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Product Costing Cost Estimation in SAP

Cost Estimation

The price of the finished goods (FG) and semi-finished goods (SFG) manufactured is determined through Standard Cost estimate.  Standard cost is estimated based on the cost of input materials, planned cost of activities and overheads. It is the price at which the finished and semi-finished goods are valuated in finance. The standard cost once estimated is valid for a specific period interval.

A standard cost estimate is created at the end of the period and is valid for the entire next period. When the standard cost estimate for the respective material (FG & SFG) is released, the system updates the result of this estimate as standard price in ‘Accounting 1’ and ‘Costing 2’ view detail screen of the material master record. This price is then valid for valuation of material in financial accounting till next cost estimate is run. The materials are revaluated when the next standard cost estimate is released.

In this specific period interval, all the FG and SFG produced through production order or product cost collector are valued at the standard cost updated in the material master. This is termed as ‘Cost of goods manufactured’ (COGM).

Following are the important tools used in cost estimate.

Costing Variant
Cost Component Split
Costing Estimate with/without quantity structure
Costing Run/Price Update

The above mentioned tools have been discussed in detail in this article to cover the concept behind the standard cost estimate in SAP.

Costing Variant

It is a key based on which standard cost is performed and valuated. Following are the control parameters in costing variant.

(a)    Costing Type :

It updates price such as ‘Standard price’ or ‘Commercial price’ or ‘Tax valuation’ price depending upon the price update type. It contains the ‘calculation base ’ based on which prices are updated in material master for FG and SFG.

For inventory valuation, calculation base will always be ‘COGM’. The COGM value will be determined through ‘Cost component split’.

(b)    Valuation Variant:

It searches prices of input materials, activities and overhead ( overhead cost sheet ) during cost estimate. The strategy sequences for searching of the prices are specified for input materials, activities and overhead in the valuation variant.

The strategy sequence prioritizes whether moving Avg. price, standard price or Info record price is to be picked up for input material, plan or actual price is to be picked for activities. It also specifies which costing sheet is to be used for overhead calculation (Material OH, Production OH).

Strategy Sequence : Input Material

Priority Strategy Sequence
1    Moving Average Price
2    Last Price from Purchasing Info Record

Strategy Sequence : Activity Prices

Priority Strategy Sequence
1    Actual Price of Previous Period
2    Plan Price for the Period
3    Plan Price as Average of All Fiscal Year Periods

(c)     Date Control :

It determines period for which cost estimate is applicable.

(d)     Quantity Structure control :

It determines BOM and routing which is to be considered for costing. It considers only those BOM and Routing which have the status ‘Release for Costing’.

Cost Component Split

What elements of costs are to be considered in ‘Cost of goods manufactured (COGM)’ is specified in Cost component structure. Each cost component mentioned in Costing (A) are captured in controlling through cost elements which are grouped in Cost Component Structure (B) as COGM, COGS.

In Costing Type of costing variant, COGM will be specified as the calculation base for standard cost. Therefore, the summation of COGM in Cost component structure will be carried to SFG’s and FG’s material master as standard cost.

Cost estimate with quantity structure

Cost estimate with quantity structure is a tool for estimating material costs. It calculates standard cost of goods manufactured. CK11N is the transaction code for cost estimate with quantity structure. In cost estimate SFG or FG code, plant, costing variant, costing version, costing period interval, quantity structure date ( BOM and Routing), valuation date for input material in BOM and activities in routing needs to be specified. All dates as mentioned are defaulted by the system through Date control in costing variant which can be overwritten manually.

In cost estimate, the system on the basis of costing variant and the finished good item code specified determines the quantity structure of the BOM and Routing. It then valuates the input materials in the BOM and the production activities from the routing with prices according to the strategy sequence maintained in the Valuation Variant (see costing variant) for input material and activities. It calculates the overhead as per Costing Sheet maintained in costing variant. Cost estimate gives break up of the costing according to the cost component split defined for the cost estimate. Cost estimate result needs to be saved before price update run or costing run.

The cost estimate with quantity structure accesses data in the Production Planning (PP), Materials Management (MM), and Controlling (CO) application of the SAP System.

Cost Estimates without Quantity Structure:

Costing without a quantity structure is a tool for planning costs and setting prices for materials without reference to quantity structure ( BOM and routing ) in Production Planning. It is intended for materials with insufficient or no quantity structure data. It can also be used to enter data from non-SAP systems. This is very useful while simulating costing based on Management requirement without creating quantity structure in the system.

A material cost estimate without a quantity structure enables to plan the costs for raw materials, internal activities, and external activities for a product in the form of a unit cost estimate. Unit costing is a type of spreadsheet that, due to its integration, can use existing master data and prices in the system, such as activity prices from Cost Center Accounting.

Cost estimates without quantity structure can access data in various application components:

• Materials Management (MM), such as material master records and services
• Production Planning (PP), such as work centers and resources
• Controlling (CO), such as cost centers and activity types

Costing Run / Price update:

Once cost estimate is carried out, costing results needs to be transferred to material master for updating prices.

Depending on the purpose of costing (Inventory valuation for AS-2, simulation costing for the purpose for management decision etc), selected price controls( Standard Price, Tax Valuation Price, Commercial Price) specified in the costing type ( see costing variant ) in the material master can be updated.

When the cost estimate is ‘Marked’ Future standard price in the material master is updated. After marking, the cost estimate is ‘Released’, the new released standard price becomes the ‘Current standard price’ and standard price previously updated in ‘Current standard price’ is updated in the ‘Previous standard price’.

The existing inventory gets revalued with the new current standard price and system passes following accounting entry for revaluation.

FG/ SFG inventory A/c Dr / Cr
Revaluation – Inventory Dr / Cr

SAP T Code To be used

Create Cost Estimate with quantity structure : CK11N
Display Cost Estimate with quantity structure : CK13N
Comparison with itemization : CK33
Create Cost estimate without quantity structure : KKPAN
Change Cost estimate without quantity structure : KKPBN
Display Cost Estimate without quantity structure : KKPCN
Price Update : CK24
Create Costing Run : CKMATSEL
Edit Costing Run : CKMATCON

This Post Has One Comment

  1. Yahaya Sahid

    How do I use future price to run cost estimate. I need to use this to valuate future cost of production instead of finance team creating excel sheet. If I create future price on master data how will this reflect on the expected cost of production? i need help!!!

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