20284327 product-costing-material-ledger-ppt

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20284327 product-costing-material-ledger-ppt

  1. 1. Product Costing & MaterialLedger
  2. 2. Product Costing OverviewAcquire an overall perspective of Product CostPlanning within R/3.Observe a product life cycle from the perspective ofProduct Cost Planning.Acquire an overall perspective of product cost objectcontrolling within R/3.Understand the period oriented product costcontrolling.Obtain an understanding of the functions in thematerial ledger.Analysis of product costs.
  3. 3. Material Ledger OverviewObtain an understanding of the actual costingfunction in the material ledger.Know how to revaluate inventories of semi finishedproducts, and finished products with calculatedactual costs or accrue variances.Analysis of actual product costs.
  4. 4. Why utilize Product Costing?•Product Costing is the backbone of a strong standard costsystem. This is the process by which production activitiesare recorded at standard values and variances from actualcosts are isolated.•For planning purposes, the corporation wants a preliminarytarget of what they think it will cost to produce X units of aproduct.•To set attainable standards by which efficiencies within theproduction operations can be measured.•To provide feedback to management on the actualperformance of the production process in relation to thosetargets. Identified variances may indicate inefficiencies thathave to be investigated. Corrective action may have to betaken.
  5. 5. Costing MethodologyMaterial MasterMaterial MasterPricePrice ControlControlStandard Price(S-Price)- Constant- Recommended for all materialtypesMoving average price(V- Price)- Adjusted with every receipt- If at all, only to be used for rawmaterials and materials procuredexternally
  6. 6. Costing MethodologyThe method of valuing inventory of amaterial is determined whenextending/creating the material master.Price that changes in consequence of usageand entry of invoices. Calculated bydividing the value of material by the quantityin stock. Automatically recalculated basedon activity.Constant price without considering usage orinvoices. Material stock valued at the sameprice over an extended period. Pricevariances are posted to price differenceaccounts; not affecting the standard price.
  7. 7. Moving average price – Stock CoverageGR/IR AccountVendor200300200100200100300Consumption300If the invoice receipt isfor 100 units, the stockcoverageis 200 units:all differences goes onstockStockQtyQty Stk. ValStk. Val V priceV price1.Begin. inventory: 100 PC at 1.001.Begin. inventory: 100 PC at 1.00 100100 100100 1.001.002. Goods receipt: 100 PC at 2.002. Goods receipt: 100 PC at 2.00 200200 300300 1.501.503. Invoice receipt: 100 PC at 3.003. Invoice receipt: 100 PC at 3.00 200200 400400 2.002.004. Goods issue: 150 PC at 2.004. Goods issue: 150 PC at 2.00 5050 100100 2.002.001.1.2.2.333.3. 2.2.3.3.4.4.4.4.
  8. 8. Moving average price: Stock shortageStockPrice differenceGR/IR accountVendor1002005020020050300Consumption2253.3.225StockStock StockStock ValueValue V PriceV Price1. Begin. inventory:1. Begin. inventory: 100100 100100 1.001.002. Goods receipt: 100 PC at 2.002. Goods receipt: 100 PC at 2.00 200200 300300 1.501.503. Goods issue: 150 PC at 1.503. Goods issue: 150 PC at 1.50 5050 7575 1.501.504. Invoice receipt: 100 PC at 3.004. Invoice receipt: 100 PC at 3.00 5050 125125 22.50.501.1.2.2.33.. 4.4.4.4.2.2.A delayed invoice receipt results in price differenceA delayed invoice receipt results in price differencedue to stock shortagedue to stock shortage44..4.4.
  9. 9. Characteristics of Price Control V√ The stock value is adjusted each time goods are received√ Real-time price fluctations are posted to stock√ Price difference postings only take place in exceptional casesDisadvantages:× Price fluctuations cannot be adjusted to the finished products of higherlevels (S price)× Only recommended for raw materials or goods procured externally (real-time price for goods receipt known)× False entries with severe consequences (compounded errors)× Danger of incorrect valuations with delayed invoice receiptMoving average priceAdvantages:Advantages:
  10. 10. Posting Example: Standard PriceStockPrice differenceGR/IR accountVendor3450Stock Stock Value Standard PriceOpening stock: 100 400 4.00Goods receipt: 100 at 5 200 400 4.00Invoice receipt: 100 at 4.50 200 400 4.001231 4004002500 23 5002 100 350
  11. 11. Characteristics of Price Control S√ All stock postings take place at the standard price√ Prices remain constant throughout at least one period√ Price fluctuations do not debit/credit the cost objects (e.g. orders)√ Calculation of the standard prices with cost component splits√ Recommended for all material typesDisadvantages:× Price differences cannot be subsequently adjusted to the endinginventories or the consumed products (sales, productionwithdrawals)Advantages:Advantages:Standard Price
  12. 12. Costing MethodologyValuation Method by Material:Finished Goods Standard w/ MLIntermediates Standard w/ MLRaw Material Moving Average ActualPackaging Moving Average Actual
  13. 13. Organizational unit dividing up a company for thepurpose of valuating stocks in a standardized andconsistent manner.• Level at which material value is managed.• The valuation area may is defined:- by plantValuation Area
  14. 14. QualityCCALabourCCAF. GoodsInventoryBOMRoutingProductionordersCO-CCACO-PACO-PCManufacturing Cost MM: RMSteamCCAProductionCost CenterVAR.VAR...Product Cost FlowActvActvActvActvActvActv
  15. 15. Product Cost FlowPlant Cost ViewSales & Mktg. ViewMfg. Cost Center(Activity Types)UtilitiesSalariesSuppliesMaintenanceDepreciationTrainingDirectConversionInsur. & TaxesLaboratory/QCWaste TreatmentShops & StoresGeneral ServicesIndirectConversionTotal Product CostMach. Hrs.orlbs.ProducedLab testsSetup Hrs.P A(Profitability Analysis)Raw Mat’l 1 & 2 CostsPkg. Mat’l CostsCosts to ProduceProduct testing costsChange Over costs(setup costs)RoutingProduct Unit CostCost of Goods Mfg.Raw Mat’l 1 CostsRaw Mat’l 2 CostsPkg. Mat’l CostsRoutingMach. Hr. CostsLab Tests CostsMach. Setup CostsProcess OrderRaw Mat’l 1Raw Mat’l 2Pkg Mat’lBOM(Cost Component View) (SAP Value Fields)Three Views Available:1. Cost Component2. Cost Element3. Cost ItemizationCost of Goods SoldFixed & Variable Cost Fixed & Variable Cost
  16. 16. Product Costing At A GrpProduct Cost PlanningYesExecute costingrunAutomaticReleaseofStandard PriceMark StandardCost EstimateActivitytypeplanningcompletedQuantitystructurein PPcreatedOverheadcostplanningcompletedPlan pricesof rawmaterialswereenteredStandardCostCalculatedReview forApprovalAdjust costingmaster data/parametersStandardprice hasebeenreleasedOKNot OK
  17. 17. Product Costing At A GrpProduct Cost Allocation - Simultaneous CostingYesSimultaneousCostingCostestimatehas beenreleasedManufacturing orderhas beenreleasedCost objecthas beencreatedProduct costareallocated
  18. 18. Product Costing At A GrpPeriod End Closing Product CostingYesRevaluationactivity types atactual pricesProductcost areallocatedPE ProductCosting hasbeen doneCalculation ofWIPPeriodicVaraiancecalculationSettle costobject
  19. 19. Product Costing At A GrpMaterial Ledger/Actual CostingAllocation ofFollow up Coststo Finished/SemiFinishedProductsPrice Update inActual CostingMaterial PriceDeterminationGL PostingsMM GoodsMovementsRecordedMaterialM,asterUpdatesGL Postings &ReversalMaterialM,asterUpdatesRevaluateStockProvisionalPosting
  20. 20. Product Cost Planning: OverviewFunctions of Product Cost Planning:Product Cost Planning with reference to cost objectProduct cost planning with quantity structure – with structuresprovided by PP (Production Planning) moduleDetermination of the cost of goods manufacturedProduct Cost Planning supplies information for othermodules:Update of prices in a material masterUpdate of the cost of good sold with the detailed structure ofcost component (grouped cost elements)Standard (material) cost estimate as the base for calculationof production variances
  21. 21. What is a Product Cost Estimate?Cost Estimate With Quantity StructureUtilizes a Bill of Material (BOM) and routing, I.e. Master Recipe for costingpurposes. Integrated with Production Planning (PP).AdditiveYou use additive costing to enable you to manually add costs that cannotbe calculated by the system to a material cost estimate.A tool for planning costs and establishing prices formaterials. It is used to calculate the cost of goods sold foreach product unit.Cost Estimate WITHOUT Quantity StructureUtilizes a material master data and activity types entered manually into costestimate.
  22. 22. Product Costing: OverviewStandard Cost Estimate(once a year)Standard Cost Estimate(once a year)Release cost estimate with quantity structureMark cost estimate with quantity structureCreate Cost estimate with quantitystructure
  23. 23. Concept of Cost Roll UpThe purpose of cost rollup is to include the cost of goodsmanufactured of all the materials in a multilevel productionstructure within the costs of the material located at the top ofthe structure. The costs are rolled up automatically using thecosting levels.
  24. 24. Costing VariantValuationValuationVariantVariantQuantity StructureQuantity StructureDeterminationDeterminationCosting VariantCosting VariantPricesPricesQuantitiesCost of goodsCost of goodsmanufacturedmanufactured
  25. 25. Costing VariantCOSTINGVARIANTStrategy forStrategy fortransfer oftransfer ofthe existingthe existingcost estimatescost estimatesDetermination of :Determination of :-- Bills of MaterialBills of Material-- RoutingRoutingDefaulted dates forDefaulted dates forcostingcostingCosting SheetCosting SheetDetermination of:Determination of:-- prices updateprices updatein material masterin material masterValuation control for:Valuation control for:-- materialsmaterials-- internal activitiesinternal activities-- external activitiesexternal activities-- subcontractingsubcontracting-- overheads viaoverheads viacosting sheetcosting sheet
  26. 26. Quantity Structure for Product Cost PlanningQuantity Structure of Product Cost Planning:-Material MasterBill of MaterialWork Center/ ResourcesRoutingsMaster RecipeProduction VersionProcurement Alternative/ Mixing Ratios
  27. 27. Quantity Structure for Product Cost PlanningMaterial master dataAccounting viewsCosting viewsMRP viewsBOM - Bill of MaterialBOM type & identificationBOM headerMaterial dataRouting - tasks listRouting type & identificationRouting headerOperation dataMaster RecipeRecipe headerOperationsMaterials listWork Centers / ResourcesBasic dataCostingProduction VersionValidity PeriodProduction line
  28. 28. Quantity Structure: Material Master DataMaterial Master Data:Material Master Data is an object in SAP that consistsall relevant data for raw materials, semi-finished andfinished products divided into views.Important Views relevant for product costing:AccountingCostingMRP
  29. 29. Quantity Structure: Production VersionProduction versions combine a specific BOM alternativewith a specific routing/recipeFor one material, you can have several Productionversions for various validity periods and lot size rangesProduction version facilitate different situationsProduction using different resourcesProduction using different procedures
  30. 30. Quantity Structure: Procurement AlternativesQuantity structure determination for mixed cost estimate.
  31. 31. Quantity Structure: Mixing RatiosProduct <FERT or HALB >Mixed ProductCost EstimateQuantity structure determination for mixed cost estimateValidity period for mixing structure
  32. 32. Costing StructureCosting Structure for Product Cost Planning:-Activity TypesCost ElementsCost Component StructureCost CentersMaterial Master
  33. 33. Costing Structure for Product Cost PlanningMaterial master dataAccounting viewsCosting viewsCost CentersValidity periodCategoryFunctional areaActivity TypesValidity periodActivity unitAllocation cost elementCost ElementsValidity periodCategory
  34. 34. Costing StructureActivity types define the type of activity that can be providedby a cost center (work activity, production hours, and so on).
  35. 35. Cost centerhCost center:MachinePlanned costs:430000 (salaries) 44,000440000 (miscl.) 10,000473120 (telephone) 30,000Plan activity qty: 100 hPlanned costs: 84,000CalculatedPrice: 840Activity Price Calculation:Apportionment of cost center coststo activity types according toparticular criteria1PDH01Activity Price Calculation12100
  36. 36. Costing StructureSteam service9103004943954 UT: Steam fixProduct91000045 - TEGProduct91000060 - LLDPE9103000…..…..DistributionActivityAllocation943954viaRoutingCost SplittingPlanning9103000Utilities (Common)ProductCost EstimateActivity Types Used:1UTSTF Steam - fixedOriginalCE1UTSTF Steam - fixed1UTSTV Steam – var.235Primary costs planning on allCost Centers.1Planned Price CalculationPrices for 1UTSTF arecalculated.41. Assign CC 9103004 to SplittingStructure Z9 Steam service2. Perform cost splitting
  37. 37. Cost Component StructureRaw MaterialsUtilitiesPersonnel Exp.DepreciationPrimary cost elementsProduct Cost PlanningCost CentersUtilitiesPersonnel Exp.DepreciationStructure of primarycostsCO-PCCO-OMRaw MaterialsInternalActivityAllocationStructure ofprimarycostsZ9A Grp-Primary
  38. 38. Product Costing: OverviewStandard Cost Estimate(once a year)Standard Cost Estimate(once a year)Release cost estimate with quantitystructureMark cost estimate with quantitystructureCreate Cost estimate with quantity structure
  39. 39. Price updateStandard priceOnly one validated standard price per product per period,The price represents most desired (or most likely) costsOnly one price per product over the year (recommended)Determined during costing runs for Z9P1 costing variants - standardcost estimate is populated in appropriate valuation viewsIncludes variable and fix cost elementsBase for variances calculation; which is then posted to FI and CO-PAUsed for stock valuation of finished goods and semi-finishedproductsStored in material master data (accounting view) in Legal, Groupand Profit Center valuation views after releasing the cost estimate
  40. 40. Price updateFuture priceFuture standard priceStored in material master data (accounting & costing view) in Legal,Group and Profit Center valuation views after marking the costestimate.Previous priceReplaced standard price by current one due to releasing the costestimateStored in material master data (accounting & costing view).
  41. 41. Price updateExisting StdMaterial Master DataMaterial Master DataStandard PriceFuture Current Previous1010Future Current PreviousMarking StandardMarking StandardCost EstimateCost Estimate 1015Future Current Previous101515Stock RevaluationStock RevaluationReleasing StandardReleasing StandardCost EstimateCost EstimateAnalysis of Costing Results
  42. 42. Costing runCosting runYou can use the costing run to process mass data. It enables you tocost, mark, and release more than one material at the same time.Every processing step involved in costing with quantity structure isperformed by the costing run, from the same screen.Costing run consists of:General data (organizational units, selection criteria)Selected materialsExploded BOMsCosting run resultsPrice update results
  43. 43. Costing runMarking and releasing costing run results(price update)Execute costing runSelectionofall materialsPartial selectionof materialsBOM explosionCosting Run CreationCosting Run CreationCompany CodeCosting variantDatesOROR
  44. 44. Product Costing: OverviewPrepare Cost ObjectPrepare Cost ObjectProduction CostsProduction CostsReceive Finished StocksReceive Finished StocksMonth End ClosingMonth End ClosingPost Materials CostsDebit Secondary costCredit Production OutputWIP CalculationVariance CalculationSettlementPreliminary costingCreate cost object
  45. 45. Cost Object Controlling: OverviewFunctions of Cost Object Controlling:Supporting make-or-buy decisionsDetermining price floorsPerforming complex cost analysisDetermining inventory values
  46. 46. Cost Object Controlling: OverviewCost Object Controlling Scenarios:Product Cost by PeriodProduct Cost by Period is used for recurring periodic costcontrol of products that are manufactured in the same wayover a longer period of time.Product Cost by OrderProduct Cost by Order is mainly used to control the costs ofindividual production lots.
  47. 47. Cost Object Controlling: OverviewProduct Cost by Order or by PeriodFull settlement (by Order)Periodic settlement ( by Period)Actual costs =Work in processActual costs -Goods receipts =Work in processActual costs -Goods receipts =VariancesReleasing anorderPartial delivery Delivered /TechnicallycompletedActual costs -Goods receipts =Work in process +VariancesPeriod 1 Period 2 Period 3Actual costs -Goods receipts =Work in process +VariancesActual costs -Goods receipts =Work in process +VariancesTimeTimeTimeTime
  48. 48. Cost Object Controlling: OverviewProduct Cost by OrderType of settlementruleWork-in-ProcessVariancesSettlementHierarchy ofCost ObjectsFULL PERIODICWIP calculated on baseof actual costsVariance = Actual Costs -Goods ReceiptsVariance = Actual Costs -Goods Receipts - WIPShould be periodicallyImpossible PossibleFunkcjeFunctions Product Cost by PeriodWIP calculated on baseof target costsMust be periodically
  49. 49. Cost Object Controlling: OverviewFunctions of Product Costs by Period:Create product cost collectors.Create a preliminary cost estimate for product costcollectors.Calculate and analyze target costs and actual costs forproduct cost collectors.Calculate or update the work-in-process inventory andthe finished goods inventory.Calculate and analyze variances for each period.Transfer data to: Financial Accounting, ProfitabilityAnalysis, Profit Center Accounting and MaterialLedger.
  50. 50. Product Costing: OverviewPrepare Cost ObjectPrepare Cost ObjectPreliminary costingCreateProduct Cost Collector
  51. 51. Objects in Cost Object ControllingProduct cost collectors in the following productionenvironments:In order-related production (that is, when you are usingproduction orders) when you want to analyze the costs byperiod rather than by lotIn process manufacturing (that is, when you are using processorders) when you want to analyze the costs by period ratherthan by lotIn repetitive manufacturing you always use product costcollectors as the cost objects.
  52. 52. Objects in Cost Object ControllingProduct <FERT or HALB >Bill of Material• Usage• AlternativeRouting• Group• Group counterProduction Version• ID,• Production line,• Validity period.Product CostCollectorProduct Cost Collector
  53. 53. Objects in Cost Object ControllingMasterRecipeProductionVersionPROCESS ORDER 2OperationList/RoutingMaterialsList/BOMResourceRequirementsOperation 10Operation 20Phase AMaterial YMaterial XProduct CostCollectorPROCESS ORDER 1Product<FERT or HALB>
  54. 54. Preliminary costingCosting variant PREM - preliminary costing:Created during product cost collector creationCreated per each production versionProvides split and balanced information of cost items, quantities andprices that are planned to occur during production of a productVariable costs coming from BOM and routingResult used mainly for actual activities postingsMay be used for further analysis up to cost managementrequirementsMay be changed all the time in the way of changing (updating)Product Cost Collector; i.e. different quantity structures allowed overthe periodChanges in BOMs take effect immediately, i.e. cost estimate updatenot requiredChanges in routings take effect after cost estimate update
  55. 55. Preliminary costingProduct Cost CollectorItem Plan ActualMaterials 4.000Internal activities 2.500Overheads 1.500EDC 0.500Ethylene 2.000Caustic Soda 1.500Total 8.000
  56. 56. Simultaneous costing – actual costsProduct Cost CollectorItem Plan ActualMaterials 4,000 4,600Internal activities 2.500 2.800Overheads 1.500EDC 0.500 0.600Ethylene 2.000 2.200Caustic Soda 1.500 1.800Total 8.000 7.400
  57. 57. Confirmation Types & Functions - Process OrdersIndividual confirmationCollective confirmationMilestone confirmationProgress confirmationOrder confirmationConfirmation with referenceIndividual order confirmationCollective confirmationMilestone confirmationConfirmation typesConfirm with goods movementDefaults for remaining timeCheck operation sequenceCheck delivery tolerancesPlant data collection interfaceBackflushingReduce capacity requirementsDetermine actual costsOutput goods receiptDetermine actual costsConfirmation functionsBackflush componentsBackflush utilitiesReduce capacity requirements
  58. 58. Final Confirmation & Technical CompletionFinal Confirmation is made when every operation in the orderhas been completedTechnical confirmation is the order is prematurely terminated.Technical confirmation prevents further activities beingposted to the order.Both the above confirmation can be settled.
  59. 59. Failed Transactions and CorrectionsIncorrect or missing data for components and activitiesprevents processing of the back flush transactionThese errors must be corrected before postings can be madefor materials and activitiesWhen the errors have been eliminated, the theoretical yieldand consumption may be adjusted and the results recorded
  60. 60. Actual costsProduction OrderStep 1 – Created and release- Maintenance of Master DataStatus - RELEASEDSTATUS- CREATEDSTATUS - RELEASEDThis status allows for actual postings
  61. 61. Actual costsProduction OrderStep 2 – Goods Issue to Order- Actual PostingsStatus – GOODS MOVEMENT POSTEDOrder100 * 11 = 1.100,-quantity * price = costRawMaterialsConsumed400000InventoryRawMaterials1194001.100,-1.100,-400000 + 1.100FI
  62. 62. Actual costsProduction OrderStep 3 – Direct activity allocation- Actual PostingsStatus - RELEASED400000 + 1.100Cost Center / Activity943201 - 7.500,-943201 + 7.500150 * 50 = 7.500quantity * price = costOrder
  63. 63. Actual costsProduction OrderStep 4 – Goods Receipt from Order into Warehouse- Actual PostingsStatus – PARTIALLY DELIVEREDOrder400000 + 1.100943201 + 7.500100 * 50 = 5.000,-quantity * price = value of the goods receiptsfrom orderProductionOutput462001FinishedProducts1194305.000,-5.000,-462001 - 5.000FI
  64. 64. Actual costs - SummaryThe results from the output receipts, plus material & resourceconsumptions, update the stock records and providevaluation of production according to standard cost approach.
  65. 65. Product Costing: OverviewMonth End ClosingMonth End ClosingSettlementVarianceCalculationWIPCalculation
  66. 66. Period and year-end closingProduction OrderStep 5 – Work-in-Process Calculation- Period-end closingStatus – RESULTS ANALYSIS CARRIED OUTOrder400000 + 1.100943201 + 7.500462001 - 5.000,-WIP Report:Work-in-Process8.600 - 5.000 = 3.600
  67. 67. Period and year-end closingProduction OrderStep 6 – Settlementof - Period-end closingStatus – RESULTS ANALYSIS CARRIED OUTOrder400000 + 1.100943201 + 7.500462001 - 5.000,-Work InProgress(WIP)462201Work InProgress(WIP)1194603.600FI3.600WIP is being updated on theorder as statistical value forinformation purposes.
  68. 68. Period and year-end closingProduction Order – new periodStep 9 – Repetition of the steps from 3 to 7- Actual PostingsStatus – PARTIALLY DELIVEREDOrderAs a result of the actualpostings in the new periodthere is a new balance on theorder.400000 + 1.100943201 + 7.500462001 - 5.000,-400000 + 5.000,-462001 - 7.000,-
  69. 69. Period and year-end closingProduction Order – period 2Step 7 – Work-in-Process Calculation (variant 1)- Period-end closingStatus – PARTIALLY DELIVEREDWIP Report (cumulated):Work-in-Process13.600 - 12.000 = 1.600Work-in-Processin previous period8.600 - 5.000 = 3.600Cumulative: 2.000Order400000 + 1.100943201 + 7.500462001 - 5.000,-400000 + 5.000462001 - 7.000,-
  70. 70. Period and year-end closingProduction Order – Period 2Step 11 – Settlement (variant 1)- Period-end closingStatus – RESULTS ANALYSIS CARRIEDOrderWork InProgress(WIP)119460Work InProgress(WIP)462201FI1.6001.600400000 + 1.100943201 + 7.500462001 - 5.000400000 + 5.000462001 - 7.000As WIP is reported ascumulative value.
  71. 71. Period and year-end closingProduction Order – period 2Step 12 – Calculation of Variances and Settlement (variant 2)- Period-end closingStatus – TECHNICALLY COMPLETEDPriceDifference -ProductionDifference464018ProductionFI1.600Output4620011.600Order400000 + 1.100943201 + 7.500462001 - 5.000400000 + 5.000462001 - 7.000Negative variance:Actuals > Plan.As a result of a posting thebalance of the order wasposted to productiondifference account andcumulated WIP wasreversed.WIP462201WIP1194603.600 3.600
  72. 72. Period and year-end closingVarianceCategoryPA AssignmentlinesValue FieldCost Element Group+++
  73. 73. Period and year-end closingProduct Cost CollectorItem Plan ActualMaterials 4,000 4,600Internal activities 2.500 2.800Overheads 1.500 1.600EDC 0.500 0.600Ethylene 2.000 2.200Caustic Soda 1.500 1.800Total 8.000 9.000RevaluationOverheadsPeriodic Costs%
  74. 74. Period and year-end closingWork-in-ProcessOverheadsProcess costsRevaluationPeriodiccostsCalculationsandanalysisPostingsFI/COSettlementScrapVariancesPeriodPeriod--end closingend closing
  75. 75. Material Ledger: OverviewFunctions of Material Ledger:Cost accounting using actual pricesStoring values of stock in three different valuations(legal valuation, valuation for reporting purposes, andprofit center valuation) in multiple currencies.
  76. 76. Material Ledger: OverviewFunctions of Material Ledger:Cost accounting using actual pricesStoring values of stock in three different valuations(legal valuation, group valuation for reporting purposes,and profit center valuation) in multiple currencies.
  77. 77. What is the Material Ledger/Actual Cost Concept?The Material Ledger(ML) is a tool within the COModule that collects all transactional data formaterials whose master data is stored in thematerial master. It acts as a subledger for selectedmaterials that captures all goods movements,invoice values, transfers and price changes. Onthe basis of this data, the material ledgercalculates and maintains the actual cost for thesematerials. This actual cost can then be utilized tovaluate the material stock accounts.
  78. 78. Objectives of the Material Ledger1. Actual Costing.During the period, valuation of all goods movements is donewith the preliminary valuation price which is normally thestandard price. All variances from the preliminary valuation aremaintained in the ML. At period end, revaluation of endinginventory can be performed with the determined actual price.This is not mandatory. Actual prices can be calculated forstatistical purposes only.2. Parallel currencies and/or valuations of material stocks.All goods movements in the ledger can be maintained in 3currencies. The values are translated into other currenciesusing the historical exchange rates. Prerequisite for usage oftransfer pricing functionality.
  79. 79. Benefits of the Material Ledger►Variances of Finished GoodsVariances from external procurement (purchase orders) as wellas from production activities are rolled up from raw and semi-finished materials to the finished goods level.►To provide support for procurement related decisions.Detailed reporting for procurement processes and sourcespossible. Make vs.. Buy, Vendor A vs.. Vendor B. Price History.►Combines the benefits of Moving Average and Standard PriceStable prices used for controlling purposes (standard) and actualprices used for valuation purposes (average).►Easy to use display and error finding by consolidating the views.Allows quick access to detailed views of material master,standard costs and documents
  80. 80. Benefits of the Material Ledger►Relatively simple configuration and set up►True Cost of Sales AccountingPurchasing and production variances for unsold stocks areinventoried.►Contribution Margin with Actual Costs of SalesBy utilizing multi-level settlement, actual values for your costcomponent split can be attained. This can be transferred to PA
  81. 81. Single Level SettlementThe term single level always refers to one material andThe term single level always refers to one material andits procurement process; which means that all values andits procurement process; which means that all values andquantities that arise during a procurement for saidquantities that arise during a procurement for saidmaterial are stored singlematerial are stored single-- levellevel
  82. 82. Multi - Level SettlementThe “multi-level” settlement functionality adds themost value because it passes the lower level variancein a production processes up to the final finishedproduct.All the manufacturing variances can be included inthe total cost to manufacture the finished products
  83. 83. The ML updates the Material Master
  84. 84. The Integrated Material Ledger Display
  85. 85. Material Ledger OverviewMaterial LedgerMATERIAL STOCKParallel CurrenciesTranslation at historic rates(up to three)Parallel Valuations(Transfer Prices)GroupLegalProfit CenterActual CostingRevaluation of stock atactual prices or accrual ofvariances.
  86. 86. ML Overview – Parallel CurrenciesMaterial Ledger(Valuation Area / Plant)• 10 Local currency• 30 Group currencyFinancial Accounting(Company Code)• 10 Local currency• 30 Group currencyControlling(Controlling Area)• 10 Local currency• 30 Group currency
  87. 87. ML Overview – Parallel Curr. in A Grp (1)Material LedgerValuation Area (Plant) 9100
  88. 88. Price ControlPrice controlMoving average price(V Price)• Changed after every receipt• Recommended for raw andexternally procuredmaterials.Standard Price(S Price)• Stable for long period• Recommended for finishedand semi-finishedproducts.MaterialMaster
  89. 89. Price controlMoving average priceThe stock value is adjusted each time are receivedReal-time price fluctuations are posted to stockPrice difference postings only takes place in exceptional casesPrice fluctuations can not be adjusted to the finished products of higher levels(in case S price)Only recommended for raw materials or goods procured externally (real-timeprice for goods receipt known)False entries with severe consequences (compounded errors)Danger of incorrect valuations with delayed invoice receipt
  90. 90. Price controlStandard PriceAll stock postings takes place with the standard pricePrice remains constant by at least one periodPrice fluctuations do not debit / credit the cost objectConsistent controlling with the standard price as a bench markEstimations of the standard prices with cost component splitRecommended for all materials typesPrice differences can not be subsequently adjusted to the ending inventoriesor the consumed products (very important in the Cost of Goods Soldaccounting)
  91. 91. Price determination controlSS VVStandardpriceMovingprice2Transaction basedPrice controlPrice determination3Single-/ multilevelprice determinationStandardndardpriceperiodicUnitpriceCannotbeactivatedmanually
  92. 92. Actual Values OverviewSetting 2 of transaction-based price determination functions in thesame way as the system without the material ledger, but has the addedadvantage of allowing you to carry standard prices and moving prices inmultiple currencies or valuations. This option is possible for materials withthe price control S or V.With single-/multilevel material price determination (indicator 3 in thematerial master),a standard price is used for preliminary valuation, and a periodic unitprice is calculated for material valuation of the closed period. This optionis only possible for materials with the price control indicator S, and is onlyrecommended when you want to use actual costing in combination withmultiple currencies or valuations.With single-multilevel material price determination, the periodic unitprice is updated for informational purposes and can be used formaterial valuation of the closed period.
  93. 93. Material Master - Price controlPrice ControlDeterminationMoving average price(V Price / 2 Activity-related)Standard Price(S Price / 3 Single-/multi-level)MaterialMasterMaterial ledgeris activated
  94. 94. Material Master - Parallel CurrenciesMaterialMasterCompany Code: 5200Valuation Area / Plant: 5200Legal valuationUSDGroup valuationSARProfit centervaluationSAR
  95. 95. Material Master - TransparencyMaterialMaster
  96. 96. Actual Values OverviewActual data -> Actual CostingOverviewPreliminary valuation priceActual Costing• Price differencesUpdating single-level variancesSingle-level price determinationMultilevel price determination
  97. 97. Overview of differences-PRFPRAPRUPRDCost (price)differences-PRFPRAPRUPRYCost (price)differences(mater.ledger)-PRFPRAPRUPRVMaterialledgerfr.low.levels price dif.UMBGain/lossfromrevaluationLKWAccruals anddefer.acct(material ledger)GL (PL) 464017Price Diff -PurchasingGL (PL) 464018Production VarianceGL (PL) 464019Price Diff - GoodIssueGL (PL) 4640020Price Diff -TransferPostingsGL (PL) 464021Gains/Loss onInventory RevaluationGL (BS) 119610ML ProvisionsPurchasing,StockMovement,ProductionMaterial LedgerClosing - SingleLevelMaterial LedgerClosing - MultiLevel LevelMaterial LedgerClosing -Release FuturePriceMaterial LedgerClosing - Do notrevaluate StockFI PARevenueSDRevenueCOGSMM -StandardPrice or SDConditionTypeInput pricevarianceInput quantityvarianceResource-usagevarianceRemaining inputvarianceMixed-pricevarianceOutput pricevarianceLot size-/fixed-cost varianceRemainingvarianceScrapPrice Diff -PurchasingPrice Diff - GoodIssuePrice Diff -Transfer PostingsGains/Loss onInventoryRevaluationCOGSProductionVariancesAdjustmentto COGSfromcapitalisingVariancesAdjustment toCOGS fromInventoryRevaluationGross margin****
  98. 98. Actual Values OverviewActual data -> Actual CostingOverviewPreliminary valuation priceActual Costing• Price differencesUpdating single-level variancesSingle-level price determinationMultilevel price determination
  99. 99. Preliminary valuation priceWhen Actual costing is used all materials are valuated with apreliminary periodic unit price. This price remains constantwithin a period.This price can be the result of a standard cost estimate, amanual price or an actual price calculated in the previousperiod.The advantage of this price is (as with the standard price)that standard costs can be calculated independently withoutprice fluctuations hindering the controlling of the productionprocesses.
  100. 100. Actual Values OverviewActual data -> Actual CostingOverviewPreliminary valuation priceActual Costing• Price differencesUpdating single-level variancesSingle-level price determinationMultilevel price determination
  101. 101. Actual CostingPrice differences arise throughStock transfers(standard price in another plant)External procurement(purchase order or invoice value)Internal production(order settlement)
  102. 102. Actual Values OverviewActual data -> Actual CostingOverviewPreliminary valuation priceActual Costing• Price differencesUpdating single-level variancesSingle-level price determinationMultilevel price determination
  103. 103. Updating Single Level VariancesDuring a period, variances are incurred for this preliminary valuationprice (or standard price).These variances are posted from the material ledger to a pricedifference account and updated for each material. Single-levelvariances are the variances incurred for a material during its directprocurement.For raw materials, these are, as a rule, variances from price fluctuationsin the case of external procurement from vendors.For semi-finished and finished products, the single-level variances includeinternal cost fluctuations from production that are calculated during ordersettlement.Single-level variances do not include price differences from materials fromlower levels of production. For example, price variances incurred duringthe procurement of raw materials are not included in order settlement,because the raw materials were assigned to the order at preliminaryvaluation.
  104. 104. Actual Values OverviewActual data -> Actual CostingOverviewPreliminary valuation priceActual Costing• Price differencesUpdating single-level variancesSingle-level price determinationMultilevel price determination
  105. 105. Single level Price determinationAt the end of the period, you can use the functions for single-level price determination to assign the variances for eachmaterial. In this way, cumulated price differences can beproportionally assigned to the ending inventory and materialconsumption of the period at the end of the period.The stock can valuated with the actual price of this period,the periodic unit price. The price differences assigned toconsumption first remain on the price difference account.When you settle an order, the system allocates the pricedifferences incurred during a production process to therespective materials.
  106. 106. Actual Values OverviewActual data -> Actual CostingOverviewPreliminary valuation priceActual Costing• Price differencesUpdating single-level variancesSingle-level price determinationMultilevel price determination
  107. 107. Multilevel Price DeterminationMultilevel material price determination can also calculate the variancesthat have flowed into higher levels of the production process using amultilevel actual quantity structure .Thanks to the quantity structure, a type of actual bill of material, thesystem knows what materials were used for the production of whichgoods. The prices of the finished products can then be calculated.As a result, price differences, for example, of raw materials can be rolledup to semi-finished goods and, in a next step, to the finished goods.The period-end closing process for multilevel material pricedetermination enables you to recognize the actual prices for eachmaterial (raw materials, semi-finished products and finished products) atthe end of the period. These actual prices contain the prices incurred forthe actual quantity produced or procured for each period.If you wish, you can use these actual prices to revaluate your products orraw materials.These procedures make it possible for you to use an actual cost systemin addition to your standard cost system, because the values of yourstandard cost system (cost centers, orders) cannot be readjusted during asubsequent allocation.
  108. 108. Period End OverviewActual Costing – Period End Closing ProcedureCollecting price differences• On price difference accounts or in material ledger within categoriesPeriod closing program• Open new period in MM (transaction MMPV)Determining prices• Single-level, later multilevel• V price is calculatedMaking closing entry• Must be made for each period• Posting to prior period is no longer possible• Reversal if requiredWith revaluation• Price differences are proportionally posted to the remaining stock -> Priceindicator ‘V’Without revaluation• Price differences are proportionally posted to the accruals account -> Priceindicator ‘S’Marking future price
  109. 109. Period End Overview – Closing Entry (1)Beginning inventory (BI): 1000 PC / 250 EURGoods receipt/purchase order : 1000 PC / 260 EURInvoice receipt : 1000 PC / 280 EURConsumption: 1300 PC / 325 EUREnding inventory: 700 PCMaterial: ACT-LCD##VB 325Material stock (119400)325250250GR/IR allocation260 260Vendor280Price difference (464017)1020Status: Closing entry performedPrice control: V (only old periods)V price: 26.50 EUR / 100 unitsML accrual (119610)10.510.5CLCLStock value :185.5 EUR(700 PC * 26.50/100)LockedWith RevaluationMaterial consumption(400002)
  110. 110. Period End Overview – Closing Entry (2)Beginning inventory (BI): 1000 PC / 250 EURGoods receipt/purchase order: 1000 PC / 260 EURInvoice receipt: 1000 PC / 280 EURConsumption: 1300 PC / 325 EUREnding inventory: 700 PCMaterial: ACT-LCD##325Material stock (119400)325250250GR/IR allocation260 260Vendor280Price difference (464017)1020ML accrual (119610)Stock value:175 EUR10.5CL CLStatus: Closing entry performedPrice control: SS price: 25.00 EUR / 100 unitsLocked10.5Material consumption(400002)Without Revaluation
  111. 111. Period End Overview – Periodic unit priceThe periodic unit price is calculated after the end of a period. Itmirrors the actual costs of a material for the closed period.The system uses the cumulative inventory (the beginning inventoryplus all goods receipts) and the cumulative difference (all differencesbetween the standard price and the price entered for all goods receiptsand the beginning inventory) to calculate the periodic unit price.Material price determination must be allowed for every individualperiod (through the menu option Organizational Measures or directly ina costing run).The single-level material price determination includes deviatingamounts due to price differences, exchange-rate differences andrevaluation differences that have been incurred for the (single-level)procurement of a material in this period.After the period has been closed, the cumulative differences areallocated to the cumulative inventory for the closed period. From this,the system calculates the weighted average price that can be used forvaluation of the ending inventory. With single-level price determination,the valuation in the current period remains unchanged.
  112. 112. DetailedReportsObjectListObjectComparisonsMaterialsto becostedSummarizedAnalysisInformation System OverviewProduct CostPlanningReports
  113. 113. Report SelectionThe Report Tree can be used to select Reports in the Information System. The ReportTree is the central collection point and hierarchical outline of all Reports in anapplication component.The standard Report Tree supplied by SAP should not be changed. A personalized Reporttree can be created to which standard Reports as well as ones own creations can beassigned.
  114. 114. ReportThe Report can be used to
  115. 115. ReportThe Report can be used to
  116. 116. ReportThe Report can be used to
  117. 117. ReportThe Report can be used to
  118. 118. ReportThe Report can be used to
  119. 119. Information System Overview
  120. 120. DisplayingDocumentsMaterialLedgerReportsObjectList ReportsDetailedInformation System Overview
  121. 121. DetailedReportsObjectListObjectComparisonsMaterialsto becostedSummarizedAnalysisInformation System OverviewProduct CostPlanningReports
  122. 122. Report SelectionThe Report Tree can be used to select Reports in the Information System. The ReportTree is the central collection point and hierarchical outline of all Reports in anapplication component.The standard Report Tree supplied by SAP should not be changed. A personalized Reporttree can be created to which standard Reports as well as ones own creations can beassigned.
  123. 123. Information System Overview
  124. 124. Report Output TypesGraphical report-outputVariable output areasHTML-headerNavigation by drag and drop andcontext menuObject List (ALV) Various leads columnsStandard ALV Functions

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