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PPB Co Training - Product Costing: by Sudhakara Reddy Jakku

This document provides an overview of product costing in SAP. It discusses how product costing is used to calculate the costs of goods manufactured and sold for each product unit. It describes how product costing integrates with other SAP modules like production planning, controlling and finance. It also explains key concepts like bills of materials, routings, work centers, cost centers, activity types and prices, and how they are used to calculate production costs. Finally, it discusses the production order execution process and how variances are calculated.

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210 views24 pages

PPB Co Training - Product Costing: by Sudhakara Reddy Jakku

This document provides an overview of product costing in SAP. It discusses how product costing is used to calculate the costs of goods manufactured and sold for each product unit. It describes how product costing integrates with other SAP modules like production planning, controlling and finance. It also explains key concepts like bills of materials, routings, work centers, cost centers, activity types and prices, and how they are used to calculate production costs. Finally, it discusses the production order execution process and how variances are calculated.

Uploaded by

abhi2244in
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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PPB CO TRAINING –

PRODUCT COSTING
BY SUDHAKARA REDDY JAKKU
What is Product Costing ?
• Product costing is the tool used in SAP for planning
costs and establishing material prices.
• Product Costing is used to calculate the costs of
goods manufactured and the costs of goods sold for
each product unit.
• Product Costing utilizes manufacturing’s quantity
structures such as BOMs and Routings
• Product Costing belongs to both the Production
Planning (PP) Module and the Controlling (CO)
Module.
• Product Costing bridges the gap between Accounting
and other functional areas
Product Costing Integration
- Actuals
FI FI

MM
Production
order
PP

CO
CO
Integration of Product Cost Controlling

Logistics
Material masters Usage
BOMs
Routings
Work centres Pricing

Product Cost Planning Valuation


Controlling Cost Object Controlling Profitability analysis
Activity types
Cost elements Controlling
Cost centres
Overhead costing sheets
Base planning objects
Calculation of Production Costs
Work centre Routing

Formula key General operation


Perform. eff. rate
data
for activity type Standard values

Cost centre
Formula
Activity type

Activity price Effective time / qty

ProductionCosts
BROAD CLASSIFICATION OF COSTS
• Inventorisable Costs
• Cost of Materials
• Cost of Operations
• Overhead Costs
• Non Inventorisable Costs
• Administrative Overheads
• Sales / Distribution & Other Overheads
Bill of Material
NOKIA

Cylund Packing
Board Ink Adhe
ers materisl
sivel

– The Bill of Material is a complete, formally structured list of the


components of a product or assembly.
– The Bill of Material contains the description of each component, the
quantity and unit of measure.
– The Bill of Material creates the relationships between an assembly and all
of its direct components.
– Bill of Materials (BOM) is the list of all the Raw
Materials required for a Production Order
– BOM is maintained by PDM (PIP) Team
– BOM for each Production Order is the basis for
determining of the quantities of Raw Materials in
controlling
– Raw Material quantities determined from BOM are
valuated according to the valuation strategy set
up in controlling.
– Valuation Strategy uses Moving Average Price for
Raw Materials
Calculating the Material Costs
Product Cost Estimate

$17 $6 $34 $16 $4


Material Qty
Item 10 Raw material 1 3 pc
Item 20 Semifin. 1 2 pc

Cost Estimate

Assembly Cost Estimate Raw Material Cost Estimate

$4 $3 $17 $8 $2 $3
Each Each
Mov. avg price $4
Item 10 ... Op 10 ... Standard price $3
Item 20 ... Op 20 ... ......
Strategy from valuation variant

Costing...
Routings
Material

Routing
group Operation 20

Operation 10

Work centre
Texts
Control data
Times Material
components

PRT

– A Routing describes the sequence of operations required to produce


a specific material.
– For each operation, the material components and the production
resources and tools required to produce the material are maintained
in the routing.
– Routing is a list of Operations & Machines
involved in a Production Order
– Routing is also maintained by the PDM Team
– Time consumption on production orders is
posted against the Routing maintained
– Cost of Operations are arrived at based on
activity prices for each operation
– Activity prices are calculated based on planned
cost and planned activity output for each work
center / cost center
Work centre
• The Work centre describes where and how a
manufacturing operation is performed.
• Each Work centre is defined by the machines and
employees involved in the production process.
• Each Work centre contains distinct capacity,
costing, and scheduling information.
• A Work centre may only belong to one Cost centre

Work centre 1 WC 5
WC 4
WC 2 WC 3 Work centre 6

New York Plant Shop Floor


WC = Work centre
Activity Price Calculation (Machine Hour
Rate)

– Each work center is assigned to a cost center


– All costs fixed & variable are planned on the cost center
– Activity output are also planned for each cost center

– Machine hour rate calculated based on the above


– The price is split in a fixed- and a variable
part*
Fixed & Variable Costs of Operations

– Activity Prices is Split into Fixed and variable during


planning
– E.g. Fixed Costs
• Machine Depreciation
• Labour Cost
• etc.

– E.g. Variable Costs


• Power & Fuel
• Repair & Maintenance
• Consumables
Examples of Costs posted on Production Cost
Centers
• Variable Costs:
• Power cost, Repair & Maintenance,
Consumables
• Fixed Costs:
• Machine Depreciation, Labour cost, etc
Overheads - Manufacturing
• Overheads are applied on the production orders based on the
costing sheet
• Costing Sheet control the overhead bases and the Overhead rate
• Overhead included in Manufacturing Cost are
• Material Overhead (as a percentage of Material Cost)
• Packing Overhead ( a fixed cost based on no. of pallets)
• Quality Costs (fixed cost percentage based on production
costs)

* Tools Costs are to be determined based on BOM


* Other Overheads required to be inventorised are part of the
fixed machine hour rate
• Other non inventorised overheads are also calculated in
controlling for the purpose of analyzing profitability
• They include:-
– Direct Sales Cost (annual rebate, volume discount, commission
etc)
– Stock Holding & Storage Cost of Finished goods
– Risk Surcharge (Buffer Overhead) for Quotation purposes
– Administration Overheads
– Selling & Distribution Overheads
Production Order Execution Process

Planning
Planned
MRP Order

Purchase
Requisition

Execution
Production 1 2 3 4 5
Order Order Goods Completion Goods Order
Release Issue Confirmation Receipt Settlement
Order Settlement

– Order settlement is the final step in manufacturing planning and


execution
– During completion confirmations, the actual hours performed,
quantities produced and costs incurred are confirmed
– The plant cost analyst then closes the production order and settles
any cost balances and variances (if any) to the appropriate
financial accounts
Accounting Entries posted
2. Goods Issue 4. Goods Receipt
Dr Production Order Dr Fin Goods Inv
Cr Raw Mat Inv Dr Production Order

3. Completion Confirmation 5. Order Settlement


Dr Production Order Dr/CR Production Order
Cr Prod’n Cost Centre Cr/Dr COGS
(by Activity Type)
Variance Calculations
Standard product Target costs Costs - Actual
cost estimate order order

 Variances Production
Variances Production
 from Planning: variances:
from Planning: variances:
 lot size  price
lot size price
 resource usage  lot size
resource usage lot size
 quantity  resource usage
quantity resource usage
 remaining  quantity
remaining quantity
 remaining
remaining

PC03/2-2
Variance Calculation
Calculation
Simulation  Update of variances
 Display of variances
 Display of line items
on order
 Update of line items
 Log
 Log

Calculation Sequence
Price variance
Resource usage variance
Quantity variance
Lot-size variance
Remaining variance

Variance for Variance for


each cost each category
element origin
PC03/2-5
Period-End Closing with Production Orders
Calculate over-
head surcharges

Determine
work in process

Work in process
determined

Calculate
variances

Scrap Price variance Quantity var. Res.-usage var. Lot size var. Output prc. var.
determined determined determined determined determined determined

Settlement

WIP posted WIP posted to Variances/wastage settled Remaining balances settled


to FI Profit centre to Profitability Analysis

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