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December 27, 2016 More than 30 minute read
SAP CONTROLLING – PRODUCT COSTING PART-1

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PRODUCT COST PLANNING
In General,
Material cost comprises:
1. Material Cost.
2. Direct OH (Conversion cost)
The resources which are directly involved in the production to convert raw material into nished product.
3. Indirect OH.
It is nothing but Service department Cost.
https://blogs.sap.com/2016/12/27/sap-controlling-product-costing-part-1/ 1/61
PROCESS OF COST DETERMINATION:
1. Production dept. gives the Bill of Material and Process sheet.
BOM contains the list of components of raw materials with quantities required to produce the product.
Process sheet contains the process steps which is nothing but
The production department designs all the above process steps and the nance dept. prepare budget or
resource rate for the speci c activity.
Material cost is arrived through bill of material (Qty’s * Price).The price is taken from the purchasing
department.
Conversion cost is the cost of all the activities directly involved in the production which is speci ed in the above
Routing.
OBJECTIVES OF PRODUCT COSTING:
To determine cost of a product or service.

To determine detailed cost of a Product.
Managerial decision making.
Valuation of Inventory and WIP.etc.
COMPONENTS OF PRODUCT COSTING:

Overview:
1. Product Cost Planning:
Product Cost Planning (CO-PC-PCP) is an area within Product Cost Controlling (CO-PC) where you can plan
costs for materials without reference to orders, and set prices for materials and other cost accounting objects.
To determine cost estimate of the product.(Standard price)
We can use this price for valuation of Inventory.
Con guration Required;
1. Cost component Structure. (OKTZ)
It gives the breakup of cost of the product.
2. Costing Sheet. (KZS2)
To Calculate the Indirect Overhead.
3. Costing Variant for standard cost estimate. (OKKN)
Control parameters:
Costing type
Valuation Variant.
Date control.
Quantity structure Control.
Transfer control.
Reference variant.
2. Cost Object Controlling:
It comprises:
1. Calculation of plan cost and Actual cost for Order.
Con g. required:
Costing variant for plans.(costing type 06)

Costing variant for Actuals.(costing type 07)
2. Period end Process.
It contains the following Activities.
Revaluation of Activities.
Actual overhead calculation.
CO Production settlement(Distribution of costs between main product and Byproduct)
WIP calculation.
Variance Calculation.
Cost Object Controlling (Scenarios):
1. Product cost by order.
Production order.
Process order.
Controlling production order.
2. Product cost by period. (Product cost collector)

3. Product cost by Sales order.
INTEGRATION OF PRODUCT COSTING WITH LOGISTIC MODULES:
With Production planning:
Integration points are:
In PP, Order type will be assigned to Settlement pro le.

Result Analysis key.
Costing variant for plan and actuals.
In case of PP master data point of view. Work center comprises cost centers and activity types.
Work center: (CR01)
It refers to a place where tasks or Activities are performed. It represents the place, or machines, or group of
machines or combination of any of them etc.
Routing:
It contains sequence of operations. And for each operation, it speci es on which work center to be performed
and on what activities to be performed and planned execution time for them.
Routing is de ned at material and plant combination.
Product Cost Planning
Elements:
Quantity structure Control.
It speci es the priority of sequence of which BOM and Routing to be used in the cost estimate of the product.
The quantity structure control can apply to either a speci c 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.
When determining the BOM and routing, the system also checks the following:
Whether the BOM and the routing are valid on the quantity structure date
Whether the lot size in the BOM and in the routing are the same as the costing lot size
If, for example, the system nds a BOM according to the parameters in the quantity structure control, but this
BOM has a lot size or validity period that does not correspond to the cost estimate, the BOM is ignored. The
system continues searching for a BOM using the next selection criteria until it nds one that is valid.
A material can be represented in various alternative BOMs. You can specify that a particular BOM alternative be
used for the cost estimate at a certain date.
Bill of
material:
The priority is de ned based on the usage of the Bill of material.
Usage: Speci es the application areas for which the BOM is used. When creating the BOM, we will specify the
usage.
If we have multiple BOM’S in the same application area or with same usage number, then system picks the
rst BOM.
In case you want to pick a speci c BOM, then you need to specify that BOM in the alternative selection of
Multiple BOM’S.
Routing:
The priority is de ned with the combination of Task list type, Usage and status.
Task list type: It speci es the type of Routing.
Status: Released etc.

1. Date Control:
It speci es
Validity of the cost estimate.ie.The cost estimate is valid from which date to which date.
Which date BOM and Routing to be used in the cost estimate of the product.
Which date price to be used in the cost estimate of the product.
Costing date from:
It could be either 1.Past Date
2. Future Date
3. Current Date.
1. Past date: If it is past date, we can generate the cost estimate but not possible to save the cost estimate. It is
not possible to mark and release the cost estimate.
2. Future date: It is possible to generate, save and mark the cost estimate. It updates material master costing 2
tab future price. It is not possible to release the cost estimate. It is possible to release the estimate once it
reached to the future date.
3. Current date: It is possible to Generate, save, mark and release the cost estimate.
Quantity structure Date: It speci es which date BOM and Routing to be used.
Valuation Date: It speci es which date price to be used.
Determines the validity of the cost estimate and for costing date to, minimum date should be until the end of
the scal year and max is unlimited. This is because system requires for the calculation of the variance.
Note:
1. Qty. structure date should be always to be dependent on Costing Date from date.
2. Valuation date should be always to be dependent on Costing Date from date.
3. If you select manual entry, you can overwrite the date control values in frontend CK11N while executing the
cost estimate.
Marking Standard Cost Estimates

To transfer the results of a standard cost estimate as the standard price in the material master, you must mark
and release the standard cost estimate.
You can mark the following:
One or more standard cost estimates

More than one standard cost estimate within one costing run
When you mark a standard cost estimate, the costing results are written to the costing view of the material
master as the future planned price.
Prerequisites:
Marking the standard cost estimate has been allowed. The marking allowance speci es the company code
and period in which you can mark a standard cost estimate with a given valuation variant and costing
version. You cannot mark cost estimates/costing versions with di erent valuation variants in this period.
You mark the cost estimate and transfer the costing results into the material master as the future standard
price.
You can mark the cost estimate more than once at any time (until you release it).
You can cancel the allowance for marking and thus the marking of standard cost estimates
If you want to work with multiple valuation views, you can mark all of the views (legal valuation, group and
pro t center).
It speci es which costing variant and costing version cost estimate allowed to be permitted for the speci c
period to the speci c company code.
Note: It is not possible to use multiple costing variants and versions to allow to use in same period and company
code to mark and release the estimate.
VALUATION VARIANT
Valuation variant is a Key that controls which prices the system selects to valuate the quantity structure of a
material cost estimate or order, or to valuate the costing items of a unit cost estimate.
The valuation variant controls how the materials and activities in the cost estimate are valuated. The
valuation variant speci es the following parameters:
Which price in the material master (such as the standard price) or in the purchasing info record (such as the
net order price) is used to cost a material in the BOM
Which planned or actual price is used to valuate the internal activities
Which version in Cost Center Accounting is used to valuate internal activities
Which costing sheet is used to calculate overhead
Whether and to what extent a BOM item or an operation in the routing is relevant to costing
The di erent valuation strategies for materials, internal activities, external activities, and subcontracting are
stored as strategy sequences.
A global valuation variant is valid for all plants. A local valuation variant is valid only for a speci c plant. You
de ne valuation variants in Customizing for Product Cost Controlling.
Cost Object Controlling:
In Cost Object Controlling there is a valuation variant that can be used for the valuation of work in process at
target costs and for the valuation of scrap variances.
In this valuation variant, you specify which cost estimate is used to calculate the target costs.
Valuation variant contains the strategy i.e. which priority of sequence of source of price to be used while
valuating materials, Activities ,Sub contracting, External processing, and also it speci es which costing sheet to
be used to calculate the indirect overheads.
We can maintain di erent valuation strategies for the same valuation variant depends on the plant wise.
System follows the rst priority plant dependent then it follows the global de nitions.
Valuation Strategies:
Material valuation
Here you de ne the sequence in which the system searches for prices from the accounting view or costing view
of the material master record to valuate materials. You can also access prices from purchasing info records and
condition types.
For material cost estimates, you also specify whether additive costs can be added to the selected price.
Note:
Sub strategy will appear only if you have selected the price from purchase info record in main strategy.
Additive Costs: Any costs you want to add manually as a part of Indirect Overhead.eg.Storage.
Raw mat X–.100 RS +20% Additive cost.
Include additive costs means the valuation variant speci es whether to consider or not to consider the additive
cost in the cost estimate of the product. If not activated, additive cost is not considered.
Purchasing: Assignment of Conditions to Cost Comps:
Purpose: To get the delivery and freight charges separately in the cost estimate of the products & also to display
the delivery and freight charges separately in the cost estimate of the product. We need to assign the origin
group the MM condition type’s .Then, we need to assign the origin group to the cost component in cost
component structure.
Activity Types / Processes
Here you de ne 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.
Plan/actual version
It speci es which version price to be applied in the cost estimate of the product.
You also specify which plan/actual version is used.
Subcontracting
Here you de ne the sequence in which the system searches for prices in the purchasing info record. In
purchasing, the quota arrangementsare 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.
External processing
Here you de ne the sequence in which the system searches for prices in the purchasing info record or routing
operation for valuation of the external activities.
External processing is also another form of sub-contracting type. It is nothing but outsourcing of a particular
activity eg.cleaning, painting Activity etc.
The val. Variant ext. processing strategy tab speci es which pricing strategy to be used to valuate the out
sourcing activity.
GROSS PRICE: price before deducting Rebate and Discount.
NET PRICE: Gross price – Rebate- Discount.
Condition Table: we can assess or read the price from the pricing condition records.eg.freight and insurance.
Overhead costs
You can link the valuation variant for de nition 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 speci c overhead conditions for raw
materials.
If you want to di erentiate overhead application according to material groups, you must have groups and
made the necessary settings for the costing sheet in the step De ne costing sheet.
You can also specify whether overhead is calculated for subcontracted materials in material costing
Price Factors
It speci es whether to consider the total price or part of the price to be considered in the cost estimate of the
product.
Standard Settings
The standard system provides a number of prede ned price strategies.
For material valuation, you can choose up to ve (5) strategies for each valuation variant.
For activity types/processes, you can choose up to three (3) activity prices for each valuation variant.
For subcontracting, you can choose up to three (3) strategies for each valuation variant.
For external processing, you can choose up to three (3) strategies for each valuation variant.
You can modify these valuation variants to suit your requirements by changing the standard strategy sequences
as necessary.
Activities
1. Enter an alphanumerical key and a name for the new valuation variant.
2. De ne a strategy sequence for the valuation of material components.
3. a) To do so, select a price from the material master.
If you access prices from purchasing info records and condition types, you can enter up to three sub-strategies.
If you take prices from condition types, you must assign these condition types to origin groups in Customizing.
(See Raw)
1. b) For each material valuation strategy, you can specify whether additive costs are to be included in the
valuation of the material component.
2. De ne a valuation strategy for activity types and processes and assign a plan/actual version from cost
center planning.
3. De ne a strategy sequence for subcontracting and choose a quota arrangement for subcontracting.
4. De ne a valuation strategy for external processing.
5. Assign a costing sheet under Overhead applied to semi- nished nished materials to the valuation variant.
6. Specify whether overhead rates should be calculated for subcontracted materials.
You can enter a costing sheet for the application of overhead to raw materials under Overhead on material
components.
If overhead should be calculated for subcontracted materials, you can specify this here.
8. Save your entries.

9. Assign the valuation variant to a Costing variant.
Note
If you want to use di erent valuation strategies or di erent overhead rates in plants that belong to the same
company code, you can de ne plant-speci c 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.
Note
Materials valuated separately with the material ledger
The standard price is not included in the material ledger data, but rather the current planned price which, as
a rule, does not vary from the standard price. In the valuation variant, specify that the system should also
look for the current planned price for the valuation of materials. This ascertains that, even in the case of
separate valuation, a price is found for the valuation of materials.
COSTING VARIANT:
It contains the control parameters or it groups the costing parameters like costing type, valuation variant,
Date control, Qty. structure control, and transfer control. These parameters are required to generate the cost
estimate.
Costing variants form the link between the application and Customizing, since all cost estimates are carried
out and saved with reference to a costing variant.
We can de ne multiple costing variants for std. cost estimate purpose but we can use maximum one costing
variant per company code for the speci ed period.
Control Parameters in the Costing Variant
The costing variant contains all the control parameters for costing.
The costing variant for a material cost estimate contains the following control parameters:
Costing type
Valuation variant
Date control
Quantity structure control
(only relevant for cost estimates with quantity structure)
Transfer control (optional)

Reference variant (optional)
NOte
Although it is technically possible to have two costing variants with the same costing type and valuation
variant, this should be avoided to prevent data from being overwritten.
The reason for this is that the key structure for the costing results in the database uses the costing type and
the valuation variant, rather than the costing variant.
Note
Since this costing variant can be used for cost estimates both with and without quantity structure, you must
also make the settings that are only relevant for cost estimates with quantity structure even if you are only
executing a cost estimate without quantity structure.
In Quantity structure you determine the following:
How the costing lot size is handled

Whether cost estimates without quantity structure are included Whether transfer control can be changed
when calling the cost estimate Whether an active standard cost estimate can be transferred if the cost
estimate for a material contains errors
Pass on lot size:
This eld determines whether costing lot size of all the components is based on the higher level material or
costing lot size of the components to be considered in the cost estimate of higher level products. There are 3
options:
1. No
2. Only with individual requirement.
3. Always.
Pass on lot size: No:
In this case, the components are costed according to the component lot size which is speci ed in the costing 1
view of the material master.e.g. A nished product’s costing lot size is 10 pc. Where the component Sfg.X
having lot size 100 pc.In this case, the cost estimates creates for the SFGx based on the lot size of the 100
pc.Then the cost estimate for the nished goods will be created on the costing lot size of 10 pc.That means, it
takes component cost estimate price based on the costing lot size of 100 pc. In the cost estimate of nished
goods.
e.g.
For 10pc of Fin. Goods X, 10 pc of Sfg, x is req.
Fin. Good X lot size is 10 pc.
Sfg x lot size is 100 pc.
For SFG X., 100 PC
Raw mat. -100kg*100 =10000
Cleaning -10hrs *2000 = 20000
Machine hrs. -100hrs *300=30000
TOTAL: 60000
Per unit cost; 60000/100= 600
Sfg x price 600
Pass on Lot Size: Only with individual requirements:
In this case, the cost estimate generates the cost estimate of the component based on the lot size of higher
level material and it ignores the costing lot size of the components.
Pass on Lot Size: Always:
In this case, all the materials in the multilevel BOM, It is costed based on lot size of the nal components (higher
level component).This option is normally used in the sales order cost estimate.
E.g. Applicable for above both
For 10pc of Fin. Goods X, 10 pc of Sfg x is req.

Fin. Good X lot size is 10 pc.
Sfg x lot size is 100 pc.
SFGX: 10 pc
Raw mat: 10*100 = 1000
Cleaning: 10 hrs. *2000 = 20000 ( xed cost)
Machine: 10hrs*300 = 3000
TOTAL: 24000
Value of SFGX WILL BE 24000
Ignore prod cost EST without Qty Structure:
This indicator determines whether a cost estimate with Qty structure can access the data which is generated by
the cost estimate without qty. structure. By selecting this indicator, we can save the time i.e. unnecessary
searching for the data which is produced by cost estimate without qty. structure.
Transfer control can be changed;
This indicator controls whether allowed to change or not allowed to change the default transfer control during
the execution of the cost estimate.
Transfer Active std. cost est. if mat costed w/ Errors.
If this indicator is not activated, then system won’t allow to release of cost estimate of higher level products
unless rectifying the cost estimate of lower level products.
If this indicator is activated, we can release the cost estimate even though the lower components are having
errors and it uses the alternative cost estimate if any available. If there is no alternative cost estimate, then
system throws the error message.
In Additive Costs you determine the following:
Whether you can transfer the cost components that were entered in the form of an additive cost estimate
Whether the additive costs for materials with the special procurement types stock transfer or production are
included in another plant.
We can add the additive cost manually like freight, OH, insurance in the additive cost estimate of the product
or material.
This eld controls whether the cost estimated created with this costing variant can allowed to include or
enter manual cost in the form of additive cost estimate.
Option 1: Ignore additive cost.
It won’t allow to add the additive cost.
Option 2: Include
It allows to add the additive cost.
Option 3: Include the OH cost and apply the OH:
In this case, we can include the additive cost and also we can calculate the OH on the additive cost.
Include additive cost with stock transfers:
The system will allow to include the additive cost for stock transfer between the plants.
E.g. we can include the additive cost i.e. transportation cost for stock transfer between the plants.
In Update you determine the following:
Whether the costing results can be saved and what values are updated
The cost component split is always updated. You must specify whether the following values are also updated:
Itemization
Whether the user can change the update parameters and the parameters for transfer control.
Which reference variant you want to use for group costing.
Saving allowed:
This indicator allows to save the cost estimate. We need to select this indicator if we want to update the price to
the material master also we need to select this indicator for using this cost estimate for below scenarios:
1. for variance calculation.

2. Variance calculation.
3. Result analysis.
Save error log:
We can save error log for reference purpose.
Defaults can be changed by the user:
If this indicator is activated, then we have the option during the cost estimate to change the default settings for
saving message log and also itemization. Normally, itemization and log update are required for every cost
estimate for analysis purpose. Giving the option i.e. to change the parameters to the user not required. Hence,
don’t select this indicator. If this indicator is not selected and by default it update the log and also itemization
and it won’t give any option to the user to change itemization log message.
Itemization:
It provides the cost details at individual line item level of material, activities, and Indirect OH. Itemization is a
useful information when analyzing and reviewing the cost at detailed level whereas cost component provides
the summarization level. Further grouping of cost component can be called as cost component group.
In Assignments you determine the following:
Which cost component structure is used for the cost estimate.

Which costing version is used.
Whether the cost component split can be saved in the controlling area currency in addition to the company
code currency
Whether you can cost across company codes with this costing variant
In the note Miscellaneous you determine the following:
Whether a log is created to collect the system messages.
In this, we need to specify how the error log to be recorded and handled.
Transfer control & Reference variant:
The transfer control speci es or controls how the existing cost estimate is to be used in the cost estimate of
the other product.
Business case (purpose):
Usually we will perform the cost estimate yearly once for all the existing products. During the year, if any new
products created, we will run the cost estimate for the new products.
Eg1: The new product contains all the new components .In this case, we will run the cost estimate for all the
components which are new products.
Eg2: The new product contains few components as old and some new components. In this case, how the
system should reuse the cost estimate of the existing product in the cost estimate of other products.
If we regenerate the new cost estimate for existing products, then stem generates the variant for all the existing
products which is using the existing component.
Note:
Through the transfer control, we can specify to use the existing cost estimate or not in the cost estimate of the
other products.
Transfer only with collective requirements material ( eld):
This indicator speci es how the existing cost estimate to be used in the sales order cost estimate. If this
indicator is activated, then system ignores the existing cost estimate and rerun new cost estimate of the
existing product in the sales order cost estimate.
If this indicator is not activated, then system considers the existing cost estimate for both individual
requirements as well as the collective requirement(The existing cost estimate can be reused in the sales
order cost estimate)
Fiscal Year:
This indicator refers the current year.
Period:
In the period, if you keep blank, then it refers only the current period.i.e. System searches for existing cost
estimate in the current period only.
In current and previous cost estimate, the period refers the number of periods in the past. I.e. before the date
of the cost estimate.
In case of future cost estimate, the period refers the number of periods in the future i.e. after the start date of
the cost estimate. And in the past (before the start date)
You de ne transfer control in Customizing for Product Cost Controlling. You use transfer control to specify
how the system is to search for available cost estimates in order to transfer existing costing data into
another cost estimate.
You de ne a reference variant in Customizing for Product Cost Planning and enter it in the costing variant.
The reference variant contains a transfer control ID, which nds the cost estimate to be copied.
Costing type
It is a Parameter that establishes the technical attributes of a cost estimate. It speci es the purpose and usage
of the cost estimate. It speci es whether allowed to update the estimate to the material master or not and also
it speci es which price eld to be updated in the material master. It also speci es which valuation views to be
costed.
Each costing type allows only one valuation view.
For a material cost estimate, the costing type controls the following:
How the cost estimate is used, and which eld in the material master is updated with the cost calculated in
the cost estimate (such as the standard price, commercial price, or tax valuation price)
Which costs are used as the basis for allocating overhead
Which valuation view (legal, group, or pro t center) is costed
For a base planning object, the costing type determines which valuation view is costed.
In the following image, we can see the three tabs available under Costing Type.This bifurcation in Costing
Type is done by SAP to provide further exibility at the most granular level possible.
Price Update
Under this tab we de ne where the price calculated during the cost estimate should be updated by the system.
In the above image, we can see that the standard Costing Type updates Standard price. This in other words
mean, when a material cost estimate is released, it will update standard price in material master.
Following options are made available by SAP for updating the results
Standard Price
Tax-Based Price
Commercial Price
Prices other than standard price
No Update
Note: We also need to keep in our mind that standard system contains costing types that write to the material
(standard price), and hence the system does not allow to create our own costing types to do this i.e. updating
standard price.
Save Parameters.
This tab contains con guration related to updating dates when the cost estimate is saved and is divided into
following two parts:
Cost Estimate with Quantity Structure
Here we have to select whether the date will be saved in standard cost estimate and following options are
available for us to opt from:
Without Date
In this, the standard cost estimate cannot be saved and hence cannot be used for future analysis purpose. It is
not possible to generate the std. cost estimate.
With date
The with date option can be used in the plan cost and also in the preliminary cost estimate and we cannot use in
the std. cost estimate.
With Start of Period
Always the std. cost estimate, it saves with the start of period (from the beginning date of the period). E.g. we
are running cost estimate on 6th august and system will always saves the cost estimate in the back end from
the beginning of august i.e. 1st august.
This part becomes very important in case of product cost collect and hence, SAP has provided separate
Costing Type for Product Cost Collector which contains relevant con guration to be opted for. Hence, it also
becomes very important to identify the requirement and try to nd if any standard costing type or costing
variant is provided by SAP for the scenario (in most of the cases you will nd the answer as YES) and if yes,
go for it. If you do not nd appropriate standard con guration, take a cautious approach while customizing.
Note: For the standard cost estimate, you must update automatic costing with the with start of
period indicator. This ensures that the results of the standard cost estimate can be used as the standard price
for that period. For the other costing types, you can update the costing results with the with date indicator, for
example. In this case the current date becomes part of the key.
Additive Cost Estimatesthe purpose is to allow to enter the additive cost with e ect from which date, either
with date or without date or with start of the period. It will always considers the start of period in case of
standard cost estimate.
Misc. Tab:
This tab contains following two parts
Cost Portion for Overhead Application
This part works as a calculation base for calculating the overheads. Here we have to select the cost
component view that will be used for calculating overheads (Costing Sheet).The cost component view can be
used as a calculation base in the OH calculation for the semi- nished goods in the cost estimate of the
nished goods. This option is used as a calculation base on the COGM component eld to calculate the OH
for the semi- nished goods during the cost estimate of the nal component.
Partner Cost Component Splits
Key that uniquely de nes a combination of partner and direct partner.

To view the partner cost breakup details in the subsidiary companies in the cost estimate of the product. This
option is applicable only for group valuation view. We can set the partner split parameters in the combination
of company code and plant or the combination of comp. code, plant, pro t center and business area
combinations. It won’t applicable for your legal valuations.
Cost component Structure
It gives the breakup of the cost estimate of products like material cost, packing mat cost, consumables,
Mach. Cost etc. The cost component structure contains the cost components (grouping of costs or cost
elements)
Each cost component speci es whether it is relevant for valuation of inventory or not and also it speci es
under which cost components to be updated. Eg.COGM, COGS, Inventory, and Tax inventory etc. Each cost
component speci es whether it is to be rolled up or not.
Any component which is relevant for inventory should be rolled up and shown under COGM view.
The cost component can have maximum of 40 components in case of all components are variable. In case of
all components are xed, then the CCS can have maximum of 20 components.
Variable – 1
Fixed – 2
There are two types of CCS. One is Main CCS and the other is Auxiliary CCS.
Cost Component Structure Contains Cost components:
1. Material cost
2. Packing material cost.
3. Consumables.
4. Cleaning cost.
5. Machining cost.
6. Labor cost.
7. Material OH.
8. Admin OH.
Cost component represents the grouping of cost or cost elements.

Each cost component speci es which portion of cost to be displayed and to be considered for valuation of
inventory.eg. Variable cost, or consider xed and variable cost.
Each cost component speci es whether to be rolled up or not. Every cost component should be rolled up or
not. Every cost component should be roll up cost component which is relevant to COGM & inventory
valuation
Each cost component speci es whether it is relevant for inventory valuation or not.
Each cost component, we need to specify which views to be updated eg.COGM, COGS, or tax inventory or
commercial inventory.
Main CCS can be called as Primary CCS.It is only possible to update to the material master std. price eld.
Auxiliary CCS is not possible to update to the material master std. price. We can able to transfer both main
CCS and Auxiliary CCS to COPA. Auxiliary CCS can be used to view the breakup of the cost in the alternate
view.
Cost component groups:
It is nothing but further grouping of cost components within the CCS.It displays the cost at higher
summarized level.eg.Mat cost, Dir OH, IOH etc. We can de ne maximum of 99 cost component groups but
we can be able to use maximum 25 cost component groups across the cost component structures within the
controlling area.
One cost component can have maximum of 2 cost component groups. One cost component group can be
assigned to multiple cost components.
Types of Cost component structure:
1. Main CCS.
Only possible to update to the material master std. price.
2. Auxiliary CCS.
Cannot be possible to update to the material master std. price.
Note: Both can be possible to update to the costing based COPA.
Main CCS: The main CCS can also be called as primary CCS or Principle CCS.Main CCS is mandatory for the
standard cost estimate. Main CCS cost estimate is only possible to update to the material master std. price
eld and also possible to transfer to the Costing based COPA.
Auxiliary CCS: The purpose of this is to view the breakup of the cost estimate of product in the alternate view
in addition to main CCS.The auxiliary CCS cost estimate is not possible to update to the material master std.
price eld and is possible to update to the costing based COPA.
Primary cost component split:
The purpose of this to view the activity cost in terms of primary cost element wise. Then, we need to activate
the relevant CCS with the primary cost component split indicator.
The primary cost component structure can be activated either for Main CCS or Auxiliary CCS or Both.
We can activate PCC.split for those CCS designed or structured with primary cost elements.
The below activities or settings are to be done to get the primary split:
1. Need to assign the primary split CCS in the versions.

2. Need to perform the system calculated activity price.
Delta cost component Split:
It displays the pro t between two company codes under the delta cost component split in group valuation
view.
The delta cost component split is not relevant for inventory valuation. It is not required to assign any cost
element to the delta cost component. We can de ne maximum one delta cost component per one CCS .It is
relevant only for group valuation.
Int. / Ext. cost split:
The purpose is to view the cost estimate for the raw materials in terms of grouping of cost like procurement
cost, freight, insurance etc.
Assignment to the Organizational unit:
We can assign maximum two CCS i.e. Main CCS and Auxiliary CCS to the combination of Company code,
Plant and Costing Variant. But recommended is to always use the same CCS across all the plants for all the
costing variants for the speci c company.
If you have di erent CCS for di erent plants, then it is not possible to read the cost estimate from other
plants which belong to di erent CCS’s.
Even though we can de ne and assign di erent CCS for each plant wise within the company code. But it is
not recommendable to de ne multiple CCS within the company code i.e. for each plant wise. The reason is
that, we cannot assess the cost estimate from one plant to another plant which belong to di erent CCS’S.
That is why, we will maintain uniform CCS across the plants within the company code.
De ne the CCS: (OKTZ)


Click on NEW ENTRIES.
Enter the following and Save:
Select C1 and click on cost components with attributes.
Click on New entries.
Enter the following and Save:
Creation of cost component group:
Click on new entries.
Enter the following and Save.
Assign C1 cc group to 01 Raw material cost component.
Create the cost components up to Consumables and assign to the relevant group.
Same will applicable till packing cost.
Same with IOH.
Assign the cost components to CCS:
Select the cost component and click on assignment. And click on new entries.
The names will automatically come when you click enter.
101000: Raw material cost element.
101001: Raw material import cost element.
943000: Secondary cost element.
941000: 41 Category cost element.
Cost component views:
The PURPOSE of this that which cost component view cost to be displayed to view the cost break up.
Click on New entries and save.
Auxiliary CCS:
Select C2 and click on Cost Component with attributes.
Do the same for similar kind of components.
For Salaries, power and Misc. exp.
Save.
For MOH.
For AOH:
Save.
Go back and select all cost components and click on assignment of cost elements to CC’S.
Assign the Auxiliary CCS to the Organizational unit or Company code.

Assignment: Organiz. Units – Cost Component Structure:
Activate the CC structure and activate C1 and C2 and activate primary split to C2
Assign the primary cost component split in the CO versions.
IMG>Controlling>org.>Maintain versions
Select the 0 version and click on settings for each scal year.
Select 2016 and Double click.
Assign the Auxiliary CCS (c2) here and tick the below indicator and save.
Notes on the various indicators:
1. Cost share Indicator:
It speci es whether the xed and variable costs or only variable costs are to be displayed in the cost estimate.
2. Cost Roll up:
This indicator determines whether the costing results of the cost component are rolled up to the next highest
costing level. By activating this indicator, we can specify that which cost component is rolled up to the next
highest costing level. We need to select this indicator for those components which is relevant to the COGM
&Inventory valuation.
3. Cost component group:
The purpose of this is to view the cost estimate break up at the higher summarization level. It is the further
grouping of the cost components. One cost component can have maximum 2 Cost component groups.
Further criteria for cost component view on itemization:
In this tab, we can specify the cost components to be displayed under which cost component view.
Inventory valuation:
This indicator controls which cost component is relevant foe inventory valuation.
COGS> which cost component is to be under COGS view.
Initial cost split:
It is to view the cost estimate of raw materials into di erent groups like procurement cost, overhead or freight
charges, insurance etc.
Delta pro t for group costing:
This option is used in multiple valuation concept and prerequisites is needed. To use this function, only into
material ledger multiple valuation concept is activated. The purpose is to display the internal pro ts between
company codes under the separate cost component in the group valuation view. We can select maximum one
cost component with delta pro t indicator for cross component structure .The delta pro t cost component is
not relevant for inventory valuation and also not required to assign any cost element to the cost component
which is activated as delta pro t indicator.
COSTING SHEET
Overhead: THE COST WHICH IS OTHER THAN MATERIAL COST.
Overhead is of two types:
1. Direct OH : Expenditure of dept. which are directly involved in the production.
Basis of Allocation:
Activity types are used as a base to allocate DOH.Activity types are speci ed in Routing. When you do the
activity con rmation (CO11N), OH is allocated to the production order.
2. Indirect OH: Service dept. cost.
Basis of Allocation:
Based on Activity type:
Separate activity types are de ned for IOH allocation purpose.eg.Seperate activity types are created for
Main.Dept. Admin Dept., Procurement dept. etc.
Routing and Work center:
Here we will add the created new IOH activity types to the original activity types in the Routing. Drawback is
increases WC master data and increases routing operations and activity types number limitation per Work
center. We can recover the 100% overhead and it won’t arise under or over absorption of overhead.
When you do the con rmation of activity, it will updated to the production order.
Template allocations:
It contains formulas and Rules along with using the activity types. Advantage is PP master data won’t be
disturbed and we can recover the 100% overhead and it won’t arise under or over absorption of overhead.
While executing the template allocation program, the OH is allocated to production order at the month end.
Not based on Activity type:
It is the pure traditional method. Costing sheet method is used to allocate IOH to production order. OH is
allocated on an assumption basis. We cannot recover the 100% overhead and it will always arise under or
over absorption of overhead. In the period end process, while performing the Actual OH calculation program,
OH is allocated.
COSTING SHEET:
It speci es what % of OH to be applied or what quantity rate of OH to be applied on which amount and under
which conditions to be applied and from which cost center to be allocated and which OH cost element to be
used to debit in the order and credit in the cost center.
Costing sheet components:
1. Base.
2. OH rate.
3. Dependency Key.
4. OH type.
5. Credit key.
6. Base:
Grouping of cost elements on which OH rate is applied.
2. OH rate:
Speci es OH% to be applied. It contains dep key OH type.
3. Dependency key:
It speci es the conditions, the OH rate is to be applied in which conditions.
4. OH Type:
It di erentiates the plan and actual OH type.1-Actual and 2-Plan OH. We can maintain di erent OH rate for
Actual and Plan OH by using OH type.
5. Credit Key:
It species which cost center to be credited during the actual OH calculation and also it speci es which OH
cost element to be used to credit in the cost center and to debit in the order.
One credit key represents one cost center.
Case example:
Dependency key is the plant in both the cases.

One OH rate key (c100) is required for mat OH of 10% and 11% & another OH key (C101) is required for
activity OH for 15% and 20%.
One credit key (C3) is required for procurement department and one (C4) for admin. Department.
Costing sheet is assigned to Valuation variant in OH tab
Click on NEW entries and enter following.
Click enter and Save.
Select the material cost and click on details.

Give your Controlling Area.
Cost portion: It speci es which type or portion of the cost to be grouped for OH calculation purpose.
Total: It considers both Fixed and Variable Cost.
Click on New entries.

Give mat. Cost element group and SAVE.
Do same for the base C11.
Percentage overhead RATE:
Enter following and SAVE.
De ne credits:
Click on new entries and enter following and save :
Select C3 and click on details:

Click on new entries AND ENTER following.
Select C4 and click on details:

Click on new entries AND ENTER following.
If you specify value in the Fix % eld, then in that case, the speci ed xed %is applied on the OH amount as a
Fixed OH and remaining balance becomes the variable OH.
e.g.:
Fix% 70%
Base total 1000
The OH rate is 15%.
Therefore the OH amount will be 150.
On OH amount 150.
Fixed OH (70%) 105
Variable OH (REMAINING) 45
De ne Costing Sheet:
Click on New entries:
And SAVE.
Select the costing sheet and click on costing sheet rows.

Enter as above in the following and save.
Overall Scenario:
By,
Pradeep Reddy.
Alert Moderator
Assigned tags
FIN Controlling | FIN (Finance) | FIN Accounts Receivable and Payable | FIN General Ledger | Ajay Maheshwari SAP
Trainer |
View more...
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24 Comments
You must be Logged on to comment or reply to a post.
Former Member
December 28, 2016 at 5:33 am

Good Work Pradeep, keep it up.
Like (0)
pradeep reddy | Post author
December 28, 2016 at 12:52 pm

Thank you sir
Like (0)
Mukthar Ali Ahamed N

Excellent document..Thanks for sharing information.
Like (0)

Thank you.
Like (0)
Mallikarjunr r

Thank you Pradeep for sharing such precious information.
Like (0)

Welcome..
Like (0)
Former Member
January 19, 2017 at 7:20 am

Hello Pradeep,
Very elaborate explanation.
Very Helpful
Like (0)
March 15, 2017 at 5:30 am

Thank you
Like (0)
Former Member
February 7, 2017 at 9:35 am

Super…… Good Work Pradeep
Like (0)
March 15, 2017 at 5:30 am

Thank you
Like (0)
Emmanuel Fuentes
February 21, 2017 at 5:24 pm

Nice document!. Thank you for sharing
Like (0)
March 15, 2017 at 5:30 am

Thank you
Like (0)
sureshbabu kodali
March 2, 2017 at 8:07 pm

Very helpful thank you so much REDDY
Like (0)
March 15, 2017 at 5:31 am

Thank you
Like (0)
vishnu chaitanya
April 1, 2017 at 4:17 pm

Thanks Pradeep for sharing nice document.
Like (0)
Former Member
April 12, 2017 at 9:08 am

Great and good work Pradeep. Thanks for sharing detailed document on product cost planning. Appreciated if
you could share documentation on cost object controlling as well.
Like (0)
Pritesh Lodha
August 10, 2017 at 6:03 am

Hello Pradeep,
Good Day!
Excellent Document! It has many insights which are so useful.
Do you have Part-2 as well? If yes, please share the link!
Thanks,
Pritesh Lodha
Like (0)
Rajani S
September 18, 2017 at 10:52 pm

Thanks Pradeep for sharing the document and it is very helpful and handy. appreciate that.
Like (0)
Former Member
September 19, 2017 at 6:44 am

Thank you for sharing. It very helpful for beginner.
Like (0)
Shakir Shaikh
November 21, 2017 at 12:36 pm

An excellent piece of work i must say, it took a while to scroll down & this makes me wonder how much time
did it took for you to blog this.
Really appreciate your e orts , thanks for sharing.
Like (0)
AMO Mane

Very good job, thanks a lot.
I have a question, perhaps you know how to solve it. I would like to use 2 CCS in the same company code (one
speci c for one plant) but I cannot save the OKTZ in this case, have you any idea to solve it?
I have managed the transfert between the both CCS.
Like (0)
Bhaskar Basam

You can assign di erent CCS by indicating plant at Assignment to Organization unit section.
Like (0)
UZMA FAROOQ
February 27, 2018 at 4:35 am

Perfect document for Product costing.
thanks.
Like (0)
Nithi Christopher
January 27, 2019 at 11:03 am

Great e ort. Much appreciated!
Like (0)
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SAP CONTROLLING – PRODUCT COSTING PART-1

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PRODUCT COST PLANNING

Material cost comprises:

It is nothing but Service department Cost.

PROCESS OF COST DETERMINATION:

1. Production dept. gives the Bill of Material and Process sheet.

OBJECTIVES OF PRODUCT COSTING:

To determine cost of a product or service.

COMPONENTS OF PRODUCT COSTING:

1. Product Cost Planning:

To determine cost estimate of the product.(Standard price)

We can use this price for valuation of Inventory.

Con guration Required;

1. Cost component Structure. (OKTZ)

It gives the breakup of cost of the product.

2. Costing Sheet. (KZS2)

To Calculate the Indirect Overhead.

3. Costing Variant for standard cost estimate. (OKKN)

2. Cost Object Controlling:

1. Calculation of plan cost and Actual cost for Order.

Costing variant for plans.(costing type 06)

2. Period end Process.

It contains the following Activities.

Cost Object Controlling (Scenarios):

1. Product cost by order.

2. Product cost by period. (Product cost collector)

INTEGRATION OF PRODUCT COSTING WITH LOGISTIC MODULES:

With Production planning:

Integration points are:

In PP, Order type will be assigned to Settlement pro le.

Work center: (CR01)

Routing is de ned at material and plant combination.

Product Cost Planning

Quantity structure Control.

The priority is de ned based on the usage of the Bill of material.

Task list type: It speci es the type of Routing.

Status: Released etc.

Costing date from:

It could be either 1.Past Date

Valuation Date: It speci es which date price to be used.

Marking Standard Cost Estimates

You can mark the following:

One or more standard cost estimates

Which planned or actual price is used to valuate the internal activities

Which version in Cost Center Accounting is used to valuate internal activities

Which costing sheet is used to calculate overhead

Cost Object Controlling:

Raw mat X–.100 RS +20% Additive cost.

Purchasing: Assignment of Conditions to Cost Comps:

Activity Types / Processes

You also specify which plan/actual version is used.

GROSS PRICE: price before deducting Rebate and Discount.

NET PRICE: Gross price – Rebate- Discount.

The standard system provides a number of prede ned price strategies.

8. Save your entries.

Control Parameters in the Costing Variant

(only relevant for cost estimates with quantity structure)

Transfer control (optional)

In Quantity structure you determine the following:

How the costing lot size is handled

Pass on lot size: