Product Costing Analyze The Financial en PDF

Product Costing: Analyze the Financial
Entries in Make-to-Stock
Birgit Starmanns
SAP Marketing
Agenda
Financial Excellence with SAP Solutions

The End-to-End Process
•  Plan to Manufacture: The Process
Introduction to the Example
Value Flow
•  Product Costs in Period 1
•  Month-End Postings for Period 1
•  Postings in Period 2
Wrap-Up
©  2013 SAP AG. All rights reserved. 1

Financial Excellence with SAP Solutions
Introduction
Finance: Balancing Efficiency with Being a Strategic
Advisor to the Business
External Internal
Key CFO priorities
Ensure Regulatory
Outperform Financial Objectives Deliver Superior Service
Compliance and Effective
and Create Sustainable Value at Reduced Cost
Risk Management

SAP Solutions for Finance and How They Are Delivered
Ensure Regulatory
Outperform Financial Objectives Deliver Superior Service
Compliance and Effective
and Create Sustainable Value at Reduced Cost
Risk Management
Treasury and Financial Risk Invoice to Pay

Management
Receivables Management
Manage Enterprise Risk Manage Financial
Travel Management
and Compliance Performance
Real Estate Lifecycle Management
Accounting
and Financial Close Shared Services
SAP enterprise performance

management
(EPM) solutions
SAP governance, risk, and

compliance
(GRC) solutions
SAP ERP Financials

including Controlling modules
and Partner solutions
On premise On demand On device In memory

The Accounting and Financial Close End-to-End Process
Financial Entity Corporate Reporting and

Accounting Close Close Disclosure
Product Costing is part of General Ledger

the Financial Close Intercompany Reporting
Reconciliation and Analysis
•  On-going General Sub-Ledgers
Entity Close
Ledger entries (sales, Management
manufacturing, etc.)
Consolidation
affect product costing
Disclosure
•  Entity close includes Management
month-end product Notes
Management
costing and valuation
processes
Financial Internal Controls

Close
Master Data Governance for Financials
Governance

The End-to-End Process
Plan to Manufacture: The Process
Product Costing for Manufacturing Strategies
Make-to-Stock Make-to-Order Engineer-to-Order

Standard Products Multiple Product Variants Customer-Specific
No Product Variants Mass-Customization Design/Engineering
Product Costing
n  Integration of demand (sales) and supply (manufacturing)
n  Costing methods in sync with manufacturing strategy
n  Real-time update of costing throughout each manufacturing step
n  Updates to SAP General Ledger and controlling objects

Plan-to-Manufacture — The Process
Master Data (Bill of Material, Routing, Work Center)

Demand
Convert to Convert to
Creation Goods Goods Settlement/
Planned Production Confirmation
and Issues Receipts Costing Run
Order Order
Planning
Role of Controlling (CO) in Plan-to-Manufacture Process:

n  Sets standard costs for all products to be manufactured (product cost estimate)
n  Values inventory of unfinished and finished goods, including work-in-process
n  Includes activity costs in inventory values via confirmation step
n  Sets standard activity rates
n  Calculates scrap and variances at period close
n  Assigns production variances to inventory and cost of goods sold at period close
(actual costs)
n  Calculates true actual costs at period close

Plan-to-Manufacture — Requirements Planning
Demand Goods Settlement/

Convert to Convert to Goods
Creation and Confirmation Receipts Costing Run
Planned Production Issues
Planning
Order Order
Engineer-to- MRP run for project

Order
Make-to- MRP run for sales order item
Order
Make-to- MRP run for material
Stock

Plan-to-Manufacture — Cost Objects During Execution

Planning
Order Order
Engineer-to- Multilevel dependent requirements. Production orders settle to

Order project stock.
Make-to- Multilevel dependent requirements. Production orders settle to
Order sales order stock.
Make-to- Single-level requirement with settlement to stock
Stock

Plan-to-Manufacture — Cost Estimates
Demand Convert to Convert to Goods

Creation and Production Goods Settlement/
Planned Confirmation Receipts
Planning Order Issues Costing Run
Order
Engineer-to- Top-down planning of project budget, and bottom-up planning of

operative tasks. Reserves for imminent loss posted to FI if planned
Order costs are greater than planned revenues (results analysis).
Make-to- Create cost estimate based on configuration in sales order. Cost
estimate can be used as basis for pricing in SD. Cost estimate for
Order production order created automatically.
Make-to- Standard costs based on standard cost estimate for material. Cost
estimate for production order created automatically. Planning
Stock variances can be calculated by comparing the two cost estimates.
•  Cost estimate for Production Order before

release to Production

Plan-to-Manufacture — Goods Issue
Demand Convert to Convert to

Goods Goods Settlement/
Creation and Planned Production Confirmation
Issues Receipts Costing Run
Planning Order Order
Engineer-to- Goods issued to production order. Multilevel reporting of project and

Order dependent orders. Work-in-Process calculated at period close.
Make-to- Goods issued to production order. Multilevel reporting of sales order

and dependent orders. Work-in-Process calculated at period close.
Order
Make-to- Goods issued to production order, and reporting by production
order. Work-in-Process calculated at period close.
Stock
•  Work-in-Process by
Production Order

Plan-to-Manufacture — Confirmation
Demand Convert to Convert to Goods

Goods Settlement/
Creation and Planned Production Confirmation Receipts
Issues Costing Run
Output quantities, scrap quantities, and rework quantities recorded in

Engineer-to- Production
Order Operation is linked to a work center – Work center is linked to a cost center
Make-to- Activities performed by work center are planned as activity types
Order Activity price is per cost center/activity type determined in Cost Center
Accounting
Make-to- Production quantities are valued with activity price
Stock Production order is debited (value added in production), and cost center is
credited
•  Cost Center
reporting
•  Production
Order reporting
Plan-to-Manufacture — Goods Receipts

Planning
Order Order
Engineer-to- Deliver to project stock. Stock values are updated based on the
Order production order cost estimates.
Make-to- Deliver to sales order stock. Stock value based on sales order cost
Order estimate, production order cost estimate, standard cost estimate
(manual), or user exit.
Make-to- Deliver to material stock. Stock value based on standard cost
Stock estimate. Status “final delivery” required for variance analysis.
•  Calculation of target costs

based on delivered quantity
(goods receipt)

Plan-to-Manufacture — Settlement
Demand Convert to Convert to Goods Settlement/

Goods Confirmation
Creation and Planned Production Receipts Costing Run
Issues
Engineer-to- Revenue recognition based on results analysis. Reserves for imminent

Order loss and unrealized costs cancelled. Reserves for warranty costs
remain.
Work-in-process cancelled. Value of scrap determined. Value of
Make-to-Order variances calculated, assigned to categories (price, variance, resource
usage, etc.), and settled to CO-PA.
Work-in-process cancelled. Value of scrap determined. Value of

Make-to-Stock variances calculated, assigned to categories (price, variance, resource
usage, etc.) and settled to CO-PA.
•  Variances
and Scrap

Plan-to-Manufacture — Costing Run
Demand Convert to Convert to Goods Settlement/

Goods Confirmation
Creation and Planned Production Receipts Costing Run
Issues
Determine price differences for each raw material (via purchasing) and
Costing Run each manufactured product, and assign differences to inventory and
cost of goods sold
Alternative Perform alternative valuations to take account of balance sheet valuation

methods, such as FIFO, LIFO, lowest value, etc., and of alternative
Valuation Run activity rates or to smooth out periodic price differences
•  Material price
analysis
via material ledger
•  Costing run for

revaluation of
inventory
Summary: Controlling Objects in Product Costing
MTS MTS MTS MTO ETO

(Discrete) (Repetitive) (Process) (Valuated) (Valuated)
Characterized Standard product, Standard Standard Product with Product engineered

by production by product, product/co- selectable options for customer needs
period continuous product, batch by the customer
production production
Standard cost Standard BOM and Standard BOM Standard BOM Use of variant Use of project for
routing and routing and routing configuration budget and operations
Cost object Production order Product cost Process order Production order Project (WBS
collector and cost created by sales elements, networks)
object hierarchy order item created by sales order
item
Work in Debits (resources) Backflushing Debits Debits (resources) Results analysis
process (WIP) minus credits (debits and (resources) minus credits calculation (methods
(finished goods), credits posted minus credits (finished goods), include percent
balance is WIP simultaneously), (finished goods), balance is WIP complete, earned
no WIP balance balance is WIP value)
Finished Unrestricted Unrestricted Unrestricted Sales order stock To project stock for a
goods inventory inventory inventory for a customer customer
received into

Introduction to the Example
Make-to-Stock Manufacturing Example
Music Player — No Configuration Options
Music
Player
Components Tasks Overhead
In the Bill of Material In the Routing Rates
Back Panel Setup Hours Material OH

$25 1h @ $20 25%
Front Panel Labor Hours Labor OH

$25 3h @ $20 25%
Internal Drive Machine Hours Machine OH

$70 4h @ $25 75%
Admin OH
25%
Total Standard Cost: $500

©  2013 SAP AG. All rights reserved.
Total Material Cost: $120 Total Activity Cost: $180 Total Overhead Cost: $200
19
Make-to-Stock
Sample Scenario
Make-to-stock scenario
One production order
Four overhead cost
centers
Assumes standard cost in
place for product
What is covered?
Financials postings of each
manufacturing step
FI postings
  Balance sheet
  P&L
CO postings
  Cost elements
  Controlling objects
Steps in the Manufacturing Process with the Associated
Financial Postings
Period postings
Posting to cost centers
Raw materials issued from inventory to the production order
Activities allocated from the production cost center to the production order
Finished goods are received into inventory from the production order
Month-end postings
Apply overhead from the manufacturing cost center to the production order
Calculate work-in-process for the production order
Post cost center variances
Calculate production order variances
Run settlement to post WIP and variances of the production order to the G/L
General Ledger Accounts (FI)

Balance Sheet/Profit and Loss Statement
Secondary Cost Elements
Tracking Transfers Between Controlling (CO) Objects
Controlling Objects (CO)
Cost Centers/Production Orders for Make-to-Stock
Organization of the Sample Scenario in This Session
B/S
P&L
(Primary
Cost Elements)
Controlling Objects (CO) Secondary Cost Elements (CO)

Value Flow
Product Costs in Period 1
Steps in the Manufacturing Process — Period Postings
A.  Posting to cost centers

1.  Posting costs to service/administrative cost centers
2.  Allocating from service/administrative cost centers to production overhead cost centers
3.  Posting of costs to the production cost center
B.  Raw materials issued from inventory to the production order
C.  Activities allocated from the production cost center to the production order
1.  Setup labor hours
2.  Labor hours
3.  Machine hours
E.  Finished goods are received into inventory from the production order (Period 2
only)
A-1: Posting Costs to Service/Administrative Cost Centers

A-1
B/S
Direct
postings A/P
90100
Cost Center 211000
A-1 800
P&L (Primary Cost Elements)
Salary Exp
610000
A-1 800
Utilities CCtr
90100
A-1 800

A-2: Allocating Costs to Production Overhead Cost
Centers
B/S
30270
30260
A-2
90100 30250
Cost Center Overhead
Allocations
from
P&L
cost centers (Primary
Cost Elements)
Utilities CCtr
90100
A-2 800
Utilities
Assessment
Mat'l OH Mach OH Labor OH Mfg Admin 810000
CCtr CCtr CCtr OH CCtr A-2 800
30250 30260 30270 30280
A-2 800
A-2 200 A-2 200 A-2 200 A-2 200
A-3: Posting of Costs to the Production Cost Center
B/S
A-3
A/P
Direct 211000
postings 30100
Production A-3 1000
Cost Center
Salary Exp
610000
A-3 1000
Production
CCtr
30100
A-3 1000

B: Raw Materials Issued from Inventory to the Production
Order

B/S
Raw Materials Issue Raw Mat'l Inv.
Inventory Raw Material 131000
B to Order B 120
Production
Order P&L (Primary Cost Elements)
Raw Mat'l Consum
510000
B 120
Production
Order
xxxxxxxxx
Raw
B 120 Material

C-1: Activities Allocated from Production Cost Center to
Production Order (Setup Labor Hours)
30100
Production
Cost Center B/S
C-1
Activity
(Setup)
confirmation
P&L
Production (Primary
Order Cost Elements)
Production Production Setup

CCtr Order Hours
30100 xxxxxxxxx 802000
Setup C-1 20
C-1 20 C-1 20 hours C-1 20

Production Order (Labor Hours)
30100
Production
Cost Center
B/S
C-2
Activity
(Labor)
confirmation
P&L
Production (Primary
Production Production Labor

CCtr Order Hours
Labor C-2 40
C-2 40 C-2 40 hours C-2 40

Production Order (Machine Hours)
30100
Production
Cost Center
B/S
C-3
Activity
(Machine)
confirmation
P&L
Production (Primary
Machine
Production Production Hours
CCtr Order 800000
30100 xxxxxxxxx C-3 60
C-3 60 C-3 60 Machine hours C-3 60

Period 1 Postings Prior to Month-End
(Process Steps)
A-1 30280
30270
Direct 30260
Postings A-2
90100 30250
Cost Center Allocations Overhead
from
Cost Centers
A-3
Direct
postings 30100
Production
Cost Center
C-1 C-2 C-3

Activity Activity Activity
(Setup) (Labor) (Machine)
Raw Materials Issue confirmation confirmation confirmation
Inventory raw material
B to order
Production Order

Value Flow
Month-End Postings for Period 1
Steps in the Manufacturing Process —  
Month-End Postings
F.  Apply overhead from the manufacturing cost center to the production order
1.  Apply material overhead
2.  Apply machine overhead
3.  Apply labor overhead
4.  Apply administrative overhead
G.  Calculate work-in-process for the production order
1.  Calculate WIP for open production order (Period 1 – posted at settlement)
2.  Cancel WIP for confirmed production order (Period 2 – posted at settlement)
S.  Post cost center variances (manual clearing)
T.  Calculate production order variances for confirmed production order (posted at
settlement)
Run settlement of production
Generalorder (posts
Ledger WIP, variances)
Accounts (FI)
F-1: Apply Overhead from Manufacturing Cost Center to
Production Order (Material OH)
30250
Overhead
B/S
Material
F-1
OH Allocation
P&L
(Primary
Production Cost Elements)
Order
Mat'l OH Production
Material
CCtr Order
OH
30250 xxxxxxxxx
840000
Material
F-1 30
F-1 30 F-1 30 OH
F-1 30

Production Order (Machine OH)
30260
Overhead
B/S
Machine
F-2
OH Allocation
P&L
(Primary
Production
Order
Cost Elements)
Mach Production Machine

OH CCtr Order OH
Machine F-2 45
F-2 45 F-2 45 OH
F-2 45

Production Order (Labor OH)
30270
Overhead
B/S
Labor
F-3
OH Allocation
P&L
(Primary
Production
Labor Production Labor

OH CCtr Order OH
F-3 15 Labor OH F-3 15
F-3 15 F-3 15

Production Order (Admin OH)
30280
Overhead
B/S
Admin
F-4 OH Allocation
P&L
(Primary
Production
Production Admin
Mfg Admin
Order OH
OH CCtr
xxxxxxxxx 843000
30280
Admin F-4 60
F-4 60 F-4 60 OH F-4 60

G: Calculate WIP for Open Production Order
Secondary Cost Elements (CO)

Production Order Results Analysis
RA - Valuated RA - Calculated
820000 821000
Calculate G-1 390 G-1
WIP
G-1
RA - Material RA - Machine
Work-in-Process
822000 823000
G-1 120 G-1 60
RA - Labor RA - Setup
824000 825000
Controlling Objects (CO) G-1 40 G-1 20
Production Order
xxxxxxxxx RA - OH RA - OH
B 120 Raw material Material Machine
C-1 20 Setup hours 826000 827000
C-2 40 Labor hours G-1 30 G-1 45
C-3 60 Machine hours
F-1 30 Material OH RA - OH RA - OH
F-2 45 Machine OH Labor Admin
828000 829000
F-3 15 Labor OH
G-1 15 G-1 60
F-4 60 Admin OH
Run Settlement of Production Order
(Posts Work-in-Process)
Production Order
B/S
WIP Inventory
138000
Calculate G1 390
WIP
G-1 P&L (Not Cost Elements)
Work-in-Process WIP Offset
511000
G1 390

Production Order
xxxxxxxxx
B 120 Raw material
C-1 20 Setup hours
C-2 40 Labor hours
F-1 30 Material OH
F-2 45 Machine OH
F-3 15 Labor OH
F-4SAP AG. All rights reserved.
©  2013 60 Admin OH 40
S-1: Post Cost Center Variances — Material OH (Manual
Clearing)
P&L (Not Cost Elements)

Material CC variances OHCCtr Vars
30250 533000
Overhead S-1
S-1 170
OHCCtr Offset
519700
S-1 170
Mat'l OH CCtr
30250
S-1 170

S-2: Post Cost Center Variances — Machine OH (Manual
Clearing)

Machine CC variances OHCCtr Vars
30260 533000
Overhead S-1 S-2 155

OHCCtr Offset
519700
S-2 155
Mach OH CCtr
30260
S-2 155

S-3: Post Cost Center Variances — Labor OH
(Manual Clearing)

Labor CC variances OHCCtr Vars
30270 533000
Overhead S-1
S-3 185

OHCCtr Offset
519700
S-3 185
Labor OH CCtr
30270
S-3 185

S-4: Post Cost Center Variances — Admin OH
(Manual Clearing)

Admin CC variances OHCCtr Vars
30280 533000
Overhead S-1
S-4 140
OHCCtr Offset
519700
S-4 140
Mfg Admin OH
CCtr
30280
S-4 140

S-5: Post Cost Center Variances — Production
(Manual Clearing)

ProdCCtr Vars
S-5
30100 532000
Production S-5 880
Cost Center Cost Center
Variances
ProdCCtr Offset
519600
S-5 880
Production
CCtr
30100
S-5 880

Period 1 Postings After Month-End
(Process Steps)
30280
A-1
30270 Cost center variances S-4
30260 Cost center variances
S-3
A-2 Cost center variances
S-2
90100 Allocations 30250 Cost center variances
Cost Center Overhead S-1
Direct from
postings cost centers
A-3 Cost center
Direct variances
postings
30100 S-5
F-4 Admin OH allocation Production
F-3 Cost Center
Machine OH allocation
F-2 Labor OH allocation
C-1 C-2 C-3
F-1 Material OH allocation
Activity Activity Activity
(Setup) (Labor) (Machine)
Raw Materials confirmation confirmation confirmation
Inventory
B
Issue
Production Order
raw material
to order
Calculate
WIP
Work-in-Process
G-1

Period 1 Postings After Month-End (FI)

B/S
Raw Mat'l WIP
Inv. A/P Inventory
131000 211000 138000
Period 1 B 120 A-1 800 G1 390
A-3 1000
P&L
Raw Mat'l
Salary Exp Consum WIP Offset
610000 510000 511000*
Period 1 A-1 800 B 120 G1 390
A-3 1000
ProdCCtr ProdCCtr OHCCtr OHCCtr

Offset Vars Offset Vars
519600 532000* 519700 533000*
Period 1 S-5 880 S-5 880 S-1 170 S-1 170
S-2 155 S-2 155
S-3 185 S-3 185
S-4 140 S-4 140
* Not a cost element

Period 1 Postings After Month-End (CO)
Utilities Mach OH Labor OH Mfg Admin

CCtr Mat'l OH CCtr CCtr CCtr OH CCtr
90100 30250 30260 30270 30280
Period 1 A-1 800 A-2 200 A-2 200 A-2 200 A-2 200
A-2 800 F-1 30 F-2 45 F-3 15 F-4 60
S-1 170 S-2 155 S-3 185 S-4 140
Production
Production CCtr Order
30100 xxxxxxxxx
Period 1 A-3 1000 B 120 Raw material
C-1 20 C-1 20 Setup hours
C-2 40 C-2 40 Labor hours
C-3 60 C-3 60 Machine hours
S-5 880 F-1 30 Material OH
F-2 45 Machine OH
F-3 15 Labor OH
F-4 60 Admin OH

Value Flow
Postings for Period 2
Steps in the Manufacturing Process — Period Postings
(Period 2)
A.  Posting to cost centers
1.  Posting costs to service/administrative cost centers
2.  Allocating from service/administrative cost centers to production overhead cost centers
3.  Posting of costs to the production cost center
B.  Raw materials issued from inventory to the production order
C.  Activities allocated from the production cost center to the production order
1.  Setup labor hours
2.  Labor hours
3.  Machine hours
E.  Finished goods are received into inventory from the production order (Period 2
only)

E: Finished Goods Are Received into Inventory from the
Production Order
Production B/S
Order Fin Gds Inv.
Receive 134000
E
finished E 500
goods into
Finished Goods
inventory
Inventory P&L (Primary Cost Elements)
Mfg Output - Std
519000
E 500
Production
Order
xxxxxxxxx
E 500 Receive fin goods

Period 2 Postings Before Month-End (FI)
B/S
Raw Mat'l WIP
Inv. A/P Inventory
131000 211000 138000
Period 1 B 120 A-1 800 G1 390
A-3 1000
Period 2 B 50 A-1 800

A-3 1000
Salary Exp P&L Raw Mat'l Consum

610000 510000
Period 1 A-1 800 B 120
A-3 1000
Period 2 A-1 800 B 50

A-3 1000
ProdCCtr ProdCCtr OHCCtr OHCCtr

WIP Offset Offset Vars Offset Vars
511000* 519600 532000* 519700 533000*
Period 1 G1 390 S-5 880 S-5 880 S-1 170 S-1 170
S-2 155 S-2 155
S-3 185 S-3 185
S-4 140 S-4 140
* Not a cost element
Period 2 Postings Before Month-End (CO)
Mach OH Labor OH Mfg Admin
Utilities CCtr Mat'l OH CCtr CCtr CCtr OH CCtr
90100 30250 30260 30270 30280
Period 1 A-1 800 A-2 200 A-2 200 A-2 200 A-2 200
A-2 800 F-1 30 F-2 45 F-3 15 F-4 60
S-1 170 S-2 155 S-3 185 S-4 140
Period 2 A-1 800 A-2 200 A-2 200 A-2 200 A-2 200
A-2 800 F-1 12.5 F-2 45 F-3 15 F-4 42.5
Production CCtr Production Order

30100 xxxxxxxxx
F-2 45 Machine OH
F-3 15 Labor OH
F-4 60 Admin OH

E 500 Receive fin goods
F-1 12.5 Material OH
F-2 45 Machine OH
F-3 15 Labor OH
F-4 42.5 Admin OH
Steps in the Manufacturing Process —  
Month-End Postings (Period 2)
F.  Apply overhead from the manufacturing cost center to the production order
1.  Apply material overhead
2.  Apply machine overhead
3.  Apply labor overhead
4.  Apply administrative overhead
G.  Calculate work-in-process for the production order
1.  Calculate WIP for open production order (Period 1 – posted at settlement)
2.  Cancel WIP for confirmed production order (Period 2 – posted at settlement)
S.  Post cost center variances (manual clearing)
T.  Calculate production order variances for confirmed production order (posted at settlement)
Run settlement of production order (posts WIP, variances)

G: Cancel WIP for Open Production Order
Secondary Cost Elements (CO)

Production Order Results Analysis
RA - RA -
Valuated Calculated
820000 821000
Work in Cancel G-2 G-2 390 G-2
Process
WIP
RA - Material RA - Machine
822000 823000
G-2 120 G-2 60
Production Order RA - Labor RA - Setup
xxxxxxxxx 824000 825000
B 120 Raw material
C-1 20 Set-up hours
G-2 40 G-2 20
C-2 40 Labor hours
F-1 30 Material OH RA - OH RA - OH
F-2 45 Machine OH Material Machine
F-3 15 Labor OH 826000 827000
F-4 60 Admin OH
G-2 30 G-2 45
B 50 Raw material
C-2 60 Labor hours
C-3 60 Machine hours RA - OH RA - OH
E 500 Receive fin goods Labor Admin
F-2 45 Machine OH
828000 829000
F-3 15 Labor OH G-2 15 G-2 60
F-4 42.5
©  2013 SAP AG. All rights reserved. Admin OH 55
T: Calculate Production Order Variances for Confirmed
Production Order
Controlling Objects (CO) Calculation of Variances
Production Order
xxxxxxxxx
B 120 Raw material Variances: ProdOrd Costs vs. Std. Cost
C-1 20 Setup hours E Standard Cost T Prod. Ord. Variances
C-2 40 Labor hours
C-3 60 Machine hours Material 120 Qty - Matl 50
F-1 30 Material OH Setup 20 Qty - Setup 0
F-2 45 Machine OH Labor 60 Qty - Lab 20
F-3 15 Labor OH Machine 100 Qty - Mch 40
F-4 60 Admin OH OH Mat 30 25% Inpt - Matl 12.5
OH Mach 75 75% Inpt - Mch 15
B 50 Raw material OH Labor 20 25% Inpt - Lab 10
C-2 60 Labor hours OH Admin 75 25% Inpt - Adm 27.5
E 500 Receive fin goods Total Std 500 Total Vars 175
F-2 45 Machine OH
F-3 15 Labor OH
F-4 42.5 Admin OH

Run Settlement of Production Order
(Posts Work-in-Process and Variances)

WIP Inventory
B/S 138000
G2 390
T
Production
Order Manufacturing
variances
P&L (Primary Cost Elements/
WIP Offset
*Not Cost Elements) Production
Mfg. Output - Var Variance
511000* 519500 531000*
G2 390 T 175 T 175
Production
Order
xxxxxxxxx
T 175 Settle variances

Period 2 Postings After Month-End
(Process Steps)
30280
A-1
A-2 Cost center variances
S-2
90100 Allocations 30250 Cost center variances
Cost Center Overhead S-1
Direct from
postings cost centers
A-3
Direct
postings Cost center
30100 variances S-5
F-4 Admin OH allocation Production
F-3 Cost Center
Machine OH allocation
F-2 Labor OH allocation
C-1 C-2 C-3
Material OH allocation Activity
F-1
(Setup) Activity Activity
confirmation (Labor) (Machine)
Raw Materials confirmation confirmation
Inventory Issue
B raw material
to order T
Production Order Manufacturing
variances
E
Receive finished Calculate
goods into inventory WIP G-2
Finished Goods
Inventory G-1 Work-in-Process Cancel
WIP
Period 2 Postings After Month-End (FI)

Raw Mat'l Inv. Fin Gds Inv. A/P WIP Inventory
131000 134000 B/S 211000 138000
Period 1 B 120 A-1 800 G1 390
A-3 1000
Period 2 B 50 E 500 A-1 800 G2 390

A-3 1000
ProdCCtr
Salary Exp Offset P&L ProdCCtr
Vars
OHCCtr
Offset OHCCtr Vars
610000 519600 532000* 519700 533000*
Period 1 A-1 800 S-5 880 S-5 880 S-1 170 S-1 170
A-3 1000 S-2 155 S-2 155
S-3 185 S-3 185
S-4 140 S-4 140
Period 2 A-1 800 S-5 880 S-5 880 S-1 187.5 S-1 187.5
A-3 1000 S-2 155 S-2 155
S-3 185 S-3 185
S-4 157.5 S-4 157.5
Raw Mat'l Mfg Output - Mfg. Output Production

Consum Std - Var Variance WIP Offset
510000 519000 519500 531000* 511000*
Period 1 B 120 G1 390
Period 2 B 50 E 500 T 175 T 175 G2 390
©  2013 SAP AG. All rights reserved. * Not a cost element

59
Period 2 Postings After Month-End (CO)
Mach OH Labor OH Mfg Admin
Utilities CCtr Mat'l OH CCtr CCtr CCtr OH CCtr
90100 30250 30260 30270 30280
Period 1 A-1 800 A-2 200 A-2 200 A-2 200 A-2 200
A-2 800 F-1 30 F-2 45 F-3 15 F-4 60
S-1 170 S-2 155 S-3 185 S-4 140
Period 2 A-1 800 A-2 200 A-2 200 A-2 200 A-2 200
A-2 800 F-1 12.5 F-2 45 F-3 15 F-4 42.5
S-1 187.5 S-2 155 S-3 185 S-4 157.5
Production CCtr Production Order

30100 xxxxxxxxx
F-2 45 Machine OH
F-3 15 Labor OH
F-4 60 Admin OH

S-5 880 E 500 Receive fin goods
F-2 45 Machine OH
F-3 15 Labor OH
F-4 42.5 Admin OH
T 175 Settle variances
Wrap-Up
What Happens Next?
X: Finished Goods Are Delivered to Customer
Production Order B/S
Fin Gds Inv.
134000
X 500
Finished Goods
Inventory
*Not Cost Elements)
Sales Order Cost of Goods Sold
X 500000*
Deliver finished goods
X 500

Y: Customer Is Invoiced

Y A/R
B/S 121000
Y 750
SalesOrder
Sales Order Invoice
Customer
*Not Cost Elements)
Sales
Revenue Discounts
410000* 420000*
Y 800 Y 50

Summary — Benefits
Integrated process – Financial and controlling processes automatically follow with

logistics processes
Detailed analysis of production costs, WIP, and variances
Follows controlling concept of analyzing details in management accounting, not in
the G/L

Where to Find More Information: Books
R/3 Simplification Group, SAP Labs, Inc., Product Costing Scenarios Made Easy 3.x – 4.x (Dallas,
TX: Johnson Printing Service, 1999).
  Currently out of print, used copies sometimes occasionally available on Amazon.com
Janet Salmon, Controlling with SAP – Practical Guide (SAP PRESS, August 2011).
Birgit Starmanns, Elizabeth Milne, and James Fisher, Accelerated Financial Closing with SAP (SAP
PRESS, expected Summer 2013).

Where to Find More Information:
Web, Social Media
CFO and Finance Leader Center:

www.sapcfo.com
sap.com:
www.sap.com/financialexcellence
Subscribe to our monthly newsletter:

www.sap.com/finance-newsletter
You can also follow us on:

www.twitter.com/cfoknowledge
www.twitter.com/sapepm
www.facebook.com/sapfinancialmanagement http://cfoknowledge.wordpress.com/
www.facebook.com/sapepm
http://scn.sap.com/
www.youtube.com/playlist? community/epm
list=PL4474C3D66B0F41BF http://scn.sap.com/
community/erp/financials

7 Key Points to Take Home
Costing support for all manufacturing strategies (make-to-stock, make-to-order, assemble-to-

order, repetitive, process, engineer-to-order, etc.) provides flexibility for all types of
manufacturing requirements
Understanding the “big picture,” integrated view ensures an accurate reconciliation of

manufacturing costs with financial statements
Product costing is integrated into the SAP ERP environment, so postings that occur in logistics
(sales, manufacturing, etc.) are immediately reflected in accounting
Postings to the P&L, for primary cost elements, reflect actual expenses incurred in the
manufacturing process
Management accounting and postings to secondary cost elements allow companies to track
costs as they flow through various controlling objects in the manufacturing process
Month-end processes are in place to ensure compliance with financial reporting regulations,
while maintaining the management view of the manufacturing process
SAP continues to work on enhancements for inventory valuation to support changing legal
requirements and evolving corporate requirements
Thank you
Birgit Starmanns
Senior Director
SAP Marketing, Finance Solutions
SAP
3412 Hillview Avenue
Palo Alto, CA 94304
E birgit.starmanns@sap.com
© 2013 SAP AG. All rights reserved.
No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG.
The information contained herein may be changed without prior notice.
Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors.
National product specifications may vary.
These materials are provided by SAP AG and its affiliated companies ("SAP Group") for informational purposes only, without representation or
warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group
products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing
herein should be construed as constituting an additional warranty.
SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in
Germany and other countries.
Please see http://www.sap.com/corporate-en/legal/copyright/index.epx#trademark for additional trademark information and notices.

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Product Costing: Analyze the Financial

Financial Excellence with SAP Solutions

© 2013 SAP AG. All rights reserved. 1

Key CFO priorities

© 2013 SAP AG. All rights reserved. 3

Treasury and Financial Risk Invoice to Pay

SAP enterprise performance

SAP governance, risk, and

SAP ERP Financials

On premise On demand On device In memory

© 2013 SAP AG. All rights reserved. 4

Financial Entity Corporate Reporting and

Product Costing is part of General Ledger

Financial Internal Controls

© 2013 SAP AG. All rights reserved. 5

Make-to-Stock Make-to-Order Engineer-to-Order

© 2013 SAP AG. All rights reserved. 7

Master Data (Bill of Material, Routing, Work Center)

Role of Controlling (CO) in Plan-to-Manufacture Process:

© 2013 SAP AG. All rights reserved. 8

Master Data (Bill of Material, Routing, Work Center)

Demand Goods Settlement/

Engineer-to- MRP run for project

© 2013 SAP AG. All rights reserved. 9

Master Data (Bill of Material, Routing, Work Center)

Demand Goods Settlement/

Engineer-to- Multilevel dependent requirements. Production orders settle to

© 2013 SAP AG. All rights reserved. 10

Master Data (Bill of Material, Routing, Work Center)

Demand Convert to Convert to Goods

Engineer-to- Top-down planning of project budget, and bottom-up planning of

• Cost estimate for Production Order before

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Master Data (Bill of Material, Routing, Work Center)

Demand Convert to Convert to

Engineer-to- Goods issued to production order. Multilevel reporting of project and

Make-to- Goods issued to production order. Multilevel reporting of sales order

© 2013 SAP AG. All rights reserved. 12

Master Data (Bill of Material, Routing, Work Center)

Demand Convert to Convert to Goods

Output quantities, scrap quantities, and rework quantities recorded in

Master Data (Bill of Material, Routing, Work Center)

Demand Goods Settlement/

• Calculation of target costs

© 2013 SAP AG. All rights reserved. 14

Master Data (Bill of Material, Routing, Work Center)

Demand Convert to Convert to Goods Settlement/

Engineer-to- Revenue recognition based on results analysis. Reserves for imminent

Work-in-process cancelled. Value of scrap determined. Value of

© 2013 SAP AG. All rights reserved. 15

Master Data (Bill of Material, Routing, Work Center)

Demand Convert to Convert to Goods Settlement/

Alternative Perform alternative valuations to take account of balance sheet valuation

• Costing run for

MTS MTS MTS MTO ETO

Characterized Standard product, Standard Standard Product with Product engineered

© 2013 SAP AG. All rights reserved. 17

Back Panel Setup Hours Material OH

Front Panel Labor Hours Labor OH

Internal Drive Machine Hours Machine OH

Total Standard Cost: $500

General Ledger Accounts (FI)

General Ledger Accounts (FI)

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•  Cost estimate for Production Order before

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•  Calculation of target costs

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•  Costing run for

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A.  Posting to cost centers

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