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.
Quantity Structure is the third step in comprehending the fundamentals of product costing. With the aid of quantity structure, you may determine the costs of producing items and the cost of goods sold for commodities based on the BOM, routing (PP), or master recipe (PP-PI).
Prerequisites:
- Master data are produced.
- Master Materials (including MRP, Accounting, Costing views)
- Table of Contents
- Centers for Work (with Cost Centers and Activity Types)
- Planning routes (Production) OR
- Expert Recipes (Production Planning- Process Industries)
- Finished Versions (optional)
- Collectors of product costs (PP-REM – Repetitive Manufacturing)
Overview:
Due to its importance as a crucial point of connection between SAP’s Finance and Logistics modules, quantity structure is a crucial topic in product costing. Quantity Structure is composed of various elements.
For each product with a distinct fit, form, and purpose in a plant, a material master is made. Numerous views, such as Material Resource Planning (MRP) views, Accounting views, and Costing views, are included in the material master. The procurement type and special procurement key fields on the MRP 2 view are two that are important for costing. The procurement type parameter specifies whether a material is manufactured domestically, bought externally, or both. Additionally, the special procurement key specifies whether a material is subcontracted, phantom, bought from another factory, etc. When calculating a material’s cost, it’s critical that these two fields are accurate.
A bill of materials (BOM) is made for each internally manufactured material. A BOM contains the component ingredients and quantities required to make a finished or semi-finished good. Depending on the price control, the standard or moving average price of the BOM components is used to calculate the material cost of a product (S for standard, V for moving average).
A machine or workspace where a manufacturing process is carried out is referred to as a work centre (PP) or resource (PP-PI). A standard value key, which is a particular set of actions connected to a work centre, is used by each work centre or resource. In the first instalment of this blog series, I covered several activity kinds.
A routing or master recipe is made in addition to a BOM to describe the steps necessary to generate a material. A routing is made up of a number of operations in Production Planning (PP) manufacturing that describe a production process by including work centres and activity volumes. A master recipe is used in Production Planning- Process Industries (PP-PI) for batch-oriented process manufacturing. In place of labour centres, a master recipe includes all the steps needed to produce a substance, including the resources.
Rate routings and product cost collectors are both used in repetitive manufacturing. Each production version has its own product cost collector, which records expenses on a period rather than an order basis.
Production versions can be employed if there are several different ways to manufacture a substance, including various material combinations or activities. A BOM and the routing instructions or master recipe needed to generate a material are combined to form production versions. The most frequent or realistic form should be used for the initial production.
Typical Example
Say we are valuing our inventory in a cookie bakery using product costing. This will teach us to value our finished cookies, semi-finished frosting, and baking ingredients like eggs, milk, and sugar (raw materials).
We require a list of materials (Bill of Material) and a recipe of procedures to take in order to calculate expenses (Routing or Master Recipe). By using different ingredients or ovens, we may be able to make the same cookie in a variety of ways, leading to multiple iterations of our recipe and ingredient lists (Production Version). We need to identify the locations where baking activities take place so that we can determine the costs of creating our cookies precisely (work centres or resources).
We might employ a refrigerator, a mixing station, an oven, a cooling station, and a packing station, for instance. Each would be a “work centre,” and we allocate each a particular set of tasks, such as labour and overhead. Our recipe (Routing or Master Recipe) designates the work centres and quantity of each activity as operations. We may determine the cost of making a cookie using the rates for activities in our recipe (Routing or Master Recipe) and the costs for each ingredient (Material Master) in our ingredient list (BOM).
Additional details:
- Setting up the Material Master MRP properly is essential for quantity-based product costing.
- To account for changes in production data like BOMs, Routings, Master Recipes, and Production Versions, you must recalculate and release costs.
I discuss how the ideas of cost centre planning, activity rate calculation, and quantity structure relate to the costing process in my upcoming blog. Performing a costing run, pricing a single material, and marking and releasing costs are all covered in this blog.
http://scn.sap.com/community/erp/financials/controlling/blog/2013/01/02/5-steps-to-understanding-product-costing-part-4-costing-run
Follow these links to catch up if you missed the previous two blogs:
Part 1 of the Five Steps to Understanding Product Costing
http://scn.sap.com/community/erp/financials/controlling/blog/2013/01/02/5-steps-to-understanding-product-costing-part-1-cost-center-planning
Part 2 of the five-step guide to understanding product costing: Activity Rate Calculation
http://scn.sap.com/community/erp/financials/controlling/blog/2013/01/02/5-steps-to-understanding-product-costing-part-2-activity-rate-calculation