07/18/11
1
Goals
•
To understand the SAP functionality of product costing along with the corresponding configuration settings. (This is part 1 of a series of multiple sessions planned)
•
To discuss real issues reported in production system, analyze the root cause of the issue and identify potential solution approaches
•
To identify potential areas of improvement to the design currently in place at ConAgra
2
Agenda for this Session
SAP functionality overview on Product Cost Planning:
Controlling Area and Version settings
Cost Component Structure overview
Master data for product costing (materials, BoM, Recipe etc.)
Costing variants / Valuation variant /Transfer Control concepts
Costing type, Costing version, Marking allowance
Costing sheets for overheads
Cost center planning and activity rates
Joint production, co-products, by-products
Costing of materials sourced from other plants
CAG Production issues on the above topic if any brought up
3
Product Cost Controlling Components
Product Cost Planning Cost Object Controlling
Actual Costing / Material Ledger
Information System
4
Product Cost Controlling Components Product Cost Planning Product Cost Planning refers to the creation of cost estimates for the production of goods or services. There is no reference to a production order i.e. the cost estimate is independent of any given production order
Cost Object Controlling In Cost Object Controlling, the costs incurred in the production of a product or service are collected on a cost object (such as a production order). Which cost object is used depends on your controlling requirements. It may be a sales order, a production order, a process order or a production cost collector. collector. Cost Object Controlling is used to calculate work in process, scrap costs and variances at period close.
Actual Costing Actual Costing is used to calculate actual product costs at period close. The result may be transferred to the material master as a weighted average price for the closed period. The quantity structure is derived dynamically using the materials movements in the R/3 system. The values connected with these movements are collected in the Material Ledger. Ledger.
5
Product Cost Controlling Components
6
Cost Component Structure • The buckets in which the product Costs will be stored in SAP. • This is an uniform structure throughout the ConAgra enterprise
across all Plants / Company Codes. • Each component can have a variable and a fixed component • Consumption cost elements are mapped to a cost component
Example: 510000 920001
Material Direct Labor
• Some buckets may not be relevant for some products or plants.
E.g. Labor cost is not relevant for purchased parts
7
CAG Cost Component Structure (T-Code OKTZ)
1
Raw materials.
2
Packaging.
3
Labor - Direct.
4
Direct Overhead.
5
Indirect Overhead.
6
External Processing.
7
Warehousing.
8
Inbound Frt - NFG
9
Outbound Frt -STO FG
8
Material Master fields relevant for Product Costing General: •
Material Type: Valuated or not • Base Unit of Measure. Cannot be changed without a lot of effort once there are transactions.
Accounting view: • Valuation Class (relevant to and account determination)
The valuation class controls the account determination. Here, the consumption account is determined, which also appears as the primary cost element in the itemization. 3000 Raw Materials 7900 CAG Finished 7920 Semi Finisheds
G.L A/c Inventory Consumption 116003 511230 116009 511210 116013 511220
A particular material will be of the same material type and valuation class across all CAG plants and company codes 9
Material Master fields relevant for Product Costing • • • •
Costing lot size (identify BoM, Recipe for Std Cost/Set-up cost) Price unit (to accommodate more than 2 decimals) Price Control (Standard/moving average) ML Active and Price determination Control
Costing view: To be able to cost a material, the Costing view must be maintained Cost relevancy, Bulk material With/without quantity structure Valuation category (split valuation) Origin Group: helps analysis by grouping materials into categories; cost estimates and production order costs can be sub-totalled by origin group. Examples: Meat, Pulp, Packing Materials, etc. • Co-Product, Fixed Price, Apportionment Structure • • • • •
10
Material Master fields relevant for Product Costing • Overhead group: Key that groups the materials for the same type of overhead application. Comapnies use it for warehousing burden
and freight overheads. • Profit Center: used for product line analysis • Planned Price, Commercial price, Tax price fields (how used) • Quantity Structure data (BoM, Routing, Production Version) MRP view: • Material status (readiness for costing, inventory movements) • Procurement type: F (purchased) or E (produced)
- Materials with indicator “F” can be produced but for standard cost purposes, only the purchase price is considered. - Materials with indicator “E” can be purchased but for standard cost purposes, only the BOM/Routing based rolled price is considered • Selection Method (MRP 4 view) .
11
Material Master fields relevant for Product Costing • Special procurement - to identify a material as a “subcontracted” material (value 30) - to identify a material as a “phantom” material (value 50) that will
have only a BOM and not a routing - to identify a material being procured from another CAG plant Example: parts in a distribution center will always carry a special procurement key pointing to the manufacturing plant (Costing view value overrides for the purpose of costing) • Planned Scrap related fields
12
Costing Variant / Valuation Variants Prod Cost Estimates – Standard Cost, Current and various simulations Product Cost Planning Quantity Structure: PP Master Data BOM
Routing
Costing Variant
Z001
Z002
Valuation Variant
Z01
Z02 By Plant
Value Structure Prices for Materials Prices for Activities Overhead Cost estimate: Standard costs
Costing Sheet Raw Material $ Labor $ Machine $ Overhead $ Total $
Z1
Z2
Standard Cost
Current Cost
13
Costing Variant / Valuation Variants Examples:
< ---------------------- Costing Variants --------------------------- > Variant Attributes
Frozen Standard
Current Structure
Current Costs
Simulate2
Material Price
Frozen Standard
Frozen Standard
Current Price
Future Price
BOM/ Routing
Structure at year beginning
Current Structure
Current Structure
Structure as on next month
Activity Price
Frozen Standard
Frozen Standard
Revised prices
Planned price for next year
14
Quantity Structure Selection Quantity Structure Control Through Customizing - BOM Usage - Priority for Alternative - Status - Lot size - Validity Period Quantity Structure Control Through the Material Master Record - Higher priority over the above - Sequence: Special procurement, Production Version, Specific BoM/routing Quantity Structure Control Through the Initial Screen of the Cost Estimate 15
Transfer Control - Flexible Options Complete transfer: While costing a material with multi-level BOM structure, system takes the existing “released cost” of the BOM components, without re-calculating the cost of components. Only if component does not already have a released cost, system calculates the cost of the component. This is very useful when you want to cost a new finished part which uses the already existing components Leaving it blank: System ignores the already existing released cost of components and recalculates the component’s cost using one of the strategies like planned price1 or purchase info record. This is useful when once a year you want to re-cost all materials right from the bottom upwards at all levels. Cross Plant Transfer: This is used in “Costing run” when you have selected the materials with special procurement types that points to other plants for copying the cost from Zxxx( customized): Take the cost stored in a different costing variant
16
Transfer Control - Flexible Options Part A (FIN)
Part B1 (SEM)
1
Part B2 (SEM)
2
Part C1 (SEM)
3
4
Part C2 (SEM)
Complete Transfer: If a released cost exists for B2, then stop exploding. Take the existing released cost Blank: Explode B2 and Part C3 (purchased consider its semi fin ZSEM) current cost for cost roll of part A
Part D (Purchased Fin Part)
Costing levels are determined automatically by the system when you create a cost estimate. Assigning the materials to costing levels ensures that costing is performed in the proper order: first raw materials and purchased parts, then semi-finished products, and finally the finished products. 17
Material Cost Total Standard Cost of purchased material
Core Material Price payable to material vendor
Others Duty Burden Freight Surcharges
18
Material Cost Options Valuation Variant provides the strategy sequence of costing the purchased material. Examples: Sequence Strategy 1
Price specified in one of the 3 free fields in material master (planned price 1 to 3)- Typically used to override the price obtained in the next strategy for “exception” cases
2
Price from Purchasing Module: Sub-strategies are: a. Price from latest P.O issued (NOT last invoice paid) b.Purchase Info Record
3
Current standard price
System searches in the sequence defined in the valuation variant and stops as soon as a price is found at any level
19
Determination of Purchase Info record When there is more than one vendor for the same material, the system by default takes the lowest price.
You can choose to mark one of the vendors as “regular vendor” so that only that vendor’s price is considered for standard cost
20
Options for Surcharges 1. Overhead Group along with Costing Sheet (CAG Option) 2. Additive Costs 3. Statistical Purchase Conditions
21
Costing Sheet based Surcharges Material Master
Valuation Variant
Overhead Group
Costing Sheet
Surcharge Calculated
Overhead Rate Key From To Percentage 1/1/11 12/31/11 2%
Costing sheet will define the calculation base and the overhead rate. Flexible definition of calculation Base is possible. Examples: • Cost element + overhead group + Overhead Rate Key • Cost center + Cost Element +Activity type + Overhead Rate Key
Overhead percentages can be defined for Overhead rate key by date ranges 22
Costing Sheet based Surcharges
23
BoM Header • BOM usage: Examples for BOM usage: BOMs used exclusively for engineering or costing purposes. • BOM status: If complex changes are made to a BOM, you can use the BOM status to control when the BOM is used, such as for a cost estimate. • Area of validity: A BOM can be defined as valid for only a limited range of lot sizes, such as 1 to 1,000 units. You can then create a different BOM for lot sizes exceeding 1,000 units. Therefore, only one BOM can be used for the defined costing lot size. • Alternative BOM: Alternative BOMs can describe different product structures that create a product with the same properties. For example, one alternative uses sheet metal A, while the other alternative uses sheet metal B.
24
BOM Line Items
•
Item category: L = stock item, N = non-stock item; R = variable-size item
•
Fixed quantity indicator : This indicates whether the quantity entered is dependent on the lot size. It applies mainly to unavoidable material loss at the start of the production process.
•
Planned scrap: This topic is covered in detail separately
•
Relevancy to costing indicator : If this indicator is not selected, the system ignores the BOM item in the material cost estimate. This enables you to devaluate BOM items (such as packaging materials) on a flat-rate basis for inventory or commercial purposes.
•
Bulk material: Bulk material is usually posted as consumption at production cost centers as soon as it is procured, so it is not included in the cost estimate.
25
Work Center
• Cost center • The standard value key enables you to define the six standard values in the operation. The system assigns a parameter key to the standard values of the operation and of the work in the network activity. This parameter key specifies the following: • Formula: You can use formula parameters to which you have assigned values. You can then link these parameters with mathematical operations such as addition, subtraction, multiplication, or division. Example: Formula 2 = Standard value * Operation quantity / Base quantity
26
Routing Header • Status • Lot size range • Task list group • Usage • Validity Period • Base quantity Operation Line • Work Center • Control key • Costing Relevancy indicator • Material to Operation assignment
27
Routing
Operation
Work Center
Qty
0010
PC-1 Preparation
2 min.
1421
0020
PC-2 Assembly
3 min.
1422
0030
PC-3 Quality Check
5 min.
Activity Usage
Standard Values
Activity Type
Routing is “production-oriented bill of activities“that lists the operations required to
manufacture a product. Each operation can contain up to six activity types and a standard value for the calculation of the activity usage. Each operation is carried out at a work center. The work center contains formulas for the calculation of activity usage. These formulas take account of the cost estimate lot size and the base quantity for the routing.
Each work center is linked to a cost center. Activity prices are planned for the combination Cost Center/Activity Type.
28
Cost Center – Activity Type - Work Center – Routing Link
m
Lot Size :
Pieces
Routing
Work Center PC-1
Op. 10 / Work Center PC-1 n Base Qty: Pieces
Cost Center 4711
Acty Type / Standard Value
Cost Center 4711
Activity Type Efficiency Formula
Activity Type / Price Set Up
X $ / Min
Set Up
a Min
Set Up
Formula 1 100 %
Machine
b Min
Machine
Formula 2
75 %
Machine
Y $ / Min
Labor
c Min
Labor
Formula 3
50 %
Labor
Z $ / Min
Formula 1 =a Min Formula 2 =
b Min
m x
n/
Formula 3 =
c Min
mx
n/
29
Control Key in Recipe
Cost relevancy Milestone operation? External Processing? Automatic goods movement?
30
Process Industry Routing
31
Co-Product Co-Products have significant revenue and are planned for production Leading CoProduct (primary) appears on the production order header and as a line item as well in the materials list Co-products appear with negative quantity in BoM 32
By-Product Incidental output, not planned Co-Product indicator is NOT checked By-products appear with negative quantity in BoM May or may not have its own cost. If cost relevant then it reduces the cost of finished product
33
Quantity Structure Selection for Co-Products
Material Master Parameters: - Production version with BOM and routing entries - Production version that refers to a leading co-product If no entries were made in the material master of the co-product, the system attempts to determine the quantity structure through the quantity structure determination of the costing variant. It first attempts to determine the quantity structure via valid production versions.
34
Costing of Co-Products and By-Products Costs for co-products are calculated using the apportionment method
Costs for by-products are calculated using the net realizable-value method. Coproducts designated as fixed-price co-products are costed in accordance with the net realizable-value method similar to by-product. The costs for fixed-price co-products and by-products are subtracted from the total costs. If a fixed-price co-product or by-product has its own cost estimate, the cost component split of the cost estimate is taken into account when the costs are deducted from the total costs. In the process, the costs in a cost component are deducted from the total costs in the cost component to which it belongs. After the costs for by-products and fixed-price co-products have been taken into account, the total costs of the production process are apportioned for all cost components to the co-products. Equivalence numbers are used for the apportionment process using apportionment structure. Each production version can have its own apportionment structure
35
Cost Apportionment with Source Structure Source Assignment
Equivalence Number Primary Product
Co-Product 1
Co-Product 2
Material costs
3
2
1
Production costs
3
2
2
Overhead
1
1
1
Using a source structure, it is possible to specify how the costs for each cost element group are apportioned. This allows to account for the fact that the material usage for the first co-product, for example, is significantly higher than that for the second co-product even though the production costs for both products are the same When a process order is created the system generates a settlement rule on the basis of the apportionment structure. The equivalences specified in the apportionment structure are transferred into the settlement rule. 36
Cost Center planning and Activity Type Pricing Plan Externally and enter prices by cost center + activity type
Plan using the SAP planning functionality
Planned Costs in dollars by cost center ___________________________________ Planned Activity by cost center and activity type • Can copy scheduled activity from Logistics planning • Can plan activity-independent and activity-dependent costs separately so as to split the activity price into “fixed” and “variable” components
37
Activity Type Master data
38
Activity Type Pricing
Plan Output Quantities • Number of labor hours, quality hours etc Plan Costs • Dollars to be spent to provide this service • Distinguish fixed and variable costs Plan Input Quantities • Number of quality hours required by Production • Reconcile Supply and Demand • Adjust quality hours to be supplied to meet demand from production Calculate Activity Prices • Costs per labor hour, per quality hour etc. • Cost component split for planned prices
39
Subcontracting Options
Subcontracting • The subcontractor
receives material parts and manufactures the complete material • Can keep track of
components lying with vendor • The subcontractor is
paid an agreed price for the whole activity
External Processing • The external processor
performs a process step only. • The material is processed
externally and completed inhouse. • A price is agreed for the
external processing.
40
Subcontracting Process
41
External Processing
42
Planned Scrap • Planned scrap is regarded as unavoidable scrap that is expected
to occur when a material is produced. It is also included in inventory valuation. • Consists of component scrap and operation scrap • When a routing is scheduled, the scrap factor is determined from
all operations and written to the material master as assembly scrap. • Shown in the itemization screen of cost estimate
43
Component Scrap Component scrap indicates the amount of scrap expected to occur before or during the assembly of the material. Component scrap can be defined in the material master of the component as well as in the BOM line of the finished part. If it has been entered in the BOM, the value specified therein applies. Otherwise, the value in the material master record applies. Component scrap is used in MRP to determine the input quantities of the components. When the BOM is exploded, the system increases the input quantities of the components by the scrap quantity calculated. Example: Input quantity 200 units Component scrap 10 % Scrap quantity 20 units Quantity used 220 units 44
Operation Scrap
Operation scrap is defined in the routing step. It is percentage of scrap occurring for the operation concerned. This scrap results in a drop in the quantity of the next operation, since the quantity to be processed is reduced by the scrap. The reduction in quantity is taken into account in the scheduling and in the cost estimate.
45
Assembly Scrap
When a routing is scheduled, the scrap factor is determined from all operations and written to the material master as assembly scrap. Example: Suppose the quantity to be produced is 200 units. If you specify assembly scrap of 10%, the scrap quantity is 20 units. The actual quantity produced is then 220 units. The system increases the lot size and the quantity of input materials.
46
Planned Scrap Summary
47
Mark and Release of Standard Cost Estimate
Marking: The future planned price is set in the material master and a link to the "new" standard cost estimate established. No revaluation takes place.
Release: Release converts the future standard price to the current standard price. Inventory revaluation takes place. The previous standard price is moved the field “previous” and is linked to the "old" standard cost estimate.
48
Cost Estimate View
49
Cost Estimate View
Item Categories: M : Material A: Co-Product Or “F6” gives itemized details
E: Activity (Labor/Burden) G: Costing sheet based surcharge
Or “F5” gives cost component wise totals
gives plants/company codes for the cost source
50
Costing Run
•
Costing of several materials in a single run
•
Background processing feature
•
Parallel Processing feature
•
Detailed logs
51
Marking Allowance
Helps to prevent accidental marking of costs for future period(s) 52
Updating Price fields in material master with costs
Useful for analysis with other costs like current costs, simulated costs etc. Plan Price, Tax Price, Commercial Price (any of these 9 fields) can be updated
53
Useful Transaction Codes OKEQ: Version OKTZ : Cost Comp Structure OKKN: Costing Variant OKK4: Valuation Variant OKEU: Source Structure KZS2 : Costing Sheet KP06, 7: Cost Center Planning KP26, 7: Activity Prices
CS01, 2, 3 : Bill of Material C201, 2, 3 : Recipe CR01, 2, 3 : Work Center KL01, 2, 3 : Activity Type CK11N, 13N: Cost Estimate CK40N: Costing Run CK22: Allow Marking CK24: Mark and Release CKR1: Delete Cost Estimate
CKAPP01: Materials to be costed S_P99_41000111 - Analyze/Compare Cost Estimates
54
Demo in the system
•
Configuration Settings - Costing variant, valuation variant, costing type, transfer control, quantity control - Costing sheet - Allocation Structure for Co-Products
•
Cost Roll Up of purchased and produced materials
•
Cost Center Planning
•
Activity type Pricing
55
