Product Costing in SAP Overview

Product costing is one of the important tools in SAP environment. It explains how to determine the cost of product or a unit. Product Costing is used to know the unit cost of the goods manufactured or sold. It helps not only to know the cost of production, but also useful to know the profitability of the product. In sap the Product Cost planning has been divided into four components. These are as follows,

1. Product Cost Planning

2. Cost Object Planning

3. Material ledger

4. Information system

Product Cost Planning is used to estimate the standard cost of a product. In standard costing we determine the cost of a product, valuation of materials, and finished goods inventories. It further decides the profitability margin thereby we can derive the result analysis in profitability accounting.

In product cost planning component, we used to derive the information from the following areas to determine the standard cost of a product.1.Material management 2.Cost centre accounting 3.Production planning. If you use the information from all three components to know the product cost is called as “Cost estimation with quantity structure. Determination of product cost with quantity structure uses the information from production module extensively, like BOMs and routings irrespective of the kind of production activities it undertakes.

Product Costing in SAP

The cost estimation without Quantity Structures uses the information of materials, and activities manually to determination the product cost or cost of goods sold. The Product Costing in SAP considers not only the tangible costs but also value the intangible costs which contributes for determination of product cost. The Product Cost Planning is useful to determine the price floors, optimization of cost of goods sold, valuation of inventories, and also useful in Profitability analysis and profit center accounting.

Cost Object Planning: The another way of determination of product cost or standard cost is Cost Object Planning. In this method the total costs of a product will be derived through the cost objects for which the actual costs are assigned. Product cost planning is the basis for cost object planning. The cost Object Planning has the following process. First one is preliminary costing in which the cost will determine in normal way. In the second one the costs will be assigned to various cost objects and finally the assigned cost object costs were compared with the planed costs and prepare the variance analysis for the cost of production. The cost objects are as follows.

product costing

a. Production orders.

b. Process orders

c. Sale orders.

All the costs either directly or indirectly must be assigned to the above cost objects compulsorily.

Material Ledger useful to collect the information in respect of all the materials. it useful for determine the material costs for various purposes in different valuation area.

The main purpose of either product cost planning or cost object planning to determine the cost of goods sold. The basic information regarding the cost of goods sold is as under.

Material Cost: Can be derived from the Bill of material used in the production module. Bill of material contains the quantity of raw material used in the process of production. The material price will be taken from Material Master.

Work Centre: The organizational unit, where the actual production activities are taking place.

Routings is called the scheduled process of manufacturing in a work centre is called routings.

Cost Sheet: is used to determine the overheads. To determine the cost of goods sold SAP uses costing variants: the cost of goods sold is used by different modules for different purposes. In Material Management the cost of goods sold is used to determine the raw material cost and finished goods inventory.

In production planning module the cost of goods sold is used to determine the Price variances and product cost or unit cost or standard cost. Overhead modules used the cost of goods sold as to know the cost of resources.

Also See: ERP implementation failures – List out the reasons

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