For profitability and management accounting, the Product Costing module of the Controlling module is utilised to value the internal cost of materials and production. A specialised skill is product costing. Due to its complexity and high level of connection with other modules, pricing is frequently avoided. The goal of this 5-part blog is to make product costing simpler.

Cost Center Planning is the first step in comprehending the fundamentals of product costing. Planning total dollars and quantities for each cost centre in a plant is the aim of cost centre planning.


  • Configuration of the organisational structure:
  1. Corporate IDs
  2. Plants
  • Master data are produced.
  1. Gain Centers
  2. Price Centers
  3. Elements of Primary and Secondary Cost
  4. Types of Activity


In Transaction KP06, Cost Center funds are budgeted according to Activity Type and Cost Element. You can input both variable and fixed dollar amounts. Either plan expenses where they are incurred and utilise plan assessments and distributions to allocate, or plan all costs in production cost centres where they will end up through allocations. In Transaction KP26, Cost Center activity quantities are planned in based on Activity Type. A manual activity rate based on the actual figures from the previous year can also be entered. It should be noted that you forfeit the chance to compare actuals to plans and examine dollar and unit deviations if you enter an activity rate rather than letting the system determine one for you. Planning activity numbers based on practical installed capacity that takes downtime into account is best practise. Planning at maximum capacity will result in an underestimation of plan activity rates.

Relevant Example: Assume we are using product costing to determine the worth of our inventory at a bakery that sells cookies. This will teach us to value our finished cookies, semi-finished frosting, and baking ingredients like eggs, milk, and sugar (raw materials). We must establish rates for each action, such as combining ingredients for baking, baking in the oven, and cooling cookies, in order to compute expenses. Since a rate is expressed as a dollar per unit, we may either calculate a rate using actual rates from the prior year or enter our total costs and number of units.

Additional details:

  • Layouts and user profiles can be tailored to your requirements.
  • For a spreadsheet rather than a set format, turn on integrated Excel planning.
  • Instead of inputting values into the system, you can configure it to upload Excel files.

I’ll go into more detail about how activity rates are determined using plan Cost Center money and quantities in the following blog. Activity rates do not need to be calculated if they are manually entered, although there is a useful report to evaluate them first.

Part 2 of the Activity Rate Calculation: Further Reading