Product Costing

Thursday, November 27, 1

2014
 Product Cost Controlling -
Benefits
Management Requirements Legal Requirements
l Support cost reduction l Valuation of:
concepts n Raw Materials
l Strategic Decision Support n Semi finished Goods
n which products n Finished Goods
n where or how to produce l Work-in-Process
l Operating Decision Support l Reserves for Losses
n pricing of products
n effectiveness of manufacturing

Thursday, November 27, 2

2014
 What can Cost Object
Controlling do for me?
• What actual costs did we incur in our area
in the current period?
• What costs were we expecting based on
the quantities manufactured?
• Are some product groups performing
significantly better than others?
• What is causing these variances?
• What are the scrap costs of our new line?
• Did continuous improvements show cost
effects?

Thursday, November 27, 3

2014
 Product Controlling by Order
When to Use?
Lot
• Very flexible production Lot

environment Work center 2

Lot

• High set-up costs Work center 1

• Full cost tracking needed Work center 3

• Controlling by individual
production lots needed
• Example: Order related
production

Thursday, November 27, 4

2014
 Product Controlling by Period
When to Use?
Line am-line1

• High volume production am-100 am-200

• Stable and continuous am-110 am-120 am-210 am-220

production
• No individual lot oriented
controlling needed
• Collecting costs on product
cost collectors
• Example: Repetitive
production

Thursday, November 27, 5

2014
 Product Cost by Sales Order
When to Use?
Sales Order M
• Cost and revenues collected by sales
order irrespective of manufacturing
scenario
• Collecting special sales costs on
sales order
• Tracking Funds committed
• Calculating Work in process and
Reserves with results Analysis
• Example: Controlling complex Make-
to-Order Production

Thursday, November 27, 6

2014
 Product Cost Controlling -
Components
Product Cost Planning Cost Object Controlling

Quantity Structure: Preliminary Costing,

PP Master Data Simultaneous Costing
BOM Routing
Order
Planned
costs, Material $
Labor $
Actual
Overhead $
costs
Process $
Total ...

Value Structure
Final Costing
Period-End Closing
Prices for Materials
Prices for Activities Work in process
Prices for Processes Scrap
Overhead Variances

Settlement

Cost estimate:
Standard costs

Thursday, November 27, 7

2014
 Product Cost Planning
PC- Planning stage
Quantity Structure Value Structure
Routing
Plan Overhead rates:
Energy = Rs.10 / hr
BOM +
Running = Rs.80 / hr
Men Cost = Rs. 20 per kg
Standard BOM Standard Routing
to give standard to give standard
Standard Overhead rates
material cost overhead consumption
quantity

Standard Material
consumption Standard
cost Overhead costs

Standard cost of Manufactured goods includes the planned cost of Raw Material
and Planned cost of Overheads

Thursday, November 27, 8

2014
 Cost - Object Controlling
PC - Actual stage
Overhead costs
Overhead expenses posted to budget
Financial cost centers
Accounting
Overhead costs re-
Cost centers allocated in between
cost centers

Overhead costs
allocated from Cost
Activities Centers to Production
Cost Sheet Operations using two
methods
Production Operation

Overhead costs
Standard cost of FG Variances allocated to Finished
Goods at standard
Overhead variance are overhead rates
accounted along with
Finished Goods Production variance

Thursday, November 27, 9

2014
 Production Order: Process Chain

Order archived / deleted Production Order Create

Settlement
Schedule
Variance calculation

Final goods receipt Availability check

Production
WIP calculation
Order Calculate costs
Revaluation
Overhead/Process cost Release of order
allocation
Period end closing
Shop paper printing
Partial goods receipt

Simultaneous costing Material issue

Thursday, November 27,

Order Execution 10
2014
 Allocation of Overhead Costs

Cost Center Production

Cost
Order
allocation

Overhead
surcharges
Activity Cost Center Production
Activities
quantity Order
X
Price
Direct activity
allocation

Cost Center
Process Activities Cost Driver Production
quantity Order
x
Price
Activity type allocation Process allocation
Thursday, November 27, 11
2014
 Revaluation of Activities With
Actual Prices
Actual Costs
Revaluation of
Production
Cost Center posted activities
Cost
Collector
Price
Difference
x Production
Actual activity Order
Activity quantity
Process
Prices =
Order
cost
difference
Cost Element

• periodic Cost
• average Object
• accumulated

Thursday, November 27, 12

2014
 Overhead Surcharges

Warehouse Warehouse Cost Center

Credit from overhead

calculation: –200

Production Order
Costing sheet COGM
1 barrel Oil 1,000
Storage
overhead 200

Surcharge
Percent

20%

Thursday, November 27, 13

2014
 Period-End Closing: Work in
Process
CO- Period Accounting
Production Order PC
Actual Revenues
Material 800 - Sales deductions
- Total costs
Production 1,200
External 400 +/- Stock changes
Stock change – 1,000 = Profit for period
Order balance 1,400

FI EC-
PCA
Work in process is calculated for PrCtr 1
each order and settled to Financial
Accounting and Profit Center
Accounting BY COMPANY BY PROFIT CENTER

Thursday, November 27, 14

2014
 WIP Calculation Using
Actual Costs
CO-
PC
Material Withdrawals 800
Material: P-100
Actual Costs
Material Confirmations 1200
800
Production 1,200
Overhead 400
2,400
Overhead 400

Plant activity - 1,000

1,400 Delivery -1000
WIP 1,400
Settlement using
posting rules
EC-
FI PCA

Thursday, November 27, 15

2014
 Posting of Work in Process
Production Order
Work in Process 1,400
FINANCIAL ACCOUNTING
Apportionment for WIP
WIP Stock change
Material 800
Production 1,200
Reserve Expense
Overhead 400
To be capitalized 1,120
Not to be capitalized 280

Profit Center ACCOUNTING

Postings Division
via
Product group
Settlement
Product

Thursday, November 27, 16

2014
 Period-End Closing: Variances

CO-
Material: P-100 PC Cost of Sales Accounting

Actual Costs Revenues

Material 800 - Sales deductions
Production 1,200 - Cost of goods manufactured as
Overhead 400 1st and 2nd contribution margin)
2,400
Goods receipt -2,000 - Variances
= Profit for period
Variances/scrap 400
CO-
FI PA
•Product
Variances are calculated for each group
order and settled •Region

• with variance category to Profitability •Distribution

channel
Analysis BY COMPANY BY PROFIT. SEGMENT
• as well as one amount to Financial
Accounting

Thursday, November 27, 17

2014
 Variance Analysis
variances: variances:
input side output side
Input Price Variances between the Lot size Variances between planned
100 20 planned prices and the actual costs and actual costs
50
prices of the resources set up (independent of lot size) as
Input calculated in the delivery
Variances between the
Quantity planned input quantities and Outp .price Variance between the target
the actual input quantities v
credit (standard price) and the
of the resources S actual credit
Resource- Variances caused by a (e.g., moving average price)
usage different resource being
Remaining Variances that cannot be
used than was planned
Output assigned to any other variance
Rounding category, such as
differences
Remaining Variances that cannot be rounding differences
Input assigned to any other
overhead 25%
150,- (actual ) variance category, such
instead of
100,- (target)
as overhead surcharges

Thursday, November 27, 18

2014
 Period-End Closing:
Settlement
CO-
PC
Production Order
Material: T-F100
PERIOD ACCOUNTING
Quantity produced: 10 pcs. COST-OF-SALES ACCOUNTING
CO-
PC Revenues
Revenues
Actual Costs – Sales deductions
– Sales deductions
– Cost of goods manufactured
– Total costs incl. Variances Actual Costs 2,400,- (1st and 2nd contribution
margin)
+/- Stock - WIP Changes
Stock Change -2,000,- – Variances
= Profit in period
= Profit in period
Variances 400,-

PrCtr 1

BY PROFIT. CO-
BY PROFIT EC- BY COMPANY SEGMENT PA
FI BY COMPANY
FI
CENTER PCA SETTLEMENT

Thursday, November 27, 19

2014
 Settling the Order to the
Material
Quantity in stock = 10
CO-
PC
Production Order FINANCIAL ACCOUNTING

Material: T-F100 Stock Price difference

Quantity produced: 10 2,400
CO-
PC Plant activity
Actual Costs FI
2,400

Actual Costs 2,400,-

Stock Change -2,000,- Warehouse

V stock? MM
Variances 400,-
Moving average
price control
S Standard price control Quantity in stock = 1

FINANCIAL ACCOUNTING FINANCIAL ACCOUNTING

Stock Price difference Stock Price difference

2,000 400 2,040 360

Plant activity Plant activity
R

FI 2,400 FI
2,400

Thursday, November 27, 20

2014
 PA Transfer Structure
PA Transfer Variance Cost Element Quantity/ Fixed/ Value
Assignment Category Group Value Flag Var. Flag Field

MATERIALS
PRICE 400000
10 100 20
400100 A 1 3 MVARP
50 Material
400200

QUANTITY MATERIALS
400000
20 400100 A 1 3 MVARQ
Material
400200

Internal Activities
PRICE
30 100 20 600000 1 3 AVARP
50 620000 Text

QUANTITY Internal Activities

40 600000 1 3 R AVARQ
620000 Text

Thursday, November 27, 21

2014
 Information System: Contents
• Structure of the information system
• Overview standard reports for effective
controlling

Thursday, November 27, 22

2014
 CO-PC Report Trees

Main tree Component tree

Information System
CO-PC Summarized Analysisy
Product Cost Planning Object lists

Product Cost by Period Order Selection

Plant
Product Cost by Order Material

Product Cost by Order Hierarchies

Sales Order Detailed reports
Costs for Intagible
Object Comparisons
Goods and Services
Actual Costing / Other Reports
Material-Ledger

Thursday, November 27, 23

2014
 Summarized Analysis -
Product Drill Down

Product-Drill- Down

Order Hierarchy

+ Power Plant I Order Selection

+ Power Plant II
Detailed Reports
- Industry
+ Automotive Order Material Plan Actual
+ Chemicals l Target / Actual
1002 P-100 1,000 1,000 l Variance Analysis
3459 P-100 1,200 1,250
l Plan / Actual
3986 P-101 900 850
P-101 950 1,800 l Work in Process

Thursday, November 27, 24

2014
 Drilldown Reporting - Example
Plant 1000 Target Actual Price var . Res .-usage var . Quantity variance
Product group A 6,000 6,000
Product group B 12,000 17,500 1,500 1,000 3,000
Product group C 5,500 7,500 2,000

Drill-down: Materials in product group B

Product group B Target Actual Price var . Res .-usage var . Quantity variance
Material P-100 2,800 4,000 1,200
Material P-200 3,500 4,500 500 500
Material P-300 2,500 3,000 100 400
.. .

Standard Reports
l Planned costs
Drill-down: Orders for material P-100
l Plan/actual comparison
Material P-100 Target Actual Variances
l Target/actual comparison
l Target/actual/variance
Order 123 1,800 3,000 1,200 l Variance categories
l
R

Order 456 400 400 WIP

l Actual costs
Thursday, November 27, 25
2014
 Order Summarization
Through Classification
Hierarchy Description
COPC-VAR Order with variances
Settings ->Planned costs/actual costs
Standard
Standard Reports
Reports
Controlling area 197,000 219,500
Planned costs
Material group 001 82,000 92,500 Plan/actual comparison
Tgt/actual comparison
30,000 30,500 Tgt/actual/variance
Plant 1000
Variances categories
Plant 1100 32,000 33,500 WIP
Actual costs
Plant 1200 20,000 28,500

Material group 002 50,000 59,000

Material group 003 65,000 68,000

Thursday, November 27, 26

2014
 Thank You . . .

Thursday, November 27, 27

2014