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December 27, 2016 | More than 30 minute read

SAP CONTROLLING – PRODUCT

COSTING PART-1

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PRODUCT COST PLANNING

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In General,

 RSS Feed Material cost comprises:

1. Material Cost.
2. Direct OH (Conversion cost)

The resources which are directly involved in the production to convert raw
material into finished product.

3. Indirect OH.

It is nothing but Service department Cost.

PROCESS OF COST DETERMINATION:

1. Production dept. gives the Bill of Material and Process sheet.

BOM contains the list of components of raw materials with quantities required
to produce the product.
Process sheet contains the process steps which is nothing but
The production department designs all the above process steps and the finance
dept. prepare budget or resource rate for the specific activity.

Material cost is arrived through bill of material (Qty’s * Price).The price is taken
from the purchasing department.

Conversion cost is the cost of all the activities directly involved in the production
which is specified in the above Routing.

OBJECTIVES OF PRODUCT COSTING:

To determine cost of a product or service.

To determine detailed cost of a Product.
Managerial decision making.
Valuation of Inventory and WIP.etc.

COMPONENTS OF PRODUCT COSTING:

Overview:

1. Product Cost Planning:

Product Cost Planning (CO-PC-PCP) is an area within Product Cost

Controlling (CO-PC) where you can plan costs for materials without reference to
orders, and set prices for materials and other cost accounting objects.

To determine cost estimate of the product.(Standard price)

We can use this price for valuation of Inventory.

Configuration Required;

1. Cost component Structure. (OKTZ)

It gives the breakup of cost of the product.

2. Costing Sheet. (KZS2)

To Calculate the Indirect Overhead.

3. Costing Variant for standard cost estimate. (OKKN)

Control parameters:

Costing type
Valuation Variant.
Date control.
Quantity structure Control.
Transfer control.
Reference variant.

2. Cost Object Controlling:

It comprises:

1. Calculation of plan cost and Actual cost for Order.

Config. required:

Costing variant for plans.(costing type 06)

Costing variant for Actuals.(costing type 07)

2. Period end Process.

It contains the following Activities.

Revaluation of Activities.
Actual overhead calculation.
CO Production settlement(Distribution of costs between main product and
Byproduct)
WIP calculation.
Variance Calculation.

Cost Object Controlling (Scenarios):

1. Product cost by order.

 Production order.
Process order.
Controlling production order.

2. Product cost by period. (Product cost collector)

3. Product cost by Sales order.

INTEGRATION OF PRODUCT COSTING WITH LOGISTIC MODULES:

With Production planning:

Integration points are:

In PP, Order type will be assigned to Settlement profile.

Result Analysis key.
Costing variant for plan and actuals.
In case of PP master data point of view. Work center comprises cost centers
and activity types.

Work center: (CR01)

It refers to a place where tasks or Activities are performed. It represents the

place, or machines, or group of machines or combination of any of them etc.

Routing:

It contains sequence of operations. And for each operation, it specifies on which

work center to be performed and on what activities to be performed and planned
execution time for them.

Routing is defined at material and plant combination.

Product Cost Planning

Elements:

Quantity structure Control.

It specifies the priority of sequence of which BOM and Routing to be used in the
cost estimate of the product. 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.

When determining the BOM and routing, the system also checks the following:

Whether the BOM and the routing are valid on the quantity structure date
Whether the lot size in the BOM and in the routing are the same as the costing
lot size

If, for example, the system finds a BOM according to the parameters in the
quantity structure control, but this BOM has a lot size or validity period that does
not correspond to the cost estimate, the BOM is ignored. The system continues
searching for a BOM using the next selection criteria until it finds one that is
valid.

A material can be represented in various alternative BOMs. You can specify that a
particular BOM alternative be used for the cost estimate at a certain date.

Bill of material:

The priority is defined based on the usage of the Bill of material.

Usage: Specifies the application areas for which the BOM is used. When creating
the BOM, we will specify the usage.
 If we have multiple BOM’S in the same application area or with same usage
number, then system picks the first BOM.

In case you want to pick a specific BOM, then you need to specify that BOM in
the alternative selection of Multiple BOM’S.

Routing:
The priority is defined with the combination of Task list type, Usage and status.

Task list type: It specifies the type of Routing.

Status: Released etc.

1. Date Control:

It specifies

Validity of the cost estimate.ie.The cost estimate is valid from which date to
which date.
Which date BOM and Routing to be used in the cost estimate of the product.
Which date price to be used in the cost estimate of the product.

Costing date from:

It could be either 1.Past Date

2. Future Date
3. Current Date.

1. Past date: If it is past date, we can generate the cost estimate but not
possible to save the cost estimate. It is not possible to mark and release the
cost estimate.
2. Future date: It is possible to generate, save and mark the cost estimate. It
updates material master costing 2 tab future price. It is not possible to
 release the cost estimate. It is possible to release the estimate once it
reached to the future date.
3. Current date: It is possible to Generate, save, mark and release the cost
estimate.

Quantity structure Date: It specifies which date BOM and Routing to be used.

Valuation Date: It specifies which date price to be used.

Determines the validity of the cost estimate and for costing date to, minimum
date should be until the end of the fiscal year and max is unlimited. This is
because system requires for the calculation of the variance.

Note:

1. Qty. structure date should be always to be dependent on Costing Date from

date.
2. Valuation date should be always to be dependent on Costing Date from date.
3. If you select manual entry, you can overwrite the date control values in
frontend CK11N while executing the cost estimate.

Marking Standard Cost

Estimates
To transfer the results of a standard cost estimate as the standard price in the
material master, you must mark and release the standard cost estimate.

You can mark the following:

One or more standard cost estimates

More than one standard cost estimate within one costing run

When you mark a standard cost estimate, the costing results are written to the
costing view of the material master as the future planned price.

Prerequisites:

Marking the standard cost estimate has been allowed. The marking
allowance specifies the company code and period in which you can mark a
standard cost estimate with a given valuation variant and costing version. You
cannot mark cost estimates/costing versions with different valuation variants
in this period.

You mark the cost estimate and transfer the costing results into the material
master as the future standard price.
 You can mark the cost estimate more than once at any time (until you release
it).

You can cancel the allowance for marking and thus the marking of standard
cost estimates
If you want to work with multiple valuation views, you can mark all of the views
(legal valuation, group and profit center).

It specifies which costing variant and costing version cost estimate allowed to be
permitted for the specific period to the specific company code.

Note: It is not possible to use multiple costing variants and versions to allow to
use in same period and company code to mark and release the estimate.
VALUATION VARIANT

Valuation variant is a Key that controls which prices the system selects to
valuate the quantity structure of a material cost estimate or order, or to
valuate the costing items of a unit cost estimate.

The valuation variant controls how the materials and activities in the cost
estimate are valuated. The valuation variant specifies the following
parameters:
Which price in the material master (such as the standard price) or in the
purchasing info record (such as the net order price) is used to cost a material
in the BOM

Which planned or actual price is used to valuate the internal activities

Which version in Cost Center Accounting is used to valuate internal activities

Which costing sheet is used to calculate overhead

Whether and to what extent a BOM item or an operation in the routing is

relevant to costing

The different valuation strategies for materials, internal activities, external

activities, and subcontracting are stored as strategy sequences.
 A global valuation variant is valid for all plants. A local valuation variant is valid
only for a specific plant. You define valuation variants in Customizing for
Product Cost Controlling.

Cost Object Controlling:

In Cost Object Controlling there is a valuation variant that can be used for the
valuation of work in process at target costs and for the valuation of scrap
variances.
In this valuation variant, you specify which cost estimate is used to calculate
the target costs.

Valuation variant contains the strategy i.e. which priority of sequence of source of
price to be used while valuating materials, Activities ,Sub contracting, External
processing, and also it specifies which costing sheet to be used to calculate the
indirect overheads.

We can maintain different valuation strategies for the same valuation variant
depends on the plant wise. System follows the first priority plant dependent
then it follows the global definitions.

Valuation Strategies:

Material valuation

Here you define the sequence in which the system searches for prices from the
accounting view or costing view of the material master record to valuate
materials. You can also access prices from purchasing info records and condition
types.

For material cost estimates, you also specify whether additive costs can be added
to the selected price.

Note:

Sub strategy will appear only if you have selected the price from purchase info
record in main strategy.

Additive Costs: Any costs you want to add manually as a part of Indirect
Overhead.eg.Storage.

Raw mat X–.100 RS +20% Additive cost.

Include additive costs means the valuation variant specifies whether to consider
or not to consider the additive cost in the cost estimate of the product. If not
activated, additive cost is not considered.

Purchasing: Assignment of Conditions to Cost Comps:

Purpose: To get the delivery and freight charges separately in the cost estimate of
the products & also to display the delivery and freight charges separately in the
cost estimate of the product. We need to assign the origin group the MM
condition type’s .Then, we need to assign the origin group to the cost component
in cost component structure.

Activity Types / Processes

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.

Plan/actual version

It specifies which version price to be applied in the cost estimate of the product.

You also specify which plan/actual version is used.

Subcontracting

Here you define the sequence in which the system searches for prices in the
purchasing info record. In purchasing, the quota arrangementsare 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.
 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.

External processing is also another form of sub-contracting type. It is nothing

but outsourcing of a particular activity eg.cleaning, painting Activity etc.
The val. Variant ext. processing strategy tab specifies which pricing strategy
to be used to valuate the out sourcing activity.

GROSS PRICE: price before deducting Rebate and Discount.

NET PRICE: Gross price – Rebate- Discount.

Condition Table: we can assess or read the price from the pricing condition
records.eg.freight and insurance.
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 groups and made the necessary settings for the costing sheet
in the step Define costing sheet.
You can also specify whether overhead is calculated for subcontracted
materials in material costing

Price Factors

It specifies whether to consider the total price or part of the price to be

considered in the cost estimate of the product.
Standard Settings

The standard system provides a number of predefined price strategies.

For material valuation, you can choose up to five (5) strategies for each
valuation variant.
For activity types/processes, you can choose up to three (3) activity prices for
each valuation variant.
For subcontracting, you can choose up to three (3) strategies for each
valuation variant.
For external processing, you can choose up to three (3) strategies for each
valuation variant.

You can modify these valuation variants to suit your requirements by changing
the standard strategy sequences as necessary.

Activities
1. Enter an alphanumerical key and a name for the new valuation variant.
2. Define a strategy sequence for the valuation of material components.
3. a) To do so, select a price from the material master.

If you access prices from purchasing info records and condition types, you can
enter up to three sub-strategies. If you take prices from condition types, you
must assign these condition types to origin groups in Customizing. (See Raw)

1. b) For each material valuation strategy, you can specify whether additive
costs are to be included in the valuation of the material component.
2. Define a valuation strategy for activity types and processes and assign a
plan/actual version from cost center planning.
3. Define a strategy sequence for subcontracting and choose a quota
arrangement for subcontracting.
4. Define a valuation strategy for external processing.
5. Assign a costing sheet under Overhead applied to semi-finished finished
materials to the valuation variant.
6. Specify whether overhead rates should be calculated for subcontracted
materials.
You can enter a costing sheet for the application of overhead to raw materials
under Overhead on material components.

If overhead should be calculated for subcontracted materials, you can specify

this here.

8. Save your entries.

9. Assign the valuation variant to a Costing variant.

Note
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.

Note
Materials valuated separately with the material ledger
The standard price is not included in the material ledger data, but rather the
current planned price which, as a rule, does not vary from the standard price.
In the valuation variant, specify that the system should also look for the
current planned price for the valuation of materials. This ascertains that, even
in the case of separate valuation, a price is found for the valuation of
materials.

COSTING VARIANT:

It contains the control parameters or it groups the costing parameters like

costing type, valuation variant, Date control, Qty. structure control, and
transfer control. These parameters are required to generate the cost estimate.

Costing variants form the link between the application and Customizing, since
all cost estimates are carried out and saved with reference to a costing
variant.
We can define multiple costing variants for std. cost estimate purpose but we
can use maximum one costing variant per company code for the specified
period.

Control Parameters in the Costing Variant

The costing variant contains all the control parameters for costing.

The costing variant for a material cost estimate contains the following control
parameters:

Costing type
Valuation variant
Date control
 Quantity structure control

(only relevant for cost estimates with quantity structure)

Transfer control (optional)

Reference variant (optional)

NOte

Although it is technically possible to have two costing variants with the same
costing type and valuation variant, this should be avoided to prevent data from
being overwritten.
The reason for this is that the key structure for the costing results in the
database uses the costing type and the valuation variant, rather than the
costing variant.

Note

Since this costing variant can be used for cost estimates both with and
without quantity structure, you must also make the settings that are only
relevant for cost estimates with quantity structure even if you are only
executing a cost estimate without quantity structure.
In Quantity structure you determine the following:

How the costing lot size is handled

Whether cost estimates without quantity structure are included Whether
transfer control can be changed when calling the cost estimate Whether an
active standard cost estimate can be transferred if the cost estimate for a
material contains errors

Pass on lot size:

This field determines whether costing lot size of all the components is based on
the higher level material or costing lot size of the components to be considered in
the cost estimate of higher level products. There are 3 options:

1. No
2. Only with individual requirement.
3. Always.

Pass on lot size: No:

In this case, the components are costed according to the component lot size
which is specified in the costing 1 view of the material master.e.g. A finished
product’s costing lot size is 10 pc. Where the component Sfg.X having lot size 100
pc.In this case, the cost estimates creates for the SFGx based on the lot size of
the 100 pc.Then the cost estimate for the finished goods will be created on the
costing lot size of 10 pc.That means, it takes component cost estimate price
based on the costing lot size of 100 pc. In the cost estimate of finished goods.

e.g.

For 10pc of Fin. Goods X, 10 pc of Sfg, x is req.

Fin. Good X lot size is 10 pc.

Sfg x lot size is 100 pc.

For SFG X., 100 PC

Raw mat. -100kg*100 =10000

Cleaning -10hrs *2000 = 20000

Machine hrs. -100hrs *300=30000

TOTAL: 60000

Per unit cost; 60000/100= 600

Sfg x price 600

Pass on Lot Size: Only with individual requirements:

In this case, the cost estimate generates the cost estimate of the component
based on the lot size of higher level material and it ignores the costing lot size of
the components.

Pass on Lot Size: Always:

In this case, all the materials in the multilevel BOM, It is costed based on lot size
of the final components (higher level component).This option is normally used in
the sales order cost estimate.

E.g. Applicable for above both

For 10pc of Fin. Goods X, 10 pc of Sfg x is req.

Fin. Good X lot size is 10 pc.
Sfg x lot size is 100 pc.

SFGX: 10 pc

Raw mat: 10*100 = 1000

Cleaning: 10 hrs. *2000 = 20000 (fixed cost)

Machine: 10hrs*300 = 3000

TOTAL: 24000

Value of SFGX WILL BE 24000

Ignore prod cost EST without Qty Structure:

This indicator determines whether a cost estimate with Qty structure can access
the data which is generated by the cost estimate without qty. structure. By
selecting this indicator, we can save the time i.e. unnecessary searching for the
data which is produced by cost estimate without qty. structure.

Transfer control can be changed;

This indicator controls whether allowed to change or not allowed to change the
default transfer control during the execution of the cost estimate.

Transfer Active std. cost est. if mat costed w/ Errors.

If this indicator is not activated, then system won’t allow to release of cost
estimate of higher level products unless rectifying the cost estimate of lower
level products.
If this indicator is activated, we can release the cost estimate even though the
lower components are having errors and it uses the alternative cost estimate
if any available. If there is no alternative cost estimate, then system throws the
error message.

In Additive Costs you determine the following:

Whether you can transfer the cost components that were entered in the form
of an additive cost estimate
Whether the additive costs for materials with the special procurement
types stock transfer or production are included in another plant.

We can add the additive cost manually like freight, OH, insurance in the
additive cost estimate of the product or material.
This field controls whether the cost estimated created with this costing
variant can allowed to include or enter manual cost in the form of additive cost
 estimate.
Option 1: Ignore additive cost.

It won’t allow to add the additive cost.

Option 2: Include

It allows to add the additive cost.

Option 3: Include the OH cost and apply the OH:

In this case, we can include the additive cost and also we can calculate the OH on
the additive cost.

Include additive cost with stock transfers:

The system will allow to include the additive cost for stock transfer between the
plants.

E.g. we can include the additive cost i.e. transportation cost for stock transfer
between the plants.

In Update you determine the following:

Whether the costing results can be saved and what values are updated

The cost component split is always updated. You must specify whether the
following values are also updated:

Itemization
Whether the user can change the update parameters and the parameters for
transfer control.
Which reference variant you want to use for group costing.

Saving allowed:
This indicator allows to save the cost estimate. We need to select this indicator if
we want to update the price to the material master also we need to select this
indicator for using this cost estimate for below scenarios:

1. for variance calculation.

2. Variance calculation.
3. Result analysis.

Save error log:

We can save error log for reference purpose.

Defaults can be changed by the user:

If this indicator is activated, then we have the option during the cost estimate to
change the default settings for saving message log and also itemization.
Normally, itemization and log update are required for every cost estimate for
analysis purpose. Giving the option i.e. to change the parameters to the user not
required. Hence, don’t select this indicator. If this indicator is not selected and by
default it update the log and also itemization and it won’t give any option to the
user to change itemization log message.

Itemization:

It provides the cost details at individual line item level of material, activities, and
Indirect OH. Itemization is a useful information when analyzing and reviewing the
cost at detailed level whereas cost component provides the summarization level.
Further grouping of cost component can be called as cost component group.

In Assignments you determine the following:

Which cost component structure is used for the cost estimate.

Which costing version is used.
Whether the cost component split can be saved in the controlling area
currency in addition to the company code currency
Whether you can cost across company codes with this costing variant

In the note Miscellaneous you determine the following:

 Whether a log is created to collect the system messages.

In this, we need to specify how the error log to be recorded and handled.

Transfer control & Reference variant:

The transfer control specifies or controls how the existing cost estimate is to
be used in the cost estimate of the other product.

Business case (purpose):

Usually we will perform the cost estimate yearly once for all the existing products.
During the year, if any new products created, we will run the cost estimate for the
new products.

Eg1: The new product contains all the new components .In this case, we will run
the cost estimate for all the components which are new products.

Eg2: The new product contains few components as old and some new
components. In this case, how the system should reuse the cost estimate of the
existing product in the cost estimate of other products.

If we regenerate the new cost estimate for existing products, then stem
generates the variant for all the existing products which is using the existing
component.

Note:
Through the transfer control, we can specify to use the existing cost estimate or
not in the cost estimate of the other products.

Transfer only with collective requirements material (field):

This indicator specifies how the existing cost estimate to be used in the sales
order cost estimate. If this indicator is activated, then system ignores the
existing cost estimate and rerun new cost estimate of the existing product in
the sales order cost estimate.
If this indicator is not activated, then system considers the existing cost
estimate for both individual requirements as well as the collective
requirement(The existing cost estimate can be reused in the sales order cost
estimate)

Fiscal Year:

This indicator refers the current year.

Period:

In the period, if you keep blank, then it refers only the current period.i.e.
System searches for existing cost estimate in the current period only.
In current and previous cost estimate, the period refers the number of periods
in the past. I.e. before the date of the cost estimate.
In case of future cost estimate, the period refers the number of periods in the
future i.e. after the start date of the cost estimate. And in the past (before the
start date)

You define transfer control in Customizing for Product Cost Controlling. You
use transfer control to specify how the system is to search for available cost
estimates in order to transfer existing costing data into another cost estimate.
You define a reference variant in Customizing for Product Cost Planning and
enter it in the costing variant. The reference variant contains a transfer
control ID, which finds the cost estimate to be copied.

Costing type

It is a Parameter that establishes the technical attributes of a cost estimate. It

specifies the purpose and usage of the cost estimate. It specifies whether allowed
to update the estimate to the material master or not and also it specifies which
price field to be updated in the material master. It also specifies which valuation
views to be costed.

Each costing type allows only one valuation view.

For a material cost estimate, the costing type controls the following:
 How the cost estimate is used, and which field in the material master is
updated with the cost calculated in the cost estimate (such as the standard
price, commercial price, or tax valuation price)
Which costs are used as the basis for allocating overhead
Which valuation view (legal, group, or profit center) is costed

For a base planning object, the costing type determines which valuation view is
costed.

In the following image, we can see the three tabs available under Costing
Type.This bifurcation in Costing Type is done by SAP to provide further
flexibility at the most granular level possible.

Price Update

Under this tab we define where the price calculated during the cost estimate
should be updated by the system. In the above image, we can see that the
standard Costing Type updates Standard price. This in other words mean, when a
material cost estimate is released, it will update standard price in material
master.

Following options are made available by SAP for updating the results

Standard Price
Tax-Based Price
Commercial Price
Prices other than standard price
 No Update

Note: We also need to keep in our mind that standard system contains costing
types that write to the material (standard price), and hence the system does not
allow to create our own costing types to do this i.e. updating standard price.

Save Parameters.

This tab contains configuration related to updating dates when the cost estimate
is saved and is divided into following two parts:

Cost Estimate with Quantity Structure

Here we have to select whether the date will be saved in standard cost estimate
and following options are available for us to opt from:

Without Date

In this, the standard cost estimate cannot be saved and hence cannot be used for
future analysis purpose. It is not possible to generate the std. cost estimate.

With date

The with date option can be used in the plan cost and also in the preliminary cost
estimate and we cannot use in the std. cost estimate.

With Start of Period

Always the std. cost estimate, it saves with the start of period (from the
beginning date of the period). E.g. we are running cost estimate on 6th august
and system will always saves the cost estimate in the back end from the
beginning of august i.e. 1st august.

This part becomes very important in case of product cost collect and hence,
SAP has provided separate Costing Type for Product Cost Collector which
contains relevant configuration to be opted for. Hence, it also becomes very
important to identify the requirement and try to find if any standard costing
 type or costing variant is provided by SAP for the scenario (in most of the
cases you will find the answer as YES) and if yes, go for it. If you do not find
appropriate standard configuration, take a cautious approach while
customizing.

Note: For the standard cost estimate, you must update automatic costing with
the with start of period indicator. This ensures that the results of the standard
cost estimate can be used as the standard price for that period. For the other
costing types, you can update the costing results with the with date indicator, for
example. In this case the current date becomes part of the key.

Additive Cost Estimatesthe purpose is to allow to enter the additive cost with
effect from which date, either with date or without date or with start of the
period. It will always considers the start of period in case of standard cost
estimate.

Misc. Tab:

This tab contains following two parts

Cost Portion for Overhead Application

This part works as a calculation base for calculating the overheads. Here we
have to select the cost component view that will be used for calculating
overheads (Costing Sheet).The cost component view can be used as a
calculation base in the OH calculation for the semi-finished goods in the cost
estimate of the finished goods. This option is used as a calculation base on the
COGM component field to calculate the OH for the semi-finished goods during
the cost estimate of the final component.

Partner Cost Component Splits

 Key that uniquely defines a combination of partner and direct partner.

To view the partner cost breakup details in the subsidiary companies in the
cost estimate of the product. This option is applicable only for group valuation
view. We can set the partner split parameters in the combination of company
code and plant or the combination of comp. code, plant, profit center and
business area combinations. It won’t applicable for your legal valuations.

Cost component Structure

It gives the breakup of the cost estimate of products like material cost,
packing mat cost, consumables, Mach. Cost etc. The cost component
structure contains the cost components (grouping of costs or cost elements)
Each cost component specifies whether it is relevant for valuation of inventory
or not and also it specifies under which cost components to be updated.
Eg.COGM, COGS, Inventory, and Tax inventory etc. Each cost component
specifies whether it is to be rolled up or not.
Any component which is relevant for inventory should be rolled up and shown
under COGM view.
The cost component can have maximum of 40 components in case of all
components are variable. In case of all components are fixed, then the CCS
can have maximum of 20 components.

Variable – 1

Fixed –2

There are two types of CCS. One is Main CCS and the other is Auxiliary CCS.

Cost Component Structure Contains Cost components:

1. Material cost
2. Packing material cost.
3. Consumables.
4. Cleaning cost.
5. Machining cost.
6. Labor cost.
7. Material OH.
8. Admin OH.

Cost component represents the grouping of cost or cost elements.

Each cost component specifies which portion of cost to be displayed and to be
considered for valuation of inventory.eg. Variable cost, or consider fixed and
variable cost.
Each cost component specifies whether to be rolled up or not. Every cost
component should be rolled up or not. Every cost component should be roll up
cost component which is relevant to COGM & inventory valuation
 Each cost component specifies whether it is relevant for inventory valuation or
not.
Each cost component, we need to specify which views to be updated
eg.COGM, COGS, or tax inventory or commercial inventory.
Main CCS can be called as Primary CCS.It is only possible to update to the
material master std. price field. Auxiliary CCS is not possible to update to the
material master std. price. We can able to transfer both main CCS and
Auxiliary CCS to COPA. Auxiliary CCS can be used to view the breakup of the
cost in the alternate view.

Cost component groups:

It is nothing but further grouping of cost components within the CCS.It

displays the cost at higher summarized level.eg.Mat cost, Dir OH, IOH etc. We
can define maximum of 99 cost component groups but we can be able to use
maximum 25 cost component groups across the cost component structures
within the controlling area.
One cost component can have maximum of 2 cost component groups. One
cost component group can be assigned to multiple cost components.

Types of Cost component structure:

1. Main CCS.

Only possible to update to the material master std. price.

2. Auxiliary CCS.

Cannot be possible to update to the material master std. price.

Note: Both can be possible to update to the costing based COPA.

Main CCS: The main CCS can also be called as primary CCS or Principle
CCS.Main CCS is mandatory for the standard cost estimate. Main CCS cost
estimate is only possible to update to the material master std. price field and also
possible to transfer to the Costing based COPA.

Auxiliary CCS: The purpose of this is to view the breakup of the cost estimate of
product in the alternate view in addition to main CCS.The auxiliary CCS cost
estimate is not possible to update to the material master std. price field and is
possible to update to the costing based COPA.

Primary cost component split:

The purpose of this to view the activity cost in terms of primary cost element
wise. Then, we need to activate the relevant CCS with the primary cost
component split indicator.
The primary cost component structure can be activated either for Main CCS
or Auxiliary CCS or Both.
 We can activate PCC.split for those CCS designed or structured with primary
cost elements.
The below activities or settings are to be done to get the primary split:

1. Need to assign the primary split CCS in the versions.

2. Need to perform the system calculated activity price.

Delta cost component Split:

It displays the profit between two company codes under the delta cost
component split in group valuation view.
The delta cost component split is not relevant for inventory valuation. It is not
required to assign any cost element to the delta cost component. We can
define maximum one delta cost component per one CCS .It is relevant only for
group valuation.

Int. / Ext. cost split:

The purpose is to view the cost estimate for the raw materials in terms of
grouping of cost like procurement cost, freight, insurance etc.

Assignment to the Organizational unit:

We can assign maximum two CCS i.e. Main CCS and Auxiliary CCS to the
combination of Company code, Plant and Costing Variant. But recommended
is to always use the same CCS across all the plants for all the costing variants
for the specific company.
If you have different CCS for different plants, then it is not possible to read the
cost estimate from other plants which belong to different CCS’s.
Even though we can define and assign different CCS for each plant wise within
the company code. But it is not recommendable to define multiple CCS within
the company code i.e. for each plant wise. The reason is that, we cannot
assess the cost estimate from one plant to another plant which belong to
different CCS’S. That is why, we will maintain uniform CCS across the plants
within the company code.

Define the CCS: (OKTZ)

Click on NEW ENTRIES.

Enter the following and Save:

Select C1 and click on cost components with attributes.

Click on New entries.

Enter the following and Save:

Creation of cost component group:

Click on new entries.

Enter the following and Save.

Assign C1 cc group to 01 Raw material cost component.

Create the cost components up to Consumables and assign to the relevant

group.
Same will applicable till packing cost.

Same with IOH.

Assign the cost components to CCS:

Select the cost component and click on assignment. And click on new entries.

The names will automatically come when you click enter.

101000: Raw material cost element.

101001: Raw material import cost element.

943000: Secondary cost element.

941000: 41 Category cost element.

Enter the following and Save.

Cost component views:

The PURPOSE of this that which cost component view cost to be displayed to
view the cost break up.

Click on New entries and save.

Auxiliary CCS:

Select C2 and click on Cost Component with attributes.

Click on new entries.

Do the same for similar kind of components.

For Salaries, power and Misc. exp.

Save.

For MOH.
For AOH:

Save.

Go back and select all cost components and click on assignment of cost
elements to CC’S.
Enter the following and Save.

Assign the Auxiliary CCS to the Organizational unit or Company code.

Assignment: Organiz. Units – Cost Component Structure:

Activate the CC structure and activate C1 and C2 and activate primary split to C2

Assign the primary cost component split in the CO versions.

IMG>Controlling>org.>Maintain versions

Select the 0 version and click on settings for each fiscal year.

Select 2016 and Double click.

Assign the Auxiliary CCS (c2) here and tick the below indicator and save.

Notes on the various indicators:

1. Cost share Indicator:

It specifies whether the fixed and variable costs or only variable costs are to be
displayed in the cost estimate.

2. Cost Roll up:

This indicator determines whether the costing results of the cost component are
rolled up to the next highest costing level. By activating this indicator, we can
specify that which cost component is rolled up to the next highest costing level.
We need to select this indicator for those components which is relevant to the
COGM &Inventory valuation.

3. Cost component group:

The purpose of this is to view the cost estimate break up at the higher
summarization level. It is the further grouping of the cost components. One cost
component can have maximum 2 Cost component groups.
Further criteria for cost component view on itemization:

In this tab, we can specify the cost components to be displayed under which cost
component view.

Inventory valuation:

This indicator controls which cost component is relevant foe inventory valuation.

COGS> which cost component is to be under COGS view.

Initial cost split:

It is to view the cost estimate of raw materials into different groups like
procurement cost, overhead or freight charges, insurance etc.

Delta profit for group costing:

This option is used in multiple valuation concept and prerequisites is needed. To

use this function, only into material ledger multiple valuation concept is
activated. The purpose is to display the internal profits between company codes
under the separate cost component in the group valuation view. We can select
maximum one cost component with delta profit indicator for cross component
structure .The delta profit cost component is not relevant for inventory valuation
and also not required to assign any cost element to the cost component which is
activated as delta profit indicator.

COSTING SHEET

Overhead: THE COST WHICH IS OTHER THAN MATERIAL COST.

Overhead is of two types:

1. Direct OH : Expenditure of dept. which are directly involved in the

production.

Basis of Allocation:

Activity types are used as a base to allocate DOH.Activity types are specified
in Routing. When you do the activity confirmation (CO11N), OH is allocated to
the production order.

2. Indirect OH: Service dept. cost.

Basis of Allocation:
Based on Activity type:

Separate activity types are defined for IOH allocation purpose.eg.Seperate

activity types are created for Main.Dept. Admin Dept., Procurement dept. etc.

Routing and Work center:

Here we will add the created new IOH activity types to the original activity
types in the Routing. Drawback is increases WC master data and increases
routing operations and activity types number limitation per Work center. We
can recover the 100% overhead and it won’t arise under or over absorption of
overhead.
When you do the confirmation of activity, it will updated to the production
order.

Template allocations:

It contains formulas and Rules along with using the activity types. Advantage
is PP master data won’t be disturbed and we can recover the 100% overhead
and it won’t arise under or over absorption of overhead. While executing the
template allocation program, the OH is allocated to production order at the
month end.

Not based on Activity type:

It is the pure traditional method. Costing sheet method is used to allocate IOH
to production order. OH is allocated on an assumption basis. We cannot
recover the 100% overhead and it will always arise under or over absorption of
overhead. In the period end process, while performing the Actual OH
calculation program, OH is allocated.
COSTING SHEET:

It specifies what % of OH to be applied or what quantity rate of OH to be

applied on which amount and under which conditions to be applied and from
which cost center to be allocated and which OH cost element to be used to
debit in the order and credit in the cost center.
Costing sheet components:

1. Base.
2. OH rate.
3. Dependency Key.
4. OH type.
5. Credit key.
6. Base:

Grouping of cost elements on which OH rate is applied.

2. OH rate:

Specifies OH% to be applied. It contains dep key OH type.

3. Dependency key:

It specifies the conditions, the OH rate is to be applied in which conditions.

4. OH Type:

It differentiates the plan and actual OH type.1-Actual and 2-Plan OH. We can
maintain different OH rate for Actual and Plan OH by using OH type.

5. Credit Key:

It species which cost center to be credited during the actual OH calculation

and also it specifies which OH cost element to be used to credit in the cost
center and to debit in the order.
One credit key represents one cost center.

Case example:
 Dependency key is the plant in both the cases.
One OH rate key (c100) is required for mat OH of 10% and 11% & another OH
key (C101) is required for activity OH for 15% and 20%.
One credit key (C3) is required for procurement department and one (C4) for
admin. Department.

Costing sheet is assigned to Valuation variant in OH tab

Click on NEW entries and enter following.

Click enter and Save.

Select the material cost and click on details.

Give your Controlling Area.

Cost portion: It specifies which type or portion of the cost to be grouped for OH
calculation purpose.

Total: It considers both Fixed and Variable Cost.

Click on New entries.

Give mat. Cost element group and SAVE.

Do same for the base C11.

Percentage overhead RATE:

Click on new entries.

Enter following and SAVE.

Define credits:

Click on new entries and enter following and save :

Select C3 and click on details:

 Click on new entries AND ENTER following.

Select C4 and click on details:

Click on new entries AND ENTER following.

If you specify value in the Fix % field, then in that case, the specified fixed %is
applied on the OH amount as a Fixed OH and remaining balance becomes the
variable OH.

e.g.:

Fix% 70%

Base total 1000

The OH rate is 15%.

Therefore the OH amount will be 150.

On OH amount 150.

Fixed OH (70%) 105

Variable OH (REMAINING) 45

Define Costing Sheet:

Click on New entries:

And SAVE.

Select the costing sheet and click on costing sheet rows.

Click on new entries.

Enter as above in the following and save.

Overall Scenario:
By,

Pradeep Reddy.

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