Beginners Manual for Product Costing in Sap Part1

107/18/11

Goals

2

• To understand the SAP functionality of product costing along

with the corresponding configuration settings.

(This is part 1 of a series of multiple sessions planned)

• To discuss real issues reported in production system, analyze

the root cause of the issue and identify potential solution

approaches

• To identify potential areas of improvement to the design

currently in place at ConAgra

Agenda for this Session

3

SAP functionality overview on Product Cost Planning:

Controlling Area and Version settings

Cost Component Structure overview

Master data for product costing (materials, BoM, Recipe etc.)

Costing variants / Valuation variant /Transfer Control concepts

Costing type, Costing version, Marking allowance

Costing sheets for overheads

Cost center planning and activity rates

Joint production, co-products, by-products

Costing of materials sourced from other plants

CAG Production issues on the above topic if any brought up

Product Cost Controlling Components

4

Product

Cost

Planning

Cost

Object

Controlling

Actual

Costing /

Material

Ledger

Information

System

5

In Cost Object Controlling,

the costs incurred in the

production of a product or

service are collected on a

cost object (such as a

production order). Which

cost object is used

depends on your

controlling requirements. It

may be a sales order, a

production order, a

process order or a

production cost collector.

Cost Object Controlling is

used to calculate work in

process, scrap costs and

variances at period close.

Product Cost Planning

refers to the creation of

cost estimates for the

production of goods or

services.

There is no reference to

a production order i.e.

the cost estimate

is independent of

any given

production order

Product Cost Planning Cost Object Controlling

Actual Costing is used to

calculate actual product

costs at period close.

The result may be

transferred to the

material master as a

weighted average price

for the closed period.

The quantity structure is

derived dynamically

using the materials

movements in the R/3

system. The values

connected with these

movements are collected

in the Material Ledger.

Actual Costing


6


Cost Component Structure

7

• The buckets in which the product Costs will be stored in SAP.

• This is an uniform structure throughout the ConAgra enterprise

across all Plants / Company Codes.

• Each component can have a variable and a fixed component

• Consumption cost elements are mapped to a cost component

Example:

510000 Material

920001 Direct Labor

• Some buckets may not be relevant for some products or plants.

E.g. Labor cost is not relevant for purchased parts

CAG Cost Component Structure (T-Code OKTZ)

8

1 Raw materials.

2 Packaging.

3 Labor - Direct.

4 Direct Overhead.

5 Indirect Overhead.

6 External Processing.

7 Warehousing.

8 Inbound Frt - NFG

9 Outbound Frt -STO FG

Material Master fields relevant for Product Costing

9

General:• Material Type: Valuated or not

• Base Unit of Measure. Cannot be changed without a lot of

effort once there are transactions.

Accounting view:• Valuation Class (relevant to and account determination)

The valuation class controls the account determination. Here, the

consumption account is determined, which also appears as the

primary cost element in the itemization.

G.L A/c

Inventory Consumption

3000 Raw Materials 116003 511230

7900 CAG Finished 116009 511210

7920 Semi Finisheds 116013 511220

A particular material will be of the same material type and valuation

class across all CAG plants and company codes

10


• Costing lot size (identify BoM, Recipe for Std Cost/Set-up cost)

• Price unit (to accommodate more than 2 decimals)

• Price Control (Standard/moving average)

• ML Active and Price determination Control

Costing view:

• To be able to cost a material, the Costing view must be maintained

• Cost relevancy, Bulk material

• With/without quantity structure

• Valuation category (split valuation)

• Origin Group: helps analysis by grouping materials into categories;

cost estimates and production order costs can be sub-totalled by

origin group. Examples: Meat, Pulp, Packing Materials, etc.

• Co-Product, Fixed Price, Apportionment Structure

11

• Overhead group: Key that groups the materials for the same type of

overhead application. Comapnies use it for warehousing burden

and freight overheads.

• Profit Center: used for product line analysis

• Planned Price, Commercial price, Tax price fields (how used)

• Quantity Structure data (BoM, Routing, Production Version)

MRP view:

• Material status (readiness for costing, inventory movements)

• Procurement type: F (purchased) or E (produced)

- Materials with indicator “F” can be produced but for standard cost

purposes, only the purchase price is considered.

- Materials with indicator “E” can be purchased but for standard cost

purposes, only the BOM/Routing based rolled price is considered.

• Selection Method (MRP 4 view)


12

• Special procurement

- to identify a material as a “subcontracted” material (value 30)

- to identify a material as a “phantom” material (value 50) that will

have only a BOM and not a routing

- to identify a material being procured from another CAG plant

Example: parts in a distribution center will always carry a special

procurement key pointing to the manufacturing plant

(Costing view value overrides for the purpose of costing)

• Planned Scrap related fields


Costing Variant / Valuation Variants

13

BOM Routing

Prices for Materials

Prices for Activities

Overhead

Product Cost Planning

Value Structure

Quantity Structure:

PP Master Data

Costing

Variant

Valuation

Variant

Costing

Sheet

Labor $

Machine $

Overhead $

Raw Material $

Total $

Z001

Z01

Z1

Standard

Cost

Z002

Z02

Z2

Current

CostCost estimate:

Standard costs

Prod Cost Estimates – Standard Cost, Current and various simulations

By Plant

Costing Variant / Valuation Variants

14

Variant

Attributes

Frozen

Standard

Current

Structure

Current

CostsSimulate2

Material

Price

Frozen

Standard

Frozen

Standard

Current

PriceFuture Price

BOM/

Routing

Structure at

year

beginning

Current

Structure

Current

Structure

Structure as

on next

month

Activity

Price

Frozen

Standard

Frozen

Standard

Revised

prices

Planned

price for

next year

Examples:

< ---------------------- Costing Variants --------------------------- >

Quantity Structure Selection

15

Quantity Structure Control Through

Customizing

- BOM Usage

- Priority for Alternative

- Status

- Lot size

- Validity Period


the Material Master Record

- Higher priority over the above

- Sequence: Special procurement,

Production Version, Specific

BoM/routing


the Initial Screen of the Cost

Estimate

Transfer Control - Flexible Options

16

Complete transfer: While costing a material with multi-level BOM

structure, system takes the existing “released cost” of the BOM components,

without re-calculating the cost of components. Only if component does not

already have a released cost, system calculates the cost of the component.

This is very useful when you want to cost a new finished part which uses

the already existing components

Leaving it blank: System ignores the already existing released cost of

components and recalculates the component’s cost using one of the

strategies like planned price1 or purchase info record. This is useful when

once a year you want to re-cost all materials right from the bottom upwards at

all levels.

Cross Plant Transfer: This is used in “Costing run” when you have

selected the materials with special procurement types that points to other

plants for copying the cost from

Zxxx( customized): Take the cost stored in a different costing variant

Transfer Control - Flexible Options

17

Part A (FIN)

Part B1

(SEM)Part B2

(SEM)

Part C2

(SEM)

Part C1

(SEM)Part C3 (purchased

semi fin ZSEM)

Part D (Purchased

Fin Part)

Complete Transfer:

If a released cost

exists for B2, then

stop exploding. Take

the existing released

cost

Blank:

Explode B2 and

consider its

current cost for

cost roll of part A

Costing levels are determined automatically by the system when you create

a cost estimate. Assigning the materials to costing levels ensures that

costing is performed in the proper order: first raw materials and purchased

parts, then semi-finished products, and finally the finished products.

1

2

3

4

Material Cost

18

Total Standard Cost of

purchased material

Freight

Core Material

Price payable

to material

vendorBurden

Duty

Others

Surcharges

Material Cost Options

19

Valuation Variant provides the strategy sequence of costing the

purchased material. Examples:

Sequence Strategy

1 Price specified in one of the 3 free fields in material master

(planned price 1 to 3)- Typically used to override the price

obtained in the next strategy for “exception” cases

2 Price from Purchasing Module: Sub-strategies are:

a. Price from latest P.O issued (NOT last invoice paid)

b.Purchase Info Record

3 Current standard price

System searches in the sequence defined in the valuation variant

and stops as soon as a price is found at any level

Determination of Purchase Info record

20

When there is more than one vendor for the same material, the system by

default takes the lowest price.

You can choose to mark one of the vendors as “regular vendor” so that only

that vendor’s price is considered for standard cost

Options for Surcharges

21

1. Overhead Group along with Costing Sheet (CAG Option)

2. Additive Costs

3. Statistical Purchase Conditions

Costing Sheet based Surcharges

22

Material Master

Overhead Group

Valuation Variant

Costing Sheet

Costing sheet will define the calculation base and the overhead rate.

Flexible definition of calculation Base is possible. Examples:

• Cost element + overhead group + Overhead Rate Key

• Cost center + Cost Element +Activity type + Overhead Rate Key

Surcharge Calculated

Overhead Rate Key

From To Percentage

1/1/11 12/31/11 2%

Overhead percentages can be defined for Overhead rate key by date ranges

Costing Sheet based Surcharges

23

BoM Header

24

• BOM usage: Examples for BOM usage: BOMs used exclusively for

engineering or costing purposes.

• BOM status: If complex changes are made to a BOM, you can use the

BOM status to control when the BOM is used, such as for a cost

estimate.

• Area of validity: A BOM can be defined as valid for only a limited range

of lot sizes, such as 1 to 1,000 units. You can then create a different

BOM for lot sizes exceeding 1,000 units. Therefore, only one BOM can

be used for the defined costing lot size.

• Alternative BOM: Alternative BOMs can describe different product

structures that create a product with the same properties. For example,

one alternative uses sheet metal A, while the other alternative uses

sheet metal B.

BOM Line Items

25

• Item category:

L = stock item, N = non-stock item; R = variable-size item

• Fixed quantity indicator: This indicates whether the quantity

entered is dependent on the lot size. It applies mainly to unavoidable

material loss at the start of the production process.

• Planned scrap: This topic is covered in detail separately

• Relevancy to costing indicator: If this indicator is not selected, the

system ignores the BOM item in the material cost estimate. This

enables you to devaluate BOM items (such as packaging materials)

on a flat-rate basis for inventory or commercial purposes.

• Bulk material: Bulk material is usually posted as consumption at

production cost centers as soon as it is procured, so it is not included

in the cost estimate.

Work Center

26

• Cost center

• The standard value key enables you to define the six standard values

in the operation. The system assigns a parameter key to the standard

values of the operation and of the work in the network activity. This

parameter key specifies the following:

• Formula: You can use formula parameters to which you have

assigned values. You can then link these parameters with

mathematical operations such as addition, subtraction, multiplication,

or division.

Example: Formula 2 = Standard value * Operation quantity / Base

quantity

Routing

27

Header

• Status

• Lot size range

• Task list group

• Usage

• Validity Period

• Base quantity

Operation Line

• Work Center

• Control key

• Costing Relevancy indicator

• Material to Operation assignment

Routing

28

Routing is “production-oriented bill of activities“that lists the operations required to

manufacture a product. Each operation can contain up to six activity types and a

standard value for the calculation of the activity usage.

Each operation is carried out at a work center. The work center contains formulas for

the calculation of activity usage. These formulas take account of the cost estimate lot

size and the base quantity for the routing.

Each work center is linked to a cost center. Activity prices are planned for the

combination Cost Center/Activity Type.

Operation Qty Activity Type

0010 PC-1 Preparation 2 min. 1421

0020 PC-2 Assembly 3 min. 1422

0030

Work Center

PC-3 Quality Check 5 min.

Standard

Values

Activity

Usage

Cost Center – Activity Type - Work Center – Routing Link

29

Work Center PC-1

Activity Type Efficiency

Formula

Set Up

Machine

Labor

Cost Center 4711

100 %

75 %

50 %

Formula 1

Formula 2

Formula 3

Lot Size : Pieces

Routing

Op. 10 / Work Center PC-1

Base Qty: Pieces

Set Up

Machine

Labor

Acty Type / Standard Value

a Min

b Min

c Min

n

m

Cost Center 4711

Activity Type / Price

Set Up

Machine

Labor

X $ / Min

Y $ / Min

Z $ / Min

Formula 1 =

Formula 2 = x /

Formula 3 = x /

a Min

b Min

c Min

n

n

m

m

Control Key in Recipe

30

Cost relevancy

Milestone operation?

External Processing?

Automatic goods

movement?

Process Industry Routing

31

Co-Product

32

Co-Products have

significant revenue

and are planned

for production

Leading Co-

Product (primary)

appears on the

production order

header and as a

line item as well in

the materials list

Co-products

appear with

negative quantity

in BoM

By-Product

33

Incidental output, not

planned

Co-Product indicator

is NOT checked

By-products appear

with negative quantity

in BoM

May or may not have

its own cost. If cost

relevant then it

reduces the cost of

finished product

Quantity Structure Selection for Co-Products

34

Material Master Parameters:

- Production version with BOM and routing entries

- Production version that refers to a leading co-product

If no entries were made in the material master of the co-product, the system

attempts to determine the quantity structure through the quantity structure

determination of the costing variant. It first attempts to determine the

quantity structure via valid production versions.

Costing of Co-Products and By-Products

35

Costs for co-products are calculated using the apportionment method

Costs for by-products are calculated using the net realizable-value method. Co-

products designated as fixed-price co-products are costed in accordance with the

net realizable-value method similar to by-product.

The costs for fixed-price co-products and by-products are subtracted from the

total costs. If a fixed-price co-product 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 using apportionment structure. Each production version can

have its own apportionment structure

Cost Apportionment with Source Structure

36

Source

Assignment

Equivalence Number

Primary Product Co-Product 1 Co-Product 2

Material costs 3 2 1

Production costs 3 2 2

Overhead 1 1 1

Using a source structure, it is possible to specify how the costs for each cost element

group are apportioned.

This allows to account for the fact that the material usage for the first co-product, for

example, is significantly higher than that for the second co-product even though the

production costs for both products are the same

When a process order is created the system generates a settlement rule on the basis

of the apportionment structure. The equivalences specified in the apportionment

structure are transferred into the settlement rule.

Cost Center planning and Activity Type Pricing

37

Plan Externally and

enter prices by cost

center + activity type

Plan using the SAP

planning

functionality

Planned Costs in dollars by cost center

___________________________________

Planned Activity by cost center and activity type

• Can copy scheduled activity from Logistics planning

• Can plan activity-independent and activity-dependent costs

separately so as to split the activity price into “fixed” and

“variable” components

Activity Type Master data

38

Activity Type Pricing

39

Plan Output Quantities

• Number of labor hours, quality hours etc

Plan Costs

• Dollars to be spent to provide this service

• Distinguish fixed and variable costs

Plan Input Quantities

• Number of quality hours required by Production

• Reconcile Supply and Demand

• Adjust quality hours to be supplied to meet demand from production

Calculate Activity Prices

• Costs per labor hour, per quality hour etc.

• Cost component split for planned prices

Subcontracting Options

40

• The subcontractor

receives material parts

and manufactures the

complete material

• Can keep track of

components lying with

vendor

• The subcontractor is

paid an agreed price for

the whole activity

Subcontracting External Processing

• The external processor

performs a process step

only.

• The material is processed

externally and completed in-

house.

• A price is agreed for the

external processing.

Subcontracting Process

41

External Processing

42

Planned Scrap

43

• Planned scrap is regarded as unavoidable scrap that is expected

to occur when a material is produced. It is also included in

inventory valuation.

• Consists of component scrap and operation scrap

• When a routing is scheduled, the scrap factor is determined from

all operations and written to the material master as assembly

scrap.

• Shown in the itemization screen of cost estimate

Component Scrap

44

Component scrap indicates the amount of scrap expected to occur

before or during the assembly of the material.

Component scrap can be defined in the material master of the

component as well as in the BOM line of the finished part. If it has

been entered in the BOM, the value specified therein applies.

Otherwise, the value in the material master record applies.

Component scrap is used in MRP to determine the input quantities of

the components. When the BOM is exploded, the system increases

the input quantities of the components by the scrap quantity

calculated.

Example:

Input quantity 200 units

Component scrap 10 %

Scrap quantity 20 units

Quantity used 220 units

Operation Scrap

45

Operation scrap is defined in the routing step. It is percentage of

scrap occurring for the operation concerned.

This scrap results in a drop in the quantity of the next operation,

since the quantity to be processed is reduced by the scrap. The

reduction in quantity is taken into account in the scheduling and in

the cost estimate.

Assembly Scrap

46

When a routing is scheduled, the scrap factor is determined from

all operations and written to the material master as assembly scrap.

Example:

Suppose the quantity to be produced is 200 units.

If you specify assembly scrap of 10%, the scrap quantity is 20 units.

The actual quantity produced is then 220 units. The system

increases the lot size and the quantity of input materials.

Planned Scrap Summary

47

Mark and Release of Standard Cost Estimate

48

Marking:

The future planned

price is set in the

material master and

a link to the "new"

standard cost

estimate established.

No revaluation takes

place.

Release: Release converts the future standard price to the current standard

price. Inventory revaluation takes place. The previous standard price is

moved the field “previous” and is linked to the "old" standard cost estimate.

Cost Estimate View

49

Cost Estimate View

50

Or “F6” gives itemized details

Or “F5” gives cost component wise totals

gives plants/company codes for the cost source

Item Categories:

M : Material

A: Co-Product

E: Activity (Labor/Burden)

G: Costing sheet based surcharge

Costing Run

51

• Costing of several

materials in a single run

• Background processing

feature

• Parallel Processing

feature

• Detailed logs

Marking Allowance

52

Helps to prevent accidental marking of costs for future period(s)

Updating Price fields in material master with costs

53

Useful for analysis

with other costs like

current costs,

simulated costs etc.

Plan Price, Tax

Price, Commercial

Price (any of these 9

fields) can be

updated

Useful Transaction Codes

54

CS01, 2, 3 : Bill of Material

C201, 2, 3 : Recipe

CR01, 2, 3 : Work Center

KL01, 2, 3 : Activity Type

OKEQ: Version

OKTZ : Cost Comp Structure

OKKN: Costing Variant

OKK4: Valuation Variant

OKEU: Source Structure

KZS2 : Costing Sheet

KP06, 7: Cost Center Planning

KP26, 7: Activity Prices

CK11N, 13N: Cost Estimate

CK40N: Costing Run

CK22: Allow Marking

CK24: Mark and Release

CKR1: Delete Cost Estimate

CKAPP01: Materials to be costed

S_P99_41000111 - Analyze/Compare Cost Estimates

Demo in the system

55

• Configuration Settings

- Costing variant, valuation variant, costing type, transfer

control, quantity control

- Costing sheet

- Allocation Structure for Co-Products

• Cost Roll Up of purchased and produced materials

• Cost Center Planning

• Activity type Pricing

Beginners Manual for Product Costing in Sap Part1

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