PRODUCT COSTING:

Product cost by Order: When we need to track the cost at production order i.e. job wise/batch wise then
we will prefer to go for product cost by order. This component helps in controlling costs for production
lots.

Here the focus is on cost control for manufacturing certain quantity of a product. This component can be
used in make to stock or make to order environments.

This method is generally used in the following situations.

High setup of cost for each job.

Flexible production environment.
Cost control is required for individual production lots.s

Tell me the production order flow?

Creation of production order: Based on demand planning or during the MRP Run requirement
will be converted into planed order based on procurement type in material master.

Plan order will converted into production order. At the time of creation of production order plan
cost will be generated based on BOM & Routing.

Issue material to production order: (MIGO)

FI Entry: CO Entry
Dr RM Consumption (VBR)(exp p&l a/c) Dr to Prod.order
Cr To Inventory (BSX) (asset)

Actual goods issue qty multiply with valuation variant price

Confirm the activities (CO11N)

Activities confirmation or consumed against production order, here we will confirm actual activity
hours consumed against production order. During confirmation of activities NO FI ENTRY

NO FI Entry CO ENTRY
Dr Prod. Order
To Cost center(cctre in w.c)

Actual activity confirmation hours multiply with valuation variant price.

Period End Process: Actual Activity price calculation, Assessment, Distribution.

if it is the month end process we have to post the all mfg relevant expenses post in FB50
after FI month end process ,CO month end process will start for allocation of the cost throgh
Assessment, Distribution.

actual activity price calculation

Run actual splitting KSS2

Run actual price calculation KSII

At the time of actual price calculation there is no entry it will update in KBK6
Revaluation of order: (MFN1)
New price applied to the production order

NO FI Entry CO Entry
Dr/Cr Prod. Order
Dr/Cr Cost center(as per w.c)

Actual overhead calculation:(KGI2)

It will charge to production order.
CO Entry
NO FI Entry Dr/Cr Prod. Order
Cr/Dr Cost center(cctre maintain in credit
key)
Goods Receipt: (from prod order to stock)(MIGO)

FI Entry: CO Entry
Dr FG Stock A/c (asset b/s)(BSX) Dr/CrProdOrder
To Factory output of Production(COGM)(AUF)(exp -p&l) Cr/ Dr Cost center

COGM is nothing but actual cost incurred.

WIP Calculation(KKAX): WIP Calculates based on order status if having release or partial
deliver. It will calculate and update in RA cost element and it won’t generate any a/c entries.

Variance calculation (KKS2): System calculates variance based on order status either deliver or
teco.it will calculate the variance and it will store in version. It will not generate any a/c entry.

Settlement(KO88): During the settlement a/c entries will generate for WIP and production
variances. It will update to COPA.

FI Entry CO Entry

wip
Dr/Cr WIP B/S (asset) no entry
Cr/Dr WIP P&L (exp)

Variance
Dr Production variance(exp-p&l)(PRD-PRF) (with out CE)
Cr COGM (with CE) Cr Production order

Technically Complete: After Teco we cannot post any expenditure to the production order that is
material and activities.

Close: Closing the order.

What is difference between MTO and MTS.?

Make To Order: We will receive requirement for customer. Unless receive requirement form
customer we can’t make a production.

Make To Stock: Producing the product and keeping the stock.

MTO - Make to Order

Make-to-order production with capacity checking enables vendors to trigger production of a
requested product as soon as a sales order reaches the system. An automatic process checks
machine capacity, schedules production, and determines the requested product’s availability
date. This enables vendors to make immediate, reliable offers and commitments to their
customers for the requested quantities and delivery dates. While particularly well-suited to high-
tech manufacturers and makers of industrial machinery and equipment, this method also
addresses the requirements of other make-to-order manufacturers.

MTS - Make to Stock

Make-to-stock production is designed for manufacturers that usually operate on the make-to-
order model – configuring their finished goods after sales order entry – but that nevertheless
manufacture the components of the finished goods in a make-to-stock process. The SAP best
practice definition describes how manufacturers can accurately predict the future demand for
components, communicate with suppliers of critical parts, and plan the production and distribution
of finished goods, all based on actual material and capacity restrictions

What is standard cost and actual cost?

Standard Cost: It establishes the bench mark cost to produce the product. We will estimate this
cost for newly introduced products and also for existing products. We can run standard cost only
once per period for one product.

Actual Cost: Actual cost nothing but actual raw material spent on production, Actual activities
spent and price multiply by as per valuation variant and also actual overhead applied to costing
sheet on the product.

Difference between actual and standard will be called as variance.

When standard cost is estimated? Tell me the process of standard cost estimate?

Standard Cost Estimate will be estimated for the new product and we will do cost estimate at the
beginning and month after existing product.

It was used at the time of launching a new product or periodically for existing product. Standard
cost estimate it estimates cost of the product based in BOM & Routing and multiplies price as per
valuation and also same can be referred as a bench mark. The standard cost estimate can
compare with actual cost and will get the variance as well as we can analyze variance category
wise.

When we run standard cost estimate the price updated in MM is Rs.120, But already the
material having the price is Rs.100. Where this difference will affect and will it show any
effect on closing stock valuation?

If there is no stock, there is no impact, if stock is available, the inventory is incurred and the
difference it will go to the price difference.

What is the purpose of costing variant?

It determines how the cost estimate is performed and estimate or valuated that means costing
variant having control parameters, and the purpose of costing.

Whether to update material master or not

If you want to update which field to be update
What strategy of sequence need to be considered and also how it is calculated,
Which BOM & Routing need to be consider while doing the cost estimate
Whether to consider additive cost during the cost estimate.
What is Credit Key?

Credit Key specifies the cost center for which the overhead amount should be credited at time of
actual overhead calculation.

What is the Cost Component Structure?

To view the breakup of cost and also it controls which cost component need to be include for
inventory valuation, which portion of cost (variable or fixed and variable) and also whether to
consider role up of the cost and also costing views like COGM, COGS, Commercial inventory.

How many Cost components can we create?

We can define a maximum of 40 cost components if we select all cost components as variable or
20 cost components if we select all cost components as fixed and variable.

What is Costing and valuation variant?

Costing Variant: The total costing mechanism of the product will be controlled by costing variant.

What is the purpose of the costing?

Whether to update the material master or not?
Which BOM & Routing need to be considered while doing the cost estimate?
What is the validity of the cost estimate?
What date of BOM & Routing to be considered?
Which date prices need to consider?

Valuation Variant: Valuation variant says the strategy of sequence of priority of source for
valuating the material/ activities/sub-contracts/external operations and it also specify which
costing sheet needs to be considered..

What is the Difference between Cost Component Structure and Auxiliary Cost component
structure?

Cost Component structure: To view include for inventory valuation, and also whether to
consider role up of the cost and also costing views like COGM, COGS, Commercial inventory.

Auxiliary Cost component structure: Auxiliary cost component structure is the additional cost
component structure in addition to cost component structure. We can view in different and other
than the cost component structure.

Where will you define indirect expenses in product costing?

We can charge the indirect expenses to the product costing through costing sheet or additive cost
or template allocation.

How system calculates overhead in product costing?

Ans: System calculates in two ways
 Costing sheet
 Template Allocation

Is it possible to run the cost estimate without BOM & Routing?

Yes, we can run the standard cost estimate without Bom & Routing, that is cost estimate without
quantity structure we need to select cost estimate without quantity structure check box in the
costing variant and also in material master costing-1 view tab.

What is cost component split?

Primary cost split is defined when you create a cost component Structure. When you switch on
this setting, the primary cost from the cost center are picked up and assigned to the various cost
components.

What does the concept of cost roll up mean in product costing?

It means including, the cost of lower level component in next higher level component and so on.

What is Accounting Entry for CK24?

If there is no stock than no a/c entry, if stock is there than the price difference between existing
cost estimate and current cost estimate. Multiplied with stock quantity flows to price difference
a/c.

Dr/Cr Inventory A/c

Cr/Dr Price Difference A/c

Tell me the steps in Cost object controlling?

Here we will do the settings relevant for plan & actual cost that is costing variant for plan and
actual and also we will do the settings (period end) that are WIP, Variance calculation, settlement
related settings. Finally we link these parameters to order type.

What is the RA Key?

It is one of the key parameter in WIP Calculation. Most of the settings linked to RA Key and same
is assigned in the cost object.

Ex. Production order, Sales order

It is determined in order based on order type. This will be used for calculation of WIP.Based on
order category it will update the RA FI accounts.

We will assign RA Key in order type for calculation of WIP.

We will assign settlement profile in order type for settlement of WIP and variance.

Variance key is linked to either directly in the order or by making the default variance key in the
settings of variance key to the plants in product costing settings or at the time of material master
we can select variance key.

Where we do settings for WIP?

Under RA Key will do the settings. WIP valuates unfinished goods in the production process. In
production order WIP is valuated at actual cost. It is calculated as net of debit & credit of order. If
order status doesn’t have Delv or Teco

In product cost by order scenarios not possible to calculate both WIP & Variance at same
time.WIP calculated and settled to financial accounting during the settlement of production order
.

What is WIP Categories?

3 Types of categories:

WIPR: Work in progress with requirement to capitalize costs.

WIPO: Work in progress with option to capitalize costs.

WIPP: Work in progress with prohibition to capitalize costs

How WIP will calculate and variance, at the time of WIP settlement, what are the entries not
based on order status?
Ans: This scenario normally applicable in product cost by period. In product cost by period WIP
will calculated based on report point, not based on order status. Here WIP will calculates based
on target cost. variance will calculate between calculated cost (net of actual cost) that means total
(cost-WIP-scrap) and target cost.

What is the use of RA Version in MTO scenario?

In MTO scenario, the RA Key will be used for not only for WIP calculation and also to determine
the reserves and revenues, cost of sales based on percentage of completion method(POC). That
means through result analysis we can analyze the plan and actual cost and plan and actual
revenue in the sales order.

When we calculate the WIP, I want to see the break up of the entry like labor and
overheads, conversion cost like these details I need where we do these settings. Is it
possible in SAP system?

Yes, it is possible in SAP through defining line ID’s separately for each break up.

Variance entries?

ANS: During calculation of variance just it will calculate variance based on order status. If order
status is having DELV or RECO, variance will be calculated. The accounting entries will pass the
time of settlement and also it will updated. If price control(S)

FI entry
Dr/Cr. Production Variance a/c
Cr/Dr. Factory output of production
Co entry
Cr/Dr. production order
Accounting entry

If price control (V)

Dr/Cr. Inventory a/c
Cr/Dr. Factory output of production
Co entry
Cr/Dr. production order
Case 2:
If total production stock is partial available in inventory.
E.g.: Out of 10 quantities of production 5 quantities available in stock and remaining 5 quantities
delivered to customer. Production variance is Rs.5000/-
FI Entry
Dr/Cr. Inventory a/c 2500
Cr/Dr. production variance a/c 2500
Cr/Dr. Factory output of production
Co entry
Cr/Dr. production order

Case 3:
If total production stock is not available in inventory(Total stock delivered to customer).
FI Entry
Dr/Cr. production variance a/c
Cr/Dr. Factory output of production
Co entry
Cr/Dr. production order.

What is Yield variance?

Yield variance specifies when the finished product is delivered to stock as the result of
confirmations that have already been entered.

A yield variance occurs during final confirmation of operations if an operation quantity that differs
from the planned quantity is confirmed as the yield.

What is the remaining variance?

Difference between target costs and the allocated actual costs that can not be assigned to any
other variance category. Ex rounding difference are reported as remaining variances.

What is a settlement profile and why is it needed?

All the costs or revenues which are collected in the Production order or Sales order for example
have to be settled to a receiver at the end of the period. This receiver could be a Gl account, a
cost center, profitability analysis or asset. Also read the question “What is a cost object “in the
section Controlling.
In order to settle the costs of the production order or sales order a settlement profile is needed.
In a settlement profile you define a range of control parameters for settlement. You must define
the settlement profile before you can enter a settlement rule for a sender.
The Settlement Profile is maintained in the Order Type and defaults during creating of order.
.
Settlement profile includes:-
1) The retention period for the settlement documents.
2) Valid receivers GL account, cost center, order, WBS element, fixed asset, material, profitability
segment, sales order, cost objects, order items, business process
3) Document type is also attached here
4) Allocation structure and PA transfer structure is also attached to the settlement profile e.g. A1

What is Transfer or Allocation structure?

It controls how original cost elements are assigned to settlement cost elements. In allocation
structure we specify which cost elements should be settled using which cost element. It is also
possible to specify that settlement posting be made using the original cost element.

Can we assign multiple cost centers in one work center?

No, we can assign one cost center in one work center, but we can assign one cost center to
many work centers.

Is it possible to change price control in Material master?

If there is no stock than we can change price control V & S. If stock is available we can change
price control, if prices for both moving and average and standard price are identical and there is
no standard cost estimate exists.

What is split valuation?

The split valuation is required when we need to maintain the separate price for each source of
material like in house or external for the same material code, we can archive by using the concept
of split valuation. If we activate the split valuation, there is the header tab (price) in addition to the
other tabs (other prices). The header price only it will control for standard cost estimate but during
the production based on usage and material the price will be pickup.

Ex: If we used external procurement material, then the price will pick from external purchase price
only.

What is the end user role in product costing?

They need to perform the month end process like assessment and distribution, actual activity
price calculation, revaluation of order, actual overhead calculation, work in progress, variance,
settlement, plan activity price calculation for next period, COPA assessment and analyze the
report.

What is PP and CO integration?

In work center we will give cost center and activity type. The activity price will be picked up with
the combination of activity type and cost center from KP26 planning during the activities
confirmation.

The costing variant, RA key, Settlement profile are linked in order type. variance key is linked to
either directly in the order at the time of creation or by making the default variance key in the
settings of variance key to the plants in product costing settings or at the time of material master
we can select variance key.

For calculation of plan and actual cost, we will assign plan and actual costing variant in the order
type.

Can we maintain multiple quantity structure for one FG?

Yes, we can maintain more than one BOM & Routing for single finished product.

What is PCC? For what purpose we will use this?

Product Cost Collector is a cost object where the total cost for manufacture of a product is
collected during the period.

Why used production order?

Difference between Production order and PCC?

Both of these are cost objects, Product cost collector is a single order created for a material. All
the costs during the month for that material are debited to single product cost collector.

Costs will be posted against production order. Analysis is done by job/batch wise. Where there
are many production orders for a single material during the month.

What is back flush?

Back flush is nothing but automatic goods issue. System will automatically post the goods issue
when you confirm the operations. You have no need to make manual issue. It will reduce the
effort.

What is Reporting Point?

In sales order quantity is 5, and when we run MRP run Plan order qty is 8, when we do plan order
to production order qty is 10. What are the entries will posted and what is the effects, than what
about the balance stock it add to our existing finished goods.

What is the meaning of preliminary cost estimate for product cost collector?

Preliminary costing in the product cost by period component calculates the costs for the product
cost collector. In repetitive manufacturing you can create cost estimate for specific production
version.

It is possible to valuate with actual price for inventory with standard price? For which how
will you do?

Yes, It is possible through material ledger by activating the actual cost. During the month end in
material ledger, we will calculate the actual unit price and same actual unit price will be used for
inventory valuation at the month end.

What is special procurement key?

Special procurement key describes how the material is the procured, this enables us to control
through type of procurement selected for the material. The special procurement key is entered in
MRP-2 view tab or costing 1 tab. The priority in the costing key is the highest priority in the cost
estimate. If this is not entered in costing 1 than the settings in the MRP2 view will be consider.

Examples of special procurement:

External procurement 20
Subcontracting 30
Stock transfer from plant 40
What is mixed Costing?

Mixed costing can be used when different production process or alternative procurement process
or used to manufacturing the products or when different sources are used to procure the material.

The costing either of alternative results in different manufacturing cost and purchase prices. This
is used to calculate mixed cost estimate based on mixed costing structure.

What is the use of Material Origin?

Material origin ticked means every cost itemization contains the material number information in
cost analysis.

What is difference between Material and Configured Material?

Configured Material: Configured material is useful if you have a large number of combinations of
parts that go into a product. It means different permutations and combinations of the parts for the
same material.

What is itemization?

Itemization means report that lists that calculated costs and contained detailed information cost
origin. You can use itemization to analyze a costed material in more detail.

What is preliminary cost?

It is used as basis for calculation of target cost and valuates WIP. It is used for identifying scrap
variance in variance calculation.

What is Production Version?

As there may be different BOM and routings for a material, depending on the production process,
a production version is used to specify which BOM and routing are to be used to produce the
material

You can use the production version based on:

Lot size quantity

BOM explosion dates
Based on MRP group

What is product cost without quantity structure?

If you want cost a material when there is no quantity structure (BOM & Routing) in the system.
You can create a unit cost estimate and enter the costing items manually.

What are the documents generated at the time of billing? Where we do the integration?

Accounting document, Profit center accounting document, and COPA document will be
generated.

Accounting Document.
Dr Customer A/c
Cr Revenue A/c

COPA document: It will update revenue, discount, rebate & COGM to COPA.

Profit center accounting document: Updates in profit center both revenue and accounts
receivables.

Integration: Main integration is FI/SD through VKOA.

What is Modified Cost estimate & Extended Cost Estimate?

You can create a modified standard cost estimate if the basic costing data have changed for
technical reasons during the planned period.

You can transfer the results of a modified cost estimate to the material master as the planned
price.

How do I know which target cost version we are using?

To find out which version is used for your Target Cost, try this menu path

IMG > Controlling -> Product Cost Controlling -> Cost Object Controlling -> Product Cost by Order ->
Period-end Closing -> Variance Calculation -> Define Target Cost Versions (tcode OKV6).

What is Variance?

What are the entries generated at time of standard cost estimate marking & Release?

What is primary cost component structure?

What are the entries for WIP and Variance?

What are WIP Settings?

What is mixed price product costing?

What are the period end transactions?

What is the Target Cost?

What is the entry for Material Consumption?

How to get the breakup of WIP?

If I want to valuate a material in different way, can I create 2 costing variant?

Can we use 2 costing variants for one company code for a period?

What are the components required for standard cost estimate?

If production will stop for 3 months, can the values flow to COPA? What is the reason?
In sales order what scenario you have used? What is valuation & non-valuation?

Is sales order for standard cost estimation? What costing variant you have used?

What are the standard reports in product costing that you refer to client?

How will you upload stock during the implementation?

How the price does is updated in system when the stock is initially uploaded?

How many costing variants will be created for costing version?

How do you upload raw material price in the material master during implementation time?
What is the scenario of MTS for discrete manufacturing?

What is difference between Discrete & Repetitive manufacturing?

How price will be calculated for sales order or sales order object?

What is sales order BOM?

What is the meaning of additive costs in SAP and why is it required?

What is the basic difference in WIP calculation in product cost by order and product cost
by period (repetitive manufacturing)?
For Actual cost estimate, what you have done?

What is interlinking between product costing and other modules?

What configuration you have done in product costing?

What is BOM & Routing in your organization?

Where production order cost captured in on PP Side?

On what basis you have allocated OH Cost?

What is OH Type?

Explain the process and flow with entries of FI,MM,PP,SD with movement types in both
scenarios of MTS & MTO?