Improve Your Cost of Sales Accuracy with Cost Estimates John Jordan ERP Corp - Eo Ml be Ye b- Bin OSUG eee |[ Controlling Resources — Books = John Jordan, Product Cost Controlling with SAP (2nd Edition) (SAP PRESS, 2012). * ISBN-10: 1-59229-167-0 (978-1-59229-399-5) = John Jordan, Production Variance Analysis in SAP Controlling (2nd Edition) (SAP PRESS, 201 1). * ISBN-10: 1-59229-109-0 (978-1-59229-38 1-0) = John Jordan, 100 Things You Should Know About Controlling with SAP (SAP PRESS, 2011). * ISBN-10: 1-59229-34 1-4 (978-1-59229-34 1-4)[ Controlling Resources — Conference = www.controlling20 | 2.com = When: September 24-25, 2012 = Where: Westin San Diego ® Networking: All attendees are Controlling professionals = Sessions Track | — Overhead Accounting Track 2 — Cost Estimates Track 3 — Project System Track 4 — Fixed Assets Track 5 — Rollouts/Upgrades Track 6 — Reporting / SAP HANA™ = Register = http:/Awww.controlling2012.com/asugeal 2[ Controlling Resources —- ASUG Webcast = Variance Analysis in SAP Controlling = Presented on March 06, 2012 = View presentation slides and recording at: * http://www.asug.com/EventsCalendar/EventD etails/tabid/ | S0/Eve ntlD/2825/Default.aspx[ Introduction = We'll discuss the steps to create and analyze cost estimates Master data, such as material masters and routings, provides quantity and price information needed by a cost estimate to determine the price of assemblies Configuration required to calculate overhead and set up cost components and costing variants Transactions to create, mark, and release standard cost estimates Display and discuss preliminary cost estimates[ Topics = Preparing for cost estimates in master data = Allocating overhead costs = Using cost components to categorize costs = Seeing how costing variants determine standard price = Creating standard cost estimates = Understanding preliminary cost estimates = Summary[ Master Data = First we'll analyze the more commonly used master data field entries and how they affect cost estimates * Material master " Bill of material " Routing * Product cost collector[ Material Master: MRP 2 View = Transaction: MMO2 = Menu path: * Logistics Change Material 10000 (Semifinished prod * Production [REL Acton at] Crpnzatona es 8 Check seven cata * Master Data *" Material Master « Material = Change Finished Product * Immediately[ Material Master: MRP 2 View (cont.) = Procurement type defines how a material is procured © In-house production (E): Cost estimate searches for: ® Bill of Material (BOM) and routing « External procurement (F): Cost estimate searches for: * Purchasing info record = Both (X): Cost estimate searches for: * BOM and routing if they exist, otherwise purchasing info record = Special procurement field more closely define the procurement type (user-definable), for example, it may indicate: " If the item is produced in another plant and transferred to the plant you are looking at = A phantom material, which is a logical grouping of materials used for costing and BOM maintenance[ Material Master: Costing | View (5) Change Material 10000 (Semifinished products) = Transaction: MMO2 _ [ice Aiaioneisen [RE oreneatonainwe|(26 cheteownsan 8] | = Menu path: ns AEST oes? rt sos * Logistics coo nanesract ® Production ao Master Data Material Master Material Change Immediately Version indexer Production Version[ Material Master: Costing | View (cont.) = Variances are calculated on production orders or product cost collectors containing a variance key = The value in the Variance Key field in the Costing | view is used as a default value when production/process orders are created = The variance key also determines if the value of scrap is subtracted from actual costs before variances are determined = When a standard cost estimate is created, it uses the Costing Lot Size value in the Costing | view by default = The costing lot size should be set as close as possible to actual procurement lot size * Unfavorable variances may result if a production order is created for a quantity less than the costing lot size due to setup time, which doesn’t vary with quantity[ Material Master: Costing 2 View j] Change Material 10000 (Semifinished products) = Transaction: MMO2 = Menu path: Logistics Production Master Data Material Master Material Change Immediately[ Material Master: Costing 2 View (cont.) = The Cost Estimate fields in the “Standard Cost Estimate” section are updated when a standard cost estimate is marked and released = The Planned price (Current) and Standard price (Current) fields are overwritten when subsequently releasing a cost estimate = Manually update Planned price |, 2, and 3 fields in the “Planned prices” section with estimated purchase prices « A:standard cost estimate can retrieve prices from these fields if no purchasing info records exist for purchased items « Use when creating cost estimates before vendor quotations are received — early in the life cycle of a new or modified product[ Material Master: Costing 2 View (cont.) = The Valuation Class field determines which general ledger accounts are updated during inventory movement / settlement = The Price control field indicates whether inventory is valuated at standard (S) or moving average (V) price After material masters are created and fields are populated, you use them to create a bill of material, as discussed in the following slides[ Bill of Material Example = Transaction: CS02 = Menu path: Logistics > Production > Master Data > Bills of Material > Bill of Material > Material BOM > Change[ Bill of Material (BOM) = Structured list of components to build an assembly = BOMs, together with purchasing info records, provide cost estimates with material costs of products = The BOM determines which materials are costed = Fields relevant to variance analysis are the quantity field and relevancy to costing indicator[ Routing Example = Transaction: CAO2 = Menu path: * Logistics * Production * Master Data " Routings " Routings = Standard Routings * Change[ Routing = A routing is a list of tasks containing standard activity times required to build an assembly « The standard value indicates how long it normally takes to perform a task Routings, together with planned activity prices, provide cost estimates with labor and overhead costs = The standard value multiplied by the planned activity rate provides planned labor and overhead costs * The calculation can be modified by a performance efficiency rate and formula = Labor costs are rolled up from subassemblies to finished goods[ Routing Overhead = You can include overhead costs in the planned activity rate * Dedicated overhead activity types can also be used to include overhead costs * The production order is debited, and the cost center is credited at the time of activity confirmation = Overhead can also be included in the standard price with costing sheets, which are described in a later slide[ Product Cost Collector = Transaction: KKF6N = Menu path: Accounting Controlling Product Cost Controlling Cost Object Controlling Product Cost by Period Master Data Product Cost Collector Edit Display Prodi ial 2][ Product Cost Collector (cont.) = A product cost collector collects costs during production * Product cost collectors are: * Necessary for repetitive manufacturing * Optional for order-related manufacturing = Repetitive manufacturing benefits: © Eliminates the need for production orders in manufacturing environments with production lines and long production runs = Reduces the work involved in production control © Simplifies confirmations and goods receipt postings[ Topics = Preparing for cost estimates in master data Allocating overhead costs = Using cost components to categorize costs = Seeing how costing variants determine standard price = Creating standard cost estimates = Understanding preliminary cost estimates = Summary[ Overhead Costs = Overhead costs are usually included in cost of sales (COS) ® Overhead may include costs such as building lease, insurance, and office staff not directly involved in the production process = Costing sheets offer more flexibility in allocating overhead across products or product groups * Less production data maintenance is required * Configuration is required, as explained in the following slides[ Costing Sheet Configuration = Transaction: KZS2 = IMG menu path: Controlling > Product Cost Controlling > Product Cost Planning > Basic Settings for Material Costing > Overhead > Define Costing Sheets " Available costing sheets are listed at right of the overview screen * Select a costing sheet and double-click on Costing sheet rows to display a detailed screen as shown on the following slide Change View coston sheets": Overview Cbase Diovernead rate Ccredit 09003 StandardiCompany Code[ Costing Sheet Details = The three costing sheet components, Base, Overhead rate, and Credit, are listed on the left, and details are shown on the right * Select any row with an entry in the Base column and double-click Base at the left to display the details shown on the following slide Change View "Costing sheet rows”: Overview (noceee) stanaara (Costot goods manutacared. ‘Aaminstaven OF ties FF[ Calculation Base = A base is a group of cost elements to which overhead is applied « Each cost element identifies unique cost types within a cost estimate, such as raw material or machining labor costs * Costs identified by the base are multiplied by an overhead rate to determine the overhead value in the cost estimate [066%] Contoting ies 4 Caculaton base 8000) Nateval @rotw Oued 505000 [ Jscere0 00100[ Overhead Rate = The overhead rate is a percentage applied to the value of the calculation base * Select any costing sheet row with an entry in the Overhead rate column and double-click Overhead rate 4/01/2504 16731 /2605 061 11176172005 6473072006 e061 1161/2905 64/38/2006 0001 21.000 21.000[ Credit Key = The credit key defines which cost center receives credit " Select any costing sheet row with an entry in the Credit column and double-click Credit = The secondary cost element identifies: " Plan overhead in the cost estimate * Actual overhead in production order and cost center reports geet |__© Gicosting sheetrows[ Topics = Preparing for cost estimates in master data = Allocating overhead costs = Using cost components to categorize costs = Seeing how costing variants determine standard price = Creating standard cost estimates = Understanding preliminary cost estimates = Summary[ Cost Components = Cost components group costs of a similar type * Material, labor, and overhead are typical cost components = Analysis of cost components over time or across a range of products can assist in profitability analysis = Cost components increasing over time may result in efforts to reduce material, labor, or overhead costs = Comparison of cost components across products can influence marketing decisions = All individual costs are identified by cost elements = Cost components group similar types of cost elements together[ Cost Component Configuration = Transaction: OKTZ = IMG menu path: Controlling > Product Cost Controlling > Product Cost Planning > Basic Settings for Material Costing > Define Cost Component Structure * Available cost component structures are listed on the right ® Select a cost component structure and double-click Cost Components with Attributes to display the screen on next slide Change View “Cost Component Structure”: Overview 2imren (SSIES[ Cost Component Details = Available cost components are listed on the right = Use existing cost components or copy and create your own " Select any cost component and double-click on Assignment: Cost Component — Cost Element on the left to display details on the following slide Change View "Cost Components with Attributes": Overview ‘Semfirsed goods[ Cost Element Assignment = Individual cost elements or cost element ranges are assigned to cost components in the From cost _... (From cost element) and To cost ele ... (To cost element) columns Change View “Assignment: Cost Component - Cost Element Interval”: Over upcate oradaitve Costs Citranster Structure CiCost Component Views Giassignment: Organiz. Units - Cost Componentstuct ||[ Topics = Preparing for cost estimates in master data = Allocating overhead costs = Using cost components to categorize costs Seeing how costing variants determine standard price = Creating standard cost estimates = Understanding preliminary cost estimates = Wrap-up[ Costing Variant = The costing variant contains information on how a cost estimate calculates the standard price « For example, it determines the cost of purchased materials from: * The purchasing info record price = An estimated price manually entered in the Planned price | field of the material master Costing 2 view = Only a standard cost estimate can adjust inventory values = In this section, we'll explore how the costing variant determines the standard price[ Costing Variant Configuration = Transaction: OKKN = IMG menu path: Controlling > Product Cost Controlling > Product Cost Planning > Material Cost Estimate with Quantity Structure > Define Costing Variants " Available costing variants are listed * Double-click ona costing variant to display a detailed screen as shown on the following slide ‘Standard cost est (mat) Mod std cost est (mat) (Current cost est (mat) rel. csty costcollecior ‘Std price Price enti mati master cp ‘Current cost est. Jntial costing with sta[ Costing Variant Components = Costing variant components are shown as buttons " Click on the Costing Type button to display the screen shown on the following slide Change View “Costing Variants”: Details aa Costing Vaniant [PPC%) [standara cost eat mat (01 Standard cost est (mat)[ Costing Type = The costing type determines if the cost estimate is able to update the standard price in the material master * Costing Type 01 is typical for standard cost estimates « There are many reasons for requiring cost estimates that can’t update the material master (e.g., developing new products) Change View "Costing types”: Details Tip Costieg Troe 3) [Standardcost est[ Valuation Variant Change View "Valuation Variants”: Detail = The valuation variant allows aa different search strategies for (i) [Yainas perp conkst materials, activity types, etc. * The cost estimate first searches for a valid purchasing MEXR scsayTipesPmceeses _ subvooract info record Proety ‘Strategy Saquence Lie ttm Purcnasng ino Recore “Fiamed Pree 7 * If unsuccessful, it will then search for an entry in the Planned price | field * If still unsuccessful, an error message will be issued, which ee must be corrected before the 4 3 Nel Quotation Pace 2 1 2 3 4 5 cost estimate can be released[ Date Control = Date control determines the default dates when creating a cost estimate *" The four Date fields are discussed in detail when we create a cost estimate in the next section = Manual Entry checkbox Change View "Date Control": Details © Select to allow default = — dates to be manually J PoO1 || sta cost Ect. Month changed[ Topics = Preparing for cost estimates in master data = Allocating overhead costs = Using cost components to categorize costs Seeing how costing variants determine standard price Creating standard cost estimates = Understanding preliminary cost estimates = Wrap-up[ Standard Cost Estimate = The standard cost estimate is used during variance analysis since it is used for stock valuation * When a production order delivers product to inventory, it receives a credit based on the standard price * Total variance is the difference between: © Actual manufacturing costs debited to the order *" Credits due to deliveries to stock[ Create Standard Cost Estimate = Transaction: CKIIN Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Cost Estimate with Quantity Structure > Create Standard cost estimates are created with costing variant PPCI * Press Enter to display date fields Create Material Cost Estimate Create Material Cost Estimate Costing Date From {0701/2006 Costing Date To [1213179999 Costng Version 1[ Dates Tab = Costing Date From = Cost estimate validity start date * Cost estimate cannot be marked and released until start date = Costing Date To " Cost estimate validity finish date « Variance calculation requires a standard cost estimate that is valid for the remainder of the fiscal year = Qty Structure Date = Determines which BOM / routing are used for the cost estimate " These can change over time = Valuation Date * Determines which material / activity prices are selected ® Purchasing info records and a prices can vary over time[ Cost Estimate Results Screen = Press Enter to create cost estimate " Acosted multilevel BOM is displayed at the left * Cost estimate header information is displayed at the right " Click on red triangle icon to analyze cost estimate messages Create Material Cost Estimate with Quantity Structure (a [oat] s4e54Us0 10.000 Si2suso 2m0N 1937760 1987750 USD Sales ad aimnetatin€| 000 00 USD inven omnia) 00 000 Uso invetary Babee) 00 30/080 ‘Seat ods manutectred[ Costs Based On Field = The Costs Based On field indicates the quantity on which the costs are displayed " The costs are always calculated based on the costing lot size " To display costs based on a quantity of one (but still calculated based on the costing lot size), click on the Costing Lot Size text and choose another entry FoiisheaProdud Mate Plat — LEE LT LTT Heads-Up 1 Coste Lat sze HOLS User enty CostGompen| Ineut Quantiies tom Mutievei 30" | “Vane "90778, 000° 496776 USO 196776 000196776 USD 000 000 000 USO 000000 (000 Uso 000 (000 USD,[ Mark Cost Estimate = Transaction: CK24 = Menu path: Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Price Update = Complete the Selection screen and click the Execute icon * A green traffic light icon, and Costing Status of VO, indicate the standard cost estimate was successfully Marked * No inventory revaluations or financial (Fl) account postings occur Price Update: Mark Standard Price Price Update: Mark Standard Price esting PencaFiscat Voor ‘jas (Company Code Plant tera[ Release Cost Estimate = Transaction: CK24 = Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Price Update * Click the Release button and then click the Execute icon « A green traffic light icon and Costing Status of FR indicate the standard cost estimate was successfully Released * Inventory revaluation and Fl postings will occur if there is stock Price Update: Mark Standard Price Price Update: Release Standard Price Posing PerodFiscal Year ‘company Code Plant ni Natal 1968[ Material Master: Costing 2 View Update = Costing 2 view fields are updated during mark and release " Marking populates fields in the Future column * Release moves entries from the Future to the Current column Aaa) FrastesFrosuct iia (0000 Put 0821 Preducton Pan 0021 Ta] “Stang Cost Esomiate ~ ‘Cast Estate > PetoaiFiscatves eT[ Topics = Preparing for cost estimates in master data = Allocating overhead costs = Using cost components to categorize costs = Seeing how costing variants determine standard price = Creating standard cost estimates Understanding pr nary cost estimates = Wrap-up[ Preliminary Cost Estimate = A preliminary cost estimate is created for a product cost collector « A product cost collector collects target and actual costs during manufacture of an assembly * Product cost collectors are: * Necessary for repetitive manufacturing * Optional for order-related manufacturing = You can link production orders to product cost collectors[ Display Preliminary Cost Estimate = Transaction: KKF6N = Menu path: Accounting > Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Period > Master Data > Product Cost Collector > Edit Display Product Cost Collector c [Ee cranes JG cosira) You can create a new preliminary cost estimate by clicking on the highlighted pencil icon and then clicking on the Cost button Clpvarantsiannes —_|PREHPra ety c Celpvarientsctusl PPP, Preauetene Costing Sheet 100002) tarda ovemeashoy Resuts Anahsis key Variance Key[ Header Tab = Click on the Header tab to display the Cost Estimate button * Click on the Cost Estimate button to display the preli estimate (shown on the following slide) inary cost RMT Preconrvemee PREF 012)" Mantacuing Comoany “16809 Fished Produc wt) Product cost cotectr 720168 20) JOHN JORDAN (0512412006)[ Preliminary Cost Estimate Details = The preliminary cost estimate can be used t = Calculate target cost version | for production variance analysis ® Valuate scrap and WIP for product cost by period Display Material Cost Estimate with Quantity Structure "106743 USD ‘71902 USD 30570 USO 7226 us0 5481 USO 1.444 38 USO 3040 USD 16125 Us0 25 Us0 ‘8000 usb 195.00 USD 10.0 USO 050 Us0 144439 uso 3040 USD 14125 Uso £125 U9 Firane Produ [Costing LaSie 616-068 Cont of gonds sole 1074361 Sales andasminisaton¢ 00 vat (commer) 000) Inver x bases) 200 *TGeatl goods monuocires 000 1974961 USO 000 1974361 USO 000/000 uso 00,00 u80 2 (IMEI =)[ Topics = Preparing for cost estimates in master data = Allocating overhead costs = Using cost components to categorize costs = Seeing how costing variants determine standard price = Creating standard cost estimates = Understanding preliminary cost estimates Summary[ 7 Key Points = Master data such as BOMs and routings provide quantity information for cost estimates = Activity and purchasing info record prices provide price information for cost estimates = Calculate overhead with activity rates or costing sheets = Cost components identify costs of similar type, such as material and labor, by grouping together cost elements = The costing variant instructs the system which prices, bills of material, and routings to select = Marking a cost estimate does not generate any postings = Cost estimates can be used for new product development — not released to the material master[ Controlling Resources - Books ® John Jordan, Product Cost Controlling with SAP (2"4 Edition) (SAP PRESS, 2012). * ISBN-10: 1-59229-167-0 (978-1-59229-399-5) ® John Jordan, Production Variance Analysis in SAP Controlling (2" Edition) (SAP PRESS, 2011). * ISBN-10: 1-59229-109-0 (978-1-59229-38 1-0) = John Jordan, 100 Things You Should Know About Controlling with SAP (SAP PRESS, 2011). * ISBN-10: 1-59229-34 1-4 (978-1-59229-34 1-4)[ Controlling Resources - Online = http://help.sap.com = Internet menu path SAP ERP Central Component (select Enhancement Package) Application Help English SAP ERP Central Component Financials Controlling (CO) Product Cost Controlling (CO-PC) Cost Object Controlling (CO-PC-OB]) Product Cost by Order Period-End Closing in Product Cost by Period Variance Calculation[ Controlling Resources - Conference = www.controlling20 | 2.com = When: September 24-25, 2012 = Where: Westin San Diego ® Networking: All attendees are Controlling professionals * Save $200 Promo code ASUGCAI2 valid until April 30 = Sessions Track | — Overhead Accounting Track 2 — Cost Estimates Track 3 — Project System Track 4 — Fixed Assets Track 5 — Rollouts/Upgrades Track 6 — Reporting/SAP HANATY[ Controlling Resources — Consulting = ERP Corp provides expert assistance to optimize your SAP Financials and Controlling modules: © Specialize in optimizing after initial system implementation Fully leverage standard SAP transactions and reports = Learn how other companies deal with similar issues * Benefit from quick measurable results in days = Reduce long run times at period-end = Contact us: = www.erpcorp.com * jjordan@erpcorp.com[ Controlling Resources —- ASUG Webcast = Variance Analysis in SAP Controlling = Presented on March 06, 2012 = View presentation slides and recording at: * http://www.asug.com/EventsCalendar/EventD etails/tabid/ | S0/Eve ntlD/2825/Default.aspxNow « Ask questions now for immediate answers Later = www.erpcorp.com ® jjordan@erpcorp.comBE ABREEE 1. 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