SAP CO - Material Ledger - Actual Costing Scenarios

Karanam Sreedhar
SAP CO-Product Costing &

Material Ledger Consultant
Material Ledger / Actual Costing
Presented
by
KARANAM SREEDHAR
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Material Ledger Scenarios:

1). Multiple Currencies: Company Code Currency, Group Currency and Hard Currency
2). Multiple Valuations: Legal Valuation, Group Valuation and Profit Center Valuation
Transfer pricing: Material (RM) to Material (SFG or FG)
Transfer pricing: Plant to Plant
3). Combination of Multiple currencies and Multiple valuations
4). Work in process Functionalities
5).Revaluation of Consumption Functionalities
6). Distribution Usage Variances
Material: Physical Inventory Count Process
Activity: Actual Activities Distribution Process
7). Material Ledger with CO-PA
8). Alternative Valuation Run (AVR)-CKMLCPAVR
Cumulative Material Ledger Run
Material Ledger run with IFRS and Local GAAP
9). Debiting or Crediting Materials and Changing Actual Cost Component Split Values
10). Value Flow Monitor-Calculation/Analysis of Not Distributed and Not Allocated
Concept.
11). Accounting Entries
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Transfer Pricing Methods:
In transfer pricing, normally two types

A). Material to material i.e. From Raw material to SFG and or Semi-finished to Finished Goods.
B). Plant to Plant i.e., Material will be transfer from one plant to another.
We will discuss one by one
A). Material to material i.e. From Raw material to SFG and or Semi-finished to Finished Goods.
In this scenario, Raw material Cost plus markup price to SFG/FG material by doing standard cost
estimation.
For Raw Material (2996) price is 100 for all valuation levels and Profit center is 1000 was maintained.
MM02-Raw material
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In Raw Material –Profit Center 1000 assigned
And In Finished Good Material –Profit Center 2000 assigned
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For FG material price didn’t maintained because this price should come from through Standard Cost
estimation.
Bill of Material-CS01
Transfer Pricing Procedure- Configuration

Maintain Condition Types-8KEZ
Here two condition types required 1). Base Condition type and 2). Percentage Overhead
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1).Base Condition type:
Here Definition of Condition type is Base condition type from Material Ledger-DX1
2). Percentage Overhead: Here Definition of Condition type is Percentage Over Head –DX2
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Pricing Procedure: In the same step,
In step 10, maintained Condition type DX1 and step 20, maintained Condition type DX2 with From to
option is 10.
Here two Transfer Price Variant (000 & PC0) need to be maintained.
000 for Standard Cost estimation and PC0 for preliminary cost estimation purpose either by
production/process order /Product cost collector. And assign Earlier created Pricing Procedure.
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Creation Records-AKE5
Maintain Percentage to receiving Profit center (Partner Profit center) from sending material
Here This process is Multiple valuation i.e., Legal, Group and Profit Center Valuation. So for each
valuation its need to be maintained Separate Costing Variants.
Legal Valuation – PPC1, Group Valuation –IKO1 and Profit Center Valuation – IPCA
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CK11N-Standard Cost Estimation for Legal Valution-PPC1 Costing Variant
CK11N-Standard Cost Estimation for Group Valution-IKO1 Costing Variant

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CK11N-Standard Cost Estimation for Profit Center Valuation-IPCA-Costing Variant
While doing Profit center valuation cost estimation system will calculate transfer pricing based on the
condition types.
Once Standard Cost estimation, marked and released for all valuations, In material master display-
MM03
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Production Order Creation-CO01
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Once click on the Calculation Button-Transfer pricing will be calculate for Raw material
Cost Trend-CO03
For Legal Valuation Goods Issue Plan cost is 2,000 also Legal Valuation.
For Profit Valuation Goods Issue Plan cost is 2,000 also Legal Valuation.
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Production Order Confirmation-CO15
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Here Transfer Pricing hitting from Raw material to FG
Now Check Legal, Group and Profit Center Valuation accounting entries
Legal and Group valuation level, no additional GL accounts hit.
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For Profit center valuation additional accounting entries are coming.
Profit Center Valuation
CKM3- Material Price Analysis - Legal & Group valuation
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CKM3- Material Price Analysis - Profit Center valuation
Transfer Pricing Methods: (From Plant to Plant)

B). Plant to Plant i.e., Material will be transfer from one plant to another by doing STO Process
Plant to Plant i.e. From SFG/FG with one plant TO SFG/FG with other plant.
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Here 2997 Finished material is transferring from DX1 plant to DX2 plant.
By setting Special Procurement for DX2 plant’s material also need to be standard cost
estimation. This also standard cost estimation for all three valuations legal, group and Profit
center valuation.
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Maintain Condition Types-AKE5

In this scenario, DX1 Sender Plant - markup Percentage 12 % to DX2 Receiver Plant’s Profit Center
which is 3000.
Transfer Posting-MB1B
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Distribution Usage Variances

Material: Physical Inventory Count Process
Initial Raw Material Stock is 1000 Qty.
This is input material for Finished Goods: 2997 & 2999
For the Material-2997-Production, Goods issue Qty is 22 and For the Material-2999-
Production, Goods issue Qty is 73.
The initial Stock is 1000 Qty and total consumption 95 out of 1000, So the balance would be
1000-95 = 905.
Let us take example: As per original stock in inventory 875.
Which means System point of view stock is 905 and Original Inventory is 875 only.
The balance 905-875 = 30 Qty we should distribute respective production orders.
Now we can do the process.
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Now we will do Physical Inventory Count- MI01
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Enter Inventory Existing as per the original Stock -MI04
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Once we enter Actual ending stock of Raw material, system will calculate value also
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We can see in CKM3 movement type 702 under Consumption Category of Qty-30 Qty with
value-3,000.
CKM3-Material Price Analysis
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Now we have to distribute that difference Qty 30 to three production orders 60004086,
60004087 and 60004088 based on their Production Qty.
CKMDUVMAT-Distribution of Inventory Differences.

Enter Company Code, plant, Material, storage location and Physical Inventory Doc.
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Once Enter, we can see the row with below new status information.
Select the Row and click on the Distribute button and then see the status.
Click on the details button, we can see each production order the quantity which was
distributed based on the orders qty.
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Production Adjusted Total

Order Qty Ratio Qty Dis.Qty Rounding Prod
60004086 22 0.231579 6.947368 7 29
60004087 55 0.578947 30 17.36842 18 73
60004088 18 0.189474 5.684211 5 23
Total 95 1 30 30 125
Once data is ok then click on the post button.
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6). Distribution Usage Variances - Activity: Actual Activities Distribution Process

Normally, Activities such as Labor, Machine hr and Utilities during confirmation of
production order time we can’t get actual activities quantities. In Month end only we can get
actual quantities.
So we have to adjust these delta quantities with planned quantities which were confirmed
during period.
In this example: 1000-PROD1 Cost center with Activity type DX-01 (Labor) booked 150 hrs
for production orders 60004086, 60004087 and 60004088
S_ALR_87013611 - Cost Centers: Actual/Plan/Variance
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Let us assume actual Hrs 200 for labor. Now we want enter actual Hr to the Cost center with
Activity types.
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CKMDUVREC-Enter actual activity quantities.

Enter cost center and activity type.
Now enter 200 hr for Labor activity type and then save.
CKMDUVACT-Distribution of activity differences to production orders
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After click on Distribution button
Production Confirmation Adjusted

Order Qty Ratio Qty Dis.Qty Rounding Total Qty
60004086 100 0.666667 33.33333 133.33333
60004087 30 0.2 50 10 40
60004088 20 0.133333 6.666667 26.666667
Total 150 1 50 200
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5). Work in process Activation to Material Ledger – OMXW

Activation WIP to plants as from period and Year.
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Once WIP activate the plants, we can see in WIP Revaluation item in CKMLCP Transaction.
Created RAW Material Maintained with Price Control S and price determination 3.
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Like Finished Product also maintained Price Control S and Price determination 3.
CS01-BOM
CA01-Routing
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After CK11N Standard Cost estimation & CK24 Marking Then Release
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MM03-Finished Material
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CO01- Production Order Creation.
Production Order Confirmation-Here total production 100 qty done
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But Goods receipt 70 Qty only.
Here Raw materials & Activity quantities totally consumed for 100 qty.
Now Partially Goods receipt happened, so we need to be calculated Work in Process.
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WIP Calculation-KKAX
KO88-Settlement
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CKM3 of Raw Material
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Based BOM structure, here for 100 ty of FG , raw materials 200 qty required.
Raw materials total 200 qty consumed but FG goods receipt only 70 qty only.
For 100 qty of FG -------------200 qty of RM required
But 70 qty of FG-------------70/100*200 = 140 of RM required, and balance 60 qty will be in
WIP.
Run CKMLCP
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Activate Valuation Areas for Material Ledger
In this step, you activate the material ledger for one or more valuation areas.
If the material ledger is active for a particular valuation area, all materials in the valuation area
are valuated using the material ledger.
Assign Currency Types to Material Ledger Type

In this step, you create material ledger types and allocate up to three currency types to each of these
material ledger types.
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Activate Actual Costing

In this step you can activate, per plant, Actual Costing for materials and activity consumption update
in the quantity structure.
If you use Actual Costing, you can decide whether (in addition to material consumption)
activity consumption and/or processes which are used to produce a material should be updated
in the quantity structure in Actual Costing/Material Ledger. If you are using Multiple Valuation
of Cost of Goods Manufactured, you can calculate your depreciation using different methods
and include it in cost centre accounting. This is then used as a basis for actual price calculation
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using various valuation approaches. To include this price for the actual costing, you have to
choose the option 2 Activity Update Relevant for Price Determination in the column Activity
Consumption Update in the Quantity Structure.
 Actual consumption is updated in the quantity structure and is considered during price
determination.
If you choose this setting, the variances between the plan price and the cost
center/activity type and the actual price calculated at the end of the period are adjusted
subsequently. The cost center or the process is then credited and the material associated
with the consumption is debited. In the context of multi-level price determination, these
variances can be rolled up through the production structure up to the finished product in
the same way that material price variances are rolled up.
If you choose this setting, you cannot use the function 'Revaluation at Actual Prices' at
period closing in Cost Object Controlling, as the variances from the cost center / process
are debited directly to the material. If you use the function 'Revaluation at Actual Prices'
at period closing, the cost center / process will be credited twice and the materials will
be debited twice.
Activate Actual Cost Component Split

If you want to use the material ledger, set the indicator for activation of the cost component
split in this step.
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Maintain Currency and Valuation Profile

In the currency and valuation profiles you determine which valuation approaches are to be used
in Accounting.
Group currency : Group Valution and Prfoit Center valution
Company code currency: Legal Valution and Parallell COGM
Assign Currency and Valuation Profile to Controlling Area
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Maintain Versions
Next, we need to create the different actual versions. The multiple valuation approaches are
saved in CO versions in CO. When you use multiple valuations, version 0 still saves all actual data
(full version), but the data of the parallel valuation approaches is saved in the delta versions,
which you have to create.
Now we will create an actual version in Controlling to receive the depreciation values, which
are based on the International accounting principle. We can also transfer the depreciation from a
parallel ledger to Cost Center Accounting. To receive a parallel depreciation value in CO, you
need to create an actual version.
Here total We have to create 3 additional versions.
SR1-Group Valution, SR2-Profit Center Valution and SR3-Parallel COGM
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Define Currencies of Leading Ledger-
Define Accounting Principles
In this activity, you define accounting principles and then assign the desired ledger group to the
accounting principles (see Assign Accounting Principle to Ledger Groups).
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Define Ledgers for General Ledger Accounting

Define the ledgers that you use in General Ledger Accounting. The ledgers are based on a totals
table. SAP recommends using the delivered standard totals table FAGLFLEXT.
The following types of ledgers are available:
 Leading Ledger
The leading ledger is based on the same accounting principle as that of the consolidated
financial statement. It is integrated with all subsidiary ledgers and is updated in all
company codes. You must designate one ledger as the leading ledger.
In each company code, the leading ledger automatically receives the settings that apply
to that company code: the currencies, the fiscal year variant, and the variant of the
posting periods.
 Non-Leading Ledger
The non-leading ledgers are parallel ledgers to the leading ledger. They can be based for
example on local accounting principles such as German Commercial Code.
You must activate a non-leading ledger by company code.
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Assign Accounting Principle to Ledger

Groups
Assign the desired ledger group to your accounting principles.
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Define Currencies of Leading Ledger
Define and Activate Non-Leading Ledgers
Make the following settings for the non-leading ledgers for Company code:
 You activate the non-leading ledgers in the company code.
 You can define additional currencies beyond that of the leading ledger. The first
currency of a non-leading ledger is always the currency of the leading ledger (and hence
that of the company code). For the second and third currencies of a non-leading ledger,
you can only use currency types that you have specified for the leading ledger.
 You can define a fiscal year variant that differs from that of the leading ledger. If you do
not enter a fiscal year variant, the fiscal year variant of the company code is used
automatically.
 You can specify a variant of the posting periods. If you do not enter a variant, the
variant of the company code is used automatically.
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Material Ledger/Actual Costing with Local GAAP and IFRS
Process
Define Ledger Group

We define ledger groups. A ledger group is a combination of ledgers for the purpose of
applying the functions and processes of general ledger accounting to the group as a whole.
When posting, for example, you can restrict the update of individual postings to a ledger group
so that the system only posts to the ledgers in that group.
Major Integration part in Asset Accounting of Parallel COGM

Define Depreciation Areas
If you set the parallel currencies in FI, you must create a separate valuation area in Asset
Accounting for every additional valuation approach in the parallel FI. This section provides an
overview of how to define the depreciation areas. Note that you may have to consider your
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Process
business needs in terms of the depreciation postings in FI ledgers. For our example, we’ll create
depreciation areas that will not post in FI.
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Process
Specify the Use of Parallel Currencies

This section shows how to assign the parallel valuation approach to the depreciation areas. To
set the currencies/valuation views in the depreciation areas, follow these steps
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Process
Maintain Depreciation Key
Determine Depreciation Areas in the Asset Class
Generally, the assets in an asset class use the same depreciation terms (depreciation key, useful
life). Therefore, you do not have to maintain the depreciation terms in the asset master
record. Instead, they can be default values from the asset class.
In this step, you determine the depreciation terms that are to be used in your asset classes.
Depending on the definition in the screen layout control used, these depreciation terms are
offered either as optional or mandatory defaults when you create an asset.
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Process
Transfer Depreciation from Asset Accounting to Controlling

Standard SAP ERP transfers the depreciation exclusively to version 0 in CO. Because we now
have parallel actual versions in CO, we need to configure the relationship between the CO
versions and the depreciation areas. To do this configuration, follow these steps:
we are transferring the depreciation area 1 to the leading version in CO (version 0). We are also
transferring the depreciation area 30 to the valuation 5 (Delta Version COGM) used in version
SR3.
This means IFRS and Multiple Valuation of Cost of Goods Manufactured
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Process
Transfer Closing Entries from the Material Ledger to Controlling

In the previous configuration, you assigned the depreciation areas to versions in CO. As part of
the monthly closing process, you then calculate the actual activity type prices based on the
accounting principles defined in the configuration. In the configuration discussed in this
section, we’ll define how actual costing/Material Ledger works with the two actual cost
versions shown in the book.
Multiple Valuation Approaches: Check/Execute Activation
We Can activate your currency and valuation profiles in the controlling area. The system checks
whether the valuation approaches you determined according to the settings in the currency and
valuation profile are consistent with the settings in the individual applications.
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Process
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Process
CKMSTART-Production Startup
Now that you have configured the Material Ledger, the next step is to run the startup program.
All Required Configuration done .Next we will go for End User Testing
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Process
USER TESTING
 STANDARD COST ESTIMATION

 PRODUCTION PROCESS
 SALES PROCESS
 ASSET ACCOTUNG PROCESS
 MATERIAL LEDGER RUN (LOCAL GAAP &
IFRS).
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Process
After Creating BOM, Routing now we will do Standard Cost estimation for all Valuations
1). Legal Valution-PPC1
2).Group Valution-IKO1 and

3).Profit Center Valution-IPCA
Standard Cost estimation –CK11N
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Process
Material Master –MM03 after standard cost release by CK24
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Process
Testing with Production Process

CO01 –Production Order Creation
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After Production order confirmation with back flush and GRN
Testing with Sales Process

VA01-Sales Order Creation
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VL01N-Delivery
Delivery Doc
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Testing with ASSET ACCOUNTING Process
i.e., Asset master creation,Asset purcahse and Depreciation Run
Asset Master data
Asset Purchase document
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AFAB –Depreciation Run
Cost Center Balance-After Depreciation run

First Enter Actual Valution “0” i.e., Deprecation area of Local Accoutning Principle
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Cost Center Balance-After Depreciation run
Enter Actual Valution “0” i.e., Deprecation area of IFRS
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KSS2- Actual Cost (Both Salaries and Depreciation) Splitting
Here we observe, If “Legal Valution” Say Local GAAP-Deprecation Amount is 849.32
We observe, If “Parallel COGM Valution” Say IFRS-Deprecation Amount is 1273.97
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KSII-Actual Actiivty rate Calculation
KSBT-Display of Activity Rates.

Enter the cost center for which you want to check the activity type prices. Select version 0,
enter the appropriate Fiscal Year and From Period.
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Enter the cost center for which you want to check the activity type prices. Select version SR3-
Parallel COGM, enter the appropriate Fiscal Year and From Period.
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KKS2- Variance Calculation
KO88- Settlement
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Process
MATERIAL LEDGER EXECUTION

1). CKMLCP
PERIODIC ACTUAL COSTING FOR LOCAL GAAP- LOCAL
ACCOUITNG PRINCIPLE
2). CKMLCPAVR
ALTERNATIVE ACTUAL COSTING FOR IFRS- INTERNATIONAL
ACCOUITNG PRINICPLE
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Process
CKMLCP-Local GAAP Actual Costing Run
The actual costing calculation using the Material Ledger allocates the raw material price
differences to the semi-finished products and then allocates these differences to the finished
products. In terms of our chocolate factory example, this means that all of the price and
exchange rates differences that we collected for cocoa, sugar, and milk are allocated to the
chocolate mass. The chocolate mass also passes the price variances that were received from the
lower-level materials mentioned earlier to the chocolate bars, as well as its own manufacturing
variance.
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Process
After Post Closing Check Cost center balance for Actual Valution “0”
i.e., Local GAAP
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Process
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Process
CKMLCPAVR-IFRS ML Execution
Select the Run for Parallel COGM indicator. This indicator defines that this AVR is used to
calculate the COGM according to the International accounting principle and to make closing
entries in the corresponding ledger.
Choose the plants you want to perform actual costing for, and save your entries.
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Process
Perform the process steps Selection, cumulate data, determine sequence, single-level price
determination, multilevel price determination, and revaluation of consumption Post Closing.
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Process
After Post Closing, Check Cost center balance for Actual Valution “5”
i.e., IFRS
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Process
CKM3-Local GAAP-Actual Cost
Here as per Local GAAP,

Actual Cost is 643.93,
Actual COGM is 6,439.32
Actual COGS is 643.93
Actual Inventory/Closing Invenotry is 5,714.39
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Process
LOCAL GAAP Actual Cost break up
CKM3-IFRS-Actual Cost
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Process
Here as per IFRS,

Actual Cost is 677.40
Actual COGM is 6773.97

Actual COGS is 677.40
Actual Inventory/Closing Inventory is 6096.57
IFRS-Actual Cost Breakup
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SAP CO - Material Ledger - Actual Costing Scenarios

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Karanam Sreedhar

SAP CO-Product Costing &

Material Ledger / Actual Costing

Material Ledger Scenarios:

In transfer pricing, normally two types

In Raw Material –Profit Center 1000 assigned

And In Finished Good Material –Profit Center 2000 assigned

Transfer Pricing Procedure- Configuration

1).Base Condition type:

CK11N-Standard Cost Estimation for Group Valution-IKO1 Costing Variant

Production Order Creation-CO01

Production Order Confirmation-CO15

Here Transfer Pricing hitting from Raw material to FG

Profit Center Valuation

CKM3- Material Price Analysis - Legal & Group valuation

CKM3- Material Price Analysis - Profit Center valuation

Transfer Pricing Methods: (From Plant to Plant)

Maintain Condition Types-AKE5

Distribution Usage Variances

Now we will do Physical Inventory Count- MI01

Enter Inventory Existing as per the original Stock -MI04

CKMDUVMAT-Distribution of Inventory Differences.

Production Adjusted Total

Once data is ok then click on the post button.

6). Distribution Usage Variances - Activity: Actual Activities Distribution Process

CKMDUVREC-Enter actual activity quantities.

CKMDUVACT-Distribution of activity differences to production orders

After click on Distribution button

Production Confirmation Adjusted

5). Work in process Activation to Material Ledger – OMXW

CO01- Production Order Creation.

Production Order Confirmation-Here total production 100 qty done

But Goods receipt 70 Qty only.

CKM3 of Raw Material

Activate Valuation Areas for Material Ledger

Assign Currency Types to Material Ledger Type

Activate Actual Costing

Activate Actual Cost Component Split

Maintain Currency and Valuation Profile

Assign Currency and Valuation Profile to Controlling Area

Define Currencies of Leading Ledger-

Define Accounting Principles

Define Ledgers for General Ledger Accounting

Assign Accounting Principle to Ledger

Assign the desired ledger group to your accounting principles.

Define Currencies of Leading Ledger

Define and Activate Non-Leading Ledgers

 You activate the non-leading ledgers in the company code.

Define Ledger Group

Major Integration part in Asset Accounting of Parallel COGM

Specify the Use of Parallel Currencies

Maintain Depreciation Key

Determine Depreciation Areas in the Asset Class

Transfer Depreciation from Asset Accounting to Controlling

Transfer Closing Entries from the Material Ledger to Controlling

Multiple Valuation Approaches: Check/Execute Activation

 STANDARD COST ESTIMATION

2).Group Valution-IKO1 and

Standard Cost estimation –CK11N

Material Master –MM03 after standard cost release by CK24

Testing with Production Process

Testing with Sales Process

Asset Purchase document