This presentation provides an overview of product costing in the Product Cost Planning module of CO. It discusses why product costing is important, where costs come from, what costing variants do, the importance of cost components, and how materials are costed for raw materials, manufactured materials, and subcontracted materials. The presentation also covers topics like quantity structures, updating material costs, and creating cost estimates.

1. PRESENTED BY:
Overview of Product Costing
Tom King, Independent Consultant

2. Introduction
One of the primary uses of product costing is to define a standard cost for
materials. However, product costing can be used for much more. Knowing how
costing variants and the cost component structure are defined and used is an
important step in getting the most out of your system. This presentation provides
an overview of product costing in the Product Cost Planning module of CO.

3. Topics:
Why cost materials?
Where do the costs come from?
What the costing variant does
The importance of cost
components
Quantity structures – with or
without?
Costing with quantity structure
How are material costs
updated?
How are raw materials costed?
How are other materials
costed?
What about other costs?
Costing run
Alternative costing
1
2
3
4
5
6
7
8
9
10
11
12

4. Why cost materials?
Can’t we just assign them a cost?

5. Reasons for assigning costs to materials
• Define a standard cost for valuing inventory
• Measuring procurement performance (purchasing / manufacturing)
• Analysis of procurement alternatives
• Make or buy
• Alternative sourcing or manufacturing strategies
• What-if analysis
• Helping to measure corporate performance
• Transfer pricing scenarios
• …

6. Why product costing in SAP?
• Why not just assign the costs?
• Standardized and repeatable method for generating the costs
• Ability to look at product costs from multiple viewpoints
• COGM
• COGS
• Inventory valuation
• …
• Ability to create multiple different cost estimates for the same products
• Standard costing
• Group costing eliminating inter-company profits
• Different inventory valuation views
• …

7. Where do costs originate?
How do I know what makes up a product cost?

8. What is the procurement source?
• External vendor
• Internal vendor (plant to plant transfers, intra-company and inter-company)
• Internally produced
• Externally produced using company-supplied components

9. Costing sources – externally purchased materials
• Purchase price lists
• Purchase orders
• Transport costs
• Import costs
• Administrative costs

10. Costing sources – internally purchased materials
• Transfer price
• Transport costs
• Import costs
• Administrative costs

11. Costing sources – internally manufactured materials
• Component prices
• Direct internal manufacturing costs
• Indirect internal manufacturing costs
• External manufacturing costs (for outside processing, if any)
• Administrative and other overhead costs

12. Costing sources – externally manufactured materials
• Component prices
• Subcontracting costs
• Administrative and other overhead costs

13. What the costing variant does
Why do I need one?

14. Costing variant
• Determines the purpose of the cost estimate
• Costing type
• Valuation variant
• Different types of cost estimates use different costing variants
• When creating a cost estimate the costing variant must be specified

15. Costing variant
• Costing type – purpose of cost estimate
• Valuation variant – how costs are
determined
• Date control – default validity dates for
cost estimate
• Quantity structure control – how BOMs
and routings are selected
• Transfer control – costing of lower level
components
• Reference variant – what elements will be
recosted
OKKN

16. Costing type
• Price update types
• No update possible
• Standard price (only one available)
• Tax-based price (Accounting 2)
• Commercial price (Accounting 2)
• Other prices (Accounting 2 and Costing 2)
• Valuation views
• Legal valuation
• Group valuation
• Profit center valuation
OKKI

17. Valuation variant
• Valuation sources
• Purchased materials
• Activity types
• Subcontracting costs
• External processing costs
• Overhead allocations
• Price factors for components and operations
OKK4

18. Costing variant special assignments
• Cost component structure
• Assignment by company code or plant
• Costing version
• 99 per costing variant
• Variant for transfer pricing
• Exchange rate type
• Mixed costing setup
• Cost component split in controlling
area currency
• By company code
• Cross company costing
• By controlling area
OKKN

19. The importance of cost components
What do they do for me?

20. What are cost components?
• Groupings of costs
• Based on cost element and origin group
• Identify categories of cost (material, labor, manufacturing costs, depreciation, etc)
• Assigned to cost component structures
• Up to 40 (fixed and variable costs combined) or 20 (fixed and variable costs separate)
• Cost component structures are assigned to the costing variant
• Generates a split of costs by cost component when creating a cost estimate

21. Why are cost components important?
• Define which costs are used for specific purposes
• Standard costs
• Cost of goods manufactured (COGM)
• General and administrative (SG&A)
• Commercial and tax-based inventory
• Cost of goods sold (COGS)
• Group costing
• Material master updated using the values associated with specific cost
components

22. Why are cost components important?
• Cost component views
• Each cost component is assigned to one or more cost component views
• Views provide different looks at the cost within the same cost estimate
CK11N

23. Why are cost components important?
• Cost component view purposes
• Groups of cost components assigned to define a specific cost
• Specific areas of material valuation
• Special costing views
Costs associated
with purchasing
SG&A
Manufacturing cost
Standard cost
Commercial
inventory cost
Tax-based
inventory cost
Transfer price
surcharge
Group costing
profit
Profit center
costing profit

24. Cost component definition
Purchasing
Group profit
COGM or
SG&A
Inventory
standard
Commercial
inventory cost
Tax-based
inventory cost
Profit center profit
Transfer price
surcharge

25. The cost component split and cost component views
Inventory view COGS view Purchasing view

26. Cost component split – should it be set to primary?
Non-primary
• Activity type cost element used for
the cost component definition
• Activity rates can be either assigned
or calculated
• Smears cost for each activity type
into one cost component
Primary
• Primary costs from the activity type
cost plan are used for the cost
component split
• Requires calculation of activity rates
using KSPI
• Resulting cost components derived
from the primary cost elements
providing richer cost split

27. Cost component split – should it be set to primary?
Non-primary cost
component split
Primary cost
component split

28. Quantity structures – with or without?
Why choose one over the other?

29. What is a quantity structure?
• Master data that associates a cost with a quantity
• Bills of materials (quantities of components to make a product)
• Routing operations (calculations per operation base quantity)
• Purchasing information (price per quantity)
• Materials (planned prices per price unit)

30. Costing without quantity structure
• Unit costing
• All costing items are entered manually into the cost estimate
• Quantity structures are ignored
Manual line
items

31. Cost estimate itemization items
• A – co-product
• B – base planning object (obsolete)
• E – internal activity type
• F – external manufacturing activity
• G – overhead allocation
• I – delivery costs (purchasing
conditions)
• L – subcontracting
• M – material
• N – external service
• O – arithmetic operation
• P – business process (manually
processed)
• T – text only (no cost assignment)
• V – manually specified cost (variable
item)
• X – business process (automatic)

32. Costing with quantity structure
• Information from quantity structures determine quantities of costing items
• Automatically generated when executing Create Cost Estimate (CK11N)
Recipe
BOM Base
Qty

33. When should I use …
• Cost estimate without quantity structure?
• Product development (quantity structures not fully known)
• What-if analysis for product
• Quantity structures maintained in separate system
• Note: labor intensive – the fewer materials, the better!!!
• Cost estimate with quantity structure?
• Normal production materials with standardized quantity structures
• Note: tools provided to allow for costing of all materials at once

34. What does the With Qty Structure flag do?
• Both types of cost estimates can be created regardless of setting
• The same costing variant can be used for both
• Controls which cost estimate type is used for updating the material master
Material master –
Costing 1 tab

35. Costing with quantity structure
What can I see in a cost estimate?

36. Creating a cost estimate (CK11N)
Specify costing
variant information
Specify dates (if allowed
by costing variant)
Select specific
quantity structures
if desired

37. The cost estimate
Costing structure
(fully exploded)
Detail list –
itemization, cost
component split,
or custom
Costing overview
– information
about cost
estimate

38. Costing overview window
Cost basis
Costs by cost
component
view
Detail list
selections

39. Costing overview window – additional information
Costing
Data
Dates
Quantity
Structure
Valuation
Data
Cost
Estimate
History

40. Detail list – itemization
• Cost estimate view broken down by individual costing items
• Activity type costs
• Material costs
• Overhead costs
• Other costs
• Not used to update material

41. Detail list – cost component split
• Cost estimate view broken down by cumulative cost components
• Cost element / origin group assignments
• Used to update material
• Based on cost component view

42. Costing structure
• Fully exploded bill of materials with cost contributions at each level
• Materials only / all costs

43. How are material costs updated?
And what can be updated?

44. Fields in material master that can be updated
• Costing 2 tab
• Standard cost
• Planned prices
• Accounting 2 tab
• Tax-based inventory
• Commercial inventory

45. How does the system know which fields to update?
• Costing type assigned to costing
variant
• Standard
• Tax-based
• Determination of lowest value
• Commercial
• Determination of lowest value
• Planned price, tax-based, commercial
• Always from cost estimate

46. What costs are updated?
• Based on cost component view
• Standard
• Inventory
• Tax-based
• Inventory (Tax-Based)
• Commercial
• Inventory (Commercial)
• Planned price
• You decide

47. Updating standard costs
• Two-step process
• “Mark” the cost for the fiscal period of the cost estimate
• The cost is stored in the Future Planned Price field in the Costing 2 tab
• Marking must be enabled for the company code and period first
• “Release” the marked cost estimate during the period for which it was marked
• Releasing can only be done during the “marked” period
• Transfers the cost from the Future Planned Price to the Current Planned Price and makes it the
standard
• Any inventory for this material will be revalued based on the new cost estimate
• Transaction CK24 or Fiori app Release Material Cost Estimates
• Steps can be run in the background for multiple materials at once

48. Updating standard costs
CK24 -
Mark
CK24 -
Release
Material master Costing 2
Price change document

49. Updating other costs
• One-step process
• No time constraint – costs can be updated at any time
• Select the field or fields to be updated
• Multiple fields can be updated from the same cost estimate
• Update the costs
• Commercial and tax-based inventory costing types
• Use determination of lowest value
• If the system determines a value lower than the cost estimate, that value is used instead of the cost
estimate value
• Cannot be used to update raw materials – there is a different method for determining lowest value
• Other costs costing types
• The value assigned to the cost component view selected is always updated

50. Updating other costs
CK24 –
Other Costs
Material master Accounting 2
Material master Costing 2

51. How are raw materials costed?
Costing sources and costing strategies

52. The valuation variant defines the pricing strategies
• Where the cost is sourced
• Material master fields
• Purchase order pricing conditions
• Purchasing information record pricing conditions
• How delivery costs are handled
• Combined with purchasing conditions
• Separated out

53. Material Val. tab of the valuation variant
• Cost source strategy sequence
• Mainly different fields from material
master
• If cost not found with first strategy, goes
to next one until cost is found or there are
no more strategies
• Sub-strategy sequence
• Only if selecting price from purchasing
information
• Determines which conditions will be used
• Delivery costs
• Assigns conditions to origin groups to
separate out those costs (quotation or
purchase order price from condition table
sub-strategies only)

54. Material master settings
• First checks the special
procurement for costing to see if a
key is found to direct the costing. If
this indicates outside purchase
(usually 20), a raw material cost
estimate is created
• Next goes to MRP 2 tab. If
procurement type is F and the
special procurement is blank, this is
a purchased item.
Costing 1 tab
MRP 2 tab

55. Example 1 – cost from material master
• When a material master field is selected for the costing strategy, that cost will
be used in the cost estimate for the cost of the material, if valid
• If a dated field is chosen, such as Planned Price 1, then the cost estimate
quantity structure date must be on or after the date assigned in the material
master
• The cost will be assigned to the material’s cost element / origin group
assignment

56. Example 1 – cost from material master (Planned Price 1)
Planned Price 1
from Costing 2 tab
Item type I for
delivery costs

57. Example 2 – cost from purchasing conditions
• No Planned Price 1 value loaded (strategy sequence 1)
• Look to strategy sequence 2 – Price from Purchasing Info Record
• Sub-strategy sequence 1 indicates Quotation Price Via Condition Table
• Only those conditions assigned to origin groups are included in the cost estimate
• Each condition has its own separate line in the itemization
• Cost component split based on Origin Group assignment
• NOTE:
• Only sub-strategies Quotation Price Via Condition Table or Purchase Order Price Via Condition
Table allow for this
• All other purchasing info sub-strategies combine all applicable conditions into one cost item with
the cost component assigned to the material being costed

58. Example 2 – raw material cost estimate using delivery costs
Purchasing info
record conditions
Delivery cost
configuration - OKYO
Condition RC00 not
included in cost

59. How are other materials costed?
Manufactured materials, subcontracting, plant-to-plant transfers

60. Manufactured materials
• Have a bill of materials
• List of components used to make the product
• Costs derived from the component prices and quantities used to make the product
• Have a manufacturing routing (or “task list”)
• Routes for discrete manufacturing
• Recipes for process manufacturing
• Costs are derived from the allocation of activity types associated with each operation
• Procurement type in the material master set to E (internal)
MRP 2
setting

61. Bill of materials (BOM)
• BOM header contains the base
quantity for which the component
quantities refer
• Component list has the quantity of
each item to make the base quantity
• Relevancy To Costing indicates
whether the cost should be included

62. Material costs in cost estimate
• Materials have item type M
• Quantities come from BOM
• Value is material price times quantity

63. How are production costs determined?
• Costs come from activity type prices
• Each activity type must be associated with a cost center
• A quantity of the activity type is planned for a cost center for a fiscal year
• The activity price is either assigned or calculated
• Work centers / resources are assigned to operations
• Each work center has a connection to a cost center and up to 6 activity types
• A formula is assigned to each activity type for quantity calculations
• When a cost estimate is created, the activity quantities are allocated based on
the formulas

64. • Work center assigned to cost center
• Three activity types from the cost
center are used
• A formula is assigned to each
activity type
Work center costing definition

65. • Formulas use parameters available
to the routing for the calculation
• Parameters are associated with:
• Specific fields in the route
• “Standard values”
• Routing user-defined fields
• Work center constants
• General constants
Work center formulas
OP54
OP51

66. • Product costing uses the definition
assigned to the routing operation
• This can be manually changed
• Be careful when doing this!
• If the work center definition is
changed, it is not automatically
copied to the route!
Work center definition copied into routing when created

67. • Activity types use item type E
(internal activity)
• Quantities calculated using the
formulas copied from the work
center definition
• Value is activity price times quantity
Operation activity costs in cost estimate

68. Subcontracted materials
• Have a bill of materials
• List of components used to make the product
• Costs derived from the component prices and quantities used to make the product
• Have purchasing information associated with subcontracting costs
• Purchasing information record or purchase order
• Procurement type in the material master set to F (external) with special
procurement set to subcontracting (usually 30 – depends on configuration)
MRP 2
setting

69. • The valuation variant defines the
search strategy and which
purchasing conditions to include
• Similar to purchasing strategy, but not
all options available
• A purchasing information record (or
PO) provides the conditions to be
used
• Must be type 3 for subcontracting
How subcontracting cost is determined

70. • Quantity structure points to BOM
used
• Special procurement points to
subcontracting
• Material cost from BOM
• Subcontracting uses item type L
• value is total of applicable conditions
Cost estimate for subcontracting

71. Plant to plant transfers
• Special procurement key defines source plant
• Used in production planning and costing
• Procurement type in the material master set to F (external) with special
procurement set to transfer from another plant
• No “set” special procurement type and requires configuration
• Specific to source plant
MRP 2
setting
Procurement key
configuration

72. • Special procurement set up for
stock transfer
• Cost copied from the source plant –
uses item type M
Cost estimate for plant to plant transfer

73. Other types of special procurement
• Phantom material
• Used to represent several components that are always grouped together
• Procurement type E, special procurement 50
• Withdrawal from another plant
• Used when the BOM item comes from another plant – no stock transfer
• Manufactured in another plant
• Material produced in plant other than the planning (costing) plant
• Internal manufacturing
• Standard manufacturing – used in Costing 1 to force costing as manufactured material
• Special procurement 52

74. What about other costs?
Overhead allocation, template allocation, additive cost estimates

75. Why add costs to a cost estimate?
• Accounting for non-manufacturing costs
• SG&A costs
• Special processes that don’t fit a routing
• Shipping costs
• …
• Methodologies used
• Overhead costing sheet allocation
• Template allocation
• Additive cost estimates

76. • Overhead costing sheets
• Base – grouping of costs by cost
element / origin group
• Overhead condition – condition type
for which percentage- and amount-
based values are stored
• From/To – rows of the costing sheet to
which the condition applies
• Credit – source of the costs (cost
center / business process)
Overhead allocations

77. Overhead conditions
• Assigned to a master data
dependency
• Plant
• Company code
• Overhead key
• …
• Maintained by the dependency
• Rates assigned to a specific value of
the dependency

78. • Costing sheet defined on the
Overhead tab of the valuation
variant
• Different costing sheets defined for
manufactured and purchased
materials
• Costing sheet definitions can be
plant-dependent
Connecting the costing sheet to the cost estimate

79. Cost estimate with overhead
Valuation tab shows costing sheet
connection
Overhead items added at end of cost
estimate with item type “G”

80. Templates for product costing
• Provide a much more controlled and accurate means of allocating costs than
overhead cost sheets
• Can use a variety of master data for both calculations and activation of specific
allocations
• Allocation based on posting the calculated quantity of a cost center / activity type or a
business process
• Not limited to percentage or amount allocations
• The template environment defines the purpose of the template
• Environment 001 used for cost estimates (and production orders)

81. Template definition
Template
environment
Editing
window
Allocation
object
Quantity
formula
Row
activation
Available
functions
Allocation
rows

82. • Costing sheet must be assigned to
the valuation variant
• Template assigned to combination of
overhead key and costing sheet
(transaction KTPF
Connecting the template to the cost estimate

83. • Overhead key assigned in Costing 1
tab of material master
• Costing sheet / overhead key
combination selects template
• Activity type allocation with item
type E
• Business process allocation with
item type X
Cost estimate using template allocations

84. Additive cost estimates
• Created like a unit cost estimate – no quantity structure involved
• Must use same costing variant and costing version as the main cost estimate
• When costing a material, the additive costs are included with the main cost
estimate if enabled
• Additive costs are enabled in the costing variant and valuation variant (raw
materials only

85. Creating an additive cost estimate (CK74N or Fiori)
• Create manually
• Save as special cost estimate

86. Material cost estimate with additive costs included
Costs from additive
cost estimate

87. Costing run
Costing multiple materials at once

88. How can multiple cost estimates be created?
• Costing materials one by one is labor intensive and time consuming
• The costing run creates a material selection list to cost multiple materials
• Transaction CK40N or Fiori app Manage Costing Runs (S/4HANA 1809)
• Features
• Selection of materials to cost
• Explosion of component materials associated with the selected materials
• Arrangement of list of materials for efficient costing
• Ability to cost the materials in the background
• Generates a cost estimate report to list all materials
• Marking for standard costs
• Releasing standard costs with ability to schedule in the future
• Updating material master for other cost estimates

89. • Specification of costing parameters
and dates similarly to a single cost
estimate
• Costing variant
• Costing version
• Transfer control
• Dates
• New Repeat function from S/4HANA
1809
Defining the costing run

90. • Selection and structure explosion (1 step
as of S/4HANA 1809
• Selecting and ordering materials to be costed
• Costing
• Cost materials by level
• Analysis
• Create a costing run report
• Marking
• Marking of standard cost estimates (optional)
• Release / Update
• Update material master with cost (optional)
Processing costing run steps

91. • Overview of costing levels
• Status of material costing
• Costing analysis
• Drilldown capability to get to costing
details
Reviewing costing results

92. • Shows all summary of all cost
estimates created in costing run
• Double-click on an item to get to the
detailed cost estimate
Example analysis report

93. Alternative costing
Exploring how costing variants can provide additional information about
costs

94. Should I use more than one costing variant?
• Each costing variant has a special purpose
• What-if costing
• Group costing
• Inventory costing
• Other material costs
• Costs from different costing variants can be compared with one another
• Costs from different costing variants can be updated in the material master
• The reference variant can be used to “fix” specific costs from one costing
variant when costing in another costing variant

95. • Defines a transfer control definition
to transfer costs from an alternate
cost estimate
• The transfer control refers to cost
estimates from a specific costing
variant
What does the reference variant do?

96. • Specific portions of the costs are
selected to be revalued when a cost
estimate is created
• The reference variant is assigned to
the new costing variant, and when a
cost estimate is created, only those
portions defined in the reference
variant will be recosted
What does the reference variant do?

97. Cost estimate using variant ZRMC
• ZRMC is defined so that only raw material costs are recalculated
Raw material costs are
recalculated for ZRMC cost
estimate based on its valuation
variant parameters
Standard cost
estimate (ZPC1)
What-if cost
estimate (ZRMC)
Standard activity type costs
copied from ZPC1 cost estimate
to ZRMC cost estimate

98. Costing with different valuation views
• Valuation views provide different looks at the cost of a material
• Legal – costs including intercompany markups (transfer price)
• Group – costs excluding the intercompany markups
• Profit Center – costs including markups between profit centers
• Valuation view is controlled by costing type
Costing type 10

99. • Not relevant for inventory valuation
purposes
• Defined as delta profit for either
company code (group costing) or
profit center (profit center costing)
Group costing – special delta profit cost component

100. • Standard cost estimate contains
transfer price adjustment from
additive cost estimate – legal
valuation view
• Group costing ignores difference in
costs from plant UWU3 to UWU2 –
group valuation view
Cost itemization using standard cost and group cost
Standard cost
estimate (ZPC1)
Group cost
estimate (ZUGP)

101. Cost component split using standard cost and group cost
• Legal valuation shows transfer costs
assigned to cost component 175
• Group valuation shows transfer
costs assigned to cost component
170
Standard cost
estimate (ZPC1)
Group cost
estimate (ZUGP)

102. How can I analyze my product costs?
• SAP provides reporting tools to compare cost estimates
• Costing run comparisons – multiple materials
• Multiple materials regardless of costing run
• Single material analyses
• Itemization and cost component split
• Useful transactions
• S_P99_41000111 – Analyze/Compare Multiple
• Costing run reports
• S_ALR_87099930 (variant of S_P99_41000111)
• S_ALR_87099931 (variant of S_P99_41000111)
• S_ALR_87099932 (variant of S_P99_41000111)
• S_ALR_87013047 – Cost Component Compare
• S_ALR_87013048 – Cost Element Compare
• CK79_99 – Itemization Compare
Itemization comparison
with two costing variants

103. Conclusion
5 takeaways and useful resources

104. Five Takeaways
• Product costing is not only used to generate standard costs
• Proper cost component configuration is crucial to provide the best information
• Material costs are updated from the cost component views
• Use cost component views to provide a full picture of material costs
• Product costing is closely linked with both PP and MM master data – it pays to
have an understanding of those modules and how they are set up

105. Resources
• Tanya Duncan, Practical Guide to SAP® CO-PC (Product Cost Controlling)
(Espresso Tutorials, 2014)
• ISBN: 978-1-5003-1863-5
• http://5064.espresso-tutorials.com
• John Jordan, Product Cost Controlling with SAP 3rd Edition (SAP Press, 2016)
• ISBN: 978-1-4932-1270-5
• www.sap-press.com/3920

106. Resources
• Tom King, SAP® S/4HANA Product Cost Planning configuration and master
data (Espresso Tutorials, 2019)
• ISBN: 978-3-96012-908-0
• http://5376.espresso-tutorials.com
• Tom King, SAP® S/4HANA Product Cost Planning costing with quantity
structure (Espresso Tutorials, 2019)
• ISBN: 978-1-51710082-7
• http://5377.espresso-tutorials.com

107. Questions & Answers
Contact Information:
Speaker: Tom King
Company: Independent Consultant
Email: tomking1919@gmail.com
Telephone: +1, 864-529-2682

108. Thanks for
attending
this session!
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