4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech

Home (https://www.zarantech.com/blog)     

Blogs   (https://www.zarantech.com/blog)
     
 

BLOGS (HTTPS://WWW.ZARANTECH.COM/BLOG)
VIDEOS
(HTTPS://WWW.ZARANTECH.COM/BLOG/VIDEOS/)
INTERVIEW & CERTIFICATIONS QUESTIONS
(HTTPS://WWW.ZARANTECH.COM/BLOG/INTERVIEW-QUESTIONS/)

Five Steps to Understand Product Costing in SAP FICO

CATEGORY:
SAP FICO (Https://Www.Zarantech.Com/Blog/Category/Sap-Fico-Training/)
POSTED: Feb 01, 2016
BY: Alvera Anto

  4235 Views  
  
0 (https://www.zarantech.com/blog/five-steps-to-understand-
product-costing-in-sap-fico/)


Post Views: 32,700

In controlling module, product costing (https://blogs.sap.com/2013/01/04/5-steps-to-understanding-

product-costing-part-5-actual-costs/) is used to value the internal cost of materials and production
for management accountability and accounting. Many people avoid due its complexity, as
integration of high cost with other modules.

The five steps in understanding product costing in SAP FICO (https://www.zarantech.com/blog/sap-

fico-is-it-right-for-me/?utm_source=blog&utm_medium=blog-header-search-box&utm_term=) are:

WhatsApp

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 1/7
4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech

(https://www.zarantech.com/blog/wp-content/uploads/2016/02/product-costing.png)

Now let learn each step of product costing in detail.

Step #1: Cost Center Planning

Cost center planning

(https://help.sap.com/viewer/b42281c1645049a4b07c0ab25ec8b899/6.17.17/en-
US/97cfba538c95b54ce10000000a174cb4.html) is the elementary step in understanding product
costing. The main objective of this phase is to plan total dollars and quantities in each cost center
plant.

Prerequisites:

Company codes and plants in organizational structure are planned.

Master data for profit centers, cost centers, primary and secondary cost elements and
activity types.

In transaction KP06, cost center dollars are scheduled by Activity type and cost element. Fixed and
variable dollars can be entered. User can plan costs in production cost centers which wind up
through allocations. In transaction KP26, the cost center quantities are planned by Activity type.
Based on the earlier year’s actual values, activity rate can be manually entered. Planning activity
quantities based on useful installed capacity accounts for interruption is the best practice.

Step #2: Activity Rate Calculation

The main aim of this phase is to estimate the rates of each activity plan in each cost center in a
plant.

Pre-requisites: 

Cost Center Plans are entered: Plan costs in KP06 and Plan activity units in KP26

Once we plan our cost center dollars and quantities, it’s time to calculate the activity rates which
are implemented to value internal activities to produce products. We can also use a blended
approach and plan rates for few cost centers and activities and to calculate other rates based on
the last activities.

Once we plan costs for all cost centers, we can avoid the next step of plan allocations. Use plan
assessments and distributions to allocate costs when the planned costs acquired in overhead cost
centers.
WhatsApp

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 2/7
4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech

The key dissimilarity between assessments and distributions is that distribution keeps the primary
cost element (Identity) of the cost. Assessments are secondary cost elements which act as a cost
shipper to move costs. We can use assessments, distributions or blended approach of both. The
plan assessments and distributions are created in Transactions KSV7 and KSU7 and executed in
KSUB and KSVB transactions.

Once the costs are assigned, we must review the Cost center Actual/Plan/Variance report. Now,
execute the cost center plan which rips cost when we have more than one activity type. The cost
has to be ripped based on the activity quantity and other source. Using Transaction KSPI, activity
type rates are calculated. If the cost is adverse, you can revise the cost plans and recalculate the
rates.

Step #3: Quantity Structure (https://wiki.scn.sap.com/wiki/display/ERPFI/Quantity+Structure)

This step helps you to estimate the components of manufactured goods, cost of sold goods based
on the BOM and Routing.

Pre-requisites:

Master data is created:

Material Masters (including MRP, Accounting and Cost views)

Bill of Materials (BOM)
Work Centers (Cost Centers and Activity Types)
Routings (Product Planning) or
Master Recipes (Production Planning – Process Industries)
Production Versions
Product Cost Collectors (Production Planning Repetitive Manufacturing)

Quantity Structure is a key concept. It is a fundamental integration point between Finance and
Logistics modules. There are several components of Quantity Structure namely:

In a product, a material master with a distinctive fit/form in a plant. It contains many views
such as Material Resource Planning (MRP
(https://en.wikipedia.org/wiki/Material_requirements_planning))
(https://en.wikipedia.org/wiki/Material_requirements_planning)views, accounting views and
costing views. Procurement type and special procurement are the two key fields in costing.
The procurement field refers to a material which is created internally, purchased or both.
Whereas special procurement refers to a material which is sub-contracted, purchased from
another plant.
Bill of Materials (BOM) (https://en.wikipedia.org/wiki/Bill_of_materials) is created for each
internally produced material. The BOM list contains the component materials and quantities
required to produce a semi-finished or finished good. Depending on the price control with
standard or variable average price of the BOM components, the material cost of the product
is calculated.
A work center identifies a machine or work area where a production process is performed. In
addition to BOM, a routing is created to indicate the processes necessary to produce a
material. In production planning, a routing has series of operations which also includes work
centers and activity quantities.
A master recipe is used for batch-oriented process manufacturing. Rate routings and
product cost collectors are used in repetitive manufacturing. Product cost collectors are
created for each production version.

Production versions refer to a combination of a BOM and master recipe or routing required for
material production.

To Learn SAP FICO and get Certified, Checkout SAP FICO Certification Training provided by
ZaranTech (https://www.zarantech.com/sap-fico-training/)

StepWhatsApp
#4: Costing Run

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 3/7
4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech

Costing run is used to cost mass volumes of materials in a particular company code. This allows
user to select materials, detonate quantity structure, cost, analyse, mark and release.

Pre-requisites:

Material Masters (MRP, Accounting and costing views)

Quantity Structure (BOM, Master Recipe or Routing and Production versions)
Condition types and production Information records
Configuration
CO Master Data

Materials are costed for the duration of the annual or monthly costing process. To execute costing
runs, analyse results, mark and release costs transaction CK40N is used. This can be formed using
controlling area, costing version, costing variant, company code and transfer control. Therefore,
costing run can only be made for one company at a time. It has also created for a specific range of
date.

The costing run as 6 steps namely:

1. Selection
2. Structure Explosion
3. Costing
4. Analysis
5. Marking
6. Release

After executing each step, error log has to reviewed and resolved. Execute each and every step
after resolving the errors. If in case the results do not update after execution, press the refresh
button.

Step #5: Actual Cost

This is determined through actual expenses, purchase price and conformed production quantities.
These costs are matched to the standard costs through variance analysis to identify profitability
and make decisions on management.

Pre-requisites

Material Masters (MRP, Costing and Accounting views)

Quantity Structure (Routers/Master Recipe, BOM and Production versions)
Configuration (WIP, Variance or settlement)
CO Master Data (Activity types, Actual and Primary and secondary cost elements)
Assessment/Distribution Cycles, Actual Statistical Key Figures

The production confirmation includes, product cost by order, actual production yield, scrap
(https://en.wikipedia.org/wiki/Scrap), and activity quantities. The production costs are composed on
the production orders for review and settlement. In product cost by period, product cost collectors
are used to calculate WIP, variances, and settlement instead of the planned orders.

To Learn SAP FICO and get Certified, Checkout SAP FICO Certification Training provided by
ZaranTech (https://www.zarantech.com/sap-fico-training/)

In repetitive manufacturing, the quantities established based on the target cost created on the
valuation variant for WIP (https://en.wikipedia.org/wiki/Work_in_process) or scrap. In discrete
manufacturing, WIP is the dissimilarity between debit and credit of an order.

The variance analysis of input and output side is offered by SAP Finance training.  Finally, we must
settle our orders or product cost collectors. Product Cost Collectors and orders are debited within
actual costs during production.

These are the related articles that you can check

WhatsApp

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 4/7
4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech

1. How to Become a SAP FICO Consultant? (https://www.zarantech.com/blog/wp-

admin/post.php?action=edit&post=1845)
2. SAP FICO Roles and Responsibilities (https://www.zarantech.com/blog/wp-admin/post.php?
action=edit&post=1853)
3. Our trainer Sagar for SAP FICO was recently invited as a Guest Speaker for SAP User Group at
University of Texas, Dallas, School of Management this past Wednesday
(https://www.zarantech.com/blog/wp-admin/post.php?action=edit&post=3426)
4. How to become SAP FICO consultants? (https://www.zarantech.com/blog/wp-
admin/post.php?action=edit&post=1651)
5. Starting a Career as a SAP FICO Consultant (https://www.zarantech.com/blog/wp-
admin/post.php?action=edit&post=1713)

For SAP FICO Training needs, visit ZaranTech (https://www.zarantech.com)


Share on Facebook
(https://www.facebook.com/sharer/sharer.php?u=https://www.zarantech.com/blog/five-steps-to-
understand-product-costing-in-sap-fico/)


Share on Twitter


Share on LinkedIn
(https://www.linkedin.com/sharing/share-offsite/?url=https://www.zarantech.com/blog/five-
steps-to-understand-product-costing-in-sap-fico/)

Related Posts

How to Become a SAP FICO Consultant? (https://www.zarantech.com/blog/how-to-become-a-

sap-fico-consultant/)
SAP FICO Roles and Responsibilities (https://www.zarantech.com/blog/sap-fico-roles-and-
responsibilities/)

WhatsApp

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 5/7
4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech

Featured Item

(https://www.zarantech.com/blog/sap-fico-
roles-and-responsibilities/)
SAP FICO Roles and
Responsibilities Read More
(https://www.zarantech.com/blog/sap-
fico-roles-and-responsibilities/)

 Sep 28, 2015

(https://www.zarantech.com/blog/gr-ir-
goods-receipt-invoice-receipt/)
GR/IR (Goods Receipt/Invoice
Receipt) Read More
(https://www.zarantech.com/blog/gr-
ir-goods-receipt-invoice-

receipt/)
 Jun 22, 2020

(https://www.zarantech.com/blog/what-is-
What is SAP FICO? Read Moresap-fico/)
WhatsApp
(https://www.zarantech.com/blog/what-

is sap fico/)  Mar 13 2019

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 6/7
4/4/22, 3:04 PM Five Steps to Understand Product Costing in SAP FICO | Zarantech
is-sap-fico/)
 Mar 13, 2019

(https://www.zarantech.com/blog/five-
steps-to-understand-product-costing-in-
Five Steps to Understand sap-fico/)
Product Costing in SAP FICO
Read More
(https://www.zarantech.com/blog/five-
steps-to-understand-product-
costing-in-sap-fico/)

 Feb 01, 2016

(https://www.zarantech.com/blog/mm-fi-
account-determination/)
MM-FI Account Determination
Read More
(https://www.zarantech.com/blog/mm-
fi-account-determination/)

 Jun 24, 2020

WhatsApp

https://www.zarantech.com/blog/five-steps-to-understand-product-costing-in-sap-fico/ 7/7