANT: COMPONENTS • DEFINE COSTING TYPES.

Figure 4.15 illustrates the SAP standard costing types.

Costing type ‘01’ allows updating cost estimates to the standard price field. You can also select
tax price fields, commercial price fields, no update allowed, or prices other than standard price.
These settings determine if a material can be marked and released to the standard price field, or
updated to tax, commercial, or planned price fields (Figure 4.16).
 Figure 4.16: Costing types price update tab

The SAVE PARAMETERS tab allows you to choose whether the date should be included when a
cost estimate is saved for cost estimate with quantity structure and additive cost estimates. The
example in Figure 4.17 chooses the date with the start of period. You can also select with date or
without date.

Figure 4.17: Costing types save parameters tab

The MISCELLANEOUS tab allows you to choose the calculation base to apply overhead. You
can choose cost of goods manufactured, cost of goods sold, external procurement, inventory
(commercial), inventory (tax-based), inventory valuation, sales and administration costs, or
transfer price surcharge (see Figure 4.18).

Figure 4.18: Costing types miscellaneous tab

Define quantity structure control

Quantity structure declares which type of production data to use for a costing run. Quantity
Structure Control is configured in transaction OKK5, or through the IMG menu path SPRO •
CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST PLANNING •
MATERIAL COST ESTIMATE WITH QTY STRUCTURE • COSTING VARIANT: COMPONENTS
• DEFINE QTY STRUCTURE CONTROL (see Figure 4.19).
 Figure 4.19: Quantity structure control configuration

The quantity structure in Figure 4.20 uses costing BOMs and does not round component
quantities when costing.

Figure 4.20: Quantity structure control BOM tab

The quantity structure in Figure 4.21 uses routing ‘01’ which represents production routings that
are released.
 Figure 4.21: Quantity structure control routing tab

Transfer control

Transfer control indicates the strategy for choosing a standard cost for a stock transfer. You may
produce a product in one plant and want to use that same cost in another plant where the
product is not produced. In other words, the material is costed in the plant where produced, and
not costed in the receiving plant. This configuration option improves performance in costing runs
and can simplify the costing process.

Transfer control can be configured in transaction OKKM or through the IMG menu path SPRO •
CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST PLANNING
MATERIAL COST ESTIMATE WITH QTY STRUCTURE • COSTING VARIANT:
COMPONENTS • DEFINE TRANSFER CONTROL.
The first screen shows the transfer controls created. The transfer controls listed in Figure 4.22
are SAP standard configuration.
 Figure 4.22: Transfer control configuration

Within transfer control configuration, the strategy sequence is defined for single-plant transfers
and cross-plant transfers (see Figure 4.23). A single plant transfer refers to a scenario where a
component material cost estimate exists for a material in a plant, and the material is not re-
costed. If you want to recost, you can select no transfer as a strategy.

Figure 4.23: Transfer control single-plant tab

If a current, future, or previous cost estimate is selected in the strategy sequence, the system will
only take a cost estimate from the current fiscal year, or within the selected period. If other cost
estimates are selected, you must also indicate the costing variant and costing version that should
be selected (see Figure 4.24).

Figure 4.24: Transfer control cross-plant tab

Cross-plant transfer refers to transfers from other plants, or production that occurs in other
plants. In this case, the special procurement key is considered in order to transfer the cost
estimate from that plant. If the transferring or producing plant exists in a different company code,
you can indicate how the material should be costed in the configuration to activate cross-
company costing in transaction OKYV. If you are costing across company codes, the system
transfers the cost estimate from the other plant. If you have not activated cross-company costing,
the system uses a price from the material master.

If you select TRANSFER ONLY WITH COLLECTIVE REQUIREMENTS MATERIAL, the system
only uses the transfer control strategy for materials with collective requirements and individual
requirements are ignored. The individual/collective requirement indicator is on the MRP 4
material master view and is used in make-to-order scenarios. Individual requirements mean
requirement quantities of dependent materials are stated individually. On the other hand,
collective requirements will group together dependent material requirement quantities. If a
material will be procured from another plant using cross-company-code stock transport orders,
this indicator should be set to collective requirements in the issuing plant because individual
stock management is not possible in both plants.
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Origin groups
Origin groups help subdivide material costs further within a cost element. Condition types must
be assigned to origin groups because condition types are on stock transport orders and the origin
group defines the type of cost to be added to the stock transport order (see Figure 4.25).

Origin groups are configured in transaction OKZ1 or through the IMG menu path SPRO •
CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST PLANNING • BASIC
SETTINGS FOR MATERIAL COSTING • DEFINE ORIGIN GROUPS.

Origin groups were created for gross price and freight % to further break out the transfer costs in
a stock transfer order.

Figure 4.25: Origin group configuration

Next, you assign condition types or origin groups in transaction OKYO or through the IMG menu
path SPRO • CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST
PLANNING • SELECTED FUNCTIONS IN MATERIAL COSTING • RAW MATERIAL COST
ESTIMATE • ASSIGN CONDITION TYPES TO ORIGIN GROUPS (see Figure 4.26).
 Figure 4.26: Assignment of condition types to origin groups

Now when you perform a cost estimate for a material with conditions, these conditions will
appear on a separate line with the origin group indicated.

Cost component structure

Cost component structures allow us to define which types of costs should be included in costing
runs and how these costs should be grouped. You can create cost components for major cost
categories like raw materials, packaging, overhead, labor, and setup. The cost component
structure is configured in transaction OKTZ or through the IMG menu pathSPRO •
CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST PLANNING • BASIC
SETTINGS FOR MATERIAL COSTING • DEFINE COST COMPONENT STRUCTURE (see
Figure 4.27).

Cost component example

In addition to standard cost components like raw materials, packaging, labor, overhead, and
setup, you may want to see separate cost components for critical or high cost components. You
can also create separate cost components for things like royalties and intercompany markup, so
that these costs are easily identifiable.
 Figure 4.27: Cost component structure definition

For each cost component, you must define the attributes. You can determine if the cost
component should contain only variable costs or both fixed and variable costs. You can also
determine if the cost component can be rolled up in the cost estimate. In the filter criteria for cost
component views on itemization, you determine if the cost of goods sold is not relevant, cost of
goods manufactured, or SG&A. You can also define if variable and fixed costs, or just variable
costs, are relevant for different valuation methods of inventory (see Figure 4.28).

Figure 4.28: Cost component attributes

After determining the cost components in your cost component structure, you assign cost
elements and origin groups to each cost component. This allows the system to know which cost
elements are relevant in your cost estimate. If a cost is calculated with cost elements or origin
groups that do not exist in the cost component structure, you will receive an error. It is important
to ensure this configuration is comprehensive of the required cost elements (Figure 4.29).

Figure 4.29: Cost component assignment of cost elements

There are further configuration options in the cost component structure where you can define
cost component views and cost component groups. These are optional configuration pieces that
may or may not be relevant in your business scenarios.

Costing sheets

Costing sheets are an optional configuration item that can be used to add overhead costs to cost
estimates. Typically costing sheets are used to add overhead costs that cannot be specified on a
BOM, routing or master recipe, or with purchasing or sales conditions. You might choose costing
sheets to add royalty costs or building overhead costs like electricity. Costing sheets are
configured through the IMG menu path SPRO • CONTROLLING • PRODUCT COST
CONTROLLING • PRODUCT COST PLANNING • BASIC SETTINGS FOR MATERIAL
COSTING • OVERHEAD • DEFINE COSTING SHEETS.

Costing sheet example

For example, in each beauty product line, we have different overhead rates that need to be
applied based on different materials. We will create a costing sheet to apply this overhead cost
and use a calculation base of total costs using a cost element group. We will use a percentage
overhead rate of 3%, and specify the overhead secondary cost element.

To configure a costing sheet, start by creating a new entry and creating a description for the
costing sheet (Figure 4.30). You can only assign one costing sheet per costing variant, but you
can add multiple calculations in the same costing sheet. Unless you are costing with multiple
costing variants, you likely only need one costing sheet.

Figure 4.30: Costing sheet configuration

Next, define the calculation base that the overhead rate will be applied to. Create a base and
name in a transaction through the IMG menu path SPRO • CONTROLLING • PRODUCT COST
CONTROLLING • PRODUCT COST PLANNING • BASIC SETTINGS FOR MATERIAL
COSTING • OVERHEAD • COSTING SHEET: COMPONENTS • DEFINE CALCULATION
BASES (see Figure 4.31).
 Figure 4.31: Costing sheet calculation base

Then, select a base and click on DETAILS on the left. Determine if the cost portion for the
calculation base should factor in fixed, variable, or total costs. Enter a range of cost elements, a
single cost element group, or a range of cost element groups (Figure 4.32).

Calculation base example

For example, you may choose labor as a calculation base to apply an overhead rate for
employee health benefits, garnishments, and other labor related charges besides payroll. You
may want to only consider the fixed cost portion of labor cost elements because this represents
salaried employees, rather than variable costs which represent hourly employees. You would
select the variable radio button in the calculation base details. You could create a cost element
group in transaction KAH1 that contains all labor cost elements and specify it in the calculation
base details. The costing sheet will consider the variable portion of labor cost elements in the
cost estimate in order to apply the overhead rate.
 Figure 4.32: Costing sheet calculation base details

The next configuration step is to determine the overhead rate that should be applied based on
the previously defined calculation base. There are several options for how the overhead should
be assigned. You can choose a percentage overhead (ex: 5%) or a dollar overhead (ex: $5 per
10 LB). Overhead keys are configured in a transaction through the IMG menu path SPRO
CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST PLANNING • BASIC
SETTINGS FOR MATERIAL COSTING • OVERHEAD • DEFINE OVERHEAD KEYS (see Figure
4.33).

Figure 4.33: Costing sheet overhead key

If you choose to apply a percentage overhead rate, you create each overhead rate, assign a
name and determine the dependency. The overhead rate can be applied based on the overhead
type and overhead key as shown in the example in Figure 4.34. Other dependencies include
overhead type, overhead type and company code, overhead type and plant, overhead type and
business area, overhead type and order type, overhead type and order category, and an
overhead type and version.

Percentage overhead rates are configured through the IMG menu path SPRO • CONTROLLING
• PRODUCT COST CONTROLLING • PRODUCT COST PLANNING • BASIC SETTINGS
FOR MATERIAL COSTING • OVERHEAD • COSTING SHEET: COMPONENTS • DEFINE
PERCENTAGE OVERHEAD RATE.

Figure 4.34: Costing sheet percentage overhead

In the percentage overhead details, you specify a validity date range, overhead type (plan or
actual), the previously defined overhead key, and the percentage rate (see Figure 4.35).

Figure 4.35: Costing sheet percentage overhead details

If you choose to apply a quantity-based overhead rate, you create each overhead rate, assign a
name and determine the dependency. The overhead rate can be applied based on the overhead
type and an overhead key as shown in the example in Figure 4.36, or with many other
dependencies.

Quantity-based overhead rates are configured through the IMG menu path SPRO •
CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST PLANNING •
BASIC SETTINGS FOR MATERIAL COSTING • OVERHEAD • COSTING SHEET:
COMPONENTS • DEFINE QUANTITY-BASED OVERHEAD RATE.

Figure 4.36: Costing sheet dollar quantity-based overhead

In the quantity-based overhead details, specify a validity date range, overhead type (plan or
actual), the previously defined overhead key, and the dollar amount per unit (see Figure 4.37).

Figure 4.37: Costing sheet dollar overhead details

The final configuration piece before returning to the costing sheet is the credit key. Credit keys
are configured through the IMG menu path SPRO • CONTROLLING PRODUCT COST
CONTROLLING • PRODUCT COST PLANNING • BASIC SETTINGS FOR MATERIAL
COSTING • OVERHEAD • COSTING SHEET: COMPONENTS • DEFINE CREDITS (see Figure
4.38).

Figure 4.38: Costing sheet credit key

In the credit key details, specify the secondary cost element where the overhead rate should
appear in the cost estimate. A secondary cost element must be specified and not a primary cost
element, because this overhead rate is only within the CO module and should not post to the FI
module. Read more about COST ELEMENTS, to get a better idea.

Figure 4.39: Costing sheet credit details

Now that the calculation base, overhead rate, and credit are configured, you can return to the
costing sheet and enter the details. The costing sheet in Figure 4.40 is a standard SAP costing
sheet that adds material overhead, manufacturing overhead, administrative overhead, and sales
overhead. The rows should be entered so the first line is the calculation base, the second line is
another calculation base, or the overhead rate and credit. The row with the overhead rate should
indicate the rows from and to that contain the relevant calculation base. You can see in the
example in Figure 4.40 that both wages and salaries are treated as a calculation base for adding
manufacturing overhead. You can also add text rows to include descriptions to make the costing
sheet easier to understand.

Figure 4.40: Costing sheet rows

After configuring the costing sheet, return to the valuation variant overhead tab and assign the
costing sheet to finished and semi-finished materials, material components, and/or subcontracted
materials (see Figure 4.41).
 Figure 4.41: Costing types miscellaneous tab

The example in Figure 4.42 is an example of a cost estimate for a material that includes a
costing sheet. You can see the separate line item with the overhead rate secondary cost element
(credit key) that indicates the costing sheet rate of 26% (percentage overhead rate) applied to
the total material cost (calculation base). You know the costing sheet was picked up when the
costing sheet appears on the valuation tab, see Figure 4.42.
 Figure 4.42: Cost estimate with costing sheet overhead rate

Mixed costing

Mixed costing is a pre-costing run option you can establish for materials that have multiple
purchasing or production strategies that can be weighted to determine the standard cost. There
are two basic configuration items required to define quantity structure types and define costing
versions.

These configuration items will not be covered here, but can be found through the following IMG
menu path SPRO • CONTROLLING • PRODUCT COST CONTROLLING • PRODUCT COST
PLANNING • SELECTED FUNCTIONS IN MATERIAL COSTING • MIXED COSTING. Mixed
costing procurement alternatives are created in transaction CK91N.

If a material is both purchased and produced, it should be created with procurement type X in the
material master. These materials will cost using the primary BOM and routing or master recipe
(production version 1). If a BOM and routing or master recipe do not exist, it will cost using the
valuation variant strategies. If used correctly, mixing costs can help reduce purchase price
variances and production order variances for materials that have multiple valuation alternatives
with different costs.

Mixed costing examples

For example, if a material is procured from vendor A at $5 per EA, produced at $4 per EA, and
valued at a mixed cost of $4.50 (50% weight given to each alternative), each purchase will result
in a $.50 unfavorable variance. Each production order that has no other variances will result in a
$.50 favorable variance. If the standard cost was valued at $4, the purchase price variance would
increase to $1 per EA, and the production variance would be non-existent.

Another example is if a product is procured from two different vendors that have different
purchase prices. If the cost is mixed, each purchase from either vendor will result in a purchase
price variance, but the purchase price variances and standard cost will be more accurate.

Figure 4.43 shows a material that is both procured and produced in the same plant. I selected
the BOM and routing that will be mixed with the procurement strategy. More procurement
alternatives can be added beyond two, but mixing should really only be performed when you
have very consistent ratios for the various alternatives.

Figure 4.43: Define valuation alternatives

Each procurement alternative requires a ratio to determine the cost weight for each alternative,
called a mixing ratio. You can update these percentages throughout the year, but you need to
subsequently re-roll costs in order for the change to take effect in the cost estimate. Typically,
you only want to mix costs for materials that have a consistent and well-established mixing ratio.
Valuation alternative ratios are created in transaction CK94 shown in Figure 4.44.

Figure 4.44: Define alternative ratios

Alternative ratio examples

For example, if a material is purchased 40% of the time from vendor A and 60% from vendor B,
you specify those percentages in this transaction.

Unit cost estimate/additive costs

Unit cost estimates are another optional precursor to costing runs. Unit costs are created
individually for a material in a plant. Unit costs are manually created estimates instead of relying
on the system to calculate the cost estimate using the quantity structure and material master
data.

Additive costs are additional costs that can be added individually per material, per plant. Additive
costs are another option for adding costs that cannot be determined by the quantity structure.
Unit cost estimates and additive costs are created in the same transaction, CK74N (see Figure
4.45).

Figure 4.45: Create unit cost estimate

Additive cost examples

Some companies choose to use additive costs to add overhead costs like royalties,
intercompany markup, and freight costs. These are good examples of costs that cannot be
calculated by the system, but I personally feel there are easier ways to include these costs in a
standard cost. Pricing conditions are a more sustainable way of adding these types of costs
because they can be added for an entire group of materials, not one material at a time.
Regardless, this option is at your disposal should the need arise.