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In the controlling module Product costing?is used to value the internal cost of materials and production for management accountability and accounting. people avoid due to its complexity, as the integration of high cost with other modules. Lets take you a quick and easy way to understand PC in 5 steps.

Step #1:????????? ???????????? ????????????????

Cost Center Planning?is the elementary step in understanding product costing. The main objective of this phase is to plan total Cost and quantities in each cost center plant.

?Essential:

??Company codes and plants in organizational structure are planned.

???Master data for profit centers, cost centers, primary and secondary cost elements, and activity types.

In transaction KP06, cost center Cost are scheduled by Activity type and cost element. Fixed and variable Cost can be entered. Users can plan costs in production cost centers which wind up through allocations. In transaction KP26, the cost center quantities are planned by Activity type. Based on the earlier year’s actual values, the activity rate can be manually entered. Planning activity quantities based on useful installed capacity accounts for interruption is the best practice.

Step #2:????????????????? ???????? ??????????????????????

The main aim of this phase is to estimate the rates of each activity plan in each cost center in a plant.

Essential:

??Cost Center Plans are entered: Plan costs in KP06 and Plan activity units in KP26

Once we plan our cost center Cost and quantities, it’s time to calculate the activity rates which are implemented to value internal activities to produce products. We can also use a blended approach and plan rates for a few cost centers and activities and to calculate other rates based on the last activities. Once we plan costs for all cost centers, we can avoid the next step of plan allocations. Use plan assessments and distributions to allocate costs when the planned costs are acquired in overhead cost centers. The key dissimilarity between assessments and distributions is that distribution keeps the primary cost element (Identity) of the cost. Assessments are secondary cost elements that act as a cost shipper to move costs. We can use assessments, distributions, or a blended approach of both. The plan assessments and distributions are created in Transactions KSV7 and KSU7 and executed in KSUB and KSVB transactions.

Once the costs are assigned, we must review the Cost center Actual/Plan/Variance report. Now, execute the cost center plan which rips costs when we have more than one activity type. The cost has to be ripped based on the activity quantity and other sources. Using Transaction KSPI, activity type rates are calculated. If the cost is adverse, you can revise the cost plans and recalculate the rates.

Step #3:????????????????? ??????????????????

This step helps you to estimate the components of manufactured goods and the cost of sold goods based on the BOM and Routing.

Essential:

Master data is created:

???Material Masters (including MRP, Accounting, and Cost views)

???Bill of Materials (BOM)

??Work Centers (Cost Centers and Activity Types)

??Routings (Product Planning) or

??Master Recipes (Production Planning — Process Industries)

??Production Versions

??Product Cost Collectors (Production Planning Repetitive Manufacturing)

Quantity Structure is a key concept. It is a fundamental integration point between Finance and Logistics modules. There are several components of Quantity Structure namely:

???In a product, a material master with a distinctive fit/form in a plant. It contains many views such as?material Resources Planning (MRP)views, accounting views, and cost views. Procurement type and special procurement are the two key fields in costing. The procurement field refers to a material that is created internally, purchased, or both. Whereas special procurement refers to a material that is sub-contracted or purchased from another plant.

??A?Bill Of material?is created for each internally produced material. The BOM list contains the component materials and quantities required to produce a semi-finished or finished good. Depending on the price control with standard or variable average price of the BOM components, the material cost of the product is calculated.

??A work center identifies a machine or work area where a production process is performed. In addition to BOM, a routing is created to indicate the processes necessary to produce a material. In production planning, a routing has a series of operations that also includes work centers and activity quantities.

??A master recipe is used for batch-oriented process manufacturing. Rate routings and product cost collectors are used in repetitive manufacturing. Product cost collectors are created for each production version.

Production versions refer to a combination of a BOM and master recipe or routing required for material production.

Step #4: ?????????????? ??????

A costing run is used to cost mass volumes of materials in a particular company code. This allows users to select materials, detonate quantity structure, cost, analyze, mark and release.

Essential

??Material Masters (MRP, Accounting, and costing views)

??Quantity Structure (BOM, Master Recipe, or Routing and Production versions)

??Condition types and production Information records

??Configuration

??CO Master Data

Materials are costed for the duration of the annual or monthly costing process. To execute costing runs, analyze results, and mark and release costs transaction CK40N is used. This can be formed using the controlling area, costing version, costing variant, company code, and transfer control. Therefore, a costing run can only be made for one company at a time. It has also created a specific range of dates.

The costing run into 6 steps namely:

1.????Selection

2.???Structure Explosion

3.???Costing

4.??Analysis

5.???Marking

6.??Release

After executing each step, the error log has to be reviewed and resolved. Execute each and every step after resolving the errors. If in case the results do not update after execution, press the refresh button.

Step #5:????????????? ????????

This is determined through actual expenses, purchase price, and confirmed production quantities. These costs are matched to the standard costs through variance analysis to identify profitability and make decisions on management.

?Essential:

??Material Masters (MRP, Costing, and Accounting views)

??Quantity Structure (Routers/Master Recipe, BOM, and Production versions)

??Configuration (WIP, Variance, or settlement)

??CO Master Data (Activity types, Actual and Primary and secondary cost elements)

??Assessment/Distribution Cycles, Actual Statistical Key Figures

The production confirmation includes product cost by order, actual production yield,?Scrap, and activity quantities. The production costs are composed of the production orders for review and settlement. In product cost by period, product cost collectors are used to calculate WIP, variances, and settlement instead of the planned orders.

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