Basics of SAP Standard Cost

estimate- Understanding the

flow of cost settings-Part 1
created by Hrusikesh Dalai on Nov 15, 2013 5:36 PM, last modified by
Sep 30, 2014 8:01 PM

Hrusikesh Dalai

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There is a lot of forum question answers and content available in SCN about Standard
Costing
Note-This is a beginner's and basic guide to understand cost estimate and various settings
behind it.

This document is intended to explain the cost flows to a standard cost estimate. Explaining various
settings in background. I will try to explain this from backward from Cost estimate to configuration.
This will answer some basic questions like Material Cost, Overhead Cost, Labor etc. in a standard cost.
When you take a look at a material cost estimate what you will understand the Quantity Structure,
Valuation, Costing Dates etc.
o
o

o
o

Standard cost of a material looks like in T-Code- CK13n (you can view this from costing-2 view
in material master too T-Code-MM03.)
I will try to walk through these 6 tabs below explaining basic configurations and data flows
from different configuration to Standard Cost estimate.

Screenshot-1
For our analysis purpose I have selected standard layout 1SAP02-Costing items (overview)
there are several layout available in standard SAP and user can define their own
too.

Screenshot-2

Screenshot-3
1-Costing DataIt contains data like Costing variant, Costing Version, Lot Size and Transfer Control. Lets talk about
Costing Messages and Costing status later on.

Screenshot -4

Costing variant-Configuration Costing Variant in T-code OKKN- (Will cover in more detailed
way in part 2.)
-Assign various Control parameters like Costing Type, Valuation variant, Date Control QTY structure
Control, Transfer Control etc.
-Maintain parameters different Tabs like Control, Qty Structure, Addictive Cost, Assignment and Misc.

Screenshot 5

Costing Version configuration using T CODE- OKYD

-Number that serves to differentiate between cost estimates for the same material.

Screenshot 6

Lot Size
- The costing lot size in the material master record is usually used as a basis for costing all materials, however one
can manually change the lot size during cost estimate.

Transfer Control-Configure in T-code OKKM usually used the standard.

Screenshot 7
- This controls how costing with quantity structure searches for existing cost estimates when existing
costing data are transferred to another cost estimate. In this example we assigned PC02 in TCODE
OKKN.
2-Costing Dates-we will learn more about date control in Costing variant

Screenshot 8
-Costing Date from -Date from which the cost estimate is valid.
-Costing Date to- This date determines the date up to which the cost estimate is valid
-Qty Structure Date-Date with which the quantity structure is selected for the cost estimate with
quantity structure.
-Valuation Date-Date on which the materials and activities in a cost estimate are valuated.
3-Qty Structure-It contains BOM and Routing data. ( Usually PP functionality)

Screenshot 9

Bill Of Material (BOM)- T CODE- SET up CS01 , To view T-code -CS03

Screenshot 10
If you go back and refer my screenshot 3 the detailed cost (M) comes from this settings.
Note- we will have to do cost component settings too will cover the point in net part.
o

Routings- Create Routings T-Cod-CA01 ( PP functionality) to view CA03

- A routing shows operations in a sequence. This form the basis for
Lead time scheduling. Product costing, capacity planning, Refer screenshot 3 Cost Internal
Activity (E) comes from this settings. We will understand more detail in my next part about
assigning work center, activity and activity planning.

Screenshot 11

4- Valuation- It contains the currency, Costing sheet and Overhead key.

T CODE-KZS2-Creating and maintaining Costing Sheet,
T CODE-KOOK-Defining and changing Overhead key

Screenshot 12

o
o

if you refer to screenshot 3 Overhead cost (G) flows from this settings from costing sheet and overhead
key.
Costing Sheet-It controls the calculation of Overhead basically we use one costing sheet for
each object for which system is to determine overhead costs. ( will see more detail in my next part)
The Overhead Key-The overhead key is used to determine order-specific or material-related
overhead rates. The overhead amounts depend on the plant and the overhead key. The overhead
depends primarily on the overhead key. If an overhead key is not maintained for the material or the
order, overhead is to be determined in relation to the plant.
After defining a costing sheet that points to two condition tables. In the first table, the
overhead amount depends on the overhead key. In the second table, the overhead amount
depends on the plant. An access sequence determines which conditions have priority.
5- HISTORY- It contains the user and costing run date data.

Screenshot 13
Cost By/Marked By/released By- The user names who performed respective costing run task.
Some large companies have different person to mark the cost and different person to release the cost
as it rectifies the human errors if any. But in my experience i have seen mostly it is performed by the
same person.
Costing run - usually this data updated when we use T-code CK40n to do standard costing in case of
individual material costing using CK11n this field will not populate. So we can always go and check
that costing run data to verify the settings at that point of time.

6-Costs-Baiscally it is summarization and cost component view

TCODE-OKTZ setting up cost component Structure (we will see in detail in part 2 of this document)

If you refer back screenshot 8 breaking out cost like overhead, labor and material based on
these settings here.In Product Cost Controlling, the cost component structure determines how the
results of material costing are updated. The cost component structure groups the costs for each
material according to cost component (such as material costs, internal activities, external activities,
and overhead). If the material is used in the production of another material, the cost component split
(which breaks down the costs according to material costs, internal activities, external activities,
overhead, and so forth) remains in the system when the costs are rolled up

Screenshot 14
Error Log- Identifies the messages if costed with error or without error.

Basics of SAP Standard Cost

estimate- understanding
costing variant-Part 2
created by Hrusikesh Dalai on Nov 19, 2013 7:43 PM, last modified by
Sep 30, 2014 8:02 PM

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This document is in continuation of my first document Basics of SAP Standard Cost estimateUnderstanding the flow of cost settings-Part 1 http://scn.sap.com/docs/DOC-48908. This is basic and
structural way of documenting the steps involved in defining Costing Variant.
This document explains the costing Variant configuration and components assigned to costing variant
like Valuation variant, Qty structure Control, Transfer Control and Assignments. originally i thought of
writing only 2 parts to complete it but it seems it will need few more parts to complete.This document
is intended to explain the cost flows to a standard cost estimate. Explaining various settings in
background as previous part.

Costing Variant
T CODE OKKN- Define Costing variant and name it. For analysis purpose we are taking PPC1.

Screenshot 1
Then double click on PPC1 and configure other parameters.

Screenshot 2
Now let's understand each of these parameters and its assignment..
Control
1-Costing type- The costing type enables you to specify the purpose of a cost estimate.
Click on create Costing type n existing or create a new one, or define it using T-code OKKI
In Save parameter tab selec Start with Period ( Most commonly used),

Screenshot 3
In Price Update tab select Standard price. The reason we select standard price because we want to
calculate standard cost.

Screenshot 4
2-Valuation variant- T CODE OKK4
This is most important part of configuration, We will understand the importance of Different tabs.
For Material valuation,Internal Activity,Sub-Contracting, Overhead and Misc.

Screenshot 5
If you want to use different valuation strategies or different overhead rates in plants that belong to the
same company code, you can define plant-specific valuation variants by assigning a valuation variant
to a plant. Choose the push button Valuation variant/plant. If you don't do this, the valuation variants
apply to all your plants.

Here I have created a Valuation variant in a plant then most important part comes is Material valuation
Here we define how do we wanted our Material to be valuated Strategy Sequence. The one above used
is most commonly used however it can be modified according to Business requirement.
For material valuation, you can choose up to five (5) strategies for each valuation variant.
-Planned price-According Planned price in Costing 2 tab of Material master (MM03 view)
During cost run or standard costing if this has maintained the system will consider this value first.
-In case the system did not find price in priority 1 , It goes to priority 2 Valuation Price accordingly to
Price control in Material master, Costing 2 tab (MM03 view)
-L Price from Purchasing Info Record-This one used in case of outside buy or sub contract materials.
And for this we also maintain a sub sequence that too in Sequence wise.
Explore more options in TCODE OKK4 and understand each options and its usage.
Internal Activity Here you define the sequence in which the system searches for prices in activity
type planning or actual activity price calculation in Cost Center Accounting or Activity-Based Costing to
valuate the utilized activity types and business processes. You also specify which plan/actual version is
used.

Screenshot 6
For activity types/processes, you can choose up to three (3) activity prices for each valuation variant.
In the above example I have selected 1 planned price for the period option as per planning data in
Cost center planning/ activity planning (TCODE-KP26/KP06 We will see more in next document Part 3)
Subcontracting Here you define the sequence in which the system searches for prices in the
purchasing info record. In purchasing, the quota arrangements are used to create a mixed price for
materials that are manufactured with external vendors with parts provided by the customer. You can
specify whether the quota of the individual vendors that are entered in the list for the material to be
processed should be determined through the planned quota arrangement or the actual quota
arrangement.
For subcontracting, you can choose up to three (3) strategies for each valuation variant

Screenshot 7
I have selected 3 Net Quotation price from Info record where as there is 8 other options out there
which you can select according to your business need. Quotation in Purchasing i have selected Actual
Quota Arrangement you have an option of Planning Quota Arrangement as well to select as per
business need.
External Processing-Here you define the sequence in which the system searches for prices in the
purchasing info record or routing operation for valuation of the external activities

Screenshot 8
I have selected Net purchase order price here however for external processing, you can choose up to
three (3) strategies for each valuation variant. Based on Business requirement you can select priorities
amongst 9 Strategies available in standard SAP.
Overhead Costs
You can link the valuation variant for definition of overhead to a costing sheet. You can also enter a
costing sheet for the allocation of overhead to raw materials, if you want to use specific overhead
conditions for raw materials.
If you want to differentiate overhead application according to material groups, you must have defined
overhead groups (T CODE OKZ2) and made the necessary settings for the costing sheet in the step

Define costing sheet (T CODE KZA1- I will explain that in My Next Document). Here in the example I
liked a Costing sheet for our analysis purpose.
You can also specify whether overhead is calculated for subcontracted materials in material costing.
Miscellaneous-Price Factors

Screenshot 9
If you want to use the valuation variant for inventory costing, you can link it with price factors.
Specify whether the factors of the relevancy to costing indicator should be valid for all valuation
variants or only for particular valuation variants.
If you enter three plus signs (+++) as the valuation variant, the factors are valid for all valuation
variants that do not have specific entries. I have selected this option for our analysis purpose
If you specify a particular valuation variant, the system uses the associated relevancy to costing
indicator and the associated factors. Enter a relevancy to costing indicator for each line. Enter a factor
for the fixed costs and a factor for the variable costs.
3-Date Control
Key that controls the dates for material cost estimates.
For example you can use date control to define the day for selecting the quantity structure when
costing with a quantity structure

Screenshot 10

When you checked manual entry that means during cost estimate you can manually change the date
according to your requirement.
4-Qty Structure ControlYou can use the quantity structure control to specify how the system selects a bill of material and a
routing for the material to be costed.
You define the quantity structure control in Customizing for Product Cost Planning. The quantity
structure control can apply to either a specific plant or to all plants. You enter the quantity structure
control in the costing variant. When the cost estimate is created, the system selects the quantity
structure control ID through the costing variant.
When you create a cost estimate for a material, you always use a costing variant. This variant is the
link between the cost estimate and the quantity structure control.

Screenshot 11
I have selected BOM application PC01 and selection ID 05 (TCODE OS30 define BOM Application, A PP
Functionality)

Screenshot 12
The BOM application controls the following:
The order of priority of the BOM usages (selection ID), When a BOM is required to embrace various
enterprise areas (in other words, it has several BOM usages), you can determine which usage will be
selected by the system first by using a selection ID.
The priority of an alternative BOM for a specific multiple BOM, You can control which alternative BOM
the system selects as of a certain date for a specific material, taking into account the plant and the
BOM usage. You can use the application to determine whether the system takes this specification into
account or ignores it.
Whether the system includes only those BOMs with a status containing particular status indicators
An alternative BOM is only exploded if the BOM status contains the indicator required in the
application.
You can check the BOM application and the parameters that are linked to it in Customizing for Product
Cost Planning.
I have selected Routing 01 ( TCODE OPEB can be used to define automatic selection, A PP functionality)

Screenshot 13
The routing selection ID determines how the system selects a routing. You can define several priorities.
You assign selection criteria (task list type, task list usage, and task list status) to each of these
priorities.

The routing that corresponds to the selection criteria with the highest selection priority is selected. If,
however, no alternative routing can be found, the system continues searching using the selection
criteria of the next selection priority.
When determining the BOM and routing, the system also checks, Whether the BOM and the routing are
valid on the quantity structure date (refer date Control screenshot 10). Whether the lot size in the BOM
and in the routing are the same as the costing lot size.
4-Transfer ControlIn this step you define parameters for partial costing. You use partial costing to prevent the system
from creating a new cost estimate for a material when costing data already exist. Instead, the existing
costing data is simply transferred into the new cost estimate. This improves performance.

Screenshot 14
Single-Plant Transfer -If cost estimates for certain materials already exist in the individual levels of the
BOM, they are not recosted. Rather, the existing costing data is transferred into the cost estimate in
accordance with the transfer control.
If you always want to recost, choose the transfer control No transfer.
Cross-Plant Transfer-The special procurement types are used for material cost estimates:
Transfer from other plant, Withdrawal in other plant, Production in other plant
Strategy Sequences for Single-Plant and Cross-Plant Transfer-You can define up to three strategies for
single-plant transfer and three strategies for cross-plant transfer. The strategy sequence determines
the order in which the system searches for costing data. If the system cannot select a cost estimate
even after reaching the end of the strategy sequence, it explodes the BOM of the material and creates
a new cost estimate.

Qty Struct.Pass on Lot Size- Controls whether the system determines the costing lot size using the lot size of the highest
material in the BOM and the input quantities of the components.
1) Do not pass on lot size
If this indicator is not selected, the materials further down in the structure are costed in accordance
with the lot size in the costing view of the material master record. When the materials in the nexthighest costing level are costed, the costing results of the semifinished materials are converted to the
lot size of the finished material to calculate the material costs for the finished product.
2) Pass on lot size only with individual requirement
In the MRP view of the material master record, you can specify that a material is planned as an
individual requirement. If such a material is added to another material, costing uses the lot size of the
highest material.

3) Always pass on lot size

Here, the costs for all the materials in a multi-level BOM are calculated using the costing lot size of the
highest material. This function is used principally in sales order costing.

Screenshot 15
Ignore Product Cost Estimate without Quantity StructureDetermines whether a cost estimate with quantity structure can access data that was produced by a
cost estimate without quantity structure
You set this indicator if you do not want to work with a cost estimate without quantity structure.
If this indicator is set, the system will ignore data produced by a cost estimate without quantity
structure when selecting the BOM as well as when costing. Instead, the system will attempt to
calculate the costs of manufacturing the material using an existing BOM or an existing operation.
In the costing view of the material master record, you can use the With quantity structure indicator to
specify that the material should be costed either with or without a quantity structure. If the Ignore cost
estimate w/o qty structure indicator in the costing variant is set, the system will ignore the entry in the
material master record.

Addictive Cost
You use additive costing to add costs manually to a material cost estimate when they cannot be
calculated by the system. Examples of such costs are freight charges, insurance costs, stock transfer
costs, incomplete or changed BOMs, and routings.
As a rule, costing calculates the costs of a material on the basis of the quantity structure. This type of
cost estimate is performed automatically by the system. However, you can also manually enter
estimated values for costs that cannot be calculated by the system. This allows you to add costs to a
cost estimate that was calculated automatically.

Screenshot 16

When you cost materials, the system determines the BOM for the material, and selects a price for the
valuation of the material components through the valuation variant. If you set the Incl. additive
costs indicator in the valuation variant, the system looks for any existing additive cost estimates for the
material. The system adds the costs entered manually to the costs calculated by the system. The costs in
the automatic cost estimate and the additive cost estimate are added together for each cost component.

1.

1.

Update

Screenshot 17
Update Allowed- Indicator that determines whether a cost estimate can be saved.
Dependencies
Since the cost estimate must be saved if the costing results are to be used further, you must set this
indicator.
Examples of further use of the costing results
Update in the price fields of the material master:
As the standard price: the results of the standard cost estimate
As the tax or commercial law price: the results of the inventory cost estimate
As special planned prices 1,2,3: the results of all cost estimates
Use of the costing results in Cost Object Controlling for:
Variance calculation
WIP calculation
Results analysis
Assignments-We will know more about Cost Component Structure in my next part, I have
already explained in my first part about costing version.

Screenshot 18
Cost component Structure Specifies which costs are contained in the cost component split. You can use
the cost component structure to specify that certain costs
Remain visible in the cost estimate are passed on to Profitability Analysis.

MISC.-Parameters for Error Management

Controls how messages (information messages, warning messages, and error messages) are collected
within an application.

Screenshot 19
Online Messages-The messages are issued individually from the status bar. The log function is inactive
in the cost estimate.
Messages logged and saved, mail inactive ,The messages are collected in a log, which can be saved.
The messages cannot be sent.
Messages logged and saved, mail active, The messages are collected in a log, which can be saved. The
messages can be sent to the person responsible for correcting the error.Messages logged, saving not
possible, mail inactive, The messages are collected in a log, which can be processed online, but not
saved.
Note
To be able to use a costing variant for the costing run, you must save the log.

Basics of Standard Costing Understanding the Cost

Component Structure-Part 3
created by Hrusikesh Dalai on Nov 25, 2013 7:15 PM, last modified by
Sep 30, 2014 8:02 PM

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This document is in continuation of my second document http://scn.sap.com/docs/DOC-49167 -Basics

of SAP Standard Cost estimate- understanding costing variant-Part 2 and 3rd in the series
This document explains the Cost Component Structure (CCS) and components assigned to CCS.
Explaining various settings in background as previous part.

Cost Component Structure (CCS)

The cost component structure determines how the results of material costing are updated. The cost
component structure groups the costs for each material according to cost component (such as material
costs, internal activities, external activities, and overhead). If the material is used in the production of
another material, the cost component split (which breaks down the costs according to material costs,
internal activities, external activities, overhead, and so forth) remains in the system when the costs are
rolled up.
In the cost component split, you also define the following for material costing:

Which part of the costs are fixed costs

Which costs are costs of goods manufactured and what are sales and administration costs

Which costs are relevant for stock valuation, commercial inventory valuation and tax inventory
valuation

When the cost component structure is assigned to the organizational units, you can specify
that two cost component splits are created:
Main cost component split
This is the principal cost component split, meaning that it is used in the standard cost estimate, which
can be used to update the material master. The main cost component split can be a cost component
split for cost of goods manufactured or a primary cost component split.
Auxiliary cost component split
this can exist in addition to the main cost component split, and is not used in the standard cost
estimate. It can be used for analysis purposes, in that it can be displayed with the cost estimate and
passed on to Profitability Analysis.
.
Step 1 - T Code OKTZ

Screenshot 1

I have created Z1 and Z2 CCS for our analysis purpose. You can use two cost comp structure for
reporting purpose and different reporting need.
Material cost estimates are created in the Product Cost Planning component. Sales order cost
estimates and order BOM cost estimates are created in Product Cost by Sales Order component. The
cost components separate the results of a cost estimate into raw materials, material overhead,
external activities, setup costs, machine costs, labor costs, production costs, and other costs.

Display the cost components in the cost estimate

T code ck13- view of Cost estimate Cost element and cost component like Mat, Labor, OH etc.

Screenshot 2
The above screen shows the distribution of cost as per the Cost component structure
T-code OKTZ
In Cost Center Accounting, the cost component structure determines how the results of the activity
price calculation are updated. The cost component structure groups the costs for each activity type of
the cost center according to cost components (such as material costs and labor costs). If an internal
activity allocation is carried out, the cost component split (which breaks down the costs according to
material, labor costs, and so forth) is retained at cost rollup.
If the cost component split is not to be retained, you can create a switching structure for the cost
component structure for Cost Center Accounting. In the switching structure, you specify which sender
cost component goes into which receiver cost component
See below

Screenshot 3
From screenshot 2 you will notice there is a Column called cost element. We get those from settings in
Cost component structure setting by assigning cost elements for respective cost component.

Screenshot 4
Different Settings in Cost component Structure in see below.
Control
Cost Share- which includes Variable, Fixed and variable Cost
Indicator for Roll up Cost Component
This indicator determines whether the costing results of a cost component are rolled up into the nexthighest costing level (cost roll up).

You can specify which cost components are rolled up into the next-highest costing level according to
the criteria specific to your organization.
Example
If the sales and administration costs and the cost of goods manufactured are to be costed
simultaneously in a costing level, you can proceed as follows:
You set this indicator for the cost components identified as the cost of goods manufactured. These costs are
rolled up into the next-highest costing level.
You do not set this indicator for the cost components identified as sales and administration costs. These
costs remain on the costing level on which they were originally calculated.

Screenshot 5
Also the filter criteria for itemization are important for example anything which we wanted for
statistically analysis purpose we can check not relevant for inventory valuation.Some examples below
shows based on the settings how the result will affect. Below screen you will see the cost element
separated by the Material, Labor and Overhead as we defined in CCS.
Cost estimate itemization view (T CODE-CK13n)

Screenshot 6
Target/Actual Comparison: Cumulative report (T CODE- KKO0), there is additional configuration
required in OKKN. You can build your own report using report painter too.The cost components we
defined in CCS will flow into these reports based on our section in Report painter.

Screenshot 7

In this document i tried to explain in a simple manner the use of cost component structure. This is a
basic and beginners understanding of cost component structure. In my Next series of documents i will
try explaining Costing Sheet,Activity Planning,and Summary of Standard Costing and its integration
with production Planning.

Basics of Standard Costing - Understanding overhead cost flow-Part 4

created by Hrusikesh Dalai on Dec 6, 2013 5:57 PM, last modified by
30, 2014 8:03 PM

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This is in continuous of my other document of understanding Standard Costing and its flows.
Basics of Standard Costing - Understanding the Cost Component Structure-Part 3
Overhead costs are costs which can only indirectly be attributed to the product, such as electricity or
general storage costs. We can allocate these overhead costs in various ways: Here I have discussed
about overhead calculation through costing sheet. This is a beginner's guide to understand the costing
Sheet.

Overhead application
In the conventional method, overhead is applied to the reference object as a percentage rate or a
quantity-based rate. The overhead is applied by means of costing sheets. The very purpose of using a
cost sheet is that we want to apply indirect costs to the final cost of the product or process. Costs that
cannot be assigned to the product cost collector directly can be allocated by determining the overhead
expenses and applying them to the cost collector. Overhead costing is the means by which we allocate
indirect costs to the appropriate objects.
The costing sheet links all the functions of overhead calculation. The direct costs to which overhead is
applied (calculation base),The conditions under which overhead is applied (dependency),Whether
overhead is allocated on a percentage basis or on a quantity basis, The amount of the overhead
percentage, or the amount of overhead for each unit of measure (overhead), The validity period for the
overhead, Which object (cost center, process, or order) is credited, and under which cost element in
the case of actual postings (credit key)

Define Costing Sheet- T CODE KZS2

Screenshot 1- AAAAA costing sheet has been created for Example

Costing Sheet has 3 important components within it.

-Base
-Overhead rate
-Credit

Defining Base- T CODE KZB2

The calculation base consists of a group of cost elements to which overhead is to be applied according to
the same conditions. This process involves assigning individual cost elements or cost element intervals
for each controlling area to a calculation base.
We can apply different overhead amounts to the fixed and variable portions of the same base cost
element. We can also make the amount of the overhead dependent on not only the direct costs, but also
on the material itself. We can define material-specific calculation bases by entering the origin groups in
the material master record and by specifying them in the calculation bases.

Screenshot 2 Example ZV01 base

The calculation base determines to which cost elements overhead is applied together.
For each controlling area, we assign individual cost elements or cost element intervals, or origins or
origin intervals, to the calculation bases.
For production overhead costs, we can differentiate between fixed and variable costs for the
calculation base. In this way, we can charge the fixed and variable portions of the activity price
differently for activity types.
For material overhead costs, we can differentiate the materials used. If we want to define different
material overhead costs for particular raw materials, we can define origin groups and define where
own calculation bases for particular origin groups. (Origin group need to be defined)

If we do not specify any origins for a cost element interval, the SAP System considers all the origins in the relevant
interval.

-Overhead rate here we can define Quantity or percent base overhead rate

Percent based Overhead rate T CODE KZZ2

Screenshot 3 Percent based overhead rate

Quantity based Overhead rate- T CODE KZM2

Screenshot 4 Quantity based overhead rate.

-Define Credit T CODE-KZE2

Cost allocation is part of the process of determining overhead rates. If this leads to an object being
debited with actual costs, another object in Cost Accounting must be credited at the same time. This
can be either a cost center, order or a business process. This type of posting is recorded under a
secondary cost element of cost element category 41 (overhead rates) in the SAP System.
When you define credits, you also specify which credit object is to be credited under which cost
element when overhead is to be applied to an object in the actual.
You can also define what percentage of the overhead is to be allocated as fixed costs.

Screenshot 5 Defining credit (Cost center being credited in the example)

Define Origin Groups T CODE OKZ1

Here you can create origin groups. These groups serve to subdivide the material costs further. For
controlling purposes, materials assigned to the same cost element by automatic account
determination can be separated into origin groups. You enter the origin group in the costing view of the
material master record. Account determination assigns each material to a G/L account and thus also to
a primary cost element.

Screenshot 6

Screenshot 7

If an origin group is entered in the costing view of the material master record, the combination of
origin group and cost element is updated in the Controlling module.

If the Material origin indicator in the costing view of the material master record is specified in addition
to the origin group, the costs are updated under the combination of material number and cost element
in the Controlling component.

You can do the following for each cost element and origin group:

Calculate overhead
If you have maintained origin groups for the raw materials, you can define a calculation base in the
costing sheet for each group of raw materials. This enables you to define different overhead
surcharges for each group of raw materials.

Screenshot 8

Make assignments to cost components

If you have maintained origin groups for the raw materials, you can create separate cost components
for important materials or groups of materials.

Screenshot 9

Calculate variances
Variances are calculated for each cost element. If you have maintained origin groups for the materials
used, the variances (such as input price variances and input quantity variances) will be calculated not
only for the relevant material cost element but also for each origin group assigned to that cost
element.

Calculate work in process or results analysis data

For each cost element, you can specify whether the work in process for those costs can be capitalized
in the balance sheet. If you have maintained origin groups for the materials used, you can specify this
separately for each origin group.

There is other way around to calculate and overhead cost which is not part of this explaination
Template allocation
Here, cost drivers are used to assign overhead to the reference object on a source-related basis
according to usage. The overhead is applied by means of templates. Sender objects can be business
processes or cost centers/activity types.
Integration of business processes into the routing
Assigning process costs to routing operations is particularly suitable for direct production processes.
On the other hand, indirect processes should be assigned using templates.

I will continue to edit this document for enhancing the quality of document.In my Next document i will
explain about Costing Run and different other aspect of material setting that affect costing.

Basics of variance
calculation-Understanding

Period End activities, WIP

and Variances
created by Hrusikesh Dalai on Apr 9, 2014 5:17 PM, last modified by
11, 2014 9:56 PM

Hrusikesh Dalai

on Nov

Version 1
inShare32

Hello friends,
This is my 6th document in costing and this one is intended to explain variance calculation and related
activities at period end.
I will walk you through the period end activities and variance calculation. In this document I have try to
limit myself period end activities in relation with WIP & Variance calculation. See below screenshot it is
a background job (SM36) scheduled to run period end activities. We calculate Actual Overhead (T-Code
CO43), Work in Process (KKAO), Variance calculation (KKS1) and Settlement (CO88). Along with this I
have also included CO summarization KKRC for various KKBC reports.

Figure 6.1- Background Job of period end activities

Let's understand each of the transactions and its usage in detail
Overhead
During a month actual primary cost such as wages, utility, are debited to cost center. Some of the
costs may be included in planned activity rate and allocated to products from cost centers during
activity confirmation. Overhead calculation offers most flexible way of allocating cost to different
products during period end overhead calculation. When you run the transaction code CO43 (CO42 for
individually) system will go to the cost sheet where the overhead key, calculation base and credit key
define. In overhead key the rates are define plan as well as actual (to view cost sheet transaction code
is KZS2) at the time of running the overhead system calculate the overhead amount and post the
same to respective production order. Please refer my scan document on the same overhead cost in
costing sheet http://scn.sap.com/docs/DOC-49880
WIP-Work in Process
Production costs associated with manufacturing orders are temporarily tracked on the profit and loss
financial statement. Work in Process represents production cost of incomplete assemblies at period
end. In order to balance sheet items accurately reflect company assets WIP costs are temporarily
moved to WIP Balance and profit and loss account. There are two types in WIP process valuation
-WIP at Target valued based on Cost Estimate (Mainly used in Product Cost By period)
-WIP at actual valued based on actual debits to a manufacturing orders. (Mainly used in Product Cost
by Order)
The advantage of WIP at target calculation is that variances and WIP can be posted at same time. If
production orders remain open for multiple periods variances reconciliation is easier using WIP at
target in Product Cost By period.
WIP is calculated each period until the status of an order status set to fully delivered or TECO, and then
the entire WIP is cancelled and variance is calculated in Product Cost BY order.

Variance Calculation
As we know it helps us to provide the difference between 0rder debits and credits.
Target cost are determined during variance calculation therefore few check points before we
calculate Variances in Product Cost By period.

There must be Goods receipt for FG for at least one of the manufacturing orders

There must be variance key in the product cost collector

Standard cost estimate should be valid the day of posting for product cost Collector

The material origin indicator should be selected for all cost related components

Variance configuration must be carried out (see below variance configuration)

The product Cost Collector must have settlement type (PER)

Variance calculation using (KKS1/KKS5)

To calculate variances in Product Cost by Order which the manufacturing order must meet the
following conditions

Settlement Type FUL (Full settlement type) in settlement rule

Status DLV (delivered) or technical Complete (TECO)

Note-You can use Settlement type PER ( Period ) in Product Cost By Order where companies
does not wanted to calculate WIP and each order should be settled in the period. In that
case you will have to manually set the order status to TECO in order to calculate variances.
This is not a SAP standard practice but some companies do this.
Total variance-This is the only variance which is relevant to settlements, the difference between debit
and credits are settled to financial accounting, PCA and COPA. Target cost version 0 is used to calculate
the total variance. Other variances like Production variances and Planning variances are for information
purpose only.
Settlement
Settlement is the last step in period end closing for product cost collector and Production orders.
Summarization
I have added one more step to get those KKBC reports for different purpose you can configure the
same in KKR0
Now lets see some basic configuration required for variance calculation SAP
Variance Configuration
Step-1 OKV1

By checking scrap indicator the value of scrap is calculated during variance calculation and deducted
from total variance.
Step-2 OKVW

When a material Master is created a default variance key is proposed for the costing 1
Step-3 T-code OKVG

If you don't select a particular category, the variances of that category will be added to the category of
remaining variances. An exception is the scrap variances. Scrap variances that are not shown as such
can go into any other variance category on the input side selection in this screen as we already
defined it in Variance Key.
Step-4
Defining Valuation variant for Scrap and WIP (Only Product cost By Period) - Configure it in
IMG node

At period end Target cost are temporarily moved from Product cost collector to WIP Account. Variance
is also calculated and posted at the same time.
Note-In Product cost by Order this does not apply as WIP and Scrap is valuated at actual.
Step-5-T-code OKV6

Define Target Cost version

Target cost are based on current standard cost estimate which is actual credits and control cost which
is actual cost is actual debits. Valuation variant is to control which cost estimate is used to valuate
scrap. You can use different target versions for different variance like production variance and planning
variances with other parameters.

This is a basic document for Variance calculation and various steps involved with it. This is
intended for beginners who is starting to learn about Controlling. Please refer my previous
documents posted in SCN for fair idea about costing Basic of costing.