Explaining the Cost Component Split

In the cost rollup process, the cost data for low-level components is passed on to the costing results of the next-highest material. The purpose of a cost rollup is to ensure that the cost estimate of the higher-level material includes the cost of goods manufactured (COGM), such as material and production costs, of all materials in a multilevel bill of material (BOM). This rollup is achieved by assigning the costs in a cost estimate to cost components.

Cost components are established by grouping together various cost elements. Grouping cost elements provides transparency to the types of costs of a product, such as material, activity types, or overheads.

When a multilevel BOM is costed, the costs are rolled up. The cost components of the cost component split are passed up in the hierarchy to the cost estimate of the higher-level material.

For each material, the cost component split provides the following information:

• Information about the value addition of the material (upper level)

• Information about the costs of the subordinate materials (lower level)

A maximum of 120 cost fields can be rolled up in a cost component split. A cost component can carry fixed and variable costs.

Views of Material Cost Estimate Results

A cost component view consists of a combination of cost components based on various characteristics. The cost component view creates a filter in the information system reports so that only data assigned to the view is displayed.

You can display up to five views as the initial costing result in the cost estimate header. You assign these views to the cost estimate in the Settings menu in the cost estimate header.

Example: Cost Component Split by View

Views available for material costing result in the following forms:

• Cost component split
• Itemization
• Costed multilevel BOM (Bill of Material)

The Customizing - Cost Component Structure figure provides an overview of the customizing tasks required to organize costs in the appropriate cost component "bucket". Each material is assigned to a cost element through account determination. Each activity is assigned to a cost element through the activity type master record. Overhead costs and process costs are also assigned to cost elements. These cost elements function as channels to move this value information through controlling. To organize cost components, you need to assign the appropriate cost element(s) to the appropriate cost component. If required, you can subdivide a cost element using an additional value, the origin. This is required when controlling needs a further level of definition with a cost element than that required by financial accounting. Use the origin rather than add accounts to the general ledger and complicate the account determination procedures.

Cost components divide costing results in groups of material costs, machine costs, personnel costs, production costs, overhead, and external activities.

Cost elements are assigned to cost components in the cost component structure.

For each cost component, determine the following information:

• The various views of the cost estimate or reports of the information system in which the costs appear.

• The cost component group to which the cost component is assigned.

• Whether the costs are rolled up, that is, whether they appear in higher-level assemblies.

• Whether the costs are included in the standard price or inventory price of the material.

• Whether the cost component is relevant to inventory and cost of goods manufactured (COGM).

• Whether the cost component should contain a total amount or a fixed or variable split.

A cost component structure is assigned to each costing variant.

You can also assign various cost component structures to each company code and plant.

For standard cost estimates (costing type 01), only one cost component structure is permitted for each company code. A cost component structure must be used for cross-company code cost estimates.

To create a primary cost component split (CCS, perform the following tasks:

• Assign a cost component structure in the controlling (CO) version in cost center and process cost planning.

• Determine the prices through planned price iteration.

• Define a cost component structure for the primary cost component split of Product Cost Planning.

• Define a transfer structure for the transfer of cost components in cost centers and Activity-Based Costing to the cost components of the primary cost component split in Product Cost Planning.

For example, there are three cost components in Cost Center Accounting (CCA) for wage groups X, Y, and Z. In Product Cost Planning (PCP), only the cost component for the wages is required. The transfer structure enables you to transfer cost components X, Y, and Z to wages.

When you create a material cost estimate, you can decide whether the system creates a cost component split only for the COGM, or the primary cost component split, or whether both primary costs and COGM splits are created simultaneously. You make this choice when you assign the costing variants and enter the cost component structures for the main and auxiliary cost component splits.

Cost components group cost of similar types such as material, labor, and overhead. You can use up to 40 cost components. The cost component split is the combination of cost components that make up the total cost of a material. The main cost component split is used by the standard cost estimate to update the standard price. The main cost component split can be either a cost component split for COGM or a primary cost component split. The primary cost component split provides an alternative view based on primary costs in CCA (overhead costs are still included as secondary costs).

The cost components are listed in a cost component structure that can contain up to 120 cost components (cost fields).

• You can create up to 120 cost components that contain variable costs.

• For cost components that contain full costs, the system creates a second cost field for the fixed costs. This means that you can create no more than 60 cost components that are full costs.

The structure of the cost components is the same for each material in the BOM. This means, for example, that:

• The costs for a raw material appear under the cost component raw materials in the cost estimate of the semi-finished product and the higher-level semi-finished products and finished products.

• The costs for an internal activity appear under the cost component production costs in the cost estimate of the semi-finished product and the higher-level semi-finished products and finished products.

This way, the product cost estimate shows you not only the total costs for the usage of a semi-finished product, but also the composition of these costs, the cost component split. The system updates a cost component split for each material (including the raw materials).

You can identify the cost component split of the cost component structure as a primary cost component split. In this case you can include the primary costs from Cost Center Accounting and Activity-Based Costing in the cost estimate. Overhead that goes into the primary cost component split is still treated as secondary costs.

The primary cost component split and the cost component split for the cost of goods manufactured can exist in parallel to allow comparisons and analyses. In this case, you specify which cost component split is the main cost component split. Only the main cost component split can update results of the standard cost estimate to the material master. The second cost component split (auxiliary cost component split) is used more for statistical information purposes and can be evaluated in Profitability Analysis, for example.

When defining the cost components, you must determine whether they:

• Contain variable costs or full costs

• Contain cost of goods manufactured, sales and administration costs, or costs that are not relevant

• Are relevant for the initial cost split

• Are rolled up to the next-highest costing level

  • You use the Roll up indicator to determine, for example, that the costs for the usage of a raw material in a semi-finished product are displayed in the cost estimates of the higher-level semi-finished products and of the finished product.

  • Costs that are flagged as the cost of goods manufactured are normally rolled up.

  • Costs that are flagged as sales and administration costs are not normally rolled up.

When defining the cost components, you must specify whether the cost component plays a role in the creation of the different prices that are transferred into the material master record. You have the following options:

• Standard Price:

  Costs that are flagged as relevant for stock valuation form part of the standard price if the results of the standard cost estimate are marked and released. These costs also serve as a basis for the following:

  • The calculation of target costs in variance calculation.

  • The valuation of scrap in variance calculation.

  • The valuation of work in process for the confirmed yield for the operation (order-related production, process manufacturing) or at the reporting point (repetitive manufacturing).

• Commercial price:

  Costs that are flagged as relevant for inventory valuation for the purposes of commercial law form part of the commercial price. This price is calculated in an inventory cost estimate and can be written to the material master record.

• Tax-based price:

  Costs that are flagged as relevant for inventory valuation for the purposes of tax law form part of the tax price. This price is calculated in an inventory cost estimate and written to the material master record.

• Transfer price surcharge (optional):

  This category allows you to group several cost components of a cost component structure.

• Differences between the transfer prices (delta profit):

  If you use the functions of multiple valuation in group costing, you can specify that costs that arise from supply relationships with other company codes and profit centers are updated under the cost component. You can specify this for one cost component for each cost component structure.

Proposals for the Update of Additive Costs.

All costs are assigned to cost elements. This assignment is made in the following way:

Materials that are assigned to the same cost element through automatic account determination can be separated for controlling purposes through an origin group in the costing view of the material master record.

The cost component views are created using the attributes of the cost components in the cost estimate. For example, costs for cost components that are flagged as relevant for inventory valuation are shown in the cost component view Stock valuation.

When you create a cost estimate, you can display the costs in the cost component views defined.

The cost component views are included in the calculation of overhead. In the costing type, you specify the calculation base (such as the cost of goods manufactured) on which the overhead for the semi-finished products in the finished product are calculated.

The costing type determines the level on which you can define the cost component structure.

• For a standard cost estimate, the cost component structure must be selected through the company code. This ensures that the same cost component structure is used for all plants and costing variants in the company code. If you use different cost component structures in different plants, the standard cost estimate in one plant cannot access the results of standard cost estimates in other plants to transfer costing data for materials transferred from one plant to another.

• For modified standard cost estimates, current cost estimates, inventory cost estimates, and sales order cost estimates, the cost component structure can be selected at the following levels:

  • For each company code.

  • For each plant.

  • For each costing variant.

Costing variants that specify the same costing type and valuation variant must use the same cost component structure.

In this activity you make settings for posting the cost of goods sold to different accounts based on the cost components.

You have two basic options:

• Split COGS only for goods movements based on sales orders

• Split COGS for additional processes as well

1. Create new G/L accounts to which you want the individual cost components of COGS to be posted.

2. Define a cost splitting profile and assign it to a controlling area. This determines the chart of accounts used for the cost splitting profile.

3. Under Source Accounts, specify the accounts and valuation views for which the cost component split is to be performed.

4. For each entry under Source Accounts, select Strategy Sequence and define a priority sequence of strategies to be used as the basis for the split. The system tries to split the cost of goods sold based on the first priority in the sequence. If this is unsuccessful, it tries the next strategy in the sequence and so on.

5. Under Target Accounts, enter the account for each cost component in the cost component structure.

6. Offsetting Accounts: If you don’t want the original COGS account to be cleared, you can specify an offsetting account for each entry under Source Accounts and Valuation Views. You need to do this for example if you have reports that compare the originally posted costs with the actual costs of the material ledger.

7. Under Company Code Settings, assign the cost splitting profiles to company codes.

8. Each company code needs to use the same chart of accounts as the controlling area assigned to the cost splitting profile.

9. Under Document Type Mapping, you can specify a document type to be used instead of the original document type of the COGS split.

• Understand the purpose of the cost component split for organizing production, material, and overhead costs.
• Configure cost component structures to group cost elements and enhance transparency in cost analysis.
• Analyze material cost estimate results using various views, including cost component split and multilevel BOM.
• Assign cost elements to cost components for accurate cost tracking and reporting across organizational levels.
• Implement primary cost component splits to display cost buckets without allocated items, aiding in profitability analysis.