Basics of SAP Standard Cost Estimate - Understanding Costing Variant-Part 2 - SAP Blogs

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Basics of SAP Standard Cost estimate-

understanding costing variant-Part 2
November 19, 2013 | 15,240 Views |
Hrusikesh Dalai
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https://blogs.sap.com/2013/11/19/basics-of-sap-standard-cost-estimate-understanding-costing-variant-part-2/ 1/27
This document is in continuation of my first document Basics of SAP Standard

Cost estimate- Understanding the flow of cost settings-Part 1
http://scn.sap.com/docs/DOC-48908. This is basic and structural way of
documenting the steps involved in defining Costing Variant.
This document explains the costing Variant configuration and components

assigned to costing variant like Valuation variant, Qty structure Control,
Transfer Control and Assignments. originally i thought of writing only 2 parts to
complete it but it seems it will need few more parts to complete.This document
is intended to explain the cost flows to a standard cost estimate. Explaining
various settings in background as previous part.
Costing Variant
T CODE OKKN- Define Costing variant and name it. For analysis purpose we
are taking PPC1.
Screenshot 1
Then double click on PPC1 and configure other parameters.
Screenshot 2
Now let’s understand each of these parameters and its assignment..

Control
1-Costing type– The costing type enables you to specify the purpose of a
cost estimate.
Click on create Costing type n existing or create a new one, or define it using
T-code OKKI
In Save parameter tab selec Start with Period ( Most commonly used),
Screenshot 3
In Price Update tab select Standard price. The reason we select standard
price because we want to calculate standard cost.
Screenshot 4
2-Valuation variant– T CODE OKK4

This is most important part of configuration, We will understand the

importance of Different tabs.
For Material valuation,Internal Activity,Sub-Contracting, Overhead and Misc.
Screenshot 5
If you want to use different valuation strategies or different overhead rates in

plants that belong to the same company code, you can define plant-specific
valuation variants by assigning a valuation variant to a plant. Choose the push
button Valuation variant/plant. If you don’t do this, the valuation variants apply
to all your plants.
Here I have created a Valuation variant in a plant then most important part
comes is Material valuation
Here we define how do we wanted our Material to be valuated Strategy

Sequence. The one above used is most commonly used however it can be
modified according to Business requirement.
For material valuation, you can choose up to five (5) strategies for each
valuation variant.
-Planned price-According Planned price in Costing 2 tab of Material master

(MM03 view)
During cost run or standard costing if this has maintained the system will
consider this value first.
-In case the system did not find price in priority 1 , It goes to priority 2
Valuation Price accordingly to Price control in Material master, Costing 2 tab
(MM03 view)
-L Price from Purchasing Info Record-This one used in case of outside buy or
sub contract materials. And for this we also maintain a sub sequence that too
in Sequence wise.
Explore more options in TCODE OKK4 and understand each options and its
usage.
Internal Activity Here you define the sequence in which the system searches
for prices in activity type planning or actual activity price calculation in Cost
Center Accounting or Activity-Based Costing to valuate the utilized activity
types and business processes. You also specify which plan/actual version is
used.
Screenshot 6
For activity types/processes, you can choose up to three (3) activity prices for
each valuation variant.
In the above example I have selected 1 planned price for the period option as
per planning data in Cost center planning/ activity planning (TCODE-
KP26/KP06 We will see more in next document Part 3)
Subcontracting Here you define the sequence in which the system searches
for prices in the purchasing info record. In purchasing, the quota arrangements
are used to create a mixed price for materials that are manufactured with
external vendors with parts provided by the customer. You can specify whether
the quota of the individual vendors that are entered in the list for the material
to be processed should be determined through the planned quota
arrangement or the actual quota arrangement.
For subcontracting, you can choose up to three (3) strategies for each
valuation variant
Screenshot 7
I have selected 3 Net Quotation price from Info record where as there is 8
other options out there which you can select according to your business need.
Quotation in Purchasing i have selected Actual Quota Arrangement you have
an option of Planning Quota Arrangement as well to select as per business
need.
External Processing-Here you define the sequence in which the system

searches for prices in the purchasing info record or routing operation for
valuation of the external activities
Screenshot 8
I have selected Net purchase order price here however for external
processing, you can choose up to three (3) strategies for each valuation
variant. Based on Business requirement you can select priorities amongst 9
Strategies available in standard SAP.
Overhead Costs
You can link the valuation variant for definition of overhead to a costing sheet.
You can also enter a costing sheet for the allocation of overhead to raw
materials, if you want to use specific overhead conditions for raw materials.
If you want to differentiate overhead application according to material groups,

you must have defined overhead groups (T CODE OKZ2) and made the
necessary settings for the costing sheet in the step Define costing sheet (T
CODE KZA1- I will explain that in My Next Document). Here in the example I
liked a Costing sheet for our analysis purpose.
You can also specify whether overhead is calculated for subcontracted

materials in material costing.
Miscellaneous-Price Factors
Screenshot 9
If you want to use the valuation variant for inventory costing, you can link it
with price factors.
Specify whether the factors of the relevancy to costing indicator should be

valid for all valuation variants or only for particular valuation variants.
If you enter three plus signs (+++) as the valuation variant, the factors are
valid for all valuation variants that do not have specific entries. I have selected
this option for our analysis purpose
If you specify a particular valuation variant, the system uses the associated
relevancy to costing indicator and the associated factors. Enter a relevancy to
costing indicator for each line. Enter a factor for the fixed costs and a factor for
the variable costs.
3-Date Control
Key that controls the dates for material cost estimates.
For example you can use date control to define the day for selecting the
quantity structure when costing with a quantity structure
Screenshot 10
When you checked manual entry that means during cost estimate you can
manually change the date according to your requirement.
4-Qty Structure Control-
You can use the quantity structure control to specify how the system selects a
bill of material and a routing for the material to be costed.
You define the quantity structure control in Customizing for Product Cost
Planning. The quantity structure control can apply to either a specific plant or
to all plants. You enter the quantity structure control in the costing variant.
When the cost estimate is created, the system selects the quantity structure
control ID through the costing variant.
When you create a cost estimate for a material, you always use a costing
variant. This variant is the link between the cost estimate and the quantity
structure control.
Screenshot 11
I have selected BOM application PC01 and selection ID 05 (TCODE OS30

define BOM Application, A PP Functionality)
Screenshot 12
The BOM application controls the following:
The order of priority of the BOM usages (selection ID), When a BOM is
required to embrace various enterprise areas (in other words, it has several
BOM usages), you can determine which usage will be selected by the system
first by using a selection ID.
The priority of an alternative BOM for a specific multiple BOM, You can control
which alternative BOM the system selects as of a certain date for a specific
material, taking into account the plant and the BOM usage. You can use the
application to determine whether the system takes this specification into

account or ignores it.
Whether the system includes only those BOMs with a status containing
particular status indicators
An alternative BOM is only exploded if the BOM status contains the indicator
required in the application.
You can check the BOM application and the parameters that are linked to it in
Customizing for Product Cost Planning.
I have selected Routing 01 ( TCODE OPEB can be used to define automatic

selection, A PP functionality)
Screenshot 13
The routing selection ID determines how the system selects a routing. You can
define several priorities. You assign selection criteria (task list type, task list
usage, and task list status) to each of these priorities.
The routing that corresponds to the selection criteria with the highest selection
priority is selected. If, however, no alternative routing can be found, the system
continues searching using the selection criteria of the next selection priority.
When determining the BOM and routing, the system also checks, Whether the
BOM and the routing are valid on the quantity structure date (refer date
Control screenshot 10). Whether the lot size in the BOM and in the routing are
the same as the costing lot size.
4-Transfer Control-
In this step you define parameters for partial costing. You use partial costing to
prevent the system from creating a new cost estimate for a material when
costing data already exist. Instead, the existing costing data is simply
transferred into the new cost estimate. This improves performance.
Screenshot 14
Single-Plant Transfer -If cost estimates for certain materials already exist in
the individual levels of the BOM, they are not recosted. Rather, the existing
costing data is transferred into the cost estimate in accordance with the
transfer control.
If you always want to recost, choose the transfer control No transfer.
Cross-Plant Transfer-The special procurement types are used for material cost
estimates:
Transfer from other plant, Withdrawal in other plant, Production in other plant
Strategy Sequences for Single-Plant and Cross-Plant Transfer-You can define

up to three strategies for single-plant transfer and three strategies for cross-
plant transfer. The strategy sequence determines the order in which the
system searches for costing data. If the system cannot select a cost estimate
even after reaching the end of the strategy sequence, it explodes the BOM of
the material and creates a new cost estimate.
Qty Struct.-
Pass on Lot Size- Controls whether the system determines the costing lot size using the
lot size of the highest material in the BOM and the input quantities of the components.
1) Do not pass on lot size
If this indicator is not selected, the materials further down in the structure are
costed in accordance with the lot size in the costing view of the material
master record. When the materials in the next-highest costing level are
costed, the costing results of the semifinished materials are converted to the
lot size of the finished material to calculate the material costs for the finished
product.
2) Pass on lot size only with individual requirement
In the MRP view of the material master record, you can specify that a material
is planned as an individual requirement. If such a material is added to another
material, costing uses the lot size of the highest material.
3) Always pass on lot size
Here, the costs for all the materials in a multi-level BOM are calculated using
the costing lot size of the highest material. This function is used principally in
sales order costing.
Screenshot 15
Ignore Product Cost Estimate without Quantity Structure-
Determines whether a cost estimate with quantity structure can access data
that was produced by a cost estimate without quantity structure
You set this indicator if you do not want to work with a cost estimate without
quantity structure.
If this indicator is set, the system will ignore data produced by a cost estimate
without quantity structure when selecting the BOM as well as when costing.
Instead, the system will attempt to calculate the costs of manufacturing the
material using an existing BOM or an existing operation.
In the costing view of the material master record, you can use the With
quantity structure indicator to specify that the material should be costed either
with or without a quantity structure. If the Ignore cost estimate w/o qty
structure indicator in the costing variant is set, the system will ignore the entry
in the material master record.
Addictive Cost
You use additive costing to add costs manually to a material cost estimate
when they cannot be calculated by the system. Examples of such costs are
freight charges, insurance costs, stock transfer costs, incomplete or changed
BOMs, and routings.
As a rule, costing calculates the costs of a material on the basis of the quantity
structure. This type of cost estimate is performed automatically by the system.
However, you can also manually enter estimated values for costs that cannot
be calculated by the system. This allows you to add costs to a cost estimate
that was calculated automatically.
Screenshot 16
When you cost materials, the system determines the BOM for the material, and
selects a price for the valuation of the material components through the valuation
variant. If you set the Incl. additive costs indicator in the valuation variant, the
system looks for any existing additive cost estimates for the material. The system
adds the costs entered manually to the costs calculated by the system. The costs
in the automatic cost estimate and the additive cost estimate are added together
for each cost component.
Update
Screenshot 17
Update Allowed- Indicator that determines whether a cost estimate can be

saved.
Dependencies
Since the cost estimate must be saved if the costing results are to be used
further, you must set this indicator.
Examples of further use of the costing results
1. Update in the price fields of the material master:
As the standard price: the results of the standard cost estimate
As the tax or commercial law price: the results of the inventory cost estimate
As special planned prices 1,2,3: the results of all cost estimates
1. Use of the costing results in Cost Object Controlling for:
Variance calculation
WIP calculation
Results analysis
Assignments-We will know more about Cost Component Structure in

my next part, I have already explained in my first part about costing
version.
Screenshot 18
Cost component Structure Specifies which costs are contained in the cost
component split. You can use the cost component structure to specify that
certain costs
Remain visible in the cost estimate are passed on to Profitability Analysis.
MISC.-Parameters for Error Management
Controls how messages (information messages, warning messages, and error

messages) are collected within an application.
Screenshot 19
Online Messages-The messages are issued individually from the status bar.
The log function is inactive in the cost estimate.
Messages logged and saved, mail inactive ,The messages are collected in a
log, which can be saved. The messages cannot be sent.
Messages logged and saved, mail active, The messages are collected in a
log, which can be saved. The messages can be sent to the person responsible
for correcting the error.Messages logged, saving not possible, mail inactive,
The messages are collected in a log, which can be processed online, but not
saved.
Note
To be able to use a costing variant for the costing run, you must save the log.
This is a long Document i tried to capture each and every aspects of Costing
variant. We will see some more configuration and explanation about it in my
Next Part. I will try to close this document series in my next part if its too
lengthy then i will try to put together a separate document.
Intention of creating this document is to reach out to the newbies and

beginners and those who wanted to know and understand the flow of
Standard Costing. i will update the document as n when some more points
needs to be included or any suggestion from Experts.
Refer to next Document here-http://scn.sap.com/docs/DOC-49425-Basics of

Standard Costing – Understanding the Cost Component Structure-Part 3
Refer to previous document here-http://scn.sap.com/docs/DOC-48908–

Basics of SAP Standard Cost estimate- Understanding the flow of cost
settings-Part 1
Best Regards
Hrusikesh Dalai
Alert Moderator
35 Comments
David Feng
November 19, 2013 at 8:26 pm
Hrusikesh,
Well done again, It might have taken quite a bit time to put together how are you
managing time?
Are you able sleep
Good way to contribute and write for the community .
Keep it UP
Cheers
David
Hrusikesh Dalai Post author
David,
Thank You for feedback, i appreciate the comment.Yes it is not that hard to
take couple of minutes each day out of your schedule and spend it on SCN.
its worth and i am learning from it too.
BR
Hrusikesh
Prasad Swain
It took me few hours to read it but i am still trying to understand. so how many more
documents coming up with regards to costing. quite intersting to see the series.
Eagerly waiting for your next documents. Hopefully i can summerize at the end.
take care and keep sharing
Prasad.
Prasad,
I appreciate your effort reading it and commenting it. originally i thought of

only coming up with 2 documents but now it will be a 5-6 series document. I
will try to summarize it at the end
BR
Hrusikesh
Dawood Khalid
November 25, 2013 at 6:02 am
You are doing a good job, i’m waiting for your 3rd document…
thank you for your kind words. yes i am trying to get it together hopefully it
will out soon.
BR
Hrusikesh
Rajneesh Saxena
Bravo Hrushi
Very good one, at many places I felt that I am reading SAP Docs. Great writing effort.
Keep it up.
God bless.
Regards
Rajneesh Saxena
Rajneesh,
Thank you for reading it,I appreciate your honest comment. yes you are
right most of my explanation are based on SAP help links and F1 however i
just try to put together every piece in one place so that it may be helpful to
Newbies as the document is intended for beginners and those who are less
familiar with Costing variant.
BR
Hrusikesh
raja sekhar
HI Hrusikesh Dalai,
Good one.
I am also felt the same what Mr. Rajneesh felt. Instead of F1 help try to elaborate with
examples so that would be helpful to Newbies.
Keep it up.
Regards
Raja Sekahr A
Hello Mr Raja Sekahr A,
I appreciate your sincere comment. Thanks for reading it
BR
Hrusikesh
Lakshmi Sama
Hi Hrusikesh,
I am really appreciating your efforts. Please explain the issue with suitable examples so
that it will reach the audience correctly.
Thanks & Regards,
Lakshmi S
December 2, 2013 at 3:24 pm
Thank you Lakshmi for reading it, I appreciate your sincere feedback.
yes in this document i tried to put together different settings required for
costing variant. i will try to sum up and give some examples at the end of
the series with some of the issues we face in Product costing.
BR
Hrusikesh
Naresh Krishnamoorthy
December 3, 2013 at 4:18 am
Helpful one…Thanks.
BR,
Naresh K.
Thanks Naresh
vasu sara
Hi Hrusikesh dalai
your approach of explainig is good, hope to see your next posting at the earliest,
thank you
Regards
SRini
Hello Srini,
Thank you for your kind words, I am glad you like it. next part is part 3 you
can refer the link i will post part 4 soon.
Thanks
Hrusikesh
Sampat Kumkar
January 3, 2014 at 10:58 am
Hi Hrusikesh
Thanks for sharing good documents now going to Part III as well..
Thanks
Sampat
January 3, 2014 at 1:56 pm
Thank You Sampat appreciate your valuable feedback.
BR
Sampat
kesevan venkatesan
January 3, 2014 at 11:06 am
Good job Hrusikesh…..
Many thanks…
Regards,
Kesevan.
January 3, 2014 at 1:56 pm
Thanks Kesevan,
BR
Hrusikesh
Sada Bandla
February 14, 2014 at 9:09 am
Dear Hrusikesh Dalai thank you for sharing knowledge..
Regards
Sada Bandla
February 14, 2014 at 6:44 pm
Thank You for your valuable comment
Devendra F
February 19, 2014 at 12:25 pm
Hi,
Those are five star series,
Devendra
April 3, 2014 at 3:20 pm
once again Thanks for those 5 stars!
Eric Chen
Nice document, very clear for cost estimate, thanks for sharing.
keep posting.
Thanks Eric
Santosh Sharma
Nice documents. thanks for sharing….
Thanks Santosh
Suraj Sudam Kamble
April 7, 2015 at 2:59 pm
very informative
August 27, 2015 at 1:22 pm
Thanks Suraj
siddharth chotalia
June 18, 2015 at 6:40 am
Good Job…..explain in detailed about costing variant.
August 27, 2015 at 1:22 pm
Thanks Siddharth
Anirban Guha Chowdhury
March 9, 2016 at 7:38 pm
Very Good document . I need a help.
I can not find the transaction for the screen shot 11,
August 2, 2017 at 6:42 pm
It is costing variant transaction
CA Paresh Bhagwat
July 21, 2017 at 11:18 am
Very nice and informative article.
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Home / Community / Blogs + Actions

Basics of SAP Standard Cost estimate-

This document is in continuation of my first document Basics of SAP Standard

This document explains the costing Variant configuration and components

Then double click on PPC1 and configure other parameters.

Now let’s understand each of these parameters and its assignment..

2-Valuation variant– T CODE OKK4

This is most important part of configuration, We will understand the

For Material valuation,Internal Activity,Sub-Contracting, Overhead and Misc.

If you want to use different valuation strategies or different overhead rates in

Here we define how do we wanted our Material to be valuated Strategy

-Planned price-According Planned price in Costing 2 tab of Material master

External Processing-Here you define the sequence in which the system

If you want to differentiate overhead application according to material groups,

You can also specify whether overhead is calculated for subcontracted

Specify whether the factors of the relevancy to costing indicator should be

Key that controls the dates for material cost estimates.

4-Qty Structure Control-

I have selected BOM application PC01 and selection ID 05 (TCODE OS30

The BOM application controls the following:

application to determine whether the system takes this specification into

I have selected Routing 01 ( TCODE OPEB can be used to define automatic

If you always want to recost, choose the transfer control No transfer.

Strategy Sequences for Single-Plant and Cross-Plant Transfer-You can define

1) Do not pass on lot size

2) Pass on lot size only with individual requirement

3) Always pass on lot size

Ignore Product Cost Estimate without Quantity Structure-

Update Allowed- Indicator that determines whether a cost estimate can be

Examples of further use of the costing results

1. Update in the price fields of the material master:

As the standard price: the results of the standard cost estimate

As special planned prices 1,2,3: the results of all cost estimates

1. Use of the costing results in Cost Object Controlling for:

Assignments-We will know more about Cost Component Structure in

Remain visible in the cost estimate are passed on to Profitability Analysis.

MISC.-Parameters for Error Management

Controls how messages (information messages, warning messages, and error

Intention of creating this document is to reach out to the newbies and

Refer to next Document here-http://scn.sap.com/docs/DOC-49425-Basics of

Refer to previous document here-http://scn.sap.com/docs/DOC-48908–

November 19, 2013 at 8:26 pm

Are you able sleep

Good way to contribute and write for the community .

Hrusikesh Dalai Post author

November 25, 2013 at 3:51 pm

November 20, 2013 at 4:57 pm

take care and keep sharing

Hrusikesh Dalai Post author

November 25, 2013 at 3:54 pm

I appreciate your effort reading it and commenting it. originally i thought of

November 25, 2013 at 6:02 am

Hrusikesh Dalai Post author

November 25, 2013 at 3:55 pm

November 25, 2013 at 5:18 pm

Hrusikesh Dalai Post author

November 25, 2013 at 5:55 pm

November 26, 2013 at 9:08 am

Hrusikesh Dalai Post author

November 26, 2013 at 1:35 pm

Hello Mr Raja Sekahr A,

I appreciate your sincere comment. Thanks for reading it