How to close a production order

You can close a production order in the Close Production Orders session.

Before a production order can be closed, the following conditions must be met:
 The production order must have the order status Completed
 Allocated materials are issued
 Warehousing orders are completed
 Inspection orders are processed
 Hours entered are posted
 Subcontracting orders are processed
 Purchase invoices for subcontracting are approved
 Back flushing is performed
You must enter a valid closing date, before you can close a production order.
In SAP, WIP is handled in two steps

Step 1: Calculation of WIP amount

WIP Amount = total debit in production order – total credit in production order

For WIP calculation, T code is KKAX

When KKAX is executed, sap calculates debits and credits posted on production order and calculates WIP amount.

Step 2: Posting accounting entry of WIP (T code is CO88)

For posting above accounting entry system needs accounts (WIP and Change in WIP) and amount (WIP amount).
Hence we need to tell sap two things:

1. How WIP amount is calculated?

- Out of so many cost components (raw material, overhead, activity cost etc.), which cost is to be capitalized
(considered for WIP calculation)?

- Out of cost (which is considered for WIP calculation), what portion is to be capitalized and what portion is not
to be capitalized?

- We need to maintain GL account for WIP and GL account for change in WIP.
What is the significance of WIP?
Term WIP is normally associated with production. During production process input (ram material cost, processing
cost, overhead cost) is consumed and at the end of production finished product is expected. But what if
production is not yet completed or production is in process, and then unfinished product is referred as WIP.

WIP is something more thing more than raw material but less than finished product. WIP is in the process of
getting converted into finished goods. Once converted into finished goods, it will be sold thereby generating
revenue to the company. Hence it’s important for companies to keep close track of wip.

Moreover, it’s legal requirement by income tax department that companies need to report wip in their financial
statement. When preparing financial statement (balance sheet and P&L) at the month end, then wip is also
calculated and reported in financial statement. Hence calculating wip and updating in financial statement is month
end process.

High wip signifies:

1. Company is having lot of production going on. May be company received lot of customer orders which
are to be fulfilled. Company might be expecting strong order pipeline.
2. May be company’s production process is a bit slow. May be its taking longer time to convert raw material
into finished goods.

Low wip signifies:

1. Not much production is going on. May be company is expecting not much orders from customers.
2. May be company is having lean production (just in time production).
3.

4. Here WIP = Input cost consumed - value of output produced.

5. At month end, wip needs to be updated in account books.  Hence below accounting
entry should be generated.
 6.
7. Once production is completed, then any difference between input consumption cost and produced
output value will not be referred as WIP rather it be called as production variance.
8. After production is completed, WIP should become zero and difference will be called production
variance. Below document will be posted.

Let’s understand configuration needed for WIP in sap

In SAP, production order is created for production department to work upon. Production order is used to track all
the activities of production department.

Production order keeps track of

 Raw materials are consumed in production and their financial value.

 Process/ activities performed in production process and its financial value.
 Estimated overhead cost consumed in production process.
 Quantity of output produced and its financial value.

Hence, we have all the information needed to calculate wip for the production order. Once we have required
configuration in sap then at month end we can calculate and post financial document using some T codes.

Let’s understand wip for below production order.

Above production order can be represented as below:
SAP requires below inputs to be able to handle wip:

# Which cost should be included in WIP calculation?

For example, If I decide that all cost to be included in WIP calculaiton then

WIP = 80+1.6+0+40=121.6

If I decide that overhead cost should not be a part of WIP calculation.

Then WIP = 80+1.6+0=81.6

# What % of cost should be included in WIP calculation?

If I decide that 0nly 40% of overhead cost should be included in WIP calcuation

Then WIP = 80 + 1.6+0+(40% of 40) = 80+1.6+0+16 = 97.6

# GL account determination for posting WIP document?

After WIP amount calculation, below financial document needs to be posted.

Hence GL account needs to be maintained for WIP a/c (balance sheet account) and Change in WIP a/c (profit &
loss account).

# Production order goes through various stages. At what stage of production order, WIP should be calculatd and
posted?

Entire configuration of WIP  in sap is basically to answer above four questions.
Hope this is helpful in understanding configuration needed for handling WIP in sap.

 
WIP calculation and treatment in account books.
Let’s assume production is going on and below is consumed in production process.
  

Production Types / Process in  SAP

There are three production process/types in SAP:

1. Repetitive Manufacturing (REM):

In REM the product is typically manufactured over a long period of time.The production quantity need
not be particularly high nor must be produced everyday. Very simple system e.g. Food Industry,
2. Discrete Manufacturing:
In this process setup is often switching from one product to another. e.g. Job Order manufacturing.
3. Process Manufacturing:
The industry where product is result of continues process. e.g. cement, sugar,cooking oil, e.t.c

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 of Each Component :

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 centre comprises cost centres 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 ma

chines 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.

 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 Centre 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 arrangements are 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

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 :
his 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.
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.

Enter & save

  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:
 

The five steps in understanding product costing in SAP FICO are:

Now let learn each step of product costing in detail.
Step #1: Cost Center Planning
Cost center planning is the elementary step in understanding product costing. The main objective of this phase is to plan total
dollars and quantities in each cost center plant.
Prerequisites:

 Company codes and plants in organizational structure are planned.

 Master data for profit centers, cost centers, primary and secondary cost elements and activity types.

In transaction KP06, cost center dollars are scheduled by Activity type and cost element. Fixed and variable dollars can be
entered. User can plan costs in production cost centers which wind up through allocations. In transaction KP26, the cost center
quantities are planned by Activity type. Based on the earlier year’s actual values, activity rate can be manually entered.
Planning activity quantities based on useful installed capacity accounts for interruption is the best practice.
Step #2: Activity Rate Calculation
The main aim of this phase is to estimate the rates of each activity plan in each cost center in a plant.
Pre-requisites: 

 Cost Center Plans are entered: Plan costs in KP06 and Plan activity units in KP26

Once we plan our cost center dollars and quantities, it’s time to calculate the activity rates which are implemented to value
internal activities to produce products. We can also use a blended approach and plan rates for few cost centers and activities
and to calculate other rates based on the last activities.
Once we plan costs for all cost centers, we can avoid the next step of plan allocations. Use plan assessments and distributions
to allocate costs when the planned costs acquired in overhead cost centers.
The key dissimilarity between assessments and distributions is that distribution keeps the primary cost element (Identity) of the
cost. Assessments are secondary cost elements which act as a cost shipper to move costs. We can use assessments,
distributions or blended approach of both. The plan assessments and distributions are created in Transactions KSV7 and KSU7
and executed in KSUB and KSVB transactions.
Once the costs are assigned, we must review the Cost center Actual/Plan/Variance report. Now, execute the cost center plan
which rips cost when we have more than one activity type. The cost has to be ripped based on the activity quantity and other
source. Using Transaction KSPI, activity type rates are calculated. If the cost is adverse, you can revise the cost plans and
recalculate the rates.
Step #3: Quantity Structure
This step helps you to estimate the components of manufactured goods, cost of sold goods based on the BOM and Routing.
Pre-requisites:
Master data is created:

 Material Masters (including MRP, Accounting and Cost views)

 Bill of Materials (BOM)
 Work Centers (Cost Centers and Activity Types)
 Routings (Product Planning) or
 Master Recipes (Production Planning – Process Industries)
 Production Versions
 Product Cost Collectors (Production Planning Repetitive Manufacturing)

Quantity Structure is a key concept. It is a fundamental integration point between Finance and Logistics modules. There are
several components of Quantity Structure namely:

 In a product, a material master with a distinctive fit/form in a plant. It contains many views such as Material
Resource Planning (MRP) views, accounting views and costing views. Procurement type and special procurement
are the two key fields in costing. The procurement field refers to a material which is created internally, purchased or
both. Whereas special procurement refers to a material which is sub-contracted, purchased from another plant.
 Bill of Materials (BOM) is created for each internally produced material. The BOM list contains the component
materials and quantities required to produce a semi-finished or finished good. Depending on the price control with
standard or variable average price of the BOM components, the material cost of the product is calculated.
 A work center identifies a machine or work area where a production process is performed. In addition to BOM, a
routing is created to indicate the processes necessary to produce a material. In production planning, a routing has
series of operations which also includes work centers and activity quantities.
 A master recipe is used for batch-oriented process manufacturing. Rate routings and product cost collectors are used
in repetitive manufacturing. Product cost collectors are created for each production version.
Production versions refer to a combination of a BOM and master recipe or routing required for material production.
Step #4: Costing Run
Costing run is used to cost mass volumes of materials in a particular company code. This allows user to select materials,
detonate quantity structure, cost, analyse, mark and release.
Pre-requisites:

 Material Masters (MRP, Accounting and costing views)

 Quantity Structure (BOM, Master Recipe or Routing and Production versions)
 Condition types and production Information records
 Configuration
 CO Master Data

Materials are costed for the duration of the annual or monthly costing process. To execute costing runs, analyse results, mark
and release costs transaction CK40N is used. This can be formed using controlling area, costing version, costing variant,
company code and transfer control. Therefore, costing run can only be made for one company at a time. It has also created for
a specific range of date.
The costing run as 6 steps namely:

1. Selection
2. Structure Explosion
3. Costing
4. Analysis
5. Marking
6. Release

After executing each step, error log has to reviewed and resolved. Execute each and every step after resolving the errors. If in
case the results do not update after execution, press the refresh button.
Step #5: Actual Cost
This is determined through actual expenses, purchase price and conformed production quantities. These costs are matched to
the standard costs through variance analysis to identify profitability and make decisions on management.
Pre-requisites

 Material Masters (MRP, Costing and Accounting views)

 Quantity Structure (Routers/Master Recipe, BOM and Production versions)
 Configuration (WIP, Variance or settlement)
 CO Master Data (Activity types, Actual and Primary and secondary cost elements)
 Assessment/Distribution Cycles, Actual Statistical Key Figures

The production confirmation includes, product cost by order, actual production yield, scrap, and activity quantities. The
production costs are composed on the production orders for review and settlement. In product cost by period, product cost
collectors are used to calculate WIP, variances, and settlement instead of the planned orders.
In repetitive manufacturing, the quantities established based on the target cost created on the valuation variant for WIP or
scrap. In discrete manufacturing, WIP is the dissimilarity between debit and credit of an order.
The variance analysis of input and output side is offered by SAP Finance training.  Finally, we must settle our orders or product
cost collectors. Product Cost Collectors and orders are debited within actual costs during production.