Production Variance Analysis in SAP® Controlling

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John Jordan 100 Things You Should Know About Controlling with SAP 2010, 289 pp. 978-1-59229-341-4

John Jordan Product Cost Controlling with SAP 2008, 572 pp. 978-1-59229-167-0

Janet Salmon Controlling with SAP–Practical Guide 2011, approx 475 pp. 978-1-59229-392-6

Marco Sisfontes-Monge Controlling-Profitability Analysis (CO-PA) with SAP 2007, 407 pp. 978-1-59229-137-3

http://www.sap-press.com

John Jordan

Production Variance Analysis in SAP® Controlling

Bonn � Boston

Dear Reader,

This latest edition of Production Variance Analysis in SAP Controlling continues in the excellent tradition of the first, providing you with essential information on every stage of variance analysis. I am confident that whether you are new to production variance analysis, looking for a comprehensive resource on the topic, or are looking to add to your SAP library, John Jordan’s updated second edition is just the book for you.

It was an honor to work with John on this new edition. His technical expertise and professionalism is consummately assuring in a process that can sometimes change at the drop of a hat. John has written two other highly acclaimed SAP PRESS books, and continues writing in order to provide you with his expert knowledge and advice. I look forward to his future works, as well as the privilege of working with him again.

We appreciate your business, and welcome your feedback. Your comments and suggestions are the most useful tools to help us improve our books for you, the reader. We encourage you to visit our website at www.sap-press.com and share your feedback about this work.

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Laura Korslund Editor, SAP PRESS

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The Library of Congress has cataloged the printed edition as follows:Jordan, John.

Production variance analysis in SAP controlling / John Jordan. — 2nd ed.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-1-59229-381-0

ISBN-10: 1-59229-381-6

1. Production control—Data processing. 2. Production management—Data processing.

3. Analysis of variance—Data processing. 4. SAP ERP. I. Title.

TS157.J67 2011

519.5’380285—dc22

011005026

ISBN 978-1-59229-381-0 (print) ISBN 978-1-59229-755-9 (e-book) ISBN 978-1-59229-756-6 (print and e-book)

© 2011 by Galileo Press Inc., Boston (MA) 2nd edition 2011

7

Contents

1 Initial Planning ......................................................................... 23

1.1 Sales and Operations Planning .................................................... 241.2 Long-Term Planning .................................................................... 25

1.2.1 Create Planning Scenario .............................................. 261.2.2 Long-Term Planning Run ............................................... 281.2.3 Transfer Requirements to Purchasing ............................. 321.2.4 Transfer Activity Quantities to Cost Center Accounting ... 35

1.3 Cost Center Planning .................................................................. 381.4 Summary .................................................................................... 44

2 Cost Estimates .......................................................................... 45

2.1 Master Data ................................................................................ 462.1.1 Material Master ............................................................ 462.1.2 Bill of Material .............................................................. 502.1.3 Routing ........................................................................ 512.1.4 Product Cost Collector .................................................. 52

2.2 Overhead Costs .......................................................................... 542.2.1 Calculation Base ........................................................... 552.2.2 Overhead Rate .............................................................. 562.2.3 Credit Key ..................................................................... 57

2.3 Cost Components ....................................................................... 582.4 Costing Variant ........................................................................... 612.5 Standard Cost Estimate ............................................................... 64

2.5.1 Create ........................................................................... 642.5.2 Mark and Release ......................................................... 68

2.6 Costing Run ................................................................................ 722.6.1 Selection ....................................................................... 742.6.2 Structural Explosion ...................................................... 762.6.3 Costing ......................................................................... 782.6.4 Analysis ........................................................................ 792.6.5 Marking ........................................................................ 812.6.6 Release ......................................................................... 83

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Contents

2.7 Preliminary Cost Estimate ........................................................... 852.7.1 Production Process ....................................................... 872.7.2 Transfer Control ............................................................ 872.7.3 Mass-Processing ........................................................... 90

2.8 Mixed Cost Estimate ................................................................... 902.8.1 Quantity Structure and Costing Version ........................ 912.8.2 Create Procurement Alternative .................................... 922.8.3 Define Mixing Ratios .................................................... 932.8.4 Create Mixed Cost Estimate .......................................... 94

2.9 Summary .................................................................................... 96

3 Actual Postings ......................................................................... 97

3.1 Primary Costs .............................................................................. 973.1.1 Goods Issue to Production Order .................................. 973.1.2 Vendor Invoice Posting ................................................. 98

3.2 Secondary Costs .......................................................................... 993.2.1 Assessment .................................................................. 993.2.2 Activity Confirmation .................................................... 100

3.3 Credits ........................................................................................ 1013.3.1 Primary Credits ............................................................. 1013.3.2 Secondary Credits ......................................................... 102

3.4 Post Actual Costs ........................................................................ 1033.4.1 Create Production Order ............................................... 1033.4.2 Confirm Activities ......................................................... 1043.4.3 Default Activities .......................................................... 1063.4.4 Operation Sequence ..................................................... 108

3.5 Report Actual Costs .................................................................... 1093.6 Summary .................................................................................... 110

4 Period-End Processing .............................................................. 111

4.1 Types of Variance Calculation ...................................................... 1114.1.1 Total Variance ............................................................... 1114.1.2 Production Variance ...................................................... 1124.1.3 Planning Variance ......................................................... 112

4.2 Variance Configuration ................................................................ 1134.2.1 Define Variance Keys .................................................... 113

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Contents

4.2.2 Define Default Variance Keys for Plants ........................ 1154.2.3 Define Variance Variants ............................................... 1154.2.4 Define Valuation Variant for Scrap and WIP .................. 1174.2.5 Define Target Cost Versions .......................................... 118

4.3 Variance Categories .................................................................... 1224.3.1 Input Variances ............................................................. 1234.3.2 Output Variances .......................................................... 125

4.4 Period End .................................................................................. 1284.4.1 Overhead ...................................................................... 1284.4.2 Work in Process ............................................................ 1304.4.3 Variance Calculation ..................................................... 1364.4.4 Settlement .................................................................... 144

4.5 Cost Center Variances ................................................................. 1474.5.1 Information System ....................................................... 1474.5.2 Target Cost Analysis ...................................................... 1514.5.3 Variance Analysis .......................................................... 1544.5.4 Actual Price Calculation ................................................ 158

4.6 Purchase Price Variance .............................................................. 1634.6.1 Master Data .................................................................. 1644.6.2 Configuration ................................................................ 1654.6.3 Reporting ..................................................................... 166

4.7 Actual Costing/Material Ledger ................................................... 1724.8 Summary .................................................................................... 172

5 Scrap Variance ........................................................................... 175

5.1 Scrap Basics ................................................................................ 1755.2 Assembly Scrap ........................................................................... 177

5.2.1 Assembly Scrap Definition ............................................ 1775.2.2 Effect of Assembly Scrap on Quantities ......................... 1775.2.3 Assembly Scrap Master Data ......................................... 1785.2.4 Planned Assembly Scrap Costs ...................................... 1795.2.5 Actual Assembly Scrap Costs ......................................... 1815.2.6 Variance Calculation ..................................................... 1825.2.7 Assembly Scrap Target/Actual ....................................... 183

5.3 Component Scrap ....................................................................... 1875.3.1 Component Scrap Definition ......................................... 1875.3.2 Effect of Component Scrap on Quantities ...................... 1875.3.3 Component Scrap Master Data ..................................... 188

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Contents

5.3.4 Planned Component Scrap Costs ................................... 1895.3.5 Actual Component Scrap Costs ..................................... 1905.3.6 Variance Calculation ..................................................... 1935.3.7 Component Scrap Target/Actual .................................... 193

5.4 Operation Scrap .......................................................................... 1975.4.1 Operation Scrap Definition ........................................... 1975.4.2 Effect of Operation Scrap on Quantities ........................ 1985.4.3 Operation Scrap Master Data ........................................ 1995.4.4 Planned Operation Scrap Costs ..................................... 2005.4.5 Actual Operation Scrap Costs ........................................ 2025.4.6 Variance Calculation ..................................................... 2035.4.7 Operation Scrap Target/Actual ...................................... 204

5.5 Combined Scrap .......................................................................... 2085.5.1 Component Scrap ......................................................... 2085.5.2 Component and Operation Scrap .................................. 2095.5.3 Component, Operation, and Assembly Scrap ................ 2095.5.4 BOM Item Operation Scrap .......................................... 2115.5.5 Operation and Assembly Scrap ..................................... 2125.5.6 Calculate Assembly Scrap .............................................. 212

5.6 Summary .................................................................................... 215

6 Reporting .................................................................................. 217

6.1 Summarized Analysis Reports ...................................................... 2186.1.1 Product Drilldown Reports ........................................... 2206.1.2 Summarization Hierarchy Reports ................................. 227

6.2 Detailed Reports ......................................................................... 2356.3 Line Item Reports ....................................................................... 2376.4 Production Order Reports ........................................................... 239

6.4.1 Order Information System ............................................. 2396.4.2 Order Selection ............................................................. 242

6.5 Cost Center Reports .................................................................... 2446.6 Summary .................................................................................... 2466.7 Guide Summary .......................................................................... 2476.8 Looking Ahead ........................................................................... 249

11

Contents

Appendices ..................................................................................... 251

A Glossary ............................................................................................... 253B Bibliography ......................................................................................... 273C Additional Resources ............................................................................ 275D The Author ........................................................................................... 279

Index .................................................................................................... 281

Service Pages ............................................................................................. I Legal Notes ............................................................................................... III

13

Acknowledgments

I’d like to acknowledge that only with the total and unwavering support of my family am I able to write books, including the one you’re reading. When searching for insight on material to inspire and motivate readers, spending time with my family, without fail, allows the pages to flow freely.

I’d also like to thanks the many readers who’ve encouraged me to write more Controlling books. I regularly receive feedback such as the following email:

I would like to thank you very much for writing and publishing your book. It has helped me greatly in my work. My job is a material controller within the finance section of a manufacturing company. The only knowledge I have on how to use SAP was by being told how to run transactions by the company that helped us “go live.”

Are there any other books that you have written that would benefit me? Thank you once again for a great book.

Thanks to all those readers who’ve provided such feedback; please continue. This second edition includes additional material based on market research, including feedback from readers of the first edition, and I’m certain that you’ll find this book a valuable addition to your library.

You can contact me at [email protected].

John Jordan

Personal Copy for Mireille Raybaud, user id a5fd3b4f-d601-c76a-0655-736e6618762d

© 2013 by Galileo Press Inc., Boston (MA)

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Preface to the Second Edition

Welcome to the second edition of Production Variance Analysis in SAP Controlling. The best-selling first edition was published in 2007, and is still the only book avail-able on the market that discusses variance analysis in Controlling (CO) in detail. This second edition has the completely new format of the SAP PRESS Essentials hardcover series. It also includes a great deal more material on long-term planning, marking allowance and costing run steps, default yield and activity quantities dur-ing confirmations, combined scrap examples, production order system reports, and cost center reports. This additional information is listed in detail in the bullet list below.

This book consists of a comprehensive review of variance analysis in CO, based on SAP ERP Central Component 6.0. The screenshots and menu paths are updated to the latest version. We also discuss many areas integrated with CO, including long-term planning, Material Requirements Planning (MRP), Materials Management (MM), Production Planning (PP), and Purchasing.

The structure of this Essentials guide should help you navigate your way through, and also help you decide which chapters to concentrate on more than others, depending on your requirements. The chapters are presented in logical order from the initial planning stage of variance analysis through the final stages of reporting the results. The following list provides a glimpse of the contents in this second edition guide:

EE Chapter 1: Initial Planning Sales plan quantities are converted into production plan quantities in sales and operations planning, and transferred to long-term planning to determine work center loads and purchasing requirements.

New sections include planning scenarios and long-term planning runs. You will learn how to create planning scenarios, compare different versions of planned independent requirements, and create simulative planned orders.

EE Chapter 2: Cost Estimates Master data, such as bill of material (BOM) and routings, provide quantity


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information, while costing variants provide control and price search strategy for cost estimates. You’ll learn how to create and analyze standard and preliminary cost estimates and carry out costing runs.

This chapter includes a newly expanded section on marking allowance and all the six costing run steps. The mixed cost estimate is now explained, including information on configuration, procurement alternatives, and mixing ratios.

EE Chapter 3: Actual Postings We explain primary and secondary postings in detail with many examples, tips, and notes. You’ll learn how margin analysis in profitability analysis (CO-PA) works, and how settlement of production variances to CO-PA improves profit-ability analysis.

New sections explain how you configure default yield and activity quantities during activity confirmation, and how you can control the sequence of opera-tion confirmation.

EE Chapter 4: Period-End Processing We review variance calculation types, configuration settings, and input and output variance categories. More explanation and examples of variance categories are now included. We discuss period-end processing, walk through variance analysis case scenarios, as well as review cost center and purchase price variance analysis, and the material ledger.

EE Chapter 5: Scrap Variance You’ll learn how to plan scrap, review cost estimates, post actual scrap, and analyze product cost collector and production order reports. Detailed screenshots include cost estimates with and without plan scrap, and also illustrate how to analyze detailed reports before and after actual scrap is posted. You’ll find a new section on combined scrap, which contains five new scenarios, each with detailed diagrams and explanations.

EE Chapter 6: Reporting The final chapter of this guide provides details of standard variance reports, including summarized analysis, detailed reports, and line item reports. New sec-tions include the production order information system, order selection reports, and standard cost center reporting.

This book covers all the details on how sales and production plans are developed, and how master data and configuration are set up in preparation to create cost estimates. You should gain a firm understanding of how actual costs are posted


17


during inventory issues and activity confirmations. Furthermore, you will under-stand how variances are calculated during period-end processing, as well as how they are reported on using the many standard reports.

Now that you understand what we will cover in this book, let’s move on to discuss an overview of the CO process in the Introduction.



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Introduction

Controlling (CO) involves the analysis of the costs of running a company, as well as internal reporting. These activities help management determine profitability and efficiency trends. The CO process typically begins by creating a budget or plan for the next fiscal year. The plan costs are used to create standard cost esti-mates, which are released at the start of the next fiscal year. Each period end, cost center managers analyze the difference between plan costs and actual expendi-ture, production managers analyze production variances due to the difference between standard costs and actual production costs, and purchasing managers analyze purchase price variances due to the difference between standard cost and purchase price.

SAP provides processes and reports to assist with all phases of the CO process. Production variance analysis involves three main steps, which are described here in sequence:

1. You create a standard cost estimate to determine the expected cost to produce an assembly. The cost estimate takes the bill of materials (BOM) and routing (series of tasks required to build the assembly), and rolls the costs up from the lower-level purchased components to the finished product. Plan overhead is added to the assembly cost based on a percentage of the material or labor cost.

2. Actual costs of manufacture are collected on a manufacturing order or product cost collector. Actual costs occur as component materials are moved from inven-tory to the production floor, as labor activities are confirmed, and at period-end overhead calculation. The total plan assembly cost becomes the cost of sales as the finished products are shipped to the customer.

3. Total variance is the difference between manufacturing order actual costs (debits) and planned costs (credits calculated at quantity of finished goods produced times standard cost estimate price). The balance on the manufacturing order is analyzed during variance calculation, and variance categories are assigned.


20

Introduction

It may help you understand CO if we use a comparison with Financial Account-ing (FI), which produces financial reports for external (legal) requirements. These reporting requirements are usually different from the requirements for analyzing company internal costs to see how efficiently the company operates. By analyzing internal manufacturing efficiency with variance analysis, a company can gain a large competitive advantage over companies either not using SAP or not using the variance analysis capability provided by SAP.

Target Audience

This guide is useful for users, managers, and consultants alike. It explains CO concepts from a simple and easy-to-understand level, while also containing master data and configuration setup requirements. You can use this guide as a reference, referring to specific sections when needed. For example, during period-end process-ing, you may refer to the period-end variance analysis section. Or you may refer to the reporting section when setting up summarization hierarchies.

Looking Ahead

After reading this guide, you will have a clear understanding of the entire cycle of variance analysis, from plan and actual postings to period-end processing and reporting. You’ll learn how CO integrates with other modules, such as Production Planning and Materials Management. You’ll also learn configuration and master data settings to improve your variance analysis and reporting.

The benefits of frequent variance analysis can be significant. For example, an increase in lot size variance and purchase price variance detected during analysis may indicate that actual manufacturing and purchase quantities are smaller than planned in the standard cost estimate, causing an increase in unit cost. This may lead to an investigation of manufacturing and purchase quantities, and a review of Material Requirements Planning (MRP) procedures for manufacturing. It could also lead to implementation of a new strategy of combining purchas-ing requirements across plants to increase purchase quantities. The trend of decreasing lot sizes would be difficult to determine by any method other than variance analysis, as described in this guide. This is only one example of the many possible scenarios of variance analysis resulting in reduced costs by early detection of trends.


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Introduction

This guide will allow you to take full advantage of the many benefits of variance analysis by clearly laying out the process from start to finish and explaining in detail the different analysis and reporting options available. You do not need a detailed knowledge of accounting or logistics to understand the concepts and details discussed in this guide.



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1 Initial Planning

The process of variance analysis begins much earlier than the period-end analysis of variance calculations. It actually begins in the previous fiscal year when sales, production, and cost center plans are created. This planning data assembles valua-tion information necessary for the creation of cost estimates for the following fiscal year. Standard cost estimates provide plan costs for the manufacture of products, which, when compared with actual costs, form the basis of variance analysis.

Although there are many alternatives for entering and processing plan data in the system, in this chapter we will follow a typical flow from sales and operations plan-ning (SOP) to long-term planning to cost center accounting. A sales plan is entered in SOP, and multiple sales scenarios are analyzed. A preferred sales plan is then converted into a production plan, which is then transferred to long-term planning. After executing a long-term planning run, you can transfer required quantities of purchased materials to the purchasing information system to assist in determining the purchase price. You can also transfer activity scheduled quantities from long-term planning to cost center accounting, where, together with cost center planning data, activity and overhead rates are calculated.

Note

You can enter sales plans into Profitability Analysis (CO-PA) and create complete planning cycles by transferring the sales data from CO-PA to SOP, long-term planning, and cost center accounting. You can then create cost estimates with different costing versions and transfer the results automatically to CO-PA with a functionality called valuation. In CO-PA reporting, you can analyze the profitability of each product by comparing the sales value with the cost of sales provided by the cost estimates.

You can create complete planning cycles for best- and worst-case scenarios, and determine the profitability for each. In each of the modules just mentioned, you can create separate plan versions. If you use the same version number for each planning cycle in each of the modules, you can easily track each cycle through the modules.

More detailed information on integrated planning can be found in the SAP PRESS book Product Cost Controlling with SAP.


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Initial Planning1

Let’s begin initial planning by entering a sales plan in the SOP module.

1.1 Sales and Operations Planning

You can enter the sales plan for future fiscal years directly into the SOP module. The sales plan can be entered for a product group and disaggregated to lower members, or entered directly for individual materials. The production plan is determined from the sales plan and then transferred from SOP to long-term planning. If the production plan is determined from the sales plan on a spreadsheet, instead of the SOP module, it can be entered directly into planned independent requirements in demand management.

Enter a sales plan for a material into SOP with Transaction MC88 or via menu path Logistics • Production • SOP • Planning • For Material • Change. The screen shown in Figure 1.1 is displayed.

Figure 1.1 Sales and Production Plan Entry Screen in SOP

Sales plan quantities are entered in the Sales row, and production plan quantities are entered in the Production row. Figure 1.1 shows an example of the Produc-tion plan offset forward in time from the Sales plan by one month to help ensure sales plan delivery dates are met. After the production plan is determined, it is transferred directly to demand management with Transaction MC74 or via menu path Logistics • Production • SOP • Planning • For Material • Transfer Mate-rial to Demand Management. The screen shown in Figure 1.2 is displayed.


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Long-Term Planning 1.2

Figure 1.2 Transfer Production Plan to Demand Management

You can transfer either the Sales plan or Production plan for either an individual material or PG members (product group members) by selecting the appropriate radio button in the Transfer strategy and period section, and then clicking on the Transfer now button.

Now that we’ve converted the sales plan into a production plan and transferred the production plan to demand management, let’s start working with this information in long-term planning.

1.2 Long-Term Planning

Long-term planning allows you to enter medium- to longer-term production plans into the system. Medium-term production plans generally involve production quantities between three months and three years into the future. Longer-term production plans can plan production quantities as far into the future as you need. The production plan represents planned independent requirements, which are used to meet the two following downstream prerequisites necessary to create cost estimates:

EE They generate requirements for purchased items. These can be used to request vendor quotations, negotiate raw material prices, and ensure that purchasing info records are current. Purchasing info records are commonly used by cost estimates to determine the estimated plan price of components.


26

Initial Planning1

EE They can be used to transfer scheduled activity requirements to cost centers. Cost center planned costs, divided by scheduled activity requirements provide an estimate of the planned activity price used by cost estimates to determine labor costs.

You can transfer the production plan from SOP, as discussed in Section 1.1, or enter it directly with Transaction MD62 or via the menu path Logistics • Production • Production Planning • Long-Term Planning • Planned Independent Require-ments • Change. The data entry screen shown in Figure 1.3 is displayed.

Figure 1.3 Change Planned Independent Requirements

These requirements correspond with the production plan transferred from SOP shown in Figure 1.1. The requirements can be changed, or additional require-ments can be entered directly in long-term planning. The version active indicator, shown in the A column in Figure 1.3, determines if the requirements are relevant to operative Material Requirements Planning (MRP). If relevant to operative MRP, requirements will result in the generation of planned orders, which can be con-verted to production orders for in-house production and purchase requisitions for external procurement. The system also explodes the bill of material (BOM) for assemblies produced in-house and generates dependent requirements for material components. Before you can proceed with long-term planning, you need to create planning scenarios, as we describe in the following section.

1.2.1 Create Planning Scenario

The first step in using long-term planning is to define planning scenarios, which control how long-term planning is carried out. To compare different versions of planned independent requirements or plants, you can create various planning scenarios and then compare the planning results of these scenarios. You create a planning scenario with Transaction MS31, or by following menu path Logistics •


27


Production • Production Planning • Long-Term Planning • Planning scenario • Create. The screen shown in Figure 1.4 is displayed.

Figure 1.4 Create Planning Scenario

Enter the Planning Scenario and description you want to create. In this example, we’ll use planning scenario 005 as a reference and copy the parameters to planning scenario 006. Press (Enter) to display the screen in Figure 1.5.

Figure 1.5 Create Planning Scenario Control Data

Click on the Planned Independent Requirements button to allocate the planning scenario to the planned independent requirements versions to be included in plan-ning. For example, you could assign planning scenario 000 to planned independent


28

Initial Planning1

version 00, which we created in Figure 1.3. This enables you to carry out scenario planning, for example, best- and worst-case scenarios.

Click the Plants button to assign the planning scenario to a plant or group of plants. After you have reviewed all the settings in the planning scenario, click the Release + Save button to release the planning scenario. After you have released the planning scenario, you can only change the allocation of the planned independent requirements versions. Only released planning scenarios can be used in a long-term planning run.

Right-click any of the checkboxes in this screen, and select Help to display detailed information. The Consider sales orders checkbox is of particular importance. This selection determines whether sales orders are taken into account in long-term planning. Sales orders are automatically copied from operative planning and can-not be changed in long-term planning. The customer requirements from operative planning consume planned independent requirements in long-term planning. If you do not select this checkbox, only planned independent requirements are taken into account. You can use this checkbox for scenario planning.

Example

Government defense contracts can extend many years into the future, long before sales orders are created. You determine production planning requirements by entering planned independent requirements in place of future sales orders. If you select the Consider sales orders checkbox in Figure 1.5, sales orders that are created in the future automatically consume the planned independent requirements, which were manually entered. This avoids the need to manually remove planned independent requirements as sales orders are created.

Now that we’ve created a planned scenario, we are ready to run and evaluate long-term MRP and send the results to the purchasing information system.

1.2.2 Long-Term Planning Run

You can carry out a long-term planning run either for an individual material or collectively for all materials in a plant. All planned independent requirements and sales orders, depending on your setting in Figure 1.5, within the planning scenario time frame are analyzed. The dependent requirements for all manufactured and purchased items are determined from the operative BOM. You can also carry out


29


long-term planning with a separate BOM for long-term planning. Simulative depen-dent requirements and simulative planned orders are created for all components.

You can carry out a collective long-term planning run with Transaction MS01 for online processing, Transaction MSBT for background processing, or by following menu path Logistics • Production • Production Planning • Long-Term Plan-ning • Long-Term Planning • Planning Run. The screen shown in Figure 1.6 is displayed.

Figure 1.6 Collective Long-Term Planning Run Selection Screen

The Planning Scenario determines which version of planned independent require-ments the planning run will analyze. The planning scenario must be released before you can use it in a planning run.

You can restrict the selection by MRP group with the Scope of planning field and also by Plant. The usual procedure is to run MRP for the entire plant. This is often a batch job run at night, although you may also run it online. Two net changes, Processing keys NETCH and NETPL, allow you to restrict MRP processing time by only analyzing materials that have undergone a planning-relevant “change” since the last planning run such as sales order entry, purchase order entry, or stock release. Processing key NETPL also restricts the planning run by planning horizon. Any changes made outside the planning horizon will not be considered in the planning run.


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Initial Planning1

The regenerative planning processing key NEUPL disregards whether planning rel-evant changes were made to the material or not. All materials with an MRP-relevant planning type in the material master MRP1 view will be processed.

You can choose whether or not to create an MRP list that displays the results of the last planning run for a material. It remains unchanged until the next MRP run. The MRP list contains exception messages that can assist the planner. Exception messages indicate, for example, that an order should be postponed or that the safety stock quantity has been exceeded.

After you have reviewed all the planning run parameters, press (Enter) to start the planning run. When the planning run is complete, you will see a results screen as shown in Figure 1.7.

Figure 1.7 Long-Term Planning Run Results Statistics


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If you chose to create an MRP list in the selection screen in Figure 1.6, you will also see a list of materials included at the top of the planning run results screen, as shown in Figure 1.8.

Figure 1.8 Long-Term Planning Results Screen Including MRP List

Click on an individual material, and then click the MRP List button to branch to a list of the simulative planned orders created for that material during the last planning run.

Click on the Curr.list button to branch to the stock/requirements list, which is a dynamic list displaying the current status of stocks, requirements, and receipts. Changes are immediately visible as soon as the stock/requirements list is called up or the elements are read from the database using the refresh function in the stock/requirements list.

Click on the Except.grp button to display a list of definitions of the exception messages for each of the eight Selection Group columns, as shown in Figure 1.9. Exception messages are created during the planning run for situations that have to be checked by the MRP controller.

Figure 1.9 Definition of Planning Run Exception Messages

You can display the long-term MRP list at any time with Transaction MS05 for an individual material, Transaction MS06 for a collective display, or by following menu path Logistics • Production • Production Planning • Long-Term Planning • Evaluations.


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Initial Planning1

Now that we’ve executed a planning run and evaluated the results, let’s look at how to transfer the results to the purchasing information system.

1.2.3 Transfer Requirements to Purchasing

Long-term MRP can be used to generate simulative planned orders based on planned independent requirements. Simulative planned orders are not converted into pur-chase requisitions or production orders. Simulative data for external procurement can be transferred to the purchasing information system and evaluated.

This information can be used as the basis for generating vendor Request for Quota-tions (RFQ), negotiating raw material prices, and ensuring purchasing info records are current. Updated purchasing info records are then used by cost estimates as the basis for determining raw material purchase prices.

You can transfer long-term planning data to the purchasing information system with Transaction MS70 or via menu path Logistics • Production • Production Plan-ning • Long-Term Planning • Evaluations • Purchasing Information System • Set Up Data. The screen shown in Figure 1.10 is displayed.

Figure 1.10 Set Up Purchasing Info Data from Long-Term Planning

The Version Info Structure S012 field allows you to determine the receiving plan version of the purchasing plan data. If you do not enter a plan version, the system uses the Planning Scenario as the planning version number. You can also choose how the purchase order value is calculated in the Ord.value calculation section. Complete the selection screen as follows:


33


1. Complete the Planning Scenario and Version Info Structure S012 fields.

2. Select Standard/moving avg.price, and deselect Test session (no DB changes).

3. Click the execute icon to start the transaction.

Figure 1.11 shows an example of messages displayed after running Transaction MS70.

Figure 1.11 Messages after Sending Data to Purchasing Information System

The messages provide an indication of the quantity of information transferred. You can also run a report on long-term planning purchasing data with Transaction MCEC or via menu path Logistics • Production • Production Planning • Long-Term Planning • Evaluations • Purchasing Information System • Material. The selection screen shown in Figure 1.12 is displayed.

Figure 1.12 Purchasing Information System Selection Screen


34

Initial Planning1

The Planning Scenario field allows you to choose the long-term planning sce-nario to base the analysis on. You can also choose how the purchase order value is calculated in the Ord.value calculation section. Complete the selection screen as follows:

1. Complete the Planning Scenario field.

2. Select Ad-hoc evaluation and Standard/moving avg.price.

3. Complete the Purch. Organization, Material, and Plant fields.

4. Press the (F8) key to start the transaction.

Figure 1.13 shows an example of the data displayed.

Figure 1.13 Purchasing Information System Data

This report provides information on future purchasing requirements. You can display purchasing requirements per period by clicking the time series (lightning bolt) icon shown in Figure 1.13. An example of the output screen is displayed in Figure 1.14.

Figure 1.14 Time Series of Purchasing Requirements


35


Click on the icon next to PO value to toggle between purchase order value, quan-tity, and price. This provides useful data for obtaining vendor quotations for future requirements of purchased materials.

Activated planned independent requirements are also visible in operative MRP. In addition to data transferred to the purchasing information system, the purchasing department has visibility of activated planned independent requirements through planned orders generated by operative MRP and purchase requisitions converted from the planned orders. These also can be the basis for updating purchasing info records.

1.2.4 Transfer Activity Quantities to Cost Center Accounting

In addition to ensuring that purchasing info records are up to date, long-term planning activity quantities can be transferred to cost center accounting. From the production plan for products, long-term MRP generates requirements for all lower-level components and work centers. The activity requirements are then transferred to corresponding cost centers with Transaction KSPP or via menu path Logistics • Production • Production Planning • Long-Term Planning • Environment • Activity Requirement • Transfer to Cost Centers. The screen shown in Figure 1.15 is displayed.

Figure 1.15 Transfer Planned Activity Requirements Selection Screen


36

Initial Planning1

This selection screen allows you to enter the Parameters of the activity quantities to send to cost center accounting. Because we are interested in activity quantities sent to cost centers per activity, we will select the corresponding radio button in the Level of detail: Output lists section. Complete the selection screen as follows:

1. Complete the Version, Period, and Fiscal Year fields.

2. Select the Execute period adjustment indicator.

3. Select the Cost center/activity type radio button.

4. Click the Transfer control button.

Figure 1.16 shows the next screen that is displayed.

Figure 1.16 Transfer Controls for Activity Requirements

Each line in Figure 1.16 corresponds to a controlling Version. Versions are used to carry out scenario testing with different cost center plan, activity prices, and any other parameter in cost center planning. You can create as many versions as you like, but normally only version 0 contains both plan and actual data. To change transfer control settings, click on the number in a Version column, and then click the details (magnifying glass) icon.

Figure 1.17 shows the screen that is displayed after clicking the icon.

You transfer SOP, MRP or Long-term plng (long-term planning) activity quantities to cost center accounting by doing the following:

1. Choose the appropriate radio button in the section Transfer activity require-ments from:.

2. Press the (F3) key twice.

3. Click on the Execute button shown in Figure 1.15 to start the transaction.


37


Figure 1.17 Transfer Control Definition Screen

You can create only one transfer control per version. Figure 1.18 shows an example of the resulting list of activity requirements transferred to cost center accounting.

Figure 1.18 Transfer Planned Activity Requirements

You display activity quantities per period by double-clicking on any schedule activity quantity shown in the Activity scheduled column. Scheduled quantities


38

Initial Planning1

transferred to cost center accounting are displayed in the planned activity price entry screen, as discussed in Section 1.3.

In long-term planning, we determined the component purchasing requirements and transferred them to the purchasing information system. We also determined the scheduled activity requirements and transferred them to cost center accounting. The next step in initial planning is to carry out cost center primary cost planning, and then, together with scheduled quantities transferred from long-term planning, calculate the planned activity rate required by cost estimates to determine activity costs.

1.3 Cost Center Planning

Cost center planning meets two requirements for variance analysis. First, primary cost planning functions as a benchmark for comparing plan costs against actual costs as they occur. This analysis provides a measure of cost center manager per-formance. Second, dividing the plan primary costs by the plan activity quantity provides an estimate of the planned activity rate, which is needed by cost estimates to determine labor costs.

Determining planned workload (activity quantities) of production cost centers for the following fiscal year is a desirable prerequisite for cost center planning. Activ-ity quantities are necessary to determine variable costs such a wages and energy. Planned activity quantities are determined from work center loads resulting from the production plan, which is in turn determined from the sales plan. You can transfer scheduled activity quantities from SOP, MRP, or long-term planning to cost center planning. You then convert the scheduled activity quantities into planned activity quantities using plan reconciliation.

You enter the plan for primary costs by primary cost element, corresponding to a general ledger expense account. Examples are plan payroll and depreciation costs against corresponding cost elements for each cost center.

You enter a primary cost plan for a cost center with Transaction KP06 or via menu path Accounting • Controlling • Cost Center Accounting • Planning • Cost and Activity Inputs • Change. A selection screen is displayed, as shown in Figure 1.19.


39

Cost Center Planning 1.3

Figure 1.19 Cost Element Planning Selection Screen

You may see different fields, depending on the planning layout selected. You can scroll through the available planning layouts with the left and right pointing arrow icons.

Any number of versions can be created, for which planning data can be entered. In this example, we will use Version 0. Actual costs post to version 0, and this is the version compared with plan costs during variance analysis. Complete the selection screen as follows:

1. Fill in the Version, From period, To period, and Fiscal year fields.

2. Leave the Activity Type field blank to plan for activity-independent costs.

3. Click on the overview (mountain range and sun) icon to display the screen shown in Figure 1.20.

Figure 1.20 Cost Element Planning Screen for Cost Centers


40

Initial Planning1

This screen allows you to enter cost center plan fixed costs per Cost element. These are activity-independent costs because we did not enter an activity in the Activity Type field in the screen shown in Figure 1.19. To carry out primary cost planning, do the following:

1. Enter the plan cost in the Plan fix costs in OC column.

2. Click on the period screen (graph) icon to plan costs at an individual period level, if necessary.

3. Save your work.

If an activity type is entered in the selection screen shown in Figure 1.19, both fixed and variable costs can be planned in the screen shown in Figure 1.20.

Several reports are available to view planning data. One such report can be viewed with Transaction KSBL or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Planning Reports • Cost Centers: Planning Overview. A selection screen is displayed, as shown in Figure 1.21.

Figure 1.21 Cost Center Planning Report Selection Screen

This selection screen allows you to make entries in the Report parameters section to filter the values in the output screen. Complete the selection screen as follows:

1. Complete the Cost Center, Fiscal Year, Period, and Version fields.

2. Ensure that the Output in ALV grid checkbox is selected.

3. Click on the Execute button to start the transaction.

Figure 1.22 displays a summary view of planned primary costs for a cost center.


41


Figure 1.22 Cost Center Planning Overview Report

After primary costs have been planned for the next fiscal year, you can calculate and enter activity rates. If primary cost planning is carried out in SAP software, the system can automatically calculate the activity rate. Many companies calculate and enter planned activity rates manually, at least for the first couple of years after implementation. There are usually more pressing concerns during this time, such as fine-tuning master data converted from a legacy system, compared to setting up automatic activity rate calculation.

To enter planned activity prices for a cost center, use Transaction KP26 or menu path Accounting • Controlling • Cost Center Accounting • Planning • Activ-ity Output/Prices • Change. A selection screen is displayed, as shown in Figure 1.23.

Figure 1.23 Plan Activity Price Selection Screen


42

Initial Planning1

This selection screen allows you to enter the version, time period, cost center, and activity type you wish to plan. Complete the selection screen as follows:

1. Complete the Version, From period, To period, and Fiscal year fields.

2. Complete the Cost Center and Activity Type fields.

3. Click on the Overview icon to display the screen shown in Figure 1.24.

Figure 1.24 Plan Activity Price Entry Screen

In this screen, you can enter plan activity quantity, capacity quantity, and plan fixed and variable activity prices. To do this, follow these three steps:

1. Complete the Plan activity and Capacity quantity fields.

2. Complete Fixed USD and/or Var USD activity price fields.

3. Save your work.

The Plan activity quantity, entered in the second column in Figure 1.24, is required to automatically calculate the plan activity price. Another, less well-known benefit of entering the plan activity quantity is that it appears at the bottom of the standard cost center report S_ALR_87013611—Cost Centers: Actual/Plan/Variance. You can then compare plan and actual activity quantities in the cost center report to analyze production and cost center variance.

Act. sched. (scheduled activity quantity), the last column in Figure 1.24, was previ-ously transferred from SOP, MRP, or long-term planning, as discussed at the end of Section 1.2. This field cannot be adjusted manually. You can use it to overwrite the plan activity quantity, the second column in Figure 1.24, with Transaction KPSI or via menu path Accounting • Controlling • Cost Center Accounting • Plan-ning • Planning Aids • Plan Reconciliation. A selection screen is displayed, as shown in Figure 1.25.


43


Figure 1.25 Execute Plan Reconciliation Screen

This selection screen allows you to enter the Parameters to choose which cost centers and periods are updated with the scheduled activity quantity from long-term planning. Complete the screen as follows:

1. Select either the All Cost Centers or Cost center group radio button.

2. Complete the Version, Period, and Fiscal Year fields.

3. Ensure that the Test Run checkbox is deselected and the Details Lists checkbox is selected.

4. Click on the Execute icon to start the transaction.

Figure 1.26 shows an example of the data displayed.

Figure 1.26 Plan Reconciliation List

The Total plan activity column in Figure 1.26 corresponds to the Plan activity column in Figure 1.24. The New plan activity column in Figure 1.26 corresponds to the last column in Figure 1.24. The Activity difference column in Figure 1.26 is the difference between the two previous columns.


44

Initial Planning1

When you execute plan reconciliation, the plan activity that was manually entered in the Plan activity column in Figure 1.18 is automatically overwritten with the scheduled activity from the last column in Figure 1.24.

1.4 Summary

This chapter covered the initial planning steps required for variance analysis. We created a sales plan, which was converted into a production plan in SOP. The pro-duction plan was then transferred to long-term planning. We analyzed purchasing requirements and created purchasing info records that contained quotations for all purchased components. We also transferred work center loads to cost center accounting.

Cost center activity quantities transferred from long-term planning, together with primary cost planning, allowed the calculation of planned activity prices.

In Chapter 2, we will continue with our discussion of the cost planning process by examining additional prerequisites necessary to create cost estimates, including logistics master data and costing variant configuration. We’ll then create and analyze standard and preliminary cost estimates.


45

2 Cost Estimates

Now that we’ve planned activity prices and updated purchasing info records for components with the latest vendor quotations, the next step in preparing for variance analysis is the creation and processing of cost estimates. These provide a plan of how much it will cost to procure components and produce assemblies and finished goods. Standard cost estimates are typically created several weeks before the start of the next fiscal year. System messages are analyzed, and corrective actions are taken. For instance, there may be missing purchasing info records or activity prices that need to be entered in the system.

After corrections are made and error messages are eliminated, standard cost esti-mates are typically released on the first day of the fiscal year. Releasing standard cost estimates updates inventory valuation, and new material standard prices become the benchmark for all production and purchasing activities over the next 12 months. Some companies with rapidly changing and developing products create and release standard cost estimates more frequently to keep pace with the changes. Otherwise, variances would become so large toward the end of the fiscal year that they would provide no assistance during variance analysis. We’ll discuss this further in Section 2.5.

We’ll look at logistics master data, for example, bills of material (BOMs) and rout-ings, in this chapter. These structures provide quantity information, which, together with the price information from Chapter 1, allows cost estimates to determine the price of assemblies.

We’ll also look at how overhead is allocated to products and see how the costing variant instructs the system which prices, BOMs, and routings to use. We’ll create standard and preliminary cost estimates and see how they assemble and present price information. Finally, we’ll examine the configuration and master data settings required to created mixed cost estimates.


46

Cost Estimates2

2.1 Master Data

Master data is information that stays relatively constant over long periods of time, such as purchasing info records, which contain vendor information (such as the business name) that usually doesn’t change. In comparison to master data, transactional data is posted often, resulting in frequent updates to general ledger accounts and cost center balances.

Logistics master data provides information on how materials are procured and manufactured. This section provides an overview of the master data fields most relevant to variance analysis.

Even though master data is relatively stable, companies that want to remain com-petitive in rapidly changing environments constantly assess whether it’s more cost effective to manufacture assemblies in-house, procure externally, or outsource. Changing methods of procurement can produce large effects on variance calculation and require constant master data and purchasing information maintenance. This may also influence the frequency of price updates with standard cost estimates.

2.1.1 Material Master

Material masters contain all the information required to manage a material. Infor-mation is stored in views, each corresponding to a department or area of business responsibility. Views conveniently group information together for users in different departments; for example, sales and purchasing. The two views of particular interest during variance analysis are MRP and Costing. These views are plant-specific, so plants can have different values for fields in these views.

You can view or change material master views with Transaction MM02 or menu path Logistics • Production • Master Data • Material Master • Material • Change • Immediately. Click the MRP 2 tab to display the screen shown in Figure 2.1.

To display a list of possible entries for the Procurement type field, proceed as follows:

1. Left-click in the Procurement type field.

2. Press the (F4) key, or right-click and choose Possible Entries.


47

Master Data 2.1

Figure 2.1 Material Master MRP 2 View

A list of possible procurement types is displayed as shown on the right in Figure 2.1. The procurement type defines how the material is procured. Usually, it is either manufactured in-house or purchased externally. An In-house production setting means the system will search for a BOM and routing. An External procurement setting results in the system searching for purchasing information. A Both pro-curement types setting means that planned orders can be converted into either production or purchase orders.

The Special procurement field found immediately below the Procurement type field in Figure 2.1 is used to more closely define the procurement type. For example, it may indicate if the item is produced in another plant and transferred to the plant you are looking at.

Now let’s look at the Costing views and fields relevant to variance analysis. In the screen shown in Figure 2.1, scroll to the right, and click on the Costing 1 tab (not shown). The screen in Figure 2.2 will be displayed.

A field of particular relevance to variance analysis is the Variance Key field. Vari-ances are only calculated on production orders or product cost collectors containing a variance key. This key is defaulted from the Costing 1 view when production orders or product cost collectors are created. The variance key also determines if the value of scrap is subtracted from actual costs before variances are determined.


48

Cost Estimates2

Figure 2.2 Material Master Costing 1 View

Another field relevant to variance analysis is Costing Lot Size. When a standard cost estimate is created, it uses this value in the Costing 1 view by default. The costing lot size should be set as close as possible to the actual procurement lot size. Unfavorable variances may result if a production order is created for a quantity less than the costing lot size. Setup time is the time needed to prepare equipment and machinery for the production of assemblies, and it is generally the same regardless of the quantity produced. Setup time spread over a smaller production quantity increases the unit cost. This also applies to externally procured items because vendors usually quote higher prices for smaller quantities.

There are two Costing tabs because you would need to scroll down to see all the costing fields on one tab. Now let’s inspect the Costing 2 fields. Click on the Cost-ing 2 tab (see Figure 2.2) to get to the screen shown in Figure 2.3.


49

Master Data 2.1


The Cost Estimate fields in the Standard Cost Estimate section are updated when a standard cost estimate is marked and released. The Future Planned price field is populated when a cost estimate is marked. The Current Planned price and Standard price fields are overwritten when subsequently releasing a cost estimate. The Previous Planned price field contains the value of the previously released standard cost estimate. Cost estimate fields in the material master cannot be manually changed.

You can manually update the Planned price 1, 2, and 3 fields in the Planned prices section of the screen shown in Figure 2.3 with estimated purchase prices.

A standard cost estimate usually retrieves planned prices from these fields if no vendor quotations or purchasing info records exist for purchased items. This is useful when creating cost estimates before vendor quotations are received, early in the lifecycle of a new or modified product.


50

Cost Estimates2

The Valuation Class field in the Valuation Data section of Figure 2.3 determines which general ledger accounts are updated as a result of inventory movement or settlement. The Price control field indicates whether inventory is valuated at standard (S) or moving average (V) price.

After material masters are created and fields are populated correctly, you use them to create a BOM, as discussed in the next section.

2.1.2 Bill of Material

The bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs, together with purchasing info records or vendor quotations, provide cost estimates with the information necessary to calculate material costs of products. You can view or change BOMs with Transaction CS02 or the menu path Logistics • Production • Master Data • Bills of Material • Bill of Material • Material BOM • Change. An example of a BOM is shown in Figure 2.4. You can also refer to the SAP training course guide related to Product Cost Planning for additional information on this.

P-100FERT

100-100HALB

100-200HALB

100-300HALB

100-400HALB

100-500HALB

100-210ROH

100-310ROH

100-110ROH

100-120ROH

100-130ROH

100-600ROH

100-700ROH

100-510ROH

100-410ROH

100-420ROH

100-430ROH

100-431ROH

100-432ROH

100-433ROH

1

2

3

Costing Levels

Figure 2.4 Example of a BOM


51

Master Data 2.1

The BOM determines which materials are costed. Each BOM item contains many fields and indicators. The most relevant to variance analysis are the Quantity field and Relevancy to costing indicator. The BOM item quantity multiplied by the material standard price provides planned material costs. Deselecting the Relevancy to costing indicator allows you to exclude the cost of some BOM items; for example, bulk materials. Bulk materials are expensed directly to a cost center, so the cost is already included in the cost estimate via overhead or activity rates.

A cost estimate created for the top-level finished good selects materials at the lowest level in the BOM first. In Figure 2.4, all materials with material type ROH (raw materials) are costed first, and then HALB (subassemblies), and finally FERT (finished goods). Material costs are rolled up from raw materials through subas-semblies to the finished good.

Material masters and BOMs provide cost estimates with material and assembly prices and quantities. To determine labor and activity standard quantities, we need to consider routings.

2.1.3 Routing

A routing is a list of tasks containing standard activity times required to perform operations to build an assembly. Routings, together with planned activity prices, provide cost estimates with the information necessary to calculate labor costs of products. You can view or change routings with Transaction CA02 or via menu path Logistics • Production • Master Data • Routings • Routings • Standard Routings • Change. An example of a routing is shown in Figure 2.5.

Definition

Routing

Example

Operation 10 Staging 20 Preassembly 30 Final assembly 40 Checking 50 Delivery

A routing describes a sequenceof production steps

Operationsare performed at

work centers

Figure 2.5 Example of a Routing


52

Cost Estimates2

Each operation in the routing contains many fields and indicators. The most rel-evant to variance analysis are the Standard value field and Relevancy to costing indicator. The standard value indicates how long it normally takes to perform the task. The standard value multiplied by the planned activity rate provides planned labor costs. The calculation can be modified by a performance efficiency rate and formula. Labor costs are rolled up from subassemblies to the finished good.

You can include overhead costs in the planned activity rate. Dedicated overhead activity types can also be used to include overhead costs. The manufacturing order or product cost collector is debited, and the cost center is credited at the time of activity confirmation. Overhead can also be included in the standard price with costing sheets, as described in Section 2.2.

After BOMs and routings are created, you need to create product cost collectors if you are using Product Cost by Period. Product cost collectors contain information relating to which BOM and routing the cost estimate should access because there may be many alternative methods of manufacture. Product cost collectors also, as the name suggests, collect costs.

2.1.4 Product Cost Collector

A product cost collector collects actual costs during the production of a material. Product cost collectors are necessary for repetitive manufacturing and optional for order-related manufacturing. Repetitive manufacturing eliminates the need for production or process orders in manufacturing environments with production lines and long production runs. It reduces the work involved in production control and simplifies confirmations and goods receipt postings.

Several advantages result from using product cost collectors. Period-end closing and reporting performance is improved because there are fewer cost objects than in Product Cost by Order. Also, variance analysis is carried out for a product instead of a manufacturing order. It’s usually more useful for managers to know how efficiently different products are manufactured, compared to the efficiency of a particular manufacturing order.

You can create, change, or view product cost collectors with Transaction KKF6N or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Master Data • Product Cost Collector • Edit. A selection screen is displayed, as shown in Figure 2.6.


53

Master Data 2.1

Figure 2.6 Display Product Cost Collector

A product cost collector contains all the information needed to manufacture a product. This includes fields relevant to variance analysis. To display these fields, proceed as follows:

1. Fill in the relevant information for the Material and Plant fields.

2. Select a production version indicator on the left.

3. Press (Enter) to display details of the product cost collector. The Cstg variant planned field contains the costing variant used to create the preliminary cost estimate.

We’ll discuss costing variants further in Section 2.4, and we’ll cover preliminary cost estimates in Section 2.7. The Variance Key shown at the bottom of Figure 2.6 defaults from the material master Costing 1 view when the product cost collector is created.

With master data now created and set up correctly, the structure is in place for the cost estimate to determine material and labor costs. In the next section, we’ll look at how to include overhead costs in the cost estimate.


54

Cost Estimates2

2.2 Overhead Costs

In addition to material and labor costs, overhead costs usually need to be included as a component of the finished product standard price. Overhead costs may include costs such as building leases, insurance, and general office staff not directly involved in the production process. You can either increase the planned activity price to include overhead, or you can create separate overhead activity types as discussed in Section 2.1.3. Advantages of this method of overhead allocation include real-time posting during activity confirmation and no configuration requirement. A disadvantage of dedicated overhead activity types is increased production data setup required in work centers and routings, and possibly increased maintenance during activity confirmations.

Costing sheets offer more flexibility in allocating overhead across individual products or product groups. Also, less production data maintenance is required. Configura-tion is required, however, as explained in the following sections.

Let’s inspect the configuration of a costing sheet to see how it works. To view configuration settings, use Transaction KZS2 or IMG menu path Controlling • Product Cost Controlling • Product Cost Planning • Basic Settings for Material Costing • Overhead • Define Costing Sheets. The screen shown in Figure 2.7 is displayed.

Figure 2.7 Costing Sheet Overview Screen

Available costing sheets are listed on the right of this overview screen. You can use existing costing sheets or copy one and create your own. Let’s choose an example costing sheet and examine the components via the following steps:


55

Overhead Costs 2.2

1. Select the first Costing Sheet (A00000 in this example).

2. Double-click on Costing sheet rows on the left.

The screen shown in Figure 2.8 is displayed.

Figure 2.8 Costing Sheet Rows Overview

The three costing sheet components Base, Overhead rate, and Credit are listed on the left of the screen, while costing sheet details are displayed on the right.

When overhead is calculated during period-end processing (discussed in Chapter 4), the manufacturing order or product cost collector receives a debit, and a cost center receives a credit with the calculated overhead value. Now let’s examine each costing sheet component in detail.

2.2.1 Calculation Base

A base is a group of cost elements to which overhead is applied. Each cost element identifies unique cost types within a cost estimate, such as raw material or machining labor costs. These costs, identified by the base, are then multiplied by an overhead rate to determine the overhead value in the cost estimate.

You can combine cost elements in base rows. For example, you can calculate mate-rial overhead on a base consisting of cost element postings when raw materials are issued from inventory to a production order.


56

Cost Estimates2

To see how cost elements are entered in a base, select any row with an entry in the Base column in the screen shown in Figure 2.8, and double-click on Base at the left of the screen to get to the screen shown in Figure 2.9.

Figure 2.9 Calculation Base Overview

You can enter individual cost elements or ranges in the From CElem and To CstElem columns. You also have the option of entering a cost element group in the Cost Elem. Group column. You can subdivide within cost elements by entering origin groups in the To orgn column, and also in the material master Costing 1 view. You can also divide the calculation base into Fixed and Variable costs if necessary by selecting the appropriate radio button. Now that we’ve discussed how bases work, let’s examine the next cost sheet component, the overhead rate.

2.2.2 Overhead Rate

The overhead rate is a percentage factor applied to the value of the calculation base (group of cost elements). To see how percentage rates are entered in a calculation rate, select any row with an entry in the Overhead rate column shown in Figure 2.8, and double-click on Overhead rate at the left of the screen. The screen shown in Figure 2.10 is displayed.

The Dependency field allows the same overhead rate to be applied to all materials within a plant or company code. Other dependencies are available, allowing dif-ferent rates to be applied per order type or overhead key. Overhead keys can be entered per individual manufacturing order or product cost collector. This provides a high level of control and flexibility, but also increased setup and maintenance requirements.


57

Overhead Costs 2.2

Figure 2.10 Overhead Rate Overview

Overhead rates are date dependent, allowing different rates to be entered per fiscal year or even fiscal period, if required. Before using this functionality at its most detailed level, be sure the maintenance effort required is offset by any increased accuracy of overhead allocation.

You can also maintain percentage overhead rates with Transaction S_ALR_87008275 and quantity-based overhead rates with Transaction S_ALR_87008272, or by fol-lowing the menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Current Settings.

Note

Refer to OSS Note 310768 for further information on current settings for costing sheets. Current settings allow you to perform some configuration transactions via the standard user menu path. Because you may need to update costing sheets routinely, you can allow users to easily make these changes.

Now that we’ve looked at bases and the overhead rate, let’s examine the final cost-ing sheet component: the credit key.

2.2.3 Credit Key

You assign a credit key in the Credit column, shown earlier in Figure 2.8, to each row with an entry in the Overhead rate column. During overhead allocation, a manufacturing order or product cost collector is debited, and a cost center is cred-ited. The credit key defines which cost center receives the credit. To display how


58

Cost Estimates2

a cost center is entered in a credit key, select any row with an entry in the Credit column (shown earlier in Figure 2.8), and double-click on Credit in the left of the screen. The screen shown in Figure 2.11 is displayed.

Figure 2.11 Credit Overview

Enter the cost center to receive the overhead credit in the Cost Center (last) column. A secondary cost element is also a required entry in the Cost Elem. column. The secondary cost element identifies the plan overhead cost in the cost estimate and the actual overhead debit in the manufacturing order and product cost collector cost reports. It also identifies the overhead credit to the cost center in cost center reports. See Chapter 6 for more information on reporting in SAP CO.

An entry in the Fxd % field will ensure that the fixed and variable costs are cor-rectly assigned in the contribution margin scheme. The default entry is an asterisk, as shown in Figure 2.11, which means that the fixed and variable portions of the surcharge are determined in the same way as the fixed and variable costs in the calculation base, as shown previously in Figure 2.9.

Now that we’ve completed master data and costing sheet creation and maintenance, structures are in place for the cost estimate to determine material, labor, and over-head costs. The next step is to instruct the cost estimate on how to group costs together for the Cost component view in the cost estimate. This complements the basic Itemization view, or a simple listing of items in the cost estimate. The most common cost components are materials, labor, and overhead. You can create your own cost components with the procedure described in the following section.

2.3 Cost Components

The cost component split allows a cost estimate to group costs of similar types of components, such as material, labor, and overhead. Analysis of cost components


59

Cost Components 2.3

such as material, labor, and overhead over time or across a range of products can assist in profitability analysis. Cost components increasing over time may result in an effort to reduce material, labor, or overhead costs. Comparison of cost components across products can influence marketing decisions. A manufacturing company may decide to focus on products that require less labor and overhead, or a company may be interested in analyzing the results of efforts to reduce labor and overhead costs.

All individual costs are identified by cost elements. Primary cost elements corre-spond to general ledger accounts, which identify costs such as material consumed from inventory or external processing costs. Secondary cost elements identify labor, overhead, or process costs allocated to production orders or product cost collectors from cost centers. Cost components group similar types of cost elements together.

Cost components only consider component material costs, which are rolled up through the BOM. Value added by activities performed on subassemblies are also grouped together by cost element and rolled upward through the BOM to the higher-level cost estimate.

Let’s look at the configuration of a cost component structure to see how cost components are rolled up by cost element. To view cost component structure configuration settings, use Transaction OKTZ or IMG menu path Controlling • Product Cost Controlling • Product Cost Planning • Basic Settings for Material Costing • Define Cost Component Structure. The screen shown in Figure 2.12 is displayed.

Figure 2.12 Cost Component Structure Overview


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Available cost component structures are listed on the right of this overview screen. You can use existing cost component structures or copy one and create your own. Let’s choose the cost component structure shown in Figure 2.12 and examine the components with the following steps:

1. Select cost component structure Z1.

2. Double-click on Cost Components with Attributes.


Figure 2.13 Cost Components with Attributes Overview

Available cost components are listed on the right of the overview screen. You can use existing cost components or copy one and create your own. Let’s choose the Labor cost component and examine the components via the following steps:

1. Select the Labor cost component (shown as selected).

2. Double-click on Assignment: Cost Component—Cost Element.

The screen shown in Figure 2.14 is then displayed.

Figure 2.14 Cost Element Assignment Overview


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Costing Variant 2.4

Individual cost elements or cost element ranges are assigned to cost components in the From cost el. (From cost element) and To cost elem. (To cost element) columns.

With master data, costing sheet, and cost component setup completed, we’ve nearly finished the necessary preparations needed for creating a cost estimate. The one remaining step required is to set up the costing variant, which is described in detail in Section 2.4.

2.4 Costing Variant

The costing variant contains information on how a cost estimate calculates the standard price. For example, it determines if the purchasing info record price is used for purchased materials or an estimated price manually entered in the Planned price 1 field of the material master Costing 2 view. Only the standard cost estimate adjusts inventory values. In this section, we’ll explore how the costing variant determines the standard price.

Let’s inspect the configuration of a costing variant to gain an understanding of how it works. To view costing variant configuration settings, use Transaction OKKN or IMG menu path Controlling • Product Cost Controlling • Product Cost Planning • Material Cost Estimate with Quantity Structure • Define Costing Variants. The screen shown in Figure 2.15 is displayed.

Figure 2.15 Costing Variant Selection Screen

A list of available costing variants is presented in the Costing Variant column. Let’s examine the first costing variant, PPC1 in this example, by double-clicking on it. The screen shown in Figure 2.16 is displayed.


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Figure 2.16 Costing Variant PPC1 Details Screen

The costing variant components are shown as buttons on the left. Costing Type and Valuation Variant are particularly relevant to variance analysis. Click on the Costing Type button to display the screen shown in Figure 2.17.

Figure 2.17 Costing Type Details Screen

The costing type determines if the cost estimate is able to update the standard price in the material master. There are many reasons for also requiring cost estimates that can’t update the material master. A product development department may need to


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create cost estimates, which should not be able to update the standard price, while developing a new product. By using costing variants that do not include Costing Type 01, you can allow users the ability to create cost estimates that cannot update the standard price.

In variance analysis, we are particularly interested in costing variants that can update the material master standard price. This is because the standard price is used as the benchmark for all production and purchasing activities, and it is the basis for calculating total variance, as discussed in Chapter 4. Click on the Valuation Variant button shown previously in Figure 2.16 to display the screen shown in Figure 2.18.

Figure 2.18 Valuation Variant Details Screen

The valuation variant allows different search strategies for materials, activity types, subcontracting, and external processing. The material search strategy, shown in the Material Val. tab in Figure 2.18, indicates that the cost estimate first searches


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for purchasing info records containing the material price, due to the L Price from Purchasing Info Record entry next to Priority 1. L, 4, and 3 are the keys of the strategy sequence, while the text following the keys is the description. If unsuc-cessful, it will then search for an entry in the Planned Price 1 field in the material master Costing 2 view. If still unsuccessful, an error message will be issued, which must be corrected before the cost estimate can be released.

Similarly, you can enter search strategies for ActivityTypes/Processes, Subcon-tracting, and Ext. Processing by clicking on the corresponding tab shown in Figure 2.18.

Now that preparations are complete, we’re ready to create a standard cost estimate. In Section 2.5, we’ll look at how to create and analyze cost estimates.

2.5 Standard Cost Estimate

The standard cost estimate is involved in variance analysis because it is used for stock valuation. When a production or process order delivers product to inventory, it receives a credit based on the standard price. Total variance is the difference between actual costs debited to the order and costs credited to the order due to deliveries to stock.

Let’s now create a standard cost estimate. Then, in the following subsections, we’ll mark and release the cost estimate and mass-process cost estimates with a costing run.

2.5.1 Create

The standard cost estimate is usually created with costing variant PPC1. This is the only cost estimate that can be used to update the standard price in the material master. Let’s create a standard cost estimate and analyze the results. You create a standard cost estimate with Transaction CK11N or menu path Accounting • Con-trolling • Product Cost Controlling • Product Cost Planning • Material Costing • Cost Estimate with Quantity Structure • Create. A selection screen is displayed, as shown in Figure 2.19.

In the selection screen, you enter the essential data needed to create a cost estimate: Material, Plant, and Costing Variant. You can also create different Costing


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Versions, which are useful for scenario analysis. You normally only release Costing Version 1 cost estimates. If you leave the Costing Lot Size field blank, the cost estimate retrieves the costing lot size from the corresponding field in the material master Costing 1 view.

Figure 2.19 Create Standard Cost Estimate Selection Screen

If you leave the Transfer Control field blank, the cost estimate searches for an entry next to the Transfer Control button in the costing variant shown earlier in Figure 2.16. Create the cost estimate with the following steps:

1. Complete the Material, Plant, and Costing Variant fields.

2. Press (Enter), or click on the Dates tab.


Figure 2.20 Create Standard Cost Estimate Dates Tab


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Four default dates appear, based on the Date Control component of the costing variant shown previously in Figure 2.16:

EE Costing Date From This field determines the validity start date of the cost estimate. The cost estimate cannot be marked and released—that is, used to adjust inventory valuation—until the start date has been reached. The start date can be changed to a previous date, and the cost estimate can be created. However, a standard cost estimate cannot be saved, marked, or released with a start date in the past.

EE Costing Date To This field determines the validity finish date of the cost estimate. Variance cal-culation requires a standard cost estimate that is valid for the entire fiscal year. This date is typically set to the maximum possible date so that you can still carry out variance analysis even if the next costing run is delayed.

EE Quantity Structure Date This field determines which BOM and routing are selected for the cost estimate. Because these can change over time, it is useful to be able to select a particular BOM or routing by date.

EE Valuation Date This field determines which material and activity prices are selected for the cost estimate. Purchasing info records can contain different vendor-quoted prices for different dates.

Likewise, different activity prices can be planned per period. It can be useful to, for instance, hold the valuation date constant, while changing the quantity structure date to isolate the cost effect of changing the structure of a BOM or routing.

Press (Enter) to create the cost estimate, which is displayed in Figure 2.21.

A costed multilevel BOM is displayed at the left of the screen. Even though we initially created a cost estimate for Material 10000 shown in Figure 2.19, cost estimates are also created for all underlying components and subassemblies. Cost estimates are indicated by the cost estimate (calculator) icons in the costed BOM. Double-clicking on any cost estimate in the multilevel costed BOM causes the infor-mation on the right of the screen to correspond to the individual cost estimate.


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Figure 2.21 Create Standard Cost Estimate Results Screen

The Costs Based On field indicates the quantity that the costs displayed are based on. The costs are always calculated based on the costing lot size. The entry in the Costs Based On field defaults to Costing Lot Size. Purchasing or manufacturing in quantities that are different from the costing lot size can cause variances because it is usually more efficient to purchase or manufacture items in larger quantities and less efficient to do so in smaller quantities. To display costs based on a quantity of one (but still calculated based on the costing lot size), click on the Costing Lot Size text shown in Figure 2.21. The screen shown in Figure 2.22 is displayed.

Figure 2.22 Change Cost Basis to Unit Entry


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Select Price Unit and inspect the quantity displayed in the field to right of the text. If the price unit is 1.000, the cost estimate costs displayed are now based on a quantity of one. Otherwise, select User Entry, and manually enter the quantity.

Now that we’ve created a standard cost estimate, the next steps are to mark and release the cost estimate. During the release step, inventory revaluation occurs if there is stock.

2.5.2 Mark and Release

After a standard cost estimate is saved without errors, it can be marked with Transaction CK24 or via menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Price Update. A selection screen is displayed, as shown in Figure 2.23.

Figure 2.23 Mark Standard Cost Estimate Selection Screen

You can create a Marking Allowance, as well as Mark and Release cost estimates with this same selection screen.

Click the Marking Allowance button to display the screen shown in Figure 2.24.

The authorization for marking specifies the Company Code and Posting Period/Fiscal Year, in which you can mark a standard cost estimate with a given valuation variant. You cannot mark cost estimates with different valuation variants in this period. To create a marking allowance, click a Company Code next to a red traffic light icon in Figure 2.24. The dialog box shown in Figure 2.25 is displayed.


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Figure 2.24 Marking Allowance Screen

Figure 2.25 Create Marking Allowance Dialog Box

Type in the Costing Variant and Costing Version, and press (Enter) to create the marking allowance. A green traffic light icon appears next to the Company Code, and the Costing Version column is populated, as shown earlier in Figure 2.24. If you click a Company Code with a green traffic light icon or for a marking allowance already created, you will see the dialog box shown in Figure 2.26.

Figure 2.26 Permitted Costing Variants

The reason you may see more permitted costing variants than entered in the dialog box in Figure 2.25 is that marking allowance is based on valuation variant, which is


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a component of the permitted costing variant. There may be more than one costing variant that contains the permitted valuation variant.

Now that we’ve created a marking allowance, you mark a cost estimate by taking the following steps:

1. Complete the Posting Period/Fiscal Year, Plant, and Material fields shown earlier in Figure 2.23.

2. Click on the Execute (clock) icon.


Figure 2.27 Mark Standard Cost Estimate Results Screen

A green traffic light icon, together with Costing Status VO, indicates the standard cost estimate was successfully marked. There are no inventory revaluations or account postings during marking. The proposed standard price is copied to the Future Cost Estimate column of the material master Costing 2 view, as shown in Figure 2.28.

Figure 2.28 Marked Cost Estimate in Future Column


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You can create and mark standard cost estimates many times before release. Within the same fiscal period, new standard cost estimates overwrite existing cost estimates. If you mark a standard cost estimate and then create and save another standard cost estimate, the value in the Future column does not reflect the value of the last saved cost estimate. In this case, you cannot release the value displayed in the Future column because the related cost estimate has since been overwritten. You must mark the latest cost estimate before you can release it.

If you do not want a standard cost estimate to be overwritten, create it with a dif-ferent Costing Version, as we saw earlier in Figure 2.19. It may not be possible to release cost estimates created with different costing versions, though. They are for reference only.

After you have successfully marked a cost estimate, check that the proposed standard price is correct. To release it, click on the Release button in Figure 2.23, and then click the Execute icon. The screen shown in Figure 2.29 is displayed.

Figure 2.29 Release Standard Cost Estimate Results Screen

A green traffic light icon, together with costing status FR in the Costing Status column, indicates that the standard cost estimate was successfully released. You can display the price change document by clicking on the underlined document number in the Document Number column. If there is valuated stock, inventory will be revalued, and a financial account posting will occur during release. The Future Standard price is moved to the Current Planned price and Standard price fields of the material master Costing 2 view, as shown in Figure 2.30.

Standard cost estimates can be released only once per fiscal period. As a rule, you should try to release cost estimates less frequently—say, once every 12 months. This provides greater visibility to purchase price and production variances. Releasing cost estimates more frequently reduces variances, though inventory revaluation


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postings increase. Industries with rapidly moving purchase prices or short product development times may need to release cost estimates more frequently.

Figure 2.30 Released Cost Estimate in Current Column

We’ve looked at how you create, mark, and release individual standard cost esti-mates. When it’s time to create, mark, and release many cost estimates, such as at the start of a fiscal year, you can create a costing run to process a large number of cost estimates.

2.6 Costing Run

A costing run can create, mark, and release a large number of cost estimates; for example, all materials in a plant or of a material type. The costing run should be started well in advance of the required release date because master data errors may need to be corrected, such as missing purchasing info record prices. Differences between proposed and existing standard prices may also need to be analyzed and approved before release.

Several steps are involved in processing a costing run. Let’s follow the first steps in detail, starting with creating a costing run. You can create a costing run with Transaction CK40N or via menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Costing Run • Edit Costing Run. A selection screen is displayed, as shown in Figure 2.31.


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Figure 2.31 Edit Costing Run Initial Screen

To create a new costing run, click on the create (new page) icon. The screen shown in Figure 2.32 is displayed.

Figure 2.32 Create Costing Run Entry Screen

Enter the required information in the selection screen. You can use the entries shown in Figure 2.32 as an example. Save your entries to display the screen shown in Figure 2.33.


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Figure 2.33 Edit Costing Run Dates Tab

The Edit Costing Run screen allows you to carry out and record the results of all the costing run steps in one screen. The costing run steps are listed in the Flow Step column. When first displaying this screen, ensure the dates shown in the Dates tab are correct. Now let’s examine in detail the procedure to complete each of the six costing run steps.

2.6.1 Selection

To carry out the first costing run step, click on the icon shown in the Parameter column of the Selection row in Figure 2.33. The screen shown in Figure 2.34 is displayed.


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Figure 2.34 Change Costing Run Selection Parameters

Many options are available for using selection criteria. We’ll follow a simple example to demonstrate the process. Complete the Material Number and Plant fields, and then save your entries. The screen shown in Figure 2.35 is displayed.

Figure 2.35 Selection Step Parameters Saved

The icon in the Execute column of the Selection row indicates selection param-eters have been saved. Click on this icon to complete the selection step. The screen shown in Figure 2.36 is displayed.


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Figure 2.36 Selection Step Completed

The green traffic light icon in the Selection row indicates that the selection step was successfully completed. The materials selected in this step are shown in the Material Overview section of the screen.

Note

For each of the six costing run steps, after you enter and save Parameters, an icon displays in the corresponding row in the Execute column.

Now let’s examine the next step in the costing run.

2.6.2 Structural Explosion

In the Struct. Explosion step, all materials contained at lower levels in BOMs that are selected in the Selection step are selected. Click the icon in the Parameter col-umn of the Struct. Explosion row to display the screen shown in Figure 2.37.

You can select Background Processing to avoid overloading the system at busy times. Select Print Log to print messages created during the structural explosion step if required. Save your settings, click the green arrow icon, and then click the Execute icon to display the screen shown in Figure 2.38.


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Figure 2.37 Costing Run Structural Explosion Parameters Step

Figure 2.38 Structural Explosion Step Completed

The green traffic light icon in the Struct. Explosion row and Status column indicates that this step was successfully completed. Click on the triangle icon in the Log column to display any messages generated during the explosion step, and take corrective action as necessary. The number of materials selected is shown in the Materials column. Now let’s examine the next step in the costing run.


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2.6.3 Costing

In the costing step of the costing run, cost estimates are created for all selected materials, starting with the lowest-level materials. Click the icon in the Parameter column of the Costing row to display the screen shown in Figure 2.39.

Figure 2.39 Costing Run Costing Parameters Step

For large costing runs that generate many messages, you have two options to simplify the analysis process:

EE Cost estimates with errors only Because you cannot release cost estimates with errors, you can select this check-box to display a list containing cost estimates with errors only for large costing runs. You can make any necessary corrections to eliminate the errors and then deselect the checkbox to create all cost estimates.

EE Log by costing level A costing run creates cost estimates at the lowest level of a BOM first and then progressively upward through the BOM structure to the highest-level assembly or finished good. If there are many messages, you can select this indicator to view lowest-level messages first. This will in turn reduce the number of messages and simplify analysis at higher levels. You can click the Costing Levels button to select the levels to display.


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Save your settings, click the green arrow icon, and then click the Costing Execute icon to display the screen shown in Figure 2.40.

Figure 2.40 Costing Run Costing Step

In the Costing Levels section, Level 3 corresponds to the highest-level item because there is only one material selected as shown in the No.Objects column. Level 1 corresponds to the lowest-level items because it contains the greatest number of materials selected.

Click the triangle icon in the Log column to display any messages generated during the Costing step. If no triangle icon appears, no messages were generated. Click the Material Overview button to display a list of cost estimates generated during the costing step.

Now that we’ve created the cost estimates, the next step is to analyze them.

2.6.4 Analysis

Click the icon in the Parameter column and the Analysis row to display the selec-tion screen shown in Figure 2.41.


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Figure 2.41 Costing Run Analysis Section Screen

The costing run you are presently working on defaults into the Costing Run and Costing Date fields. To display more selection fields, click the plus icon to display the screen shown in Figure 2.42.

Figure 2.42 Costing Run Analysis Selection Screen

In the Output section, you can select which Material Master Price to compare with the standard cost estimate prices generated during the costing run. This together with inventory quantity allows you to determine the total change in inventory valuation when the costing run is released.

In the Base section, you can choose in which units to display the cost estimate. You can change the default Costing Lot Size selection to Price Unit in Material Master, which can present a useful output screen.


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Save your selections, click the green arrow icon, and then click the Execute icon to display the screen shown in Figure 2.43.

Figure 2.43 Analyze/Compare Material Cost Estimates

This screen displays a list of cost estimates generated during the costing step of the costing run. You can double-click any line to display the corresponding individual cost estimate details. You can display different columns in this screen by clicking the grid icon.

At this step, you can carry out analysis to determine the total inventory revaluation if you proceed to mark and release the cost estimates in the costing run. You may decide to make adjustments and corrections to prices or quantities and rerun the previous costing run steps.

After you’ve created and analyzed the cost estimates in the costing run, the next step is to mark them.

2.6.5 Marking

Before you can mark cost estimates, you must allow cost estimates to be marked in the period. To do this, click the lock icon in the Marking row in Figure 2.40 (shown earlier) to display the screen shown in Figure 2.44.

Click on a Company Code in this screen to choose a Costing Variant and Costing Version that can create cost estimates to be marked. Click the Save icon and then the green arrow icon to return to the main costing run screen. Click the Parameter icon in the Marking row in Figure 2.40 to display the screen shown in Figure 2.45.


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Figure 2.44 Allow Cost Estimate Marking Step

Figure 2.45 Costing Run Marking Parameters

Select the appropriate Processing Options for the costing run marking parameters, save your entries, click the green arrow icon, and then click the Execute icon (not shown here) to mark all the cost estimates in the costing run. Click the green arrow icon to display the screen shown in Figure 2.46.

Figure 2.46 Costing Run Marking Step Completed


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The Status VO indicates that the cost estimates were successfully marked without errors. You can double-click any line in the Material Overview section to display an individual cost estimate.

Now that we’ve marked the cost estimates, we’ll examine the last step of the costing run, which is to release the cost estimates.

2.6.6 Release

The Release parameters screen is similar to the Marking screen shown in Figure 2.45, with the exception of the Other Prices button shown in Figure 2.47.

Figure 2.47 Release Step Other Prices Button

Click the Other Prices button to display the screen shown in Figure 2.48.

Figure 2.48 Release Other Prices Selection Screen

This selection screen allows you to update material prices other than the standard price if required.


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Tip

You may need to update the Plan Price 1 field in the material master Costing 2 view for purchased components if no purchasing info records are available. The standard cost estimate can then retrieve the Plan Price 1 price if the search for a purchasing info record price is unsuccessful.

Click the Release button to return to the selection screen shown in Figure 2.47, save your entries, click the green arrow icon, and then click the Execute icon to display the screen shown in Figure 2.49.

Figure 2.49 Costing Run Release Step Completed

The cost estimate status of FR indicates that the cost estimates have been success-fully released and the existing inventory revalued.

Completing the costing run release step means you have almost completed prepara-tions for variance analysis. There’s one more step required if you are using product cost collectors. You must carry out a mass-processing of preliminary cost estimates, as described in the following section. Preliminary cost estimates are used to valu-ate work in process (WIP) and scrap, and you may receive error messages during period-end processing if you don’t create new preliminary cost estimates following a costing run.


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Preliminary Cost Estimate 2.7

2.7 Preliminary Cost Estimate

The preliminary cost estimate is involved with production, variance calculation, and valuating scrap variances and WIP.

Let’s create a preliminary cost estimate and analyze the results. You can create a preliminary cost estimate for a product cost collector with Transaction KKF6N or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Master Data • Product Cost Collector • Edit. The screen shown in Figure 2.50 is displayed.

Figure 2.50 Display Product Cost Collector

You can create individual preliminary cost estimates from this product cost collec-tor screen. To create a preliminary cost estimate for a product cost collector, carry out the following steps:

1. Complete the Material and Plant fields, and press (Enter).

2. Select the Production version 01 checkbox.

3. Press (Enter) to display the details of the product cost collector.

4. Click on the display/change (pencil) icon to allow edits.

5. Click on the Cost button to create the cost estimate.


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6. Click on the Header tab to display the Cost Estimate button. The screen shown in Figure 2.51 is displayed.

Figure 2.51 Product Cost Collector Header Tab

7. Click on the Cost Estimate button to display the most recent preliminary cost estimate, which is shown in Figure 2.52.

Figure 2.52 Preliminary Cost Estimate for Product Cost Collector


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The preliminary cost estimate looks similar to the standard cost estimate we saw in Section 2.5.1. The two important differences, however, are the number of preliminary cost estimates possible per material, and transfer control. We’ll now discuss these two differences in the following subsections.

2.7.1 Production Process

There can be only one standard cost estimate per material, although there can be many preliminary cost estimates. This is because preliminary cost estimates for product cost collectors are usually based on a production version controlling level. A production version is a unique combination of the BOM, routing, and work center. Because there can be many methods of manufacturing a material, there can also be many production versions, and hence, preliminary cost estimates.

From SAP R/3 release 4.5A on, product cost collectors are created with reference to a production process. A production process describes the way a material is produced; that is, which quantity structure is used. The quantity structure is taken from the production version, which is noted during the production process. The production process is determined by the following characteristics: material, pro-duction plant, and production version. One production process can be created for each production version.

2.7.2 Transfer Control

Preliminary cost estimates for product cost collectors use transfer control. Transfer control requires a top-level cost estimate to use recently created standard cost estimates for all lower-level materials. The quickest way to create many standard cost estimates is within a costing run, as discussed in Section 2.5.

Let’s examine transfer control in greater detail because it is important to create preliminary cost estimates for product cost collectors without errors. In the prelimi-nary cost estimate shown in Figure 2.52, click on the Costing Data tab to display the screen shown in Figure 2.53.

In Figure 2.53, notice that the Transfer Control for the preliminary cost estimate is ZPC2. Double-click on the underlined text, PREM, in the Costing Variant field to display the screen shown in Figure 2.54.


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Figure 2.53 Preliminary Cost Estimate Costing Data Tab

Figure 2.54 Costing Variant PREM Details Screen

This screen shows the components of Costing Variant PREM. Click on the Trans-fer Control button shown in Figure 2.54 to display the screen shown in Figure 2.55.

Figure 2.55 Transfer Control ZPC2 Details


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Figure 2.55 shows the Strategy Seq. (strategy sequence) that Transfer Control ZPC2 uses to search for existing cost estimates within a Single-Plant. The three following points refer to each of the three search strategies in turn, shown in Figure 2.55:

EE A marked standard cost estimate with a start date within the current fiscal year, indicated by the selection in the Fiscal Year column. When a standard cost estimate is marked, it appears in the Future standard cost estimate column of the material master Costing 2 view.

EE A released standard cost estimate with a start date within the current fiscal period. When a standard cost is released, it moves from the Future standard cost estimate to the Current standard cost estimate column of the material master Costing 2 view.

EE A previously released cost estimate with a start date within the current fiscal period. When a standard cost estimate is released, the cost estimate it replaces moves to the Previous standard cost estimate column in the material master Costing 2 view.

Preliminary cost estimates created in the same period that standard cost estimates are released for lower-level materials use the standard cost estimates. This is based on the second Transfer Control Strategy Sequence shown in Figure 2.55. To demonstrate this, in the cost estimate shown previously in Figure 2.52, double-click on the second cost estimate on the left side of the screen, located immediately below the highlighted Finished Product. The right side of the cost estimate screen now refers to the second cost estimate. Click on the Costing Data tab to display the screen shown in Figure 2.56.

Figure 2.56 Lower-Level Cost Estimate Costing Data Tab

Notice that the lower-level cost estimate was previously created with Costing Variant PPC1. To find out when the standard cost estimate was created, click on the History tab.


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We’ve now created individual preliminary cost estimates and examined how they access existing standard cost estimates at lower levels in the BOM. Because prelimi-nary cost estimates are normally used to valuate WIP and scrap during period-end processing in Product Cost by Period, you need to mass-create preliminary cost estimates immediately following a costing run.

In the next section, we’ll look at how to mass-process preliminary cost estimates.

2.7.3 Mass-Processing

You can create multiple preliminary cost estimates for product cost collectors with Transaction MF30 or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Plan-ning • Preliminary Costing for Product Cost Collectors. A selection screen is displayed, as shown in Figure 2.57.

Figure 2.57 Preliminary Costing for Product Cost Collectors

The selection screen allows you to enter a range or list of materials or production processes. To mass-create preliminary cost estimates, complete the selection fields as required, and click the Execute icon to run the transaction. The resulting screen dis-plays a list of messages that you should analyze. Resolve errors where necessary.

2.8 Mixed Cost Estimate

If you have different procurement alternatives for the same material, such as two production lines or two vendors, you can use mixed costing when you need inven-tory valuation to reflect the mixed procurement costs. You create a procurement alternative for each production version, vendor, or stock transfer characteristic, and then define a mixing ratio. The mixed cost estimate calculates a mixed price, which can be written to the material master as the standard price.


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Mixed Cost Estimate 2.8

The mixed-price variance results from the difference between the target credit (actual quantity × standard cost of procurement alternative) determined in the variance calculation process and the actual credit posted at the time of the goods receipt (actual quantity × standard price). The standard price equals the mixed price.

Let’s examine each of the four steps required to create mixed cost estimates.

2.8.1 Quantity Structure and Costing Version

You access quantity structure types with Transaction OMXA or by following the IMG menu path Controlling • Product Cost Controlling • Product Cost Planning • Selected Functions in Material Costing • Mixed Costing • Define Quantity Structure Types. The screen in Figure 2.58 is displayed.

Figure 2.58 Change Quantity Structure Types for Mixed Costing

The Quantity structure type controls how mixed costing is applied. In the next step, you assign a costing version with Transaction OKYD or by following IMG menu path Controlling • Product Cost Controlling • Product Cost Planning • Selected Functions in Material Costing • Mixed Costing • Define Costing Versions. The screen in Figure 2.59 is displayed.

Figure 2.59 Costing Version Configuration

You assign the quantity structure type MIX you created in Figure 2.58 to a Cost-ing Version; in this example, we use 30. Mixed cost estimates are created with reference to a Costing Version. By creating costing versions, you can create more than one mixed cost estimate for the same material.


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2.8.2 Create Procurement Alternative

You create procurement alternatives with Transaction CK91N or by following menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Master Data for Mixed Cost Estimate • Edit Procurement Alternatives. Enter the Material and Plant, and click the new page icon. Click in the Process Category field to display a dropdown list of possible entries as shown in Figure 2.60.

Figure 2.60 Possible Entries for the Procurement Alternative Process Category

The Process Category you select will determine the fields that appear in place of the dropdown list, as shown in Figure 2.61.

Figure 2.61 Enter Characteristic Details for Procurement Alternative

Enter the purchasing, production, or transfer information, and click the Confirm button. The new procurement alternative appears in the List of Procurement Alternatives, as shown in Figure 2.62.


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Figure 2.62 List of Procurement Alternatives

You can create as many different Procurement Alternatives as you need. Only those that you create mixing ratios for will be used by cost estimates.

2.8.3 Define Mixing Ratios

You create mixing ratios with Transaction CK94 or by following menu path Account-ing • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Master Data for Mixed Cost Estimate • Mixing Ratios • Create/Change. The screen shown in Figure 2.63 is displayed.

Figure 2.63 Change Mixing Ratios


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The four Procurement Alternatives shown in Figure 2.62 are listed, although only two have a Mixing Ratio defined as shown in the Mixing Ratio column in Figure 2.63. Enter the Mixing Ratio required for each Procurement Alternative, and save your work.

Now that we have all the configuration and master data settings in place, we are ready to create a mixed cost estimate.

2.8.4 Create Mixed Cost Estimate

When you create a cost estimate for the material with the costing version you con-figured in Figure 2.59, a mixed cost estimate is created. You create a mixed standard cost estimate with Transaction CK11N or by following menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Cost Estimate with Quantity Structure • Create. A selection screen is displayed, as shown in Figure 2.64.

Figure 2.64 Create Standard Cost Estimate Selection Screen

Enter the Material, Plant, and Costing Variant, and make sure that you change the Costing Version from the default entry of 1 to the Costing Version you defined in Figure 2.59; in this example, 30. Press (Enter), check that the default date entries are correct, and press (Enter) again to create the mixed cost estimate as shown in Figure 2.65.


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Figure 2.65 Create Mixed Cost Estimate Results Screen

The Mixed Costing checkbox in the top right of the cost estimate screen lets you know that this is a mixed cost estimate. You can easily compare the cost of each Procurement Alternative and the Total Value by inspecting the costed BOM structure on the left. The cost estimates (calculator icons) in the costed BOM structure on the left represent the following, in order from top to bottom:

EE Finished Product P-100 Cost 81,358.80 EUR Total to manufacture 100 PC

EE Procurement alternative 01 Cost 40,840.44 EUR to procure 50 PC

EE Procurement alternative 02: Cost 40,158.34 EUR to procure 50 PC

We defined the portions of the two procurement alternatives in the Mixing Ratio in Figure 2.63.


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Cost Estimates2

Now that we’ve examined how to set up and create mixed cost estimates, we’ve reached the end of this chapter on cost estimates. Let’s review what we’ve covered in this chapter.

2.9 Summary

In this chapter, we continued with our preparations for creating cost estimates by creating logistics master data and setting up costing sheets for overhead allocation. We examined configuration settings for the costing variant, and we created and analyzed standard and preliminary cost estimates. We looked at how to mass create standard cost estimates with a costing run and also how to mass create preliminary cost estimates. We also looked at the configuration and master data required for mixed costing. We’ve now completed planning for variance analysis.

In Chapter 3, we’ll examine how and when actual cost postings occur.


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3 Actual Postings

In Chapter 2 we created cost estimates, which provide the basis for plan and target costs. In this chapter, you’ll see how actual postings occur within Controlling (CO) by analyzing financial (FI) account postings, activity confirmations, and material movements.

Plan costs are posted prior to a fiscal period. Actual costs are posted in real time during a fiscal period, and result from transactions, which can be divided into two groups that are based on the posting origin:

EE Postings to CO from external business transactions result in primary costs.

EE Business transactions within CO result in secondary costs.

We’ll first look at transactions that cause primary costs, and then at transactions that cause secondary costs in the following sections.

3.1 Primary Costs

Postings to general ledger accounts with a corresponding primary cost element in CO also generate a parallel posting to a CO cost object, such as a production order, cost center, or internal order. Let’s follow two typical scenarios of how primary costs are posted to CO in the following subsections.

3.1.1 Goods Issue to Production Order

When goods are issued from inventory, a general ledger balance sheet account is credited, and a profit and loss consumption (expense) account is debited. A primary cost element (category 1) with the same number and identifier as the inventory consumption account is usually created in CO during initial system implementation. When the system detects a corresponding primary cost element in CO during a posting to a general ledger expense account, a posting to a CO cost object is also required.


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Because components that are consumed from inventory are typically issued to a production order, the system automatically chooses the production order or attached product cost collector as the cost object. The debit value is calculated by multiplying the component standard price by the quantity issued from inventory. Figure 3.1 shows an example debit posting to a production order.

Raw Material100

Production Order

100

Raw Material Consumed

100

Raw Material Inventory

Figure 3.1 Goods Issue Debit to Production Order

Figure 3.1 shows example FI and CO account postings when components with a value of 100 are issued from raw material (RM) inventory to a production order.

Note

The posting of 100 to the production order in CO from an FI expense posting is in addition to the dual entries typically recorded in FI. In this example, the two FI accounts posted to are RM inventory (balance sheet) and RM consumed (expense). Automatic postings from FI expense accounts to CO allow you to manipulate and analyze all primary expense postings with the many standard CO tools and reports. We’ll discuss CO reporting in more detail in this chapter, as well as in Chapter 6.

Let’s consider another way that primary postings are made to CO in the next section.

3.1.2 Vendor Invoice Posting

Primary expenses are also posted to CO during payment of external vendor invoices. External services may be required for specialized activities or if workload exceeds internal work center capacity. In this case, an external services expense account is debited, and the goods receipt/invoice receipt (GR/IR) clearing account is credited. Usually, a primary cost element corresponds to the expense account, so the produc-tion cost center or production order in CO receives a corresponding debit.


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Secondary Costs 3.2

Example

Figure 3.2 in the following section shows an example payment of 100 payroll expense to a payroll service provider. The system requires a posting to a CO cost object at the same time as the 100 FI payroll expense posting. In this example, a production cost center receives the 100 payroll debit.

Now that we’ve looked at how primary expenses are posted to CO, let’s examine how secondary postings occur within CO.

3.2 Secondary Costs

After primary costs are posted to CO from FI, as explained in the previous section, the costs in CO are allocated from overhead cost centers to production cost centers during assessment and then onto production orders during activity confirmation. Let’s examine assessments and activity confirmations in detail in the following subsections.

3.2.1 Assessment

Overhead cost centers collect overhead costs, which cannot be directly posted to a production cost center. Period-end assessments move costs from overhead cost centers to production cost centers.

Example

One building may contain several production facilities with corresponding production cost centers. The building lease primary costs are posted to one overhead cost center. The lease costs are then allocated to several production cost centers during period-end assessments.

The resulting debits to the production cost centers and credits to the overhead cost centers are identified with secondary cost elements with category 42.

In addition to allocating costs from overhead cost centers to production cost centers with assessments, you allocate costs from production cost centers to production orders during activity confirmations.


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3.2.2 Activity Confirmation

When production order activities are confirmed, the production order or product cost collector is debited, and the production cost center is credited. There are no corresponding postings to financial accounts during activity confirmation. The resulting debits to the production orders and credits to the production cost centers are identified with secondary cost elements of category 43.

Many products can be manufactured at a work center with labor and facilities paid for by the cost center. Confirmation of labor and overhead activities allocates these costs across many products. Figure 3.2 shows an example of labor allocation postings from a production cost center to a production order.

Financial Accounting (FI)

B/S Raw Material Inventory Accrued Payroll

100 (2) 100 (1)

P/L Raw Material Consumed Payroll Expense

100 (2) 100 (1)

Controlling (CO)

Production Order Cost Center

Debit 100 RM (2) Debit 100 Payroll (1)

100 Labor (3)

Credit (100) Labor (3)

1. Payroll for wages paid2. Raw material leaves balance sheet and expensed during goods issue3. Labor allocated from cost center to production order during activity confirmation

Figure 3.2 Production Cost Center Allocation during Confirmation

In this example, payroll for the factory is expensed directly to the production cost center with primary postings and then progressively allocated to each production order with secondary postings during labor activity confirmation.

Note

Overhead calculation allocates overhead costs across products from cost centers in a similar way. Overhead costs are distributed at the end of the month during overhead calculation with secondary cost element type 41, as we’ll discuss in detail in Chapter 4.


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Credits 3.3

Allocating costs with CO assessments, activity confirmations, and overhead calcula-tion effectively moves all overhead costs into the cost of sales when manufactured goods are delivered to inventory as discussed in the next section.

3.3 Credits

CO credits work in the same way as debits discussed in the previous sections, although in the opposite direction. Primary credits occur when production orders deliver assemblies into inventory, whereas secondary credits occur during assess-ments, activity confirmations, and overhead calculation, as we will discuss in the following subsections.

3.3.1 Primary Credits

As finished goods are delivered from a manufacturing order into inventory, an inventory balance sheet account is debited, and a profit and loss production output account is credited. Because there is a primary cost element corresponding to the production output account, a CO cost object is also credited. The finished goods are delivered from a production order, so the system automatically chooses the production order or product cost collector to receive the primary credit. The credit value is calculated by multiplying the finished goods standard price by the quantity delivered to inventory. Figure 3.3 shows an example of a production order with primary and secondary debits, and a primary credit for delivery to inventory.

Variance50Balance

Finished Goods(250)Credits

Overhead100

Labor100

Raw Materials100Debits

Production Order

Figure 3.3 Production Order Delivery Credits

Total variance is the order balance, or the difference between total production order debits and credits. Variance calculation at period end divides the variance into


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categories, based on the source of the variance. This assists you when determining corrective action to take during variance analysis.

3.3.2 Secondary Credits

At period end, the production order receives a secondary credit that is equal to the variance during settlement, resulting in a zero balance. During the settlement process, product cost collector and manufacturing order variances are posted to Profitability Analysis (CO-PA) and FI.

Production variances settled to CO-PA are included at the gross profit margin level. Cost center under/over absorption costs assessed to CO-PA are included at the operating profit level. The following box discusses the different levels of margin analysis.

Margin Analysis

Margin analysis can be carried out at different levels in CO-PA. The most common levels are gross profit, operating profit, pretax profit, and net profit, as described here:

EE Gross profit A company’s cost of sales represents the expense related to labor, raw materials, and manufacturing overhead. This expense is deducted from the company’s net sales/revenue, which results in a company’s first level of profit, or gross profit. The gross profit margin is used to analyze how efficiently a company uses its raw materials, labor, and manufacturing-related fixed assets to generate profits. Generally, management cannot exercise complete control over these costs.

EE Operating profit You subtract selling, general, and administrative (SG&A), often referred to as operating expenses, from gross profit to calculate the operating profit margin. Management has much more control over operating expenses than cost of sales. Positive and negative trends in operating profit are, for the most part, directly attributable to management decisions.

EE Pretax profit A company has access to a variety of tax-management techniques, which allow it to manipulate the timing and magnitude of its taxable income.

EE Net profit This is often referred to as a company’s profit margin, or bottom line, which is deter-mined after considering all expenses and tax.

Now that we’ve looked at an overview of actual debit and credit postings, let’s examine the transactions that result in these postings.


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Post Actual Costs 3.4

3.4 Post Actual Costs

In this section, we’ll create a production order, carry out activity confirmations, examine default confirmation quantities, and look at the controls available to man-age confirmations. We’ll then analyze the results in Section 3.5.

3.4.1 Create Production Order

The first step in posting actual costs is to create and release a production order. You create a production order with Transaction CO01 or via menu path Logistics • Production • Shop Floor Control • Order • Create • With Material. A selection screen is displayed, as shown in Figure 3.4.

Figure 3.4 Create Production Order

Production orders are usually created based on a material, which is also linked to BOMs and routings for assemblies. All relevant linked information is copied to the production order as you create it with the following steps:

1. Fill in the Material, Production plant, and Order type fields.

2. Press (Enter) to display the screen shown in Figure 3.5.

Let’s look at a basic example of the process of creating a production order, by fol-lowing these steps:

1. Fill in the Total Qty and Finish Basic Dates fields.

2. Click the release (green flag) icon to release the production order.

3. Save the Production order.


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Figure 3.5 Create Production Order Header Screen

While you create the production order, BOM and routing data are copied to the production order. You need to release the production order by clicking the green flag icon in Figure 3.5 before any costs can be posted in relation to the production order.

3.4.2 Confirm Activities

Now that the production order is released, we can carry out an activity confirma-tion. During activity confirmation, the activity quantity performed is entered in the system. The actual activity quantity is multiplied by the plan activity price to calculate the activity value. The product cost collector or production order is debited, and the production cost center is credited with the calculated value.


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Backflushing

Backflushing is the common practice of generating goods issues automatically during activity confirmation. You can also create Logistics settings to generate automatic goods receipts during activity confirmation. Backflushing and automatic goods receipts are common because less manual entry of inventory transactions is required. Because all components required to make the assembly are listed in the BOM, it’s relatively simple to transfer this information to the production order and issue the components automati-cally from inventory during activity confirmation. It’s also relatively easy to carry out automatic goods receipt during final confirmation because the system already has all the information required.

You confirm activities per operation with Transaction CO11N (time ticket) or CO19 (time event), or via menu path Logistics • Production • Shop Floor Control • Confirmation • Enter • For Operation. A selection screen is displayed for a Time Ticket confirmation in this example, as shown in Figure 3.6.

Figure 3.6 Enter Time Ticket Activity Confirmation

You carry out a time ticket Confirmation per operation, so you need to enter the Operation number. You also enter the operation Yield, if any. If this is the final


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operation, and the automatic goods receipt is activated, a goods receipt will occur while saving the confirmation, based on the Yield quantity. Activity quantities are entered in the relevant Activity field at the bottom of the screen. To complete the activity confirmation, carry out the following steps, as shown in Figure 3.6:

1. Fill in the Order and Operation fields.

2. Complete Yield and Activity 2 fields (in this example).

3. Save the confirmation.

After you enter your data, press (Enter) before saving to default expected activity and component quantities into the relevant fields. If you manually change the default quantities, you are introducing a variance because the default quantities are the expected quantities.

In the screen shown in Figure 3.6, click on the Goods movements button before saving to display the plan component goods issues quantities. The components and quantities are automatically copied to the confirmation from the production order.

Tip

When confirming activities, you can quickly locate a specific production order with Transaction COOIS or via menu path Logistics • Production • Shop Floor Control • Information System • Order Information System. Type in your material number and plant, and then click the Execute icon to display a complete list of corresponding production orders. Double-click a production order number to display the production order details. You can display a list of process orders with Transaction COOISPI.

We’ll investigate the production order information system in more detail in Chapter 6.

3.4.3 Default Activities

You can specify a default yield and an activity quantity to be confirmed for each confirmation. For example, you can default 1 EA of Yield and 30 MIN of Activity 2 To Be Confirmed, as shown earlier in Figure 3.6. Either the order quantity or the quantity of previously confirmed operations is taken into account.

You configure the proposed yield and activity quantities with Transaction OPK4N or via IMG menu path Production • Shop Floor Control • Operations •


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Confirmation • Define Confirmation Parameters. Double-click a plant and production order type combination, and click the last tab to display the screen shown in Figure 3.7.

Figure 3.7 Propose Yield and Activity Quantities for Production Order Confirmation

Select the Propose checkbox in the Quantities section to specify the yield that is yet to be confirmed. For example, if the total yield to be confirmed is 100 pieces, and the previously confirmed yield is 70 pieces, then the proposed yield will be 30 pieces.

Select the Propose checkbox in the Activities section to specify the activity quan-tity that is yet to be confirmed. For example, if the total activity to be confirmed is 100 hours, and the activity quantity previously confirmed is 70 hours, then the proposed activity quantity to be confirmed will be 30 hours.

Note

If you don’t change the default activities during a confirmation, then you won’t post activity input quantity variance. If the actual activity quantity is different from the con-firmed activity quantity, then the resulting variance will be contained in the production cost center under/over absorption. You may consider the option of not changing the default activities when activity input quantity variance is small, which allows you to focus your reporting on input quantity variance for components or cost center under/over absorption.


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3.4.4 Operation Sequence

Some companies require that operations are carried out in the sequence specified in the routing to reduce variances due to manually inserted operations. Specify-ing the operation sequence can also ensure that quality inspection operations are carried out and completed in the correct order. To specify the operation sequence, click the General Valid Settings tab (not shown) in the screen from Figure 3.7 to display the screen now shown in Figure 3.8.

Figure 3.8 Check Operation Sequence in Production Order

Click the Operation Sequence field to display a list of possible entries as shown in Figure 3.8. Choose Error when operation sequence is not adhered to from the dropdown list to guarantee that the production order operations are confirmed in the correct sequence.

Note

Operation sequence configuration only applies when you need to enter confirmations per operation, for example, with Transactions CO11N (time ticket) and CO19 (time event). This configuration does not apply when entering confirmations per production order with Transaction CO15.


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Report Actual Costs 3.5

Now that we’ve examined how production order debits and credits are posted, let’s look at how to report on these costs in the next section. We’ll also discuss cost reporting in more detail in Chapter 6.

3.5 Report Actual Costs

You can report on actual costs posted during a period by displaying a detailed analysis of the product cost collector for the period with Transaction KKBC_PKO or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Detailed Reports • For Product Cost Collectors. A selection screen is displayed, as shown in Figure 3.9. Use Transaction KKBC_ORD for production/process orders.

Figure 3.9 Analyze Product Cost Collector Selection Screen

Follow these steps to run the product cost collector analysis report:

1. Fill in the Material and Plant fields.

2. Select the Limited radio button in the Time Frame section.

3. Complete the Period fields.

4. Click on the execute (clock) icon to display the screen shown in Figure 3.10.


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Figure 3.10 Analyze Product Cost Collector Results Screen

You can double-click on any line to display actual posting line item details:

EE Double-click on actual Goods Issues or Goods Receipts to display material documents generated during the goods movements.

EE Double-click on actual activity Confirmations to display a list of confirmations.

You can continue drilling down (double-clicking) on any line in the screen shown in Figure 3.10 to find the original source document generated during the original transaction.

3.6 Summary

In this chapter, we discussed the relationship between postings in CO and FI, as well as how postings to general ledger expense accounts result in parallel postings to cost objects such as cost centers, product cost collectors, manufacturing orders, or internal orders in CO.

We also discussed how activity confirmations result in secondary postings within CO, with no effect on general ledger accounts. We carried out a production order activity confirmation, ran a report to display the actual postings, and examined configuration settings to determine default yield and activity quantities.

In previous chapters, we carried out initial planning and created cost estimates. Now that actual cost postings are created, we are ready to analyze variance postings by comparing actual and target costs in Chapter 4. We will examine scrap postings and variance in detail in Chapter 5.


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4 Period-End Processing

We prepared for variance analysis by doing the initial planning (explained in Chapter 1), creating cost estimates (explained in Chapter 2), and posting actual costs (explained in Chapter 3). We are now ready to calculate and analyze variances during period-end processing. In this chapter, we’ll cover in detail the different types of variance calculations, configuration, categories, period-end processing, cost center variances, purchase price variances, and the material ledger. In Chapter 5, we’ll analyze scrap variance in detail, and in Chapter 6, we’ll look at standard reporting.

4.1 Types of Variance Calculation

The three common types of variance calculation are as follows:

EE Total variance

EE Production variance

EE Planning variance

First, let’s gain an overview of each type of variance, which we’ll discuss in the following subsections.

4.1.1 Total Variance

Total variance is the difference between the actual cost that is debited to the order, and credits from deliveries to inventory. You calculate total variance with target cost version 0, which determines the basis for the calculation of target costs. Target costs are the expected costs when a quantity is delivered to inventory. Total variance is the only variance relevant to settlement. The difference between debits and credits is settled to Financial Accounting (FI), Profit Center Accounting, and Profitability Analysis (CO-PA).


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Example

A production order has a balance of $100 at period end, as previously shown in Chapter 3, Figure 3.2. During variance analysis, with target cost version 0, $40 is assigned to input price variance, and $60 is assigned to lot size variance. During settlement, $100 is settled to FI and Profit Center Accounting, while $40 is settled to an input price variance value field, and $60 is settled to a lot size variance value field in CO-PA. You can report on the calculations and postings with standard reports, as described in Chapter 6.

4.1.2 Production Variance

Production variance is the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity delivered to inventory. You calculate production variances with target cost version 1. Production variances are for information only and are not relevant for settlement.

Production variance allows you to exclude variances due to selecting a different production line or alternative bill of material (BOM), which are different to the standard cost estimate quantity structure.

Example

A production order has a balance of $100 at period end, and during variance analysis, with target cost version 1, $30 is assigned to input price variance, and $50 is assigned to lot size variance. During settlement, target cost version 1 calculations are not relevant. You can report on the calculations with standard reports, as described in Chapter 6.

4.1.3 Planning Variance

Planning variance is the difference between costs on the preliminary cost estimate for the order and target costs based on the standard cost estimate and planned order quantity. You calculate planning variances with target cost version 2. Planning variances are for information only and are not relevant for settlement.

Planning variance allows you to analyze variances due to the decision to choose a production line or alternative BOM, which are different from the standard cost estimate quantity structure.


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Variance Configuration 4.2

Example

A production order has a balance of $100 at period end, and during variance analysis, with target cost version 2, $10 is assigned to input price variance, and $10 is assigned to lot size variance. During settlement, target cost version 2 calculations are not relevant. You can report on the calculations with standard reports, as described in Chapter 6.

Now that we’ve looked at the different types of variance calculations, let’s exam-ine the configuration required for variance analysis to help in understanding the calculations that occur during variance analysis.

4.2 Variance Configuration

Variance configuration for Product Cost by Period and Product Cost by Order are similar. Let’s look at variance configuration for Product Cost by Period, and we’ll look at the differences along the way.

4.2.1 Define Variance Keys

You define variance keys with Transaction OKV1 or via IMG menu path Control-ling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Variance Calculation • Variance Calcula-tion for Product Cost Collectors • Define Variance Keys. The screen shown in Figure 4.1 is displayed.

Figure 4.1 Define Variance Keys

The overview screen displays a list of available variance keys. Double-click on a variance key in the Variance Key column to display the details screen shown in Figure 4.2.


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Figure 4.2 Edit Variance Keys

Select the Scrap checkbox to ensure the value of scrap is calculated and subtracted from total variances during variance calculation. Any difference between plan and actual scrap is shown as scrap variance. If planned scrap equals actual scrap, there is no scrap variance. Target costs for the valuation of scrap are calculated according to the valuation variant for work in process (WIP) and scrap. If a valuation vari-ant for WIP and scrap is not defined, target costs are valuated on the basis of the standard cost estimate.

Tip

You may encounter a large number of error messages during period-end variance calcula-tion that indicate routings have changed since the last costing run. In this case, you have three options to reduce the number of error messages:

EE Implement product cost collectors by defining order types with Transactions OPJH and OPL8. Product cost collectors allow you to valuate WIP at target, based on the preliminary cost estimate.

EE Implement costing routings with Transaction CA01. Costing routings remain unchanged when the actual routings are changed. A disadvantage of costing routings is the extra maintenance that is required.

EE Deselect the Scrap checkbox, shown in Figure 4.2. This will eliminate the error mes-sages, although the scrap columns in variance reports will not be populated.

Select the Write Line Items checkbox shown in Figure 4.2 to ensure a document is created when variances or target costs are calculated. The line items document records when the target costs or variances are calculated and who created them. It also displays which target costs or variances were changed. The Write Line Items indicator is not selected by default because this level of detail is not generally needed, and it increases system load requirements.


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4.2.2 Define Default Variance Keys for Plants

You define default variance keys per plant with Transaction OKVW or via IMG menu path Controlling • Product Cost Controlling • Cost Object Control-ling • Product Cost by Period • Period-End Closing • Variance Calculation • Variance Calculation for Product Cost Collectors • Define Default Variance Keys for Plants. The screen shown in Figure 4.3 is displayed.

Figure 4.3 Default Variance Keys per Plant

When a material master is created, a default variance key is proposed for the Costing 1 view field, based on the Variance Keys entry. When a manufacturing order or product cost collector is created, a default variance key is proposed based on the variance key entered in the material master Costing 1 view.

4.2.3 Define Variance Variants

You define variance variants with Transaction OKVG or via IMG menu path Control-ling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Variance Calculation • Variance Calculation for Product Cost Collectors • Define Variance Variants. The screen shown in Figure 4.4 is displayed.

Variance variants determine which variance categories are calculated. Variances are calculated for all variance categories that are selected in this view. If a variance category is not selected, variances of that category are assigned to remaining vari-ances. Scrap variances are the only exception to this rule. If Scrap Variance is not selected, these variances enter all other variances on the input side.


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Figure 4.4 Define Variance Variants

You specify whether scrap variances are calculated by selecting the Scrap checkbox, as shown earlier in Figure 4.2. You control whether scrap variances are displayed by selecting the Scrap Variance checkbox in the Variance Variant. You can assign different variance variants to each target cost version. As long as you have specified that scrap variances are to be calculated in the variance key, you could, for example, use a variance variant with the Scrap Variance checkbox selected for target cost version 0 and deselected for target cost version 3. This would allow you one view of variances in target cost version 0 with scrap displayed separately, and another view of variances in target cost version 3 without scrap variances displayed separately.

Tip

Even if you aren’t aware that postings occur to a particular variance category in your system, it’s a good idea to select all the checkboxes in Figure 4.4 as we have done, at least initially. For example, you may not be aware that components are substituted, and you don’t select the Resource-Usage Variance checkbox. If component substitution does occur, the resulting variances will post to Remaining Input Variance.

If you’re concerned with variance calculation runtime, ensuring that the Write Line Items checkbox in Figure 4.2 is deselected may improve system performance more than dese-lecting a checkbox in Figure 4.4. You can also improve system period-end performance by activating the deletion flag on old production orders as discussed in Section 4.4.2.

We’ll discuss individual variance categories in more detail in Section 4.3.


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4.2.4 Define Valuation Variant for Scrap and WIP

The valuation variant allows a choice of cost estimates to valuate scrap and WIP. Prior to SAP R/3 release 4.5, you could only use the standard cost estimate. If the structure of a routing was changed after a costing run, WIP could not be valued, resulting in an error message. The system then posted all product cost collector costs as variances.

You can eliminate the error message by creating and releasing another standard cost estimate. Because releasing a standard cost estimate can change inventory valuation, many companies prefer to only release standard cost estimates during main costing runs in a controlled and supervised environment. Costing runs are explained in detail in Chapter 2. WIP at target eliminates the need to create and release new standard cost estimates because valuation is based on the preliminary cost estimate, which does not affect inventory valuation.

WIP at target allows the product cost collector preliminary cost estimate to valuate WIP, even if the routing structure is changed. If the valuation variant for scrap and WIP is not defined, scrap and WIP valuation are based on the current standard cost estimate.

You define the valuation variant for WIP and scrap (target costs) via IMG menu path Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Variance Calculation • Variance Calculation for Product Cost Collectors • Define Valuation Variant for WIP and Scrap (Target Costs). The screen shown in Figure 4.5 is displayed.

Figure 4.5 Define Valuation Variant for Scrap and WIP


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WIP at target is used by product cost collectors in repetitive manufacturing. Repetitive manufacturing eliminates the need for production or process orders in manufacturing environments with production lines and long production runs. It reduces the work involved in production control and simplifies confirmations and goods receipt postings.

Production orders can also be assigned to product cost collectors starting with SAP R/3 release 4.5. Assignment to a product cost collector occurs automatically when a production order is created in this scenario. At period end, target costs (plan costs adjusted for confirmed yield not yet delivered to inventory) are temporarily moved from product cost collectors to WIP financial accounts. Variance is also calculated and posted at the same time.

Note

In Product Cost by Order, WIP and scrap are valuated at actual, so there is no need to calculate WIP and scrap. The valuation variant for WIP and scrap does not apply in that environment.

When WIP is valuated at actual, WIP and variance postings depend on the production order status as follows:

Status Result

Released (REL) WIP is created.

Delivered (DLV) WIP is canceled, and variance calculated.

Technically complete (TECO) WIP is canceled, and variance calculated.

Now let’s look at target cost versions that determine how the types of variance are calculated, which we discussed in Section 4.1.

4.2.5 Define Target Cost Versions

You define target cost versions with Transaction OKV6 or via IMG menu path Controlling • Product Cost Controlling • Cost Object Controlling • Prod-uct Cost by Period • Period-End Closing • Variance Calculation • Variance Calculation for Product Cost Collectors • Define Target Cost Versions. An overview screen is displayed, as shown in Figure 4.6.


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Figure 4.6 Define Target Cost Versions

The overview screen presents a list of all available target cost versions. Double-click on TgtCostVsn (target cost version) 0 to display the details screen shown in Figure 4.7.

Figure 4.7 Target Cost Version 0 Details Screen

Control Costs are based on Actual Costs, or in other words, actual debits. Target Costs are based on the Current Std Cost Est (current standard cost estimate), or in other words, actual credits.

Target cost version 0 calculates total variance and explains the difference between actual debits and credits on an order. It is the only target cost version that can be settled to FI, Profit Center Accounting, and CO-PA.


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You can specify a Valuation Variant for Scrap with target cost version 0. This allows you to control which cost estimate is used to valuate scrap, as discussed in Section 4.2. The valuation variant for scrap is not changeable in other target cost versions.

Now that we’ve looked at target cost version 0 configuration, let’s examine other target cost versions. Double-click on TgtCost Vsn 1 in the screen shown previously in Figure 4.6 to display the details screen shown in Figure 4.8.


Target cost version 1 calculates production variance, which is the difference between net actual costs and target costs that are based on the preliminary cost estimate. This allows you to exclude variances that occurred because a different quantity structure was used during production compared to the standard cost estimate quantity structure.

Although this target cost version is for information only and cannot be settled, it is useful for analyzing production performance and efficiency.

Next, double-click on TgtCostVsn 2 in the screen shown earlier in Figure 4.6 to display the details screen shown in Figure 4.9.


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Target cost version 2 calculates planning variance, which is the difference between plan costs based on the preliminary cost estimate of a manufacturing order and target costs based on the Current Std Cost Est (current standard cost estimate).

You can use target cost version 2 to decide whether to manufacture an order with a particular quantity structure. Although this target cost version is for information only and cannot be settled, it is useful for analyzing production planning perfor-mance and efficiency.

The system does not allow calculation of a planning variance between a current standard cost estimate and a preliminary cost estimate for product cost collectors. Therefore, you cannot calculate variances with target cost version 2 for product cost collectors.

Next, double-click on TgtCostVsn 3 (not shown) in the screen in Figure 4.6 to display the details screen shown in Figure 4.10.

Target cost version 3 calculates production variance of the period, which is the differ-ence between net actual costs and target costs based on an Alternative Material Cost Est (alternative material cost estimate), which is based on costing variant PPC2 in the example shown in Figure 4.10.


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You can use target cost version 3 to calculate production variances on the basis of monthly planning if a modified standard cost estimate is created every month. Target cost version 3 can also be used for the calculation of equivalences for the distribution of actual costs in cost object hierarchies. This target cost version is for information only and cannot be settled.

So far in this chapter we’ve analyzed types of variance calculation and configura-tion. Next, we’ll discuss variance categories and then follow a typical period-end processing scenario.

4.3 Variance Categories

During variance calculation, the order balance is divided into categories on the input and output sides. Variance categories provide reasons for the cause of the variance, which you can use when deciding what corrective action to take. There are no financial postings during variance calculation, and it can be run as often as necessary to control production processes. The frequency can be daily if variances are high and many corrective actions are necessary.


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Variance Categories 4.3

Continual improvements in master data and user knowledge and skills through frequent variance analysis usually results in reduced variances over time. First we’ll discuss input variance categories, and then we’ll discuss output variance categories. Scrap variances are discussed in detail in Chapter 5.

4.3.1 Input Variances

Variances on the input side are based on goods issues, internal activity alloca-tions, overhead allocation, and general ledger account postings. Input variances are divided into the following categories during variance calculation, according to their source:

EE Input price variance

EE Resource-usage variance

EE Input quantity variance

EE Remaining input variance

Input Price Variance

Input price variance occurs as a result of component price changes after the higher-level assembly cost estimate is released. This occurs in one of the two following ways:

EE If the component valuation is based on standard price control, a standard cost estimate for the component could be released after the cost estimate for the assembly is released.

EE If the component valuation is based on moving average price control, a goods receipt of the component could change the component price after the cost estimate for the assembly is released.

Example

A component is valued at $10 during a costing run. Its price subsequently changes, and during goods issue to a production order, it is valued at $11. Variance analysis will report an input price variance of $1.

Transfer control can reduce input price variance by using existing component cost estimates where possible, instead of creating new cost estimates. You can read more on the details of transfer control in Chapter 2.


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Resource-Usage Variance

Resource-usage variance occurs as a result of substituting components. This could occur if a component is not available, and another component with a different material number is used instead. The costs for both components are reported as resource-usage variances.

Example

The plan is to issue component A, valued at $10, to a production order. However, component B, valued at $15, is issued instead. The resource-usage variance is -$10 due to component A and $15 due to component B, resulting in a net resource-usage variance of $5.

Input Quantity Variance

Input quantity variance occurs as a result of a difference between plan and actual quantities of materials and activities consumed.

Example

An activity time of 10 minutes was planned, and 12 minutes was confirmed. If the activity price is $5 per minute, the result is an input quantity variance of $10.

Input quantity variance can also represent component scrap variance, which we will discuss in detail in Chapter 5.

You can report on activity and component input quantity variances separately by settling variance categories to CO-PA with the following two configuration steps:

1. Select the Variances to Costing-Based PA checkbox in the settlement profile with Transaction OKO7. You can determine a production order settlement rule by selecting Header • Settlement rule from the production order menu bar, and then selecting Goto • Settlement parameters from the settlement rule menu bar.

2. Map each variance category and cost element combination to a separate value field in CO-PA. You carry out these mappings in the PA transfer structure with Transaction KEI1. You can determine the PA transfer structure assigned to a production order in the settlement parameters screen.


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Remaining Input Variance

Remaining input variance occurs when input variances cannot be assigned to any other variance category.

Example

A component is valued at $100, and associated material overhead is valued at $10 (10% of $100), during the main costing run. The component price subsequently changes, and during goods issue to a production order, it is valued at $110. During period-end overhead calculation, actual overhead is posted as $11 (10% of $110). Variance analysis will report an input price variance of $10 due to the component price change, and it will report a remaining input variance of $1 due to the overhead change.

Most input variances should occur in the price, resource-usage, and quantity catego-ries. Any trends of increasing remaining input variance should be investigated.

Now that we’ve examined how input variances occur, let’s look at each of the four output variances.

4.3.2 Output Variances

Variances on the output side result from too little or too much of planned order quantity being delivered, or because the delivered quantity was valuated differently. Output variances are broken down into the following categories during variance calculation.

Mixed-Price Variance

Mixed-price variance occurs when inventory is valuated using a mixed cost estimate for the material. If you want to perform mixed costing, create a procurement alter-native for each production version, and then define a mixing ratio. The mixed cost estimate calculates a mixed price. This price can be written to the material master as the standard price. The target credit is based on the confirmed quantity times the standard cost of the procurement alternative. The actual cost is based on the confirmed quantity times the standard price, where the standard price corresponds to the mixed price.


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The mixed price variance is caused by a difference between target and actual costs. If you don’t select the Mixed-Price Variance indicator in the variance variant, as discussed in Section 4.2, mixed-price variances are shown as output price variances.

Note

Mixed-price variance results from the difference between the target credit (actual quan-tity × standard cost of procurement alternative), which is determined during variance calculation, and the actual credit that is posted at the time of the goods receipt (actual quantity × standard price).

You can find more detailed information on mixed cost estimates in Chapter 2.

Output Price Variance

Output price variance can occur in the following three situations:

EE If the standard price is changed after delivery to inventory, and before variance calculation.

EE If the material is valuated at moving average price, and it is not delivered to inventory at standard price during target value calculation. You control how the target value is calculated for delivery to stock when the price control indicator is set to V (moving average price) via IMG menu path Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Simul-taneous Costing • Define Goods Received Valuation for Order Delivery.

EE If you don’t select the Mixed-Price Variance indicator in the variance variant, as discussed in Section 4.2.

Example

The standard price for a material is $75. The system delivers 10 units to stock for a production order and valuates the delivery with the standard price. You calculate a new standard cost estimate for the material and mark and release the cost estimate. The new standard price is $100. The system calculates a target cost of $1,000. The output price variance is $250.

You can reduce the output price variance for subassemblies with transfer control, as described in Chapter 2. Transfer control uses existing cost estimates where possible instead of creating new cost estimates.


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Lot Size Variance

Lot size variance occurs if a manufacturing order lot size is different from the standard cost estimate costing lot size. Setup and tear-down time does not usually change with lot size, so a different lot size will either increase or decrease the unit cost. Whenever a portion of manufacturing cost does not change with output quantity, such as setup or tear-down time, you can have lot size variance.

Note

Setup time is time needed to prepare equipment and machinery for production of assemblies, and is generally the same regardless of the quantity produced. Setup time allocated over a smaller production quantity increases the unit cost.

Tear-down time is the time needed to disassemble and clean equipment and machinery following a production run and is generally the same regardless of the quantity produced. Like setup time, tear-down time allocated over a smaller production quantity increases unit cost.

Remaining Variance

Remaining variance occurs if variances cannot be assigned to any other variance category. Rounding differences or overhead applied to costs that do not vary with lot sizes are reported as remaining variances.

Remaining variance is also reported when target costs cannot be calculated, such as when a standard cost estimate does not exist, or if a goods receipt for the order has not taken place. Scrap variances are an exception to this rule. If the Scrap Variance checkbox is not selected in the variance variant, as shown in Figure 4.4, scrap variances are included in the report for other relevant variances on the input side.

Note

All variance is reported as remaining variance when no variance categories have been selected in the variance variant, as shown previously in Figure 4.4. There is no option to deselect remaining output variance because this does not appear as a checkbox in this screen.


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Now that we’ve examined the types of variance calculations, configuration, and variance categories, let’s follow a typical period-end processing scenario.

4.4 Period End

In this section, we’ll consider the period-end processes most relevant to variance analysis: Overhead, WIP, variance calculation, and settlement. If you use other period-end processes, you can apply the same principles you will learn in this section to those processes as well.

4.4.1 Overhead

During a fiscal period, actual primary (external) costs, such as payroll and electric-ity, are debited to cost centers. Some of these costs may be included as part of the planned activity rate and allocated to products from cost centers during activity confirmations. Another commonly used method to allocate overhead costs to products is period-end overhead calculation. Overhead calculation offers flexible allocation across different products through costing sheet configuration, as discussed in Chapter 2. Allocating overhead with costing sheets requires an additional period-end activity, although this is a straightforward procedure.

You run period-end overhead calculation with Transactions CO42 (individual) and CO43 (collective), or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Overhead. A selection screen is displayed, as shown in Figure 4.11.

Note

You carry out variance analysis for production and process orders with Transactions KGI2 (individual) and CO43 (collective).

In this example, we will calculate overhead only for product cost collectors by selecting the With Product Cost Collectors checkbox, as shown in Figure 4.11. You can include other objects in the calculation without running another transac-tion by selecting the relevant checkboxes shown in Figure 4.11.


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Period End 4.4

Figure 4.11 Actual Overhead Calculation Selection Screen

If you select the Dialog display checkbox, you are presented with detailed informa-tion on how overhead was calculated after the transaction is run. This level of detail is normally only required if you are troubleshooting during initial implementation.

Complete the selection screen using the settings shown in Figure 4.11 as an example, and click on the Execute (clock) icon in the upper-left corner to display the screen shown in Figure 4.12.

Figure 4.12 Actual Overhead Calculation Basic List


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This screen provides you with basic information on the Selection Parameters you entered in the previous selection screen, such as Period and Fiscal Year. Click on the next list level (right-pointing arrow icon) to proceed to a detailed list of calculated overhead, as shown in Figure 4.13.

Figure 4.13 Actual Overhead Calculation Details

In the screen shown in Figure 4.13, the Senders column shows the cost center credited, for example, CTR 1400 (cost center 1400), while the Receivers column shows the product cost collector or manufacturing order debited, for example, ORD 786704 (order 786704). The Debit cost column shows the secondary cost element identifying the type of overhead cost, for example, 690410 (labor) or 690420 (material) in Figure 4.13. These cost elements also appear on cost center and product cost collector reports, which are discussed further in Chapter 6.

The ValueCOCur column shows the value of overhead allocated in controlling area currency. By selecting Settings • Layout • Current from the menu bar, you can display additional columns, such as overhead value in object (company code) currency as well as controlling area currency.

Now that we’ve calculated and allocated overhead, the next period-end pro-cessing step is to calculate WIP. We’ll discuss this process in detail in the next subsection.

4.4.2 Work in Process

Production costs associated with manufacturing orders are temporarily tracked on the profit and loss financial statement. Components issued from inventory to a manufacturing order are expensed and removed from the financial balance sheet. Production costs are returned to the balance sheet when assemblies and finished goods are delivered to inventory from the manufacturing order.


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Period End 4.4

WIP represents production costs of incomplete assemblies at period end. For balance sheet accounts to accurately reflect company assets at period end, WIP costs are moved temporarily to WIP balance sheet and profit and loss accounts. WIP postings are canceled during period-end processing following the delivery of associated assemblies or finished products to inventory. There are two types of WIP valuations:

EE Target WIP at target is valuated based on a cost estimate.

EE Actual WIP at actual is valuated based on actual postings to a manufacturing order.

Let’s now discuss WIP calculation for product cost collectors in detail. We’ll then discuss only the differences for WIP calculation for manufacturing orders because there are many similarities between the two processes.

Product Cost by Period

WIP is valuated at target cost for Product Cost by Period. Operation quantities confirmed for manufacturing orders are valuated at the target cost of the opera-tion, minus scrap and goods receipt quantities. WIP at target value is not based on actual costs. Instead, it is based on what the WIP value should be according to a cost estimate. You specify which cost estimate is used to calculate target costs in the valuation variant for scrap and WIP, as discussed in Section 4.2. For product cost collectors, SAP recommends calculating target costs based on the product cost collector preliminary cost estimate.

One of the main advantages of WIP at target is that variance and WIP can be calcu-lated and posted at the same time. If production orders remain open for multiple periods, variance reconciliation with FI is usually easier using WIP at target.

Example

The price of natural gas used in drying kilns increases unexpectedly one month. A produc-tion order is finally delivered three months later, as ceramic pipes typically take several months to dry completely. The production order variances in CO are posted several months after payment of natural gas invoices and associated primary expenses FI postings. This makes reconciliation between CO and FI difficult during any one period. With product cost collectors, WIP and variance are posted together during the period in which they occur. Variance is posted in the same period as the primary financial postings, which caused the variance, simplifying reconciliation between CO and FI.


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Another advantage of WIP at target is that variance analysis is based on material or product, usually a key reporting requirement. Variance comparison of different products allows analysis of which product is made more efficiently, improving product profitability. This analysis is usually more beneficial than analyzing vari-ance per production order.

You run period-end WIP calculation with Transactions KKAS (individual) and KKAO (collective), or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Work in Process. A selection screen is displayed, as shown in Figure 4.14.

Note

You carry out the WIP calculation for production and process orders with Transactions KKAX (individual) and KKAO (collective).

Figure 4.14 Work in Process Selection Screen


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Period End 4.4

In this example, we will calculate WIP only for product cost collectors by selecting the With Product Cost Collectors checkbox, as shown in Figure 4.14. You can include other objects in the calculation without running another transaction by selecting the applicable checkbox in Figure 4.14.

Complete the selection screen using the settings shown in Figure 4.14 as an example, and click on the Execute icon to display the screen shown in Figure 4.15.

Figure 4.15 Calculate Work in Process Results List

You can display messages by clicking on the red triangle icon. You should analyze all messages and take corrective action where necessary. If you identify specific materials with several messages, it is often easier to calculate WIP for the individual materials separately with Transaction KKAS and then analyze messages for the specific materials.

In Figure 4.15, the WIP (chg) column is sorted in descending order. This provides visibility to product cost collectors with the largest WIP accumulated during the period of WIP calculation. As a rule of thumb, you should analyze and take correc-tive action where necessary for product cost collectors with the six largest positive and negative values of change in WIP during the period. You can also use the same technique on the WIP (total) column if necessary.

To analyze WIP calculated for a product cost collector in more detail, click on the corresponding line, and then click on the WIP Explanation button. The screen shown in Figure 4.16 is displayed.

Numbers shown in the Activity column correspond to operations in the routing. WIP at target is based on quantities confirmed at each operation. The first four rows shown in Figure 4.16 correspond with overhead allocated to the product cost collector due to WIP quantities and do not correspond to operations.


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Figure 4.16 Calculate Work in Process Explanation Screen

A quantity in the Ref. qty (last) column indicates this is a reference quantity for calculating WIP. If you look to the left of the first quantity of 50.000 in the Ref. qty column, you see a quantity of 50.000 in the Yield column. This indicates there has been a confirmed yield of 50.000 for a partial assembly from operation 0010, which has not yet been consumed in operation 0020. Looking further to the left and one row down, in the WIP (total) column, you can see the value of the partial assemblies is 62.25. This corresponds to the value of WIP at target residing on operation 0010 during the period. The same process is used to determine WIP at each operation. The WIP value at each operation is added to the corresponding overhead value to determine the total WIP value of 558.81 for the period.

Values in the GR qty column in Figure 4.16 correspond to goods receipt quantity of assemblies. In the first line of operation 0010, you can see there has been a goods receipt quantity of 90.000 for the finished assembly and a corresponding yield of 90.000 for operation 0010. All subsequent operations show a corresponding first


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Period End 4.4

line and no WIP. As long as the sum of the Yield and Rel. scrap columns equals the GR qty column, there will be no corresponding WIP for that row.

Tip

A common problem during collective WIP at target calculation is that some WIP items reoccur every month, resulting in an ever-increasing cumulative total WIP. How can WIP at target keep reoccurring? Say a manufacturing order is commenced with a plan quantity of 20. If 10 partial assemblies are discarded at an operation but not confirmed as scrap, the cost associated with the partial assemblies will remain as WIP until one of the following occurs:

EE The quantity of 10 is confirmed as scrap at the appropriate operation.EE The production order deletion flag is set.

You may need to reverse subsequent activity confirmations before you can complete the scrap confirmation. Setting the deletion flag will remove the production order from period-end processing; however, the quantities removed from inventory, confirmed as scrap, and delivered to inventory will remain inconsistent until a correcting entry such as a physical inventory posting is made.

A common misunderstanding is that WIP can be canceled by changing the status of underlying production orders to technically complete (TECO). This status pre-vents any further manual posting of costs to the product cost collector through the production order.

However, a status of TECO does not remove existing WIP, which remains associated with the product cost collector. Setting the manufacturing order deletion flag, which corresponds with status DLFL, will cancel existing WIP. You can set the deletion flag while viewing a production order in change mode by selecting Functions • Deletion flag • Activate from the menu bar.

You can also revoke the deletion flag by selecting Functions • Deletion flag • Revoke from the menu bar.

Tip

No financial postings occur during WIP calculation. You can run the WIP transaction as often as you like and carry out analysis and fixes progressively during a fiscal period. Financial postings only occur during settlement, which is normally carried out at period end.


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Product Cost by Order

In this subsection, we’ll discuss WIP for Product Cost by Order, which means working with manufacturing orders. We’ll focus on the differences between WIP calculation for manufacturing orders and product cost collectors.

WIP is valuated at actual cost in Product Cost by Order. All order debit costs are considered WIP until valuated goods receipt into inventory occurs. At period end, the actual balance of incomplete manufacturing orders not fully delivered to inven-tory is determined during WIP calculation.

During settlement, calculated WIP is posted to a WIP balance sheet account and an offsetting profit and loss account. The WIP calculation is based on the manufactur-ing order status:

EE REL Released: Calculate WIP

EE DLV Fully Delivered: Cancel WIP

EE TECO Technically Complete: Cancel WIP

WIP is calculated each period until the status of the order is set to fully deliv-ered or technically complete, and then the entire WIP is canceled and variance is calculated.

Now that we’ve calculated WIP, let’s look at the next period-end process: variance calculation.

4.4.3 Variance Calculation

Variance calculation provides information to assist you during analysis of how the order balance occurred. In other words, it helps you determine the reason for the difference between order debits and credits. It does this by analyzing causes of the variance and assigning categories, as we discussed in Section 4.3. The following is an overview of the three main types of variance calculation:

EE Total Variance Calculation (Target Cost Version 0) This type is based on the difference between actual debits and credits due to valuated goods receipts, which are in turn based on the standard cost estimate. Values assigned to variance categories assist you in determining what caused the


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Period End 4.4

difference between actual production costs and planned production costs when the standard cost estimate was released.

EE Production Variance Calculation (Target Cost Version 1) This type is based on the difference between actual debits and credits, which are based on the preliminary cost estimate. The results of this calculation are not settled to FI; however, reports can be run to analyze the results. This allows you to analyze production process efficiency by excluding variances based on different types of manufacturing processes, such as different work centers or BOM alternatives and routings.

EE Planning Variance Calculation (Target Cost Version 2) This type is based on the difference between plan debits, which are based on the preliminary cost estimate, and credits that are based on the standard cost estimate. The results of this calculation are not settled to FI; however, reports can be run to analyze the results. This allows you to analyze variances due to different types of manufacturing processes, such as different work centers or BOM alternatives and routings.

There are differences in variance calculation for product cost collectors and manu-facturing orders. Variance is calculated every period end for product cost collectors, while the timing is dependent on order status for manufacturing orders. WIP and scrap variances are subtracted from actual costs to determine control costs for product cost collectors. Only scrap variances are subtracted from actual costs to determine control costs for manufacturing orders.

We’ll now discuss variance calculation for product cost collectors in detail. Because there are many similarities between the two processes, we’ll only discuss the dif-ferences for variance calculation for manufacturing orders.

Product Cost by Period

Variance calculation compares target and control costs. For total variance, target costs are based on the standard cost estimate. Control costs are determined by deducting WIP and scrap variances from actual costs.

Target costs are determined during goods receipt and variance calculation. At least seven prerequisites must be met for target costs to appear in the target column. Let’s look at each condition in turn:


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1. There must be a goods receipt of the assembly or finished good for at least one of the manufacturing orders that is associated with the product cost collector during the period of variance analysis. Target costs are calculated on the basis of the quantity delivered to inventory. If there are no deliveries to inventory, target costs cannot be calculated, and an error message is issued.

2. There must be a variance key in the product cost collector in order to calculate target costs. The variance key in the product cost collector defaults from the material master Costing 1 view when the product cost collector is created. To exclude a product cost collector from variance calculation, you can either delete the variance key from the product cost collector or activate the product cost collector deletion flag.

3. There must be a released standard cost estimate that is valid on the last day of the posting period for product cost collectors. For manufacturing orders, the standard cost estimate must be valid at the time of the last delivery to inventory. The cost estimate must include an itemization, which is a listing of the resources required to manufacture a product.

4. The Material origin checkbox in the material master Costing 1 view must be selected for all cost-critical components. This allows the system to allocate component variances to primary cost elements. If you have already created material master records without the Material origin checkbox selected, you can use report RKHKMAT0 to select the checkbox automatically.

5. Variance configuration must be carried out, as discussed in Section 4.2.

6. The product cost collector must have settlement type periodic (PER) in the settlement rule. This settlement type means that WIP and variance calculated for a period can only be settled in the same period. Settlement type PER also requires that each period be settled sequentially.

7. Variance calculation must be carried out. Although target costs are first calculated during goods receipt into inventory, execution of variance calculation updates the costs at period end.

You run period-end variance calculation with Transactions KKS6 (individual) and KKS5 (collective), or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Variances. A selection screen is displayed, as shown in Figure 4.17.


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Period End 4.4

Note

You carry out variance calculation for production and process orders with Transactions KKS2 (individual) and KKS1 (collective).

Figure 4.17 Variance Calculation Selection Screen

In this example, we’ll calculate variance only for product cost collectors by select-ing the W/Product Cost Collectors checkbox. You can include other objects in the calculation without running another transaction by selecting the relevant checkbox in Figure 4.17.

Target cost versions selected in this screen determine whether only total variances (target cost version 0) or all selected variances are calculated. You can adjust the target cost versions selected by selecting Extras • Set Target Cost Versions from the menu bar.

Collective processing time can be reduced by deselecting the Detail list checkbox. Although variances are calculated, you do not see variance calculation details in the following screens. You can then run summarized reporting (discussed in Chapter


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6) to analyze the aggregated data. Orders that caused high variances can be identi-fied by sorting on variance columns or by using exception rules. To find detailed information for an order that caused high variances, recalculate variance for the individual order with Transaction KKS6, and ensure the Test Run and Detail List checkboxes are selected.

Complete the selection screen using the settings in Figure 4.17 as an example, and then click on the Execute icon to display the screen shown in Figure 4.18.

Figure 4.18 Variance Calculation Results Screen

Ideally, you should analyze all messages and take corrective action where necessary. You can display messages by clicking on the underlined Messages text in Figure 4.18. If you identify specific materials with several messages, it may be easier to calculate variance for the individual materials separately with Transaction KKS6 and analyze the messages for the specific materials.

The following formula is used to calculate variance in Figure 4.18:

Variance = Actual Costs − Actual Costs Allocated (credits) − WIP − Scrap

In Figure 4.18, the Variance column is sorted in descending order. This is indicated by the small red inverted triangle just to the left of the Variance column header. Sorting provides visibility to product cost collectors with large variances during the period. Let’s follow an example that demonstrates how to analyze the causes of the largest variances. We’ll analyze the product cost collector corresponding to the first line in Figure 4.18 because it has the largest unfavorable variance.


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Period End 4.4

To display more details of the product cost collector variance calculation, click on the first row shown in Figure 4.18, and then click on the Cost Elements button. The screen shown in Figure 4.19 is displayed. If you don’t see variance category columns as shown in Figure 4.19, click on the select layout (grid) icon, and choose the Variance Categories layout.

Figure 4.19 Cost Elements Breakdown of Variance Calculation

The sum of input and output variances in the Variance (fourth) column shown in Figure 4.19 is equal to the total variance shown in the Variance (last) column of the first row of Figure 4.18. Most of the variance is due to an input quantity variance in the Qty var. column of the second row in Figure 4.19. More of this component was issued from inventory to the orders than planned in the cost estimate. This could be due to an incorrect inventory issue or because more components were needed than planned. You can display a more detailed view of variances and target costs by clicking on the Variances and Target Costs buttons shown in Figure 4.19.

You can analyze input quantity variance further by displaying a detailed analysis of the product cost collector for the period with Transaction KKBC_PKO or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Detailed Reports • For Product Cost Collectors. A selection screen is displayed, as shown in Figure 4.20.

Note

Use Transaction KKBC_ORD for production/process orders.


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Run the product cost collector analysis report with the following steps:

1. Fill in the Material and Plant fields.

2. Select the Limited radio button in the Time Frame section.

3. Complete the Period fields.

4. Click on the Execute icon. Next, the screen shown in Figure 4.21 is displayed.


Double-click on the first row shown in Figure 4.21 to display line item details of the confirmations. The screen shown in Figure 4.22 is displayed.

Figure 4.22 Confirmation Line Items


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In Figure 4.22, the Quantity column is sorted in descending order, as indicated by the small inverted triangle just to the left of the Quantity header. This provides visibility to confirmations with the largest time bookings. By double-clicking on any line shown in Figure 4.22, you can drill down to individual activity confirmations. From the detailed confirmation screen, you can determine the original cause of an input quantity variance.

In this example, we examined the cause of an input quantity variance due to labor confirmations. You can use the same technique to analyze any variance category, by sorting line items and drilling down to original transactions.

We’ve discussed the variance calculation for product cost collectors in detail. Now let’s discuss the differences for the variance calculation for manufacturing orders because there are many similarities between the two processes.

Product Cost by Order

In this section, we’ll examine the variance calculation for Product Cost by Order, which means working with manufacturing orders. We’ll analyze the differences between the variance calculations for manufacturing orders and product cost collectors.

Variance calculation for manufacturing orders is also known as cumulative vari-ance, which is a process that compares target costs and cumulative control costs. As shown in the configuration for target cost version 0 in Section 4.2, target costs for total variance are based on the standard cost estimate, or in other words, the valuated goods receipt. Control costs are equal to actual costs minus scrap variances. The manufacturing order must meet the following two conditions to calculate variance:

EE Settlement type FUL (full settlement) appears in the settlement rule.

EE Status DLV (delivered) or TECO (technically complete) appears.

Settlement type FUL allows all unsettled WIP and variance from the current and previous periods to be settled in the current settlement period. WIP and variances are calculated based on order status, not period. You normally settle manufacturing orders every period end.

Status DLV is determined automatically when posting valuated goods receipts during manufacturing order confirmation. Status TECO is determined manually and indicates processing is complete even though the order is not fully delivered.


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When either status is detected during period-end processing, WIP is canceled, and variance is calculated.

During variance calculation, target and control costs are compared, and variance cat-egories are assigned. Variance categories are assigned in the following sequence:

EE Input price variance

EE Resource-usage variance

EE Input quantity variance

EE Remaining input variance

EE Mixed-price variance

EE Output price variance

EE Lot size variance

EE Remaining variance

Variance categories are discussed in detail in Section 4.3. Now that we’ve run overhead and calculated WIP and variance, it’s time to settle the results.

4.4.4 Settlement

WIP and variances are transferred to FI, Profit Center Accounting, and CO-PA during settlement. Variance categories can also be transferred to value fields in CO-PA.

You can run period-end settlement with Transactions KK87 (individual) and CO88 (collective), or via menu path Accounting • Controlling • Product Cost Con-trolling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Settlement. A selection screen is displayed, as shown in Figure 4.23.

Note

You carry out settlement for production and process orders with Transactions KO88 (individual) and CO88 (collective).

In this example, we’ll carry out settlement for product cost collectors by selecting the With Product Cost Collectors checkbox, as shown in Figure 4.23. You can include other objects in the settlement without running another transaction by selecting the relevant checkboxes in Figure 4.23.


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Period End 4.4

Figure 4.23 Actual Settlement Selection Screen

Product Cost by Period requires each period to be settled sequentially, which can lead to difficulties if you ever need to reverse prior period settlements. Using the Posting period field shown on the right in Figure 4.23, you can make reversals, corrections, and resettlements in prior periods by posting to the present or previ-ous period.

When you select the Detail List checkbox, a detail list becomes available for analysis following settlement (shown later, in Figure 4.25). If you do not select the checkbox, only the Basic List is available following settlement, as shown in Figure 4.24. You can also analyze settlement postings by viewing and sorting the settlement general ledger account line item report in FI with Transaction FBL3N.

If you select the Check trans. data checkbox, the system checks whether any transaction data was posted to the product cost collector or manufacturing order since the last settlement. If no transaction data was posted, sender processing is stopped, which improves processing time. Error messages that could have been issued during settlement are not issued. This also improves message analysis by reducing the number of redundant messages.


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Complete the selection screen using the settings shown in Figure 4.23 as an example, and click on the Execute icon to display the screen shown in Figure 4.24.

Figure 4.24 Actual Settlement Basic List

This screen provides you with basic information on the Selection Parameters you entered in the previous selection screen, such as Posting period and Fiscal Year. Click on the detail lists (grid) icon to proceed to a detailed list of settlement values, as shown in Figure 4.25.

The Value ObjCurr (value in object currency) column is totaled and sorted in descending order. This provides visibility to product cost collectors with the larg-est settlement amounts. You can reconcile the sum of values settled at the bottom of Figure 4.25 with the sum of the collective variance calculation, by scrolling to the bottom of the screen shown previously in Figure 4.18. You can also reconcile Figure 4.25 with postings to settlement financial accounts by sorting the FI line item report (Transaction FBL3N).


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Cost Center Variances 4.5

Figure 4.25 Actual Settlement Detail List

Settlement is the last step in period-end closing for product cost collectors and manufacturing orders. Let’s now examine cost center variances and how they relate to production variances.

4.5 Cost Center Variances

Cost center balance, otherwise known as under/overabsorption, represents the dif-ference between cost center debits and credits during a period or range of periods. Cost center under/overabsorption occurs due to differences between plan and actual debits and credits. You can analyze cost center under/overabsorption with the standard actual/plan cost center report S_ALR_87013611; for most companies, this provides sufficient information to manage overhead costs. More advanced functionality is available to analyze cost center balance if required, such as cost center target cost and variance analysis. We’ll first discuss cost center analysis using the standard cost center report and then look at more advanced functionality.

4.5.1 Information System

Standard cost center actual/plan reports provide excellent analysis capabilities in a single report. You can use them to monitor cost center debits and credits during a period, and after period-end processing is complete, you can use them to analyze under/overabsorption. Let’s first look at the cost center balance in the cost center report and then analyze debit and credit variances.


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Cost Center Balance

You can view the standard cost center actual/plan report with Transaction S_ALR_87013611 or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Plan/Actual Comparisons • Cost Centers: Actual/Plan/Variance. A selection screen is displayed, as shown in Figure 4.26.

Figure 4.26 Actual/Plan Cost Center Report Selection Screen

Complete the Selection values and Selection groups fields with data relevant to your company, using Figure 4.26 as an example. Click on the Execute icon to display a report similar to the screen shown in Figure 4.27.

Figure 4.27 Actual/Plan Cost Center Report Balance


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The resulting report, shown in Figure 4.27, displays cost center Debits and how much has been allocated to products resulting in cost center Credits. The -5,000 Under/Overabsorption in the last row in Figure 4.27 is negative, indicating actual cost center costs incurred were less than the activity costs debited to product cost col-lectors and manufacturing orders. In other words, there is a favorable variance.

Let’s analyze the cost center balance by examining the Debit and Credit sections of the report in detail.

Cost Center Debits

Cost center plan debits appear in the cost center report as you carry out primary cost element planning with Transaction KP06, as previously discussed in Chapter 1.

Example

External activities and Spares and Salaries expenses are planned for a cost center by primary cost elements, 415100 and 430000 in this example, corresponding to FI general ledger accounts. Following the costing run, because external activities Actual Costs are different from Plan Costs, an unfavorable variance of 3,000 results, as shown in the Debit row and Var. column in Figure 4.28.

Figure 4.28 Actual/Plan Cost Center Report Debit Variance

The External activities variance of 2,100 could be due to increased vendor prices, or the quantity may have increased. To investigate the variance further, you can drill


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down (double-click) on the External activities row in the Actual Costs column shown in Figure 4.28, and analyze the cost center line item postings.

The Spares Var. of 900 occurred because there were no Spares Plan Costs. Drill down on the Actual Costs column in the Spares row to analyze the cost center line item postings. These may indicate that it is a nonrecurring expense, or that spares costs should be planned for in future fiscal years.

Cost center debits can also occur due to secondary postings. For example, a pro-duction cost center may receive plan and actual costs assessed from overhead cost centers. In this case, the costs will be identified by secondary Cost Elements, which are independent of FI general ledger accounts. You carry out cost center plan assessments with Transaction KSUB, and you handle actual assessments with Transaction KSU5.

Cost Center Credits

Cost center plan credits appear in the cost center report as you carry out activity quantity and price planning with Transaction KP26, as discussed in Chapter 1. You need to populate both the plan activity field and at least one of the activity price fields for the system to calculate and display plan credits.

Activity rates are planned by dividing cost center plan debits by plan activity quantity.

Example

Plan debits are $100,000, and the plan activity quantity is 10,000 minutes, so the plan activity rate is $10 per minute. If actual debits equal $100,000, there will be no variances due to primary cost planning. However, if only 9,000 minutes are confirmed, the cost center only receives credits of $90,000, leaving $10,000 underabsorbed.

This represents $10,000 of production costs not allocated to cost of sales. While this may not affect relative profitability between products receiving allocations from the cost center, it should be taken into account when determining overall profitability of the profit center or company. For production cost centers, the balance is usually transferred to CO-PA using period-end assessment. If actual and plan activity debits allocated are different, a credit variance (-8,000 in this example) will result as shown in the Credit row and Var. column in Figure 4.29.


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Figure 4.29 Actual/Plan Cost Center Report Credit Variance

Because actual credits are greater than planned, the Credit variance of -8,000 is favorable. The receivers of the activities are burdened with higher debits than planned. The additional credits could be due to an increase in production output or an increase in plan activity price. By scrolling further down the cost center report shown in Figure 4.29, you can compare actual and plan activity quantities. This will help you determine if the credit variance is due to a change in activity quantity or price.

Standard actual/plan cost center reports are commonly used to analyze cost center under/overabsorption. Now let’s examine some advanced functionality for analyz-ing cost center variance.

4.5.2 Target Cost Analysis

Cost center target costs are based on plan costs adjusted by activity quantity con-sumed. Let’s follow an example to help explain how target costs are calculated.

Example

In a simple case with plan variable costs of $1,000, target costs are calculated as follows:

EE No activities are consumed: Target costs are zero.EE 100% of plan activities are consumed: Target costs are $1,000.EE 200% of plan activities are consumed: Target costs are $2,000.


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Target cost allows a more detailed analysis of cost center balance because an increase in actual costs may be due to an increase in activities consumed. Target costs are higher than plan costs in this example due to an increase in activity quantity.

EE Activity-Dependent Planning You carry out activity-dependent planning by entering an activity type in the selection screen of Transaction KP06 and entering fixed and variable costs in the following screen, when carrying out cost element planning, as discussed in Chapter 1.

EE Plan Activity Quantity and Prices You need to enter plan activity quantity and prices with Transaction KP26, as discussed in Chapter 1.

Example

Let’s follow a more detailed example to help illustrate how target costs work:EE During activity-dependent primary cost planning, enter $10,000 fixed costs, $10,000 variable costs, and 100 hours variable quantity.

EE During activity price planning, enter 100 hours plan activity, $100 fixed price, and $100 variable price.

Before any activities are consumed, target costs equal only the fixed portion of plan costs. In the example, plan costs are $20,000, the sum of fixed and variable costs. Target costs, however, are only $10,000, calculated by adding fixed costs to the result of variable costs times the operating rate. The operating rate, as a percentage, is defined as (actual activity / plan activity) × 100. Because actual activity quantity is zero, the operating rate is zero, and no variable costs are added to the target costs.

When 50 hours of activity are consumed, target costs equal the fixed portion of plan costs, plus 0.5 (50 actual hours/100 plan hours) times the variable costs. In the example, plan costs remain at $20,000. Meanwhile, target costs are $15,000, calculated by adding fixed costs of $10,000 to variable costs times the operating rate, or $5,000.

If 140 hours of activity are consumed, target costs equal the fixed portion of plan costs, plus 1.4 (140 actual hours/100 plan hours), times variable costs. In the example, plan costs remain at $20,000. Meanwhile, target costs are $24,000, calculated by adding fixed costs of $10,000 to variable costs times the operating rate, or $14,000. This is the scenario presented in the actual/target report shown later in Figure 4.31.

Target costs are continuously calculated, so they can be reported on in real time dur-ing a period. No additional transactions need to be run to display target costs.


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You can view the standard cost center actual/target report with Transaction S_ALR_87013625 or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Target/Actual Comparisons • Cost Centers: Actual/Target/Variance. A selec-tion screen is displayed, as shown in Figure 4.30.

Figure 4.30 Actual/Target Cost Center Report Selection Screen

Fill in the Selection fields with data relevant to your company, using Figure 4.30 as an example. Click on the Execute icon to display a report similar to the screen shown in Figure 4.31.

Figure 4.31 Actual/Target Cost Center Report Debit Variance


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Actual Costs and Target Costs both increase with resource consumption, while Plan Costs remain constant. The Plan Costs shown in Figure 4.31 are based on activity consumption resulting in a credit of -20,000. Actual activity consumption is greater than planned, resulting in an actual credit of -28,000. The Target Costs Debit of 24,000 is more realistic than the Plan Costs Debit of 20,000 because it is increased by rising variable costs due to increased activity consumption. There is only a 1,000 variance between Actual Costs of -5,000 and Target Costs of -4,000 in the Under/Overabsorption row in Figure 4.31, compared with a 5,000 variance between Actual Costs and Plan Costs in the Under/Overabsorption row in Figure 4.27.

While a detailed analysis of cost center variance is possible with target cost analysis, more work is involved in the initial planning of primary cost element costs and activity prices. Primary cost element costs must be divided into fixed and variable components and entered during activity-dependent planning. Also, you need to enter plan activity quantity and prices during activity price planning. If your costs can be divided into fixed and variable components, and you’re not presently using activity-dependent planning, you could test it out on one production cost center first to examine the benefits.

The cost center balance can be transferred to CO-PA for more accurate margin analysis. Another option to include cost center balances in the cost of sales is to carry out activity price revaluation, which we’ll examine in the next section.

4.5.3 Variance Analysis

If you need to analyze cost center variances in more detail, you can run automatic variance calculation to divide the variance into categories. You may need to carry out variance analysis if target cost analysis does not provide enough information on the source of the variance or the responsible person. We will examine the steps involved during variance analysis in the following subsections.

Actual Cost Splitting

Actual costs are posted to a cost center, while variance calculation requires that activity-independent actual costs be distributed to a cost center/activity type combi-nation. During variance calculation, the actual cost of each activity is determined


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with actual cost splitting. Two steps are involved during actual cost splitting per cost element:

1. The cost center actual costs are allocated to activity types that are based on target costs per activity type for each cost element. If target costs do not exist for a cost element, costs are split according to target costs of the cost element group, which are assigned in customizing of the target version. If no target costs exist for the cost element group, the costs are split in the second step.

2. This step is necessary if there are no target costs for the cost element or cost element group, or if activity-independent costs exist. In this step, actual costs are allocated to activity types according to splitting rules. If no splitting rules exist, costs are allocated based on equivalence numbers.

At the end of the actual cost splitting process, all actual costs per cost element are distributed to activity types. Actual cost splitting happens automatically during variance calculation.

Variance Calculation

Variance calculation provides information on the reasons for variances when analyz-ing the difference between actual and target costs. The cost center balance is assigned to input and output variance categories, based on the source of the variance.

Configuration required for cost center variance calculation includes creating a target cost version, creating a variance variant, and assigning that variant to the target cost version. You calculate cost center variance with Transaction KSS1 or via menu path Accounting • Controlling • Cost Center Accounting • Period-End Closing • Single Functions • Variances.

Variances are saved automatically if you deselect the test run checkbox in the selection screen.

You report on variance calculation in the information system with Transaction S_ALR_87013627 or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Target/Actual Comparisons • Variance Analysis • Cost Centers: Variances. You can view variance categories on the third page of the report.


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Variance calculation assigns the cost center balance to variance categories on the input and output side as follows:

EE Variances on the input side are based on actual costs minus target costs.

EE Variances on the output side are based on target costs minus allocated actual costs (credits).

The sum of the variances represents the total variance, or the cost center balance. Let’s examine each of the four input and four output cost center variances in the following sections.

Input Variances

Input variances are based on the sum of cost center actual costs minus target costs. The four input variances are described here:

EE Input Price Variance Indicates changes in costs due to prices. These variances represent differences between target and actual costs due to differences in planned and actual prices of materials or services. The formula is:

Input price variance = (actual price – plan price) × actual input quantity

Example

If you plan 100 hours at $100 per hour, and then post 110 actual hours at $110 per hour, input price variance is ($110 – $100) × 110 h = $1,100.

EE Input Quantity Variance Results from under/overconsumption for cost elements. These variances represent differences between target and actual costs caused by different quantities being consumed than planned. Input price variances include variances caused by both price and quantity differences. The formula is:

Input quantity variance = (actual input quantity – target input quantity) × plan price


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Example

100 hours are planned as a variable quantity for external services during activity-dependent cost planning with Transaction KP06, and 100 hours are entered as plan activity consump-tion with Transaction KP26. Actual activity consumption was 140 hours, so the target quantity for external services is 140 hours. Only 110 hours were actually consumed by entering the quantity with Transaction FB50 and by choosing a screen variant with cost center and quantity. Input quantity variance is (110 h – 140 h) × $100 = -$3,000.

EE Resource-Usage Variance This category indicates changes in the plan consumption of cost elements. This variance occurs if you post an actual cost against an unplanned cost element, or if no actual data exists for a plan cost element. The formula is:

Resource-usage variance = Actual costs − Target costs − Input price variance

Example

If there is $900 of unplanned consumption of replacement parts, as shown in Figure 4.31, the resource-usage variance is $900.

EE Remaining Input Variance This category includes all input variances that cannot be assigned to any other input variance category. This variance can occur if you planned cost elements and made actual postings but did not record consumption quantities in Transac-tion FB50. It can also occur if you deactivate one of the other input variance categories in the variance variant, as discussed in Section 4.2.

Now that we’ve examined the four input variance categories, let’s look at output variance categories.

Output Variances

Output variances are based on target minus the sum of cost center credits due to activity allocation. The four output variances are described here:

EE Output Price Variance This variance occurs if you use a price that differs from the plan price that is calculated iteratively each month, based on planned activity. The target credit


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posting (plan price × actual activity) varies from the actual credit posting (alloca-tion price × actual activity) on the cost center. Output price variance can result if you use average prices instead of period-based prices, if the capacity of the activity type is used as the basis of the price calculation, or if you set a price manually. The formula is:

Output price variance = actual activity × (plan price − actual price)

EE Output Quantity Variance This category represents the difference between manually entered actual costs and allocated actual quantities. The formula is:

Output quantity variance = (actual quantity – manual actual quantity) × plan price

Variances arising from both price and quantity differences appear as output price variances.

EE Fixed Cost Variance These variances occur when the actual operating rate varies from the plan operating rate, and some of the planned fixed costs are either underabsorbed or overabsorbed due to credit postings. The system only reports a fixed cost variance if the operating rate is not 100%.

EE Remaining Variance This category includes all output variances that cannot be assigned to any other output variance category. This variance can occur if you deactivate calculation of variance categories on the output side, or if you deactivate all variance categories in the variance variant.

In addition to the advanced reporting options available for cost center variance analysis, you can distribute actual cost center under/overabsorption to manufac-tured products with additional functionality called revaluation at actual prices, as described in the following section.

4.5.4 Actual Price Calculation

Cost center under/overabsorption can be allocated to products, if necessary, with the additional period-end process of Revaluation at Actual Prices. This process calculates the incremental planned activity price needed to allocate all cost center balances. Orders are then revalued with the incremental debits, and the cost center


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receives corresponding credits. Following revaluation, the cost center actual balance is zero, as shown in the Actual Costs column, and the Under/Overabsorption row of the target/actual cost center report shown in Figure 4.32.

Figure 4.32 Actual/Target Cost Center Report Revaluation

The actual Costs credited to the cost center, which were -28,000 before revalua-tion, are reduced to -23,000. The original product cost collectors and manufacturing orders receive a credit calculated with the formula:

Consumed quantity × (original price – actual price)

Product cost collectors need to be resettled following revaluation due to the incre-mental debit received during revaluation.

There are two requirements for carrying out revaluation: a version configuration setting and an activity type setting. Let’s discuss each in turn.

Version Configuration Setting

You maintain version configuration with Transaction OKEQ or via IMG menu path Controlling • General Controlling • Organization • Maintain Versions.

You are presented with a screen similar to the one displayed in Figure 4.33. Use the following steps to navigate to the version configuration setting displayed:

1. Select Version 0.

2. Double-click on Settings for Each Fiscal Year.

3. Double-click on the current Fiscal Year.

4. Click on the Price calculation tab.


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Figure 4.33 Revaluation Setting in Version Configuration

Now that we’ve navigated to the correct tab, you make the configuration setting with the following steps:

1. Click in the Revaluation field.

2. Choose Own business transaction.

3. Save your work.

Activity Type Setting

The second requirement for carrying out revaluation is setting the Actual price indicator for activity types to be revalued. You set the actual price indicator with Transaction KL02 or via menu path Accounting • Controlling • Cost Center Accounting • Master Data • Activity Type • Individual Processing • Change. Complete the Activity Type field, and press [Enter] to display the screen shown in Figure 4.34.


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Figure 4.34 Actual Price Indicator in Activity Type

You make the Activity Type setting with the following steps:

1. Click in the Act. price indicator field shown at the bottom of Figure 4.34, and choose Possible Entries.

2. Choose Actual price, automatically based on activity.

3. Save your work.

Now that we’ve ensured that the configuration and activity type settings are correct, we’re ready to carry out actual price calculation. Revaluation occurs automatically during actual price calculation.


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Actual Price Calculation

You carry out actual price calculation with Transaction KSII or via menu path Accounting • Controlling • Cost Center Accounting • Period-End Clos-ing • Single Functions • Price Calculation. The screen shown in Figure 4.35 is displayed.

Figure 4.35 Actual Price Calculation Selection Screen

Fill in the selection screen fields, and click on the Execute icon to run the transaction.

You analyze the results of the actual price calculation in the information system with Transaction KSBT or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Prices • Cost Centers: Activity Prices. You can compare plan and actual activity prices with the resulting report.

As long as you have set the Revaluation indicator in the Version as shown in Figure 4.33 and set the Actual price indicator in the activity type as shown in Figure 4.34, revaluation automatically occurs during actual price calculation. You can confirm the cost center balance is zero following revaluation with the standard actual/target cost center report (shown in Figure 4.32).

Actual price calculation and revaluation allow you to post cost center variances to product cost collectors and manufacturing orders. If you need to allocate all purchas-ing and manufacturing differences to finished products as well, you should consider actual costing with the material ledger, as we will discuss in Section 4.7.


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Purchase Price Variance 4.6

In addition to production and cost center variances, purchase price variances should be analyzed at period end and frequently during each period. The following section explains how this works.

4.6 Purchase Price Variance

When raw materials are valued at the standard price, there will be a purchase price variance posting during goods receipt if the purchase price is different from the material standard price. Figure 4.36 shows typical purchase price variance postings during goods receipt when the purchase price and standard price are different.

B/S RM Inventory GR/IR Clearing

100 110

P/L Purchase Price Variance

10

Figure 4.36 Purchase Price Variance at Goods Receipt

The raw material (RM) Inventory balance sheet (B/S) account posting occurs dur-ing goods receipt, based on the standard price. The offsetting posting to the goods receipt/invoice receipt (GR/IR) clearing account is based on purchase order price. If the purchase order price is different from the standard price, the difference is posted to a Purchase Price Variance (PPV) profit and loss (P/L) expense account.

Prior to a costing run, purchasing info records are updated with current vendor quotations. During a costing run, purchasing info records provide standard cost estimates with current component standard prices. Immediately following a cost-ing run, purchase price variance postings are usually minimal because component standard price is based on current vendor quotations.

PPV postings can be used as a measure of purchasing department performance. An increase in unfavorable PPV postings may need to be explained by purchasing. This will be highlighted if you nominate the purchasing cost center as the receiving cost object in CO for PPV expense account postings.


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There are two methods for assigning the purchasing cost center. One method involves a master data change, and the other involves a configuration change. Let’s discuss each method in more detail.

4.6.1 Master Data

You can assign the purchasing cost center automatically by entering it in the Default Acct Assgnmt (default account assignment) tab of the PPV cost element with Transaction KA02 or via menu path Accounting • Controlling • Cost Center Accounting • Master Data • Cost Element • Individual Processing • Change. A selection screen is displayed, as shown in Figure 4.37.

Figure 4.37 Change Cost Element Selection Screen

Proceed to the change cost element detail screen by completing the Cost Ele-ment field shown in Figure 4.37, and then clicking on the Master Data button. The screen shown in Figure 4.38 appears.

Figure 4.38 Cost Element Default Account Assignment Tab

In the Default Acct Assgnmt (default account assignment) tab, fill in the Cost Center field, and save your work. This procedure assigns a default cost center for


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postings to the PPV account per controlling area. This is the easiest method, but it may not be suitable if two plants within the same controlling area need different cost centers assigned to the same cost element. In this case, you’ll need to assign the cost centers with configuration, as described in the next section.

4.6.2 Configuration

Alternatively, you can enter the default account assignment in configuration, which gives you more flexibility, for example, if you need to assign a default cost center per plant. You can assign the purchasing cost center as the default cost center in configuration with Transaction OKB9 or via IMG menu path Controlling • Cost Center Accounting • Actual Postings • Manual Actual Postings • Edit Auto-matic Account Assignment. The screen shown in Figure 4.39 is displayed.

Figure 4.39 Default Account Assignment Configuration

Complete the following steps to proceed to a screen where you can assign a cost center per plant:

1. Type “1” in the A (account assignment detail) column.

2. Select the required PPV cost element.

3. Double-click on Detail per business (detail per business area/valuation area).

4. Click on the New Entries button.



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Figure 4.40 Default Cost Center per Plant Configuration

Fill in the ValA field (valuation area) and Cost Center field, and save your work to make the cost center assignment.

Now that we’ve examined how PPV postings occur and how to assign the purchas-ing cost center to a PPV cost element, let’s look at the standard reports available for analyzing PPV.

4.6.3 Reporting

Because PPV is treated as an expense, it posts to a cost center. You can analyze PPV by sorting line item postings against the PPV primary cost element in the standard actual/plan cost center report. You can view the standard actual/plan cost center report with Transaction S_ALR_87013611 or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Plan/Actual Comparisons • Cost Centers: Actual/Plan/Variance. A selection screen is displayed, as shown in Figure 4.41.


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Figure 4.41 Actual/Plan Cost Center Report Selection Screen

Fill in the selection screen fields, and click on the Execute icon to display the screen shown in Figure 4.42.

Figure 4.42 Cost Center Report Results Screen

Double-click on PPV cost element 500210 in the Cost Elements column to display the dialog box shown in Figure 4.43.


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Figure 4.43 Cost Center Line Items Dialog Box

Double-click on Cost Centers: Actual Line Items to display the screen shown in Figure 4.44.

Figure 4.44 Cost Center Actual Line Items Report

The Val.in RC (value in reporting currency) column is sorted in descending order. This provides visibility to the largest PPV postings. By double-clicking on any line shown in Figure 4.44, you can drill down to the transaction document that caused the PPV posting. In many cases, this will be the material document created during the goods receipt. Double-click on the first row (largest variance) shown in Figure 4.44 to display the material document shown in Figure 4.45.

Figure 4.45 Material Document Detail Data


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You can analyze the cause of the PPV posting by examining different areas within the material document detail data to determine the standard price and the purchase price. Because differences between standard and purchase prices result in PPV postings, the source documents can provide insight into the original cause.

To determine the standard price, price unit, and costing lot size of the component, click on the Material tab in Figure 4.45, double-click on the material number, and then navigate to the Costing 2 view of the material master. The screen shown in Figure 4.46 is displayed.


In this example, the Standard price is 49.50, and the Price unit is 1. Click on the Current cost estimate button to display the cost estimate, and note the costing lot size. In this example, the standard cost estimate is 200 (not displayed in Figure 4.46).

To determine the purchase price of the component, in the material document shown in Figure 4.45, double-click on the underlined Purchase order number to display the purchase order. Click on the Purchase order history tab to display the line item Quantity and value, as shown in Figure 4.47.


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Figure 4.47 Purchase Order Line Item Details

If you multiply the purchase order quantity of 160.000 (determined from the Quantity column in Figure 4.47) by the standard price of 49.50 (determined from the material master Costing 2 view in Figure 4.46), then the expected goods receipt value is 7,920.00. The expected goods receipt value, subtracted from the purchase order line item value of 11,520.00 (determined from the Amt.in loc.cur. column in Figure 4.47) equals the PPV posting of 3,600.00 (shown in the first row of the cost center line item report in Figure 4.44).

Analyzing the purchasing info record often helps explain why the purchase price is different from the standard price. Let’s look at two common scenarios leading to differences between standard and purchase prices.

Purchasing Info Record Price Update

The component standard price is typically based on the purchasing info record. It’s possible that a new vendor quotation was received, and the purchasing info record was updated based on the new quotation, since the standard cost estimate was created. You can display the purchasing info record from the Purchase order history tab shown in Figure 4.47 by selecting Environment • Info record from the menu bar. While displaying the purchasing info record initial screen, click on the Conditions button to display the screen shown in Figure 4.48.


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Figure 4.48 Purchasing Info Record Condition Screen

Click on the validity periods (calendar) icon to show details of changes to the purchasing info record price due to new vendor quotations. In this example, there is only one Validity period, so the difference between standard and purchase prices cannot be explained by a new vendor quotation.

Purchasing Info Record Scales

Another possible reason for the PPV posting is purchasing info record scales. Scales represent vendor quotations that contain reduced prices for greater purchase quantities. In Figure 4.48, the indicator in the Scales column is selected, which means that more than one vendor price has been entered based on the quantity ordered. To see details of the scales, double-click on the selected indicator in the Scales column. The screen shown in Figure 4.49 is displayed.

The Scale in Figure 4.49 indicates that the purchase price for a quantity between 1 and 199 is $72.00, which is discounted to $49.50 for a quantity of 200.000 or more. Since the purchase order quantity is 160, as we saw in Figure 4.47, the purchase price is based on the first line of the scale, and is $72.00. Because the costing lot size of the standard cost estimate is 200.000, the cost estimate accessed the second line of the scale, with a price of $49.50. The reason for the difference between the standard and purchase price resulting in the PPV posting is that the purchase quantity is fewer than the standard cost estimate costing lot size.


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Figure 4.49 Purchasing Info Record Scales

During a costing run, the cost estimate costing lot size is determined from the material master Costing 1 view costing lot size field. This should be set as close as possible to normal purchase order quantities of components to minimize PPV postings.

When a purchase order is created, if a lower price is available by ordering a larger quantity due to a scale, a warning message is generated before the purchase order is saved, as shown in Figure 4.50.

Figure 4.50 Message Indicating Lower Available Price

This allows purchasing to investigate the possibility of ordering a larger quantity in order to receive a price break. During the investigation, the costing lot size in


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Summary 4.8

the material master Costing 1 view should also be compared with the scale to determine if there will be a PPV posting.

4.7 Actual Costing/Material Ledger

Just as it’s possible to allocate cost center variances to orders at period end, as we discussed in Section 4.5, it’s also possible to allocate all purchasing and manufac-turing difference postings upward through the BOM to assemblies and finished goods. Actual costing determines what portion of the variance is debited to the next highest level using material consumption. Variances can be rolled up over multiple production levels to the finished product.

While actual costing and the material ledger are beyond the scope of this guide, it could be worthwhile to investigate possible benefits through a test scenario in a test system. Actual costing can provide advantages; however, it does introduce additional configuration, period-end processes, and analysis. As always, benefits need to be weighed against additional processing and complexity.

Note

You can find more detailed information on the material ledger in the SAP PRESS book: Product Cost Controlling with SAP.

4.8 Summary

In this chapter, we initially discussed the items needed in preparation for period-end processing. We discussed the three common types of variance calculation—total, production, and planning—and presented examples of each. Then we examined vari-ance configuration settings to help understand the basis of the variance calculation. In the final step in preparation for period-end processing, we looked at variance categories in detail. We looked at examples for all four input variance categories and described all four output variance categories.

We walked through the four period-end processes most relevant to variance analy-sis, which are overhead, WIP, variance calculation, and settlement. We saw many examples and step-by-step procedures for analyzing variances by sorting line item reports and drilling down to original transactions.


We examined cost center variances and how they relate to production variances. We looked at how to analyze cost center variance with standard cost center actual/plan reports, which have sufficient analysis capabilities for most companies. We also explored more advanced analysis functionality, including target cost analysis, variance analysis, and revaluation.

We analyzed PPV by drilling down from a standard cost center actual/plan report to material documents and purchase orders. We walked through an example PPV investigation involving purchasing info record price validity periods and scales. You can follow this same technique to analyze most PPV postings. We also looked at an overview of actual costing and material ledger functionality.

In Chapter 5, we will examine scrap variances in detail, again following many example scenarios and reports. We’ll look at procedures for examining scrap variances that you can use in nearly any scenario to understand the cause of the posting.

In Chapter 6, we’ll see a general overview of the many excellent standard reports available for CO reporting, as well as a detailed overview of variance reporting.


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5 Scrap Variance

In Chapter 4, we analyzed all scrap categories in detail, except for scrap variance. Processing scrap and analyzing scrap variances has its own chapter because there is more involved in master data settings and cost estimate analysis than in any of the other variance categories.

In this chapter, we’ll analyze scrap processing and scrap variance analysis in detail. We’ll discuss scrap basics, types of scrap, and master data settings; carry out plan and actual scrap postings; and then analyze scrap postings in detailed reports. The method we use for analyzing scrap variance in this chapter can be used as a model for analyzing variances in general.

5.1 Scrap Basics

Because no production process is perfect, there is always some percentage of scrap produced. Assemblies or components that do not meet quality standards may either become scrap or require rework. Depending on the problem, cheaper items may become scrap, while more costly assemblies may justify rework.

Case Scenario

The mounting holes for a metal plate are accidentally drilled larger than they were sup-posed to be. Filling the holes with weld and re-drilling correctly sized holes would cost more than the plate is worth. The plate is scrapped, and a new plate is drilled correctly and delivered to inventory. Statistics show that 1 in every 10 plates is drilled incorrectly, so you plan 10% assembly scrap for the drilled metal plate.

A drilled metal plate is issued from inventory as a component in a higher-level assembly, and during inspection, before production use, the mounting holes are found to be oversize. The plate is discarded, and another plate is issued from inventory. Statistics show that 1 in every 50 drilled plates issued from inventory is drilled incorrectly and discarded, so you plan 2% component scrap for the drilled metal plate.

You enter both 10% assembly scrap and 2% component scrap in the material master MRP views of the drilled plate.


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If the plates were made of an expensive metal alloy that is not readily available, it may be cost effective to rework the oversize holes by welding and re-drilling. In this case, you do not plan scrap.

Scrap is different from other losses during the manufacturing of a product because it can be analyzed and predicted. You can enter and store known scrap amounts in master data as planned scrap percentages. Scrap percentages increase the planned manufacturing costs of a product, via the released cost estimate and standard price. If actual scrap equals planned scrap, no variance occurs because postings are as planned. Benefits of planning for scrap include the following:

EE Margin analysis is more accurate.

EE Variances highlight processes that need analysis.

EE Production resources can be more accurately planned.

EE Cost of sales more accurately reflect manufacturing costs.

Target and actual scrap costs are calculated from plan scrap quantity and actual scrap quantity posted during activity confirmation. Scrap variance is calculated and subtracted from total variances and is displayed in a scrap variance column in cost reports. A requirement to display the scrap variance column is to activate scrap calculation and reporting in the variance key and variance variant, as we examined in Chapter 4.

There are three different types of scrap that can be planned for:

EE Assembly scrap This includes the entire cost of faulty or lost assemblies in the cost of sales. The plan quantity of the assembly is increased.

EE Component scrap This includes the cost of faulty or lost individual components in the cost of sales. The plan quantity of components is increased.

EE Operation scrap This optimizes the use of valuable components. The plan quantity of components in subsequent operations is decreased.

Now that we’ve covered scrap basics, let’s discuss each of the three different types of scrap in detail.


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Assembly Scrap 5.2

5.2 Assembly Scrap

Assembly scrap includes the entire cost of faulty or lost assemblies in the cost of sales. If assembly scrap is not planned, all scrap costs post in other variance categories. Although variance can be included at a higher level in profitability reporting, planned assembly scrap is included at the material or gross profit level, as we discussed in Chapter 3. This results in more accurate analysis of profitability at the product level.

5.2.1 Assembly Scrap Definition

Assembly scrap can be defined as the percentage of assembly quantity that does not meet required production quality standards. For example, planned assembly scrap of 25% means that in order to deliver 100 pieces of an assembly, you plan to produce 125. Planned assembly scrap also improves the MRP process by ensuring you start with an increased quantity in order to achieve the required product yield. Assembly scrap is considered an output scrap because it affects the planned output quantity of items in the production process.

5.2.2 Effect of Assembly Scrap on Quantities

Scrap quantities are important because they cause scrap values. Let’s follow a simple example of how assembly scrap applied at the assembly level affects lower-level component and activity quantities.

Example

You plan to produce 100 finished printed circuit boards (PCBs). If planned assembly scrap is entered for the finished PCBs, all component and activity quantities are increased by 10%, as highlighted in the Quantity costed column in Figure 5.1.

Quantityno scrap

Quantitycosted

Assemblyscrap

Finished PCBs 100 PC 100 PC 0 PCBlank PCBs 100 PC 110 PC 10 PCBIOS 100 PC 110 PC 10 PCOperation 1 100 h 110 h 10 hProcessor 100 PC 110 PC 10 PCOperation 2 100 h 110 h 10 h

Figure 5.1 Effect of Assembly Scrap on Component and Activity Quantities


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By increasing the quantity of components and activities, assembly scrap increases the plan cost of producing the finished PCBs. MRP will propose a production quantity of 110 PC (pieces), with the expectation that 100 PC will be delivered to inventory, and 10 PC will be confirmed as scrap.

Now that we know what assembly scrap is and how it affects scrap quantities, we’ll investigate how to plan assembly scrap in the next section.

5.2.3 Assembly Scrap Master Data

You can plan assembly scrap in two different master data fields. The most commonly used field is located in the MRP 1 view of the material master, which you access with Transaction MM02 or via menu path Logistics • Materials Management • Material Master • Material • Change • Immediately. Click on the MRP 1 tab to display the screen shown in Figure 5.2.

Figure 5.2 Assembly Scrap Field in MRP 1 View

Fill in the Assembly scrap (%) field with a flat rate percentage determined by your production statistics of scrap rates, which is 10.00% in this example. You should update this field prior to each costing run if the statistics change during the current year. Later, in Section 5.2, we’ll examine how assembly scrap affects standard cost estimates.

Another master data field that controls assembly scrap is located in the Basic Data tab of a BOM item. You can view or change BOM item details with Transaction CS02 or via menu path Logistics • Production • Master Data • Bills of Mate-rial • Bill of Material • Material BOM • Change. Double-click on a BOM item to display BOM item details, as shown in Figure 5.3.


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Assembly Scrap 5.2

Figure 5.3 Inspect Net ID Indicator of BOM Component

You can select the Net ID checkbox to ignore assembly scrap for this component. This is useful if you need to enter a scrap percentage for a particular component that is different from the assembly scrap percentage of the assembly. In this case, select the Net ID checkbox, and fill in the percentage scrap for the component in either the Operation scrap in % or Component scrap (%) fields. If you make an entry in the Component scrap (%) field without selecting the Net ID checkbox, assembly scrap is calculated first, and then component scrap is calculated in addi-tion, as discussed in detail in Section 5.3.

5.2.4 Planned Assembly Scrap Costs

Planned assembly scrap costs are included in the standard cost estimate. Let’s compare two cost estimates, one without assembly scrap, and one with assembly scrap, to highlight the difference. To display the screen shown in Figure 5.4, use Transaction CK13N or menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Cost Estimate with Quantity Structure.

Figure 5.4 Cost Estimate without Assembly Scrap


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The Total value of the STANDARD FG cost estimate without assembly scrap is 46,254.68. The figures in the Scrap and Scrap quantity columns indicate there is no planned output scrap. Now let’s display a cost estimate for material STANDARD FG with 10% assembly scrap planned, as shown in Figure 5.5.

Figure 5.5 Cost Estimate with Assembly Scrap

The Total value of the STANDARD FG cost estimate with assembly scrap is 50,880.14, which is 10% higher than the cost estimate without assembly scrap. This is because the quantity of all components has increased by 10%, illustrated by comparing the Quantity columns in both cost estimates. The increase in compo-nent quantities is shown in the Scrap quantity column, while the corresponding increase in value is shown in the Scrap column. While only material cost estimates are displayed in Figure 5.5, the quantity and value of all other cost estimate items, such as activities, are also increased by 10%.

Tip

To quickly determine if assembly scrap is included in a cost estimate, click on the cost estimate Qty Struct. (quantity structure) tab, which displays the screen shown in Figure 5.6.

Figure 5.6 “Assembly Scrap Only” Text in Cost Estimate

The Assembly Scrap Only text indicates assembly scrap is included in the cost estimate, without the need to refer to the MRP 1 view of the material master. Information text also appears in the same tab if operation scrap is included in the cost estimate, as discussed later in Section 5.4.


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Assembly Scrap 5.2

Now that we’ve looked at planning for assembly scrap with master data entries and the effect on cost estimates, let’s examine how actual scrap postings occur.

5.2.5 Actual Assembly Scrap Costs

Actual scrap costs usually occur during production order activity confirmation. This is when activities are confirmed, and goods movements occur during backflush-ing and auto goods receipt, as discussed in detail in Chapter 3. We’ll now create a production order and carry out a confirmation to demonstrate how actual assembly scrap costs occur.

You create a production order with Transaction CO01 or via menu path Logistics • Production • Production Control • Order • Create • With Material. The screen shown in Figure 5.7 is displayed.

Figure 5.7 Production Order Quantity Increased by Planned Assembly Scrap

The production order quantity is automatically increased by 10% due to assembly scrap in the material master MRP 1 view, as discussed in Section 5.2. MRP proposes a total quantity of 1,100.000, as shown in the Total quant. field, even though only 1,000.000 are required. This is because a confirmed scrap assembly quantity of 100.000 is expected, as shown in the Scrap portion field.

Actual assembly scrap is posted during production order confirmation. In Chapter 3, we saw a confirmation per operation. In this example, we’ll follow a confirma-tion at the order header level with Transaction CO15 or via menu path Logistics • Production • Production Control • Confirmation • Enter • For Order. The screen shown in Figure 5.8 is displayed.


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Figure 5.8 Confirmation Screen and Confirmed Scrap Field

A quantity of 100.000, due to planned assembly scrap, defaults in the Confirmed scrap field in the Current confirm. column. If the default Confirmed scrap quan-tity is manually changed, a scrap variance will result. The expected scrap quantity of 100.000 is displayed in the Total to confirm column of the Confirmed scrap row.

After scrap is confirmed, you will carry out variance calculation next, as we will discuss in the following section.


You carry out variance calculation with Transactions KKS6 (individual) and KKS5 (collective) or via menu path Accounting • Controlling • Product Cost Con-trolling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Variances. The screen shown in Figure 5.9 is displayed following variance calculation.

Note

You carry out variance analysis for production and process orders with Transactions KKS2 (individual) and KKS1 (collective).

Figure 5.9 Variance Calculation Scrap Output Screen


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Assembly Scrap 5.2

Assembly scrap maintains the expected Actual qty (last column) delivered to inventory at 1,000.000 by increasing the manufactured quantity. After the planned assembly scrap quantity is actually confirmed as scrap, the output quantity is the quantity required.

The unfavorable Scrap variance of 4,625.48 indicates that assembly scrap was posted but not planned for in this example. Scrap variance is subtracted from total variance during variance calculation, which simplifies the task of analyzing total variance. Click on the Scrap button (not shown) in the variance calculation output screen to display details of the scrap variance by cost element and operation.

Now that we’ve examined how to plan and post actual scrap and calculate variance, let’s look at how to report and analyze scrap postings.

5.2.7 Assembly Scrap Target/Actual

During a period, or at period end, you may need to carry out further detailed analysis of scrap variance. Before doing so, you should first run a variance calcula-tion to determine the target costs. You can display and analyze target versus actual costs in detailed product cost collector reports with Transaction PKBC_PKO or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Detailed Reports. A similar report is available for production and process orders with Transaction PKBC_ORD.

Let’s compare a series of three detailed reports to demonstrate how assembly scrap affects variance.

Assembly Scrap Not Planned and Actual Scrap Posted

The first detailed report contains an unfavorable scrap variance because assembly scrap is not planned, while actual scrap is posted, as shown in Figure 5.10.

Because assembly scrap is not planned, actual assembly scrap posts as an unfavorable scrap variance with a value of 4,625.48, as shown in the Scrap column.


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Figure 5.10 Assembly Scrap Not Planned and Actual Scrap Posted

Activity and component quantities to make 1,100.000 STANDARD FG are issued from inventory, as shown in the Total act.qty column. This corresponds to the value of 50,880.14 in the Debit row and Ttl actual (total actual costs) column.

A quantity of 1,000.000 STANDARD FG is delivered to inventory, as shown in the Total act.qty (last) column. This corresponds to the credit value of 46,254.68 in the Delivery row and Ttl actual column.

Because the total actual debits of 50,880.14 are greater than the total actual credits of 46,254.68, an unfavorable variance of 4,625.46 results, as shown in the summary (last) row of the Total actual column.

Now that we’ve looked at how posting assembly scrap without planning for it results in an unfavorable variance, let’s see the consequences of planning but not posting assembly scrap.

Assembly Scrap Planned and Actual Scrap Not Posted

Compare the report in the previous section with an unfavorable scrap variance to a report in this section with a favorable scrap variance that results from planning but not posting assembly scrap, as shown in Figure 5.11.

Because assembly scrap is planned, all planned scrap that is not actually posted results in a favorable scrap variance, with a value of 4,625.50- as seen in the Scrap column in Figure 5.11.


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Assembly Scrap 5.2

Figure 5.11 Assembly Scrap Planned and Actual Scrap Not Posted

Activity and component quantities needed to make 1,000.000 STANDARD FG are issued from inventory, as shown in the Total act.qty (last) column. This cor-responds to the value of 46,254.68 in the Debit row and Ttl actual (total actual) costs column.

A quantity of 1,000.000 STANDARD FG is delivered to inventory, as shown in the Total act.qty column. This corresponds to the credit value of 50,880.14- in the Delivery row and Ttl actual column. The credit value is based on the standard cost estimate, which contains the costs for making 1,100 assemblies, because assembly scrap is planned.

Because total actual debits of 46,254.68 are less than the total actual credits of 50,880.14, a favorable variance of 4,625.46- is shown in the summary (last) row of the Total actual column.

Now that we’ve looked at how posting assembly scrap without planning for it results in an unfavorable variance, and how planning assembly scrap and not actu-ally posting it results in a favorable variance, let’s see the effect of both planning and posting assembly scrap.

Assembly Scrap Planned and Actual Scrap Posted

Compare the reports in the previous two sections with unfavorable and favorable scrap variances to the report in this section with no scrap variance, which results from planning assembly scrap and posting actual scrap, as shown in Figure 5.12.


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Figure 5.12 Assembly Scrap Planned and Actual Scrap Posted

Because assembly scrap is planned and actual scrap is posted, only rounding dif-ferences of 0.04- remain in the Scrap variance column.

Activity and component quantities needed to make 1,100.000 standard FG are issued from inventory, as shown in the SFG row and Total act.qty column. This corresponds to the value of 50,880.13 in the Debit row and Ttl actual (total actual costs) column.

A quantity of 1,000.000 standard FG is delivered to inventory, as shown in the standard FG row and Total act.qty column. This corresponds to the credit value of 50,880.14- in the Delivery row and Total actual column. The credit value is based on the standard cost estimate, which contains the costs for making 1,100 assemblies, because assembly scrap is planned.

Because total actual debits of 50,880.13 are nearly equal to total actual credits of 50,880.14, variance is nearly eliminated, as shown by the 0.01- in the summary (last) row of the Total tgt column.

Total variance ideally should only include unplanned production costs. If you don’t plan scrap, all scrap costs will post as a scrap variance, as demonstrated earlier in Figure 5.10. When you plan assembly scrap based on production statistics, scrap costs are separated from variance, and only the difference between plan and actual scrap costs posts as a variance, as shown in Figure 5.12.

Now that we’ve examined assembly scrap, let’s look at the next type of scrap: component scrap.


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Component Scrap 5.3

5.3 Component Scrap

Component scrap includes the cost of faulty or lost components in the cost of sales. A case scenario involving component scrap was presented in Section 5.1. If component scrap is not planned, all component scrap costs post as a variance. Although vari-ance can be included at a higher level in profitability reporting, planned component scrap is included at the material or gross profit level as discussed in Chapter 3. This results in more accurate analysis of profitability at the product level.

5.3.1 Component Scrap Definition

Component scrap can be defined as the percentage of component quantity that does not meet required production quality standards before being inserted in the production process. Planned component scrap is treated as additional consump-tion of the relevant component. Planned component scrap also improves the MRP process by ensuring that you start with an increased component quantity in order to achieve the required product yield. Component scrap is an input scrap because it is detected before use in the production process.

5.3.2 Effect of Component Scrap on Quantities

Scrap quantities are important because they cause scrap values. Let’s follow a simple example of how component scrap applied at the component level affects component quantities. We’ll also examine the interaction between component and assembly scrap.

Example

When planning to produce 100 finished PCBs, assembly scrap is calculated first, and component scrap is calculated second. Assembly scrap applied to the finished PCBs increases all component and activity quantities by 10%, as shown in the outlined Quantity costed column in Figure 5.13.

Quantityno scrap

Quantitycosted

Assemblyscrap

Componentscrap

Finished PCBs 100 PC 100 PC 0 PC 0 PCBlank PCBs 100 PC 110 PC 10 PC 0 PCBIOS 100 PC 110 PC 10 PC 0 PCOperation 1 100 h 110 h 10 h -Processor 100 PC 116 PC 10 PC 6 PCOperation 2 100 h 110 h 10 h -

Figure 5.13 Component Scrap Increases Component Quantities


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A component scrap of 5% applied to the Processor component increases the Quantity costed from 110 to 116, as shown in the outlined Processor row in Figure 5.13. Because component scrap is applied after assembly scrap, the Component scrap quantity is 6 PC.

Assembly and component scrap increase the plan cost of producing finished PCBs by increasing the plan quantity of components and activities. MRP will propose a production quantity of 110 assemblies, with the expectation that 100 will be delivered to inventory and 10 confirmed as scrap. MRP will also propose the consumption of a quantity of 116 PC of the Processor component, even though only 100 would be needed without planned scrap.

Now that we know what component scrap is and how it affects quantities, let’s look at how to plan component scrap.

5.3.3 Component Scrap Master Data

You can plan component scrap in two different master data fields. The most com-monly used field is located in the MRP 4 view of the material master, which you can access with Transaction MM02 or via menu path Logistics • Materials Management • Material Master • Material • Change • Immediately. Navigate to the MRP 4 tab to display the screen shown in Figure 5.14.

Figure 5.14 Component Scrap Field in the MRP 4 View of Component

Fill in the Component scrap (%) field with a flat rate percentage determined by your production statistics of scrap rates. You should update this field prior to each costing run if the statistics change during the current year. Later in Section 5.3, we’ll examine how component scrap affects standard cost estimates.

Another field used to plan component scrap is located in the Basic Data tab of the BOM item. You can view or change BOM item details with Transaction CS02 or via menu path Logistics • Production • Master Data • Bills of Material • Bill of Material • Material BOM • Change. Double-click on a BOM item to display the BOM item details, as shown in Figure 5.15.


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Component Scrap 5.3

Figure 5.15 Component Scrap Field in BOM Item Details

An entry in the Component scrap (%) field in the BOM item takes priority over an entry in the material master, MRP 4 view. Fill in the Component scrap (%) field with a flat rate percentage determined by your production statistics of scrap rates.

Case Scenario

A component is used in many assemblies, and generally the component scrap rate is 10%, which is entered in the material master MRP 4 view of the component. One assembly is manufactured close to the inventory store, and only 5% of components are lost or damaged on the way to production of this assembly. A component scrap rate of 5% is entered in the component BOM item for this particular assembly. The component scrap rate of 5% in the BOM item takes priority over the 10% component scrap rate entered in the material master MRP 4 view of the assembly.

You should update this field prior to each costing run if the statistics change dur-ing the current year. We’ll examine how component scrap affects standard cost estimates in the next section.

5.3.4 Planned Component Scrap Costs

Planned component scrap costs are included in the standard cost estimate. Let’s compare two cost estimates, one without component scrap, and one with component scrap, to highlight the difference. To display the screen shown in Figure 5.16, use Transaction CK13N or menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Cost Estimate with Quantity Structure.


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Figure 5.16 Cost Estimate without Component Scrap

The Total value of the standard fg cost estimate without component scrap is 46,254.68. The figures in the Scrap and Scrap quantity columns indicate that there is no planned output scrap. Now let’s display a cost estimate for material standard fg with 10% component scrap entered in the material master MRP 4 view, as shown in Figure 5.17.

Figure 5.17 Cost Estimate with Component Scrap

The Total value of the standard fg cost estimate with component scrap is 48,581.82, which is higher than the Total value of 46,254.68 of the cost esti-mate without component scrap. This is because the quantity of component SFG has increased by 10%, as shown by comparing the Quantity columns in both cost estimates. The Total value of component SFG has increased by 10% due to the increase in Quantity.

The increase in component quantity is not shown in the Scrap quantity column. Component scrap is an input quantity variance, not an output scrap variance. Later in this section, we’ll explore how to analyze component scrap in detail.

5.3.5 Actual Component Scrap Costs

Actual scrap costs usually occur during production order confirmation. This is when activities are confirmed and goods movements occur during backflushing and auto goods receipt, as discussed in detail in Chapter 3. Let’s now create a production order and carry out a confirmation to demonstrate how actual component scrap costs occur.


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Component Scrap 5.3

You create a production order with Transaction CO01 or via menu path Logis-tics • Production • Shop Floor Control • Order • Create • With Material. To display the component overview screen shown in Figure 5.18, from the initial production order header screen, select Goto • Overviews • Components from the menu bar.

Figure 5.18 Production Order Component Quantities Increased by Planned Component Scrap

Component SFG quantity is automatically increased by 10% due to component scrap in the material master MRP 4 view, as we discussed earlier in Section 5.3. MRP proposes a total quantity of 1,100.000, as shown in the Reqmts qty (requirements quantity) column in the SFG row, even though only 1,000 are required according to the BOM quantities. This is because it is expected that 100 of the components will be lost or damaged on the way to the production line or will not pass inspec-tion for some reason.

Actual component scrap is posted during production order confirmation. In Chap-ter 3, we looked at a confirmation per operation. In this example, we’ll look at a confirmation at the order header level with Transaction CO15, or via menu path Logistics • Production • Shop Floor Control • Confirmation • Enter • For Order. The screen shown in Figure 5.19 is displayed.


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Figure 5.19 Confirmation Screen with Component Scrap Planned

Only output scrap, such as assembly or operation scrap, is entered in the Confirmed scrap field. There is no expected output scrap to confirm, as shown at the Total to confirm column of the Confirmed scrap row. Click on the Goods movements button to display the goods movements screen shown in Figure 5.20.

Figure 5.20 Confirmation Goods Movements Screen

A Quantity of 1,100.000 for Material 300002252 (SFG) defaults from the pro-duction order. The production order quantity of component SFG was increased 10% due to component scrap entered in the material master MRP 4 view. If you manually adjust the default component quantity shown in Figure 5.20, you will introduce an unplanned input quantity variance.

After scrap is confirmed, you carry out variance calculation, as discussed in the next section.


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Component Scrap 5.3


Variance calculation is done using Transactions KKS6 (individual) and KKS5 (collec-tive) or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Variances. The screen shown in Figure 5.21 is displayed following variance calculation. You carry out variance analysis for production and process orders with Transactions KKS2 (individual) and KKS1 (collective).

Figure 5.21 Component Scrap Displays as Input Quantity Variance

There is no scrap variance because component scrap is categorized as an input quantity variance, as shown by the 2,327.14 value in the Input qty var. (input quantity variance) column. Detailed variance analysis for component scrap occurs in product cost collector reports, as explained in the next section.

5.3.7 Component Scrap Target/Actual

During a period or at period end, you may need to carry out further detailed analysis of scrap variance. Before doing so, you should first run variance calculation to update the target costs. You can display and analyze plan versus actual costs in detailed product cost collector reports with Transaction PKBC_PKO or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Detailed Reports. A similar report is available for production and process orders with Transaction PKBC_ORD.

Let’s compare three detailed reports to demonstrate how component scrap affects variance.

Component Scrap Not Planned and Actual Scrap Posted

The first product cost collector report contains an unfavorable scrap variance because component scrap is not planned while actual scrap is posted, as shown in Figure 5.22.


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Figure 5.22 Component Scrap Not Planned and Actual Scrap Posted

Because component scrap is not planned, actual component scrap posts as an unfa-vorable input quantity variance, with a value of 2,327.14 in the Variance (total variance) and Qty variance (input quantity variance) columns.

A component quantity needed to make 1,100.000 STANDARD FG is issued from inventory, as shown in the Total act.qty column. This corresponds to the value of 25,598.54 in the SFG row and Ttl actual (total actual costs) column.

Because the standard cost estimate doesn’t contain planned component scrap, the component target value of 23,271.40 in the SFG row in the Total tgt (total target costs) column is 10% less than the component actual value of 25,598.54. This results in an unfavorable variance of 2,327.14, as shown in the Debit row of the Qty variance column.

Overall, because total actual debits of 48,581.82 are greater than total actual credits of 46,254.68, the result is an unfavorable variance of 2,327.14 in the summary (last) row of the Total actual column.

Now that we’ve looked at how posting component scrap without planning for it results in an unfavorable variance, let’s see the effect of planning but not posting component scrap.

Component Scrap Planned and Actual Scrap Not Posted

Compare the report in the previous section with an unfavorable variance to a report in this section with a favorable variance, which results from planning component scrap but not posting an actual increase in component quantity, as shown in Figure 5.23.


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Component Scrap 5.3

Figure 5.23 Component Scrap Planned and Actual Scrap Not Posted

Because component scrap is planned, all planned scrap that’s not actually posted results in a favorable variance with a value of 2,327.14- in the Qty variance (input quantity variance) column.

A component quantity needed to make 1,000.000 STANDARD FG is issued from inventory, as shown in the Total act.qty column, and there is no increase in com-ponent quantity. This corresponds to the component actual value of 23,271.40 in the SFG row and Ttl actual (total actual costs) column. This results in total actual debits of 46,254.68, as shown in the Debit row and the Ttl actual column.

Because the standard cost estimate contains 10% planned component scrap, the component target value of 25,598.54 in the SFG row in the Total tgt (total target costs) column is 10% greater than the component actual value of 23,271.40. This results in a favorable variance of 2,327.14-, as shown in the Debit row and Qty variance column.

Overall, because total actual debits of 46,254.68 are less than total actual total credits of 48,581.82, the result is a favorable variance of 2,327.14- in the summary row of the Total actual column.

Now that we’ve looked at how posting component scrap without planning for it results in an unfavorable variance, and how planning component scrap and not actually posting it results in a favorable variance, let’s see the effect of both plan-ning and posting component scrap.


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Scrap Variance5

Component Scrap Planned and Actual Scrap Posted

Compare the reports in the previous two sections with unfavorable and favorable variances to the report in this section with no variance, since component scrap is planned and actual component quantity is posted, as shown in Figure 5.24.

Figure 5.24 Component Scrap Planned and Actual Scrap Posted

Because component scrap is planned, and actual component quantities are posted as planned, no variances remain in the Variance or Qty var. columns.

A component quantity needed to make 1,100.000 of STANDARD FG is issued from inventory, as shown in the Total act.qty column of the SFG row. This cor-responds to the value of 25,598.54 in the Ttl actual (total actual costs) column of the SFG row.

Because the standard cost estimate contains 10% planned component scrap, the component target value of 25,598.54 in the SFG row in the Total tgt (total target costs) column is the same as the component actual value of 25,598.54. This results in a value of 0.00 in the Qty variance column of the Debit row.

Overall, because total actual debits of 48,581.82 are equal to total actual credits of 48,581.82, the result is a value of 0.00 in the summary row of the Ttl actual column.

Total variance ideally should only include unplanned production costs. If you don’t plan scrap, all scrap costs will post as a variance, as demonstrated in Figure 5.22. When you plan component scrap based on production statistics, scrap costs are included in the cost estimate, and only the difference between plan and actual component scrap costs posts as an input quantity variance, as demonstrated in Figure 5.24.


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Operation Scrap 5.4

Now that we’ve examined assembly and component scrap, let’s look at the third type of scrap: operation scrap.

5.4 Operation Scrap

Planned operation scrap includes the entire cost of faulty or lost assemblies in the cost of sales. If operation scrap is not planned, all scrap costs post as a variance. Although variances can be included at a higher level in profitability reporting, planned opera-tion scrap is included at the material or gross profit level, as we discussed in Chapter 3. This results in more accurate analysis of profitability at the product level.

5.4.1 Operation Scrap Definition

Operation scrap can be defined as the percentage of assembly quantity that does not meet required production quality standards. For example, planned operation scrap of 20% means that if you start an operation with 125 pieces, you will lose 20% (25 pieces) during the operation. One hundred pieces will be available for the subsequent operation. Operation scrap is an output scrap because it reduces the planned output quantity in the production process.

Operation scrap has different effects on quantities, depending on whether it is entered in the routing, BOM item, or both. We’ll now discuss the three possible options in the following subsections.

Operation Scrap in Routing

Operation scrap entered in the routing ensures that faulty assemblies are discarded before valuable components are inserted. The output quantity of assembly opera-tions is reduced by the operation scrap amount before valuable components are inserted in a subsequent operation. This reduces wastage of valuable components discarded in assemblies.

Case Scenario

A music CD packaging facility inspects a CD case for scratches in operation 010 and inserts a CD in the case in operation 020. Operation scrap of 20% is applied at operation 010. For every 100 CD cases inspected, 20 are discarded, and CDs are inserted in 80 CD cases in operation 020. Because CDs are more expensive than cases, damaged cases are discarded before inserting the CDs.


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However, the manufacturer still has a requirement to assemble 100 CDs in cases. Planned assembly scrap of 25% is added to the assembly material master. MRP generates a require-ment for inspection of 125 cases in operation 010, and 20%, or 25 cases, are discarded due to operation scrap. One hundred cases are available for operation 020.

Now that we’ve discussed operation scrap entered in routings, let’s see how opera-tion scrap entered in BOM items works.

Operation Scrap in BOM Item

Operation scrap entered in the BOM item ensures the input quantity of valuable components inserted in an assembly is reduced. Assembly scrap entered in the material master of the assembly can be ignored by selecting a net checkbox. This allows close control over the planning and use of individual valuable components in an assembly. This may also be useful when a component can be salvaged and reused, even if the assembly does not pass quality inspection. If BOM operation scrap is not entered, assembly scrap from the material master is used.

Operation Scrap in Operation and BOM Item

Operation scrap entered in both the routing and BOM item reduces the output quantity of an assembly before valuable components are inserted in the next operation. It also controls the input quantity of individual valuable components in the assembly.

Routing operation scrap refers to the activity quantity used, while BOM operation scrap refers to the material quantity used.

5.4.2 Effect of Operation Scrap on Quantities

Scrap quantities are important because they cause scrap values. Let’s follow a simple example of how operation scrap applied at the operation level affects component and activity quantities.

You begin a process with 100 finished PCBs. If planned operation scrap of 10% is entered in the first operation, and 20% is entered in the second operation in the routing of the finished PCB, a quantity of 72 finished PCBs will be available at the end of the second operation, as shown in Figure 5.25.


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Operation Scrap 5.4

Routing BOM Inputquantity

Plan:100 PC

Blank PCBs 100 PCOperationscrap 10%

100 Operation 1Install/test

BIOS 100 PC-10

(100 h) Componentscrap 4 %Operation

scrap 20%90 Operation 2

Install/testProcessor 104 PC

-18(90 h)

Finished PCBs 72 PC

For output of100, enterassemblyscrap in

finished PCB

Component quantity needs to bereduced by BOM operation scrap

Figure 5.25 Operation Scrap Reduces Operation Output

By decreasing operation output quantity, operation scrap increases the cost of producing the finished PCBs. MRP will propose a production quantity of 100 assemblies, with the expectation that 72 PC will be delivered to inventory, and 28 partial assemblies will be confirmed as scrap. No operation scrap is entered in the BOM item in this example.

Now that we know what operation scrap is and how it affects scrap quantities, we’ll investigate how to plan operation scrap.

5.4.3 Operation Scrap Master Data

You can plan operation scrap in two master data fields. The most commonly used field is located in the routing operation details view. To enter operation scrap, as displayed in Figure 5.26, use Transaction CA02 or menu path Logistics • Produc-tion • Master Data • Routings • Routings • Standard Routings.

Figure 5.26 Operation Scrap Field in Operation Details


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You enter operation scrap in the Scrap in % field of the General data section of the routing operation details screen.

Another field used to plan operation scrap is located in the Basic Data tab of the BOM item. You can view or change BOM item details with Transaction CS02 or via menu path Logistics • Production • Master Data • Bills of Material • Bill of Material • Material BOM • Change. Double-click on a BOM item to display BOM item details, as shown in Figure 5.27.

Figure 5.27 Operation Scrap Field in BOM Item

You enter operation scrap in the Operation scrap in % field of the Basic Data tab of the BOM item. The Net ID checkbox is selected to ignore assembly scrap, and it must be selected if you enter operation scrap. For a particular component, operation scrap allows you to enter a different scrap percentage, usually less than the assembly scrap percentage.

5.4.4 Planned Operation Scrap Costs

Planned operation scrap costs are included in the standard cost estimate. Let’s compare two cost estimates, one without operation scrap, and one with operation scrap, to highlight the difference. To display the screen shown in Figure 5.28, use Transaction CK13N or menu path Accounting • Controlling • Product Cost Controlling • Product Cost Planning • Material Costing • Cost Estimate with Quantity Structure.


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Operation Scrap 5.4

Figure 5.28 Cost Estimate without Operation Scrap

The Total value of the STANDARD FG cost estimate without operation scrap is 46,254.68. The figures in the Scrap and Scrap quantity columns indicate there is no planned output scrap. Now let’s display a cost estimate for material STANDARD FG with 10% operation scrap entered in the first operation of the routing, as shown in Figure 5.29.

Figure 5.29 Cost Estimate with Operation Scrap

The Total value of the STANDARD FG cost estimate with operation scrap is 46,254.68, the same as without operation scrap. However, the output Quantity of the cost estimate with operation scrap is reduced by 10%, from 1,000.000 without operation scrap, to 900.000 with operation scrap. It costs the same to produce 900.000 with operation scrap as it does to produce 1,000.000 without operation scrap, so per unit cost is increased by operation scrap.

Tip

To quickly determine if operation scrap is included in a cost estimate, click on the cost estimate Qty Strct. (quantity structure) tab, which displays the screen shown in Figure 5.30.

Figure 5.30 Operation Scrap Only Text in Cost Estimate


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The Operation Scrap Only text indicates that operation scrap is included in the cost estimate, without the need to refer to operation details. Information text also appears in the same tab if assembly scrap is included in the cost estimate as discussed in Section 5.2.

Now that we’ve looked at planning for operation scrap with master data entries and how it affects cost estimates, let’s examine how actual operation scrap post-ings occur.

5.4.5 Actual Operation Scrap Costs

Actual scrap costs usually occur during production order confirmation. That is when operation output is either confirmed as yield or as scrap. We’ll now create a production order and carry out a confirmation to demonstrate how actual opera-tion scrap costs occur.

You create a production order with Transaction CO01 or via menu path Logistics • Production • Shop Floor Control • Order • Create • With Material. From the production order header screen, select Goto • Overviews • Operations from the menu bar to display the operations overview screen. Then double-click on the operation in which you entered operation scrap in Section 5.4 to display the production order operation detail screen shown in Figure 5.31.

Figure 5.31 Production Order Operation Scrap Field

Operation Scrap defaults from the routing, as discussed in Section 5.4. Produc-tion order total quantity is unchanged by planned operation scrap. MRP proposes


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Operation Scrap 5.4

a quantity of 1,000, with plan yield of 900 and an operation scrap quantity of 100.

Actual operation scrap is posted during production order confirmation. A confirmed scrap field is available, and planned operation scrap defaults from the production order when using confirmation Transaction CO11N or menu path Logistics • Production • Shop Floor Control • Confirmation • Enter • For Operation • Time Ticket, as shown in Figure 5.32.

Figure 5.32 Production Order Confirmation Screen Includes Scrap Field

The Planned total yield quantity of 1,000.000 is reduced by default operation Scrap quantity of 100.000, resulting in a default Yield quantity of 900.000. If the default operation Scrap quantity is manually changed, a scrap variance will result.

After scrap is confirmed, you carry out variance calculation, as discussed next.


Variance calculation is done using Transactions KKS6 (individual) and KKS5 (col-lective), or accessing menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Period-End Closing • Single Functions: Product Cost Collector • Variances. The screen shown in Figure 5.33 is displayed following variance analysis. You carry out vari-ance analysis for production and process orders with Transactions KKS2 (individual) and KKS1 (collective).


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Figure 5.33 Variance Calculation Output Screen

Operation scrap has reduced the expected Actual qty delivered to inventory to 900.000 from 1,000.000. Operation scrap doesn’t increase the manufactured quan-tity, so after the planned operation scrap quantity is actually confirmed as scrap, the output quantity is less than the quantity required. You need to plan assembly scrap as well as operation scrap in order to output the required quantity, as described in the case scenario in Section 5.4.

The unfavorable Scrap variance of 4,625.48 indicates that operation scrap was posted but not planned in this example. Scrap variance is subtracted from total variance, which simplifies the task of analyzing total variance.

Click on the Scrap button (not shown) in the variance calculation output screen to display details of the scrap variance by cost element and operation.

Now that we’ve examined how to plan and post actual scrap and calculate variance, let’s look at how to report and analyze operation scrap postings.

5.4.7 Operation Scrap Target/Actual

During a period or at period end, you may need to do further detailed analysis of scrap variance. Before analysis during a period, you should first run variance calculation to update the target costs. You can display and analyze target versus actual costs in detailed product cost collector reports with Transaction PKBC_PKO or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Detailed Reports. A similar report is available for production and process orders with Transaction PKBC_ORD.

Let’s compare a series of three detailed reports to demonstrate how operation scrap affects variance.

Operation Scrap Not Planned and Actual Scrap Posted

The first report contains an unfavorable scrap variance, which results from not planning operation scrap, while posting actual scrap, as shown in Figure 5.34.


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Operation Scrap 5.4

Figure 5.34 Operation Scrap Not Planned and Actual Scrap Posted

Because operation scrap is not planned, actual operation scrap posts as an unfavor-able variance with a value of 4,625.48 in the Scrap variance column.

Activity and component quantities needed to make 1,000.000 STANDARD FG are issued from inventory, as shown in the Total act.qty column. This corresponds to the value of 46,254.68 in the Ttl actual (total actual costs) column of the Debit row.

A quantity of 900.000 STANDARD FG is delivered to inventory, as shown in the Total act.qty column. This corresponds to the credit value of 41,629.21- in the Ttl actual column of the Delivery row.

Because total actual debits of 46,254.68 are greater than the total actual credits of 41,629.21, an unfavorable variance of 4,625.47 results, as shown in the summary row of the Total actual column.

Now that we’ve looked at how posting operation scrap without planning for it results in an unfavorable variance, let’s see the effect of planning but not posting operation scrap.

Operation Scrap Planned and Actual Scrap Not Posted

Compare the report in the previous section with an unfavorable scrap variance to a report in this section with a favorable scrap variance, which results from planning component scrap but not posting actual scrap, as shown in Figure 5.35.


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Scrap Variance5

Figure 5.35 Operation Scrap Planned and Actual Scrap Not Posted

Because operation scrap is planned, all planned scrap not actually posted results in a favorable scrap variance, with a value of 4,625.47- in the Scrap column.

Activity and component quantities needed to make 900.000 STANDARD FG are issued from inventory, as shown in the Total act.qty column. This corresponds to the value of 41,629.22 in the Ttl actual (total actual costs) column of the Debit row.

A quantity of 900.000 STANDARD FG is delivered to inventory, as shown in the Total act.qty column. This corresponds to the credit value of 46,254.68 in the Ttl actual column of the Delivery row.

The credit value is based on the standard cost estimate, which contains the costs for making 1,000 assemblies because operation scrap is planned.

Because total actual debits of 41,629.22 are less than the total actual credits of 46,254.68, a favorable variance of 4,625.46- is shown in the summary row of the Ttl actual column.

Now that we’ve looked at how posting operation scrap and not planning for it results in an unfavorable variance, and how planning operation scrap and not actu-ally posting it results in a favorable variance, let’s see the effect of both planning and posting operation scrap.


207

Operation Scrap 5.4

Assembly Scrap Planned and Actual Scrap Posted

Compare the reports in the previous two sections with favorable and unfavorable scrap variances to the report in this section with no scrap variance, which results from planning operation scrap and posting actual scrap, as shown in Figure 5.36.

Figure 5.36 Operation Scrap Planned and Actual Scrap Posted

Because operation scrap is planned and actual scrap is posted, scrap variance is eliminated, as shown in the summary row of the Scrap variance column.

Activity and component quantities needed to make 1,000.000 STANDARD FG are issued from inventory, as shown in the Total act.qty column. This corresponds to the value of 46,254.67 in the Ttl actual (total actual costs) column of the Debit row.

A quantity of 900.000 STANDARD FG is delivered to inventory, as shown in the Total act.qty column. This corresponds to the credit value of 46,254.68- in the Ttl actual column of the Delivery row. The credit value is based on the standard cost estimate, which contains the costs for making 1,000 assemblies because operation scrap is planned.

Because the total actual debits of 46,254.67 are nearly equal to the total actual credits of 46,254.68, variance is nearly eliminated, as shown by the 0.01- in the summary row of the Ttl actual column.

Ideally, total variance should only include unplanned production costs. If you don’t plan scrap, all assembly and operations scrap costs will post as a scrap variance, as was demonstrated in Figure 5.34. When you plan operation scrap based on production


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statistics, scrap costs are separated from variance, and only the difference between plan and actual scrap costs post as a variance, as demonstrated in Figure 5.36.

Now that we’ve carried out a detailed analysis of each of the three types of scrap, let’s see an example with all three types of scrap combined.

5.5 Combined Scrap

In this section, we’ll follow an example beginning with component scrap, and then progressively combine all three types of scrap in the following subsections.

5.5.1 Component Scrap

Component scrap increases input component quantity, as shown in Figure 5.37.

Routing BOM InputquantityPlan:

100 PC Blank PCBs 100 PC100 Operation 1

Install/test

BIOS

100 PC100

(100 h) Componentscrap 4 %Operation 2

Install/test

Processor

104 PC

(100 h)

Finished PCBs 100 PC

100100

Figure 5.37 Component Scrap Increases Component Input Quantity

The BOM requires 100 blank PCBs, 100 processors, and 100 BIOS assemblies to manufacture 100 finished PCBs. The routing for the finished PCBs contains two operations that consume production activities. The blank PCBs and processors are assembled in operation 1, and the BIOS assemblies are added in operation 2.

To manufacture 100 PCBs, 104 BIOS assemblies are required. You can plan 4% component scrap in the BIOS assembly material master, BOM item, or both. The component scrap that you enter in the material master applies to all materials containing the BIOS assemblies as components. The component scrap that you


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Combined Scrap 5.5

enter in the BOM item takes priority over the component scrap that is entered in the material master.

5.5.2 Component and Operation Scrap

Next we need to establish that an operation scrap of 10% occurs in operation 1, and 20% occurs in operation 2. You plan for operation scrap in the routing operation details, which reduces the activity quantity corresponding to the yield from the previous operation. Let’s look at an example as shown in Figure 5.38.


100 PC Blank PCBs 100 PC100 Operation 1

Install/test

BIOS

100 PC-10

(100 h) Componentscrap 4 %Operation 2

Install/test

Processor

104 PC

(90 h)

Finished PCBs 72 PC

90-18

Figure 5.38 Operation Scrap Reduces Output Quantity

Output scrap reduces the operation output yield. In this example, the operation scrap of 10% reduces operation 1 output from 100 PC to 90 PC. The operation scrap of 20% reduces operation 2 output from 90 PC to 72 PC. You can plan routing operation scrap in the operation detail screen previously shown in Figure 5.26.

5.5.3 Component, Operation, and Assembly Scrap

Let’s now look at a scenario involving the manufacture of 100 PC finished PCBs instead of 72 PC. You need to increase the input quantity of components and subas-semblies to manufacture 100 finished PCBs. You achieve this by entering 38.89% assembly scrap in the finished PCB material master MRP 1 view.

Let’s analyze how assembly scrap increases the quantity of finished PCBs in Figure 5.39.


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100 PC Blank PCBs 139 PCOperationscrap 10%


139 PC-14

(100 h) Componentscrap 4 %Operation


Install/test145 PC

-25

(90 h)

Finished PCBs 72 PC

BIOS

Processor

Assemblyscrap 38.89%

Figure 5.39 Assembly Scrap Corrects Output Quantity

Plan assembly scrap of 38.89% increases the output quantity of finished PCBs from 72 PC to 100 PC. Assembly scrap also increases the input quantity of components from 100 PC to 139 PC. Because 4% component scrap is also planned for the BIOS, the input quantity is increased from 104 PC to 145 PC. The BIOS quantity of 145 PC is calculated as follows:

1. Assembly Scrap The planned assembly scrap of 38.89% entered in the finished PCB material master MRP 1 view increases the BIOS quantity from 100 PC to 139 PC.

2. Component Scrap The planned component scrap of 4% entered in the BIOS material master MRP 4 view, or the BOM item details screen, increases the BIOS quantity from 139 PC to 145 PC.

Note

You can automatically calculate the assembly scrap required to compensate for a reduced production output due to operation scrap by scheduling the routing and transferring the assembly scrap into the material master, which we‘ll discuss later in Section 5.5.6.

We‘ve corrected the output quantity of finished PCBs with plan assembly scrap. However, the input quantity of BIOS is 145 PC, while the required quantity is 125, which enters operation 2 from operation 1 as shown in Figure 5.39.


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Combined Scrap 5.5

Let’s now explore how to correct the component quantity with BOM item opera-tion scrap.

5.5.4 BOM Item Operation Scrap

Operation scrap entered in the routing reduces the activity quantity, rather than the component quantity. You also need to enter operation scrap of 20% in the BOM item in order to ensure that the correct quantity of BIOS assemblies is removed from inventory. The resulting quantities are shown in Figure 5.40.




139 PC-14

(139 h) Componentscrap 4%Operation


Install/test125 PC

-25

(125 h)


BIOS

Processor


Operationscrap 20%

Net IDselected

Figure 5.40 BOM Item Operation Scrap Corrects Component Quantity

BOM item operation scrap reduces the BIOS input quantity from 145 PC, shown in Figure 5.39, to 125 PC as shown in Figure 5.40. This number corresponds with the quantity of 125, which enters operation 2 from operation 1. You plan BOM item operation scrap as previously shown in Figure 5.27. The BIOS quantity of 125 PC shown in Figure 5.40 is calculated as follows:

1. Net ID Checkbox When you plan BOM item operation scrap, you‘re required to select the Net ID checkbox, which ignores assembly scrap. At this stage, the component quanitity is 100 PC.

2. Operation Scrap Plan operation scrap entered in the BOM item increases the component quantity by 20%. At this stage, the component quantity is 120 PC.


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3. Component Scrap Plan component scrap entered in the BOM item increases the component quantity by 4%. At this stage, the component quantity is 125 PC.

By following these steps, we removed the assembly scrap of 38.89% from the BOM item, replaced it with operation scrap of 20%, and then increased the quantity by 4% component scrap.

5.5.5 Operation and Assembly Scrap

Let’s now analyze our scenario without component scrap to help further illustrate how plan scrap affects quantities. Component plan scrap has been removed from the scenario shown in Figure 5.41.




139 PC-14

(139 h) Componentscrap 0%Operation


Install/test120 PC

-25

(125 h)


BIOS

Processor


Operationscrap 20%

Net IDselected

Figure 5.41 Operation and Assembly Scrap without Component Scrap

We have selected the Net ID checkbox, which ensures assembly scrap is ignored for the BIOS component. Operation scrap of 20% then increases the BIOS quantity from 100 PC to 120 PC.

Let’s look at how you can automatically calculate the assembly scrap required to compensate for reduced production output due to operation scrap.

5.5.6 Calculate Assembly Scrap

Plan operation scrap records how many products will be lost or damaged in an operation. It reduces the output of an operation into subsequent operations. You


213

Combined Scrap 5.5

can enter plan assembly scrap in the material master MRP 1 view to achieve the required production output in combination with plan operation scrap.

If operation scrap occurs in many operations and in many assemblies, it can be time-consuming to manually calculate the required assembly scrap. You can auto-matically calculate assembly scrap and have the system populate the corresponding material master field.

Assembly Scrap Formula

Let’s follow an example to illustrate how assembly scrap is calculated.

EE Operation scrap reduces operation output quantity:

EE Input quantity 1,000 units

EE Operation 10 contains 20% operation scrap: Output quantity 800 units

EE Operation 20 contains 20% operation scrap: Output quantity 640 units

EE Assembly scrap required to produce 1,000 assemblies:

EE Input quantity 1,562 units achieved with assembly scrap of 56.25%

EE Operation 10 contains 20% operation scrap: Output quantity 1,250 units

EE Operation 20 contains 20% operation scrap: Output quantity 1,000 units

EE The system calculates assembly scrap with the following formula:

Assembly scrap = 1 / (1 – operation scrap) × 1 / (1 – operation scrap) – 1

EE You calculate assembly scrap in this example with the following values:

Assembly scrap = 1 / (1 – 0.2) × 1 / (1 – 0.2) – 1

= (1.25 ×1.25) – 1

= 0.5625

= 56.25%

Now that we’ve examined the formula to calculate assembly scrap, let’s see how you get the system to automatically calculate assembly scrap.

Assembly Scrap Calculation

You calculate assembly scrap automatically with Transaction CA97 or via menu path Logistics • Production • Master Data • Routings • Extras • Material


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Master • Schedule Material Master. The selection screen shown in Figure 5.42 is displayed.

Figure 5.42 Transfer Scheduling Results to Material Master

This transaction allows you to transfer scheduling results from routings to material masters. You can transfer setup and teardown time, processing time, inter-operation time, assembly scrap, and base quantity. The transfer ensures consistency of scheduling data between routings and material masters, which is mandatory for requirements and detailed planning.

Select the Update with assembly scrap checkbox to update the Assembly scrap field in the material master MRP1 view with the automatically calculated assembly scrap.

Note

If scheduling does not calculate an assembly scrap value, then the material master assembly scrap value is overwritten with the value zero.

Type in your entries in the selection screen in Figure 5.42 and press (Enter) to display the results screen shown in Figure 5.43.


215

Summary 5.6

Figure 5.43 Transfer Scheduling Results Output Screen

The results screen lists the material masters that were selected and displays the success of the update.

Now that we’ve discussed how to automatically calculate assembly scrap, we’ve reached the end of this chapter on scrap variance. Let’s review what we covered.

5.6 Summary

In this chapter, we discussed scrap basics, including the difference between scrap and rework, and presented a case scenario involving the interaction between assembly and component scrap, and the decision of whether to scrap or rework. We also briefly looked at the definition of the three types of scrap: assembly scrap, component scrap, and operation scrap.

We then analyzed each of the three types of scrap at a detailed level and looked at diagrams to help you understand the effect of scrap on quantities and costs. We also looked at how to plan scrap by making master data entries, and we examined the priorities if two entries are made.

We analyzed the effect of plan scrap on cost estimates by analyzing cost estimates before and after the plan scrap entries. We also looked at a shortcut for determining if assembly and/or operation scrap influence a cost estimate: clicking on the cost estimate quantity structure tab.

We explained how actual scrap postings occur, by first creating a production order and then carrying out confirmations involving scrap. We then carried out variance calculation and analyzed the output results screen.


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We then examined three detailed reports for each type of scrap:

EE First, we analyzed the effect of not planning scrap and then posting actual scrap, and the resulting unfavorable variance.

EE Second, we saw the effect of planning for scrap but not actually posting scrap, and the resulting favorable variance.

EE Third, we examined the ideal scenario of planning for scrap and then posting the planned amounts of scrap. One of the main benefits of this scenario is the reduction in total variance, making it easier to analyze other variance categories, as described in Chapter 4.

Finally, we followed scenarios combining the three types of scrap, and then exam-ined how to automatically calculate assembly scrap.

In Chapter 6, we’ll walk through the many excellent standard reports available for CO reporting in general and for variance reporting in particular.


217

6 Reporting

One of the most useful features of standard reporting is the drilldown functionality. From high-level summarized reports, you can drill down through detailed and line item reports to source documents. This functionality is one of the key tools at your disposal during variance analysis.

The highest-level report you can drill down from is a summarized report, which allows you to display variances at a highly summarized level; for example, plant manufacturing variances. A plant manager typically reviews plant manufacturing variances at period end, while production personnel may review manufacturing variances weekly, or even daily if necessary. The only limit on how often you can run summarization reports is the data collection processing time. We’ll discuss data collection in detail in Section 6.1.

If you decide to investigate plant variances further, you can expand the plant sum-marization row to display the next level; for example, material group. You can then expand individual material groups, which have a large variance, to display a list of materials within the material groups. You can set up exception rules and traffic light icons to highlight individual materials with high variances in this report.

When you have identified product cost collectors or manufacturing orders, which require further analysis, detailed reports provide analysis at a cost element level. Cost elements appear as rows in detailed reports and identify costs such as raw materials, activities, and overhead.

Tip

If you select the Material Origin checkbox in the Costing 1 view of all material masters, you also see the material number displayed in detailed reports. This is one of the most important indicators in providing greater visibility to the cause of variances. If you have already created material master records without the material origin selected, you can use report RKHKMAT0 to select the checkbox.

You can drill down on a row in a detailed report to a line item report. The line item report displays a list of all line item postings, identified by the cost element,


218

Reporting6

to the order. You can sort the value or quantity columns in a line item report to identify large line item postings that may need further investigation. To analyze a line item posting further, double-click on it to display the source document, such as a material document, in the case of a goods issue.

You can also use the production order information system and order selection reports to assist you when analyzing variance. These reports allow you to list pro-duction orders based on selection screen parameters. You can display cost variance information as columns in order selection reports.

Production managers, production planners, and MRP controllers typically run these reports weekly or even daily. They look for and analyze large variances that indicate problems, such as incorrect activity confirmations or incorrect master data settings. Experienced plant personnel realize the importance of not leaving variance analysis until period end, when it may be too late to correct some errors, or there may be too many errors to correct within the period-end closing time frame, and postings to the previous period are blocked.

Period-end processing and analysis is usually restricted to a time frame of just a couple of days, at the start of the following period. At the end of the time frame, postings to the previous period are blocked so the data underlying the previous period reports already supplied to managers does not change. If variances are not corrected within the narrow period-end time frame, they will remain in the previ-ous period and need to be explained, even if they were due to mistakes such as activity confirmations.

Cost center managers can run standard cost center reports to analyze costs at the cost center and cost element level of detail. They can drill down to line item reports and source documents to determine the cause of cost center variance.

Now that we’ve discussed the standard reports most commonly used for variance analysis, explained who is likely to use them, and described the purpose for using them, let’s examine summarized analysis and detailed and line item reports in more detail in the following sections.

6.1 Summarized Analysis Reports

Summarization analysis is based on hierarchy structures (like pyramids), with manu-facturing orders or product cost collectors at the wide base, and progressively higher


219

Summarized Analysis Reports 6.1

and narrower levels based on, for example, material group and plant, on the way up to the Controlling area at the peak.

You regularly run a data collection program, which rolls up the order cost information from the base, through the nodes and levels, to the top of the hierarchy.

You then run a summarization report, which reads the information stored on the hierarchy nodes and presents the output either in a product drilldown report, which allows you to navigate between summarization levels, or in a summarization hierar-chy report, with the hierarchy nodes presented as expandable and collapsible rows based on the hierarchy levels, and cost information presented in columns such as target, actual, and variance.

Case Scenario

A plant manager runs a summarization report at period end to analyze plant manufactur-ing variances. Variances are higher than expected, and the manager examines the next hierarchy level down, which is order type, and notices that the unusually high variance is associated with the production order type for manufacturing pumps. From the sum-marization report, the manager displays a list of all production orders of this order type, sorts the Variance column, and notices a production order with a particularly high vari-ance. The plant manager notes the production order number, and asks the production manager to explain the cause of the production order variance.

The production manager carries out variance analysis on the production order and finds that most of the variance is identified as resource-usage variance. The production manager then clicks on the Cost Elements button in the variance calculation results screen and notices that a much more expensive component, sourced from overseas, was substituted for a less expensive component sourced locally.

The production manager then reviews MRP-generated requirements and discovers that the sales order delivery date promised to the customer could not be met with locally sourced components that have a long delivery time. A more expensive component with a shorter delivery time was substituted to meet the sales order delivery date. The produc-tion manager then organizes a meeting with Sales and the plant manager to review the sales contract negotiation strategy for pumps.

By reviewing the Variance column and expanding the hierarchy in a summarization report, the plant manager has discovered a sales contract issue affecting company profitability. By regularly reviewing summarization reports and immediately investigat-ing large and unusual variances, problems that otherwise may have gone unnoticed can be detected quickly, and corrective action can be taken. This assertive approach to variance analysis can provide companies with a competitive edge over others that allow (mainly communication-based) problems to continue until the effect on the bottom line is noticed, in a future period.


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Now that we’ve discussed summarization reports at a basic level and presented a case scenario demonstrating the benefits of regularly running and analyzing these reports, let’s look more closely at the types of summarization reports available, and how they are set up and maintained.

There are two types of summarization reports available: product drilldown and summarization hierarchy reports. We’ll examine each in detail in the following subsections.

6.1.1 Product Drilldown Reports

Product drilldown reports allow you to slice and dice data based on characteristics such as product group, material, plant, cost component, and period. You can easily navigate between characteristics and drill down to lower-level characteristics. The navigation methods used for product drilldown reports are similar to those used with Profitability Analysis (CO-PA) reports.

Product drilldown reports use predefined summarization levels, which means they are already set up for you. The predefined summarization levels are suitable for most scenarios. However, if they do not fully meet your requirements, you can create your own hierarchies with summarization hierarchy reports, which we discuss in detail in Section 6.1.2.

Now that we’ve briefly discussed product drilldown reports, in the following subsec-tions we’ll look at the details of the three steps necessary to display the reports.

Configuration

You can run product drilldown reports without this configuration step. Its only purpose is to add a product group, such as material group, to drilldown reports. You can try running the reports first, to see if you have a requirement to add a product group. You should not need to change product drilldown configuration after making the initial settings with the following procedure.

You can change the configuration setting with Transaction OKN0 or via IMG menu path Controlling • Product Cost Controlling • Information System • Control Parameters. Click on the Data Extraction/Product Drilldown tab to display the screen shown in Figure 6.1.


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Figure 6.1 Product Drilldown Setting in Control Parameters

To display a list of possible product groups, click in the Prod. Group type field. You select a line to assign the corresponding product group to product drilldown reports with associated summarized data. The three product groups you can assign are explained as follows:

EE Product Hierarchy You can assign the Product Hierarchy in the following material master views:

EE Basic data 1

EE Sales: sales org. 2

A product hierarchy is recorded by the sequence of digits within a hierarchy number. The hierarchy number can have a maximum of 18 digits, with a maxi-mum number of 9 levels. The product hierarchy can be used to classify a material for use in the following:

EE Pricing, with each level being used as a field in the condition technique

EE CO-PA reports

You do not need to fully understand, at least initially, the structure of the product hierarchy. In a test system, you can assign Product Hierarchy to the Control Parameters, as shown in Figure 6.1, and examine the resulting product drill-down report. You’ll quickly gain an understanding of the logic used to create the product hierarchy.


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EE Material Group You can assign a Material Group in the following material master views:

EE Basic data 1

EE Purchasing

Material groups allow you to group materials or services together that have similar attributes. Material groups are important for the following actions:

EE Searching for materials

EE Purchasing info records used in production orders, where material is sent to vendors for processing

While you can manually create a material group hierarchy, a hierarchical material structure is best defined in the product hierarchy. As we noted when discussing the product hierarchy, you do not need to initially understand how material groups are organized. In a test system, you can assign Material Group to the Control Parameters (shown in Figure 6.1) and examine the resulting product drilldown report.

EE CO Product Group You can manually define your own hierarchy and assign materials with CO Prod-uct Groups. While it is easiest (and preferable from a master data maintenance perspective) to simply assign already existing material hierarchies and groups, you have the option to create your own.

Let’s now discuss in detail how you create your own CO product groups, and look at how you run the data collection program in the following section.

You create CO product groups with Transaction KKC7 or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Tools • Summarized Analysis: Prepara-tion • Product Group • Create. The screen shown in Figure 6.2 is displayed.

Figure 6.2 Create Product Group Initial Screen


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This screen is where you enter the name of your new product group. Fill in the Product Group field, and click on the Basic Screen button to display the screen shown in Figure 6.3.

Figure 6.3 Create Product Group Basic Screen

In this screen, you enter Short Text describing your new product group. You can also create a hierarchy by attaching this group to a higher-level group by making an entry in the Higher Product Group field. Fill in the fields, and save your work to create the new product group.

After you’ve created your new product groups, you’ll need to assign materials to the lowest level. You assign materials to the lowest-level CO product groups with Transaction KKPN or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Informa-tion System • Tools • Summarized Analysis: Preparation • Product Group • Material Assignment. The screen shown in Figure 6.4 is displayed.

Figure 6.4 Assign Materials to Product Group


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In this screen, you enter a single lower-level Product Group and select materials to assign to the group. You can assign multiple materials by typing in a Material Number range or list. You can also assign multiple materials by entering a Plant range or list and/or a Material Type range or list.

Complete the fields, and click the execute (clock) icon to display the screen shown in Figure 6.5.

Figure 6.5 Assignment of Materials to Product Group

You are presented with a list of all the materials you selected in the screen shown in Figure 6.4. You have a chance to refine your selection by deselecting any mate-rial in the list to be excluded from the group. Or you may decide to return to the previous selection screen before saving, so you can change the selection criteria. You assign the selected materials to a product group by clicking the save icon.

Tip

You can use this transaction as another way to display all the materials assigned to a plant, material number range, or material type. Display the results of the selection, and exit the list without saving.

Now that we’ve assigned a product group to the product drilldown report in con-figuration, the next step is to populate the predefined summarization hierarchy with data collection.

Data Collection

Product drilldown reports access a dataset, which must first be populated during a data collection run and saved. You run data collection for product drilldown reports with Transaction KKRV or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period •


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Information System • Tools • Data Collection • For Product Drilldown. The screen shown in Figure 6.6 is displayed.

Figure 6.6 Data Collection for Product Drilldown Reports

You normally run data collection following period-end closing for the current and previous period because data on orders can change within open financial periods. If data collection has already been run, the system resets and recalculates all data within the summarization Time Frame of the new data collection run. Data outside the time frame is retained, unless you select the Delete Values Outside Time Period checkbox.

Fill in the fields seen in Figure 6.6, and save your work. A data collection results screen indicates the number of records read during the run.

Now that we’ve populated the hierarchy, the next step is to run the report, as described in the next section.

Run Reports

Following data collection, you can run product drilldown reports, using Transac-tion S_ALR_87013139 or menu path Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Informa-tion System • Reports for Product Cost by Period • Summarized Analysis • With Product Drilldown • Variance Analysis. The screen shown in Figure 6.7 is displayed.


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Figure 6.7 Product Drilldown Report Selection Screen

You can run the report with a wide period range, as shown in Figure 6.7, or you can restrict the period range to improve performance if you only need to report on one, or a couple of periods. Fill in the fields, and click on the execute icon to display the product drilldown report shown in Figure 6.8.

Figure 6.8 Product Drilldown Report Results Screen

In Figure 6.8, each row represents a Material, while the Var.w/oScr (variance without scrap) column is sorted in descending order. This provides visibility to materials with the largest accumulated variance. You can drill down on any row to find out more details by Period/year and Cost Compon (cost component). You can analyze variance per Material further by displaying a detailed report of the product cost collector with Transaction KKBC_PKO, or Transaction KKBC_ORD for manufacturing orders, as described in Section 6.2.

In addition to the cumulative drilldown report we discussed previously, a periodic drilldown report is available in the same menu path. The reports allow you to display period data on an individual or summarized basis:

EE Periodic drilldown reports display results by period, enabling fast navigation across multiple periods.

EE Cumulative drilldown reports display results summarized across periods, for example, by fiscal quarter or year.


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Now that we’ve learned how product drilldown reports with a predefined hierarchy work, let’s look at how you can create and report on your own hierarchy with summarization hierarchy reports, as discussed in the next section.

6.1.2 Summarization Hierarchy Reports

Summarization hierarchies allow you flexibility in setting up and displaying sum-marized data. A summarization hierarchy groups together manufacturing orders or product cost collectors at the lowest-level nodes, which in turn are grouped together at higher-level nodes, to create a pyramid structure.

You set up each summarization level manually in configuration. The hierarchy levels are presented as expandable and collapsible rows in the reports. Here is an example of hierarchy levels, starting at the top:

EE Controlling area

EE Profit center

EE Plant

EE Material group

EE Material number

Because you can display summarized data at each node, you may decide to define hierarchy levels based on responsibility at lower management levels, for example, profit center, material groups, or order types. You may also decide to create an alternate summarization hierarchy with levels based on profitability reporting require-ments, such as profit center, division, and sales document.

After you define the summarization hierarchy in configuration, you run a data col-lection transaction, which populates the hierarchy with current data. We’ll discuss these topics in the following subsections.

During a data collection run, the following cost data is collected for all orders included in the run and rolled up through the hierarchy nodes and levels:

EE Plan

EE Target

EE Actual

EE Variances

EE Work in process (WIP)


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Following the data collection run, this cost data is available to be added as columns in the summarization report. You then run a summarization report, which displays the data summarized at each of the hierarchy levels. This allows you to display total variance for a plant and then at each of the lower hierarchy levels, by expand-ing the levels as required. At the lowest level, you can display variance details of individual orders. You can then display a detailed report with cost element rows and drill down to line item reports and source documents.

Now that we’ve briefly walked through how summarization hierarchy reports work, let’s discuss in detail the three steps necessary to display the reports.

Configuration

This configuration step is required only once. You only need to change the con-figuration if you need an additional hierarchy, or if you need to change an existing hierarchy.

Tip

You typically shouldn’t need to make changes to hierarchies, provided they are tested and reviewed by users before implementation in the production system. Testing and user review procedures for configuration implementation is good practice for any configuration changes, not just summarization hierarchies.

You maintain summarization hierarchies with Transaction KKR0 or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Con-trolling • Product Cost by Period • Information System • Tools • Summarized Analysis: Preparation • Create Summarization Hierarchy. The screen shown in Figure 6.9 is displayed.

Figure 6.9 Change Summarization Hierarchy Initial Screen


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This screen displays an existing hierarchy list and allows you to define new hierar-chies. Select a hierarchy, and double-click on Data scope (object types) to display details as shown in Figure 6.10.

Figure 6.10 Change Data Scope Object Types Overview

In this screen, you specify which object types you want to be summarized in the hierarchy. Read the Description in the row with the Summarize checkbox selected to understand the purpose of the hierarchy.

You can also specify a status selection profile in the Status sel. (last) column. Enter a status selection profile if you want to select only objects with a status that matches the selection criteria in the status selection profile. For example, you may be interested in only summarizing production orders with a status of fully delivered or technically complete.

To display further details of the hierarchy, double-click on the Hierarchy levels option on the left. The screen shown in Figure 6.11 is displayed.

Figure 6.11 Change Hierarchy Levels

In this screen, you specify each Hierarchy level of the summarization hierarchy. You can include as many hierarchy levels as you like; however, you should minimize


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the number of levels for ease of navigating and analyzing the summarization report.

Note

The system requires Controlling Area as the Level 1 hierarchy level. The field is grayed out, indicating that it is not changeable.

Click in any row in the Hierarchy Field column, and press (F4) to display a list of possible entries, as shown in Figure 6.12.

Figure 6.12 Summarization Characteristic Possible Entries

Some typical hierarchy levels are order type, plant, profit center, and material.

Tip

Long runtimes can result if the order number is defined as a hierarchy level. It is also quicker and easier to navigate summarization reports without the order number included. Instead, you can display a separate list of individual production orders directly from a summarization report as discussed later, in Figure 6.20. The resulting report is presented in the user-friendly ALV (ABAP list viewer) format, which is not the case if you include an order directly as a summarization level.

You can test different summarization hierarchies in a test system without affecting any configuration or data in your production system.

Now that we’ve maintained a summarization hierarchy, let’s examine how to narrow the selection of summarized orders with a status selection profile. You maintain status selection profiles with Transaction BS42 or via IMG menu path Controlling • Product Cost Controlling • Information System • Cost Object Controlling •


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Settings for Summarized Analysis/Order Selection • Define Status Selection Profiles. The screen shown in Figure 6.13 is displayed.

Figure 6.13 Status Selection Profile Overview Screen

This screen shows the existing SelProf (selection profile) list and allows you to define new profiles. Select an existing selection profile, and double-click on Selec-tion conditions on the left to display selection profile details, as shown in Figure 6.14.

Figure 6.14 Selection Profile Selection Conditions Screen

The selection conditions displayed in Figure 6.14 result in the selection of orders with a Status of Confirmed, Delivered, and not Technically completed.

Now that we’ve defined the summarization hierarchy and looked at how to create a status selection profile, the next step is to populate the summarization hierarchy with data collection.

Data Collection

Summarization hierarchy reports access a dataset, which must first be populated during a data collection run and saved. You run data collection for summarization


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hierarchy reports with Transaction KKRC or via menu path Accounting • Control-ling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Tools • Data Collection • For Summarization Hierarchy. The screen shown in Figure 6.15 is displayed.

Figure 6.15 Data Collection for Summarization Reports

You normally run data collection following period-end closing for the current and previous period because data on orders can change within open financial periods. If data collection has already been run, the system resets and recalculates all data within the summarization time frame of the new data collection run. Data outside the time frame is retained.

Complete the fields in Figure 6.15, and click on the Hierarchy Node (right-pointing arrow) icon to display the screen shown in Figure 6.16.

Figure 6.16 Subhierarchy Node Dialog Box


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You can narrow the data collection run to specific objects, such as Plant and Order Type, by entering the object number in a Value field. Click on the Confirm button to return to the screen in Figure 6.15, and then click on the execute icon. A data collection results screen indicates the number of records read.

Run Reports

Following data collection, you can run summarization reports with Transaction KKBC_HOE or via menu path Accounting • Controlling • Product Cost Control-ling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Summarized Analysis • With Defined Summarization Hierarchy. The screen shown in Figure 6.17 is displayed.

Figure 6.17 Summarization Report Selection Screen

You can run the report with a wide period range, or you can restrict the period range to improve performance if you only need to report on one or a couple of periods. Fill in the fields, and click on the hierarchy icon to display the report shown in Figure 6.18.


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Figure 6.18 Display Summarization Hierarchy Screen

You can see the hierarchy levels we defined in the previous configuration section, which are plant (0021) and order type (RM01 and ZP01). To display the Target, Actual, and Variance columns in this report, select Settings • Layout • Choose from the menu bar, and click on the Target/Actual Comparison layout (not shown). The screen shown in Figure 6.19 is displayed.

Figure 6.19 Target, Actual, and Variance Columns Displayed

This report indicates that the Actual debit for all orders of order type RM01 is 3,317.24. To see details of individual orders underlying this node, click on node RM01, and select Goto • Single Objects from the menu bar. The screen shown in Figure 6.20 is displayed.

Figure 6.20 Single Objects Results Screen

In Figure 6.20, the Variance column is sorted in descending order. Sorting provides visibility to orders or product cost collectors with large variances during the time frame selected. Double-click on any line to display a cost element analysis report for the order or product cost collector. You can change the target cost version by selecting Settings • Target Cost Version from the menu bar.


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Detailed Reports 6.2

Alternate Summarization Hierarchies

An advantage of summarization reporting is that you can create multiple hierar-chies. In the example hierarchy in Figure 6.11, we chose plant and order type as hierarchy levels. You can create hierarchies with an additional level of order and see the details directly in the results screen in Figure 6.18, without branching to the single objects screen in Figure 6.20. An advantage of the single objects report is that it is presented in the ALV format, which allows you to easily sort, sum, and filter values, as well as rearrange columns.

You can create exception rules and display traffic light symbols in the results screen shown earlier in Figure 6.18. This helps you to quickly find nodes that require further analysis. To create exception rules, follow IMG menu path Controlling • Product Cost Controlling • Information System • Cost Object Controlling • Settings for Summarized Analysis/Order Selection • Define Exception Rules. You include exception rules during data collection with Transaction KKRC, and then select Extras • Exception • Define Rule from the menu bar. Double-click on an exception rule to attach it to the summarization hierarchy.

Now that we’ve discussed the different types of standard summarization reports available, let’s look at standard detailed reports that allow you to examine the costs of individual production and process orders.

6.2 Detailed Reports

If you use summarized analysis, you’ll most often drill down to detailed reports. You can also display detailed reports directly if you know the material or manu-facturing order to be analyzed. You typically run a detailed report directly if you identify a material with large variances during variance analysis. Because you can’t drill down to line item details from the variance calculation output screen, you’ll need to take note of the material number and run this report to drill down to line item reports and source documents.

Detailed reports are useful during variance analysis because they provide cost element details by row, and usually target, actual, and variance by column for an individual product cost collector or manufacturing order. You can display the costs for one or multiple periods, or cumulatively for all periods. The cost element rows can be grouped together by similar business transactions, such as confirmations, goods issues, and goods receipts, in the report.


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This style of report is particularly useful when analyzing variance for an order. You simply search for the cost element with the largest variance and drill down (double-click) to line item details. You then sort the line item list and double-click on the line item with the largest value to display the source document. The source document generally contains all the information needed to find the cause of the largest variances.

You can display and analyze target versus actual costs in detailed product cost collector reports with Transaction KKBC_PKO or menu path Accounting • Control-ling • Product Cost Controlling • Cost Object Controlling • Product Cost by Period • Information System • Reports for Product Cost by Period • Detailed Reports. A selection screen is displayed, as shown in Figure 6.21. A similar report is also available for production and process orders with Transaction KKBC_ORD.


You can display costs for one period, a range of periods, or cumulated costs for all periods. Fill in the fields, and click on the execute icon to display the screen shown in Figure 6.22.



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Line Item Reports 6.3

You are presented with a detailed report with cost elements as rows and Total tgt (total target), Ttl actual (total actual), and Variance (not shown) as columns. Sort a column in descending order, and double-click on the row containing the largest value to display line item details, as shown in Figure 6.23.


In Figure 6.23, the Quantity column is sorted in descending order (note the small arrow at the top of the column). This provides visibility to confirmations with the largest time bookings. By double-clicking on a line, you can drill down to individual activity confirmations and analyze the reasons for confirmations with the largest quantity.

Now that we’ve examined how to run and analyze detailed reports for individual product cost collectors and manufacturing orders, let’s look at line item reports. Although you often drill down to line item reports from detailed reports, it’s pos-sible to display them directly. Let’s examine how to do that next.

6.3 Line Item Reports

You can drill down to line item reports from summarized analysis and detailed reports. This is useful because there can be a large number of line items. Just as summarization reports group product cost collectors together by characteristics for management variance reporting, detailed reports group together line items for production and management accounting reporting.

Analyzing a detailed report for a product cost collector and drilling down on the cost element with the largest variance is a much more efficient method of vari-ance analysis than searching through many line items directly. However, if you


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are in a situation where you need to display line items directly, the procedure is as follows.

You display and analyze line item reports with Transaction KRMI or via menu path Accounting • Controlling • Product Cost Controlling • Cost Object Control-ling • Product Cost by Period • Information System • Reports for Product Cost by Period • Line Items • Product Cost Collectors • Actual Costs. A selection screen is displayed, as shown in Figure 6.24. A similar report is also available for production and process orders with Transaction KOB1.

Figure 6.24 Line Item Report Selection Screen

When displaying line items directly, it’s important to restrict the Posting Date range sufficiently to avoid long runtimes because there can be many line items. It’s usually best to tightly restrict the posting date range initially, and then gradually increase it if required. Fill in the fields, and click on the execute icon. The screen shown in Figure 6.25 is displayed.



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Production Order Reports 6.4

You typically sort line item lists by Val.in RC (value in reporting currency) or Quantity and analyze the lines with the largest and smallest values by double-clicking to display the source documents. For confirmation line items, the source documents are activity confirmations. For goods receipts and goods issues, the source documents are material documents.

Now that we’ve examined summarization, detailed, and line item reports when analyzing production order variance, let’s look at two useful production order list reports in the next section.

6.4 Production Order Reports

We’ll look at how you display a simple list of production orders, and then examine how to display an order list with cost information displayed in columns.

6.4.1 Order Information System

The order information system is a tool for shop floor control and process industries with reporting functions for production orders, planned orders, and process orders. You can, for example, display all production orders within a time frame and group the information according to order or operation. You can use this list to identify individual production orders, which may require separate variance analysis.

You access the order information system with Transaction COOIS or via menu path Logistics • Production • Shop Floor Control • Information System • Order Information System. A selection screen is displayed, as shown in Figure 6.26.

Process Orders

You can display a list of process orders with Transaction COOISPI or via menu path Logistics • Production • Process • Process Order • Reporting • Order Information System • Process Order Information System.

The Selection tab of this screen provides many options that allow you to display a closely defined list of objects, such as order headers, status, or area of responsibility (e.g., MRP controller or production supervisor).


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Figure 6.26 Production Order Information System Selection Screen

The List field defaults to Order Headers, which you can change by clicking in the field and making a selection from the dropdown list as shown in Figure 6.27.

Figure 6.27 List Possible Entries in Order Information System

Scroll down the list of possible entries to view more objects. You can create and save your own variant by clicking the save icon.

Clicking in the Layout field allows you to choose any available standard or user-defined entries, which determine the way columns display information in the


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following report. Fill in the Material and Production Plant fields shown in Figure 6.26, and click the execute button to display a results list, as shown in Figure 6.28.

Figure 6.28 Production Order Results List

Click on an item in the Order or Material fields, and then click on either the pencil or glasses icon to navigate directly to the corresponding edit or display screens. You can display a full list of standard ALV function icons, including sort, total, and filter by clicking the right-pointing arrow icon.

Tip

You can include production orders with deletion flag status by scrolling down the selec-tion screen in Figure 6.26 and selecting the With Deletion Flag/Indicator checkbox shown in Figure 6.29.

Figure 6.29 Order Information System Deletion Flag/Indicator Checkbox

Production orders with a system status of DLFL and DLT, as displayed in the last column of Figure 6.28, are included in the results list along with other orders.

Now that we’ve looked at the order information system, let’s look at another report that lists production orders and variance information.


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6.4.2 Order Selection

You can list production orders with costs displayed in columns with Transaction S_ALR_87013127 or via menu path Accounting • Controlling Product Cost Controlling • Cost Object Controlling • Product Cost by Order • Information System • Reports for Product Cost by Order • Object List • Order Selection. The selection screen in Figure 6.30 is displayed.

Figure 6.30 Order Selection Initial Screen

There are many more selection fields available than are shown in this initial screen. Click the plus sign icon to display all selection fields, as shown in Figure 6.31.

Figure 6.31 Expanded Order Selection Initial Screen

Press (Page_Down) to display additional fields. Click in the Order category field, and press (F4) to display the list of order category possible entries, as shown in Figure 6.32.


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Figure 6.32 Order Category Possible Entries

You can further restrict the results screen by order type. After you choose an Order category in Figure 6.32, the possible entries for Order Type in the selection screen in Figure 6.31 are restricted to order type by order category, for example, PP Production Order. You can then type your order type in the first selection screen (shown in Figure 6.30) without expanding the selection list, and also save this as a variant.

Limiting the reporting time frame with entries in the From Period and To Period fields in Figure 6.30 specifies the periods that key figures can be read from. This does not affect the orders selected. Type in your selection criteria, and click the execute icon to display the results screen in Figure 6.33.

Figure 6.33 Order Selection Results List

You can display the variance columns shown in Figure 6.33 by clicking the change layout icon (third from right). Select the variance categories on the right of the


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change layout dialog box, click the left-pointing icon, and press (Enter). The values in this ALV report in Figure 6.33 can be sorted, totaled, and filtered to highlight orders with the largest variance.

You can display a cost element detail report for individual orders by double-clicking an Order and then continue drilling down to line items and source documents. You can display an individual production order by clicking on an Order and selecting Extras • Master Data from the menu bar.

Now that we’ve examined how production variance reports can assist during vari-ance analysis, let’s look at how cost center reports are useful during cost center variance analysis.

6.5 Cost Center Reports

Standard cost center reports provide cost center managers and users with a quick and efficient method to analyze plan and actual cost center costs and variance. Costs are posted in real time and are reported at the cost element level. You can drill down directly to line items and source documents.

You display and analyze cost center reports with Transaction S_ALR_87013611 or via menu path Accounting • Controlling • Cost Center Accounting • Information System • Reports for Cost Center Accounting • Plan/Actual Comparisons • Cost Centers: Actual/Plan/Variance. A selection screen is displayed, as shown in Figure 6.34.

Figure 6.34 Cost Center Selection Screen


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You run the report within the Controlling Area, Fiscal Year, and Plan Version. Select a Cost Center Group or value(s), and click the execute icon to display the report shown in Figure 6.35.

Tip

Enter the standard hierarchy in the Cost Center Group field to display the standard hierarchy structure on the left, as shown in Figure 6.35. You can determine the standard hierarchy with Transaction OKENN.

Figure 6.35 Cost Center Actual/Plan/Variance Report

You can expand and click on any of the nodes on the left to display the correspond-ing information on the right. Double-click on a cost in either the Act. (actual) or Plan Costs columns to display the corresponding line item report, as shown in Figure 6.36.

Figure 6.36 Cost Center Line Item Report


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The example line item report in Figure 6.36 corresponds to the actual costs of 158,035.00 for cost element 405000 in Figure 6.35. You can double-click on any line item in Figure 6.36 to display the original source document.

Now that we’ve examined how to run and analyze cost center reports, we’ve reached the end of this chapter and of this Essentials guide. In the following summary sec-tions, we’ll discuss a summary of this chapter in Section 6.6 and then review some of the main take-home points from this guide in Section 6.7.

6.6 Summary

In this chapter, we examined variance analysis from a management perspective with the use of summarized analysis reports. These reports contain highly summarized data, which allows a plant manager to display and analyze plant manufacturing variances at a glance. The cost data in a summarized report is usually displayed in target, actual, and variance columns. A manager can expand the hierarchy rows in the summarization report to display variance information at lower levels in the hierarchy. By navigating down through the hierarchy, you can narrow down the cause of a variance to an individual product cost collector or manufacturing order.

The two types of standard summarization reports are product drilldown and sum-marization hierarchy reports. Product drilldown reports require little configuration because the hierarchy is predefined. These reports provide sufficient summarized data for most circumstances. Summarization hierarchy reports allow you the flex-ibility to define your own multiple hierarchies. We examined in detail how to configure summarization reports, run data collection, and execute and analyze the reports.

Summarized analysis reports allow you to select individual orders for further analy-sis. Variance on an individual order can be analyzed at a cost element level with detailed reports. Selecting the Material Origin checkbox in the material master Costing 1 view allows you to display the material number in the origin column of detailed reports. This assists you in establishing the cause of the variance. When you double-click on a cost element, you are presented with a line item report. Line item reports can also be run directly, without drilling down, although this is often not necessary.


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We looked at a method to display line item reports directly, sort the rows based on value, and drill down on the largest values to display the source documents, such as activity confirmations and material documents. Analyzing source documents often helps explain the cause of the variance.

We also examined two reports that list production orders according to selection screen parameters. Order information system reports allow you to display a simple list of production orders within a time frame, while order selection reports display variance information directly in columns.

Cost center reports allow cost center managers and users to analyze cost center variances at a cost element level and to drill down directly to line item reports and source documents.

In conclusion, standard reports provide excellent reporting functionality, sufficient to analyze variances for most companies. Product drilldown reports can be used with only a small amount of configuration and setup. Summarization hierarchy reports allow you to create your own multiple hierarchies. With detailed reports, you can view all postings by cost element within a time frame and drill down to line item details. Order list reports allow you to analyze variances by listing production orders, and cost center reports provide cost center managers with detailed analysis capability for cost center plan and actual costs.

6.7 Guide Summary

The Controlling process involves internal reporting for management to determine and reduce costs and improve profitability. The purpose of variance analysis is to assist in this process. Variance analysis involves comparing actual costs with standard costs, analyzing the difference, and taking corrective action.

The process of determining standard costs begins in the previous fiscal year, when sales plans are estimated. You enter the sales plan quantity into Sales and Opera-tions Planning and convert it to a production plan. The production plan is then transferred to Long-Term Planning, where it is used to generate component Purchas-ing requirements and to transfer scheduled activity requirements to Cost Center Accounting.

You then create standard cost estimates to determine the standard cost. BOMs and routings provide quantity structure information, while material and activity


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prices provide valuation structure information, costing sheets provide overhead information, and the costing variant contains information on how a cost estimate calculates the standard price. Standard cost estimates are created, marked, and released to update the material master standard price. During release, inventory is revalued if there is stock.

Actual cost postings to product cost collectors and manufacturing orders occur during activity confirmations, goods receipts and issues, overhead calculation, and settlement.

During variance analysis, target and actual costs are compared. Target costs are based on the standard price and plan quantity, adjusted by quantity delivered to inventory. During variance calculation, the order balance is divided into variance categories, which assist you in identifying the source of the variance. During settlement, the order receives a credit equal to the order balance, and postings are made to FI and CO-PA. Cost center and purchase price variances are also considered during period-end variance analysis.

Scrap variance analysis involves scrap master data settings that affect the standard cost estimate. Actual scrap postings occur during activity confirmation, and, if actual scrap is confirmed as planned, there is no scrap variance. This reduces total variance, which simplifies the task of variance analysis.

Standard variance analysis reports include summarized, detailed, and line item reports. You can analyze plant manufacturing variances at a glance with summarized reports and quickly determine individual orders that are causing large variances by expanding the hierarchy levels. You can analyze individual orders at a cost ele-ment level with detailed reports and drill down to line item reports. By sorting on the Value column in line item reports, you can drill down on the largest values to source documents that assist you in determining the cause of the variance. You can then take corrective action.

Production order information system and order selection reports allow you to list production orders based on a range of selection parameters. Order information system reports allow you to list production orders based on a validity date range, while order selection reports list production orders with variance displayed directly in columns. You can sort, total, and filter this information in the user-friendly ALV report format.


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6.8 Looking Ahead

Carrying out regular variance analysis and taking immediate corrective action as required can provide your company with a cost advantage over other companies that wait to see a noticeable effect on the bottom line before taking corrective action. In industries with low profit margins, this can mean the difference between making a profit and a loss.

You should notice manufacturing, cost center, and purchase price variances decrease over time if you routinely carry out variance analysis and request production and purchasing personnel to explain variances in their orders and cost centers at each period end. This process involves a learning curve associated with understanding how variances occur and what action can be taken to reduce them in the future. However, it eventually results in constant improvements in production and pur-chasing efficiency and has the added benefit of improved communications between departments.

Variance analysis is an iterative process. You create sales, production, and cost center plans and analyze variances during the following fiscal year. As you gain a greater understanding of how variances occur, planning for the next fiscal year improves, and variances decrease. This is not an easy process at first, and may initially cre-ate minor conflict between some users or departments as their understanding of the interaction and dependency between departments improves. Be assured that any conflict will be temporary and will result in a more efficient and profitable organization, which is, of course, your ultimate goal.



Appendices

A Glossary .................................................................................. 253

B Bibliography ............................................................................ 273

C Additional Resources .............................................................. 275

D The Author .............................................................................. 279



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Activity input planning Just as cost centers can provide planned output services based on activity quantities with Transaction KP26, you can plan cost center activity input quantities from other cost centers with activity input planning using Transaction KP06.

Activity type An activity type identifies activities provided by a cost center to manuf-acturing orders. The secondary cost element associated with an activity type identifies the activity costs on cost center and detailed reports.

Actual costing Actual costing determines what portion of the variance is debited to the next-highest level using material consump-tion. All purchasing and manufacturing diffe-rence postings are allocated upward through the BOM to assemblies and finished goods. Variances can be rolled up over multiple pro-duction levels to the finished product.

Actual costs Actual costs debit a product cost collector or manufacturing order during business transactions, for example, general ledger account postings, inventory goods movements, internal activity allocations, and overhead calculation.

Allocation structure An allocation structure allocates the costs incurred for a sender by cost element or cost element group, and it is used for settlement and assessment. An assignment maps a source cost element group to a settlement cost element.

Alternative bill of material There can be multiple methods of manufacturing an

assembly, and many possible bills of material (BOMs). The alternative BOM allows you to identify one BOM in a BOM group.

Alternative hierarchy While there can only be one cost center standard hierarchy, you can create as many alternative hierarchies as you like. You create an alternative hierarchy by creating cost center groups.

Alternative unit of measure This is a unit of measure defined in addition to the base unit of measure. Examples of alternative units of measure include order unit (purchasing), sales unit, and unit of issue.

Apportionment method An apportionment method distributes the total costs of a joint production process to the primary products. The costs of the individual primary products may vary. They are apportioned by means of an apportionment structure.

Apportionment structure An apporti-onment structure defines how costs are distributed to co-products. The system uses the apportionment structure to create a settlement rule that distributes costs from an order header to the co-products. For each co-product, the system generates a further settle-ment rule that assigns the costs distributed to the order item to stock.

Assembly scrap Assembly scrap is the per-centage of assembly quantity that does not meet required quality standards. Assembly scrap is an output scrap because it increases the planned output quantity of items in the production process. You plan assembly scrap

A Glossary


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in the MRP 1 view using the Net ID check-box in the Basic data tab of a BOM item.

Automatic account assignment Automatic account assignment allows you to enter a default cost center per cost element within a plant.

Backflush Backflushing is the automatic posting of a goods issue for components in an order during confirmation. It reduces the amount of work in warehouse management, especially for low-value parts. The material components from the BOM are assigned to operations in the routing.

Base planning object A base planning object is a simple reference object that can be used for the development of new products before any master data exists.

Base quantity All component quantities in a BOM relate to the base quantity. You increase the accuracy of component quanti-ties by increasing the base quantity, similar in concept to the price unit.

Base unit of measure Material stocks are managed in the base unit of measure. The system converts all quantities you enter in other units of measure (alternative units of measure) to the base unit of measure.

Bill of material A bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs, and purchasing info records allow cost estimates to calculate material costs of assemblies.

BOM application BOM application is a costing variant component that allows for au-tomatic determination of alternative BOMs.

BOM group A BOM group is a collection of BOMs for a product or number of similar products.

BOM item component quantity The quan-tity of a BOM item that is entered in relation to the base quantity of the product.

BOM item status Six indicators, such as co-sting relevancy, are contained in the Status/Long Text tab of a BOM item.

BOM status This controls the current processing status of the BOM. For example, a BOM may have a default status of not active when initially created, which then may be changed to active when the BOM is available for use in MRP and released for planned orders.

BOM usage This determines a section of your company, such as production, engi-neering, or costing. You define which item statuses can be used in each BOM usage; for example, all items in BOMs with a certain usage may be relevant to production.

Bulk material Bulk materials are not rele-vant for costing in a cost estimate and are expensed directly to a cost center. The Bulk Material checkbox is maintained in the MRP 2 view and also in the BOM item. If a mate-rial is always used as a bulk material, set the indicator in the material master. If a material is only used as a bulk material in individual cases, set the indicator in the BOM item, which has a higher priority.

Business area A business area is an orga-nizational unit of financial accounting that represents a separate area of operations or responsibilities within an organization. You can create financial statements for business


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areas, and you can use these statements for internal reporting purposes.

Calculation base A calculation base is a group of cost elements to which overhead is applied. The calculation base is a component of a costing sheet, which summarizes the rules for allocating overhead.

Capacity category Capacity category ena-bles you to differentiate between machine and labor capacity. Machine capacity is the availability of a machine based on planned and unplanned outages and maintenance requirements. Labor capacity is the number of workers who can operate a machine at the same time.

Chart of accounts A chart of accounts is a group of general ledger accounts assigned to each company code. This chart of accounts is the operative chart of accounts used in both financial and cost accounting. All companies within the one controlling area must have the same operative chart of accounts. Other charts of accounts include the country-speci-fic chart of accounts required by individual country legal requirements and the group chart of accounts required by consolidation reporting.

Company code A company code is the smallest organizational unit of financial ac-counting for which a complete self-contained chart of accounts can be drawn up for exter-nal reporting.

Component scrap Component scrap is the percentage of component quantity that does not meet required quality standards before being inserted in the production process. The plan quantity of components is increased. Component scrap is an input scrap because it is detected before use in the production

process. You can plan component scrap in the MRP 4 view and the Basic data tab of the BOM item. An entry in the BOM item field takes priority over an entry in the material master MRP 4 view.

Condition Conditions are stipulations agreed upon with vendors such as prices, discounts, surcharges, freight, duty, and insu-rance. You maintain purchasing conditions in quotations, purchasing info records, outline agreements, and orders.

Condition technique The condition tech-nique is used to determine the purchase price by consideration of all the relevant pricing elements. A feature of the technique is the formulation of rules and requirements.

Condition type A condition type is a key that identifies a condition. The condition type indicates, for example, whether the system applies a price, a discount, a surcharge, or some other pricing, such as freight costs and sales taxes.

Confirmation A confirmation documents the processing status of orders, operations, and individual capacities. You specify the operation yield, scrap and rework quantity, the activity quantity, work center, and who performed the operation.

Consignment material Consignment occurs when a vendor maintains a stock of mate-rials at a customer site. The vendor retains ownership of the materials until they are withdrawn from the consignment stores.

Controlling level The controlling level de-termines the level of detail of procurement al-ternatives. The standard setting of controlling level is determined by the characteristics ma-terial/plant. You specify which characteristics


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are updated for the production process by the controlling level.

Co-product You select the Co-product checkbox located in the MRP 2 and Costing 1 views if a material is a valuated product that is produced simultaneously with one or more other products. Setting this check-box allows you to assign the proportion of costs this material will receive in relation to other co-products within an apportionment structure.

Cost center A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period end.

Cost component A cost component identifies costs of similar types, such as material, labor, and overhead costs by grouping together cost elements in the cost component structure.

Cost component group Cost component groups allow you to display cost components in standard reports. In the simplest imple-mentation, you create a cost component group for each cost component and assign each group to a corresponding cost com-ponent. You assign cost component groups as columns in cost estimate list reports and costed multilevel BOMs.

Cost component split The cost component split is the combination of cost components that makes up the total cost of a material. For example, if you need to view three cost components (material, labor, and over-head) for your reporting requirements, the combination of these three cost components represents the cost component split.

Cost component structure You define which cost components make up a cost com-ponent split by assigning them to a cost com-ponent structure. Within the cost component structure, you assign cost elements and origin groups to cost components.

Cost component view Each cost component is assigned to a cost component view. When you display a cost estimate, you can choose a cost component view, which filters the cost components displayed in the cost estimate.

Cost element A cost element is master data that identifies what the cost is. Primary cost elements correspond to Financial Accounting general ledger accounts and identify external costs. Secondary cost elements identify costs allocated within Controlling, such as activity allocations from cost centers to manufactu-ring orders.

Cost estimate A cost estimate calculates the plan cost to manufacture a product or purchase a component. It determines mate-rial costs by multiplying BOM quantities by the standard price, labor costs by multip-lying operation standard quantities by plan activity price, and overhead by costing sheet configuration.

Costed multilevel BOM A costed multilevel BOM is a hierarchical overview of the values of all items of a costed material according to the material’s costed quantity structure (BOM and routing). You display a costed multile-vel BOM on the left side of a cost estimate screen. You can also view a costed multilevel BOM separately with Transaction CK86_99.

Costing BOM Costing BOMs are assigned a BOM usage of costing and are usually copied from BOMs with a usage of production. You can make adjustments to costing BOMs if you


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require them to be different from production BOMs. With system-supplied settings, stan-dard cost estimates search for costing BOMs before production BOMs.

Costing lot size The costing lot size in the Costing 1 view determines the quantity cost estimate calculations are based on. The co-sting lot size should be set as close as possible to actual purchase and production quantities to reduce lot size variance.

Costing run A costing run is a collective processing of cost estimates, which you maintain with Transaction CK40N.

Costing sheet A costing sheet summarizes the rules for allocating overhead from cost centers for cost estimates, product cost collec-tors, and manufacturing orders. The compon-ents of a costing sheet include the calculation base (group of cost elements), overhead rate (percentage rate applied to base), and credit key (cost center receiving credit).

Costing type The costing type determines if the cost estimate can update the standard price.

Costing variant The costing variant contains information on how a cost estimate calculates the standard price. For example, it deter-mines if either the purchasing info record price is used for purchased materials, or an estimated price is manually entered in the Planned price 1 field of the material master Costing 2 view.

Currency type The currency type identi-fies the role of the currency such as local or global.

Current cost estimate A current cost estimate is based on the current quantity structure and current prices, and is used for the costing of materials during the fiscal year to analyze cost changes and developments.

Demand management Demand ma-nagement involves planning requirement quantities and dates for assemblies, as well as defining the strategy for planning and produ-cing/procuring a finished product.

Demand planning Demand planning is a component in the advanced planner and optimizer (APO) that allows you to forecast market demand for a company’s products and produce a demand plan. APO supply network planning (SNP) can be integrated with plan-ning modules in SAP such as SOP (SOP).

Dependent requirements Dependent requirements are caused by higher-level dependent and independent requirements when running MRP. Independent require-ments, created by sales orders or manually planned independent requirement entries in demand management, determine lower-level dependent material requirements.

Detailed reports Detailed reports display cost element details of manufacturing orders and product cost collectors. You can drill down on cost elements to display line item reports during variance analysis.

Distribution rule You maintain distribution rules in settlement rules in manufacturing orders and product cost collectors.

External processing External processing of a manufacturing order operation is perfor-med by an external vendor. This is distinct from subcontracting, which involves sending


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material parts to an external vendor who manufactures the complete assembly via a purchase order.

Functional area A functional area allows you to create a profit and loss account in Financial Accounting using cost-of-sales accounting, which compares the sales reve-nue for a given accounting period with the manufacturing costs of the activity. Expenses are allocated to the functional areas, for exa-mple, Production, Sales and Distribution, and Administration.

Gross profit Cost of sales represents the expense related to labor, raw materials, and manufacturing overhead. This expense is deducted from the company’s net revenue, which results in the first level of profit, or gross profit. It is used to analyze how effici-ently a company uses raw materials, labor, and manufacturing-related fixed assets to generate profits.

Group counter A group counter identifies a unique routing within a task list (routing) group.

Initial cost split The initial cost split is based on a cost component structure for raw materials that contains separate cost components for all procurement costs such as purchase price, freight charges, insurance contributions, and administrative costs. With an additive cost estimate, you can enter a cost component split for costs such as freight and insurance for a material. These costs are added to the price from the material master.

Input variance Variances on the input side are based on goods issues, internal activity allocations, overhead allocation, and general ledger account postings. There are four input

variances: input price, resource-usage, input quantity, and remaining input variance.

Internal order An internal order monitors costs and revenue of an organization for short- to medium-term jobs. You can carry out planning at a cost element and detailed level, and budgeting at an overall level with availability control.

Inventory cost estimate An inventory cost estimate accesses tax-based and commer-cial prices in the Accounting 2 view for purchased parts, uses these prices for valu-ation, and then updates the costing results for finished and semi-finished products in the same fields. You can enter values such as the determination of lowest value in the Tax-Based and Commercial Price fields of purchased parts.

Investment order An investment order monitors investment costs to be capitalized and settled to fixed assets.

Itemization Itemization provides detailed cost estimate data about the resources neces-sary to produce a product. The costing infor-mation for each item includes details such as the quantity, unit of measure, and value.

Line item reports Line item reports display a list of postings to a cost object such as a cost center or order within a time frame. You can sort the value or quantity columns to find the largest postings during variance analysis.

Long-term planning Long-term planning allows you to enter medium- to longer-term production plans, and simulate future pro-duction requirements with long-term MRP. You can determine future purchasing requi-rements for vendor RFQs, update purchasing


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info records, and transfer planned activity requirements to cost center accounting.

Main cost component split The main cost component split is the principal cost compo-nent split used by a standard cost estimate to update the standard price. You define the main cost component split when assigning cost component structures to organizational units with Transaction OKTZ.

Manufacturing order Manufacturing order is an umbrella term for production and pro-cess orders.

Margin analysis Margin analysis invol-ves categorizing costs depending on their nature, for example, directly incurred during manufacturing, or collected as overhead. The categorized costs are then progressively subtracted from revenue to calculate profit margins, for example, gross, operating, pre-tax, and net profit.

Mark standard cost estimate After a stan-dard cost estimate is saved without errors, it can be marked. The cost estimate value populates the future column in the Costing 2 view. You can create and mark standard cost estimates many times before release. Within the same fiscal period, a new standard cost estimate overwrites the existing marked cost estimate.

Master data Master data is information that stays relatively constant over long periods of time. For example, purchasing info records contain vendor information such as a busi-ness name, which usually doesn’t change.

Material assignment Material assignment determines which material is to be produced with a routing. On this basis, the routing can be used for SOP, MRP, and for creating

production orders and cost estimates for this material.

Material ledger The material ledger consists of the following two parts:

EE Inventory can be carried in up to three valu-ation approaches.

EE Actual costing determines what portion of variance is debited to the next-highest level using material consumption. All purchasing and manufacturing differences are allocated up through the actual BOM to assemblies and finished goods.

You can choose to activate these two compo-nents separately, together, or not at all.

Material master A material master contains all the information required to manage a material. Information is stored in views, and each view corresponds to a department or area of business responsibility. Views conve-niently group information together for users in different departments, for example, sales and purchasing.

Material origin The Material Origin indicator in the Costing 1 view determines if the material number is displayed in detailed reports. This is one of the most important indicators in providing visibility to the causes of variances. If you have already created ma-terial master records without the Material Origin indicator selected, you can use report RKHKMAT0 to select the indicator.

Material price determination Material price determination displayed in the Accounting 1 view is only applicable if the material ledger is active. Activity-based material price determination (indicator 2) allows price control to be set at either moving average (V) or standard price (S). This is the setting you use if you are using multiple currencies and/or valuation approaches for transfer pricing


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but not the actual costing functionality. In a typical scenario, you are interested in repor-ting on global inventory valuation with and without mark-up, that is, internal company profit.

Single-/multi-level price determination (in-dicator 3) is only available for materials with standard price control (S), which remains unchanged during a period. A periodic unit price is updated for information during the period and used for material valuation in a closed period.

Material requirements planning Material requirements planning (MRP) guarantees material availability by monitoring stocks and generating planned orders for Purchasing and Production.

Material type A material type groups toge-ther materials with the same basic attributes such as raw materials, semi-finished products, or finished products. Material types also de-termine whether materials are quantity and/or valuation relevant per plant with configu-ration Transaction OMS2.

Milestone confirmation The system auto-matically confirms all preceding operations up to the preceding milestone operation during confirmation of a milestone opera-tion. An operation is marked as a milestone operation in the confirmations field of its control key. If several operations are marked as milestones, they must be confirmed in sequence.

Modified standard cost estimate A mo-dified cost estimate is based on the latest quantity structure and planned prices and is used for the costing of materials during the fiscal year to analyze developments.

Movement type This key indicates the type of material movement such as goods receipt, goods issue, and physical stock transfer. The movement type enables the system to find predefined posting rules, which determine how the stock and consumption general ledger accounts post and how the stock fields in the material master record are updated.

Moving average price The moving average price in the material master Costing 2 view determines the inventory valuation price if price control is set at moving average. It is updated during goods receipt.

Multiple BOM A multiple BOM is a group of BOM records with different combina-tions of materials (alternatives) for the same product.

Net ID indicator This indicator determines whether scrap for a BOM item is calculated on the basis of the net required quantity, that is, the required quantity without assembly scrap from the material master record. The following list details in which circumstances the Net ID indicator must be set:

EE You must set this checkbox if you want assembly scrap to be ignored.

EE You must set this checkbox if you enter operation scrap.

EE You can set this checkbox if you only enter component scrap, to calculate scrap on the basis of the net required quantity for the assembly.

Net profit Referred to as a company’s profit margin or bottom line, you determine net profit by subtracting all expenses and tax from revenue.

Operating profit You subtract selling, ge-neral, and administrative (SG&A), otherwise


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known as operating expenses, from gross profit to calculate the operating profit margin. Management has much more control over operating expenses than cost of sales. Positive and negative trends in operating profit are, for the most part, directly attributable to management decisions.

Operating rate The operating rate percen-tage is defined as (actual activity/plan activity) × 100. This calculation is used during cost center cost center target cost analysis.

Operation An operation is a work-step in a plan or work order.

Operation scrap Operation scrap is the per-centage of assembly quantity that does not meet required quality standards. Operation scrap is an output scrap because it reduces the planned output quantity in the produc-tion process. You can plan operation scrap in the routing operation details view, and the basic data tab of the BOM item.

Order type The order type categorizes orders according to their purpose and allows you to allocate number ranges and settlement profiles.

Organizational unit This represents an organizational structure such as a sales orga-nization in Sales and Distribution, company code in Financial Accounting and Asset Ac-counting, and plant in Materials Management and Sales and Distribution.

Origin group An origin group separately identifies materials assigned to the same cost element, allowing them to be assigned to separate cost components. The origin group can also determine the calculation base for overhead in costing sheets.

Outline agreement This is a longer-term arrangement between a purchasing organiza-tion and a vendor for the supply of materials or provision of services over a certain period. The two types are contracts and scheduling agreements.

Output variance Variances on the out-put side result from too little or too much planned order quantity being delivered, or because the delivered quantity was valuated differently. Output variances are divided into the following categories during variance cal-culation: mixed price, output price, lot size, and remaining variance.

Overhead group An overhead group is used to apply different overhead percentages to individual materials or groups of materials. You assign an overhead group to an overhead key with Transaction OKZ2.

Overhead key An overhead key is used to apply overhead percentages to individual orders or groups of orders. You assign the overhead key in the overhead rate compo-nent of a costing sheet.

Overhead order Used for short- to medium-term monitoring of overhead costs such as marketing campaigns. You can monitor in-ternal orders throughout their lifecycle from creation, through the planning and posting of actual costs, to settlement and archiving.

PA transfer structure A PA transfer struc-ture allows you to assign costs and revenues from other modules to value and quantity fields in Profitability Analysis.

Phantom assembly A phantom assembly is a logical assembly created for efficient maintenance of a single BOM, which is part of many higher-level assemblies. It is neither


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a physical assembly nor an inventory item. A phantom assembly is not included in a costing run; however, you can create an indi-vidual cost estimate.

Pipeline material Pipeline materials, such as oil or water, flow directly into the production process. Stock quantities are not changed during withdrawal.

Plan reconciliation This allows you to com-pare and overwrite the plan activity quantity that was manually entered in the second column of Transaction KP26 with the sche-duled activity quantity that was automatically entered in the second last column. Scheduled activity quantities are transferred from SOP, MRP, or long-term planning with Transaction KSPP.

You carry out plan reconciliation with Transaction KPSI. You can select the plan quantity set checkbox in an activity type to default as selected when planning activity prices and quantities with Transaction KP26. This ensures that an activity quantity that was manually planned will not be overwritten during plan reconciliation.

Planned independent requirements Plan-ned independent requirements are either created automatically by sales orders or created manually by entering quantities and dates in demand management. You may need to make manual entries to generate requirements for purchased components or assemblies with long delivery times in order to satisfy demand by sales orders which you expect but are not yet entered in the system. An example of this is long-term government defense contracts, which can specify several years before the first planned delivery to the customer.

Planned order Planned orders are crea-ted automatically by MRP when a material shortage is encountered. A planned order may also be created manually by a planner. Planned orders are converted into production orders for in-house production and purchase requisitions for purchasing requirements.

Planned Price 1, 2, and 3 You can manually enter prices in these fields in the Costing 2 view. These are generally used to estimate the purchase price of components early in the lifecycle of a new or modified product.

Planning plant The plant in which the goods receipt takes place for the manufac-tured material. If the planning plant and production plant are identical, then you do not need to enter the planning plant as well. The production plant is copied automatically.

Planning variance Planning variance is a type of variance calculation based on the difference between costs on the preliminary cost estimate for the order and target costs based on the standard cost estimate and plan-ned order quantity. You calculate planning variances with target cost version 2. Planning variances are for information only and are not relevant for settlement.

Preliminary cost estimate A preliminary cost estimate calculates the planned costs for a manufacturing order or product cost collec-tor. There can be a preliminary cost estimate for every order or production version, while there can only be one released standard cost estimate for each material. The preliminary cost estimate can be used to valuate scrap and work in process in a WIP at target scenario.

Preliminary costing Preliminary costing is carried out when you create a cost estimate for a manufacturing order or product cost


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collector. It is generally based on a quan-tity structure, which consists of a BOM and routing.

Pre-tax profit A company has access to a variety of tax-management techniques that allow the company to manipulate the timing and magnitude of its taxable income.

Price control The Price Control field in the Costing 2 view determines whether inventory is valuated at the standard or the moving average price.

Price indicator The activity type Price indicator field determines how the system calculates the price of an activity for a cost center.

Price unit The price unit is the number of units to which the price refers. You can incre-ase the accuracy of the price by increasing the price unit. To determine the unit price, divide the price by the price unit.

Primary cost component split The primary cost component split provides an alternative view of cost components based on cost cen-ter primary costs. You can more easily ana-lyze changes to your more significant primary costs such as wages, energy, and depreciation primary costs by displaying each as a cost component. These costs would normally be divided between cost components as activi-ties are consumed during manufacturing.

This functionality is only required if you have significant primary costs that you need to analyze separately from the manufacturing process. To set this up, you need to create a primary cost component split in cost center accounting when calculating the activity price. You can only use the primary cost component split to determine your activity

costs into components if you automatically calculate the activity price.

Process order A process order is a manufac-turing order that is used in process industries. A master recipe and materials list are copied from master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work-step that defines the detail of one part of the production process using a primary resource.

In process manufacturing, only phases are costed not operations. A phase is assigned to a subordinate operation and contains standard values for activities, which are used to determine dates, capacity requirements, and costs.

Procurement alternative A procurement alternative represents one of a number of different ways of procuring a material. You can control the level of detail in which the procurement alternatives are represented through the controlling level. Depending on the processing category, there are single-level and multilevel procurement alternatives. For example, a purchase order is single-level procurement, while production is multilevel procurement.

Procurement type The procurement type in the MRP 2 view defines the material as assembled in-house, purchased externally, or both.

EE In-house production (E) means a cost esti-mate will search for a BOM and routing.

EE External procurement (F) results in the sys-tem searching for a purchasing info record price.

EE Both (X) means a planned order can be converted into either a production or pur-chase order.

The special procurement type can be used to override the procurement type.


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GlossaryA

Product cost collector A product cost coll-ector collects target and actual costs during the manufacture of an assembly. Product cost collectors are necessary for repetitive manufacturing and optional for order-related manufacturing.

Product drilldown reports Product drill-down reports allow you to slice and dice data based on characteristics such as product group, material, plant, cost component, and period. Product drilldown reports are based on predefined summarization levels.

Production line A production line is used in repetitive manufacturing and typically consists of one or more work centers.

Production order A production order is used for discrete manufacturing. A BOM and routing are copied from master data to the order. A sequence of operations is supplied by the routing, which describes how to carry out work-steps.

An operation can refer to a work center at which it is to be performed. An operation contains planned activities required to carry out the operation. Costs are based on the material components and activity price multi-plied by a standard value.

Production order information system This is a tool for shop floor control and process industries with reporting functions for pro-duction orders, planned orders, and process orders. You can, for example, display all production orders within a time frame and group the information according to order or operation.

Production process From SAP R/3 release 4.5A on, product cost collectors are created with reference to a production process that describes the way a material is produced, that

is, the quantity structure used. The quan-tity structure is taken from the production version, which is noted during the pro-duction process. The production process is determined by the following characteristics: material, production plant, and production version. One production process can be crea-ted for each production version.

Production resource/tool This tool is a mo-veable operating resource used in production or plant maintenance.

Production variance Production variance is a type of variance calculation based on the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity deli-vered to inventory. You calculate production variance with target cost version 1. Produc-tion variances are for information only and are not relevant for settlement.

Production version A production version describes the types of production techniques that can be used for a material in a plant. It is a unique combination of BOM, routing, and production line maintained in the MRP 4, Work scheduling, and Costing 1 views of the material master.

Profit center A profit center receives postings made in parallel to cost centers and other master data such as orders. Profit Center Accounting is a separate ledger that enables reporting from a profit center point of view. You normally create profit centers based on areas in a company that generate revenue and have a responsible manager assigned.

If Profit Center Accounting is active, you will receive a warning message if you do not specify a profit center, and all unassigned postings are made to a dummy profit center.


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You activate Profit Center Accounting with configuration Transaction OKKP, which main-tains the Controlling area.

Profit margin Profit margin is a profit analysis technique that involves subtracting expenses and tax from revenue.

Profitability Analysis Profitability Analysis enables you to evaluate market segments, which can be classified according to products, customers, orders (or any combination of these), or strategic business units, such as sales organizations or business areas, with respect to your company’s profit or contribu-tion margin.

Purchase price variance When raw materials are valued at the standard price, a purchase price variance will post during goods receipt if the goods receipt or invoice price is different from the material standard price.

Purchase requisition A purchase requisition is a request or instruction to Purchasing to procure a quantity of a material or service so that it is available at a certain point in time. There is no legal requirement to carry out the purchase until a purchase order is created. You can record the purchase requisition in commitment management because it may lead to actual expenditure in the future.

Purchasing info record A purchasing info record stores all the information relevant to the procurement of a material from a vendor. It contains the Purchase Price field, which the standard cost estimate searches for when determining the purchase price.

Purchasing organization A purchasing organization procures materials and services,

and negotiates conditions of purchase with vendors.

Quantity structure A quantity structure consists of a BOM and a routing. In the process industries, a master recipe is used instead of a routing, and in repetitive ma-nufacturing, a rate routing is used instead of a routing. A quantity structure is used by a standard cost estimate to determine compo-nent and activity quantity.

Quantity structure control Quantity struc-ture control is a costing variant component that automatically searches for alternatives if multiple BOMs and/or routings exist for a material when a cost estimate is created.

Quantity structure date The quantity struc-ture date determines which BOM and routing are selected when initially creating a cost esti-mate. Because these can change over time, it is useful to select a particular BOM or routing by date when developing new products or changing existing products.

Reference variant A reference variant is a costing variant component, which allows you to create cost estimates or costing runs based on the same quantity structure for the pur-pose of improving performance or making reliable comparisons.

Release standard cost estimate When you release a standard cost estimate, the results of the cost estimate are written to the Costing 2 view as the current planned price and current standard price. Inventory is revalued and accounting documents are posted. A standard cost estimate must be marked before it can be released, and it can be released only once per fiscal period.


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GlossaryA

Repetitive manufacturing Repetitive manufacturing eliminates the need for pro-duction or process orders in manufacturing environments with production lines and long production runs. It reduces the work involved in production control and simplifies confirmations and goods receipt postings.

Request for Quotation A Request for Quo-tation (RFQ) refers to the request made to a vendor to submit a quotation for materials or services.

Requirement This is the quantity of ma-terial needed in a plant at a certain point in time.

Results analysis key A product cost colle-ctor or order for which you want to create work in process (WIP) must contain a results analysis key. A results analysis key means that the product cost collector or order is included in WIP calculation during period-end closing. You define a results analysis key with configu-ration Transaction OKG1.

Rework Assemblies or components that do not meet quality standards may either become scrap or require rework. Depending on the problem, cheaper items may become scrap, while more costly assemblies may justify rework.

Routing A routing is a list of tasks con-taining standard activity times required to perform operations to build an assembly. Routings, together with planned activity pri-ces, provide cost estimates with the informa-tion necessary to calculate labor and activity costs of products.

Routing header A routing header contains data that is valid for the entire routing. Select Details • Header from the menu bar when

displaying routing operations to display the routing header.

Sales and operations planning Sales and operations planning (SOP) allows you to enter a sales plan, convert it to a production plan, and transfer the plan to long-term planning.

Sales order A sales order is a customer request for delivery of goods or services at a certain time. A sales order line item can be a real cost object if you are using non-valuated inventory.

Scale A scale represents vendor quota-tions containing reduced prices for greater purchase quantities. Scales are maintained in purchasing info record conditions with Transaction ME12.

Scheduled activity Scheduled activity quantities are transferred from SOP, MRP, or long-term planning to cost center/activity type planning with Transaction KSPP. The scheduled activity quantity appears in the second-to-last column when you are planning activity prices and quantities with Transaction KP26. You can compare and overwrite a ma-nual plan activity quantity with the scheduled activity quantity during plan reconciliation.

Scheduling During scheduling, the system determines the start and finish dates of or-ders or of operations in an order. Scheduling is performed in MRP, capacity planning, and networks.

Scheduling agreement A scheduling agree-ment is a longer-term purchase arrangement with a vendor covering the supply of mate-rials according to predetermined conditions. These apply for a predefined period and total purchase quantity.


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Selection method The Selection Method field in the MRP 4 view determines the me-thod of selecting an alternate BOM.

Settlement Work in process and variances are transferred to Financial Accounting, Profit Center Accounting, and CO-PA during settlement. Variance categories can also be transferred to value fields in CO-PA.

Settlement profile A settlement profile contains the parameters necessary to create a settlement rule for manufacturing orders and product cost collectors and is contained in the order type.

Settlement rule A settlement rule deter-mines which portions of a sender’s costs are allocated to which receivers. A settlement rule is contained in a manufacturing order or product cost collector header data.

Simultaneous costing The process of recording actual costs for cost objects, such as manufacturing orders and product cost collectors in cost object controlling, is called simultaneous costing. Costs that are incurred typically include goods issues, receipts to and from an order, activity confirmations, and external service costs.

Source cost element Source cost elements identify costs that debit objects, such as manufacturing orders and product cost collectors.

Source list A source list is a list of availa-ble sources of supply for a material, which indicates the periods during which procure-ment is possible. Usually a source list is a list of quotations for a material from different vendors.

You can specify a preferred vendor by select-ing a fixed source of supply indicator. If you do not select this indicator for any source, a cost estimate will choose the lowest cost source as the cost of the component. You can also indicate which sources are relevant to MRP.

Source structure You define source structures when settling and costing joint products. A source structure contains several source assignments, each of which contains the individual cost elements or cost element intervals to be settled using the same distri-bution rules. You need a source structure for investment orders.

Special procurement type The special pro-curement type field found immediately below the procurement type in the MRP 2 view is used to more closely define the procurement type. For example, it may indicate if the item is produced in another plant and transferred to the plant you are analyzing.

Special procurement type for costing If you enter a special procurement type in the Costing 1 view, it will be used by costing. If no entry is made in this field, the system will use the special procurement type in the MRP 2 view.

Splitting rule A splitting rule determines how a splitting structure distributes the cost center costs of an individual cost element, range, or group over an activity type, range, or group.

Splitting structure You can allocate activity-independent cost center plan costs to activity types either with equivalence numbers or with a splitting structure. A splitting structure contains one or more assignments for which you assign splitting rules for corresponding


268

GlossaryA

cost elements and the activity types over which the costs are split. The plan price calcu-lation splits the activity independent costs automatically based on equivalence numbers or a splitting structure if assigned. You can also split the plan costs manually to see how the plan costs are distributed to the activity types.

A splitting structure can be used to view all cost center costs at the cost center/activity type level during cost center plan/target/ac-tual comparison.

Standard cost estimate This is a material cost estimate used to calculate the standard price of a material. The cost estimate must be executed with a costing variant that updates the material master, and the cost estimate must be released. A standard cost estimate can be released only once per period and is typically created for each product at the beginning of a fiscal year or new season.

Standard hierarchy A standard hierarchy re-presents your company structure. A standard hierarchy is guaranteed to contain all cost centers or profit centers because a mandatory field in cost and profit center master data is a standard hierarchy node.

Standard price The standard price in the material master Costing 2 view determines the inventory valuation price if price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at standard price.

Standard value This is the planned value for executing an operation in a routing. For example, you may define that it normally takes five minutes to drill a hole in a metal plate or that it takes one hour of setup time to prepare to manufacture a batch of phar-

maceuticals. The standard value is multiplied by the planned activity rate to determine the value of activities in cost estimates.

Standard value key The standard value key in the basic data tab of an operation defines and gives a dimension (e.g., time or area) to one of up to six standard values available in an operation.

Statistical key figure Statistical key figures define values describing cost centers, profit centers, and overhead orders, such as number of employees or minutes of long-distance phone calls. You can use statistical key figures as the tracing factor for periodic transactions such as cost center assessment. You can post both plan and actual statistical key figures.

Subcontracting You supply component parts to an external vendor who manufac-tures the complete assembly. The vendor has previously supplied a quotation, which is entered in a purchasing info record with a category of subcontracting.

Summarization hierarchy reports Summa-rization reports are based on data collected at the nodes of a summarization hierarchy. A summarization hierarchy groups together manufacturing orders or product cost collec-tors at the lowest-level summarization nodes, which in turn are grouped together to create a pyramid structure. You create hierarchies with Transaction KKR0.

Target cost version A target cost version determines the basis for the calculation of target costs. Target cost version 0 calculates total variance and is used to explain the dif-ference between actual debits and credits on an order. It is the only target cost version that can be settled to Financial Accounting, Profit Center Accounting, and Profitability Analysis.


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Task list A task list (routing) is a list of tasks containing standard activity times required to perform operations to build an assembly. Task lists, together with planned activity prices, provide cost estimates with the information necessary to calculate labor costs of products.

Task list group A task list group indentifies routings that have different production steps for the one material.

Task list type A task list type classifies task lists according to their function. Typical task list types include routing, reference operation set, rate routing, and standard rate routing.

Total variance Total variance is a type of variance calculation based on the difference between actual costs debited to the order and credits from deliveries to inventory. You cal-culate total variance with target cost version 0, which determines the basis for calculation of target costs.

Tracing factor Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.

Transfer control Transfer control is a costing variant component that requires a higher-level cost estimate to use recently created standard cost estimates for all lower-level ma-terials. Preliminary cost estimates for product cost collectors use transfer control.

Transfer price This price is charged for transfer of a material or product from one business unit (company code or profit center) to another. The amount of price mark up is determined by tax authorities in each country involved in the transfer and is the basis of legal inventory valuation.

Global companies are also interested in global inventory group valuation, excluding transfer pricing in consolidations reporting. This pro-vides a view of inventory valuation based on actual cost of purchase and manufacture for internal reporting and analysis.

Under/overabsorption Cost center balance, otherwise known as under/overabsorption, represents the difference between cost center debits and credits during a period or range of periods.

Unit costing Unit costing is a method of costing that does not use BOMs or routings, typically when developing new products. You create a preliminary structure of materials and activities in a view similar to a spreads-heet.

User exit A user exit is a point in the stan-dard program where you can call your own program. In contrast to customer exits, user exits allow developers to access and modify program components and data objects in the standard system.

Valuation approach A valuation approach describes the values that are stored in ac-counting as a combination of a currency type (such as the group currency) and a valuation view (such as the profit center valuation view). The combination of various valuation approaches is known as a currency and valu-ation profile.

Valuation category The valuation category located in the Accounting 1 and Costing 2 views determines which criteria are used to group partial stocks of a material in order to value them separately. The valuation category is part of split valuation.

Normally, you will have only one price per material per plant. Split valuation allows you


270

GlossaryA

to valuate, for example, batches separately. Moving average price (V) is the only price control setting available if you activate split valuation and enter a valuation category. You assign valuation types to valuation categories, and you assign valuation categories to plants in Transaction OMWC.

Valuation class The valuation class in the material master Costing 2 view determines which general ledger accounts are updated as a result of inventory movement or settle-ment.

Valuation date The valuation date deter-mines which material and activity prices are selected when you create a cost estimate. Purchasing info records can contain different vendor-quoted prices for different dates. Different plan activity rates can be entered per fiscal period.

Valuation grouping code The valuation grouping code allows you to assign the same general ledger account assignments across several plants with Transaction OMWD to minimize your work. The grouping code can represent one or a group of plants.

Valuation type You use valuation types in the split valuation process, which enables the same material in a plant to have different valuations based on criteria such as batch.

You assign valuation types to each valua-tion category, which specify the individual characteristics that exist for that valuation category. For example, you can valuate stocks of a material produced in-house separately from stocks of the same material purchased externally from vendors. You then select procurement type as the valuation category and internal and external as the valuation types.

Valuation variant The valuation variant is a costing variant component that allows different search strategies for materials, activity types, subcontracting, and external processing. For example, the search strategy for purchased and raw materials typically searches first for a price from the purchasing info record.

Valuation variant for scrap and WIP This valuation variant allows a choice of cost estimates to valuate scrap and work in process (WIP) in a WIP at target scenario. If the structure of a routing is changed after a costing run, WIP can still be valued with the valuation variant for scrap and WIP resulting in a more accurate WIP valuation.

Valuation view In the context of multiple valuation and transfer prices, you can define the following views:

EE Legal valuation view EE Group valuation view EE Profit center valuation view

Together with a currency type and a currency, the valuation view creates what is called a valuation approach. You can maintain up to three different valuation approaches in FI, CO, and the material ledger.

Value field In costing-based Profitability Analysis, value fields store the base quantities and amounts for reporting. Value fields can either be highly summarized (representing a summary of cost element balances, for exam-ple) or highly detailed (representing just one part of a single cost element balance).

Variance calculation Variance calculation provides information to assist you during analysis of how the order balance occurred. In other words, it helps you determine the reason for the difference between order


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debits and credits. The three main types of variance calculation are total, production, and planning.

Variance categories During variance calculation, the order balance is divided into categories on the input and output sides. Variance categories provide reasons for the cause of the variance, which you can use when deciding corrective action.

Variance key Variances are calculated on manufacturing orders or product cost colle-ctors containing a variance key. This key is defaulted from the Costing 1 view when ma-nufacturing orders or product cost collectors are created. The variance key also determines if the value of scrap is subtracted from actual costs before variances are determined.

Variance variant The variance variant (Transaction OKVG) determines which vari-ance categories are calculated. If a variance category is not selected, variances of that category are assigned to remaining variances. Scrap variances are the only exception to this rule. If scrap variance is not selected, these variances enter all other variances on the input side.

Version Versions, formerly known as plan versions, enable you to have independent sets of planning and actual data.

WBS element See work breakdown struc-ture.

Wildcard Wildcard characters allow you fle-xibility when searching for data in tables. You can use (*) to replace any string of characters and (+) to replace any single character.

WIP at actual Work in process (WIP) at actual is valuated based on actual debits to a production order or product cost collector.

WIP at target Work in process at target is valuated based on a cost estimate.

Work breakdown structure A work break-down structure (WBS) exists within Project System as part of a project hierarchy. WBS elements describe tasks in a project to be performed within a defined time period. A WBS element is a cost object.

Work center Operations are carried out at work centers representing; for example, ma-chines, production lines, or employees. Work center master data contains a mandatory cost center field. A work center can only be linked to one cost center, while a cost center can be linked to many work centers.

Work in process Work in process (WIP) represents production costs of incomplete assemblies. For balance sheet accounts to ac-curately reflect company assets at period end, WIP costs are moved temporarily to WIP balance sheet and profit and loss accounts. WIP is canceled during period-end processing following delivery of assemblies to inventory.



273

B Bibliography

SAP Training Course Guide: AC412–Cost Center Accounting–Advanced Functions–Release 470. April 11, 2006.

SAP Training Course Guide: AC505–Product Cost Planning–Release 470. April 11, 2006.



275

C Additional Resources

SAP PRESS Books

The following are two closely related books available for further reading from SAP PRESS:

EE 100 Things You Should Know About Controlling with SAP by John Jordan

EE Product Cost Controlling with SAP by John Jordan

Each book discusses different subject matter within the Controlling module.

ERP Corp Website

You’ve read this book, now take the next step and learn how to improve the performance of your particular SAP system setup and configuration. ERP Corp provides expert SAP consulting and training services, with more than 10 years of experience working with clients worldwide. Find out more about ERP Corp at www.erpcorp.com/.

Online Training

Michael Management Corporation is a leading provider of online SAP training solutions and expert SAP consulting services. Learn more about this company at www.michaelmanagement.com/.

Internet Search

The quickest and easiest way to look for information when initially researching an issue is an Internet search on a major search engine, such as Google or Bing. Type in the name “SAP” as well as keywords, such as a message number. Within the first page of results, you should find some useful links.

Online Documentation

You’ll find extensive documentation at the SAP Help Portal: http://help.sap.com/.

Navigation through the menu paths in SAP’s software can take some practice. The advantage of this search technique is that you can browse through nearby menu


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Additional ResourcesC

items to find related functionality. The help menu paths generally mirror the application menu paths.

You often encounter links to SAP online documentation on the results screen of an Internet search. While this can be the quickest way to navigate directly to online documentation, searching manually through the menu path structure can uncover useful related information that doesn’t necessarily contain the search keywords.

Conferences

Conferences are a great way to expand your area of expertise in SAP by providing you the opportunity to attend sessions on other SAP modules. They also provide a great way to network with professional business users who work with the same issues that you deal with on a day-to-day basis.

SAP Note Search

SAP notes are corrections made available in advance to their release in a support package. Support packages are identified by release levels and consist of corrective SAP notes that are grouped together in packages and applied to the system together. When you read an SAP note, you should always check the affected releases and the support package it was delivered in, which are mentioned at the end of the note. You can discover your system’s highest support package by choosing System • Status from the menu bar of any SAP screen. Click the magnifying glass icon, and then navigate to the SAP_APPL software component.

The SAP Support Portal allows you to search the SAP knowledgebase for SAP notes relevant to issues you’re investigating. You enter keywords and search the knowledgebase for relevant notes. There are many SAP notes categories such as consulting, customizing, and program errors.

Many SAP notes are related to system messages generated when you’re having system difficulties. Message numbers are contained in SAP notes so you can locate them during a search containing the message number.

You access the SAP Support Portal here: http://service.sap.com/support/.

You’ll need a user ID to log on to the Support Portal, which you can obtain by asking your manager or Basis team.


277

CAdditional Resources

Financials Expert Online

This website provides an extensive knowledgebase of finance related articles: www.financialsexpertonline.com/.

All articles are well written and edited by experienced SAP professionals. You can enter keywords and search for related articles. While there is a subscription fee to read the full version of knowledgebase articles, it’s a source of professionally written articles generally not readily available through any other source.

LinkedIn

LinkedIn is the world’s largest professional network and is designed to make net-working relatively easy by focusing on providing tools that help your professional career. LinkedIn helps keeps you connected to your trusted contacts and allows you to exchange knowledge, ideas, and opportunities with a broad network of professionals.

You can find out more information about my LinkedIn profile at www.linkedin.com/in/erpco/.

LinkedIn groups allow you to connect with others with similar interests. You can create and participate in discussions, post and review jobs, and contact other members. Search for LinkedIn group SAP Controlling to connect with other people interested in the subject matter of this book.

SAP Customer Message

When you believe there is an SAP program error, you can create an SAP customer message. Be sure to fully research the issue with any or all of the preceding tech-niques before contacting SAP support directly. If the initial support contact considers the problem to be that you don’t fully understand the standard program, you’ll receive a short response advising the SAP consulting service, which is available for a fee.

SAP note 67739 provides detailed information on setting customer message priority. The web address is http://service.sap.com/support/.



279

D The Author

John Jordan is founder and principal consultant at ERP Corp, which provides expert SAP consulting and training services. John regularly speaks at conferences, publishes articles, and is the author of 100 Things You Should Know About Controlling with SAP (2011) and Product Cost Controlling with SAP (2008), both of which are SAP PRESS bestsellers. He is considered one of the leading experts in the ERP Controlling component by clients and peers.

You can reach John at [email protected].



281

A

ActivityConfirmation, 52, 97, 100, 104, 110, 176Consumption, 154, 157Price, 36, 42, 66Quantity, 36, 152, 154, 177, 198Rate, 41, 51Rates, 150Type, 40, 155

Activity-dependent planning, 152, 154Activity-independent costs, 154, 155Activity previously confirmed, 107Activity scheduled quantity, 23Actual

Cost, 23, 119, 183, 193, 204, 236Credit, 119Debit, 151Scrap, 16, 114, 176

Actual assembly scrap, 181Actual costing, 172, 253, 259Actual cost splitting, 155Actual price calculation, 158, 162Actual price indicator, 160Actual procurement lot size, 48Actual scrap, 16Allocated actual cost, 156Alternate summarization hierarchy, 227Alternative cost estimate, 121Alternative methods of manufacture, 52

Actual, 181Analysis, 183BOM item, 178Confimation, 181Cost estimate text, 180Definition, 177Example, 177Master data, 178Material master, 178Output scrap, 177Plan, 179

Quantity, 177Without planning, 184With planning, 184

Assessment, 150Auto goods receipt, 181Automatic goods receipt, 105

B

Backflushing, 105, 181Balance sheet account, 131, 271Base, 55Bill of material (BOM), 26, 45, 50, 50, 87

Alternative, 137Lowest-level, 51

BOM item, 51, 178, 188, 200Bulk material, 51Quantity field, 51Relevancy to costing indicator, 51

Bottom line, 102Building lease, 54Bulk material, 51

C

Calculation baseCost element, 55Cost element group, 56Overhead, 55Rows, 55

Change in WIP, 133Collective processing time, 139Company assets, 131Component, 25, 98

Lower-level, 35Purchasing requirements, 38

Component scrap, 176, 187Actual, 190Analysis, 193

Index


282

Index

BOM item, 188Case scenario, 189Definition, 187Field, 179Input quantity variance, 190Master data, 188Material master, 188Plan, 189Priority, 189Quantity, 187Without planning, 190With planning, 190

Component standard price, 98Condition technique, 221Confirmation, 181, 190

Activity, 143Default yield, 106Expected quantity, 106Labor, 143Per operation, 108Production order, 104, 108Quantities, 106Screen, 143Time event, 105Time ticket, 105

Confirmed scrap, 182, 203Confirmed yield, 134Consumption account, 97Control costs, 119, 137, 143Controlling, 97

Area, 219Level, 87

CO-PA, 111, 144, 150CO product group, 222

Assign materials, 223Create, 222Hierarchy, 223

Corrective action, 122Cost

Activity, 38Activity-independent, 40Actual, 119Labor, 26, 38, 52Material, 51Overhead, 52, 54

Primary, 38Target, 131Unit, 127Variable, 38, 40

Cost center, 51, 100Activity quantity, 44Actual costs, 155Actual/plan reports, 147Analyze balance, 147Assessment, 101Assignment, 166Balance, 147, 149, 154, 155Credit, 55Credits, 149, 157Debits, 149, 158Fixed cost variance, 158Functional area, 258Input price variance, 156Input quantity variance, 156Input variance, 156Line items, 150Manager, 38Output variance, 157Overhead, 99Plan credits, 150Plan debits, 149Planned costs, 26Planning, 38Primary planning, 38Production, 150, 154Profit center, 264Purchasing, 165Remaining input variance, 157Report, 42, 149Resource-usage variance, 157Target cost analysis, 147, 154Target costs, 151Under/over absorption, 102, 107Under/overabsorption, 147Variance, 42, 154, 173Variance analysis, 147, 154Variance calculation, 155

Cost center accounting, 23, 35, 37Cost component, 58

Available, 60


283

Index

Component material cost, 59Configuration, 59Labor, 58, 60Material, 58Overhead, 58Roll up costs, 59Split, 58Structure, 59

Cost component structure, 60Costed multilevel BOM, 66Cost element, 38, 55, 155

Button, 141Category, 97Change, 164Default account assignment, 164Group, 155PPV, 166Primary, 97Secondary, 99

Cost estimate, 141Alternative material, 121Finish date, 66Itemization, 138Mixed, 125Modified standard, 122Preliminary, 16, 44, 112, 117, 131, 137Release, 138Released, 176Standard, 16, 112, 117, 137, 138Start date, 66

Costing lot size, 48, 65, 127, 168, 170Costing run, 16, 72, 117, 163, 171

Analysis, 79Background processing, 77Company code, 81Costing, 78Costing level, 78Costing variant, 81Costing version, 81Create, 72Dates tab, 74Edit, 74Execute column, 75Flow step column, 74Log, 77

Log by costing levels, 78Marking, 81Master data errors, 72Material overview, 76Other prices, 83Parameter, 74Print log, 77Release, 83Release date, 72Rerun, 81Selection, 75Selection screen, 73Structural explosion, 76

Costing sheet, 52, 54, 128Available, 54Base, 55Calculation rate, 56Components, 54Configuration, 54Cost element, 55Credit key, 57Dependency, 56Example, 54Fixed cost, 56Maintenance, 58Origin group, 56Overhead rate, 56Percentage rate, 56Variable cost, 56

Costing status, 71Costing step, 78Costing type, 62Costing variant, 15, 53, 61

Components, 62Configuration, 44, 61Costing type, 62Date control, 66Permitted, 69PPC2, 121Transfer control, 65

Costing version, 65, 94Costing view, 47Cost object, 97Cost object hierarchy, 122

Actual costs, 122


284

Index

Equivalences, 122Target cost version 3, 122

Cost of sales, 154, 176, 187Costs

Actual, 97, 253Cost center, 107Primary, 97Production order, 98Report actual, 109Secondary, 97

Costs based on field, 67Create production order, 103Credit, 55Credit key, 57

Actual overhead debit, 58Cost center, 57Fixed costs, 58Plan overhead cost, 58Secondary cost element, 58Variable costs, 58

Current planned price, 49Customer, 219

D

Data collection, 219, 224, 231Hierarchy node, 232Objects, 233Product drilldown, 225Results screen, 225, 233Summarization time frame, 232

Date control, 66Dates tab, 65Debit, 98Default

Account assignment, 164, 165Activities, 107Activity quantity, 106Assembly scrap, 182Quantities, 106Yield, 106Variance key, 115

Deletion flagActivate, 135

Revoke, 135Dependency field, 56Dependent requirements, 26, 28Detailed analysis, 109Detailed report, 16, 217, 235

Cost element details, 235Drilldown, 235Source document, 236

Detail list checkbox, 139, 145Drill down, 110Drilldown functionality, 217Drilling down, 143, 172

E

Edit costing run, 72Electricity, 128Equivalence numbers, 155Error messages, 45Estimated purchase price, 49Exception message, 30Exception rules, 140, 217, 235Expected cost, 111Expense account, 98External activity, 149External business transactions, 97External procurement, 26, 32, 47External vendor, 98

F

Final confirmation, 105Final operation, 106Financial accounting, 98, 110Finished good, 51Finished product, 172Fiscal period, 128Fiscal year, 38Fixed component, 154Fixed cost variance, 158Flow step column, 74Future planned price, 49Future purchasing requirements, 34


285

Index

G

General ledger account, 110Goods issue, 123Goods movement, 106, 110, 192Goods receipt, 52, 123, 138, 163, 265

Quantity, 134Valuated, 143

GR/IR, 98Account, 163

Gross profit, 102, 177, 187

H

Highest-level report, 217History tab, 89

I

Incremental debit, 159Information system, 155In-house production, 26Initial planning, 38, 110Input price variance, 156Input quantity variance, 107, 143Input variance, 156Insurance, 54Internal order, 97Inventory, 97, 101, 111, 138

Valuation, 45, 98, 117Revaluation, 71, 81

L

Labor allocation, 100Legacy system, 41Line item details, 110, 142, 237Line item postings, 166Line item report, 16, 145, 146, 217, 237

Activity confirmations, 239Goods receipt, 239Material documents, 239

Posting date, 238Quantity, 239Source documents, 239

Logistics master data, 44Long-term MRP, 32, 35Long-term planning, 23, 25, 36, 43, 44

BOM, 29Collective run, 29MRP list, 30Planning horizon, 29Planning scenario, 26Processing key, 29Run, 28Simulative dependent requirements, 29Simulative planned orders, 29Version active indicator, 26

Lot size, 127Lower-level cost estimate, 89

M

Maintain Version Configuration, 159Manually insert operation, 108Manufacturing company, 59Manufacturing order, 143

Efficiency, 52Margin analysis, 102, 154, 176

Gross profit, 102Net profit, 102Operating expenses, 102Operating profit, 102Pretax profit, 102Profit margin, 102SG & A, 102

Mark cost estimate, 70Marking allowance, 68Master data, 15, 46, 123, 178, 188

BOM, 45Fields, 46Logistics, 46Material master, 50Routing, 45Stable, 46Statistical key figure, 268


286

Index

Material consumption, 172Material document, 110, 168Material group, 217, 222Material ledger, 16, 172Material master, 46, 50, 61, 70, 115Material movement, 97Material origin, 217Material origin checkbox, 138Material overhead, 55Material overview, 76Material Requirements Planning (MRP), 26, 175Message analysis, 145Metal plate, 175Mixed

Cost estimate, 90, 91, 94, 125Costing, 90, 91Costing checkbox, 95Price, 90, 125Price variance, 91, 125Procurement costs, 90

Mixing ratio, 90, 93Modified cost estimate, 122Modified product, 49Mounting holes, 175MRP, 26, 178, 187, 188, 202, 218

Exception message, 30Long-term, 32Operative, 26

N

Net ID checkbox, 179, 200Net profit, 102Nonrecurring expense, 150

O

Operating profit, 102Operating rate, 152Operation, 52, 105, 131Operation details, 199Operation scrap, 176, 197, 261

Actual, 202

Analysis, 204Assembly scrap, 198BOM item, 198Confirmation, 203Cost estimate text, 202Definition, 197Field, 179Master data, 199Operation details, 199Operations overview, 202Output scrap, 197Plan, 197, 200Quantity, 198Routing, 198Subsequent operations, 176Valuable components, 176Without planning, 201With planning, 201

Operation sequence, 108Operative MRP, 26, 35Order

Category, 242Fully delivered, 143Manufacturing, 143Quantity, 106Status, 137, 143

Order information system, 106, 218, 239Layout, 240MRP controller, 239Operation, 239Order header, 240Production supervisor, 239

Order-related manufacturing, 52Order selection, 242

Order category, 242Order type, 243

Original transaction, 110, 143Origin group, 56Other prices, 83Output price variance, 157, 158Output quantity, 127Overhead, 45, 127

Calculation, 100, 128Cost, 54Cost center, 99Key, 56


287

Index

Overhead rate, 55, 57Calculation base, 56Date-dependent, 57Dependency, 56Percentage, 57Percentage factor, 56

Overhead rates, 23

P

Partial assembly, 134Payroll, 128Period, 43Period-end closing, 52Period-end process, 128Plan

Activity, 43Activity quantity, 42, 150Capacity quantity, 42Component scrap, 188Cost, 23, 97Cost center, 23, 36Debit, 154Depreciation, 38Fixed costs, 40Payroll, 38Primary cost, 38Production, 23, 38Reconciliation, 38, 44Sales, 23, 38Scrap, 16Version, 32

Planned assembly scrap, 181, 191Planned independent requirements, 25

Consume, 28Sales order, 28Version, 29

Planned price 1, 49, 64Planning horizon, 29Planning layout, 39Planning performance, 121Planning scenario, 26Planning variance, 112, 121, 262Plan operating rate, 158Plant manager, 217

Possible entriesOperation sequence, 108Order category, 242Order type, 243Process category, 92Procurement type, 46Summarization characteristics, 230

Posting origin, 97Posting Period, 145PPV, 163Preliminary cost estimate, 85, 112

Controlling level, 87Costing Data tab, 87Mass processing, 90Production version, 87Transfer control, 87

Pretax profit, 102Previous planned price, 49Price

Accuracy, 254, 263Break, 171Revaluation, 154Unit, 68, 263

Price control, 50Moving average, 123Standard, 123

Primary cost, 41Element, 38, 59, 97, 98, 101Planning, 44, 150

Printed circuit boards, 177Process category, 92Processor, 188Process order, 106, 109Procure components, 45Procurement alternative, 90, 92, 94, 125Procurement type, 46Product Cost by Order, 52, 113, 136Product Cost by Period, 52, 90, 113Product cost collector, 47, 52, 84, 112, 226

Analysis report, 142Analyze, 109, 141Create, 138Deletion flag, 138Settlement, 144Variance key, 138

Product development, 72


288

Index

Product drilldownConfiguration, 220Control parameters, 220Cumulative, 226Data collection, 224Improve performance, 226Periodic, 226Period range, 226Reports, 220Run report, 225

Product group, 24, 221Product hierarchy, 220, 221Production

Control, 52, 118Cost center, 38, 100, 150Costs, 130Efficiency, 120Line, 118Order, 47, 101Output, 151Output account, 101Performance, 120Plan, 24, 38, 44Process, 54, 87, 137Quantity, 25Run, 118Variance, 112, 120, 122, 173Version, 53, 87, 90

Production orderActivity confirmation, 104, 110Automatic goods receipt, 105Backflush, 105BOM, 103Confirmation, 105, 106Costs, 98Create, 103Credit, 101Details, 106Information system, 106List, 106Material, 103Operation sequence, 108Personnel, 217Primary credit, 101Release, 104Resource, 176Routing, 103

Secondary credit, 102Statistic, 188Status, 118Type, 107Variances, 102

Profitability analysis, 102, 267Profitability reporting, 177Profit and loss account, 131, 271Profit margin, 102Propose activities, 107Purchased items, 25Purchase order, 169

Price, 35, 163Quantity, 35Value, 34, 35

Purchase price, 23, 163Variance, 163

Purchase requisition, 32Purchasing department, 35

Performance, 163Purchasing info record, 25, 32, 44, 45, 163, 169

Conditions, 169Price, 61Scale, 170Validity periods, 170

Purchasing information system, 23, 32, 38Purchasing requirements, 34, 44

Q

Quality inspection operation, 108Quality standards, 177Quantity structure, 87, 120, 201

Date, 66Tab, 180Type, 91

R

Raw material, 51, 163Inventory, 98

Reconciliation, 131Redundant messages, 145Reference quantity, 134


289

Index

Release, 84Cost estimate, 71Production order, 103Step, 84

Relevancy to costing indicator, 52Remaining input variance, 157Remaining variance, 115, 127, 158Repetitive manufacturing, 52, 118Replacement parts, 157Reports

Cost center, 244Line item, 217, 237Product drilldown, 220, 264Production order, 239Source documents, 244Standard, 217Summarization hierarchies, 227Summarized, 220

Request for quotation (RFQ), 32Revaluation, 162Rework, 175ROH, 51Roll up, 51Rounding differences, 127Routing, 45, 51, 87, 108, 117, 137, 197

Structure, 117

S

Sales and operations planning (SOP), 23, 44Sales order, 28, 219Sales plan, 24, 44Sales scenario, 23Scenario analysis, 65Scenario testing, 36Scheduled activity quantity, 42Scheduled activity requirements, 26Scrap, 137, 175, 176

Actual, 16, 114, 176Amounts, 176Assembly, 176, 177, 183Calculation, 176Checkbox, 114, 116Component, 187, 189Confirmed, 192Costs, 176

Input, 187, 255Operation, 192, 197Output, 177, 192, 197, 253, 261Percentage, 176, 179Plan, 16Planned, 114, 176Target, 176Valuate, 120Value, 114, 177, 187Variance, 114, 115, 116, 176, 186Variance checkbox, 127

Secondary cost element, 59Type 41, 42, 43, 99, 100

Select Layout Icon, 141Settlement, 102, 111, 112, 144, 267

Basic list, 145Current period, 143, 145Error messages, 145Line item report, 145List of values, 146Period-end, 144Prior periods, 145Processing time, 145Reversal, 145Rule, 138Selection parameters, 146Selection screen, 146Sequential, 138Type, 138

Settlement typeFUL, 143Full, 143PER, 138Periodic, 138

Setup time, 48, 127Shop floor control, 239Simulative planned order, 32SOP, 24Sort line items, 143Source document, 110, 168, 217, 228Specialized activities, 98Special procurement type, 47Splitting rules, 155Standard activity time, 51Standard cost estimate, 45, 64, 68, 117, 179, 189, 200

Costing run, 72


290

Index

Costing status VO, 70Costing variant PPC1, 64Costing version, 69Current, 89Future, 89History tab, 89Mark, 49, 68Marking allowance, 68One per material, 87Previous, 89Previously released, 49Release, 45, 49, 71Status FR, 84Status VO, 83Valuation variant, 68

Standard hierarchy, 245Standard price, 163, 176, 180

Finished goods, 101Standard report, 16, 217Standard value field, 52Status

Deletion flag, 135Determine automatically, 143Determine manually, 143Fully delivered, 136Released, 136Technically complete, 135, 136Selection profile, 229, 231

Stock/requirements list, 31Stock valuation, 64Strategy sequence, 64Structural explosion step, 76Subcontracting, 64Substitute components, 124Summarization

Analysis, 218Level, 227Report, 217, 230Time frame, 225

Summarization hierarchyALV format, 230Data collection, 231Exception rules, 235Hierarchy levels, 229Material, 230

Order number, 230Plant, 230Profit center, 230Selection profile, 231Single objects, 235Status selection profile, 229

Summarized analysis, 16Summarized reporting, 139System messages, 45

T

Target cost, 97, 111, 114, 118, 119, 131, 137, 138, 152

Button, 141Configuration, 143Version, 139, 159Version 0, 111, 119, 268Version 1, 112, 120Version 2, 113, 121Version 3, 116, 121

Target debit, 154Target quantity, 157Task list, 51Tax, 102Tear-down time, 127Test run checkbox, 155Total variance, 64, 111, 269Total WIP, 133Traffic light symbols, 235Transactional data, 46Transfer control, 36, 65, 87

U

Under/overabsorption, 147, 269Unfavorable variance, 48Unit cost, 48, 127Unplanned consumption, 157User entry, 68


291

Index

V

Valuable components, 197Valuation, 23

Class, 50Date, 66

Valuation variant, 63, 117, 120, 270Activity types/processes, 64External processing, 64Scrap and WIP, 118, 131Subcontracting, 63

Value field, 112Variable component, 154Variable quantity, 157Variance

Analysis, 45, 47, 63, 102, 111, 123, 217Button, 141Calculate, 114Calculation, 16, 101, 111, 114, 122, 126, 136, 138, 154, 155, 182, 192 Categories, 271Categories, 101, 115, 122, 136, 155Collective, 139Column, 140Component, 138Configuration, 113Cost center, 147Cumulative, 143Debit, 149Favorable, 149High, 140Individual materials, 140Input, 123Input price, 112, 123Input quantity, 107, 124, 141, 143, 193Key, 47, 53, 113, 116, 138, 176Keys default, 115Largest, 140Lot size, 112, 127Manufacturing, 102Mixed-price, 125Original cause, 143Output price, 126Planning, 112, 121, 137, 262Plant manufacturing, 217

Price, 71Process order, 109Product cost collector, 102Production, 71, 112, 120, 137, 264, 269Production order, 109Recalculate, 140Reconcile, 146Reconciliation, 131Reduce, 71Remaining, 115, 127Remaining input, 125Reporting, 16Requirements, 143Resource-usage, 124Scrap, 137, 193Sequence, 144Sort, 140Source, 102Total, 101, 111, 136, 139Unfavorable, 48, 140, 234Variant, 115, 116Write line items, 114

Variance analysis, 39Variance Category Columns, 141Variance Key, 47, 53Vendor information, 46Vendor quotation, 25, 35, 45, 163, 170Version, 36Version 0, 36Version configuration, 159

W

Work center, 35, 87, 100, 137Load, 44

Work in Process (WIP), 131At target, 131Calculate, 118, 136Cancel, 135, 136, 144Explanation, 133Target, 118Unsettled, 143

Workload, 98


292

Index

Y

Yield, 105, 134Default, 106Previously confirmed, 106Propose, 106To be confirmed, 106, 107Total, 107

Z

Zero balance, 102


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