Business Function : CO-PC

Business Design File : copc.doc

Business Design Number: Co-BDD170
Business Design : Basic Org Structure for Product
Costing

Owner : Joy Buckingham

Design/Documentation Resp: Tom Millen

Status : In Progress

Last Saved Date : April 24, 2021

Summary
SAP Product Costing is a tool for planning costs and establishing prices for materials. It is used
to calculate the costs of goods manufactured and cost of goods sold for each product unit.
When costing is carried out in conjunction with the PP (Production Planning) module, the cost
estimate is a product cost estimate with quantity structure (BOM and routing).

A standard cost estimate is typically created at the beginning of the fiscal year or a new season.
The standard cost estimate is then valid for the entire year or season. It is used to determine a
standard price for materials with price control indicator “S” (standard) in this period.

If the standard cost estimate is released, the system writes the results of the cost estimate into
the costing details screen of the material master record as the standard price. The price is then
active for material valuation. The price in the material master record can also be used to
determine scrap, variances, and WIP for each production order or run schedule header.
Description
Cost Component Layouts - this controls how the results of activity price calculation are saved. It assigns
cost elements to cost components, and so determines which costs are allocated to which cost
components during activity price calculation and how the costs in activity price calculation are updated.

Typically these are created on a one to one basis with a controlling area, therefore because Dare is using
only one controlling area, the system will be configured with one Cost Component Layout ‘DF”.

Cost Components - determine how you want to view product cost estimates. It allows for more general
level reporting, grouping like details together.

The system will be configured with 6 components:

1. Ingredients
2. Packaging
3. Direct Labour
4. Variable Overhead DLHr
5. WIP
6. Material VOH
7. Machine Overhead

Origins - used in running reports to view raw material costs at a more detailed level than cost
component but not in complete detail. It is a field in the material master record.

The origins in the system will be used for finished goods only and will be Biscuit, Candy Regular, Candy
Seasonal, and Cracker.

Costing Variant - key that determines how a cost estimate is created and valuated. It determines how
the BoMs and routings are selected to create the quantity structure, what prices are selected to valuate
the quantity structure and how overhead surcharges are calculated. Dare requires that all materials are
to be valued at a standard price set once a year minimum and a maximum of once a period. Dare also
requires a comparison estimate that is static throughout the year.

Dare’s system will have 3 costing variants:

1. STD - using standard cost, this will be the variant used for semi-finished and finished goods.
2. STAT - using the original standard cost of the year this costing variant is used for reporting
purposes but is not used to update the material masters
3. COM - using the last purchase price for raw materials and packaging, the ensuing cost
estimate will be used at the end of each period to produce the required adjusting entry for
inventory valuation.
The static cost estimate will be accommodated by running reports based on the first cost estimate that
will be run to set the first price of the year.

Valuation Variant - Key that determines what prices are selected to valuate the quantity structure (BOM
and Routing).

Dare’s system will have three valuation variants with names to match the three costing variants.

1. STD - will use the standard cost

2. STAT - will use the standard cost
3. COM - will use the price in commercial field 1

Currently, cost estimates are run based on current standard price, historic standard price, future
standard price, current moving average, last year’s moving average.

Overhead costing sheet - defines the valuation rules for calculating overhead in SAP.

Dare will be using the overhead costing sheets to calculate variable overhead, fixed overhead will be
allocated through activity measures. Variable overhead will be accumulated in two general cost centers
and then allocated out according to actual machine and labour hours at period end.

The Quantity Structure mentioned above uses two ‘lists’ of steps - the BOM and the Routing:

BOM - is a complete, formally structured list of the components which make up a product or assemble.
The list contains the object number of each component, together with the quantity and unit of measure.

The components for Dare will be obtained from the recipes currently maintained by the Technical
Service Departments in Kitchener and Milton.

Routing - this describes the sequence of processing steps required to produce a material or provide a
service without reference to an order. The major objects of a routing are the routing header,
operations, material allocations, production resources/tools. Together with specific date and quantities,
routing data forms an important part of costing the production order. The operations within Baking and
Candy are similar and there are some cross-overs between them.
Work centers will be created for the different lines in the baking plants, in the candy plants the work
centers will represent the different areas and processes.

Activities will be created for each unique labour type and class - essentially whenever a different job is
performed or rate charged. There will be one non-labour activity representing machine hours. Hourly
rates will need to be determined for each machine used in production.

Dare will reflect clean-up as an activity in its own process within the routings.

Activity Type Rates are determined from the combination of activity type and cost center set up in a
matrix table in CO. Please refer to BPM: COPC_PLNACTCC.DOC.

The calculation that needs to be done in SAP is the determination of the annually set SVMC (standard
variable material costs).

The SVMC for a semi-finished or finished good will be determined by the BoM and Routing - the
Bill of Materials contains all of the materials and quantities needed to produce the product and the
routing combines these with the labour and machine hours expected for the production of the material.
Variable overhead needs to be factored into the SVMC as well.

When the annual plan is created the total expected cost of Fringe Benefits, Fuel, Depreciation,
etc. needs to be represented in a per unit figure to be included as fixed machine overhead.

References

Business Process Mapping Description

Issue Number Description

Business Design Document Description

General Reference Name Description

Signoff

Project Leader : Date:

OmniLogic : Date:

Notes