What is Product Costing-SAP

7/31/2019 What is Product Costing-SAP

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Manufacturing Companies

There are 3 major categories of manufacturingcosts:

Direct Materials

resources that can befeasibly observed beingused to make a specific

product.

Direct Labor

The cost of payingemployees who

convert direct materialsinto finished product.

ManufacturingOverhead

Indirect materialIndirect labor

Other overhead


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Manufacturing Companies

Prime Costs include:

Direct Materials Direct Labor ManufacturingOverhead


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PRODUCT COSTING SAPR/3


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2008 by SAP AG. All rights reserved. 6

SAP R/3 Enterprise

DB2MSSQLOracle

SAP can use a number of database programs toactually store the data.


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Organization structure required


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SAP PRODUCT COSTING


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Product Costing OverviewAcquire an overall perspective of Product Cost Planningwithin R/3.Observe a product life cycle from the perspective of ProductCost Planning.Acquire an overall perspective of product cost object

controlling within R/3.Understand the period oriented product cost controlling.Obtain an understanding of the functions in the materialledger.

Analysis of product costs.


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Material Ledger OverviewObtain an understanding of the actual costingfunction in the material ledger.Know how to revaluate inventories of semi finishedproducts, and finished products with calculated

actual costs or accrue variances.Analysis of actual product costs.


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Costing Methodology

Material Master Price Control

Standard Price(S-Price)

- Constant- Recommended for all material

types

Moving average price(V- Price)

- Adjusted with every receipt- If at all, only to be used for raw

materials and materials procuredexternally


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Costing Methodology

The method of valuing inventory of a material is

determined when extending/creating thematerial master.

Price that changes in consequence of usageand entry of invoices. Calculated by dividingthe value of material by the quantity in stock.Automatically recalculated based on activity.

Constant price without considering usage orinvoices. Material stock valued at the same priceover an extended period. Price variances areposted to price difference accounts; not affectingthe standard price.


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Characteristics of Price Control V

+ The stock value is adjusted each time goods are received+ Real-time price fluctations are posted to stock+ Price difference postings only take place in exceptional cases

- Price fluctuations cannot be adjusted to the finished products of higherlevels (S price)

- Only recommended for raw materials or goods procured externally (real-time price for goods receipt known)- False entries with severe consequences (compounded errors)- Danger of incorrect valuations with delayed invoice receipt

Moving average price


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Costing Methodology

Valuation Method by Material:

Finished Goods Standard w/ ML

Intermediates Standard w/ MLRaw Material Moving Average Actual

Packaging Moving Average Actual


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Organizational unit dividing up a company for thepurpose of valuating stocks in a standardized andconsistent manner.

Level at which material value is managed.

The valuation area may is defined:- by plant

Valuation Area


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CostObject

CostCenter X

CostCenter 1

CostCenter2

F. GoodsInventory

BOM

Routing

Productionorders

CO-CCA

CO-PA

CO-PC

MAT Manufacturing Cost MM: RM

Act1

CostCenter Y

CostCenter 3

ProductionCost Center

VAR.

VAR..

.

VAR...

Act2

Product Cost Flow


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Product Cost Flow

Plant Cost ViewSales & Mktg. View

Mfg. Cost Center

(Activity Types)

UtilitiesSalariesSuppliesMaintenance

DepreciationTraining

DirectConversionInsur. & TaxesLaboratory/QCWaste TreatmentShops & StoresGeneral Services

IndirectConversionTotal Product Cost

Mach. Hrs.or

lbs.ProducedLab testsSetup Hrs.

P A(Profitability Analysis)

Raw Matl 1 & 2 CostsPkg. Matl Costs

Costs to ProduceProduct testing costs

Change Over costs(setup costs)

Routing

Product Unit C ost

Cost of Goods Mfg.

Raw Matl 1 Costs Raw Matl 2 Costs Pkg. Matl Costs

RoutingMach. Hr. CostsLab Tests CostsMach. Setup Costs

Process Order

Raw Matl 1 Raw Matl 2

Pkg Matl

BOM(Cost Component View) (SAP Value Fields)

Three Views Available:1. Cost Component2. Cost Element3. Cost Itemization

Cost of Goods Sold

Fixed & Variable Cost Fixed & Variable Cost


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Product Costing At A GrpProduct Cost Planning

Yes

Execute costingrun

AutomaticRelease

ofStandard Price

Mark StandardCost Estimate

Activitytype

planningcompleted

Quantitystructure

in PPcreated

Overheadcost

planningcompleted

Plan pricesof raw

materialswere

entered

StandardCost

Calculated

Review forApproval

Adjust costingmaster data/ parameters

Standardprice hase

beenreleased

OK

Not OK


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Product Costing At A GrpProduct Cost Allocation - Simultaneous Costing

Yes

SimultaneousCosting

Costestimatehas beenreleased

Manufacturing orderhas beenreleased

Cost objecthas beencreated

Product costare

allocated


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Product Cost Planning:Overview

Functions of Product Cost Planning:Product Cost Planning with reference to cost object

Product cost planning with quantity structure withstructures provided by PP (Production Planning) module

Determination of the cost of goods manufacturedProduct Cost Planning supplies information for othermodules:

Update of prices in a material masterUpdate of the cost of good sold with the detailed structure ofcost component (grouped cost elements)Standard (material) cost estimate as the base for calculationof production variances


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Product Costing: Overview Standard Cost Estimate(once a year)

Prepare Product CostCollector

Production Costs

Receive Finished Stocks

Month End Closing

Post Materials Costs

Debit Secondary cost

Credit Production Output

WIP Calculation

Variance Calculation

Settlement

Preliminary Costing

Create Cost Object

Release cost estimate with quantity structure

Mark cost estimate with quantity structure

Create Cost estimate with quantity structure


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Product Costing: Overview

Standard Cost Estimate(once a year)

Release cost estimate with quantity structure

Mark cost estimate with quantity structure

Create Cost estimate with quantitystructure


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Material cost estimates with q.s.

:

Standard CostEstimate

Stock Valuation

Profit & LossStatement

BOM Routing

Quantity Structure

Costing Results

Items

M MaterialE ActivityE ActivityG Overhead

CostElements

400000 Raw materials943201 Production hours943901 UT: Cooling Var.

Costing

Values

600 000 USD610 000 USD612 000 USD USD

Purchase price

Activity Type Price

Overhead

Valuation


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Standard Cost Estimate(once a year)

Release cost estimate with quantitystructure

Mark cost estimate with quantitystructure

Create Cost estimate with quantity structure


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Cost Object Controlling:Overview

Functions of Cost Object Controlling:

Supporting make-or-buy decisionsDetermining price floorsPerforming complex cost analysisDetermining inventory values


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Cost Object Controlling Scenarios:

Product Cost by PeriodProduct Cost by Period is used for recurring periodic cost

control of products that are manufactured in the same wayover a longer period of time.

Product Cost by OrderProduct Cost by Order is mainly used to control the costs ofindividual production lots.


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Cost Object Controlling:Overview Product Cost by Order or by Period

Full settlement (by Order)

Periodic settlement ( by Period)

Actual costs =Work in process

Actual costs -Goods receipts =Work in process

Actual costs -Goods receipts =Variances

Releasing anorder

Partial delivery Delivered / Technicallycompleted

Actual costs -

Goods receipts =Work in process +Variances

Period 1 Period 2 Period 3

Actual costs -


Actual costs -


Time

Time


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Functions of Product Costs by Period:

Create product cost collectors.Create a preliminary cost estimate for product costcollectors.Calculate and analyze target costs and actual costsfor product cost collectors.Calculate or update the work-in-process inventoryand the finished goods inventory.Calculate and analyze variances for each period.Transfer data to: Financial Accounting, ProfitabilityAnalysis, Profit Center Accounting and MaterialLedger.


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Actual costsProduction OrderStep 1 Created and release

- Maintenance of Master DataStatus - RELEASED

STATUS- CREATED

STATUS - RELEASED

This status allows for actual postings


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Actual costsProduction OrderStep 2 Goods Issue to Order

- Actual PostingsStatus GOODS MOVEMENT POSTED

Order

100 * 11 = 1.100,-quantity * price = cost

RawMaterials

Consumed400000

Inventory Raw

Materials119400

1.100,-

1.100,-

400000 + 1.100

FI


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Actual costsProduction OrderStep 3 Direct activity allocation

- Actual PostingsStatus - RELEASED

400000 + 1.100

Cost Center / Activity

943201 - 7.500,-

943201 + 7.500

150 * 50 = 7.500

quantity * price = cost

Order


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Actual costsProduction OrderStep 4 Goods Receipt from Order into Warehouse

- Actual PostingsStatus PARTIALLY DELIVERED

Order

400000 + 1.100943201 + 7.500

100 * 50 = 5.000,-quantity * price = value of the goods receiptsfrom order

Production

Output462001

FinishedProducts119430

5.000,-

5.000,-

462001 - 5.000FI


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Actual costs - Summary

The results from the output receipts,plus material & resource consumptions,update the stock records and provide

valuation of production according tostandard cost approach .


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Month End Closing

Settlement

VarianceCalculation

WIPCalculation


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Period and year-end closingProduction OrderStep 6 Settlement

of - Period-end closingStatus RESULTS ANALYSIS CARRIED OUT

Order

400000 + 1.100943201 + 7.500

462001 - 5.000,-

Work InProgress

(WIP)462201

Work InProgress(WIP)119460

3.600

FI

3.600

WIP is being updated on theorder as statistical value forinformation purposes.


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Period and year-end closingProduction Order new periodStep 9 Repetition of the steps from 3 to 7

- Actual PostingsStatus PARTIALLY DELIVERED

Order

As a result of the actual postingsin the new period there is a newbalance on the order.

400000 + 1.100943201 + 7.500

462001 - 5.000,-

400000 + 5.000,-

462001 - 7.000,-


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Period and year-end closing

Work-in-Process

Overheads

Process costs

Revaluation Periodic

costs

Calculationsandanalysis

PostingsFI/CO

Settlement

Scrap Variances

Period-end closing


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What is SAP Product Costing

To identify accurate cost of production.Its a production portfolio Help to understand for calculation ofCOGM and COGS.Analysis of value addition in eachprocess of production

What is cost breakdown includingprimary cost and transfer price.


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How to control the excess overheadinvolve in Production.To know the breakup of each cost

involve in production process and likematerial,labour,overhead-analysis andcontrol on the cost.Can we supply the product atcompetitive price in market.


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What is Product Costing-SAP