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5 Steps To Understanding Product Costing
5 Steps To Understanding Product Costing
5StepstoUnderstandingProductCostingPart...|SCN
5StepstoUnderstandingProductCostingPart5Actual
Costs
scn.sap.com/community/erp/financials/controlling/blog/2013/01/04/5stepstounderstandingproductcostingpart5actualcosts
ProductCosting,partoftheControllingmodule,isusedtovaluetheinternalcostofmaterialsand
productionforprofitabilityandmanagementaccounting.ProductCostingisanicheskill.Dueto
costing'shighintegrationwithothermodules,manypeopleavoiditduetothecomplexity.This5part
blogwillseektosimplifyProductCosting.
Thefifthandfinalstepinunderstandingthebasicsofproductcostingisactualcosts.Actualcostsare
determinedthroughpurchaseprices,actualexpenses,andconfirmedproductionquantities.Actual
costsarecomparedtostandardcoststhroughvarianceanalysistomakemanagementdecisionsand
determineprofitability.
Prerequisites:
MaterialMasters(includingMRP,Accounting,&Costingviews)
QuantityStructure(BillofMaterials,RoutingorMasterRecipe,ProductionVersionsareoptional)
Configuration(WIP,Variance,andSettlement)
COMasterData(PrimaryandSecondaryCostElements,ActivityTypes,Actual
Assessment/DistributionCycles,ActualStatisticalKeyFiguresifrequired)
Overview:
Throughoutagivenperiod,actualexpensesarerecordedinSAPaspurchasesaremade,payrollis
processed,billsarepaid,andproductionoccurs.Atmonthend,WorkinProcess,Variance,and
Settlementarecalculated.Thevariancebetweenactualcostsandstandardcostscanresultinchanges
toproductcostingforthenextperiodoryear.Costsaresettledandthepostingperiodisclosedatthe
endofthemonthendprocesstoavoidmaterialmovementoraccountingpostingsintheprevious
period.
Inproductcostbyorder,actualproductionyield,scrap,andactivityquantitiesareenteredina
productionconfirmation.Theproductioncostsarecollectedontheproductionordersforreviewand
settlement.Inproductcostbyperiod,productcostcollectorsareusedtocalculateWIP,variances,and
settlementinsteadoftheplannedorders.
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5StepstoUnderstandingProductCostingPart...|SCN
Priortocalculatingvariancesandsettlingorders,ordersmustrunthroughWIPcalculationtodetermine
whatpart(ifany)ofanorderisnotcomplete.Youcancalculateworkinprocessattargetcostsfor
Productcostcollectors,Productionorders,andProcessorders.Onlyordersthathaveavalidresults
analysiskeyandarenotinstatusDLFL(Deletionflag)orDLT(Deleted)areincludedinWIPcalculation.
InProductCostbyPeriod(repetitivemanufacturing),thequantitiesconfirmed(otherthanscrap)for
manufacturingordersorproductionversionsarevaluedattargetcostbasedonthevaluationvariantfor
WIPandscrap.InProductCostbyOrder(discretemanufacturing),WIPisthedifferencebetweenthe
debitandcreditofanorderthathasnotbeenfullydelivered.
SAPoffersvarianceanalysisontheinput(consumption,overheadallocation,actualexpenses)sideand
output(productionquantityorvaluation)side.
InputVariances
OutputVariances
InputPriceVariance:
MixedPriceVariance:
Causedbydifferencesbetweenplanand
actualmaterialandactivityprices.Only
calculatedifmaterialoriginisselectedon
materialmaster.
Causedwhenthesystemdeterminesadifferent
mixedcostthanthereleasedcostestimate.Mustbe
selectedinthevariancevarianttosee.
ResourceUsageVariance:
OutputPriceVariance:
Causedbytheuseofdifferentmaterials
andactivitiesthanwereplannedinBOMs
andRoutings/MasterRecipes.
Ifstandardpricechangedbetweendeliveryto
stockandwhenvariancesarecalculated
IfpricecontrolVmaterialsarenotdeliveredto
stockatstandardprice
Ifpriceusedtovaluateinventoryisnota
mixedprice
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MaterialQuantityVariance:
Causedbydifferentmaterialandquantities
thanwereplannedinBOMs.
LotSizeVariance:
RemainingInputVariance:
Thisoccurswhencostsareenteredwithout
aquantityorwhenOHratesarechanged.
RemainingVariance:
Differencesbetweentheplannedandactualcosts
thatdon'tvarywithlotsize.
Differencesbetweentargetandallocatedactual
coststhatcannotbeassignedtoanyothercategory.
Alsousedwhennovariancecategoriesdefinedin
variancevariant.
ScrapVariance:
Causedbydifferencesbetweenoperation
scrapinroutingandactualscrap
confirmed.
Finally,wemustsettleourordersorproductcostcollectors.ProductCostCollectorsandordersare
debitedwithactualcostsduringproduction.Theactualcostspostedtoanordercanbemoreorless
thanthevaluewithwhichanorderwascreditedwhenthegoodsreceiptwasposted.Whenyousettle,
thedifferencebetweenthedebitandcreditoftheorderistransferredtoFinancialAccounting(FI).
RelatableExample:
Let'ssayweareusingProductCostingtovalueourinventoryinacookiebakingshop.Thiswillhelpus
valueourcookies(finishedgood),frosting(semifinishedgood),andbakingitemslikeeggs,milk,and
sugar(rawmaterials).
Atmonthend,wedeterminewhatbatchesofcookiesarestillinprogress(WIP),reviewouractual
expensesandcomparetoourplannedexpenses(variances),andcloseourbooksforthemonth
(settlement).ThecookiesstillintheovenareconsideredWIP(orderstatusnotcomplete).Wenotice
severaltypesofcostvariancesduetohighermilkcosts(unfavorableinputpricevariance),lessfrosting
waste(favorablescrapvariance),andacostdifferencebecauseweplannedtopurchaseahigher
percentofeggsfromalowercostfarmer(unfavorablemixedpricevariance).Afteranalyzingthese
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variances,wemakeafewchangestoourinventorycostsofeggsandlookforwaystosaveonmilk
costs.WecloseourbooksforthemonthandrecordourprofitandlosstotheIncomeStatement.
ThankyouforreadingthisblogseriesonProductCosting.Iplantofeaturespecial
configurationtopicsinproductcostinginmynextblogseries.Youcanreadmoreofmyblogs
atTanyaDuncanBlog.com.
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