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Product Costing

Pr oduct Costing Ove rv ie w


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.

Ma terial L edger Ov erview


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


SD FI

Sales & Distribution Materials Mgmt.

Financial Accounting Controlling Fixed Asset Mgmt.

MM

CO

Product Planning

PP

AM

Quality Mgmt.

QM

SAP R/3
PM OC
Human Resources

Project System

PS

Plant Maint.

HR

Industry Solutions

IS

Office & Comm.

CO C omponents
CO PA

Operating concern (9100 A Ltd) Profitability Analysis Profitability Analysis Overhead Cost Controlling
Internal orders

Profitability segment

EC PCA

CO OM

Cost centers

Product Cost Controlling


CO Production Controlling area (9100 A Ltd) Order Standard Cost Estimate Cost Element Accounting

Profit Center Accounting

Internal Orders
Activity types

CO CEL

Cost Element Accounting

FI
HR

Financial Accounting Financial Accounting

Asset

Expense

Company Code (9100 A Ltd)

Revenues

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 Process ends with initial containment (packout)

Disposition & Contain Product

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

Stock 100 200 200 50

Stock value 200.500.600.150.-

V price 2.00 2.50 3.00 3.00 GR/IR Account

Begin. inventory: 100 PC at 2.00 Goods receipt: 100 PC at 3.00 3 Invoice receipt: 100 PC at 4.00 4 Goods issue: 150 PC at 3.00 Stock Stock
1 2 3

Stock Coverage
3

200,300,100,-

450,- 4 If the invoice receipt is for 100 units, the stock coverage is 200 units: all differences stock

300,-

300,-

Consumption
4

Vendor 400,- 3

450,-

ok

Posting Example: Moving average price 2


Procedure
1 2 Begin. inventory:

Stock 200.200 50 50

Stock Value 2.00 500.125.175.-

V Price

100 3 Goods receipt: 100 PC at 3.00 4 Goods issue: 150 PC at 2.50 Invoice receipt: 100 PC at 4.00 Stock
1 2 4

2.50 2.50 3.50 GR/IR account


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.-

Posting Example: Moving average price 3


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 Invoice receipt: 100 PC at 3.00 Stock 100 200 300 100 100 100 Stock Value 200.420.660.220.300.360.V Price 2.00 2.10 2.20 2.20 3.00 3.60

80.in stock

60.in stock

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 2.20200

Stock 100 200 400.-

Stock Value 200.400.2.00

Standard Price 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


Raw Materials I Finished Products Distribution of Price Differences?

Valuation Period

Actual Prices?

Raw Materials II

Ending Inventory: Raw Materials

Costing Methodology

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


Act1

COPC
Routing

Production Cost Center


VAR.

Act2

Production orders

COPA

VAR.. . VAR...

Cost Object

F. Goods Inventory

Product Cost Flow


Plant Cost 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

Sales & Mktg. View

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

Pr oduct Costing A L td.

Pr oduct Costing A L td.

Pr oduct Costing A L td.

Pr oduct Costing A L td.

Pr oduct Cost Plannin g: Overv ie w


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

Pr oduct Costing: Ov erview


Create Cost estimate with quantity structure

Standard Cost Estimate (once a year) Prepare Product Cost Collector Production Costs Receive Finished Stocks Month End Closing

Mark cost estimate with quantity structure Release cost estimate with quantity structure Create Cost Object Preliminary Costing Post Materials Costs Debit Secondary cost 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.

Pr oduct Cost Plannin g: Overv ie w


Cost estimate with quantity structure Quantity structure Costing variant Cost estimate without qty structure

Report
Material costs Production costs Overhead

Valuation

Price update

Pr oduct Cost Plannin g: Overv ie w


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

Standard Cost Estimate Inventory Cost Estimate

Pr oduct Costing: Ov erview

Standard Cost Estimate (once a year)

Create Cost estimate with quantity structure

Mark cost estimate with quantity structure

Release cost estimate with quantity structure

Ma terial c ost e stimates with q . s .


Quantity Structure
BOM Routing

Valuation
Purchase price Activity Type Price Overhead

Costing
Items M Material E Activity E Activity G Overhead Cost Elements 400000 Raw materials 943201 Production hours 943901 UT: Cooling Var. Values 600 000 610 000 612 000 SAR SAR SAR SAR

Used for:

Costing Results

Standard Cost Estimate Stock Valuation Profit & Loss Statement

Ma terial c ost e stimates with q . s .


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

W Z1 S1 S2 Z2 S3
-

Costing structure Upper level


Internal Activity External Activity Overheads

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 Varia nt
Costing Variant

Quantity Structure Determination

Valuation Variant

Quantities

Prices

Cost of Goods Manufactured

Costing Varia nt
Costing Sheet Strategy for transfer of the existing cost estimates Determination of : - Bills of Material - Routing

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

Qu antity Stru cture fo r P ro duct Cost Planning

Qu antity S tr ucture for Pr oduct Cost Pla nning

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

Qu antity S tr ucture: Ma te ria l Ma ster 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 -

Ma terial c ost e stimates - quantity str uc.


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.

Qu antity Stru cture: Pro duction Vers io n


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. Qu antity S tr ucture


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 Str ucture


Costing Structure for Product Cost Planning

Master Data

+ + + + +

Materials Cost Centers Activity Types Cost Elements Cost Component Structure

Costing Str ucture fo r P ro duct C ost Pla nning

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 Str ucture


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.

Pla nning Ove rv ie w


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 Str ucture

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 Pr ic e Calculatio n
Cost center: R&TCost center
Planned costs: 430000 (salaries) 440000 (miscl.) 473120 (telephone) 44,000 10,000 30,000

Planned costs: 84,000

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 Str ucture


Planning 1203000 Utilities (Common) 1203000 2
Di n io E ut lC rib st ina rig O

3 Cost Splitting
1. Assign CC 1203004 to Splitting Structure U4 Steam service 2. Perform cost splitting

Product Cost Estimate Product 22000057 - TEG


A Al cti lo vi 94 ca ty 39 tio Ro via 54 n ut in g

..

Steam service 1203004


1UTSTF Steam - fixed 1UTSTV Steam var. 943954 UT: Steam fix

..

Product 22000058 - LLDPE


Activity Types Used: 1UTSTF Steam - fixed

..

4 Planned Price Calculation


Prices for 1UTSTF are calculated.

Primary costs planning on all Cost Centers.

Cost Comp onent Stru cture


Valuation
Purchase price Activity Type Price Overhead

Quantity

Costing
ID 101 110 111 Cost Component Raw Materials Catalyst Chemicals Values Fixed & Variable 600 000 0 0 SAR SAR SAR SAR

Used for:

Costing Results

Standard Cost Estimate Stock Valuation Profit & Loss Statement

Cost Comp onent Stru cture


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

Pr oduct Costing: Ov erview

Create Cost estimate with quantity structure

Standard Cost Estimate (once a year)

Mark cost estimate with quantity structure

Release cost estimate with quantity structure

Pric e u pdate

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

Pric e u pdate

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).

Pr ic e u pdate
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

Pric e u pdate 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

Pr oduct Costing: Ov erview

Prepare Cost Object Production Costs Receive Finished Stocks Month End Closing

Create cost object Preliminary costing Post Materials Costs Debit Secondary cost Credit Production Output WIP Calculation Variance Calculation Settlement

Cost Ob ject C ontrollin g: Ov erv iew


Functions of Cost Object Controlling:

Supporting make-or-buy decisions Determining price floors Performing complex cost analysis Determining inventory values

Cost Ob ject C ontrollin g: Ov erv iew


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.

Cost Ob ject C ontrollin g: Ov erv iew

Product Cost by Order or by Period


Full settlement (by Order)
Actual costs = Work in process
Releasing an order

Time

Actual costs Goods receipts = Work in process


Partial delivery

Actual costs Goods receipts = Variances


Delivered / Technically completed

Periodic settlement ( by Period)


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

Time

Actual costs Goods receipts = Work in process + Variances


Period 2

Actual costs Goods receipts = Work in process + Variances


Period 3

Cost Ob ject C ontrollin g: Ov erv iew

Functions Funkcje Type of settlement rule Work-in-Process

Product Cost by Order

Product Cost by Period

FULL WIP calculated on base of actual costs Variance = Actual Costs -

PERIODIC 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

Cost Ob ject C ontrollin g: Ov erv iew


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.

Cost Object C ontr oll in g: Overv ie w


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 Ove rvie w


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

Profitability Segment

Pr oduct Costing: Ov erview

Prepare Cost Object

Create Product Cost Collector

Preliminary costing

Ob jects i n C ost Object Controllin g

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.

Ob jects i n C ost Object Controllin g


Product Cost Collector

Product <FERT or HALB >

Routing Group Group counter

Bill of Material Usage Alternative

Product Cost Collector

Production Version
ID, Production line, Validity period.

Ob jects i n C ost Object Controllin g


Product
<FERT or HALB>

PROCESS ORDER 1 PROCESS ORDER 2

Product Cost Collector

Master Recipe

Operation List/Routing Operation 10


Phase A

Materials List/BOM

Production Version

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
Product Cost Collector
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 Record consumption & output Record process data & batch characteristics Final Confirmation & Back Flush Deal with Back Flush & transaction errors Adjust theoretical yield & consumption to actual

Product Cost Collector


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 7.400 Actual 1.800 2.200 0.600 4,600 2.800

Conf ir mati on Types & Orders


Order header

Functi ons - P rocess


Confirmation types

Operations

Components Components

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

Partial confirmation Partial confirmation Final confirmation Final confirmation

Output goods goods movement Confirm with receipt Defaults for remaining time Backflush components Check operation sequence Check delivery tolerances Backflush collection interface Plant data utilities Backflushing Reduce capacity requirements Reduce capacity requirements Determine actual costs Determine actual costs

Back Flu shin g (R epetitiv e Ord ers )


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

Fi nal Conf irmat ion & Techni cal Com plet ion

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

Faile d Tr ansactio ns and C orr ections


x x x

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

Su mm ary

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 o f Transactio ns
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
Order Material 430004 + 5.000,943201 + 7.500,400000 + 1.100,462001 - 5.000,-

CO

FI

Production Output 462001 5.000,Finished Products 119430 5.000,-

100 * 50 = 5.000,quantity * price = value of the goods receipts from order

Actual costs - Su mm ary

The results from the output receipts, plus material & resource consumptions, update the stock records and provide valuation of production according to standard cost approach.

Pr oduct Costing: Ov erview

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.

Period and year-end closing

Functions Funkcje Type of settlement rule Work-in-Process

Product Cost by Order

Product Cost by Period

FULL WIP calculated on base of actual costs Variance = Actual Costs -

PERIODIC 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

Period and year-end closing

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: Work-in-Process 13.600 - 5.000 = 8.600 462001 - 5.000,-

Period and year-end closing

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.

Period and year-end closing

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.

Period and year-end closing

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,-

Period and year-end closing

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 430004 943201 400000 400000 + 5.000,+ 7.500,+ 1.100,+ 5.000,462001 - 5.000,462001 - 7.000,-

CO

FI

Period and year-end closing

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 430004 943201 400000 400000 WIP 462201 8.600 + 5.000,+ 7.500,+ 1.100,+ 5.000,462001 - 5.000,462001 - 7.000,-

CO

FI

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.

Period and year-end closing

Variance: Integration
Product Cost Collector
Material CATALYST Quantity prod.: 10 pcs
COPC

Standard Cost Estimate


Materials 600 Labour Depreciation 1.100 300

Actual Costs
Materials Labour Depreciation 800 1.200 400 2.400 - 2.000 400

Material Master
Accounting View Standard Price 200

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

Period and year-end closing


Variance Category Cost Element Group PA Assignment lines Value Field

Period and year-end closing


Product cost collector
Period accounting

COPC

Material: Quantity:
COPC

MEG 10 pieces

Cost of goods sold Revenue Sales deductions Manufacturing costs by standard price (Contribution margin I) Variances

Revenue Sales deductions Overheads plus Variances +/- Change in Stock = Result of a period

Actual costs 2.400,-

Actual costs

Goods receipt -2.000,Variances/WIP 400,-

= Result of a period

PrCtr 1

FI

Company Code

Profit Center ECPCA

Company Code

Settlement

FI

Profitability Segment

COPA

Period and year-end closing

Period and year-end closing


Periodic Costs

Product Cost Collector


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 and year-end closing


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

Postings FI/CO

Period and year-end closing


Product cost collector
Period accounting

COPC

Material: Quantity:
COPC

MEG 10 pieces

Cost of goods sold Revenue Sales deductions Manufacturing costs by standard price (Contribution margin I) Variances

Revenue Sales deductions Overheads plus Variances +/- Change in Stock = Result of a period

Actual costs 2.400,-

Actual costs

Goods receipt -2.000,Variances/WIP 400,-

= Result of a period

PrCtr 1

FI

Company Code

Profit Center ECPCA

Company Code

Settlement

FI

Profitability Segment

COPA

Period and year-end closing

Period and year-end closing


Variance Category Cost Element Group PA Assignment lines Value Field

Ma terial L edger: Ov ervie w


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.

Ma terial L edger: Ov ervie w


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

Level Level Level Level

Production

External Procurement External Procurement

Multi - Level Settlement


Production

Level Level Level Level Multi -Level

Production

External Procurement External Procurement

Multi - Level Settlement


Production

Material Valuation with Multi-Level Actual Costing Preliminary Valuation During the Period Revaluation at Period End with Actual Price

Production

External Procurement

External Procurement

The ML updates the Material Master

The Integrated Material Ledger Display

Ma terial L edger Ov erview


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 Ov erview Pa ra lle l C urre ncie s


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

Pr ic e c ontrol
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.

Pr ic e c ontrol
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

Pr ic e c ontrol
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)

Pr ic e d etermin ation contro l


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

Pr ic e d etermin ation contro l


3
Cost centers Orders
Activity types Internal orders

S Level 3

Cost centers

Orders
Activity types

Internal orders

S Level 2

V Level 1

External Procurement

Actual Values Ov erview

Actual data -> Actual Costing


Overview Preliminary valuation price Actual Costing
Price differences

Updating single-level variances Single-level price determination Multilevel price determination

Actual Values Ov erview

Actual data -> Actual Costing


Overview Preliminary valuation price Actual Costing
Price differences

Updating single-level variances Single-level price determination Multilevel price determination

Pr elimin ary v alu ation pric e


S
Cost centers Orders
Activity types Internal orders

Level 2

S
Cost centers Orders
Activity types Internal orders

Level 1

External Procurement

Actual Costs

Preliminary valuation

Actual Values Ov erview

Actual data -> Actual Costing


Overview Preliminary valuation price Actual Costing
Price differences

Updating single-level variances Single-level price determination Multilevel price determination

Actual Cost in g

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

se ri gh a .. ou . r th

Actual Values Ov erview

Actual data -> Actual Costing


Overview Preliminary valuation price Actual Costing
Price differences

Updating single-level variances Single-level price determination Multilevel price determination

Up dating S ingle-Leve l V ariances


S
Cost centers Orders
Activity types Internal orders

462001 464018 . . Pr. . Inven. Price diff.

S
Cost centers Orders
Activity types Internal orders

462001 464018 . . . Pr. Inven. Price diff.

V V

External Procurement

Actual Costs

Preliminary valuation

Actual Values Ov erview

Actual data -> Actual Costing


Overview Preliminary valuation price Actual Costing
Price differences

Updating single-level variances Single-level price determination Multilevel price determination

Sin gle-L evel Pr ice Determinatio n


S
Cost centers Orders
Activity types Internal orders

119490 464017 . . End. Inven. Price diff.

S
Cost centers Orders
Activity types Internal orders

119430 464017 . . . End Inven. Price diff.

External Procurement

Price differences are not applicable

Actual Costs

Preliminary valuation

Actual Values Ov erview

Actual data -> Actual Costing


Overview Preliminary valuation price Actual Costing
Price differences

Updating single-level variances Single-level price determination Multilevel price determination

Mu lt ile vel Pric e D etermin ation


S
Cost centers Orders
Activity types Internal orders

119490 464017 . . End. Inven. Price diff.

S
Cost centers Orders
Activity types Internal orders

119490 464017 . . . End Inven. Price diff.

External Procurement

Price differences are not applicable

Actual Costs

Preliminary valuation

Pe rio d En d Overvie w

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

Pe rio d En d Overvie w Clo sing En try (1 )


With Revaluation
locked

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

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)

Pe rio d En d Overvie w Clo sing En try (2 )


Without Revaluation
locked

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

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

Pe rio d En d Overvie w Periodic Un it Pr ic e


Period opened ( beginning inventory Receipts Single- level price determination

Variances
Cumulative inventory (prelim. valuation) + Cumulative variances Cumulative inventory

Periodic unit price

= Periodic

unit

price

In fo rma tio n S ys tem Ove rv ie w


Materials to be costed Product Cost Planning Reports

Summarized Analysis

Object List

Object Comparisons

Detailed Reports

Report Sele ction

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

The Report can be used to

Report

The Report can be used to

Report

The Report can be used to

In fo rma tio n S ys tem Ove rv ie w


Materials to be costed Product Cost Planning Reports

Summarized Analysis

Object List

Object Comparisons

Detailed Reports

In fo rma tio n S ys tem Ove rv ie w

In fo rma tio n S ys tem Ove rv ie w


Material Ledger Reports

Object List

Detailed Reports

Displaying Documents

In fo rma tio n S ys tem Ove rv ie w


Materials to be costed Product Cost Planning Reports

Summarized Analysis

Object List

Object Comparisons

Detailed Reports

Report Sele ction

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.

In fo rma tio n S ys tem Ove rv ie w

In fo rma tio n S ys tem Ove rv ie w


Material Ledger Reports

Object List

Detailed Reports

Displaying Documents

Report Outp ut 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

Pr oduct Costing In form ation Syste m


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

Pr oduct Cost Plannin g R eporting


SAP Standard Reports

Customer report: Vehicles


:SAP Employee :SAP report report Telephone List List

:Customer report Distribution Channels Customer report: Buildings Customer report: Insurance

:SAP report

Org. Units

:SAP report

Events

:SAP report

Birthday List

Ad Hoc Queries

Custom-built Reports

Cost Ob ject R eporting

SAP Standard Reports


Organizational management standard reports menu path

Organizational management standard reports

Ma te rial L edger R eport ing

Some Standard Organizational Management Reports identified for Sabic are:


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