Product Costing

Presentation to XYZ
 Product Costing : Overview
• Product Costing

Product Costing is a very important part in the XYZ SBU. However, from the
process point of view, it is quite independent and can be divided into
individual steps which will be part of other scenarios. This scenario
describes the period end closing procedure for product costing. Besides
closing of production orders, single-level and multi-level variance are
settled to materials in actual costing run. The actual costs of products can
be calculated by valuation type, and the relevant accounting document
can be posted automatically. Production orders and materials in plant
code ………………………..are all applicable to follow the same steps.

• Process Flow of Product costing can be broadly divided in following

activities
Period Start Activities
During the Period Activities.
Period end Activities.
Std cost of product consist of following elements
BOM

Material Costs Rs.

Routing
Production Costs Rs.
Overhead Costs Rs.

Overhead
Costing Sheet
 Benefits of Product cost Planning i.e,
Standard Cost
• Can we justify production at this market price? What is my
lower price limit?
• How are the costs broken down? For example, how do the
material costs compare to the Conversion cost? Which cost
center is causing how much conversion cost?
• How could the production process be improved?
• Which organizational unit affects the product costs the
most? In which plant can the product be manufactured the
cheapest?
• Cost and quantity Variance analysis can be meaningful only
when standard cost calculated is correct.
• In the SAP system, materials are valuated with one price.
This price is set by a standard cost estimate.
 Requirement and Objective
• How to use the SAP for getting the product cost and
further for the MIS purpose.
• Cost Finance reconciliation
• Breakup of cost in Fixed and Variable
• During the course of periodic activities cost is
transferred from one cost center to another cost
center. Whenever it is transferred from one cost center
to another cost center it must not loose the fixed and
variable identity as owner of the cost center can know
what are the fixed and variable cost has been
transferred to his cost center and in which ratio.
Key of success of SAP CO module
CO module is more about the understanding of
cost flow then the configuration. This means only
good configuration is not sufficient by which SAP
CO module can be made successful in any of the
organization. It consist sequence of opening
activities as well as closing activities. Every
activity performed, ends up with some output.
Wrong sequence of activity will land up with the
wrong product cost. So it is very important to
understand SAP costing techniques.