Product Costing

1. Material Cost Comprises of

a. Material Cost
b. Direct OH (Basically Conversion Cost)
c. Indirect Overhead ( Directly involved in the production to convert raw material into
finished goods)

So we can understand in layman that indirect overhead is nothing but service department cost.

2. Process of Cost determination

I) Production department gives the BOM and process sheet.
a. In BOM – It contains the list of component of raw materials with quantities
required to produce the product.
b. And process sheet contains the process type which is nothing but process steps
as given below.

This is the role of production department and finance department prepare the budget or resources
rate for the specific activity.

Material cost is arrived through bill of material (Qty’s * Price).The price is taken from the
purchasing department.

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

OBJECTIVES OF PRODUCT COSTING:

 To determine cost of a product or service.

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

COMPONENTS OF PRODUCT COSTING:

 Below components has major role in product costing

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. As configuration given below in steps

Click on New Entry and give the Cost Comp.Str As Z1 and Active tick for both and description in
name column. Select Z1 and double Click on cost component -> go the New entry name the
cost component as mentioned in screen shot
Now click on Assignment: Cost and assign the cost GL as per material Name as shown in below
screen

Now go back and select Z1 and double click on Cost Component view and click on New Entry
Create cost component view as given in screen

Likewise below all cost components are created as shown in below screen

Now go back and double click on Assign Organization unit –Cost component structure
 2. Costing Sheet. (KZS2)

 To Calculate the Indirect Overhead.

Click on New Entry give the Cost sheet Name now select the cost sheet name and
double click on Cost sheet row as screen shot given below.

3. Costing Variant for standard cost estimate. (OKKN)

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

It comprises:

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

Config. required:

 Costing variant for plans.(costing type 06)

 Costing variant for Actuals.(costing type 07)

2. Period end Process.

It contains the following Activities.

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

Cost Object Controlling (Scenarios):

1. Product cost by order.

 Production order.
 Process order.
 Controlling production order.

2. Product cost by period. (Product cost collector)

3. Product cost by Sales order.

INTEGRATION OF PRODUCT COSTING WITH LOGISTIC MODULES:

With Production planning:

Integration points are:

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

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

Work center: (CR01)

It refers to a place where tasks or Activities are performed. It represents the place, or machines,
or group of machines or combination of any of them etc.

Routing:
It contains sequence of operations. And for each operation, it specifies on which work center to
be performed and on what activities to be performed and planned execution time for them.
 Routing is defined at material and plant combination.