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SAP Product Costing 101 Product Costing Overview Copyright © 2009 Accenture RightsReserved. Reserved.Copyright © 2008 Accenture All Rights Reserved.Copyright © 2008 Accenture All Rights Reserved. Copyright © 2008 Accenture AllAll Rights
Welcome to Product Costing 101 • This course is designed to provide a management level introduction to SAP Product Costing. • At the end of this course you should be able to: – Explain standard cost ing principles. – Understand general SAP Cost Center ing concepts. – Define SAP Product Costing functionality. • This course will illustrate concepts using the below vehicles: – Industry-Specific Business Process Scenarios. – SAP Functionality. – Key .
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Controlling Overview III. Product Costing Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Introduction to Cost ing • Traditionally ing has two major branches financial ing and cost ing: – Financial ing: provides legally required financial information to external parties like investors and the government. – Cost ing: focuses on the costs incurred while running a business. • This module is concerned with the process of managing cost ing.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Cost ing Defined • What is it? – Cost ing is the part of ing that is concerned with budgeting and analyzing costs. – Cost ing enables managers to make decisions with the goal of improving organizational profitability. • Purpose of Cost ing: – Provides financial information about the overall operations of a firm. – Assess the profitability of a product or service. – Track Profitability. – Plan Costs. – Develop Budgets.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Direct Costs & Indirect Cost • Cost ing groups similar costs to enable analysis of a products cost. At a high level costs can be grouped as Direct or Indirect Costs: – Direct Cost – Costs that can physically be traced back to the production of a good or service (raw materials). – Indirect Cost – Costs not directly associated with the production of a good or service (Human Resources salaries).
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Cost Diagram • A product’s cost is the combination of the direct and indirect costs incurred to produce the product.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Full Absorption and Variable Costing • There are two commonly used methods in cost ing, Full Absorption Costing & Variable Costing: – Full Absorption Costing: measures the cost of all manufacturing resources – both fixed and variable – used to produce a good or service. – Variable Costing: is a method of costing where all variable manufacturing costs are included in costs and fixed costs are excluded. • This material follows SAP Product Costing as applied to full absorption costing.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Costing Method Use by Country • Full Absorption Costing is the predominant costing method in the world but variable costing is still used in some places.
United States
China
Estonia
Finland
India
Malaysia
Norway
Full Absorption Costing
76%
68%
55%
31%
48%
46%
29%
Variable Costing
24%
32%
39%
42%
50%
23%
55%
Both Systems
__
6%
28%
2%
31%
16%
__
Copyright © 2009 Accenture All Rights Reserved.Copyright © 2008 Accenture All Rights Reserved.Copyright © 2008Reserved. Accenture All Rights Copyright © 2008 Accenture All Rights Reserved.Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. II. III.
Cost ing Overview SAP Controlling Overview Product Costing Overview A. SAP Product Costing Data B. SAP Product Cost Planning C. SAP Cost Object Controlling D. SAP Actual Costing/Material Ledger E.
SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Controlling • What is it? – Controlling (CO) is module with in SAP. – Enables business management to make internal (Managerial and Cost) ing decisions. – Highly integrated with the Financial ing (FI) module. • What does it do? – The CO module is used by management to answer such questions as: • Where in the business are costs incurred? • Where does the business generate revenues? • How profitable is the business and its components?
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
FI
SD MM PP
CO
SAP ECC
QM PM HR
TR PS
EC IM
SAP Controlling • SAP Controlling consists of the following components: – Cost Center ing: • Identifies where costs are incurred in the business.
– Profit Center ing: • Tracks profits and measures profitability.
– Internal Order: • Tool used to capture costs and revenues.
– Product Costing: • Derives standard costs for products/services and collects actuals. • Note: This sub module will be the focus of future courses.
– Profitability Analysis: • Analyzes profits and contribution margin for various market segments.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. II. III.
Cost ing Overview SAP Controlling Overview Product Costing Overview A. SAP Product Costing Data B. SAP Product Cost Planning C. SAP Cost Object Controlling D. SAP Actual Costing/Material Ledger E.
SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Overview • What is it? – Product Costing is a tool for managing costs associated with the manufacturing process. • It is a component within the Controlling (CO) module that is highly integrated with other SAP modules—such as Financial ing (FI), Production Planning (PP), Materials Management (MM), etc. • Product Cost Controlling provides information about a company’s costs that enables a company to lower costs and therefore improve profitability.
• Purpose of Product Costing: – Plan standard costs. – Track actual costs incurred and quantities used during the manufacturing process. – Report and analyze variances.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Overview (continued) • Product Costing Components: – Product Costing Data • Data elements must be created to enable product costing functionality.
– Product Cost Planning • Process of forecasting and planning costs.
– Cost Object Controlling • Tracks manufacturing costs incurred during production.
– Actual Costing/Material Ledger • Keeps track of a product’s cost as they are incurred.
– Reporting • Reporting enables s to perform detailed analysis of product costing data.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Process • Product Costing is a cyclical process consisting of the following steps: – Setup Product Costing Data: Data is established before data processing begins. – Plan Standard Product Costs: Standards are planned for the costing period. – Collect Actual Costs: Actual product costs are collected during the financial period. – Control Cost Objects: Determine the products actual cost. – Period Closing: Close the financial period and begin processing the next Setup Product period data. Costing Data – Reporting & Analysis is ongoing.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Period Closing
Reporting & Analysis
Control Cost Objects Collect Actual Costs
Plan Standard Product Costs
Course Outline TOPICS I. Cost ing Overview II. SAP Controlling Overview III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Costing Data • Product Costing is heavily dependent on cross-module integration and master data setup. • The data can be categorized into two groups: – Organizational Data • Reflects an organization’s operating structure. Establishment of this structure enables the organization to identify where costs are incurred. • Example: Profit Centers, Cost Centers, Cost Elements, etc.
– Production Master Data • Data that directly relates to the production process. • Example: Material Master Records, Bill of Material (BOM), Routings, Production Order, etc.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Organizational Data Key • Cost Center: Organizational unit that represents a defined location where costs can be planned/incurred. • Cost Center Hierarchy: Grouping of cost centers based on specified criteria (i.e. location, cost center type, etc.) • Cost Element: , equivalent to a P/L , that exists in SAP CO to enable internal cost ing. • Profit Center: Organizational unit that represents a managementoriented structure for one’s business. Contains cost/revenue balances.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Production Master Data Key • Material: Any physical substance that is consumed or produced during the production process. • Bill of Material (BOM): Itemized list of material/packaging components and assemblies required to manufacture a finished good. • Activity Type: Describes certain functions performed in a cost center. They are measured in units of time or quantity. Organizations can define activity types based on their manufacturing process. A common activity type is labor. • Operation: Activity that takes place within a work center. • Work Center: Locations where operations are performed in the production process (Example: packaging) • Routing: Defines sequence of operations (work centers) performed during the manufacturing of a product.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Data Integration in SAP • Organizational and Production Data integrate together enabling Product Costing activities.
Overhead Cost Center Manufacturing Cost Center 1
BOM
Manufacturing Cost Center 2
Work Center 1
Work Center 2
Work Center 3
Activity Types
Activity Types
Activity Types
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Routing
Finished Good
Course Outline TOPICS I. Cost ing Overview II. SAP Controlling Overview III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Cost Planning Overview • What is it? – Process that facilitates the planning of costs incurred during the manufacturing process. – Tool within the Product Costing component for creating costs estimates and releasing standard price in the material master. • Costs serve as the basis for actual comparison during the course of the year.
• What does it do? – Calculate the cost of goods manufactured (COGMs) and the cost of goods sold (COGS). – Set Standard Price to be used for inventory valuation purposes. – Updates Material Master record.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Cost Planning Cost Types • A Product Cost contains two types of costs material and conversion. A product’s total cost is the combination of the two cost types. – Product Cost = Material Costs + Conversion Costs. – Material Costs: • Calculate material costs for all components within a BOM. – Example: Raw materials, packaging, semi-finished goods, finished goods.
– Conversion Costs: • • • •
Allocate fixed costs (overhead) to product. Calculate activity/conversion costs on routing/rate routing. Display cost composition for material cost. Valuation of inventory in Material Master.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Creation Process
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Process-Material Costing • Material costing is the process of establishing prices for a products material components. – BOMs must be setup with correct components for each manufactured semifinished and finished good. • Component costs include raw materials, packaging items and semi-finished goods that are rolled up to derive the material cost for the finished good.
– Each component must have a cost assigned to it based on its procurement cost. – All component material costs are rolled up to calculate the finished good’s material cost.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Process-Conversion Costing • Conversion costing is the process of determining operational costs required to produce the finished good. – Conversion costs can be activity-dependent and activityindependent costs. • Examples include overhead and fixed & variable manufacturing cost.
– Plan for the cost/quantity of activities consumed during the manufacturing process.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Process-Conversion Costing • Conversion Costs are calculated via the following process. – Create Cost Centers, Activity Types, and Routings: Conversion Costing Master Data is established by the organization. – Create Plan Allocations: Allocations are created to distribute overhead costs to manufacturing cost centers. – Perform Activity Type Planning: The organizations planning department plans how much a defined quantity of activity will cost (labor hours). – Execute Plan Allocations: The amount of cost planned at overhead cost centers is allocated to manufacturing cost centers. – Execute Plan Cost Splitting: This assigns dollars from production cost centers to the activity types defined by the organization. – Calculate Activity Rates: SAP calculates the cost of each activity at each work center. It is defined as: Activity Rate = Total Activity Cost/Total Activity Quantity.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Preliminary Costing • What is it? – Performed after standard cost for material is calculated. – Determines the planned cost for production orders at the beginning of the year. – Can be updated due to input price changes. • What does it do? – Used to identify planned costs for the material being produced. – Used as the baseline in the calculation of production variances.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Cost Center ing Introduction III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Cost Object Controlling Overview • What is it? – Process of capturing costs incurred during the production of a finished good. • What does it do? – Reports actual costs incurred during the period. – Compares standard and actual costs. – Compares target and actual costs. – Allows for investigation of production-related variances. – Helps facilitate settlement and closing books at month end.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Cost Object Controlling Costing Methods • Depending on the type of product and the manufacturing process, there are three ways to track costs incurred during production in SAP: – Product Cost by Period: • Costs are captured on cost objects as they occur. Production variances are analyzed and settled at the end of the fiscal period. • Typically used by companies that use repetitive manufacturing processes.
– Product Cost by Manufacturing Order: • Costs are recorded on a manufacturing order and variances are settled once the manufacturing order has been satisfied. • Typically used by companies that utilize repetitive manufacturing on products with longer manufacturing times.
– Product Cost by Sales Order: • Costs are recorded on a sales order and variances are settled once the sales order has been satisfied. • Typically used by companies that produce customized goods.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Month End Closing • What is it? – Process of closing the financial books at the end of an ing period. • Characteristics: – Month-end activities can include (but are not limited to): • Actual cost allocation: Process of distributing actual overhead costs to manufacturing cost centers. • Revaluation at actual prices: Determining actual cost materials procured/produced and activities performed. • Variance calculation: Process of calculating expense- and usage related variances incurred during production. • Settlement: Zeroing out cost object. Enables period profitability analysis.
– Performed completely on the cost object. • EX: Product cost collector, manufacturing order, sales order, etc.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Cost Center ing Introduction III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Actual Costing: Overview • What is it? – Actual Costing is the determination of the product’s cost as actual costs are incurred. • Calculated actual cost is known as the periodic unit price.
– Actual Costs are recorded throughout the financial period. • What does it do? – Actual costing calculates the actual price of materials in a period. – Used to value raw material, semi-finished, and finished goods inventories. – Materials are valuated at the end of the period. – Determines variances for materials at the end of the period. – Actual price is used as standard price for the next period.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Material Ledger • What is it? – Tool used to keep track of inventory level, value and usage. – Relevant Information Includes: • Actual price of purchased materials. • Price of raw materials. • Actual cost of production of semi-finished goods.
• What does it do? – The Material Ledger is highly integrated with Inventory Management to easily track changes to inventory values and balances in realtime.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Cost Center ing Introduction III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Costing Reporting • What is it? – Reports are used for the analysis of usages and variances. • Types of SAP Product Costing Reports: – Summarization: • Costs are rolled up to cost object to perform analysis.
– Detail: • Displays detailed line items posted at selected cost objects.
– Drill Down: • Low-level information capable of displaying specific data for a given line-item.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Cost Planning: Reference Materials • Cost ing: A Managerial Emphasis – Charles T. Horngren – Srikant M. Datar – George Foster
• Accenture SAP ECC CO Bootcamp • Accenture SAP Home Page: – http://kx.accenture.com/Products/Pages/SAP.aspx
• SAP Online Library: – http://help.sap.com
• SAP Product Costing Course: – AC505 Product Cost Planning – R/3 Product Costing Made Easy
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Information For any questions please : Daniel Izzo: [email protected]
Copyright © 2009 Acce
Welcome to Product Costing 101 • This course is designed to provide a management level introduction to SAP Product Costing. • At the end of this course you should be able to: – Explain standard cost ing principles. – Understand general SAP Cost Center ing concepts. – Define SAP Product Costing functionality. • This course will illustrate concepts using the below vehicles: – Industry-Specific Business Process Scenarios. – SAP Functionality. – Key .
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Controlling Overview III. Product Costing Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Introduction to Cost ing • Traditionally ing has two major branches financial ing and cost ing: – Financial ing: provides legally required financial information to external parties like investors and the government. – Cost ing: focuses on the costs incurred while running a business. • This module is concerned with the process of managing cost ing.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Cost ing Defined • What is it? – Cost ing is the part of ing that is concerned with budgeting and analyzing costs. – Cost ing enables managers to make decisions with the goal of improving organizational profitability. • Purpose of Cost ing: – Provides financial information about the overall operations of a firm. – Assess the profitability of a product or service. – Track Profitability. – Plan Costs. – Develop Budgets.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Direct Costs & Indirect Cost • Cost ing groups similar costs to enable analysis of a products cost. At a high level costs can be grouped as Direct or Indirect Costs: – Direct Cost – Costs that can physically be traced back to the production of a good or service (raw materials). – Indirect Cost – Costs not directly associated with the production of a good or service (Human Resources salaries).
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Cost Diagram • A product’s cost is the combination of the direct and indirect costs incurred to produce the product.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Full Absorption and Variable Costing • There are two commonly used methods in cost ing, Full Absorption Costing & Variable Costing: – Full Absorption Costing: measures the cost of all manufacturing resources – both fixed and variable – used to produce a good or service. – Variable Costing: is a method of costing where all variable manufacturing costs are included in costs and fixed costs are excluded. • This material follows SAP Product Costing as applied to full absorption costing.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Costing Method Use by Country • Full Absorption Costing is the predominant costing method in the world but variable costing is still used in some places.
United States
China
Estonia
Finland
India
Malaysia
Norway
Full Absorption Costing
76%
68%
55%
31%
48%
46%
29%
Variable Costing
24%
32%
39%
42%
50%
23%
55%
Both Systems
__
6%
28%
2%
31%
16%
__
Copyright © 2009 Accenture All Rights Reserved.Copyright © 2008 Accenture All Rights Reserved.Copyright © 2008Reserved. Accenture All Rights Copyright © 2008 Accenture All Rights Reserved.Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. II. III.
Cost ing Overview SAP Controlling Overview Product Costing Overview A. SAP Product Costing Data B. SAP Product Cost Planning C. SAP Cost Object Controlling D. SAP Actual Costing/Material Ledger E.
SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Controlling • What is it? – Controlling (CO) is module with in SAP. – Enables business management to make internal (Managerial and Cost) ing decisions. – Highly integrated with the Financial ing (FI) module. • What does it do? – The CO module is used by management to answer such questions as: • Where in the business are costs incurred? • Where does the business generate revenues? • How profitable is the business and its components?
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
FI
SD MM PP
CO
SAP ECC
QM PM HR
TR PS
EC IM
SAP Controlling • SAP Controlling consists of the following components: – Cost Center ing: • Identifies where costs are incurred in the business.
– Profit Center ing: • Tracks profits and measures profitability.
– Internal Order: • Tool used to capture costs and revenues.
– Product Costing: • Derives standard costs for products/services and collects actuals. • Note: This sub module will be the focus of future courses.
– Profitability Analysis: • Analyzes profits and contribution margin for various market segments.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. II. III.
Cost ing Overview SAP Controlling Overview Product Costing Overview A. SAP Product Costing Data B. SAP Product Cost Planning C. SAP Cost Object Controlling D. SAP Actual Costing/Material Ledger E.
SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Overview • What is it? – Product Costing is a tool for managing costs associated with the manufacturing process. • It is a component within the Controlling (CO) module that is highly integrated with other SAP modules—such as Financial ing (FI), Production Planning (PP), Materials Management (MM), etc. • Product Cost Controlling provides information about a company’s costs that enables a company to lower costs and therefore improve profitability.
• Purpose of Product Costing: – Plan standard costs. – Track actual costs incurred and quantities used during the manufacturing process. – Report and analyze variances.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Overview (continued) • Product Costing Components: – Product Costing Data • Data elements must be created to enable product costing functionality.
– Product Cost Planning • Process of forecasting and planning costs.
– Cost Object Controlling • Tracks manufacturing costs incurred during production.
– Actual Costing/Material Ledger • Keeps track of a product’s cost as they are incurred.
– Reporting • Reporting enables s to perform detailed analysis of product costing data.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Process • Product Costing is a cyclical process consisting of the following steps: – Setup Product Costing Data: Data is established before data processing begins. – Plan Standard Product Costs: Standards are planned for the costing period. – Collect Actual Costs: Actual product costs are collected during the financial period. – Control Cost Objects: Determine the products actual cost. – Period Closing: Close the financial period and begin processing the next Setup Product period data. Costing Data – Reporting & Analysis is ongoing.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Period Closing
Reporting & Analysis
Control Cost Objects Collect Actual Costs
Plan Standard Product Costs
Course Outline TOPICS I. Cost ing Overview II. SAP Controlling Overview III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Costing Data • Product Costing is heavily dependent on cross-module integration and master data setup. • The data can be categorized into two groups: – Organizational Data • Reflects an organization’s operating structure. Establishment of this structure enables the organization to identify where costs are incurred. • Example: Profit Centers, Cost Centers, Cost Elements, etc.
– Production Master Data • Data that directly relates to the production process. • Example: Material Master Records, Bill of Material (BOM), Routings, Production Order, etc.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Organizational Data Key • Cost Center: Organizational unit that represents a defined location where costs can be planned/incurred. • Cost Center Hierarchy: Grouping of cost centers based on specified criteria (i.e. location, cost center type, etc.) • Cost Element: , equivalent to a P/L , that exists in SAP CO to enable internal cost ing. • Profit Center: Organizational unit that represents a managementoriented structure for one’s business. Contains cost/revenue balances.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Production Master Data Key • Material: Any physical substance that is consumed or produced during the production process. • Bill of Material (BOM): Itemized list of material/packaging components and assemblies required to manufacture a finished good. • Activity Type: Describes certain functions performed in a cost center. They are measured in units of time or quantity. Organizations can define activity types based on their manufacturing process. A common activity type is labor. • Operation: Activity that takes place within a work center. • Work Center: Locations where operations are performed in the production process (Example: packaging) • Routing: Defines sequence of operations (work centers) performed during the manufacturing of a product.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Product Costing Data Integration in SAP • Organizational and Production Data integrate together enabling Product Costing activities.
Overhead Cost Center Manufacturing Cost Center 1
BOM
Manufacturing Cost Center 2
Work Center 1
Work Center 2
Work Center 3
Activity Types
Activity Types
Activity Types
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Routing
Finished Good
Course Outline TOPICS I. Cost ing Overview II. SAP Controlling Overview III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Cost Planning Overview • What is it? – Process that facilitates the planning of costs incurred during the manufacturing process. – Tool within the Product Costing component for creating costs estimates and releasing standard price in the material master. • Costs serve as the basis for actual comparison during the course of the year.
• What does it do? – Calculate the cost of goods manufactured (COGMs) and the cost of goods sold (COGS). – Set Standard Price to be used for inventory valuation purposes. – Updates Material Master record.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Cost Planning Cost Types • A Product Cost contains two types of costs material and conversion. A product’s total cost is the combination of the two cost types. – Product Cost = Material Costs + Conversion Costs. – Material Costs: • Calculate material costs for all components within a BOM. – Example: Raw materials, packaging, semi-finished goods, finished goods.
– Conversion Costs: • • • •
Allocate fixed costs (overhead) to product. Calculate activity/conversion costs on routing/rate routing. Display cost composition for material cost. Valuation of inventory in Material Master.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Creation Process
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Process-Material Costing • Material costing is the process of establishing prices for a products material components. – BOMs must be setup with correct components for each manufactured semifinished and finished good. • Component costs include raw materials, packaging items and semi-finished goods that are rolled up to derive the material cost for the finished good.
– Each component must have a cost assigned to it based on its procurement cost. – All component material costs are rolled up to calculate the finished good’s material cost.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Process-Conversion Costing • Conversion costing is the process of determining operational costs required to produce the finished good. – Conversion costs can be activity-dependent and activityindependent costs. • Examples include overhead and fixed & variable manufacturing cost.
– Plan for the cost/quantity of activities consumed during the manufacturing process.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Standard Cost Process-Conversion Costing • Conversion Costs are calculated via the following process. – Create Cost Centers, Activity Types, and Routings: Conversion Costing Master Data is established by the organization. – Create Plan Allocations: Allocations are created to distribute overhead costs to manufacturing cost centers. – Perform Activity Type Planning: The organizations planning department plans how much a defined quantity of activity will cost (labor hours). – Execute Plan Allocations: The amount of cost planned at overhead cost centers is allocated to manufacturing cost centers. – Execute Plan Cost Splitting: This assigns dollars from production cost centers to the activity types defined by the organization. – Calculate Activity Rates: SAP calculates the cost of each activity at each work center. It is defined as: Activity Rate = Total Activity Cost/Total Activity Quantity.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Preliminary Costing • What is it? – Performed after standard cost for material is calculated. – Determines the planned cost for production orders at the beginning of the year. – Can be updated due to input price changes. • What does it do? – Used to identify planned costs for the material being produced. – Used as the baseline in the calculation of production variances.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Cost Center ing Introduction III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Cost Object Controlling Overview • What is it? – Process of capturing costs incurred during the production of a finished good. • What does it do? – Reports actual costs incurred during the period. – Compares standard and actual costs. – Compares target and actual costs. – Allows for investigation of production-related variances. – Helps facilitate settlement and closing books at month end.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Cost Object Controlling Costing Methods • Depending on the type of product and the manufacturing process, there are three ways to track costs incurred during production in SAP: – Product Cost by Period: • Costs are captured on cost objects as they occur. Production variances are analyzed and settled at the end of the fiscal period. • Typically used by companies that use repetitive manufacturing processes.
– Product Cost by Manufacturing Order: • Costs are recorded on a manufacturing order and variances are settled once the manufacturing order has been satisfied. • Typically used by companies that utilize repetitive manufacturing on products with longer manufacturing times.
– Product Cost by Sales Order: • Costs are recorded on a sales order and variances are settled once the sales order has been satisfied. • Typically used by companies that produce customized goods.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Month End Closing • What is it? – Process of closing the financial books at the end of an ing period. • Characteristics: – Month-end activities can include (but are not limited to): • Actual cost allocation: Process of distributing actual overhead costs to manufacturing cost centers. • Revaluation at actual prices: Determining actual cost materials procured/produced and activities performed. • Variance calculation: Process of calculating expense- and usage related variances incurred during production. • Settlement: Zeroing out cost object. Enables period profitability analysis.
– Performed completely on the cost object. • EX: Product cost collector, manufacturing order, sales order, etc.
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Course Outline TOPICS I. Cost ing Overview II. SAP Cost Center ing Introduction III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
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SAP Actual Costing: Overview • What is it? – Actual Costing is the determination of the product’s cost as actual costs are incurred. • Calculated actual cost is known as the periodic unit price.
– Actual Costs are recorded throughout the financial period. • What does it do? – Actual costing calculates the actual price of materials in a period. – Used to value raw material, semi-finished, and finished goods inventories. – Materials are valuated at the end of the period. – Determines variances for materials at the end of the period. – Actual price is used as standard price for the next period.
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Material Ledger • What is it? – Tool used to keep track of inventory level, value and usage. – Relevant Information Includes: • Actual price of purchased materials. • Price of raw materials. • Actual cost of production of semi-finished goods.
• What does it do? – The Material Ledger is highly integrated with Inventory Management to easily track changes to inventory values and balances in realtime.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
Course Outline TOPICS I. Cost ing Overview II. SAP Cost Center ing Introduction III. Product Cost Controlling Overview A. B. C. D. E.
SAP Product Costing Data SAP Product Cost Planning SAP Cost Object Controlling SAP Actual Costing/Material Ledger SAP Product Costing Reporting
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Costing Reporting • What is it? – Reports are used for the analysis of usages and variances. • Types of SAP Product Costing Reports: – Summarization: • Costs are rolled up to cost object to perform analysis.
– Detail: • Displays detailed line items posted at selected cost objects.
– Drill Down: • Low-level information capable of displaying specific data for a given line-item.
Copyright © 2009 Acce Copyright © 2008 Accenture All Rights Reserved.
SAP Product Cost Planning: Reference Materials • Cost ing: A Managerial Emphasis – Charles T. Horngren – Srikant M. Datar – George Foster
• Accenture SAP ECC CO Bootcamp • Accenture SAP Home Page: – http://kx.accenture.com/Products/Pages/SAP.aspx
• SAP Online Library: – http://help.sap.com
• SAP Product Costing Course: – AC505 Product Cost Planning – R/3 Product Costing Made Easy
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Information For any questions please : Daniel Izzo: [email protected]
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