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.
The costing run is the fourth stage in comprehending the fundamentals of product costing. To cost large quantities of materials under a single corporate code, costing runs are employed. You can choose specific elements, detonate their quantity structure, cost them, analyse them, and then label and release them using the costing run.
- Master Materials (including MRP, Accounting, & Costing views)
- Quantity Organization (Bill of Materials, Routing or Master Recipe, Production Versions are optional)
- Purchase Information Records and Types of Condition (If desired for costing)
- Configuration (Cost Component Structure, Costing Variant, Valuation Variant, Costing Sheet if required)
- Master Data CO (Primary and Secondary Cost Elements, Activity Types, Mixed Costing Ratios & Alternatives if required, Additive Costs if required)
Materials are costed in a costing run as part of the yearly or monthly costing process. Costing runs are carried out, the findings are analysed, and costs are marked and released using the transaction CK40N. A costing variant, costing version, controlling region, company code, and transfer control must be used to create the costing run (additional information is available in the setup section). As a result, only one company code can have a costing run created at once. Additionally, the pricing run is made for a specific time frame.
Selection, Structure Explosion, Costing, Analysis, Marking, and Release are the first six steps of the costing run. You must enter parameters for each step, save them, and then carry them out. The parameters for selection are entered, indicating which materials need to be priced. The chosen materials are exploded in the structure explosion process to extract component materials from BOMs.
A bill of materials (BOM) is established for each internally manufactured material, as was covered in the blog post on quantity structure previously. Materials for finished goods that were chosen in the previous stage are costed in the costing step based on their BOM and routing, or master recipe. To list the procedures needed for a material, a routing or master recipe is also established. According to the costing arrangement, component materials are also costed.
Using the available reports in the analysis parameters, you can study the costing results. You unlock the lock to permit marking for a company code, costing variant, and timeframe during the marking stage. Once designated, costs show up in the material master as expected standard cost estimates. You reveal the costing results after performing marking. Once released, costs are accurate for the specified time frame and show up in the material master as current standard cost estimates.
It’s crucial to check the error log after completing each stage and fix any issues. You must start over after fixing problems in a particular phase in order to view the results. After executing, you can press the refresh button to see updated results. When processing a lot of resources, you can choose to run any step in the background, or you can choose to run a step at a specific time and date.
Configuration of costing and valuation variants and cost component structure are required to set the strategy for costing materials. The costing version contains the costing criteria. A costing type, which chooses the item to be constructed, and a valuation variant are both included in costing variants. Variants of valuation include factors for valuing a cost estimate. You can customise the order of the strategies used to choose costs in a valuation variation. The component’s standard cost, moving average price, purchase information record price, or planned pricing may be chosen for produced materials. Additionally, you can select a specific plan or real version and take the most recent activity rates or an average of the plan’s annual activity rates. To determine which expenses should be included, whether to include variable or total costs, and to organise costs into logical groupings called cost components, utilise the cost component structure.
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 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). The ingredients will be priced when we expense our cookies. We can decide to value our goods at that price after we are pleased with our standard cost (release).
- It is necessary to cost Product Cost Collectors, which are employed in repetitive production, in a distinct transaction (Individual- KKF6N or Mass- KKF6M).
- To account for changes in production data like BOMs, Routings, Master Recipes, and Production Versions, you must recalculate and release costs.
- Please take note that the costing will only consider the first production version.
I will describe how actual expenses are determined and how I intend to do an actual variance analysis in the final blog post of this series.
If you missed the first three blogs, you may catch up by clicking on the following links: