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1. SAP Product Cost Calculation with
Components – Product Costing
By Pradeep Hota
S/4HANA Finance Consultant
Skillstek

2. What is SAP Product Costing?
• Product Costing in SAP is a core module that relies on the correct setup of
master data in logistics modules to create cost estimates.
• These cost estimates help plan and analyze costs and their different
components.

3. Intro - Product Costing Process
• The result of using product costing is a standard price that you can release
to the material master.
• You can use this price for at least one period for the inventory valuation of
those manufactured goods.
• In order to use Product Costing and create cost estimates with quantity
structure, you need to activate Material Management and Production
Planning Modules.

4. Backbones of SAP Product Costing
• Product Cost Controlling
• Product Cost Planning
• Cost Object Controlling
• Master Data
• Unit Cost Estimate
• Costing Sheet
• CostingVariant
• Material Ledger

5. Prerequisites to use Product Costing
• Activate of MM and PP
• Create the controlling area
• Assign the company code to the controlling area
• Maintain the company code for Material Management
• Assign the Plant to the company code
• Create the valuation Classes in Material Management.
• (Required for the account determination of any material movement).

6. Why should you know Product Costing?
• Product Costing in SAP is the most important part of SAP Controlling.
• To know the controlling, you certainly know Product Costing.
• To make career in SAP Management Accounting,
• To upgrade your S/4HANA Finance profile with controlling knowledge
• To gain expertise on product costing in SAP for Project implementations.

7. Core Components of SAP
Product Costing

8. 6 Major Components
1. Master Data
2. Cost Component Structure
3. Special Procurement Key
4. CostingVariant
5. Costing Sheet
6. Cost Estimate

9. 1. What is Master Data?
• Cost Estimates with Quantity structure rely on the correct setup of master
data.
• When creating a cost estimate, the system checks the correctness of master
data and indicates any error.
• To calculate cost estimate through “product cost calculation with quantity
structure”, we need to create some master data in SAP.

10. Types of Master Data
• Material Master
• Bills of Material in Product Costing in SAP
• ActivityType
• Work Center
• Cost Center
• Activity Overview Section
• Routing

11. (a) Material Master
• The material master contains a number of characteristics that have an
impact on Product Costing.
• Those characteristics are stored in Costing 1 view and Costing 2 view.
• To display the Costing 1 and Costing 2 tabs, go toTransaction MM03.

12. Characteristics of Material Master
• Do Not Cost checkbox - to avoid creation of Cost Estimate and to BOM or
routing to explode.
• With Quantity Structure checkbox - to improve the performance.
• Overhead Group - define it in the configuration
• Variance Key - To allow variance calculation.
• BOM Usage –To overwrite quantity structure control in the costing variant
• Costing Lot Size - To avoid rounding differences in the conversion of the SP
• ProductionVersion – To determine version to create the cost estimate
• Future/Current/Previous Cost Estimate – System saves them

13. (b) Bills of Material
• BOM contains the materials that you require for the production and their
respective quantities.
• You can display BOMs withTransaction CS03.
• You can maintain the BOMs on the material level and plant level.
• BOM type defines the usage of the BOM.
• BOM has a header that you can see by clicking the top hat icon.
• In the header, you can see the base quantity of the product for which you created
the BOM is created.
• In the BOM, you see different items that represent the materials required for the
production of the header material and their quantities.

14. (c) ActivityType
• The activity type is used to assess activities in production such as personnel
hours or machine hours.
• We plan the price of the activity type on the cost center and activity type
levels.
• We maintain the activity types in the routing/recipe and the cost center to
the work center/resource.
• You need to coordinate with production to know the units they use for the
activities.

15. (ActivityType)

16. (d) Work Center
• The work center in Production Planning or in the Process Industry module
represents the place where you do the work.
• You can display the work center withTransaction CR03.
• Additionally, both the work center and the resource-display have a Costing
tab.

17. Work Center – Sub-parts
• Cost Center – It’s the place or department that is responsible for the
production cost.
• Activity Overview Section - you need to assign activity types to the
activities that the system maintains in the configuration for the work center.

18. (Work Center)

19. (e) Routing
• The routing contains the activities that you need to perform to produce the
product.
• You work with routings if you use the classic Production Planning module.
• In order to display a routing, you need to go toTransaction CA03.
• The routing has different operations per activity.
• Noteworthy, every activity is linked to a work center.

20. (Routing)

21. 2. What is Cost Component Structure?
• Cost component splits break down the cost of a material, process, or activity
type.
• It determines which costs you should consider in the cost component split.
• It is used to analyze the product cost in and Profitability Analysis.
• Every cost component has a detailed view.
• The details view defines in section control where only variable costs or fixed
and variable costs are shown in the cost estimate.
• The variable costs depend on the activity type in the manufacturing process.

22. (Cost Component Structure)

23. 3. What is Special Procurement Key?
• The system maintains the special procurement key in the material master in
the Costing 1 view.
• You can use the special procurement key to access cost estimates in another
plant.
• For example, if you produce materials in Plant A but sell them from Plant B,
you can display the costing in Plant B with the special procurement key.
• That too without creating all the master data that is required for the costing
in Plant B.

24. 4. What is CostingVariant?
• To create a cost estimate, you need to first create a costing variant.
• You can create different costing variants for different purposes.
• The costing variant determines the following main things:
• How we can evaluate the cost estimate
• Which master data we need to evaluate (e.g., which BOM usage)
• Where we can release the price (e.g., standard price, plan price, etc.)

25. The costing variant structure
• Costing type in SAP
• Valuation variant
• Date control
• Quantity structure control
• Transfer control
• Reference variant

26. (Costing variant)

27. 5. What is Costing Sheet?
• To apply overhead rates such as overhead costs in the costing, you need to
create a costing sheet in SAP application.The costing sheet contains three
components: calculation base, overhead rates, and credits.

28. How to Create Costing Sheet
• (a) Calculation base – It defines the cost base on which we apply the
overhead rates, which further is defined by cost elements, a cost element
interval, or a cost element group.
• (b) Percentage Overhead Rate – It determines the characteristics that are
used to maintain the overhead rate that further depends on your
organizational and cost component structure.
• (c) Credit - It defines cost objects that get credited when the cost estimate
gets debited with the overhead surcharges.
• (d) Costing Sheet Rows – Calculation base on top of the costing sheet, and
surcharges refer to the basis by having an entry in the From andTo Row
columns.

29. 6. What are Cost Estimates?
• It is the final result of the cost of a product which includes Material Cost,
Different Activities Cost, surcharge /Overhead Cost.
• Now that you’ve configured Product Costing in IMG settings, thus, now see
how to run cost estimates. Noteworthy, it is an End User Activity.
• Next, UseTcode – CK11N.
• Finally, Execute.

30. (Cost Estimate in SAP Product Costing)

31. Product Costing Scenarios –The EndNote
• This whole process of Product Cost calculation that is explained is the
scenario of Product Costing in SAP Controlling.
• It involves the calculation of the cost of production by using production
order (manufacturing order).
• If the production order converted into complete status then we can
calculate the variance.
• If it is there in the pending status, then in that current period we will
calculateWIP.
• Hence those who look for SAP product Costing Scenarios, must understand
that its the calculation that they need to learn here.

32. Thanks
for Watching
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