co prod costing part 1

107/18/11

GoalsGoals

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• To understand the SAP functionality of product costing along with the corresponding configuration settings.

(This is part 1 of a series of multiple sessions planned)

• To discuss real issues reported in production system, analyze the root cause of the issue and identify potential solution approaches

• To identify potential areas of improvement to the design currently in place at ConAgra

Agenda for this SessionAgenda for this Session

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SAP functionality overview on Product Cost Planning: Controlling Area and Version settings Cost Component Structure overview Master data for product costing (materials, BoM, Recipe etc.) Costing variants / Valuation variant /Transfer Control conceptsCosting type, Costing version, Marking allowance Costing sheets for overheads Cost center planning and activity rates Joint production, co-products, by-products Costing of materials sourced from other plants

CAG Production issues on the above topic if any brought up

Product Cost Controlling ComponentsProduct Cost Controlling Components

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Product Cost

Planning

Cost Object

Controlling

Actual Costing / Material Ledger

InformationSystem

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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.

Product Cost Planning refers to the creation of cost estimates for the

production of goods or services.

There is no reference to a production order i.e.

the cost estimateis independent of

any given production order

Product Cost Planning Cost Object Controlling

Actual Costing is used to calculate actual product

costs at period close. The result may be transferred to the material master as a weighted average price

for the closed period.

The quantity structure is derived dynamically using the materials

movements in the R/3 system. The values

connected with these movements are collected in the Material Ledger.

Actual Costing


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Cost Component StructureCost Component Structure

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• The buckets in which the product Costs will be stored in SAP.

• This is an uniform structure throughout the ConAgra enterprise across all Plants / Company Codes.

• Each component can have a variable and a fixed component

• Consumption cost elements are mapped to a cost componentExample:510000 Material920001 Direct Labor

• Some buckets may not be relevant for some products or plants. E.g. Labor cost is not relevant for purchased parts

CAG Cost Component Structure (T-Code OKTZ)CAG Cost Component Structure (T-Code OKTZ)

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1 Raw materials.

2 Packaging.

3 Labor - Direct.

4 Direct Overhead.

5 Indirect Overhead.

6 External Processing.

7 Warehousing.

8 Inbound Frt - NFG

9 Outbound Frt -STO FG

Material Master fields relevant for Product CostingMaterial Master fields relevant for Product Costing

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General: • Material Type: Valuated or not

• Base Unit of Measure. Cannot be changed without a lot of effort once there are transactions.

Accounting view: • Valuation Class (relevant to and account determination)

The valuation class controls the account determination. Here, the consumption account is determined, which also appears as the primary cost element in the itemization.

G.L A/cInventory Consumption

3000 Raw Materials 116003 5112307900 CAG Finished 116009 5112107920 Semi Finisheds 116013 511220

A particular material will be of the same material type and valuation class across all CAG plants and company codes

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• Costing lot size (identify BoM, Recipe for Std Cost/Set-up cost)• Price unit (to accommodate more than 2 decimals)• Price Control (Standard/moving average)• ML Active and Price determination Control

Costing view:

• To be able to cost a material, the Costing view must be maintained• Cost relevancy, Bulk material• With/without quantity structure• Valuation category (split valuation)• Origin Group: helps analysis by grouping materials into categories;

cost estimates and production order costs can be sub-totalled by origin group. Examples: Meat, Pulp, Packing Materials, etc.

• Co-Product, Fixed Price, Apportionment Structure

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• Overhead group: Key that groups the materials for the same type of overhead application. Comapnies use it for warehousing burden and freight overheads.

• Profit Center: used for product line analysis• Planned Price, Commercial price, Tax price fields (how used)• Quantity Structure data (BoM, Routing, Production Version)

MRP view:

• Material status (readiness for costing, inventory movements)• Procurement type: F (purchased) or E (produced)

- Materials with indicator “F” can be produced but for standard cost purposes, only the purchase price is considered.- Materials with indicator “E” can be purchased but for standard cost purposes, only the BOM/Routing based rolled price is considered.

• Selection Method (MRP 4 view)


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• Special procurement - to identify a material as a “subcontracted” material (value 30)- to identify a material as a “phantom” material (value 50) that will

have only a BOM and not a routing- to identify a material being procured from another CAG plant

Example: parts in a distribution center will always carry a special procurement key pointing to the manufacturing plant

(Costing view value overrides for the purpose of costing)

• Planned Scrap related fields


Costing Variant / Valuation VariantsCosting Variant / Valuation Variants

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BOM RoutingRouting

Prices for MaterialsPrices for Activities

Overhead

Product Cost Planning

Value Structure

Quantity Structure:PP Master Data

Costing Variant

Valuation Variant

Costing Sheet

Labor $ Machine $ Overhead $

Raw Material $

Total $

Z001

Z01

Z1

Standard

Cost

Z002

Z02

Z2

Current

CostCost estimate:Standard costs

Prod Cost Estimates – Standard Cost, Current and various simulations

By Plant

Costing Variant / Valuation VariantsCosting Variant / Valuation Variants

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Variant Attributes

Frozen Standard

Current Structure

Current Costs

Simulate2

Material Price

Frozen Standard

Frozen Standard

Current Price

Future Price

BOM/

Routing

Structure at year beginning

Current Structure

Current Structure

Structure as on next month

Activity Price

Frozen Standard

Frozen Standard

Revised prices

Planned price for next year

Examples:

< ---------------------- Costing Variants --------------------------- >

Quantity Structure SelectionQuantity Structure Selection

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Quantity Structure Control Through Customizing -BOM Usage-Priority for Alternative-Status-Lot size-Validity Period

Quantity Structure Control Through the Material Master Record -Higher priority over the above-Sequence: Special procurement, Production Version, Specific BoM/routing

Quantity Structure Control Through the Initial Screen of the Cost Estimate

Transfer Control - Flexible OptionsTransfer Control - Flexible Options

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Complete transfer: While costing a material with multi-level BOM structure, system takes the existing “released cost” of the BOM components, without re-calculating the cost of components. Only if component does not already have a released cost, system calculates the cost of the component.

This is very useful when you want to cost a new finished part which uses the already existing components

Leaving it blank: System ignores the already existing released cost of components and recalculates the component’s cost using one of the strategies like planned price1 or purchase info record. This is useful when once a year you want to re-cost all materials right from the bottom upwards at all levels.

Cross Plant Transfer: This is used in “Costing run” when you haveselected the materials with special procurement types that points to otherplants for copying the cost from

Zxxx( customized): Take the cost stored in a different costing variant

Transfer Control - Flexible OptionsTransfer Control - Flexible Options

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Part A (FIN)

Part B1 (SEM)

Part B2 (SEM)

Part C2 (SEM)

Part C1 (SEM)

Part C3 (purchased semi fin ZSEM)

Part D (Purchased Fin Part)

Complete Transfer:If a released cost exists for B2, then stop exploding. Take the existing released cost

Blank:Explode B2 and consider its current cost for cost roll of part A

Costing levels are determined automatically by the system when you create a cost estimate. Assigning the materials to costing levels ensures that costing is performed in the proper order: first raw materials and purchased parts, then semi-finished products, and finally the finished products.

1

2

3

4

Material CostMaterial Cost

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Total Standard Cost of purchased material

Freight

Core Material Price payable

to material vendor

Burden

Duty

Others

Surcharges

Material Cost OptionsMaterial Cost Options

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Valuation Variant provides the strategy sequence of costing the purchased material. Examples:

Sequence Strategy

1 Price specified in one of the 3 free fields in material master (planned price 1 to 3)- Typically used to override the price obtained in the next strategy for “exception” cases

2 Price from Purchasing Module: Sub-strategies are:

a. Price from latest P.O issued (NOT last invoice paid)

b.Purchase Info Record

3 Current standard price

System searches in the sequence defined in the valuation variant and stops as soon as a price is found at any level

Determination of Purchase Info recordDetermination of Purchase Info record

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When there is more than one vendor for the same material, the system by default takes the lowest price.

You can choose to mark one of the vendors as “regular vendor” so that only that vendor’s price is considered for standard cost

Options for SurchargesOptions for Surcharges

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1. Overhead Group along with Costing Sheet (CAG Option)

2. Additive Costs

3. Statistical Purchase Conditions

Costing Sheet based SurchargesCosting Sheet based Surcharges

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Material Master

Overhead Group

Valuation Variant

Costing Sheet

Costing sheet will define the calculation base and the overhead rate. Flexible definition of calculation Base is possible. Examples:

• Cost element + overhead group + Overhead Rate Key• Cost center + Cost Element +Activity type + Overhead Rate Key

Surcharge Calculated

Overhead Rate KeyFrom To Percentage1/1/11 12/31/11 2%

Overhead percentages can be defined for Overhead rate key by date ranges

Costing Sheet based SurchargesCosting Sheet based Surcharges

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BoM HeaderBoM Header

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• BOM usage: Examples for BOM usage: BOMs used exclusively for engineering or costing purposes.

• BOM status: If complex changes are made to a BOM, you can use the BOM status to control when the BOM is used, such as for a cost estimate.

• Area of validity: A BOM can be defined as valid for only a limited range of lot sizes, such as 1 to 1,000 units. You can then create a different BOM for lot sizes exceeding 1,000 units. Therefore, only one BOM can be used for the defined costing lot size.

• Alternative BOM: Alternative BOMs can describe different product structures that create a product with the same properties. For example, one alternative uses sheet metal A, while the other alternative uses sheet metal B.

BOM Line ItemsBOM Line Items

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• Item category:L = stock item, N = non-stock item; R = variable-size item

• Fixed quantity indicator: This indicates whether the quantity entered is dependent on the lot size. It applies mainly to unavoidable material loss at the start of the production process.

• Planned scrap: This topic is covered in detail separately

• Relevancy to costing indicator: If this indicator is not selected, the system ignores the BOM item in the material cost estimate. This enables you to devaluate BOM items (such as packaging materials) on a flat-rate basis for inventory or commercial purposes.

• Bulk material: Bulk material is usually posted as consumption at production cost centers as soon as it is procured, so it is not included in the cost estimate.

Work CenterWork Center

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• Cost center

• The standard value key enables you to define the six standard values in the operation. The system assigns a parameter key to the standard values of the operation and of the work in the network activity. This parameter key specifies the following:

• Formula: You can use formula parameters to which you have assigned values. You can then link these parameters with mathematical operations such as addition, subtraction, multiplication, or division.Example: Formula 2 = Standard value * Operation quantity / Base quantity

RoutingRouting

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Header• Status• Lot size range• Task list group• Usage• Validity Period• Base quantity

Operation Line• Work Center• Control key• Costing Relevancy indicator• Material to Operation assignment

RoutingRouting

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Routing is “production-oriented bill of activities“that lists the operations required to manufacture a product. Each operation can contain up to six activity types and a standard value for the calculation of the activity usage.

Each operation is carried out at a work center. The work center contains formulas for the calculation of activity usage. These formulas take account of the cost estimate lot size and the base quantity for the routing.

Each work center is linked to a cost center. Activity prices are planned for the combination Cost Center/Activity Type.

Operation Qty Activity Type

0010 PC-1 Preparation 2 min. 1421

0020 PC-2 Assembly 3 min. 1422

0030

Work Center

PC-3 Quality Check 5 min.

Standard Values

Activity Usage

Cost Center – Activity Type - Work Center – Routing LinkCost Center – Activity Type - Work Center – Routing Link

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Work Center PC-1Work Center PC-1

Activity Type EfficiencyFormula

Activity Type EfficiencyFormula

Set Up

Machine

Labor

Cost Center 4711Cost Center 4711

100 %

75 %

50 %

Formula 1

Formula 2

Formula 3

Lot Size : Pieces

RoutingRouting

Op. 10 / Work Center PC-1Base Qty: PiecesOp. 10 / Work Center PC-1Base Qty: Pieces

Set Up

Machine

Labor

Acty Type / Standard ValueActy Type / Standard Value

a Min

b Min

c Min

n

m

Cost Center 4711Cost Center 4711

Activity Type / PriceActivity Type / Price

Set Up

Machine

Labor

X $ / Min

Y $ / Min

Z $ / Min

Formula 1 =

Formula 2 = x /

Formula 3 = x /

a Min

b Min

c Min

n

n

m

m

Control Key in RecipeControl Key in Recipe

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Cost relevancy

Milestone operation?

External Processing?

Automatic goods movement?

Process Industry RoutingProcess Industry Routing

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Co-ProductCo-Product

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Co-Products have significant revenue and are planned for production

Leading Co-Product (primary) appears on the production order header and as a line item as well in the materials list

Co-products appear with negative quantity in BoM

By-ProductBy-Product

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Incidental output, not planned

Co-Product indicator is NOT checked

By-products appear with negative quantity in BoM

May or may not have its own cost. If cost relevant then it reduces the cost of finished product

Quantity Structure Selection for Co-ProductsQuantity Structure Selection for Co-Products

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Material Master Parameters: - Production version with BOM and routing entries - Production version that refers to a leading co-product

If no entries were made in the material master of the co-product, the system attempts to determine the quantity structure through the quantity structure determination of the costing variant. It first attempts to determine the quantity structure via valid production versions.

Costing of Co-Products and By-ProductsCosting of Co-Products and By-Products

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Costs for co-products are calculated using the apportionment method

Costs for by-products are calculated using the net realizable-value method. Co-products designated as fixed-price co-products are costed in accordance with the net realizable-value method similar to by-product.

The costs for fixed-price co-products and by-products are subtracted from the total costs. If a fixed-price co-product or by-product has its own cost estimate, the cost component split of the cost estimate is taken into account when the costs are deducted from the total costs. In the process, the costs in a cost component are deducted from the total costs in the cost component to which it belongs.

After the costs for by-products and fixed-price co-products have been taken into account, the total costs of the production process are apportioned for all cost components to the co-products. Equivalence numbers are used for the apportionment process using apportionment structure. Each production version can have its own apportionment structure

Cost Apportionment with Source StructureCost Apportionment with Source Structure

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Source Assignment

Equivalence Number

Primary Product Co-Product 1 Co-Product 2

Material costs 3 2 1

Production costs 3 2 2

Overhead 1 1 1Using a source structure, it is possible to specify how the costs for each cost element group are apportioned.

This allows to account for the fact that the material usage for the first co-product, for example, is significantly higher than that for the second co-product even though the production costs for both products are the same

When a process order is created the system generates a settlement rule on the basis of the apportionment structure. The equivalences specified in the apportionment structure are transferred into the settlement rule.

Cost Center planning and Activity Type Pricing Cost Center planning and Activity Type Pricing

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Plan Externally and enter prices by cost center + activity type

Plan using the SAP planning

functionality

Planned Costs in dollars by cost center___________________________________

Planned Activity by cost center and activity type

• Can copy scheduled activity from Logistics planning

• Can plan activity-independent and activity-dependent costs separately so as to split the activity price into “fixed” and “variable” components

Activity Type Master dataActivity Type Master data

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Activity Type PricingActivity Type Pricing

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Plan Output Quantities•Number of labor hours, quality hours etc

Plan Costs•Dollars to be spent to provide this service•Distinguish fixed and variable costs

Plan Input Quantities•Number of quality hours required by Production•Reconcile Supply and Demand•Adjust quality hours to be supplied to meet demand from production

Calculate Activity Prices•Costs per labor hour, per quality hour etc.•Cost component split for planned prices

Subcontracting OptionsSubcontracting Options

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• The subcontractor receives material parts and manufactures the complete material

• Can keep track of components lying with vendor

• The subcontractor is paid an agreed price for the whole activity

Subcontracting External Processing

• The external processor performs a process step only.

• The material is processed externally and completed in-house.

• A price is agreed for the external processing.

Subcontracting ProcessSubcontracting Process

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External ProcessingExternal Processing

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Planned ScrapPlanned Scrap

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• Planned scrap is regarded as unavoidable scrap that is expected to occur when a material is produced. It is also included in inventory valuation.

• Consists of component scrap and operation scrap

• When a routing is scheduled, the scrap factor is determined from all operations and written to the material master as assembly scrap.

• Shown in the itemization screen of cost estimate

Component ScrapComponent Scrap

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Component scrap indicates the amount of scrap expected to occur before or during the assembly of the material.

Component scrap can be defined in the material master of the component as well as in the BOM line of the finished part. If it has been entered in the BOM, the value specified therein applies. Otherwise, the value in the material master record applies.

Component scrap is used in MRP to determine the input quantities of the components. When the BOM is exploded, the system increases the input quantities of the components by the scrap quantity calculated.

Example:Input quantity 200 unitsComponent scrap 10 %Scrap quantity 20 unitsQuantity used 220 units

Operation ScrapOperation Scrap

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Operation scrap is defined in the routing step. It is percentage of scrap occurring for the operation concerned.

This scrap results in a drop in the quantity of the next operation, since the quantity to be processed is reduced by the scrap. The reduction in quantity is taken into account in the scheduling and in the cost estimate.

Assembly ScrapAssembly Scrap

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When a routing is scheduled, the scrap factor is determined from all operations and written to the material master as assembly scrap.

Example:

Suppose the quantity to be produced is 200 units.

If you specify assembly scrap of 10%, the scrap quantity is 20 units.

The actual quantity produced is then 220 units. The system increases the lot size and the quantity of input materials.

Planned Scrap SummaryPlanned Scrap Summary

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Mark and Release of Standard Cost EstimateMark and Release of Standard Cost Estimate

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Marking: The future planned price is set in the material master and a link to the "new" standard cost estimate established. No revaluation takes place.

Release: Release converts the future standard price to the current standard price. Inventory revaluation takes place. The previous standard price is moved the field “previous” and is linked to the "old" standard cost estimate.

Cost Estimate ViewCost Estimate View

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Cost Estimate ViewCost Estimate View

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Or “F6” gives itemized details

Or “F5” gives cost component wise totals

gives plants/company codes for the cost source

Item Categories:

M : Material

A: Co-Product

E: Activity (Labor/Burden)

G: Costing sheet based surcharge

Costing RunCosting Run

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• Costing of several materials in a single run

• Background processing feature

• Parallel Processing feature

• Detailed logs

Marking AllowanceMarking Allowance

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Helps to prevent accidental marking of costs for future period(s)

Updating Price fields in material master with costsUpdating Price fields in material master with costs

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Useful for analysis with other costs like current costs, simulated costs etc.

Plan Price, Tax Price, Commercial Price (any of these 9 fields) can be updated

Useful Transaction CodesUseful Transaction Codes

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CS01, 2, 3 : Bill of MaterialC201, 2, 3 : RecipeCR01, 2, 3 : Work CenterKL01, 2, 3 : Activity Type

OKEQ: VersionOKTZ : Cost Comp StructureOKKN: Costing Variant OKK4: Valuation VariantOKEU: Source StructureKZS2 : Costing Sheet

KP06, 7: Cost Center PlanningKP26, 7: Activity Prices

CK11N, 13N: Cost EstimateCK40N: Costing RunCK22: Allow MarkingCK24: Mark and ReleaseCKR1: Delete Cost Estimate

CKAPP01: Materials to be costedS_P99_41000111 - Analyze/Compare Cost Estimates

Demo in the systemDemo in the system

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• Configuration Settings- Costing variant, valuation variant, costing type, transfer

control, quantity control- Costing sheet- Allocation Structure for Co-Products

• Cost Roll Up of purchased and produced materials

• Cost Center Planning

• Activity type Pricing

co prod costing part 1

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