07/18/11

Goals

To understand the SAP functionality of product costing along

with the corresponding configuration settings.
(This is part 1 of a series of multiple sessions planned)

To discuss real issues reported in production system, analyze

the root cause of the issue and identify potential solution
approaches

To identify potential areas of improvement to the design

currently in place at ConAgra

Agenda for this Session

SAP functionality overview on Product Cost Planning:
Controlling Area and Version settings
Cost Component Structure overview
Master data for product costing (materials, BoM, Recipe etc.)
Costing variants / Valuation variant /Transfer Control concepts
Costing type, Costing version, Marking allowance
Costing sheets for overheads
Cost center planning and activity rates
Joint production, co-products, by-products
Costing of materials sourced from other plants

CAG Production issues on the above topic if any brought up

Product Cost Controlling Components

Product
Cost
Planning
Cost
Object
Controlling

Actual
Costing /
Material
Ledger

Information
System

Product Cost Controlling Components

Product Cost Planning
Product Cost Planning
refers to the creation of
cost estimates for the
production of goods or
services.
There is no reference to
a production order i.e.
the cost estimate
is independent of
any given
production order

Cost Object Controlling

In Cost Object Controlling,
the costs incurred in the
production of a product or
service are collected on a
cost object (such as a
production order). Which
cost object is used
depends on your
controlling requirements. It
may be a sales order, a
production order, a
process order or a
production cost collector.
Cost Object Controlling is
used to calculate work in
process, scrap costs and
variances at period close.

Actual Costing
Actual Costing is used to
calculate actual product
costs at period close.
The result may be
transferred to the
material master as a
weighted average price
for the closed period.

The quantity structure is

derived dynamically
using the materials
movements in the R/3
system. The values
connected with these
movements are collected
in the Material Ledger.

Product Cost Controlling Components

Cost Component Structure

The buckets in which the product Costs will be stored in SAP.
This is an uniform structure throughout the ConAgra enterprise
across all Plants / Company Codes.

Each component can have a variable and a fixed component

Consumption cost elements are mapped to a cost component
Example:
510000
Material
920001
Direct Labor
Some buckets may not be relevant for some products or plants.
E.g. Labor cost is not relevant for purchased parts

CAG Cost Component Structure (T-Code OKTZ)

Raw materials.

Packaging.

Labor - Direct.

Direct Overhead.

Indirect Overhead.

External Processing.

Warehousing.

Inbound Frt - NFG

Outbound Frt -STO FG

Material Master fields relevant for Product Costing

General:

Material Type: Valuated or not

Base Unit of Measure. Cannot be changed without a lot of

effort once there are transactions.

Accounting view:
Valuation Class (relevant to and account determination)
The valuation class controls the account determination. Here, the
consumption account is determined, which also appears as the
primary cost element in the itemization.

3000 Raw Materials

7900 CAG Finished
7920 Semi Finisheds

G.L A/c
Inventory
116003
116009
116013

Consumption
511230
511210
511220

A particular material will be of the same material type and valuation

class across all CAG plants and company codes
9

Material Master fields relevant for Product Costing

Costing lot size (identify BoM, Recipe for Std Cost/Set-up cost)
Price unit (to accommodate more than 2 decimals)
Price Control (Standard/moving average)
ML Active and Price determination Control

Costing view:

To be able to cost a material, the Costing view must be maintained

Cost relevancy, Bulk material
With/without quantity structure
Valuation category (split valuation)
Origin Group: helps analysis by grouping materials into categories;
cost estimates and production order costs can be sub-totalled by
origin group. Examples: Meat, Pulp, Packing Materials, etc.
Co-Product, Fixed Price, Apportionment Structure

10

Material Master fields relevant for Product Costing

Overhead group: Key that groups the materials for the same type of
overhead application. Comapnies use it for warehousing burden
and freight overheads.
Profit Center: used for product line analysis
Planned Price, Commercial price, Tax price fields (how used)
Quantity Structure data (BoM, Routing, Production Version)
MRP view:
Material status (readiness for costing, inventory movements)
Procurement type: F (purchased) or E (produced)
- Materials with indicator F can be produced but for standard cost
purposes, only the purchase price is considered.
- Materials with indicator E can be purchased but for standard cost
purposes, only the BOM/Routing based rolled price is considered.
Selection Method (MRP 4 view)

11

Material Master fields relevant for Product Costing

Special procurement
- to identify a material as a subcontracted material (value 30)
- to identify a material as a phantom material (value 50) that will
have only a BOM and not a routing
- to identify a material being procured from another CAG plant
Example: parts in a distribution center will always carry a special
procurement key pointing to the manufacturing plant
(Costing view value overrides for the purpose of costing)
Planned Scrap related fields

12

Costing Variant / Valuation Variants

Prod Cost Estimates Standard Cost, Current and various simulations
Product Cost Planning

Quantity Structure:
PP Master Data
BOM

Routing

Costing
Variant

Z001

Z002

Valuation
Variant

Z01

Z02
By Plant

Value Structure
Prices for Materials
Prices for Activities
Overhead
Cost estimate:
Standard costs

Costing
Sheet
Raw Material $
Labor
$
Machine
$
Overhead
$
Total
$

Z1

Z2

Standard
Cost

Current
Cost

13

Costing Variant / Valuation Variants

Examples:

< ---------------------- Costing Variants --------------------------- >

Variant
Attributes

Frozen
Standard

Current
Structure

Current
Costs

Simulate2

Material
Price

Frozen
Standard

Frozen
Standard

Current
Price

Future Price

BOM/
Routing

Structure at
year
beginning

Current
Structure

Current
Structure

Structure as
on next
month

Activity
Price

Frozen
Standard

Frozen
Standard

Revised
prices

Planned
price for
next year

14

Quantity Structure Selection

Quantity Structure Control Through
Customizing
- BOM Usage
- Priority for Alternative
- Status
- Lot size
- Validity Period
Quantity Structure Control Through
the Material Master Record
- Higher priority over the above
- Sequence: Special procurement,
Production Version, Specific
BoM/routing
Quantity Structure Control Through
the Initial Screen of the Cost
Estimate
15

Transfer Control - Flexible Options

Complete transfer: While costing a material with multi-level BOM
structure, system takes the existing released cost of the BOM components,
without re-calculating the cost of components. Only if component does not
already have a released cost, system calculates the cost of the component.
This is very useful when you want to cost a new finished part which uses
the already existing components
Leaving it blank: System ignores the already existing released cost of
components and recalculates the components cost using one of the
strategies like planned price1 or purchase info record. This is useful when
once a year you want to re-cost all materials right from the bottom upwards at
all levels.
Cross Plant Transfer: This is used in Costing run when you have
selected the materials with special procurement types that points to other
plants for copying the cost from
Zxxx( customized): Take the cost stored in a different costing variant

16

Transfer Control - Flexible Options

Part A (FIN)

Part B1
(SEM)

Part B2
(SEM)

Part C1
(SEM)

Part C2
(SEM)

Complete Transfer:
If a released cost
exists for B2, then
stop exploding. Take
the existing released
cost
Blank:
Explode B2 and
Part C3 (purchased
consider its
semi fin ZSEM)
current cost for
cost roll of part A

Part D (Purchased
Fin Part)

Costing levels are determined automatically by the system when you create
a cost estimate. Assigning the materials to costing levels ensures that
costing is performed in the proper order: first raw materials and purchased
parts, then semi-finished products, and finally the finished products.
17

Material Cost
Total Standard Cost of
purchased material

Core Material
Price payable
to material
vendor

Others
Duty
Burden
Freight

Surcharges

18

Material Cost Options

Valuation Variant provides the strategy sequence of costing the
purchased material. Examples:
Sequence Strategy
1

Price specified in one of the 3 free fields in material master

(planned price 1 to 3)- Typically used to override the price
obtained in the next strategy for exception cases

Price from Purchasing Module: Sub-strategies are:

a. Price from latest P.O issued (NOT last invoice paid)
b. Purchase Info Record

Current standard price

System searches in the sequence defined in the valuation variant

and stops as soon as a price is found at any level

19

Determination of Purchase Info record

When there is more than one vendor for the same material, the system by
default takes the lowest price.

You can choose to mark one of the vendors as regular vendor so that only
that vendors price is considered for standard cost

20

Options for Surcharges

1. Overhead Group along with Costing Sheet (CAG Option)
2. Additive Costs
3. Statistical Purchase Conditions

21

Costing Sheet based Surcharges

Material Master

Overhead Group

Valuation Variant

Costing Sheet

Surcharge Calculated

Overhead Rate Key

From
To
Percentage
1/1/11 12/31/11
2%

Costing sheet will define the calculation base and the overhead rate.
Flexible definition of calculation Base is possible. Examples:
Cost element + overhead group + Overhead Rate Key
Cost center + Cost Element +Activity type + Overhead Rate Key

Overhead percentages can be defined for Overhead rate key by date ranges
22

Costing Sheet based Surcharges

23

BoM Header
BOM usage: Examples for BOM usage: BOMs used exclusively for
engineering or costing purposes.

BOM status: If complex changes are made to a BOM, you can use the
BOM status to control when the BOM is used, such as for a cost
estimate.
Area of validity: A BOM can be defined as valid for only a limited range
of lot sizes, such as 1 to 1,000 units. You can then create a different
BOM for lot sizes exceeding 1,000 units. Therefore, only one BOM can
be used for the defined costing lot size.

Alternative BOM: Alternative BOMs can describe different product

structures that create a product with the same properties. For example,
one alternative uses sheet metal A, while the other alternative uses
sheet metal B.

24

BOM Line Items

Item category:
L = stock item, N = non-stock item; R = variable-size item

Fixed quantity indicator: This indicates whether the quantity

entered is dependent on the lot size. It applies mainly to unavoidable
material loss at the start of the production process.

Planned scrap: This topic is covered in detail separately

Bulk material: Bulk material is usually posted as consumption at

production cost centers as soon as it is procured, so it is not included
in the cost estimate.

Relevancy to costing indicator: If this indicator is not selected, the

system ignores the BOM item in the material cost estimate. This
enables you to devaluate BOM items (such as packaging materials)
on a flat-rate basis for inventory or commercial purposes.

25

Work Center

Cost center
The standard value key enables you to define the six standard values
in the operation. The system assigns a parameter key to the standard
values of the operation and of the work in the network activity. This
parameter key specifies the following:
Formula: You can use formula parameters to which you have
assigned values. You can then link these parameters with
mathematical operations such as addition, subtraction, multiplication,
or division.
Example: Formula 2 = Standard value * Operation quantity / Base
quantity

26

Routing
Header
Status
Lot size range
Task list group
Usage
Validity Period
Base quantity
Operation Line
Work Center
Control key
Costing Relevancy indicator
Material to Operation assignment

27

Routing

Operation

Work Center

Qty

0010

PC-1 Preparation

2 min.

1421

0020

PC-2 Assembly

3 min.

1422

0030

PC-3 Quality Check

5 min.
Standard
Values

Activity Type

Activity
Usage

Routing is production-oriented bill of activitiesthat lists the operations required to

manufacture a product. Each operation can contain up to six activity types and a
standard value for the calculation of the activity usage.
Each operation is carried out at a work center. The work center contains formulas for
the calculation of activity usage. These formulas take account of the cost estimate lot
size and the base quantity for the routing.
Each work center is linked to a cost center. Activity prices are planned for the
combination Cost Center/Activity Type.
28

Cost Center Activity Type - Work Center Routing Link

Lot Size :

Pieces

Routing

Work Center PC-1

Op. 10 / Work Center PC-1

n
Base Qty:
Pieces

Cost Center 4711

Acty Type / Standard Value

Cost Center 4711

Activity Type
Efficiency
Formula

Activity Type / Price

Set Up

X $ / Min

Set Up

a Min

Set Up

Formula 1 100 %

Machine

b Min

Machine

Formula 2

75 %

Machine

Y $ / Min

Labor

c Min

Labor

Formula 3

50 %

Labor

Z $ / Min

Formula 1 =a Min
Formula 2 =

b Min

m
x

n/

Formula 3 =

c Min

mx

n/

29

Control Key in Recipe

Cost relevancy

Milestone operation?
External Processing?

Automatic goods
movement?

30

Process Industry Routing

31

Co-Product
Co-Products have
significant revenue
and are planned
for production
Leading CoProduct (primary)
appears on the
production order
header and as a
line item as well in
the materials list
Co-products
appear with
negative quantity
in BoM
32

By-Product
Incidental output, not
planned
Co-Product indicator
is NOT checked
By-products appear
with negative quantity
in BoM
May or may not have
its own cost. If cost
relevant then it
reduces the cost of
finished product

33

Quantity Structure Selection for Co-Products

Material Master Parameters:

- Production version with BOM and routing entries
- Production version that refers to a leading co-product
If no entries were made in the material master of the co-product, the system
attempts to determine the quantity structure through the quantity structure
determination of the costing variant. It first attempts to determine the
quantity structure via valid production versions.

34

Costing of Co-Products and By-Products

Costs for co-products are calculated using the apportionment method

Costs for by-products are calculated using the net realizable-value method. Coproducts designated as fixed-price co-products are costed in accordance with the
net realizable-value method similar to by-product.
The costs for fixed-price co-products and by-products are subtracted from the
total costs. If a fixed-price co-product or by-product has its own cost estimate, the
cost component split of the cost estimate is taken into account when the costs are
deducted from the total costs. In the process, the costs in a cost component are
deducted from the total costs in the cost component to which it belongs.
After the costs for by-products and fixed-price co-products have been taken into
account, the total costs of the production process are apportioned for all cost
components to the co-products. Equivalence numbers are used for the
apportionment process using apportionment structure. Each production version can
have its own apportionment structure

35

Cost Apportionment with Source Structure

Source
Assignment

Equivalence Number
Primary Product

Co-Product 1

Co-Product 2

Material costs

Production costs

Overhead

Using a source structure, it is possible to specify how the costs for each cost element
group are apportioned.
This allows to account for the fact that the material usage for the first co-product, for
example, is significantly higher than that for the second co-product even though the
production costs for both products are the same
When a process order is created the system generates a settlement rule on the basis
of the apportionment structure. The equivalences specified in the apportionment
structure are transferred into the settlement rule.
36

Cost Center planning and Activity Type Pricing

Plan Externally and
enter prices by cost
center + activity type

Plan using the SAP

planning
functionality

Planned Costs in dollars by cost center

___________________________________
Planned Activity by cost center and activity type

Can copy scheduled activity from Logistics planning

Can plan activity-independent and activity-dependent costs
separately so as to split the activity price into fixed and
variable components

37

Activity Type Master data

38

Activity Type Pricing

Plan Output Quantities

Number of labor hours, quality hours etc
Plan Costs
Dollars to be spent to provide this service
Distinguish fixed and variable costs
Plan Input Quantities
Number of quality hours required by Production
Reconcile Supply and Demand
Adjust quality hours to be supplied to meet demand from production
Calculate Activity Prices
Costs per labor hour, per quality hour etc.
Cost component split for planned prices

39

Subcontracting Options

Subcontracting

External Processing

The subcontractor
receives material parts
and manufactures the
complete material

The external processor

performs a process step
only.

Can keep track of

components lying with
vendor
The subcontractor is
paid an agreed price for
the whole activity

The material is processed

externally and completed inhouse.
A price is agreed for the
external processing.

40

Subcontracting Process

41

External Processing

42

Planned Scrap
Planned scrap is regarded as unavoidable scrap that is expected
to occur when a material is produced. It is also included in
inventory valuation.
Consists of component scrap and operation scrap

When a routing is scheduled, the scrap factor is determined from

all operations and written to the material master as assembly
scrap.
Shown in the itemization screen of cost estimate

43

Component Scrap
Component scrap indicates the amount of scrap expected to occur
before or during the assembly of the material.
Component scrap can be defined in the material master of the
component as well as in the BOM line of the finished part. If it has
been entered in the BOM, the value specified therein applies.
Otherwise, the value in the material master record applies.

Component scrap is used in MRP to determine the input quantities of

the components. When the BOM is exploded, the system increases
the input quantities of the components by the scrap quantity
calculated.
Example:
Input quantity 200 units
Component scrap 10 %
Scrap quantity 20 units
Quantity used 220 units
44

Operation Scrap

Operation scrap is defined in the routing step. It is percentage of

scrap occurring for the operation concerned.
This scrap results in a drop in the quantity of the next operation,
since the quantity to be processed is reduced by the scrap. The
reduction in quantity is taken into account in the scheduling and in
the cost estimate.

45

Assembly Scrap

When a routing is scheduled, the scrap factor is determined from

all operations and written to the material master as assembly scrap.
Example:
Suppose the quantity to be produced is 200 units.
If you specify assembly scrap of 10%, the scrap quantity is 20 units.
The actual quantity produced is then 220 units. The system
increases the lot size and the quantity of input materials.

46

Planned Scrap Summary

47

Mark and Release of Standard Cost Estimate

Marking:
The future planned
price is set in the
material master and
a link to the "new"
standard cost
estimate established.
No revaluation takes
place.

Release: Release converts the future standard price to the current standard
price. Inventory revaluation takes place. The previous standard price is
moved the field previous and is linked to the "old" standard cost estimate.

48

Cost Estimate View

49

Cost Estimate View

Item Categories:
M : Material
A: Co-Product
Or F6 gives itemized details

E: Activity (Labor/Burden)
G: Costing sheet based surcharge

Or F5 gives cost component wise totals

gives plants/company codes for the cost source

50

Costing Run

Costing of several
materials in a single run

Background processing
feature

Parallel Processing
feature

Detailed logs

51

Marking Allowance

Helps to prevent accidental marking of costs for future period(s)

52

Updating Price fields in material master with costs

Useful for analysis

with other costs like
current costs,
simulated costs etc.
Plan Price, Tax
Price, Commercial
Price (any of these 9
fields) can be
updated

53

Useful Transaction Codes

OKEQ: Version
OKTZ : Cost Comp Structure
OKKN: Costing Variant
OKK4: Valuation Variant
OKEU: Source Structure
KZS2 : Costing Sheet

KP06, 7: Cost Center Planning

KP26, 7: Activity Prices

CS01, 2, 3 : Bill of Material

C201, 2, 3 : Recipe
CR01, 2, 3 : Work Center
KL01, 2, 3 : Activity Type
CK11N, 13N: Cost Estimate
CK40N: Costing Run
CK22: Allow Marking
CK24: Mark and Release
CKR1: Delete Cost Estimate

CKAPP01: Materials to be costed

S_P99_41000111 - Analyze/Compare Cost Estimates

54

Demo in the system

Configuration Settings
- Costing variant, valuation variant, costing type, transfer
control, quantity control
- Costing sheet
- Allocation Structure for Co-Products

Cost Roll Up of purchased and produced materials

Cost Center Planning

Activity type Pricing

55

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