SAP CO-PC Product Costing Workshop

Product Costing
Product Costing Overview

Acquire an overall perspective of Product Cost Planning within R/3. Observe a product life cycle from the perspective of Product Cost Planning. Acquire an overall perspective of product cost object controlling within R/3. Understand the period oriented product cost controlling. Obtain an understanding of the functions in the material ledger. Analysis of product costs.
Material Ledger Overview

Obtain
an understanding of the actual costing function in the material ledger. Know how to revaluate inventories of semi finished products, and finished products with calculated actual costs or accrue variances. Analysis of actual product costs.
SAP Modules - Overview
Sales & Distribution Materials Mgmt.
SD
Financial Accounting
FI
MM
CO
Controlling Fixed Asset Mgmt.
Product Planning
PP
AM
Quality Mgmt. Plant Maint.
QM
SAP R/3
PM HR
Human Resources Office & Comm.
PS
OC
Project System
IS
Industry Solutions
CO Components
CO PA
Operating concern (9100 A Ltd) Profitability Analysis Profitability Analysis Overhead Cost Controlling
Internal orders
Profitability segment
EC PCA
CO OM
Product Cost Controlling

CO Production Controlling area (9100 A Ltd) Order Standard Cost Estimate Cost Element Accounting
Profit Center Accounting
Cost centers
Internal Orders
Activity types
CO CEL
Cost Element Accounting
FI
Financial Accounting Financial Accounting
Asset
Expense
Company Code (9100 A Ltd)
Revenues
HR
Human Resources
MM
Materials Materials Management Management
SD
Sales and S&D Distribution
Why utilize Product Costing?
Product Costing is the backbone of a strong standard cost system. This is the process by which production activities are recorded at standard values and variances from actual costs are isolated.
For planning purposes, the corporation wants a preliminary target of what they think it will cost to produce X units of a product.
To set attainable standards by which efficiencies within the production operations can be measured. To provide feedback to management on the actual performance of the production process in relation to those targets. Identified variances may indicate inefficiencies that have to be investigated. Corrective action may have to be taken.
Product Costing
Optimized Production Operations

Improve and Control Operations OPTIMIZED & FIRM SCHEDULE
Plan & Commit Resources
Prepare Production
Make Product
Disposition & Contain Product
Process ends with initial containment (packout)
Manage Process and Product Documentation
Costing Methodology
Material Master Price Control
Moving average price (V- Price)

- Adjusted with every receipt - If at all, only to be used for raw materials and materials procured externally
Standard Price (S-Price)

- Constant - Recommended for all material types
Costing Methodology
Price that changes in consequence of usage and entry of invoices. Calculated by dividing the value of material by the quantity in stock. Automatically recalculated based on activity. Constant price without considering usage or invoices. Material stock valued at the same price over an extended period. Price variances are posted to price difference accounts; not affecting the standard price.
The method of valuing inventory of a material is determined when extending/creating the material master.
Posting Example: Moving average price 1

Procedure
1 2 3 4
Stock 100 200
Stock value 200.500.-
V price 2.00 2.50
Begin. inventory: 100 PC at 2.00 Goods receipt: 100 PC at 3.00
Invoice receipt: 100 PC at 4.00

Goods issue: 150 PC at 3.00 Stock Stock
1 2 3
200
50
600.150.-
3.00
3.00
Stock Coverage
3
GR/IR Account 300,300,2
200,300,100,-
450,- 4 If the invoice receipt is for 100 units, the stock coverage is 200 units: all differences stock
Consumption
4
Vendor
450,-
ok
400,- 3

Procedure
1 2 Begin. inventory: 3 Goods receipt: 100 PC at 3.00 4 Goods issue: 150 PC at 2.50
Stock
Stock Value
V Price
100
200 50 50
200.500.125.175.-
2.00
2.50 2.50 3.50 GR/IR account
4
Invoice receipt: 100 PC at 4.00 Stock

1 2 4
Stock Shortage
375.With a delayed invoice receipt Of 100 units: a shortage of 50 units price differences despite MAP Consumption
3
200.300.50.-
300.-
300.-
Price difference
4
Vendor
50.-
375.-
400.-
Procedure Begin. inventory: Goods receipt: 100 PC at 2.20 Goods receipt: 100 PC at 2.40 Goods issue: 200 PC at 2.20 Invoice receipt: 100 PC at 3.00
Stock 100 200 300 100 100 80.in stock
Stock Value 200.420.660.220.300. 60.in stock
V Price 2.00 2.10 2.20 2.20 3.00
Invoice receipt: 100 PC at 3.00
100
360.-
3.60
Stock Coverage
With multiple delayed invoice receipts: Danger of Incorrect Valuation!
Even though all receipts between 2.- and 3.- were valuated!
Characteristics of Price Control V Moving average price
+ + +
The stock value is adjusted each time goods are received

Real-time price fluctations are posted to stock Price difference postings only take place in exceptional cases
Price fluctuations cannot be adjusted to the finished products of higher levels (S price) Only recommended for raw materials or goods procured externally (real-time price for goods receipt known)
False entries with severe consequences (compounded errors)

Danger of incorrect valuations with delayed invoice receipt
Posting Example: Standard Price

Procedure
1 Initial situation: 2 Goods receipt: 100 at 2.40 3 Invoice receipt: 100 at 2.20
Stock 100 200 200
Stock Value 200.400.400.-
Standard Price 2.00 2.00 2.00
Stock
1 2
GR/IR account
3
200.200.-
240.-
240.-
Price difference
2
Vendor
3
40.-
20.-
220.-
Characteristics of Price Control S

Standard Price
+ All stock postings take place at the standard price + Prices remain constant throughout at least one period + Price fluctuations do not debit/credit the cost objects (e.g. orders)
consistant controlling with the standard price as a bench mark
+ Calculation of the standard prices with cost component splits + Recommended for all material types
Price differences cannot be subsequently adjusted to the ending inventories or the consumed products (sales, production withdrawals)
Period-End Closing: Valuation Problems

Finished Products Raw Materials I Distribution of Price Differences?
Valuation Period
Actual Prices?
Raw Materials II
Ending Inventory: Raw Materials
Costing Methodology
Valuation Method by Material: Finished Goods Intermediates Standard w/ ML Standard w/ ML
Raw Material
Packaging
Moving Average Actual

Moving Average Actual
Valuation Area
Organizational unit dividing up a company for the purpose of valuating stocks in a standardized and consistent manner. Level at which material value is managed.
The valuation area may is defined: - by plant
Product Cost Flow
MAT COCCA
Cost Center X
Manufacturing Cost
Cost Center 1 Cost Center2
MM: RM
BOM Cost Center Y Cost Center 3
COPC
Routing
Act1
Production Cost Center

Act2 VAR. VAR.. . VAR...
Production orders
COPA
Cost Object
F. Goods Inventory
Product Cost Flow
Plant Cost View Sales & Mktg. View
Mfg. Cost Center

Utilities Salaries Supplies Maintenance Depreciation Training Direct Conversion Insur. & Taxes Laboratory/QC Waste Treatment Shops & Stores General Services Indirect Conversion Total Product Cost
Process Order
BOM Raw Matl 1 Raw Matl 2 Pkg Matl
Product Unit Cost

(Cost Component View) Cost of Goods Mfg. Raw Matl 1 Costs Raw Matl 2 Costs Pkg. Matl Costs Routing Mach. Hr. Costs Lab Tests Costs Mach. Setup Costs Fixed & Variable Cost Three Views Available: 1. Cost Component 2. Cost Element 3. Cost Itemization
PA
(Profitability Analysis) (SAP Value Fields) Cost of Goods Sold Raw Matl 1 & 2 Costs Pkg. Matl Costs
Routing
(Activity Types) Mach. Hrs. or lbs. Produced Lab tests Setup Hrs.
Costs to Produce Product testing costs Change Over costs (setup costs) Fixed & Variable Cost
Product Costing A Ltd.

Product Cost Planning
Quantity structure in PP created
Activity type planning completed
Adjust costing master data/ parameters
Execute costing run

Not OK
Overhead cost planning completed
Plan prices of raw materials were entered
Standard Cost Calculated
Review for Yes Approval
OK
Mark Standard Cost Estimate
Automatic Release of Standard Price
Standard price hase been released

Product Cost Allocation - Simultaneous Costing
Cost estimate has been released Manufacturi ng order has been released
Cost object has been created
Simultaneous Yes Costing
Product cost are allocated

Period End Closing Product Costing
Product cost are allocated
Revaluation activity types at actual prices
Calculation of WIP
Yes
Periodic Varaiance calculation
Settle cost object
PE Product Costing has been done

Material Ledger/Actual Costing
GL Postings
Revaluate Stock MM Goods Movements Recorded Material Price Determination

Allocation of Follow up Costs to Finished/Semi Finished Products
Material M,aster Updates
Price Update in Actual Costing Provisional Posting GL Postings & Reversal
Material M,aster Updates
Product Cost Planning: Overview

Functions of Product Cost Planning: Product Cost Planning with reference to cost object
Product cost planning with quantity structure with structures provided by PP (Production Planning) module

Determination of the cost of goods manufactured Product Cost Planning supplies information for other modules:
Update of prices in a material master Update of the cost of good sold with the detailed structure of cost component (grouped cost elements) Standard (material) cost estimate as the base for calculation of production variances
Product Costing: Overview

Create Cost estimate with quantity structure
Standard Cost Estimate (once a year) Prepare Product Cost Collector Production Costs
Mark cost estimate with quantity structure Release cost estimate with quantity structure
Create Cost Object

Preliminary Costing Post Materials Costs
Debit Secondary cost
Receive Finished Stocks

Month End Closing
Credit Production Output WIP Calculation Variance Calculation Settlement
What is a Product Cost Estimate?

A tool for planning costs and establishing prices for materials. It is used to calculate the cost of goods sold for each product unit.
Cost Estimate With Quantity Structure

Utilizes a Bill of Material (BOM) and routing, I.e. Master Recipe for costing purposes. Integrated with Production Planning (PP).
Cost Estimate WITHOUT Quantity Structure

Utilizes a material master data and activity types entered manually into cost estimate.
Additive
You use additive costing to enable you to manually add costs that cannot be calculated by the system to a material cost estimate.
Cost estimate with quantity structure
Report
Quantity structure Costing variant Cost estimate without qty structure
Material costs Production costs Overhead
Valuation
Price update

Simulation Costing
Modified Std Cost Est.
Current Cost Est.
Start of Year 1
Start of Year 2
Time
New product Technical change Ad hoc
Standard Cost Estimate
Inventory Cost Estimate
Inventory Cost Estimate
Standard Cost Estimate (once a year)
Mark cost estimate with quantity structure
Release cost estimate with quantity structure
Material cost estimates with q. s.

Quantity Structure
BOM Routing
Valuation
Purchase price
Activity Type Price

Overhead
Costing
Used for:
Costing Results
Items M Material E Activity E Activity G Overhead
Standard Cost Estimate Stock Valuation Profit & Loss Statement
Cost Elements
400000 Raw materials 943201 Production hours 943901 UT: Cooling Var.
Values 600 000 610 000 612 000 SAR SAR SAR SAR
Material cost estimates with q. s.

Product W Costing structure - Total
Material
Internal Activity External Activity Overheads
W Z1 S1 S2 Z2
-
Costing structure Upper level

Internal Activity
External Activity Overheads
S3
Costing structure Lower level

Material Internal Activity External Activity Overheads
Product Z
Costing structure - Total

Material Internal Activity External Activity
Overheads
Product S
Costing structure - Total

Material -
Costing Variant
Costing Variant
Quantity Structure Determination
Valuation Variant
Quantities
Prices
Cost of Goods Manufactured
Costing Variant
Strategy for transfer of the existing cost estimates Determination of : - Bills of Material - Routing
Costing Sheet
Determination of: - prices update in material master
COSTING VARIANT
Defaulted dates for costing
Valuation control for: - materials - internal activities - external activities - subcontracting - overheads via costing sheet
Quantity Structure for Product Cost Planning

Master Data
+ + + + + + +
Material Master Bills of Material Work Centers / Resources Routings Master Recipe Production Version Procurement Alternatives / Mix Ratios
Material master data

Accounting views Costing views MRP views
Master Recipe
Recipe header Operations Materials list
BOM - Bill of Material

BOM type & identification BOM header Material data
Work Centers / Resources

Basic data Costing
Routing - tasks list

Routing type & identification Routing header Operation data
Production Version
Validity Period Production line
Quantity Structure: Material Master Data

Material Master Data: Material Master Data is an object in SAP R/3 that consists all relevant data for raw materials, semifinished and finished products divided into views. Views: -Valuation class
Purchasing Storage Sales Accounting Costing MRP
-Price control -Price determination -Price -Stock -Value of the stock - -Plan price -Cost estimate results -Periodic unit price -
Material cost estimates - quantity struc.

Product cost planning with quantity structure:
Materials Cost Centers / Activity Types Primary Costs
USE: - for the products (materials) in the system without PP module - in case of external MRP system - to update standard price
Quantity * material price = cost of goods manufactured due to the consumption of raw materials.
Quantity * activity price = cost of goods manufactured due to the internal activities during the production process.
Cost of goods manufactured due to the manually entered cost elements or mathematical operation.
Quantity Structure: Production Version

Quantity structure determination for cost estimate Validity period definition
Product <FERT or HALB >
Routing Group Group counter
Bill of Material Usage Alternative
Product Cost
Estimate
Production Version
ID, Production line, Validity period.
Costing vs. Quantity Structure

RAW MATERIALS BILLS OF MATERIAL PRODUCT COST ESTIMATE ROUTING
Electricity Consumables Maintenance Labor Depreciation
SERVICE COST CENTER
WORK CENTER / RESOURCE
Utilities Overhead ACTIVITY TYPES
PRODUCTION COST CENTER
Costing Structure
Costing Structure for Product Cost Planning
Master Data
+ + + +
Materials Cost Centers Activity Types Cost Elements Cost Component Structure
Costing Structure for Product Cost Planning
Material master data

Accounting views Costing views
Cost Elements
Validity period Category
Cost Centers
Validity period Category Functional area
Activity Types
Validity period Activity unit Allocation cost element
Costing Structure
A cost centers is an organizational unit within a controlling area that represents a clearly delimited area of responsibility where costs are monitored against a plan.
Cost Center
They represent a defined location of cost incurrence.
Items in a chart of accounts that are relevant to cost, are referred to as cost elements. They are used for entering all costs within the entire cost accounting system.
Cost Elements
Secondary costs elements are used exclusively in CO to identify internal cost flows such as assessments or settlements. They do not have corresponding general ledger accounts in FI and are defined in CO only.
Planning Overview
Company General Service C. Center
Executive Management
Admin. C. Center
Maintena nce
Prod. Support Production C. Center
Projects
COGS
Product Cost Estimate
Profitability Segment
Costing Structure
Activity types define the type of activity that can be provided by a cost center (work activity, production hours, and so on).
Activity Type
Activity Price Calculation

Cost center: R&T
Planned costs: 430000 (salaries) 440000 (miscl.) 473120 (telephone) 44,000 10,000 30,000
Planned costs: 84,000
Cost center
1PDH01 100 h
Plan activity qty: 100 h
Calculated Price: 840
: Activity Price Calculation Apportionment of cost center costs to activity types according to particular criteria
Costing Structure
Planning 1203000 Utilities (Common) 2 1203000 3 Cost Splitting
1. Assign CC 1203004 to Splitting Structure U4 Steam service 2. Perform cost splitting
Product Cost Estimate
Product 22000057 - TEG

Steam service 1203004
1UTSTF Steam - fixed 1UTSTV Steam var. 943954 UT: Steam fix
..
..
5 Product 22000058 - LLDPE

Activity Types Used: 1UTSTF Steam - fixed
.. 1
Primary costs planning on all Cost Centers.
4 Planned Price Calculation

Prices for 1UTSTF are calculated.
Cost Component Structure

Valuation
Purchase price
Activity Type Price Overhead
Quantity
Costing
Used for:
Costing Results
ID 101 110 111 Cost Component Raw Materials Catalyst Chemicals Values Fixed & Variable 600 000 0 0 SAR SAR SAR SAR
Standard Cost Estimate Stock Valuation Profit & Loss Statement
Cost Component Structure

COOM COPC
Product Cost Planning

Z9 -Primary Raw Materials
Primary cost elements

Raw Materials
ZZ Process view Raw Materials
Cost Centers
Utilities
Personnel Exp. Internal Activity Allocation
Utilities Variable Production Fix Production Structure of manufacturing costs

Personnel Exp.
Depreciation
Structure of primary costs
Depreciation
Structure of primary costs
Standard Cost Estimate (once a year)
Mark cost estimate with quantity structure
Release cost estimate with quantity structure
Price update
Standard price
Only one validated standard price per product per period, The price represents most desired (or most likely) costs Only one price per product over the year (recommended) Determined during costing runs - standard cost estimate is populated in appropriate valuation views Includes variable and fix cost elements Base for variances calculation; which is then posted to FI and COPA Used for stock valuation of finished goods and semi-finished products Stored in material master data (accounting view) in Legal, Group and Profit Center valuation views after releasing the cost estimate
Price update
Future price
Future standard price Stored in material master data (accounting & costing view) in Legal, Group and Profit Center valuation views after marking the cost estimate.
Previous price
Replaced standard price by current one due to releasing the cost estimate Stored in material master data (accounting & costing view).
Price update
Analysis of Costing Results
Material Master Data Standard Price

Future Current Previous
10
Marking Standard Cost Estimate
Future
Current Previous
15
10
Releasing Standard Cost Estimate
Future Current Previous
15
10
Stock Revaluation
Price update procedures

Master & control data definition
- Material Master Data - CO Production Order incl. Unit Costing
Product Costing
- SPC1 SPC3 cost estimates, verification, save - Organizational measures: marking and releasing - Cost estimate marking - Cost estimate release
MM & CO postings
- Various analysis available
Period-end closing tasks

- Work-in-process postings - Inventory deviations postings - Variances processing and analysis - Settlement processing
Costing run
Costing run
You can use the costing run to process mass data. It enables you to cost, mark, and release more than one material at the same time. Every processing step involved in costing with quantity structure is performed by the costing run, from the same screen.
Costing run consists of:

General data (organizational units, selection criteria) Selected materials Exploded BOMs Costing run results Price update results
Costing run
Costing Run Creation Company Code Costing variant Dates Costing Run
Partial selection of materials Selection of all materials
BOM explosion
Execute costing run

$
$ $ $ $ $
$ $
Marking and releasing costing run results (price update)
Materials
Create cost object
Prepare Cost Object

Preliminary costing Post Materials Costs
Production Costs
Debit Secondary cost
Receive Finished Stocks Month End Closing
Credit Production Output
WIP Calculation
Variance Calculation Settlement
Cost Object Controlling: Overview

Functions of Cost Object Controlling:
Supporting make-or-buy decisions Determining price floors Performing complex cost analysis Determining inventory values

Cost Object Controlling Scenarios:
Product Cost by Period

Product Cost by Period is used for recurring periodic cost control of products that are manufactured in the same way over a longer period of time.
Product Cost by Order

Product Cost by Order is mainly used to control the costs of individual production lots.
Product Cost by Order or by Period

Full settlement (by Order)
Actual costs = Work in process Actual costs Goods receipts = Work in process
Partial delivery
Actual costs Goods receipts = Variances

Delivered / Technically completed
Time
Releasing an order
Periodic settlement ( by Period)

Actual costs Goods receipts = Work in process + Variances Time
Period 1 Period 2
Actual costs Goods receipts = Work in process + Variances
Actual costs Goods receipts = Work in process + Variances

Period 3
Functions Funkcje Type of settlement rule Work-in-Process
FULL
PERIODIC
WIP calculated on base of actual costs Variance = Actual Costs -
WIP calculated on base of target costs Variance = Actual Costs -
Variances
Goods Receipts
Goods Receipts - WIP
Settlement Hierarchy of Cost Objects
Should be periodically
Must be periodically
Impossible
Possible

Functions of Product Costs by Period:

Create product cost collectors. Create a preliminary cost estimate for product cost collectors. Calculate and analyze target costs and actual costs for product cost collectors. Calculate or update the work-in-process inventory and the finished goods inventory. Calculate and analyze variances for each period. Transfer data to: Financial Accounting, Profitability Analysis, Profit Center Accounting and Material Ledger.

Product Costing - SPC1 SPC3 costing run, verification, save - Organizational measures: marking and releasing - Cost estimate marking - Cost estimate release Master & control data definition - Material Master Data, BOMs and Routings - Product Cost Collectors incl. PREM costing Production postings (backflush) - Various analysis available Period-end closing tasks - Inventory deviations postings - Variances processing and analysis - Settlement processing
Actual Overview
Company General Common Services
Executive Management
SBU / Sales C. Center
R&T C. Center
Maintena nce Production C. Center
Projects
Overhead Variances
Variances
Product Cost Collector
Prepare Cost Object
Create Product Cost Collector
Preliminary costing
Objects in Cost Object Controlling
Product cost collectors in the following production environments:

In order-related production (that is, when you are using production orders) when you want to analyze the costs by period rather than by lot In process manufacturing (that is, when you are using process orders) when you want to analyze the costs by period rather than by lot In repetitive manufacturing you always use product cost collectors as the cost objects.

Product <FERT or HALB >
Routing Group Group counter
Bill of Material Usage Alternative
Product Cost
Collector
Production Version
ID, Production line, Validity period.

Product
<FERT or HALB>
PROCESS ORDER 1
Product Cost
Collector
PROCESS ORDER 2
Master Recipe
Operation List/Routing
Materials List/BOM
Production Version
Operation 10
Phase A
Material X Material Y
Operation 20
Resource Requirements
Preliminary costing
Product Costing - SPC1 SPC3 costing run, verification, save - Organizational measures: marking and releasing - Cost estimate marking - Cost estimate release Master & control data definition - Material Master Data, BOMs and Routings - Product Cost Collectors with Preliminary costing (PREM) Production postings (backflush) - Various analysis available Period-end closing tasks - Inventory deviations postings - Variances processing and analysis - Settlement processing
Preliminary costing
Costing variant PREM - preliminary costing:

Created during product cost collector creation Created per each production version Provides split and balanced information of cost items, quantities and prices that are planned to occur during production of a product Variable costs coming from BOM and routing Result used mainly for actual activities postings May be used for further analysis up to cost management requirements May be changed all the time in the way of changing (updating) Product Cost Collector; i.e. different quantity structures allowed over the period Changes in BOMs take effect immediately, i.e. cost estimate update not required Changes in routings take effect after cost estimate update
Preliminary costing

Item Caustic Soda Ethylene EDC Materials Internal activities Overheads Total Plan 1.500 2.000 0.500 4.000 2.500 1.500 8.000 Actual
Simultaneous costing actual costs

Product Costing - SPC1 SPC3 costing run, verification, save - Organizational measures: marking and releasing - Cost estimate marking - Cost estimate release Master & control data definition - Material Master Data, BOMs and Routings - Product Cost Collectors with Preliminary costing (PREM) Production postings (backflush) - Various analysis available Period-end closing tasks - Inventory deviations postings - Variances processing and analysis - Settlement processing
Simultaneous costing actual costs

Confirm order operation
Production output & Back Flush

Item Plan 1.500 2.000 0.500 4,000 2.500 1.500 Actual 1.800 2.200 0.600 4,600 2.800 Caustic Soda Ethylene
Record consumption & output Record process data & batch characteristics Final Confirmation & Back Flush
EDC Materials Internal activities Overheads
Deal with Back Flush & transaction errors
Total
8.000
7.400
Adjust theoretical yield & consumption to actual
Confirmation Types & Functions - Process Orders

Order header
Confirmation types
Operations
Components
n n n n n n n n n
Individual order confirmation Individual confirmation Collective confirmation Collective confirmation Milestone confirmation Milestone confirmation Progress confirmation Order confirmation Confirmation with reference
Costs
Material Machine Labor Utility ...
100
20 50
Confirmation functions
Confirmation status
n n n n
Partial confirmation Partial confirmation Final confirmation Final confirmation
n n n n n n n n n n n n n
Output goodsgoods movement Confirm with receipt Defaults for remaining time Backflush components Check operation sequence Check delivery tolerances Backflush utilities Plant data collection interface Backflushing Reduce capacity requirements Reduce capacity requirements Determine actual costs Determine actual costs
Back Flushing (Repetitive Orders)
Order quantity = 10 PC
Operation 30 Component XY
Required qty = 20 PC
Warehouse
Back Flushing Operation 30 Yield = 5 PC
Goods issue
Component XY = 10 PC
10 PC of Component XY to be back flushed
Final Confirmation & Technical Completion
Final confirmation
Order header
Operations Operations
Technical completion
Order header
Operations Operations
Components Components
Components Components
PRTs PRTs Costs Costs 100 20 50 Costs Costs
PRTs PRTs 100 20 50
Order status: Production order status:Delivered Delivered
Production Order status:order status: Technically Technically completed completed
Settlement can be carried out
Failed Transactions and Corrections

Incorrect or missing data for components and activities prevents processing of the back flush transaction These errors must be corrected before postings can be made for materials and activities When the errors have been eliminated, the theoretical yield and consumption may be adjusted and the results recorded
Summary

Non-feedstock raw materials are staged daily to the production area for planned manufacture As each production quantity is confirmed, a back flush of the proportional quantities of raw materials and utilities consumed is recorded The results from the output receipts, plus material & resource consumptions, update the stock records and provide valuation of production according to standard cost approach.
List of Transactions
Simultaneous

costing transactions:
MF60 Stage Materials MFBF Back Flushes MF41 Month-End Corrections COR6 Confirm Orders & Back Flush COR2 Reverse Confirmations
Actual costs
CO Production Order
Step 6 Goods Receipt from Order into Warehouse - Actual Postings
Status PARTIALLY DELIVERED
Production Output 462001 5.000,Finished Products 119430 5.000,100 * 50 = 5.000,quantity * price = value of the goods receipts from order Order Material 430004 + 5.000,943201 + 7.500,400000 + 1.100,462001 - 5.000,-
CO
FI
Actual costs - Summary
The results from the output receipts, plus material & resource consumptions, update the stock records and provide valuation of production according to standard cost approach.
Month End Closing
WIP Calculation
Variance Calculation
Settlement
Period and year-end closing
Period-end closing:
Product Cost Collectors are only included in the period-end closing process if the status of the order is not one of the following: LKD (Locked), CLSD (Closed), DLFL (Deletion flag), DLT (Deleted). If you dont enter a production process in the individual processing mode of the period-end closing transaction, but only enter the data for the material and plant, this period-end closing transaction will be performed for all production processes for that material. Functions available in period-end closing: overhead calculation, WIP calculation, variance calculation, settlement.
Functions Funkcje Type of settlement rule Work-in-Process
FULL
PERIODIC
WIP calculated on base of actual costs Variance = Actual Costs -
WIP calculated on base of target costs Variance = Actual Costs -
Variances
Goods Receipts
Goods Receipts - WIP
Settlement Hierarchy of Cost Objects
Should be periodically
Must be periodically
Impossible
Possible
CO Production Order
Step 7 Work-in-Process Calculation - Period-end closing
Status RESULTS ANALYSIS CARRIED OUT
Order Material
430004 + 5.000,943201 + 7.500,400000 + 1.100,WIP Report:
462001 - 5.000,-
Work-in-Process 13.600 - 5.000 = 8.600
CO Production Order
Step 8 Settlement of - Period-end closing
Status RESULTS ANALYSIS CARRIED OUT
Work In Progress (WIP) 462201
8.600,Work In Progress (WIP) 119460 8.600,Order Material 430004 + 5.000,943201 + 7.500,400000 + 1.100,462001 - 5.000,-
CO
FI
WIP is being updated on the order as statistical value for information purposes.
CO Production Order new period

Step 9 Repetition of the steps from 3 to 7 - Actual Postings
Status PARTIALLY DELIVERED or DELIVERED
Order Material
430004 943201 400000 400000
+ 5.000,+ 7.500,+ 1.100,+ 5.000,-
462001 - 5.000,462001 - 7.000,-
As a result of the actual postings in the new period there is a new balance on the order.
CO Production Order period 2

Step 10 Work-in-Process Calculation (variant 1) - Period-end closing
Status PARTIALLY DELIVERED
Order Material 430004 943201 400000 400000 WIP Report (cumulated): Work-in-Process 18.600 - 12.000 = 6.600 Work-in-Process in previous period 13.600 - 5.000 = 8.600 Cumulative: 15.200 + 5.000,+ 7.500,+ 1.100,+ 5.000,462001 - 5.000,462001 - 7.000,-
CO Production Order Period 2

Step 11 Settlement (variant 1) - Period-end closing
Status RESULTS ANALYSIS CARRIED
Work In Progress (WIP) 119460 6.600,Work In Progress (WIP) 462201 6.600,As WIP is reported as cumulative value. Order Material
CO
+ 5.000,+ 7.500,+ 1.100,+ 5.000,462001 - 5.000,462001 - 7.000,-
FI
430004 943201 400000 400000
CO Production Order period 2

Step 12 Calculation of Variances and Settlement (variant 2) - Period-end closing
Price Difference Production Difference 464018 6.600,-
Status TECHNICALLY COMPLETED

Order Material
CO
FI
430004 943201 400000 400000

WIP 462201 8.600
+ 5.000,+ 7.500,+ 1.100,+ 5.000,-
462001 - 5.000,462001 - 7.000,-
Production Output 462001 Negative variance: Actuals > Plan. 6.600,-
WIP 119460 8.600
As a result of a posting the balance of the order was posted to production difference account and cumulated WIP was reversed.
Variance: Integration
Material CATALYST Quantity prod.: 10 pcs
COPC

Materials 600 Labour Depreciation 1.100 300
Actual Costs
Material Master
Accounting View Standard Price 200 Materials Labour Depreciation 800 1.200 400 2.400 - 2.000 400
Target Cost Ver. 0
10pcs * 200
Goods Receipt Variance
Price 150 Quantity 50 Structure 200
FI
Accounting Price difference Stock 2.000 400 Settlement Profitability Analysis Variance 400 COPA
MM
Stock

Variance Category
Cost Element Group PA Assignment lines Value Field

Product cost collector
Period accounting
COPC
Material: Quantity:
COPC
MEG 10 pieces
Cost of goods sold Revenue
Revenue
Actual costs 2.400,-
Sales deductions
Overheads plus Variances +/- Change in Stock = Result of a period
Sales deductions Manufacturing costs by standard price (Contribution margin I) Variances
Actual costs
Goods receipt -2.000,Variances/WIP 400,-
= Result of a period
PrCtr 1
Company Code
FI
Profit Center ECPCA
Company Code
Settlement
FI
COPA

-
FI *
GL (PL) 464017 Price Diff -Purchasing
SD
PA
Revenue
M St M Pri andar ce d Co or S ndi D tion Typ e
Purchasing, Stock Movement, Production
PRD
Cost (price) differences
PRF PRA PRU
Revenue
COGS
COGS
*
GL (PL) 464018 Production Variance
Material Ledger Closing - Single Level
PRY
Cost (price) differences (mater.ledg er)
PRF PRA PRU -
Input price variance Input quantity variance
*
GL (PL) 464019 Price Diff - Good Issue
Resource-usage variance Remaining input variance Mixed-price variance Output price variance
Material Ledger Closing - Multi Level Level
PRV
Material ledger fr.low.level s price dif.
PRF PRA
Production Variances
*
PRU
GL (PL) 4640020 Price Diff -Transfer Postings
Lot size-/fixedcost variance Remaining variance Scrap
Material Ledger Closing Release Future Price
UMB
Gain/loss from revaluation
GL (PL) 464021 Gains/Loss on Inventory Revaluation
Price Diff Purchasing Price Diff - Good Issue Price Diff Transfer Postings
Adjustment to COGS from capitalising Variances Adjustment to COGS from Inventory Revaluation Gross margin
Material Ledger Closing - Do not revaluate Stock
LKW
Accruals and defer.acct(mat erial ledger)
GL (BS) 119610 ML Provisions
Gains/Loss on Inventory Revaluation

Periodic Costs

Item Caustic Soda Ethylene Plan 1.500 2.000 0.500 4,000 2.500 1.500 8.000 Actual 1.800 2.200 0.600 4,600 2.800 1.600 9.000
Process costs
EDC Materials Internal activities
Revaluation
Overheads Total
% %
Overheads

Period-end closing
Periodic costs
Process costs Revaluation Overheads Calculations and analysis Work-in-Process Scrap Variances
Postings FI/CO
Settlement

Product cost collector
Period accounting
COPC
Material: Quantity:
COPC
MEG 10 pieces
Cost of goods sold Revenue
Revenue
Actual costs 2.400,-
Sales deductions
Overheads plus Variances +/- Change in Stock = Result of a period
Sales deductions Manufacturing costs by standard price (Contribution margin I) Variances
Actual costs
Goods receipt -2.000,Variances/WIP 400,-
= Result of a period
PrCtr 1
Company Code
FI
Profit Center ECPCA
Company Code
Settlement
FI
COPA

-
FI *
GL (PL) 464017 Price Diff -Purchasing
SD
PA
Revenue
M St M Pri andar ce d Co or S ndi D tion Typ e
Purchasing, Stock Movement, Production
PRD
Cost (price) differences
PRF PRA PRU
Revenue
COGS
COGS
*
GL (PL) 464018 Production Variance
Material Ledger Closing - Single Level
PRY
Cost (price) differences (mater.ledg er)
PRF PRA PRU -
Input price variance Input quantity variance
*
GL (PL) 464019 Price Diff - Good Issue
Resource-usage variance Remaining input variance Mixed-price variance Output price variance
Material Ledger Closing - Multi Level Level
PRV
Material ledger fr.low.level s price dif.
PRF PRA
Production Variances
*
PRU
GL (PL) 4640020 Price Diff -Transfer Postings
Lot size-/fixedcost variance Remaining variance Scrap
Material Ledger Closing Release Future Price
UMB
Gain/loss from revaluation
GL (PL) 464021 Gains/Loss on Inventory Revaluation
Price Diff Purchasing Price Diff - Good Issue Price Diff Transfer Postings
Adjustment to COGS from capitalising Variances Adjustment to COGS from Inventory Revaluation Gross margin
Material Ledger Closing - Do not revaluate Stock
LKW
Accruals and defer.acct(mat erial ledger)
GL (BS) 119610 ML Provisions
Gains/Loss on Inventory Revaluation

Variance Category
Cost Element Group PA Assignment lines Value Field
Material Ledger: Overview

Functions of Material Ledger: Cost accounting using actual prices Storing values of stock in three different valuations (legal valuation, valuation for reporting purposes, and profit center valuation) in multiple currencies.
Material Ledger: Overview

Functions of Material Ledger: Cost accounting using actual prices Storing values of stock in three different valuations (legal valuation, group valuation for reporting purposes, and profit center valuation) in multiple currencies.
What is the Material Ledger/Actual Cost

Concept?
The Material Ledger(ML) is a tool within the CO Module that collects all transactional data for materials whose master data is stored in the material master. It acts as a subledger for selected materials that captures all goods movements, invoice values, transfers and price changes. On the basis of this data, the material ledger calculates and maintains the actual cost for these materials. This actual cost can then be utilized to valuate the material stock accounts.
Objectives of the Material Ledger

1. Actual Costing. During the period, valuation of all goods movements is done with the preliminary valuation price which is normally the standard price. All variances from the preliminary valuation are maintained in the ML. At period end, revaluation of ending inventory can be performed with the determined actual price. This is not mandatory. Actual prices can be calculated for statistical purposes only.
2. Parallel currencies and/or valuations of material stocks.

All goods movements in the ledger can be maintained in 3 currencies. The values are translated into other currencies using the historical exchange rates. Prerequisite for usage of transfer pricing functionality.
Benefits of the Material Ledger

Variances of Finished Goods Variances from external procurement (purchase orders) as well as from production activities are rolled up from raw and semifinished materials to the finished goods level. To provide support for procurement related decisions. Detailed reporting for procurement processes and sources possible. Make vs.. Buy, Vendor A vs.. Vendor B. Price History.
Combines the benefits of Moving Average and Standard Price

Stable prices used for controlling purposes (standard) and actual prices used for valuation purposes (average). Easy to use display and error finding by consolidating the views.
Allows quick access to detailed views of material master, standard costs and documents
Benefits of the Material Ledger

Relatively simple configuration and set up True Cost of Sales Accounting Purchasing and production variances for unsold stocks are inventoried. Contribution Margin with Actual Costs of Sales
By utilizing multi-level settlement, actual values for your cost component split can be attained. This can be transferred to PA as of release 4.6C
Single Level Settlement

Production
D D
Level Level Level Level
Production
External Procurement External Procurement
Multi - Level Settlement

Production
D D
Level
Production
Level Level Level
Multi -Level
External Procurement External Procurement
Multi - Level Settlement

Production
D
Production
Material Valuation with Multi-Level Actual Costing Preliminary Valuation During the Period Revaluation at Period End with Actual Price
D D D
External Procurement
The ML updates the Material Master
The Integrated Material Ledger Display
Material Ledger Overview

Actual Costing
Revaluation of stock at actual prices or accrual of variances.
Material Ledger
MATERIAL STOCK
Parallel Valuations Parallel Currencies

Translation at historic rates (up to three)
(Transfer Prices) Group Legal Profit Center
ML Overview Parallel Currencies

Material Ledger
(Valuation Area / Plant) 10 Local currency
30 Group currency
Financial Accounting
(Company Code) 10 Local currency
30 Group currency
Controlling
(Controlling Area) 10 Local currency
30 Group currency
Price control
Material Master
Moving average price

(V Price) Changed after every receipt
Recommended for raw and externally procured materials.
Price Control
Standard Price
(S Price) Stable for long period
Recommended for finished and semi-finished products.
Price control
Moving average price
The stock value is adjusted each time are received Real-time price fluctuations are posted to stock Price difference postings only takes place in exceptional cases Price fluctuations can not be adjusted to the finished products of higher levels (in case S price) Only recommended for raw materials or goods procured externally (realtime price for goods receipt known) False entries with severe consequences (compounded errors) Danger of incorrect valuations with delayed invoice receipt
Price control
Standard Price
All stock postings takes place with the standard price Price remains constant by at least one period Price fluctuations do not debit / credit the cost object Consistent controlling with the standard price as a bench mark Estimations of the standard prices with cost component split Recommended for all materials types
Price differences can not be subsequently adjusted to the ending inventories or the consumed products (very important in the Cost of Goods Sold accounting)
Price determination control

Multiple currencies/valuations
Price control
S
Price determination 2 Transaction based Standard price
V V
ML can record up to 3 different currencies / valuations. This is a requirement for transfer price
Moving price
Single-/ multilevel price determination
Standard Standard price Unit periodic price
Cannot be activated manually
Actual Costing Revaluation of stock at actual price
Price determination control

3
Cost centers Orders
Activity types Internal orders
Level 3
Cost centers
Orders
Internal orders
Level 2
Activity types
Level 1
Actual Values Overview
Actual data -> Actual Costing

Overview Preliminary valuation price Actual Costing
Price differences
Updating single-level variances Single-level price determination Multilevel price determination

Price differences
Preliminary valuation price

S
Cost centers Orders
Level 2
S
Cost centers Orders
Internal orders
Level 1
Activity types
Actual Costs
Preliminary valuation

Price differences
Actual Costing
Price differences
Stock transfers (standard price in another plant) External procurement (purchase order or invoice value) Internal production (order settlement)

Price differences
Updating Single-Level Variances

S
Cost centers Orders
462001 464018 . . Pr. . Inven. Price diff.
S
Cost centers Orders
462001 464018 . . . Pr. Inven. Price diff.
V V
Actual Costs

Price differences
Single-Level Price Determination

S
Cost centers Orders
119490 464017 . . End. Inven. Price diff.
S
Cost centers Orders
119430 464017 . . . End Inven. Price diff.
Price differences are not applicable
Actual Costs

Price differences
Multilevel Price Determination

S
Cost centers Orders
119490 464017 . . End. Inven. Price diff.
S
Cost centers Orders
119490 464017 . . . End Inven. Price diff.
Price differences are not applicable
Actual Costs
Period End Overview
Actual Costing Period End Closing Procedure

Collecting price differences
On price difference accounts or in material ledger within categories
Period closing program

Open new period in MM (transaction MMPV)
Determining prices
Single-level, later multilevel V price is calculated
Making closing entry

Must be made for each period Posting to prior period is no longer possible Reversal if required
With revaluation
Price differences are proportionally posted to the remaining stock -> Price indicator V
Without revaluation
Price differences are proportionally posted to the accruals account -> Price indicator S
Marking future price
Period End Overview Closing Entry (1)

With Revaluation
Material: ACT-LCD##
Status: Closing entry performed Price control: V (only old periods) V price: 26.50 SAR / 100 units
Beginning inventory (BI): 1000 PC / 250 SAR Goods receipt/purchase order : 1000 PC / 260 SAR Invoice receipt : 1000 PC / 280 SAR Consumption: 1300 PC / 325 SAR Ending inventory: 700 PC Material stock (119400)
250 250 10.5 325
locked
Stock value : 185.5 SAR (700 PC * 26.50/100) Vendor

280
GR/IR allocation
260 260
CL
Price difference (464017)

10 20 CL
10.5 VB
Material consumption (400002)

325
ML accrual (119610)
Period End Overview Closing Entry (2)

Without Revaluation
Material: ACT-LCD##
Status: Closing entry performed Price control: S S price: 25.00 SAR / 100 units
Beginning inventory (BI): Goods receipt/purchase order: Invoice receipt: Consumption: Ending inventory: 1000 PC / 250 SAR 1000 PC / 260 SAR 1000 PC / 280 SAR 1300 PC / 325 SAR 700 PC
locked
Stock value: 175 SAR Vendor

280
Material stock (119400)

250 325 250
GR/IR allocation
260 260
Price difference (464017)

10 20 CL 10.5
Material consumption (400002)

325 CL
ML accrual (119610) 10.5
Period End Overview Periodic Unit Price
Period opened ( beginning inventory
Receipts
Single- level price determination
Variances
Cumulative inventory (prelim. valuation) + Cumulative variances Cumulative inventory
Periodic unit price
= Periodic
unit
price
Information System Overview

Materials to be costed Product Cost Planning Reports
Summarized Analysis
Object List
Object Comparisons
Detailed Reports
Report Selection
The Report Tree can be used to select Reports in the Information System. The Report Tree is the central collection point and hierarchical outline of all Reports in an application component. The standard Report Tree supplied by SAP should not be changed. A personalized Report tree can be created to which standard Reports as well as one's own creations can be assigned.
Report
The Report can be used to
Report
Report
Report

Summarized Analysis
Object List
Object Comparisons
Detailed Reports
Object List
Detailed Reports
Displaying Documents

Summarized Analysis
Object List
Object Comparisons
Detailed Reports
Report Selection
The Report Tree can be used to select Reports in the Information System. The Report Tree is the central collection point and hierarchical outline of all Reports in an application component. The standard Report Tree supplied by SAP should not be changed. A personalized Report tree can be created to which standard Reports as well as one's own creations can be assigned.
Object List
Detailed Reports
Displaying Documents
Report Output Types

Graphical report-output
Variable output areas HTML-header Navigation by drag and drop and context menu
Object List (ALV)
Various leads columns Standard ALV Functions
Product Costing Information System

Overview of Reporting Tools
SAP REPORTING TOOLS
For executing existing reports and queries

Human Resource Information System (HIS) Manager's Desktop (MDT) Info systems in the SAP Easy Access Menu
For creating new queries
Ad Hoc Query SAP Query
BUSINESS INFORMATION WAREHOUSE
For executing existing queries Business Explorer Browser
For creating new queries Business Explorer Analyzer
Product Cost Planning Reporting

SAP Standard Reports
Customer report: Vehicles

SAP Employee SAP report:report: Telephone List List
Customer report: Distribution Channels Customer report: Buildings
SAP report:
Org. Units
SAP report:
Events
Customer report: Insurance
SAP report:
Birthday List
Ad Hoc Queries
Custom-built Reports
Cost Object Reporting
SAP Standard Reports

Organizational management standard reports menu path
Organizational management standard reports
Material Ledger Reporting
Some Standard Organizational Management Reports identified for Sabic are:

Structure Display/Maintenance Existing Organizational units
Existing Positions
Existing Unoccupied Positions

SAP CO-PC Product Costing Workshop

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Product Costing

Product Costing Overview

Material Ledger Overview

SAP Modules - Overview

Sales & Distribution Materials Mgmt.

Quality Mgmt. Plant Maint.

Product Cost Controlling

Profit Center Accounting

Cost Element Accounting

Financial Accounting Financial Accounting

Company Code (9100 A Ltd)

Materials Materials Management Management

Sales and S&D Distribution

Why utilize Product Costing?

Optimized Production Operations

Plan & Commit Resources

Disposition & Contain Product

Process ends with initial containment (packout)

Manage Process and Product Documentation

Material Master Price Control

Moving average price (V- Price)

Standard Price (S-Price)

Posting Example: Moving average price 1

Stock 100 200

Stock value 200.500.-

V price 2.00 2.50

Begin. inventory: 100 PC at 2.00 Goods receipt: 100 PC at 3.00

Invoice receipt: 100 PC at 4.00

GR/IR Account 300,300,2

Posting Example: Moving average price 2

Invoice receipt: 100 PC at 4.00 Stock

Posting Example: Moving average price 3

Stock 100 200 300 100 100 80.in stock

Stock Value 200.420.660.220.300. 60.in stock

V Price 2.00 2.10 2.20 2.20 3.00

Invoice receipt: 100 PC at 3.00

Characteristics of Price Control V Moving average price

The stock value is adjusted each time goods are received

False entries with severe consequences (compounded errors)

Posting Example: Standard Price

Stock 100 200 200

Stock Value 200.400.400.-

Standard Price 2.00 2.00 2.00

Characteristics of Price Control S

Period-End Closing: Valuation Problems

Ending Inventory: Raw Materials

Valuation Method by Material: Finished Goods Intermediates Standard w/ ML Standard w/ ML

Moving Average Actual

The valuation area may is defined: - by plant

Product Cost Flow

BOM Cost Center Y Cost Center 3

Production Cost Center

Product Cost Flow

Plant Cost View Sales & Mktg. View

Mfg. Cost Center

Product Unit Cost

Product Costing A Ltd.

Adjust costing master data/ parameters

Execute costing run

Overhead cost planning completed

Plan prices of raw materials were entered

Standard Cost Calculated