PRODUCT COSTING PART-1

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PRODUCT COST PLANNING

In General,

Material cost comprises:

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

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

3. Indirect OH.

It is nothing but Service department Cost.

PROCESS OF COST DETERMINATION:

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

 BOM contains the list of components of raw materials with quantities
required to produce the product.
 Process sheet contains the process steps which is nothing but

 
The production department designs all the above process steps and the
finance dept. prepare budget or resource rate for the specific activity.

Material cost is arrived through bill of material (Qty’s * Price).The price is

taken from the purchasing department.

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

OBJECTIVES OF PRODUCT COSTING:

 To determine cost of a product or service.

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

COMPONENTS OF PRODUCT COSTING:

 
Overview: 

1. Product Cost Planning:

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

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

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

We can use this price for valuation of Inventory.

Configuration Required;

1. Cost component Structure. (OKTZ)

 It gives the breakup of cost of the product.
2. Costing Sheet. (KZS2)
 To Calculate the Indirect Overhead.
3. Costing Variant for standard cost estimate. (OKKN)

Control parameters:

 Costing type
 Valuation Variant.
 Date control.
 Quantity structure Control.
 Transfer control.
 Reference variant.
2. Cost Object Controlling:

It comprises:

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

Config. required:

 Costing variant for plans.(costing type 06)

 Costing variant for Actuals.(costing type 07)
2. Period end Process.

It contains the following Activities.

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

Cost Object Controlling (Scenarios):

1. Product cost by order.

 Production order.
 Process order.
 Controlling production order.
2. Product cost by period. (Product cost collector)
3. Product cost by Sales order.
 INTEGRATION OF PRODUCT COSTING WITH LOGISTIC MODULES:

With Production planning:

Integration points are:

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

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

Work center: (CR01)

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

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

 Routing:

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

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

 Routing is defined at material and plant combination.

                                                               Product Cost Planning

Elements:

 Quantity structure Control.

It specifies the priority of sequence of which BOM and Routing to be used in

the cost estimate of the product. The quantity structure control can apply to
either a specific plant or to all plants. You enter the quantity structure control
in the costing variant. When the cost estimate is created, the system selects
the quantity structure control ID through the costing variant.

When you create a cost estimate for a material, you always use a costing
variant. This variant is the link between the cost estimate and the quantity
structure control.
When determining the BOM and routing, the system also checks the following:

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

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

A material can be represented in various alternative BOMs. You can specify

that a particular BOM alternative be used for the cost estimate at a certain
date.

Bill of material:

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

Usage: Specifies the application areas for which the BOM is used. When
creating the BOM, we will specify the usage.
  If we have multiple BOM’S in the same application area or with same
usage number, then system picks the first BOM.
 In case you want to pick a specific BOM, then you need to specify that
BOM in the alternative selection of Multiple BOM’S.

Routing:

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

Task list type: It specifies the type of Routing.

Status: Released etc.

1. Date Control:

It specifies

 Validity of the cost estimate.ie.The cost estimate is valid from which

date to which date.
 Which date BOM and Routing to be used in the cost estimate of the
product.
 Which date price to be used in the cost estimate of the product.

 
 

Costing date from:

It could be either 1.Past Date

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

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

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

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

Note:

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

from date.
2. Valuation date should be always to be dependent on Costing Date from
date.
3. If you select manual entry, you can overwrite the date control values in
frontend CK11N while executing the cost estimate.
               Marking Standard Cost
Estimates
To transfer the results of a standard cost estimate as the standard price in the
material master, you must mark and release the standard cost estimate.

You can mark the following:

 One or more standard cost estimates

 More than one standard cost estimate within one costing run

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

Prerequisites:
 Marking the standard cost estimate has been allowed. The marking
allowance specifies the company code and period in which you can
mark a standard cost estimate with a given valuation variant and costing
version. You cannot mark cost estimates/costing versions with different
valuation variants in this period.
 You mark the cost estimate and transfer the costing results into the
material master as the future standard price.
 You can mark the cost estimate more than once at any time (until you
release it).
 You can cancel the allowance for marking and thus the marking of
standard cost estimates
 If you want to work with multiple valuation views, you can mark all of the
views (legal valuation, group and profit center).
It specifies which costing variant and costing version cost estimate allowed to
be permitted for the specific period to the specific company code.
Note: It is not possible to use multiple costing variants and versions to allow to
use in same period and company code to mark and release the estimate.

VALUATION VARIANT

 Valuation variant is a Key that controls which prices the system selects
to valuate the quantity structure of a material cost estimate or order, or
to valuate the costing items of a unit cost estimate.
 The valuation variant controls how the materials and activities in the
cost estimate are valuated. The valuation variant specifies the following
parameters:
 Which price in the material master (such as the standard price) or in the
purchasing info record (such as the net order price) is used to cost a
material in the BOM
 Which planned or actual price is used to valuate the internal activities
 Which version in Cost Center Accounting is used to valuate internal
activities
  Which costing sheet is used to calculate overhead
 Whether and to what extent a BOM item or an operation in the routing is
relevant to costing
 The different valuation strategies for materials, internal activities,
external activities, and subcontracting are stored as strategy
sequences.
 A global valuation variant is valid for all plants. A local valuation variant
is valid only for a specific plant. You define valuation variants in
Customizing for Product Cost Controlling.

Cost Object Controlling: 

 In Cost Object Controlling there is a valuation variant that can be used

for the valuation of work in process at target costs and for the valuation
of scrap variances.
 In this valuation variant, you specify which cost estimate is used to
calculate the target costs.

Valuation variant contains the strategy i.e. which priority of sequence of

source of price to be used while valuating materials, Activities ,Sub
contracting, External processing, and also it specifies which costing sheet to
be used to calculate the indirect overheads.

 We can maintain different valuation strategies for the same valuation

variant depends on the plant wise. System follows the first priority plant
dependent then it follows the global definitions.

Valuation Strategies:

 Material valuation

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

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

Note:

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

Additive Costs: Any costs you want to add manually as a part of Indirect
Overhead.eg.Storage.
Raw mat X–.100 RS +20% Additive cost.

Include additive costs means the valuation variant specifies whether to

consider or not to consider the additive cost in the cost estimate of the
product. If not activated, additive cost is not considered.

Purchasing: Assignment of Conditions to Cost Comps:

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

 Activity Types / Processes

 Here you define the sequence in which the system searches for prices
in activity type planning or actual activity price calculation in Cost Center
Accounting or Activity-Based Costing to valuate the utilized activity
types and business processes.
 Plan/actual version

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

product.

You also specify which plan/actual version is used.

 Subcontracting
  Here you define the sequence in which the system searches for prices
in the purchasing info record. In purchasing, the quota arrangementsare
used to create a mixed price for materials that are manufactured with
external vendors with parts provided by the customer.
 You can specify whether the quota of the individual vendors that are
entered in the list for the material to be processed should be determined
through the planned quota arrangement or the actual quota
arrangement.

 External processing

Here you define the sequence in which the system searches for prices in the
purchasing info record or routing operation for valuation of the external
activities.
  External processing is also another form of sub-contracting type. It is
nothing but outsourcing of a particular activity eg.cleaning, painting
Activity etc.
 The val. Variant ext. processing strategy tab specifies which pricing
strategy to be used to valuate the out sourcing activity.

GROSS PRICE: price before deducting Rebate and Discount.

NET PRICE: Gross price – Rebate- Discount.

Condition Table: we can assess or read the price from the pricing condition
records.eg.freight and insurance.

Overhead costs

 You can link the valuation variant for definition of overhead to a costing
sheet. You can also enter a costing sheet for the allocation of overhead
to raw materials, if you want to use specific overhead conditions for raw
materials.
 If you want to differentiate overhead application according to material
groups, you must have groups and made the necessary settings for the
costing sheet in the step Define costing sheet.
  You can also specify whether overhead is calculated for subcontracted
materials in material costing

Price Factors

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

considered in the cost estimate of the product.
Standard Settings

The standard system provides a number of predefined price strategies.

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

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

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

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

1. b) For each material valuation strategy, you can specify whether

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

You can enter a costing sheet for the application of overhead to raw materials
under Overhead on material components.

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

this here.

8. Save your entries.

9. Assign the valuation variant to a Costing variant.
Note
If you want to use different valuation strategies or different overhead rates in
plants that belong to the same company code, you can define plant-specific
valuation variants by assigning a valuation variant to a plant. Choose the push
button Valuation variant/plant. If you don’t do this, the valuation variants apply
to all your plants.

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

 COSTING VARIANT:

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

like costing type, valuation variant, Date control, Qty. structure control,
and transfer control. These parameters are required to generate the
cost estimate.
 Costing variants form the link between the application and Customizing,
since all cost estimates are carried out and saved with reference to a
costing variant.
 We can define multiple costing variants for std. cost estimate purpose
but we can use maximum one costing variant per company code for the
specified period.

Control Parameters in the Costing Variant

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

 Costing type
 Valuation variant
 Date control
 Quantity structure control
 (only relevant for cost estimates with quantity structure)
 Transfer control (optional)
 Reference variant (optional)

NOte

 Although it is technically possible to have two costing variants with the

same costing type and valuation variant, this should be avoided to
prevent data from being overwritten.
 The reason for this is that the key structure for the costing results in the
database uses the costing type and the valuation variant, rather than
the costing variant.

Note

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

 How the costing lot size is handled

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

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

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

Pass on lot size: No:

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

e.g.

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

Fin. Good X lot size is 10 pc.

Sfg x lot size is 100 pc.

For SFG X., 100 PC

Raw mat.      -100kg*100    =10000

Cleaning        -10hrs *2000 = 20000

Machine hrs. -100hrs *300=30000

TOTAL:         60000

Per unit cost; 60000/100= 600

Sfg x price 600

Pass on Lot Size: Only with individual requirements: 

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

Pass on Lot Size: Always:

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

E.g. Applicable for above both

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

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

SFGX: 10 pc

Raw mat:      10*100        = 1000

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

Machine:  10hrs*300       = 3000

TOTAL:      24000  

Value of SFGX WILL BE 24000

Ignore prod cost EST without Qty Structure:

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

Transfer control can be changed;

This indicator controls whether allowed to change or not allowed to change

the default transfer control during the execution of the cost estimate.

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

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

In Additive Costs you determine the following:

 Whether you can transfer the cost components that were entered in the
form of an additive cost estimate
 Whether the additive costs for materials with the special procurement
types stock transfer or production are included in another plant.
 We can add the additive cost manually like freight, OH, insurance in the
additive cost estimate of the product or material.
 This field controls whether the cost estimated created with this costing
variant can allowed to include or enter manual cost in the form of
additive cost estimate.
 Option 1: Ignore additive cost.

It won’t allow to add the additive cost.

 Option 2: Include

It allows to add the additive cost.

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

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

Include additive cost with stock transfers:

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

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

In Update you determine the following:

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

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

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

Saving allowed:

This indicator allows to save the cost estimate. We need to select this
indicator if we want to update the price to the material master also we need to
select this indicator for using this cost estimate for below scenarios:
 1. for variance calculation.
2. Variance calculation.
3. Result analysis.

Save error log:

We can save error log for reference purpose.

Defaults can be changed by the user:

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

 Itemization:

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

In Assignments you determine the following:

 Which cost component structure is used for the cost estimate.

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

 Whether a log is created to collect the system messages.

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

Transfer control & Reference variant:

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

Business case (purpose):

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

Eg1: The new product contains all the new components .In this case, we will
run the cost estimate for all the components which are new products.
Eg2: The new product contains few components as old and some new
components. In this case, how the system should reuse the cost estimate of
the existing product in the cost estimate of other products.

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

Note:

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

Transfer only with collective requirements material (field):

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

Fiscal Year:

This indicator refers the current year.

Period:

 In the period, if you keep blank, then it refers only the current period.i.e.
System searches for existing cost estimate in the current period only.
 In current and previous cost estimate, the period refers the number of
periods in the past. I.e. before the date of the cost estimate.
 In case of future cost estimate, the period refers the number of periods
in the future i.e. after the start date of the cost estimate. And in the past
(before the start date)
 You define transfer control in Customizing for Product Cost Controlling.
You use transfer control to specify how the system is to search for
available cost estimates in order to transfer existing costing data into
another cost estimate.
 You define a reference variant in Customizing for Product Cost Planning
and enter it in the costing variant. The reference variant contains
a transfer control ID, which finds the cost estimate to be copied.
Costing type

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

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

 Each costing type allows only one valuation view.

For a material cost estimate, the costing type controls the following:

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

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

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

Price Update

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

Following options are made available by SAP for updating the results

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

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

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

Cost Estimate with Quantity Structure

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

 Without Date

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

 With date

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

 With Start of Period

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

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

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

 Additive Cost Estimatesthe purpose is to allow to enter the additive cost

with effect from which date, either with date or without date or with start
of the period. It will always considers the start of period in case of
standard cost estimate.

Misc. Tab:

This tab contains following two parts

Cost Portion for Overhead Application

 This part works as a calculation base for calculating the overheads.

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

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

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

                                                 Cost component Structure

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

Variable – 1

Fixed     – 2

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

Cost Component Structure Contains Cost components:

1. Material cost
2. Packing material cost.
3. Consumables.
4. Cleaning cost.
5. Machining cost.
6. Labor cost.
 7. Material OH.
8. Admin OH.
 Cost component represents the grouping of cost or cost elements.
 Each cost component specifies which portion of cost to be displayed
and to be considered for valuation of inventory.eg. Variable cost, or
consider fixed and variable cost.
 Each cost component specifies whether to be rolled up or not. Every
cost component should be rolled up or not. Every cost component
should be roll up cost component which is relevant to COGM &
inventory valuation
 Each cost component specifies whether it is relevant for inventory
valuation or not.
 Each cost component, we need to specify which views to be updated
eg.COGM, COGS, or tax inventory or commercial inventory.
 Main CCS can be called as Primary CCS.It is only possible to update to
the material master std. price field. Auxiliary CCS is not possible to
update to the material master std. price. We can able to transfer both
main CCS and Auxiliary CCS to COPA. Auxiliary CCS can be used to
view the breakup of the cost in the alternate view.

Cost component groups:

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

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

Types of Cost component structure:

1. Main CCS.
 Only possible to update to the material master std. price.
2. Auxiliary CCS.
 Cannot be possible to update to the material master std. price.

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

Main CCS:   The main CCS can also be called as primary CCS or Principle
CCS.Main CCS is mandatory for the standard cost estimate. Main CCS cost
estimate is only possible to update to the material master std. price field and
also possible to transfer to the Costing based COPA.
Auxiliary CCS:    The purpose of this is to view the breakup of the cost
estimate of product in the alternate view in addition to main CCS.The auxiliary
CCS cost estimate is not possible to update to the material master std. price
field and is possible to update to the costing based COPA.

Primary cost component split:

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

Delta cost component Split:

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

Int. / Ext. cost split:

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

Assignment to the Organizational unit:

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

Define the CCS:  (OKTZ)

     
                           

Click on NEW ENTRIES.

Enter the following and Save:

Select C1 and click on cost components with attributes.

Click on New entries.

Enter the following and Save:

 

Creation of cost component group:

Click on new entries.

Enter the following and Save.

Assign C1 cc group to 01 Raw material cost component.

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

group.

 
Same will applicable till packing cost.

Same with IOH.

Assign the cost components to CCS:

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

The names will automatically come when you click enter.

101000: Raw material cost element.

101001: Raw material import cost element.

943000: Secondary cost element.

941000: 41 Category cost element.

Enter the following and Save.

Cost component views:

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

Click on New entries and save.

 

Auxiliary CCS:

Select C2 and click on Cost Component with attributes.

Click on new entries.

Do the same for similar kind of components.

For Salaries, power and Misc. exp.

Save.

For MOH.
For AOH:
Save.

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

Enter the following and Save.

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

Assignment: Organiz. Units – Cost Component Structure:

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

Assign the primary cost component split in the CO versions.

IMG>Controlling>org.>Maintain versions

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

Select 2016 and Double click.

 

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

Notes on the various indicators:

1. Cost share Indicator:

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

2. Cost Roll up:

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

3. Cost component group:

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

Further criteria for cost component view on itemization:

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

Inventory valuation:

This indicator controls which cost component is relevant foe inventory

valuation.

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

Initial cost split:

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

Delta profit for group costing:

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

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

                                                             COSTING SHEET

Overhead: THE COST WHICH IS OTHER THAN MATERIAL COST.

 Overhead is of two types:

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

Basis of Allocation:

 Activity types are used as a base to allocate DOH.Activity types are

specified in Routing. When you do the activity confirmation (CO11N),
OH is allocated to the production order.
2. Indirect OH: Service dept. cost.

Basis of Allocation:

Based on Activity type:

 Separate activity types are defined for IOH allocation

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

Routing and Work center:

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

Template allocations:

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

Not based on Activity type:

 It is the pure traditional method. Costing sheet method is used to

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

COSTING SHEET:

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

applied on which amount and under which conditions to be applied and
from which cost center to be allocated and which OH cost element to be
used to debit in the order and credit in the cost center.
 Costing sheet components:
1. Base.
 2. OH rate.
3. Dependency Key.
4. OH type.
5. Credit key.
6. Base:

Grouping of cost elements on which OH rate is applied.

2. OH rate:

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

3. Dependency key:

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

4. OH Type:

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

5. Credit Key:
 It species which cost center to be credited during the actual OH
calculation and also it specifies which OH cost element to be used to
credit in the cost center and to debit in the order.
 One credit key represents one cost center.

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

 Costing sheet is assigned to Valuation variant in OH tab

Click on NEW entries and enter following.

Click enter and Save.

 Select the material cost and click on details.

 Give your Controlling Area.
Cost portion: It specifies which type or portion of the cost to be grouped for
OH calculation purpose.

Total: It considers both Fixed and Variable Cost.

 Click on New entries.

 Give mat. Cost element group and SAVE.

Do same for the base C11.

Percentage overhead RATE:

Click on new entries.

Enter following and SAVE.

 

Define credits:

Click on new entries and enter following and save  :

 Select C3 and click on details:

 Click on new entries AND ENTER following.
  Select C4 and click on details:
 Click on new entries AND ENTER following.

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

e.g.:

Fix%               70%
Base total      1000

The OH rate is 15%.

Therefore the OH amount will be 150.

On OH amount 150.

Fixed OH (70%)                              105

Variable OH (REMAINING)                    45

Define Costing Sheet:

Click on New entries:

And SAVE.

 Select the costing sheet and click on costing sheet rows.

 Click on new entries.
 

Enter as above in the following and save.

Overall Scenario: