Product Cost By Order Cycle

November 30, 2017 | 265 Views |

Muhammad Muzammil Khan

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FIN Controlling
FIN Cost Object Controlling co-pcproduct cost by order
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Product Costing is the one of the core responsibility of the Controlling Department in any
manufacturing concerns which varies from business to business depending on nature of its
Product and Production. Its supports the organization in making loads of strategic decision along
with other functional areas.Gaining some expertise of SAP Product Costing over the past few
years, this is my attempt to provide the overview of SAP product costing process.

The Cost Object Controlling is tool provided by SAP CO module to cater Product costing
activities in an organization. Under Cost Object Controlling lies the following costing objects,

 Product Costing By Order

 Product Costing By Product Cost Collector
 Product Costing By Sales order

The figure below illustrate the use of Product Costing objects in pertaining Production
environment,
In this blog I have tried to explain the process of Product Cost by Order with typical example of
manufacturing Finished Material FG1 on two different Plants 1 & 2, the BOM (Bill of Material)
and Routing required to manufactured one unit of FG1 is depicted in the figure below,

Procurement of Raw Material (RM1 for Plant 1 and RM2 for Plant 2),

In the below scenario, we have procure RM1 from two different Vendors at 50:50 ratio. While
RM2 is procure from only one Vendor.
Now, we are going to create two Production orders for quantity 150 and 450, the prerequisite for
creating Production Order is,

 BOM master for Finished good material should be created through CS01
 Routing for Finished Good Material must be created using t-Code: CR01
 Required quantity of Raw Materials should be procured (as shown above) or available in
stock.

Below is the Production Process cycle,

In our scenario we are using Collective orders With Automatic Goods Movements. i-e; if we
create Production order for FERT Material the Production Orders for its semi-Finished good
(HALB) gets automatically created.

To Create a collective order, one of the SFGs must have a special procurement key 81 in its
MRP/Costing view of master data.

After creating Production Order we perform Good Issue for RMs and SFGs in respective orders,
we do this separately through MIGO (movt type: 261) or using MB1A or during confirmation of
activities CO11N which is our next step, as shown in figure below.
Info : In case of errors in posting of goods movements , goods movements with errors can
reprocessed by,

 Reprocessing whole confirmation :- T-code : CO16N

 Reprocessing only Actual costs :- T-code :COFC
 Reprocessing only Goods Movements :- T-code :COGI

Alternatively we can cancel confirmation using T-code : CO13 and create again

As in our scenario, we will execute two Production Orders using the below Production process,
for quantity 150 & 450.

Now, we post Actual Costs/Expenses incurred on the Production Cost centers 1001, 2001 and
1002 during the month using t-code F-02.

MONTH END ACTIVITIES,

You need to calculate Actual activity Price, by using t-Code KSS2 ‘Activity Splitting’ and KSII
‘Actual Activity Price Calculation’ or you can enter it manually through t-code KBK6.
Now, you do Revaluation of Activities posted to Production Order at Actual Price by using t-
code CON2/ MFN2.

Note: You don’t need to perform this step if you have activated Actual costing /Material Ledger
and have selected ‘2’ = Update is active and relevant to price determination. As a result of
which, Plan/actual variances of cost center are debited to the material instead of charging to
Production variance when calculating actual prices of activities during Single –Level Price
determination in Actual Costing run.

Below are the screenshots for production cost centers report S_ALR_87013611 for analysis,
before and after executing CON2.
Now, we ran the t-code CO43 to calculate overhead based on costing sheet. As a result of this
transaction overhead amount calculated is credited to overhead cost center and debited to
Production order.

Now, to calculate Work in Progress we run t-code KKAO, as result of this WIP for partially
delivered orders (whose status is not TECO or DLV) is calculated but not posted to Finance.
Now, KKS1 is executed to calculate variances for Production order whose statuses are TECO or
DLV (delivered). Similar to WIP calculation this transaction only calculates variances as shown
in figure below,

After calculating WIP and Variances, now the time comes to record them in Financial
Accounting by settling Production order through t-code: CO88/ KO88. As a result of this
transaction, along with accounting documents the CO-PA settlement for variance also took place
resulting in generation of CO-PA documents with record type C.

The small overview of the customizing setting (spro) for variance settlement to FI and CO-PA
are shown in figure below,
The pertaining accounting documents generated are also shown in figure below,

Reports to Analyze production Order,

The boxes with green border line in the above figure shows the reports for Production order. The
purpose of them are as follows,
 T-Code: KE24 – Display Actual Line Items: CO-PA – to analyze the Variances settled
to CO-PA.

 T-Code: COMLWIPDISP – Display WIP at Actual Cost. – to analyze the WIP

calculated for orders which are not TECO or DLV

 T-Code: KOC4 – Production Order Report – Actual/Plan/Target/ Variance, to

analyze costs posted on production orders.
This blog provides mere overview of Product Cost by Order process. In the next blog I will
discuss the Product Cost by Period Cycle. Till then readers are requested to keep patience and
don’t forget to provide feedback for this post.

I appreciate the time you took to read this blog.