How to Set Up Cost Estimates

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Learn how to set up master data and configuration needed to create cost estimates.

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How to Set Up Cost Estimates

  1. 1. Improve Your Cost of Sales Accuracy with Cost Estimates ] John Jordan ERP Corp
  2. 2. [ Controlling Resources – Books  John Jordan, Product Cost Controlling with SAP (2nd Edition) (SAP PRESS, 2012).  ISBN-10: 1-59229-167-0 (978-1-59229-399-5)  John Jordan, Production Variance Analysis in SAP Controlling (2nd Edition) (SAP PRESS, 2011).  ISBN-10: 1-59229-109-0 (978-1-59229-381-0)  John Jordan, 100 Things You Should Know About Controlling with SAP (SAP PRESS, 2011).  ISBN-10: 1-59229-341-4 (978-1-59229-341-4)Real Experience. Real Advantage. 2
  3. 3. [ Controlling Resources – Conference  www.controlling2012.com  When: September 24-25, 2012  Where: Westin San Diego  Networking: All attendees are Controlling professionals  Sessions  Track 1 — Overhead Accounting  Track 2 — Cost Estimates  Track 3 — Project System  Track 4 — Fixed Assets  Track 5 — Rollouts/Upgrades  Track 6 — Reporting / SAP HANA™  Register  http://www.controlling2012.com/asugca12Real Experience. Real Advantage. 3
  4. 4. [ Controlling Resources – ASUG Webcast  Variance Analysis in SAP Controlling  Presented on March 06, 2012  View presentation slides and recording at:  http://www.asug.com/EventsCalendar/EventDetails/tabid/150/Eve ntID/2825/Default.aspxReal Experience. Real Advantage. 4
  5. 5. [ Introduction  We’ll discuss the steps to create and analyze cost estimates  Master data, such as material masters and routings, provides quantity and price information needed by a cost estimate to determine the price of assemblies  Configuration required to calculate overhead and set up cost components and costing variants  Transactions to create, mark, and release standard cost estimates  Display and discuss preliminary cost estimatesReal Experience. Real Advantage. 5
  6. 6. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  SummaryReal Experience. Real Advantage. 6
  7. 7. [ Master Data  First we’ll analyze the more commonly used master data field entries and how they affect cost estimates  Material master  Bill of material  Routing  Product cost collectorReal Experience. Real Advantage. 7
  8. 8. [ Material Master: MRP 2 View  Transaction: MM02  Menu path:  Logistics  Production  Master Data  Material Master  Material  Change  ImmediatelyReal Experience. Real Advantage. 8
  9. 9. [ Material Master: MRP 2 View (cont.)  Procurement type defines how a material is procured  In-house production (E): Cost estimate searches for:  Bill of Material (BOM) and routing  External procurement (F): Cost estimate searches for:  Purchasing info record  Both (X): Cost estimate searches for:  BOM and routing if they exist, otherwise purchasing info record  Special procurement field more closely define the procurement type (user-definable), for example, it may indicate:  If the item is produced in another plant and transferred to the plant you are looking at  A phantom material, which is a logical grouping of materials used for costing and BOM maintenanceReal Experience. Real Advantage. 9
  10. 10. [ Material Master: Costing 1 View  Transaction: MM02  Menu path:  Logistics  Production  Master Data  Material Master  Material  Change  ImmediatelyReal Experience. Real Advantage. 10
  11. 11. [ Material Master: Costing 1 View (cont.)  Variances are calculated on production orders or product cost collectors containing a variance key  The value in the Variance Key field in the Costing 1 view is used as a default value when production/process orders are created  The variance key also determines if the value of scrap is subtracted from actual costs before variances are determined  When a standard cost estimate is created, it uses the Costing Lot Size value in the Costing 1 view by default  The costing lot size should be set as close as possible to actual procurement lot size  Unfavorable variances may result if a production order is created for a quantity less than the costing lot size due to setup time, which doesn’t vary with quantityReal Experience. Real Advantage. 11
  12. 12. [ Material Master: Costing 2 View  Transaction: MM02  Menu path:  Logistics  Production  Master Data  Material Master  Material  Change  ImmediatelyReal Experience. Real Advantage. 12
  13. 13. [ Material Master: Costing 2 View (cont.)  The Cost Estimate fields in the “Standard Cost Estimate” section are updated when a standard cost estimate is marked and released  The Planned price (Current) and Standard price (Current) fields are overwritten when subsequently releasing a cost estimate  Manually update Planned price 1, 2, and 3 fields in the “Planned prices” section with estimated purchase prices  A standard cost estimate can retrieve prices from these fields if no purchasing info records exist for purchased items  Use when creating cost estimates before vendor quotations are received — early in the life cycle of a new or modified productReal Experience. Real Advantage. 13
  14. 14. [ Material Master: Costing 2 View (cont.)  The Valuation Class field determines which general ledger accounts are updated during inventory movement / settlement  The Price control field indicates whether inventory is valuated at standard (S) or moving average (V) price After material masters are created and fields are populated, you use them to create a bill of material, as discussed in the following slidesReal Experience. Real Advantage. 14
  15. 15. [ Bill of Material Example  Transaction: CS02  Menu path: Logistics > Production > Master Data > Bills of Material > Bill of Material > Material BOM > Change Real Experience. Real Advantage. 15
  16. 16. [ Bill of Material (BOM)  Structured list of components to build an assembly  BOMs, together with purchasing info records, provide cost estimates with material costs of products  The BOM determines which materials are costed  Fields relevant to variance analysis are the quantity field and relevancy to costing indicator Real Experience. Real Advantage. 16
  17. 17. [ Routing Example  Transaction: CA02  Menu path:  Logistics  Production  Master Data  Routings  Routings  Standard Routings  ChangeReal Experience. Real Advantage. 17
  18. 18. [ Routing  A routing is a list of tasks containing standard activity times required to build an assembly  The standard value indicates how long it normally takes to perform a task  Routings, together with planned activity prices, provide cost estimates with labor and overhead costs  The standard value multiplied by the planned activity rate provides planned labor and overhead costs  The calculation can be modified by a performance efficiency rate and formula  Labor costs are rolled up from subassemblies to finished goodsReal Experience. Real Advantage. 18
  19. 19. [ Routing Overhead  You can include overhead costs in the planned activity rate  Dedicated overhead activity types can also be used to include overhead costs  The production order is debited, and the cost center is credited at the time of activity confirmation  Overhead can also be included in the standard price with costing sheets, which are described in a later slideReal Experience. Real Advantage. 19
  20. 20. [ Product Cost Collector  Transaction: KKF6N  Menu path:  Accounting  Controlling  Product Cost Controlling  Cost Object Controlling  Product Cost by Period  Master Data  Product Cost Collector  EditReal Experience. Real Advantage. 20
  21. 21. [ Product Cost Collector (cont.)  A product cost collector collects costs during production  Product cost collectors are:  Necessary for repetitive manufacturing  Optional for order-related manufacturing  Repetitive manufacturing benefits:  Eliminates the need for production orders in manufacturing environments with production lines and long production runs  Reduces the work involved in production control  Simplifies confirmations and goods receipt postingsReal Experience. Real Advantage. 21
  22. 22. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  SummaryReal Experience. Real Advantage. 22
  23. 23. [ Overhead Costs  Overhead costs are usually included in cost of sales (COS)  Overhead may include costs such as building lease, insurance, and office staff not directly involved in the production process  Costing sheets offer more flexibility in allocating overhead across products or product groups  Less production data maintenance is required  Configuration is required, as explained in the following slidesReal Experience. Real Advantage. 23
  24. 24. [ Costing Sheet Configuration  Transaction: KZS2  IMG menu path: Controlling > Product Cost Controlling > Product Cost Planning > Basic Settings for Material Costing > Overhead > Define Costing Sheets  Available costing sheets are listed at right of the overview screen  Select a costing sheet and double-click on Costing sheet rows to display a detailed screen as shown on the following slideReal Experience. Real Advantage. 24
  25. 25. [ Costing Sheet Details  The three costing sheet components, Base, Overhead rate, and Credit, are listed on the left, and details are shown on the right  Select any row with an entry in the Base column and double-click Base at the left to display the details shown on the following slideReal Experience. Real Advantage. 25
  26. 26. [ Calculation Base  A base is a group of cost elements to which overhead is applied  Each cost element identifies unique cost types within a cost estimate, such as raw material or machining labor costs  Costs identified by the base are multiplied by an overhead rate to determine the overhead value in the cost estimateReal Experience. Real Advantage. 26
  27. 27. [ Overhead Rate  The overhead rate is a percentage applied to the value of the calculation base  Select any costing sheet row with an entry in the Overhead rate column and double-click Overhead rateReal Experience. Real Advantage. 27
  28. 28. [ Credit Key  The credit key defines which cost center receives credit  Select any costing sheet row with an entry in the Credit column and double-click Credit  The secondary cost element identifies:  Plan overhead in the cost estimate  Actual overhead in production order and cost center reportsReal Experience. Real Advantage. 28
  29. 29. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  SummaryReal Experience. Real Advantage. 29
  30. 30. [ Cost Components  Cost components group costs of a similar type  Material, labor, and overhead are typical cost components  Analysis of cost components over time or across a range of products can assist in profitability analysis  Cost components increasing over time may result in efforts to reduce material, labor, or overhead costs  Comparison of cost components across products can influence marketing decisions  All individual costs are identified by cost elements  Cost components group similar types of cost elements togetherReal Experience. Real Advantage. 30
  31. 31. [ Cost Component Configuration  Transaction: OKTZ  IMG menu path: Controlling > Product Cost Controlling > Product Cost Planning > Basic Settings for Material Costing > Define Cost Component Structure  Available cost component structures are listed on the right  Select a cost component structure and double-click Cost Components with Attributes to display the screen on next slideReal Experience. Real Advantage. 31
  32. 32. [ Cost Component Details  Available cost components are listed on the right  Use existing cost components or copy and create your own  Select any cost component and double-click on Assignment: Cost Component – Cost Element on the left to display details on the following slideReal Experience. Real Advantage. 32
  33. 33. [ Cost Element Assignment  Individual cost elements or cost element ranges are assigned to cost components in the From cost … (From cost element) and To cost ele … (To cost element) columnsReal Experience. Real Advantage. 33
  34. 34. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  Wrap-upReal Experience. Real Advantage. 34
  35. 35. [ Costing Variant  The costing variant contains information on how a cost estimate calculates the standard price  For example, it determines the cost of purchased materials from:  The purchasing info record price  An estimated price manually entered in the Planned price 1 field of the material master Costing 2 view  Only a standard cost estimate can adjust inventory values  In this section, we’ll explore how the costing variant determines the standard priceReal Experience. Real Advantage. 35
  36. 36. [ Costing Variant Configuration  Transaction: OKKN  IMG menu path: Controlling > Product Cost Controlling > Product Cost Planning > Material Cost Estimate with Quantity Structure > Define Costing Variants  Available costing variants are listed  Double-click on a costing variant to display a detailed screen as shown on the following slideReal Experience. Real Advantage. 36
  37. 37. [ Costing Variant Components  Costing variant components are shown as buttons  Click on the Costing Type button to display the screen shown on the following slideReal Experience. Real Advantage. 37
  38. 38. [ Costing Type  The costing type determines if the cost estimate is able to update the standard price in the material master  Costing Type 01 is typical for standard cost estimates  There are many reasons for requiring cost estimates that can’t update the material master (e.g., developing new products)Real Experience. Real Advantage. 38
  39. 39. [ Valuation Variant  The valuation variant allows different search strategies for materials, activity types, etc.  The cost estimate first searches for a valid purchasing info record  If unsuccessful, it will then search for an entry in the Planned price 1 field  If still unsuccessful, an error message will be issued, which must be corrected before the cost estimate can be releasedReal Experience. Real Advantage. 39
  40. 40. [ Date Control  Date control determines the default dates when creating a cost estimate  The four Date fields are discussed in detail when we create a cost estimate in the next section  Manual Entry checkbox  Select to allow default dates to be manually changedReal Experience. Real Advantage. 40
  41. 41. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  Wrap-upReal Experience. Real Advantage. 41
  42. 42. [ Standard Cost Estimate  The standard cost estimate is used during variance analysis since it is used for stock valuation  When a production order delivers product to inventory, it receives a credit based on the standard price  Total variance is the difference between:  Actual manufacturing costs debited to the order  Credits due to deliveries to stockReal Experience. Real Advantage. 42
  43. 43. [ Create Standard Cost Estimate  Transaction: CK11N  Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Cost Estimate with Quantity Structure > Create  Standard cost estimates are created with costing variant PPC1  Press Enter to display date fieldsReal Experience. Real Advantage. 43
  44. 44. [ Dates Tab  Costing Date From  Cost estimate validity start date  Cost estimate cannot be marked and released until start date  Costing Date To  Cost estimate validity finish date  Variance calculation requires a standard cost estimate that is valid for the remainder of the fiscal year  Qty Structure Date  Determines which BOM / routing are used for the cost estimate  These can change over time  Valuation Date  Determines which material / activity prices are selected  Purchasing info records and activity prices can vary over timeReal Experience. Real Advantage. 44
  45. 45. [ Cost Estimate Results Screen  Press Enter to create cost estimate  A costed multilevel BOM is displayed at the left  Cost estimate header information is displayed at the right  Click on red triangle icon to analyze cost estimate messagesReal Experience. Real Advantage. 45
  46. 46. [ Costs Based On Field  The Costs Based On field indicates the quantity on which the costs are displayed  The costs are always calculated based on the costing lot size  To display costs based on a quantity of one (but still calculated based on the costing lot size), click on the Costing Lot Size text and choose another entryReal Experience. Real Advantage. 46
  47. 47. [ Mark Cost Estimate  Transaction: CK24  Menu path: Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Price Update  Complete the Selection screen and click the Execute icon  A green traffic light icon, and Costing Status of VO, indicate the standard cost estimate was successfully Marked  No inventory revaluations or financial (FI) account postings occurReal Experience. Real Advantage. 47
  48. 48. [ Release Cost Estimate  Transaction: CK24  Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Price Update  Click the Release button and then click the Execute icon  A green traffic light icon and Costing Status of FR indicate the standard cost estimate was successfully Released  Inventory revaluation and FI postings will occur if there is stockReal Experience. Real Advantage. 48
  49. 49. [ Material Master: Costing 2 View Update  Costing 2 view fields are updated during mark and release  Marking populates fields in the Future column  Release moves entries from the Future to the Current columnReal Experience. Real Advantage. 49
  50. 50. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  Wrap-upReal Experience. Real Advantage. 50
  51. 51. [ Preliminary Cost Estimate  A preliminary cost estimate is created for a product cost collector  A product cost collector collects target and actual costs during manufacture of an assembly  Product cost collectors are:  Necessary for repetitive manufacturing  Optional for order-related manufacturing  You can link production orders to product cost collectorsReal Experience. Real Advantage. 51
  52. 52. [ Display Preliminary Cost Estimate  Transaction: KKF6N  Menu path: Accounting > Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Period > Master Data > Product Cost Collector > Edit You can create a new preliminary cost estimate by clicking on the highlighted pencil icon and then clicking on the Cost buttonReal Experience. Real Advantage. 52
  53. 53. [ Header Tab  Click on the Header tab to display the Cost Estimate button  Click on the Cost Estimate button to display the preliminary cost estimate (shown on the following slide)Real Experience. Real Advantage. 53
  54. 54. [ Preliminary Cost Estimate Details  The preliminary cost estimate can be used to:  Calculate target cost version 1 for production variance analysis  Valuate scrap and WIP for product cost by periodReal Experience. Real Advantage. 54
  55. 55. [ Topics  Preparing for cost estimates in master data  Allocating overhead costs  Using cost components to categorize costs  Seeing how costing variants determine standard price  Creating standard cost estimates  Understanding preliminary cost estimates  SummaryReal Experience. Real Advantage. 55
  56. 56. [ 7 Key Points  Master data such as BOMs and routings provide quantity information for cost estimates  Activity and purchasing info record prices provide price information for cost estimates  Calculate overhead with activity rates or costing sheets  Cost components identify costs of similar type, such as material and labor, by grouping together cost elements  The costing variant instructs the system which prices, bills of material, and routings to select  Marking a cost estimate does not generate any postings  Cost estimates can be used for new product development — not released to the material masterReal Experience. Real Advantage. 56
  57. 57. [ Controlling Resources - Books  John Jordan, Product Cost Controlling with SAP (2nd Edition) (SAP PRESS, 2012).  ISBN-10: 1-59229-167-0 (978-1-59229-399-5)  John Jordan, Production Variance Analysis in SAP Controlling (2nd Edition) (SAP PRESS, 2011).  ISBN-10: 1-59229-109-0 (978-1-59229-381-0)  John Jordan, 100 Things You Should Know About Controlling with SAP (SAP PRESS, 2011).  ISBN-10: 1-59229-341-4 (978-1-59229-341-4) 57 57Real Experience. Real Advantage.
  58. 58. [ Controlling Resources - Online  http://help.sap.com  Internet menu path  SAP ERP Central Component (select Enhancement Package)  Application Help  English  SAP ERP Central Component Financials  Controlling (CO)  Product Cost Controlling (CO-PC)  Cost Object Controlling (CO-PC-OBJ)  Product Cost by Order  Period-End Closing in Product Cost by Period  Variance Calculation 58 58Real Experience. Real Advantage.
  59. 59. [ Controlling Resources - Conference  www.controlling2012.com  When: September 24-25, 2012  Where: Westin San Diego  Networking: All attendees are Controlling professionals  Save $200 Promo code ASUGCA12 valid until April 30  Sessions  Track 1 — Overhead Accounting  Track 2 — Cost Estimates  Track 3 — Project System  Track 4 — Fixed Assets  Track 5 — Rollouts/Upgrades  Track 6 — Reporting/SAP HANA™ 59 59Real Experience. Real Advantage.
  60. 60. [ Controlling Resources – Consulting  ERP Corp provides expert assistance to optimize your SAP Financials and Controlling modules:  Specialize in optimizing after initial system implementation  Fully leverage standard SAP transactions and reports  Learn how other companies deal with similar issues  Benefit from quick measurable results in days  Reduce long run times at period-end  Contact us:  www.erpcorp.com  jjordan@erpcorp.com 60 60Real Experience. Real Advantage.
  61. 61. [ Controlling Resources – ASUG Webcast  Variance Analysis in SAP Controlling  Presented on March 06, 2012  View presentation slides and recording at:  http://www.asug.com/EventsCalendar/EventDetails/tabid/150/Eve ntID/2825/Default.aspxReal Experience. Real Advantage. 61
  62. 62. [ Questions  Now  Ask questions now for immediate answers  Later  www.erpcorp.com  jjordan@erpcorp.com Q&A 62 62Real Experience. Real Advantage.
  63. 63. [  Thank you for participating. For ongoing education in this area of focus, visit www.asug.com. ]Real Experience. Real Advantage.

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