Chapter 28 Product Cost Controlling

CHAPTER 28 PRODUCT COST CONTROLLING
1 Product Costing Overview ........................................................................ 2

2 Product Cost Planning or Product Cost Estimate ..................................... 3
2.1 Maintain Overhead Cost Element ............................................................. 4
2.2 Creation of Activity Type ........................................................................... 5
2.3 Define Cost Component Structure ............................................................ 6
2.4 Define Costing Variant and assign to Plant............................................... 7
2.5 Define MRP Controller .............................................................................. 9
2.6 Define Floats (Schedule Margin Key) ....................................................... 9
2.7 Define Production Scheduler .................................................................. 10
2.8 Determine Person Responsible for Work Center .................................... 10
2.9 Planning Assembling Service Cost Center ............................................. 11
2.10 Planning Assembling Machine Hours .............................................. 12
2.11 Calculation of Plan Machine Hour Rate .......................................... 13
2.12 Define Bill of Materials .................................................................... 15
2.13 Define Work Center......................................................................... 16
2.14 Define Routings............................................................................... 17
2.15 Creation of Cost Estimate with Quantity Structure .......................... 19
2.16 Display Finished Product Material Master ....................................... 20
3 Cost Object Controlling (Product Actual Cost) ........................................ 24
3.1 Define Order Types- Dependent Parameters ......................................... 24
3.2 Define Scheduling Parameters ............................................................... 25
3.3 Define Confirmation Parameters............................................................. 26
3.4 Define Checking Control ......................................................................... 26
3.5 Define Goods Received Valuation for Order Delivery ............................. 27
4 Configuration for Period End Process ..................................................... 27
5 Transactions ........................................................................................... 42
5.1 Create Production Order ......................................................................... 42
5.2 Raw Material Receipts ............................................................................ 43
5.3 Raw Material Issue to Production Order ................................................. 44
5.4 Work in Process Calculation ................................................................... 45
5.5 Settlement of Work in Process to Accounts ............................................ 46
Provide below details ................................................................................... 46
5.6 To View Work in Process Balances Report ............................................ 47
Provide below details ................................................................................... 47
5.7 Confirmation of Production Order ........................................................... 48
5.8 Calculation Actual Machine Hour Rate ................................................... 49
5.9 Production Receipt of Finished Goods ................................................... 49
5.10 Set Production Order status to Technically Complete ..................... 51
1 venkat.emani@yahoo.com
1 Product Costing Overview

Product Cost Controlling is part of the Controlling application component. It’s a tool for
managing costs related to the manufacturing products or Rendering services.
It uses information from Overhead Cost Controlling to calculate such costs as labor,
machine, or factory overhead. It also supplies Information to Profitability Analysis so that
component can calculate Contribution margins.
Product Cost Controlling includes the following tools:

 Product Cost Planning
 Cost Object Controlling
Product Cost Controlling can help you:-
 Plan your product costs accurately

 Compare alternative cost estimates to optimize your business decisions
 Monitor your product costs in every stage of the manufacturing process
 Carry out detailed variance analysis on each order, product, and product group
 Calculate actual costs by period
Product costing is a tool for planning costs and establishing prices for materials. It is used to
calculate the costs of goods manufactured and the costs of goods sold for each product unit.
If costing is carried out on the basis of data in Production Planning (PP), then the cost
estimate is a product cost estimate with a quantity structure (for example, BOM and routing).
If costing is carried out on the basis of data that you enter manually, then the cost estimate
is a product cost estimate without a quantity structure. Product costing belongs to both the
Production Planning (PP) Module and the Controlling (CO) Module.
2 Product Cost Planning or Product Cost Estimate

Product Cost Planning is a set of functions that estimate the costs to produce goods or
services. If a quantity structure (bill of material and routing) is available in the PP (Production
Planning) component of the R/3 System, the system can automatically create a cost estimate
based on this data. If no quantity structure is available in R/3, you can either enter the costing
items manually with the unit costing tool or transfer them automatically from a non-SAP system
using batch input.
Product Cost Planning: Overview
Views for costing

Quantity Structure result
BOM Routing
Cost Components
Mat. Work OH Process

Pricing
Consumption
Cost estimate
Valuation
Cost Elements
400000 $ Profitability
610000 $
660000 $ Analysis
650000 $
Value Structure
Cost Object
Price of material Accounting
Itemization
Prices
M Material $
Process Costs M Material $
E Activity $
Overhead X Process $
G O/H costs $
SAP AG 2001
 When you create a cost estimate with a quantity structure, you need to enter the costing
variant, the material, the plant, and the lot size. The dates are proposed from the costing
variant and determine the following:
 The period of validity of the cost estimate (costing date from/to)
 The selection date for the bill of material and routing (quantity structure date)
 The pricing date for the material components and activities (valuation date)
 You use the transfer control indicator to specify that you either want to use an existing cost
estimate for material components, or create a new cost estimate.
 The system selects and values the quantity structure automatically.
 The costing results can be saved and displayed as itemizations, cost element itemizations, or
cost component splits. The itemization shows detailed information on the origin of the costs,
such as the quantities and prices of the materials and internal activities used.
 The cost element itemization groups the individual costing items into cost elements. The cost
elements group the costs in order of appearance. Cost elements are determined via account
determination for materials, activity type master record for activities or via activity type
planning , and via the process master record for processes.
2.1 Maintain Overhead Cost Element

Via Menus IMG  Controlling  Product Cost Controlling  Product Cost Planning
 Basic Settings for Material Costing  Overhead  Maintain Overhead
Cost Elements
Via Transaction Code KA06
Create Overhead cost element for production overheads
Press Enter
Click on
2.2 Creation of Activity Type

Via Menus AccountingControllingCost Center accountingMaster dataActivity
typeIndividual processingCreate
Via Transaction Code KL01
Press Enter and update below information
Click on
2.3 Define Cost Component Structure
Via Menus IMG  Controlling  Product Cost Controlling  Product Cost Planning 
Basic Settings for Material Costing  Define Cost Component Structure
Via Transaction Code OKTZ
Select
Double click on
Select
Double click on
Click on
Click on
Select and
Select
Double click on
Click on
Select and
Select
Double click on
Click on
Click on
Double Click
Click on
2.4 Define Costing Variant and assign to Plant

Via Menus IMG  Controlling  Product Cost Controlling  Product Cost Planning
 Material Cost Estimate with Quantity Structure  Define Costing
Variant
Via Transaction Code OKKN
Select PPC1 Variant
Click on
Click on Valuation Variant in below screen
Click on create button as below
Click on
Click on
2.5 Define MRP Controller

Via Menus IMG  Production  Material Requirement Planning Master data
Define MRP Controller
Via Transaction Code OMD0
Click on
Click on
2.6 Define Floats (Schedule Margin Key)

Via Menus IMG  Production  Material Requirement Planning Planning
Scheduling and Capacity Parameters Define Floats (Scheduling Margin
Key)
Via Transaction Code OMDC
Click on
Click on
2.7 Define Production Scheduler

Via Menus IMG  Production  shop Floor Control Master DataDefine Production
Scheduler
Via Transaction Code OPJ9
Click on
Click on
2.8 Determine Person Responsible for Work Center
Via Menus IMG  Production  Basic data Work CenterGeneral Data Determine
Person Responsible
Via Transaction Code OP10
Click on
Click on
2.9 Planning Assembling Service Cost Center
Via Menus Accounting  Controlling Cost Center Accounting Planning Cost and
Activity Inputs
Via Transaction Code KP06
Click on and update amount
Click on
2.10 Planning Assembling Machine Hours
Via Menus Accounting  Controlling Cost Center Accounting Planning Activity

Output
Via Transaction Code KP26
Click on and update amount
Click on
2.11 Calculation of Plan Machine Hour Rate

Via Menus Accounting  Controlling Cost Center Accounting Planning
Allocations Price Calculation
Via Transaction Code KSPI
Click on Ignore messages, if any
Master data enables cost objects to be created quickly and economically in the SAP System.
The basic data above are copied into the quantity structure of a production order, for example.
The Material Master is used to represent raw materials, assemblies, and products.
A BOM is a list of the components used in an assembly or product.
A Work Center is a physical location at which operations are performed. When the master
record for a work center is created in production planning, it is linked to the cost center and
to the various activity types of the cost center. This link enables the price of the activity type
to be accessed. The activity price is used to evaluate the labor or machine time that is made
available by the cost center during the production process.
A Routing describes a sequence of process steps, and determines the activity quantities
used by Cost Center Accounting.
2.12 Define Bill of Materials
Via Menus LogisticsProductionMaster dataBills of materialBill of

materialMaterial BOMCreate
Via Transaction Code CS01
Press enter
Click on
2.13 Define Work Center
Via Menus LogisticsProductionMaster dataWork Centers Work Centers 

Create
Via Transaction Code CR01
Press Enter
Select tab
Click on
2.14 Define Routings
Via Menus IMG  LogisticsProductionMaster dataRoutings Routings

Standard Routings Create
Via Transaction Code CA01
Press Enter
Click on
Double click on Operation 0010
Click on
Note: Go to MM02 and MRP2 tab, ensure that Procurement type is E for the finished product
FG100.
2.15 Creation of Cost Estimate with Quantity Structure
Via Menus Accounting Controlling Product cost controllingProduct Cost

PlanningMaterial CostingCost Estimate with Quantity structure Create
Via Transaction Code CK11N
Press Enter
Costing date from: Today’s date and Press Enter
Note: In live environment next month first day date, this is planning date, But in training system
you can give today’s date
From the menu select CostsDisplay cost components to components wise cost
Click on
2.16 Display Finished Product Material Master

Via Menus LogisticsMaterials managementMaterial masterMaterialDisplay
Via Transaction Code MM03
Go to Costing2 tab and observe cost estimate
2.17 Marking and releasing

1. Making updates future price in live environment on 21st February create estimate for March
and store in the System.
2. Realizing updates current price on 1st of March release stock valuation will be at the new rate
from 1st of March
Price Update
Analysis of costing results Material Master

Standard price
Future Current Previous
10
Mark for Future Current Previous
Company code
Mark
15 10
Period, Fiscal year standard cost
Costing var./ Ver. estimate
Future Current Previous
Release
standard cost 15 10
estimate
Inventory
Inventory
revaluation
revaluation
SAP AG 2001
 Marking and releasing a standard cost estimate updates the standard price for the material in
the material master record. This leads to a revaluation of the inventory (important for FI).
 The following prerequisites must be fulfilled, before a standard cost estimate can be marked
or released:
 The standard cost estimate must be free of errors (status CT)
 The marking and release must be reliable. The company code and period in which the
standard cost estimate can be marked with a set valuation variant, are entered in the
authorization for a marking. The authorization should take place once per period by the
employee responsible. If you mark a standard cost estimate, the results are updated in the
material master records as the future standard price.
 When you release the standard cost estimate, these future prices are updated as the current
standard price.
 You can only release a standard cost estimate once per period, unless you delete the
previously release standard cost estimate (using a special program) from the database. You
should also always check the standard cost estimate to ensure that it is correct before you
release it for a product. There are specialized reports in the Information System that allow
you to do this.
Via Menus AccountingControllingProduct cost controllingProduct cost planning

Material costingPrice update
Via Transaction Code CK24
Provide below details
Click on
Click on then color would be changed under executed column.
Select
Deselect
Click on
Click on FG100 Material observe future price update under Costing2 tab
Select and Select

Click on
3 Cost Object Controlling (Product Actual Cost)

In Cost Object Controlling, the costs incurred during production of a product or services are
collected on cost objects (such as production orders). A number of different types of cost
objects are available, depending on your requirements. These include sales orders, production
orders, process orders, and production cost collectors. When you run the period-end closing
process, Cost Object Controlling calculates work in process, scrap costs, and variances.
Typical Activities in Cost Object Accounting
Goods withdrawal
from the warehouse
CO Material1
100 pcs
Cost object selection
Cost estimate Plan costs Actual costs

Activity allocation/
backflushing/overhead
rate/process allocation
Process
settlement
Delivery
Non-stoc
k
10 pcs
External purchase
INVOICE
of goods and
Warehouse/ services
Sales order stock
SAP AG 2001
3.1 Define Order Types- Dependent Parameters

Via Menus IMG ProductionShop floor controlMaster dataOrderDefine order
type dependent parameters
Via Transaction Code OPL8
Select the below entry
Click on and give your plant

Remove the value in Reduction Strategy and select values for Substitute MRP Ctrller and
Scheduler
Click on
3.2 Define Scheduling Parameters

Via Menus IMG ProductionShop floor controlOperationsSchedulingDefine
scheduling parameters for production orders
Via Transaction Code OPU3
Click on
3.3 Define Confirmation Parameters
Via Menus IMG ProductionShop floor controlOperationsConfirmationDefine
confirmation parameters
Via Transaction Code OPK4
Click on
3.4 Define Checking Control

Via Menus IMG ProductionShop floor controlOperations-Availability Check
Define Checking Control
Via Transaction Code OPJK
Select the below entries
Click on
3.5 Define Goods Received Valuation for Order Delivery
Via Menus IMG Product Cost Controlling Cost Object Controlling  Product Cost
by OrderDefine Goods Received Valuation for Order Delivery
Via Transaction Code OPK9
Click on and provide below details
Click on
4 Configuration for Period End Process
Work in Process
Calculating WIP at Actual Cost
Cost Object
Cost Components Plan Actual
Glass 1,500 900

Plugs 2,000 1,100
Cable 500 300
Material 4,000 2,300
Labor 2,500 1,400
Overhead 1,500 855
Process 1,000 745
Total costs 9,000 5,300
Delivery value 4,000
Order balance 1,300

WIP at
actual costs
.
1,300
SAP AG 2001
 The basis for work in process (WIP) can be either the actual costs for the order or the target
costs for the completed operations.
 With the actual cost method, the WIP per order is the difference between the debited actual
costs and the total credits for any partial deliveries.
 With the target cost method, the WIP is determined by multiplying the quantity remaining at
each operation with the planned costs for that operation. The planned costs are determined
either with the current standard cost estimate or a version-specific cost estimate. The version-
specific cost estimate is most common in repetitive manufacturing.
 In both methods, you can specify in Customizing what percentage of the costs should be
capitalized (for example, 100% of the material costs, 80% of the material overhead, and 0%
of the production overhead). It is possible to capitalize the entire WIP.
 Through the use of different types of production orders, you can specify in Customizing
whether the work in process should be calculated on the basis of actual costs or target costs.
4.1 Create Secondary Cost Elements

Via Menus AccountingControllingCost Element AccountingMaster Data Cost
Element Individual ProcessingCreate Secondary Cost Element
Via Transaction Code KA06
Press Enter
Click on
4.2 Define results analysis keys
Via Menus IMGControllingProduct cost controllingCost object controlling
Product cost by orderPeriod End ClosingWork in processDefine
results Analysis keys
Via Transaction Code OKG1
We can use the below RA Key which is already available in the system. If you want to create a
new one, click on New Entries and give the details
4.3 Define results analysis versions

results Analysis Version
Click on and select Controlling area
Click on
4.4 Define valuation method (Actual cost)
Valuation method
Via Transaction Code OKGC
Click on and Select Actual cost in the pop up
Press Enter and click on
Observe the below entries created against your Controlling area
4.5 Define line Id’s
Via Menus IMGControllingProduct cost controllingCost object controlling Product
cost by orderPeriod End ClosingWork in processDefine Line Ids
Via Transaction Code SPRO
Select below entries against Controlling Area 1000
Click on , then change Controlling Area to 1001 and click on
4.6 Define Assignment

cost by orderPeriod End ClosingWork in processDefine Assignment
Select the below entry against Controlling area 1000
Click on , then change Controlling Area to 1001 and Masked Cost Element as below
Press Enter and Click on
4.7 Define update
cost by orderPeriod End ClosingWork in processDefine Update
Via Transaction Code OKGA
Click on and give the below details
4.8 Create GL Accounts required for WIP
4.9 Define Posting Result for Settling Work in Process

cost by orderPeriod End ClosingWork in processDefine Update
Click on and give the below details
Click on
4.10 Define results analysis versions

results Analysis Version
Select Controlling area 1001 and select Transfer to Financial Accounting Check box
Click on
Variance
Variance Settlement
Profit Center Accounting
Material Ledger
Cost Objects FINANCIAL

Cost elements Plan Actual
ACCOUNTING
Asset balance Inventory change
Glass 1,500 1,800
Plugs 2,000 2,200
Cable 500 600 Price difference
Material 4,000 4,600

Variances via
Work 2,500 2,800 settlement
O/H costs 1,500 1,600 PROFITABILITY
ANALYSIS
Process 1,000 1,500
Total costs 9,000 10,500 Product
Delivery value 9,000

Plant
Order balance 1,500

Company code
SAP AG 2001
 In order-related production, variances are calculated and settled as follows:

 When a production order is created, the system automatically creates a settlement rule
used for the assignment of the order costs to the material (stock account). In this case, the
material is the settlement receiver, the settlement portion is 100% and the settlement type
is full (FUL).
 When you deliver the finished products to the warehouse, the system updates the material
stock account for the material and credits the order accordingly.
 When variances are calculated at the end of the period, the system sets the status for the
order to "variances calculated".
 When the order is settled, the order is credited (the same amount as the order balance).
The system makes the following offsetting entries:
- If the price control indicator has been set to S in the material master record, the actual
costs (variances) are written to a price difference account.
- If the indicator has been set to V, then the actual costs (variances) are posted to the
material stock account for the material.
- The variances are also transferred to Profitability Analysis at this point.
4.11 Define Variance Keys

Product cost by orderPeriod End ClosingVariance CalculationDefine
Variance Keys
Via Transaction Code OKV1
Select Controlling area 1001 and select Transfer to Financial Accounting Check box
Click on and change the Key and description as below
4.12 Define Default Variance Keys for Plants

default Variance Keys for Plants
Via Transaction Code OKVW
Provide Variance Key against your Plant
Click on
4.13 Define Target Cost Version
Target Cost Version
Via Transaction Code OKV6
Budgeted cost =Budgeted Production Quantity X Standard price

Standard cost =Standard Quantity X Standard price
Target cost =Actual production Quantity X Standard price
Actual cost =Actual Production X Actual price
Select below entry
Click on and change the Controlling Area and Description as below
4.14 Assign Variance Key in Material Master

Via Menus Logistics Material management  Material Master Material 
ChangeImmediately
Via Transaction Code MM02
Provide material number
Press Enter and provide Plant and Storage Location
Select Costing1 tab
Click on
4.15 Create Allocation Structure
Product cost by orderPeriod End ClosingSettlementCreate Allocation
Structure
Via Transaction Code OKO6

Select
Double click on
Click on
Select
Double click on
Double click on
Click on
Double click on
Select
Double click on and provide below details
Double click on
Click on
4.16 Create Settlement Profile
Product cost by orderPeriod End ClosingSettlementCreate Settlement
Profile
Via Transaction Code OKO7
Click on
Click on
5 Transactions
5.1 Create Production Order

Via Menus LogisticsProductionShop floor controlOrderCreatewith material
Via Transaction Code CO01
Press Enter
Update Quantity and Start and Finish dates as current date
Click on cost order button

System message
From menu select Go to CostItemization to see item wise cost
Select and select Release button. Message

Click on note down the Production order number 60003205
And note down Reservation number under Assignment tab i.e. 66056
5.2 Raw Material Receipts

Via Menus LogisticsMaterial Management Inventory Management  Goods
Movement Goods ReceiptOther
Via Transaction Code MB1C
Press Enter and provide materials details and quantities
Click on
From menu Select, Other Goods ReceiptDisplay to see Goods Receipt Document
5.3 Raw Material Issue to Production Order

Via Menus LogisticsMaterial Management Inventory Management  Goods
Movement Goods Issue
Via Transaction Code MB1A
Press Enter
From menu, select Goods IssueDisplay Save
5.4 Work in Process Calculation

Via Menus AccountingControllingProduct Cost Controlling Cost Object Controlling
Product Cost by OrderPeriod End ClosingSingle Function work in
Process Individual ProcessingCalculate
Via Transaction Code KKAX
Click on
Click on and un select check box
Click on
5.5 Settlement of Work in Process to Accounts

Via Menus AccountingControllingProduct Cost Controlling Cost Object
Controlling Product Cost by OrderPeriod End ClosingSingle
Function Settlement  Individual Processing
Via Transaction Code KO88
Click on
Click on and unselect check box
Click on
5.6 To View Work in Process Balances Report

Via Menus AccountingControllingProduct Cost Controlling Cost Object Controlling
Product Cost by OrderInformation SystemReports for Production Cost
by OrderObject List Order Selection
Via Transaction Code S_ALR_87013127
Click on
Click on Report Call button
5.7 Confirmation of Production Order

Via Menus LogisticsProductionShop Floor Control ConfirmationEnterFor
OperationTime Ticket
Via Transaction Code CO11N
Click on
5.8 Calculation Actual Machine Hour Rate
Via Menus AccountingControllingCost Center Accounting Period End
ClosingSingle Function Price Calculation
Via Transaction Code KSII
Click on and see if there are any errors. If no errors, select

Remove check box and Click on
5.9 Production Receipt of Finished Goods

Via Menus LogisticsMaterial Management Inventory Management Goods
Movement Goods Receipt for Order
Via Transaction Code MB31
Press Enter and provide quantity in the below screen
Press Enter
Click on Ignore messages, if any
System message
From the menu, select Goods Receipt Display to view Document
Click on
Click on
Double click on
5.10 Set Production Order status to Technically Complete

Via Menus LogisticsProductionShop Floor Control Order Change
Via Transaction Code CO02
Provide Production Order Number
Press Enter
Observe the status of the Order
Click on
5.11 Calculation of Production Variance

Via Menus AccountingControllingProduct Cost ControllingCost Object Controlling
Product Cost by OrderPeriod Ending ClosingSingle Functions
Variances Individual Processing
Via Transaction Code KS11
Click on Click on and unselect check box

Click on Go to CO03 – Display Production Order. Select Go toCost Analysis to see
Standard Vs Actual Cost

Chapter 28 Product Cost Controlling

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Chapter 28 Product Cost Controlling

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CHAPTER 28 PRODUCT COST CONTROLLING

1 Product Costing Overview ........................................................................ 2

1 Product Costing Overview

Product Cost Controlling includes the following tools:

Product Cost Controlling can help you:-

 Plan your product costs accurately

2 Product Cost Planning or Product Cost Estimate

Product Cost Planning: Overview

Views for costing

Mat. Work OH Process

2.1 Maintain Overhead Cost Element

2.2 Creation of Activity Type

Press Enter and update below information

2.4 Define Costing Variant and assign to Plant

Click on create button as below

2.5 Define MRP Controller

2.6 Define Floats (Schedule Margin Key)

2.7 Define Production Scheduler

2.8 Determine Person Responsible for Work Center

2.9 Planning Assembling Service Cost Center

Click on and update amount

2.10 Planning Assembling Machine Hours

Via Menus Accounting  Controlling Cost Center Accounting Planning Activity

Click on and update amount

2.11 Calculation of Plan Machine Hour Rate

Click on Ignore messages, if any

Via Menus LogisticsProductionMaster dataBills of materialBill of

Via Menus LogisticsProductionMaster dataWork Centers Work Centers 

2.14 Define Routings

Via Menus IMG  LogisticsProductionMaster dataRoutings Routings

Double click on Operation 0010

2.15 Creation of Cost Estimate with Quantity Structure

Via Menus Accounting Controlling Product cost controllingProduct Cost

2.16 Display Finished Product Material Master

2.17 Marking and releasing

Analysis of costing results Material Master

Mark for Future Current Previous

Future Current Previous

Via Menus AccountingControllingProduct cost controllingProduct cost planning

Provide below details

Click on then color would be changed under executed column.

Select and Select

3 Cost Object Controlling (Product Actual Cost)

Typical Activities in Cost Object Accounting

Cost object selection

Cost estimate Plan costs Actual costs

3.1 Define Order Types- Dependent Parameters

Select the below entry

Click on and give your plant

3.2 Define Scheduling Parameters

Select the below entry

Click on and give your plant

Click on and give your plant

3.4 Define Checking Control

Click on and give your plant

Click on and provide below details

4 Configuration for Period End Process

Calculating WIP at Actual Cost

Glass 1,500 900

Material 4,000 2,300

Labor 2,500 1,400

Overhead 1,500 855

Process 1,000 745

Total costs 9,000 5,300