Product Costing in SAP: Understanding the Process

Using product costing in SAP is an important tool for planning budgets for expenses and setting prices for goods. Part of this math is figuring out how much each product unit costs in terms of both the cost of goods sold and the cost of goods made. In SAP, there are two main types of material costing procedures: the material cost estimate with quantity structure and the material cost estimate without quantity structure.

In SAP, product costing is an important part of figuring out how much money it will cost to make a product. A lot of different parts and steps must work together to get to the standard cost, which is important for many financial and operational parts of a business. Let’s look at how SAP figures out the price of a product and break it down into its most important parts and steps.

Product Costing in SAP

What is product costing in SAP?

When using SAP, the term “product costing” refers to the process of calculating the amount of money required to produce a final product. Several components, including materials, activities, and overhead expenses, are included in its components. To arrive at an accurate estimate of the cost of a product, it is necessary to have information on the consumption of materials, the expenses of production, and the overhead costs.

Key Components of Product Costing

Listed below are the most important aspects of product pricing


Bill of Materials (BOM):

list of all the materials that were used in the production of a completed product.It is necessary to determine the costs of the materials.

Routing:

Describes the order in which tasks are done on things to make a finished result. Some costs come with doing things.

Costing Sheet:

Used to figure out the cost of fees.Sets the numbers that will be used to figure out the prices of materials and labor for overhead calculations.

Cost Component Structure:

Defines the breakdown of total cost into components (e.g., material cost, making cost, overhead cost).

Material Cost Estimate with Quantity Structure

This process is closely tied to the Bill of Materials (BOM) and Routing assigned to a product. The steps involved in this process include:

Material Master Record (MM):

Material pricing is based on records from the Material Management module, like material master records and buy information records.

BOM (Bill of Materials) and Routing (PP):

The route details the processes and work centers that comprise a product’s manufacture, whereas the BOM details all the parts that go into making the product.

Cost Center Accounting (CO):

Module data includes manufacturing process expenses, work centers, activity kinds, and cost centers..

Integration with Other Modules:

Product costing is closely integrated with various SAP modules, including Material Management (MM), Production Planning (PP), Sales and Distribution (SD), and Cost Object Controlling.

Use of Standard Cost:

In Purchase Orders:

  • Price differences between purchase price and standard price are posted to a price difference account.
  • Reflects the efficiency of the purchasing department.

In Sales Orders:

  • The current standard cost of materials and cost of goods sold (COGS) is used to figure out the profit margin.

In Production Orders:

  • Standard cost is used to figure out differences in output.A lot of variation in production means that costs are higher than planned.

Master Data and Configuration

Define Cost Component Structure (OKTZ):

Set up the cost component structure by assigning each cost component to a cost element or a collection of cost elements. This facilitates the process of allocating and aggregating expenses to calculate the total cost of a product.

costing of material

Costing Variant Configuration (OKKN):

A costing variation is a defined configuration that determines the purpose of costing, valuation methodologies, and default values for the validity of the cost estimate.

sap product costing
sap product costing

Costing Run (CK40n)

The actual costing of materials occurs in the costing run, which involves several steps:

  • Material Selection: Define the materials that need to be costed in a specific plant.
  • BOM Explosion: Explode the material BOM to understand the components and their quantities.
  • Costing: Perform the actual costing, where the system creates the quantity structure (BOM/routings) based on the costing variant settings.
  • Analysis: Analyze the results of the costing run, and save the cost estimate.
  • Marking: Update the cost estimate in the material master as the future standard price.
  • Release: Update the cost estimate in the material master as the current standard price, affecting the stock value of the material.

SAP FICO Consultant’s Role in Product Costing:

Cost Component Structure Definition:

• Finance teams create the cost component structure.
• Different cost accounts are mapped to respective cost components.

Costing Variant Configuration (OKKN):

• Defines parameters for cost estimate runs.
• Specifies the purpose of cost estimates, valuation variants, date controls, and transfer controls.

Cost Estimate Run (CK40n):

• Executes the cost estimate run for a product.
• Involves material selection, BOM explosion, costing, analysis, marking, and release.

Cost Run

Updating Cost Estimate in Material Master:

• Marking updates the calculated cost estimate in the material master as future standard cost.
• Release makes the future cost the current standard cost.

Best Practices Product Costing

Standard Cost Update:

• Update the standard cost at the start of the year for the entire year.
• Fast-moving consumer goods may require monthly updates.

Cost Estimate Timing:

• Cost estimate run, marking, and release are performed at different dates.

SAP Modules Integration:

• Integrated with Material Management (MM), Production Planning (PP), and Cost Center Accounting (CO) modules.
• Provides information for material valuation, sales and distribution, and cost object control.

Conclusion

Setting up master data, selecting cost components and changes, and running the costing run are all parts of the complicated SAP product costing process. Because it works with other SAP modules, the cost figures it makes are useful for many business tasks, like valuing materials, making sales, and keeping track of cost objects. Understanding and using product pricing correctly in SAP is very important for businesses that want to keep accurate cost information, make smart decisions, and keep manufacturing processes running smoothly.

Setting up master data, selecting cost components and changes, and running the costing run are all parts of the complicated SAP product costing process. Because it works with other SAP modules, the cost figures it makes are useful for many business tasks, like valuing materials, making sales, and keeping track of cost objects.

Understanding and using product pricing correctly in SAP is very important for businesses that want to keep accurate cost information, make smart decisions, and keep manufacturing processes running smoothly.

You might also like the below articles.

Leave a Reply

error

Enjoy this blog? Please spread the word :)