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Co product costing detailed trng
- 1. Thursday, November 27, 2014 1 Product Costing
- 2. Thursday, November 27, 2014 2 Product Cost Controlling - Benefits Legal Requirements l Valuation of: n Raw Materials n Semi finished Goods n Finished Goods l Work-in-Process l Reserves for Losses Management Requirements l Support cost reduction concepts l Strategic Decision Support n which products n where or how to produce l Operating Decision Support n pricing of products n effectiveness of manufacturing
- 3. Thursday, November 27, 2014 3 What can Cost Object Controlling do for me? • What actual costs did we incur in our area in the current period? • What costs were we expecting based on the quantities manufactured? • Are some product groups performing significantly better than others? • What is causing these variances? • What are the scrap costs of our new line? • Did continuous improvements show cost effects?
- 4. Product Controlling by Order Thursday, November 27, 2014 4 When to Use? • Very flexible production environment • High set-up costs • Full cost tracking needed • Controlling by individual production lots needed • Example: Order related production Work center 2 Work center 3 Lot Lot Lot Work center 1
- 5. Thursday, November 27, 2014 5 Product Controlling by Period When to Use? • High volume production • Stable and continuous production • No individual lot oriented controlling needed • Collecting costs on product cost collectors • Example: Repetitive production Line am-100 am-120 am-200 am-line1 am-110 am-210 am-220
- 6. Product Cost by Sales Order Thursday, November 27, 2014 6 When to Use? • Cost and revenues collected by sales order irrespective of manufacturing scenario • Collecting special sales costs on sales order • Tracking Funds committed • Calculating Work in process and Reserves with results Analysis • Example: Controlling complex Make-to- Order Production Sales Order M
- 7. Product Cost Planning Quantity Structure: Thursday, November 27, 2014 7 Product Cost Controlling - Components Cost Object Controlling Preliminary Costing, Simultaneous Costing Planned costs, Actual costs Work in process Scrap Variances Settlement PP Master Data BOM Routtiing Order Material $ Labor $ Overhead $ Process $ Total ... Value Structure Prices for Materials Prices for Activities Prices for Processes Overhead Cost estimate: Standard costs Final Costing Period-End Closing
- 8. Thursday, November 27, 2014 8 Product Cost Planning PC- Planning stage Quantity Structure Value Structure Plan Overhead rates: Energy = Rs.10 / hr Running = Rs.80 / hr Routing BOM + Men Cost = Rs. 20 per kg Standard BOM to give standard material cost Standard Routing to give standard overhead consumption quantity Standard Overhead rates Standard Material consumption cost Standard Overhead costs Standard cost of Manufactured goods includes the planned cost of Raw Material and Planned cost of Overheads
- 9. Thursday, November 27, 2014 9 Cost - Object Controlling PC - Actual stage Overhead expenses Cost centers Production Operation Financial Accounting Activities Cost Sheet Overhead costs posted to budget cost centers Overhead costs re-allocated in between cost centers Overhead costs allocated from Cost Centers to Production Operations using two methods Standard cost of FG Overhead costs allocated to Finished Goods at standard overhead rates Variances Overhead variance are accounted along with Finished Goods Production variance
- 10. Production Order: Process Chain Period end closing Partial goods receipt Thursday, November 27, 2014 10 Order archived / deleted Production Order Create Schedule Availability check Settlement Calculate costs Variance calculation Final goods receipt WIP calculation Revaluation Material issue Release of order Shop paper printing Overhead/Process cost allocation Production Order Simultaneous costing Order Execution
- 11. Thursday, November 27, 2014 11 Allocation of Overhead Costs Overhead surcharges Direct activity allocation Activity type allocation Process allocation Cost allocation Activity quantity X Price Process quantity x Price Cost Center Cost Center Activities Cost Driver Cost Center Activities Production Order Production Order Production Order
- 12. Revaluation of Activities With Cost Center Thursday, November 27, 2014 12 Actual Prices Production Cost Collector Production Cost Object Actual Costs Revaluation of posted activities Actual Activity Prices Costt Ellementt • periodic • average • accumulated Price Difference x activity quantity = cost difference Process Order Order
- 13. Warehouse Warehouse Costt Centter Thursday, November 27, 2014 13 Overhead Surcharges 1 barrel CCrreeddiitt ffrroomm oovveerrhheeaadd ccaallccuullaattiioonn:: ––220000 Surcharge Percentt 2200%% Production Order Costing sheet COGM Oil 1,000 Storage overhead 200
- 14. Period-End Closing: Work in Thursday, November 27, 2014 14 Process Work in process is calculated for each order and settled to Financial Accounting and Profit Center Accounting PrrCttrr 1 BY COMPANY BY PROFIT CENTER Production Order CO-PC Period Accounting Revenues - Sales deductions - Total costs +/- Stock changes = Profit for period EC-PCA FI Actual Material 800 Production 1,200 External 400 Stock change – 1,000 Order balance 1,400
- 15. Material: P-100 Material Production Overhead Plant activity Thursday, November 27, 2014 15 WIP Calculation Using Actual Costs WIP CCOO-- PC Actual Costs 800 1,200 400 2,400 1,000 1,400 Settlement using posting rules FFII EECC-- PCA - 1,400 Material Withdrawals 800 Confirmations 1200 Overhead 400 Delivery -1000
- 16. Thursday, November 27, 2014 16 Posting of Work in Process Work in Process 1,400 Apportionment for WIP Material 800 Production 1,200 Overhead 400 To be capitalized 1,120 Not to be capitalized 280 FINANCIAL ACCOUNTING WIP Stock change Reserve Expense Profit Center ACCOUNTING Division Product group Product Postings via Settlement Production Order
- 17. Period-End Closing: Variances Thursday, November 27, 2014 •Region •Distribution channel 17 Variances are calculated for each order and settled • with variance category to Profitability Analysis • as well as one amount to Financial Accounting •Product group BY COMPANY BY PROFIT. SEGMENT FI CO-PA Material: P-100 800 1,200 400 2,400 -2,000 400 Material Production Overhead Goods receipt Variances/scrap Actual Costs Cost of Sales Accounting Revenues - Sales deductions - Cost of goods manufactured as 1st and 2nd contribution margin) - Variances = Profit for period CO-PC
- 18. Input Price Resource-usage Thursday, November 27, 2014 18 Variance Analysis 20 50 100 Input Quantity Remaining Input overhead 25% 150,- (actual ) instead of 100,- (target) Variances between the planned prices and the actual prices of the resources Variances between the planned input quantities and the actual input quantities of the resources variances: output side Variance between the target credit (standard price) and the actual credit (e.g., moving average price) v S Lot size Remaining Output Variances between planned costs and actual costs (independent of lot size) as calculated in the delivery Variances that cannot be assigned to any other variance category, such as rounding differences set up Outp .price Variances caused by a different resource being used than was planned Variances that cannot be assigned to any other variance category, such as overhead surcharges Rounding differences variances: input side
- 19. Thursday, November 27, 2014 19 Period-End Closing: Settlement Material: T-F100 Quantity produced: 10 pcs. CCOO-- PC Actual Costs Actual Costs 2,400,- SSttoocckk CChhaannggee --22,,000000,,-- VVaarriiaanncceess 440000,,-- CO-PC Production Order PERIOD ACCOUNTING Revenues – Sales deductions – Total costs incl. Variances +/- Stock - WIP Changes = PPrrooffiitt iinn ppeerriioodd BY COMPANY PrrCttrr 11 BY PROFIT CENTER FI EC-PCA COST-OF-SALES ACCOUNTING Revenues – Sales deductions – Cost of goods manufactured (1st and 2nd contribution margin) – Variances = Proffiitt iin periiod BY COMPANY BY PROFIT. SEGMENT CO-PA SETTLEMENT FI
- 20. Material: T-F100 Quantity produced: 10 Thursday, November 27, 2014 20 Settling the Order to the Material Quantity in stock = 10 FINANCIAL ACCOUNTING FINANCIAL ACCOUNTING R Actual Costs S Standard price control V Moving average price control Stock Price difference 2,000 400 Plant activity 2,400 Warehouse stock? Quantity in stock = 1 MM FI FINANCIAL ACCOUNTING Stock Price difference 2,400 Plant activity 2,400 FI CO-PPCC Actual Costs 2,400,- Stock Change -2,000,- Variances 400,- CO-PC Production Order Stock Price difference 2,040 360 Plant activity 2,400 FI
- 21. Thursday, November 27, 2014 MVARP 21 PA Transfer Structure R PA Transfer Assignment Variiance Cattegory Cost Element Group Quanttiitty// Vallue Fllag Fiixed// Var. Flag Value Field PRICE 20 50 100 QUANTITY MATERIALS A Material 400000 400100 400200 MATERIALS A Internal Activities 600000 620000 Text PRICE 20 50 100 QUANTITY Material 400000 400100 400200 Internal Activities 600000 620000 Text 1 1 1 1 3 3 3 3 10 20 30 40 MVARQ AVARP AVARQ
- 22. Thursday, November 27, 2014 22 Information System: Contents • Structure of the information system • Overview standard reports for effective controlling
- 23. Information System Thursday, November 27, 2014 23 CO-PC Report Trees Main tree CO-PC Product Cost Planning Product Cost by Period Product Cost by Order Product Cost by Sales Order Costs for Intagible Goods and Services Actual Costing / Material-Ledger Component tree Summarized Analysisy Object lists Order Selection Plant Material Order Hierarchies Detailed reports Object Comparisons Other Reports
- 24. Power Plant I Power Plant II Industry Thursday, November 27, 2014 24 Summarized Analysis - Product Drill Down Product-Drill- Down + +- ++ Automotive Chemicals Order Material Plan Actual l Target / Actual 1002 3459 3986 P-100 P-100 P-101 P-101 1,000 1,200 900 950 1,000 1,250 850 1,800 l Variance Analysis l Plan / Actual l Work in Process Order Selection Order Hierarchy Detailed Reports
- 25. Drilldown Reporting - Example Plant 1000 Target Actual Price var . Res .-usage var . Quantity variance Product group A 6,000 6,000 Product group B 12,000 17,500 1,500 1,000 3,000 Product group C 5,500 7,500 2,000 l Planned costs l Plan/actual comparison l Target/actual comparison l Target/actual/variance Material P-100 Target Actual Variances Order 123 1,800 3,000 1,200 Order 456 400 400 Thursday, November 27, 2014 25 R Drill-down: Materials in product group B Product group B Target Actual Price var . Res .-usage var . Quantity variance Material P-100 2,800 4,000 1,200 Material P-200 3,500 4,500 500 500 Material P-300 2,500 3,000 100 400 . . . l Variance categories l WIP l Actual costs Drill-down: Orders for material P-100 Standard Reports
- 26. Plant 1200 Thursday, November 27, 2014 Planned costs Plan/actual comparison Tgt/actual comparison Tgt/actual/variance 26 Order Summarization Through Classification Hierarchy Description COPC-VAR Controlling area Material group 001 Plant 1000 Plant 1100 Material group 002 Material group 003 Settings ->Planned costs/actual costs 197,000 219,500 SSttaannddaarrdd RReeppoorrttss 82,000 92,500 30,000 30,500 32,000 33,500 20,000 50,000 59,000 65,000 68,000 Variances categories WIP Actual costs 28,500 Order with variances
- 27. Thursday, November 27, 2014 27 Thank You . . .
Editor's Notes
- Evaluate the effectiveness of your production system. - set meaningful standards to measure performance - use variance analysis to compare - report by plant, product group, product or even order Strategic decisions - (primary) cost component split, cost component splits by organizational unit - scrap costs, full integration of Activity Based Costing Inventory valuation - alternative valuations (legal, group, profit center) - three parallel currencies - standard costs - actual costs (will be provided in a future release) Semi-finished and finished goods valuation - standard prices provided by cost estimates - creation of alternative cost estimates as closing activities for balance sheet purposes Value Work-in-Process at the close of a period Provisions for losses - used in a make-to-order environment - update balance sheet and profit-and-loss statements accordingly
- The Product Cost by Sales Order component is recommended for complex make-to-order environments. You can use the Product Cost by Sales Order component in the following situations: When you are manufacturing in-house with reference to a sales order. When you are purchasing products with reference to a sales order and reselling them to your customers. When you are providing services whose costs are assigned to a sales order. This component allows you to do the following: Calculate and analyze planned costs and actual costs by sales order item Calculate and analyze planned revenues and actual revenues by sales order item Calculate the value of your inventories of finished and unfinished products Create reserves automatically Transfer data to Financial Accounting (FI) Transfer data to Profitability Analysis (CO-PA) Transfer data to Profit Center Accounting (EC-PCA)
- In Cost Object Controlling, the costs incurred in the production of a product or service are collected on a cost object (such as a production order). Which cost object is used depends on your controlling requirements. It may be a sales order, a production order, a process order or a production cost collector. Cost Object Controlling is used to calculate work in process, scrap costs, and variances at period close.
- In standard cost allocation, direct costs are assigned from the preceding components directly to the cost objects. Overhead is assigned to cost centers according to areas of responsibility. Overhead is allocated from cost centers to cost objects by means of various allocation procedures, such as surcharges, assessment, and activity allocation. This allocation often does not accurately reflect the source of the overhead. Percentage overhead is applied proportionately to the direct costs, which can produce a misleading reflection of the product costs and thus lead to incorrect decisions being made. Activity-Based Costing enables you to allocate the overhead from cost centers to processes and assign the overhead to cost objects according to the process usage at source level. The procedure is as follows: Identify the business processes that create significant overhead Assign costs to processes via resource drivers Define cost drivers to allocate the process costs to the cost objects according to their source
- The process chain shows step by step the manufacturing process using production orders. We will focus on the highlighted steps in this section of event based posting for products. An order request may come from SOP as described in the section on plan integration. You can transfer data from SOP to the production plan. Plan orders can be generated in MRP and then converted to production orders. An order request could also be based on a business request from outside the system. During the MRP run, the system will also check the availability of the necessary semi-finished goods. If there are not enough materials available, the system may create additional plan orders for them, which can be converted to production orders, purchase requisitions, or purchase orders. When an order is created, a preliminary cost estimate is also created (although not always, such as in repetitive manufacturing) to calculate the planned costs for the order. The planned costs are updated whenever the order is changed. When the order is released, actual costs can be assigned to the order. Actual costs are incurred when materials are withdrawn from stock and issued against the order and when confirmations documenting the consumption of activity types are created. Primary costs can be posted directly from other system components to the production order. Shop papers are printed for the shop floor. After finishing the production process, the goods are delivered to stock. You may decide to do partial deliveries at any time during the production process.
- Overhead costs can be allocated to cost objects in three different ways. With overhead surcharges, you can allocate overhead costs in a very simple way by using costing sheets with predefined percentage-based or quantity-based overhead rates. You can allocate activity types and processes directly to the respective cost objects. In this case, you allocate actual quantities to the cost objects that are valuated with a planned price. With a process template, you can allocate process quantities from business processes to cost objects.
- The activity prices you calculate during planning are based on planned costs and planned activities. They are also initially used for valuing actual activities. In actual activity price calculation, the system calculates the activity prices for activity types iteratively using the actual costs debited to the cost center and the actual activity consumption of the cost center. This process includes all activity relationships between cost centers, business processes and cost objects. After calculating the actual activity prices, you can revalue the actual activities using the actual activity prices. The revaluation of the actual activities at actual activity prices fully credits the sending cost center and debits the receiver (cost object or business process) accordingly. Revaluation of actual activities at actual activity prices is strongly recommended in cases where the actual costs at a cost center deviate markedly from the planned costs. If you revaluate actual activities at actual activity prices, you cannot calculate percentage overhead on secondary cost elements. The revaluation of cost elements to which overhead has been applied would make it necessary to recalculate the overhead, which would result in recursion.
- The costing sheet for overhead calculation is proposed through the valuation variant for the planned costs. The valuation variant is selected in turn through the costing variant for the planned costs. The costs for the oil consumed are the base for calculating the overhead. The surcharge for the actual overhead is 20%. The credit key specifies the warehouse cost center and the secondary cost element (type 41) under which the overhead is updated. When it calculates the overhead, the system determines that oil costs of $1,000 were incurred. The percentage overhead is 20%, so storage costs of $200 are updated on the order. The offsetting posting for the warehouse cost center is $200. Overhead calculation cannot be carried out after each operation but only during period-end closing.
- You calculate work in process (WIP) to determine what costs have been incurred for production orders that have not yet been settled. The work in process is updated on the production order under secondary cost elements. When the order is settled, postings for the work in process can be generated in Financial Accounting and Profit Center Accounting. The work in process for each production order is calculated by subtracting the credits for goods receipts from the debits for material withdrawals, internal activity allocations, external activities, overhead, and so forth. The work in process is calculated in each period until the status of the order is set to final delivery or technically completed. When the last WIP is calculated, the entire WIP is canceled so that the order can be properly settled. To be able to pass the work in process to Financial Accounting, you define posting rules that link the cost elements for the work in process to G/L accounts. If you specified a Profit Center in the production order, an additional posting will be generated in Profit Center Accounting on the basis of the posting in Financial Accounting. You can calculate the work in process from the yield confirmed for the individual operations. This method is described in Unit 4. You can also calculate the work in process at a higher level by means of the reconciliation ledger.
- You calculate work in process to determine the value of unfinished products. In the Product Cost by Order component, you valuate the work in process at actual costs. The work in process is updated to the production order or process order under secondary cost elements called results analysis cost elements (cost element type 31). The system can update the work in process not only as a total but also split it according to fixed and variable costs. A requirement for this function is that the price control indicator in the material's master record is set to S (standard price) and that a current standard cost estimate for the material exists. When the work in process has been calculated, you may receive a message indicating that some of the orders had errors and that the work in process must be recalculated for those orders after the errors have been corrected. You can use the worklist to help you locate and correct the errors. You can display the work in process in the information system at any time. The report category Summarized Analysis shows you aggregated data, such as the work in process summarized at the level of the plant or controlling area. When WIP is calculated, the system sets the status to RESA (Results analysis carried out). The system uses this status to select the orders for analysis for which work in process has been calculated. Work in process cannot be calculated separately by operation or phase.
- In the Product Cost by Order component, WIP is posted on the balance sheet when you settle the production order. In Customizing for Product Cost Controlling, you use posting rules to define the accounts to which work in process is posted. If Profit Center Accounting is active, an additional posting is automatically generated in Profit Center Accounting. The number of the order for which work in process is passed on to Financial Accounting is displayed in the Allocation field of the accounting document. Using the allocation field ensures that the postings to the Financial Accounting component can be explained.
- Variance calculation enables you to analyze the difference between the target costs (value of goods delivered to stock) and the actual costs for the order. This difference is settled to Financial Accounting as a price difference. The variance calculation assigns the difference to variance categories. This information is updated on the order and can be settled to Profitability Analysis. In Profitability Analysis, the standard cost of goods manufactured for the product is compared with the revenues to calculate the first contribution margin for the period. The variances between the actual costs and the first contribution margin can be used to calculate a second contribution margin for the period.
- Variance category: examples Price variance: Raw material 1 went into the standard cost estimate at $10 (the standard price was selected in accordance with the valuation strategy). When the material was withdrawn from stock, however, the goods movement was valuated at $11 (because according to price control the moving average price is used for valuation). This difference results in a price variance of $1. Quantity variance: Machine time of 15 minutes was planned. However, 17 minutes were confirmed. The activity price for the machine time is $5 per minute. This difference results in a quantity variance of $10. Resource-usage variance: Raw material 2 was used instead of raw material 1. The costs for both raw material 1 and raw material 2 are reported as resource-usage variances. Input variance: The material price for raw material 1 changed so the material overhead is higher than planned. The difference between the planned and the actual material overhead surcharges is reported as an input variance. Output price variance: If the delivery to stock is made at a price that is not the standard price (e.g., the planned price), the difference is reported as an output price variance. This variance category can only occur for materials that have moving average price control. Remaining variance: If the system cannot calculate any target costs, it will report only remaining variances.
- When you settle a production order, the system makes the following postings: The order balance (the difference between the credit and debit of the production order) is settled to Financial Accounting in accordance with the control parameters in the settlement structure as follows: If the price control indicator of the material is set to S, the price difference account is debited (price difference to plant activity account (inventory change)) If the price control indicator of the material is set to V, the material stock account is debited (inventory to plant activity account (inventory change)). In the case of a stock shortage, the price difference account is debited proportionally. The individual variance categories are settled to the profitability segment for the finished material in accordance with the control parameters in the PA transfer structure. The PA transfer structure assigns the individual variance categories to the value fields of an operating concern. The data can also be transferred to the following components: Profit Center Accounting (EC-PCA) Actual Costing / Material Ledger (CO-PC-ACT)
- After final delivery, any costs remaining on the order are settled to stock or to a price difference account. The order is then fully credited. If the price control indicator in the material master record is S, a price difference account is debited with the difference between the actual costs incurred and the credit postings for the goods receipts (in the example, this difference is $400). The moving average price is recalculated and updated for statistical purposes. If the price control indicator in the material master record is V, the material stock account is debited with the difference between the actual costs incurred and the credit postings for the goods receipts (in the example, this difference is $400). The total value of the stock and the moving average price are recalculated. If the warehouse stock at the time of settlement is less than the order quantity because goods were issued in the meantime, the following happens: The costs ($40 in the example) that are based on the quantity that is still in stock are posted to the material stock account of the material. The remaining costs ($360 in the example) are automatically posted to a price difference account.
- The PA settlement structure groups the debit cost elements and variance categories into PA settlement assignments. The PA settlement assignments are linked to Profitability Analysis value fields. Note the following when defining the PA settlement structure: Each debit cost element must be represented in the PA settlement structure. You can either group all cost elements into a cost element group or define a number of groups for materials, internal activities, overhead costs, etc. These groups have the category cost elements. Each variance category must be represented in the PA settlement structure. The variance categories are specified by the system and have the category variances. A given combination of cost element group and variance category can only be assigned to one value field. You should make sure that: The current standard cost estimate is selected for valuation in Profitability Analysis The cost components of the standard cost estimate are linked to value fields
- The structure of the standard Product Cost Controlling Information System has two levels: the main tree and the application report tree. The main tree contains the sub-components of the Product Cost Controlling Information System. The structure does correspond to the component hierarchy and is static. The component tree can be used to collect and organize all reports of a component centrally. You can modify the individual application report trees to suit your own requirements e.g., add company-specific reports. You can assign the following report types to the application report tree: Report Writer reports Product drilldown Transactions ABAP reports
- Order Hierarchies: Here the data is summarized upwards according to a predefined structure, but you can define the structure yourself. In contrast to product drilldowns, you can only expand this summarized data in accordance with the predefined structure from the top down. The summarization is by original cost element. Product Drilldowns: The product drilldown is an interactive tool for evaluation and presentation of data in Cost Object Controlling. The data is summarized according to predefined structures. You can expand this summarized data using different criteria to access the lower levels.
- You access the product drill-down either with Period costing or Ranking lists or Exceptions in the report tree. In this example, the cumulative variances for all product groups in a plant are being displayed. For the product group with the highest variances, you can call up a list of the relevant materials by double clicking. For the material with the highest variances, you can call up a list of the relevant orders by double clicking. From this list you can go to a report that displays the variances according to cost element. From there you can track the causes of the excessive variances.
- With an order hierarchy you can group the information on the order according to your requirements. The order summarization process creates totals for each node in the hierarchy for the planned costs, target costs, actual costs, variances and work in process of all subordinate orders. This information is reported for each node and can be displayed in the information system at any time. In Customizing, you can define status-dependent conditions for order selection. These conditions enable you to prevent orders for which no actual costs have been incurred from being included in summarization. You can define exception rules so that a traffic light appears whenever a certain predefined threshold value is exceeded. These rules facilitate finding the nodes you want to analyze.