Valuation with Product Costing

In costing-based Profitability Analysis (CO-PA), you can configure a function known as valuation to supplement the performance information that a transaction provides directly. The additional information can be estimated, calculated, or retrieved from a different source. For example, you can set your system in such a way that it automatically calculates internal commissions and freight costs, which are expected in the respective business transaction when you transfer billing data into CO-PA.

In this way, you can evaluate the expected profit from the business transactions without all the actual data being posted. Similarly, you can access the detailed product costing information.

Valuation Overview

Valuation can be used with either actual or planning data. Valuation is used in CO-PA planning to access pricing and product cost information for products that have planned quantities. Pricing and product cost information is used when calculating projected revenue and cost-of-sales figures.

Valuation can be configured to function either in real time or periodically. Real-time evaluation of postings causes a higher system load. By postponing the evaluation, you help the system work efficiently. Similarly, periodic evaluation gives the option of revaluating the posted data.

Valuation Strategy

Defining the valuation strategy is the pivotal activity carried out in valuation configuration. A valuation strategy may contain references to multiple valuation techniques, such as costing sheets, user exits, and product costing information. You need to apply these valuation techniques to a given transaction related to CO-PA.

You decide to what record types (like, F - Billing or A - Order Income) and valuation points (like, actual, plan, and so on) each valuation strategy should apply. If a strategy is to be applied to planning data, you need to specify the relevant planning version.

Note

For record type, the quantity field from the sales order item refers to Invoiced Quantity, and for order income it refers to Ordered Quantity.

The following valuation techniques populate the value fields in different ways:

• Costing sheets:

  Condition types are mapped to value fields.

• Product costing:

  Cost components are mapped to value fields.

• Value fields:

  Value fields are updated directly through user exits.

You can assign six different cost estimates to different value fields. You could also assign two cost estimates to the same value fields, for example, using the indicator Exclusive Access to Cost Estimate. At first, the system looks for a cost estimate in the sales order item (used for material configuration), and then for the standard cost estimate. Only one of the two cost estimates is selected for the valuation.

The Product Cost Controlling (CO-PC) module is used to generate the product cost estimates for materials. The results of a product cost estimate can be viewed in different ways, such as by item, cost element, or cost component. Through cost component values, valuation pulls the product cost estimate information from CO-PC and transfers the estimates to CO-PA. The valuation function can be used to import the extensive cost of sales information into CO-PA for flexible margin reporting.

In configuration, cost components are mapped to value fields. You can map each component to its own value field or map multiple components to a single value field. You can also map the fixed and variable portions of a component to separate value fields. This function enables you to analyze cost of sales extensively in CO-PA, as well as calculate and analyze multiple margin values in CO-PA.

Valuation Using Product Costing: Customizing

Using a costing key, you can determine which cost estimate or costing variant should be used with which validity date for valuation. By assigning a costing key, you control which cost estimate, standard, modified standard, or current cost estimate is used in which case. This depends on the characteristics of the operating concern area used. The following characteristics are mandatory:

• Point of Valuation

• Record Type

• Planning Version (only for plan valuation)

Useful additional characteristics are:

• Plant, because plant is the valuation level in accounting and controlling

• Material type

In the assignment lines, determine which values of the cost component structure are transferred to which value fields in the operating concern. You can split the variable and fixed costs of a cost element to different value fields to enable the calculation of contribution margins.

Valuation Using Product Costing: Period Indicator

When you define a costing key, you can enter either a costing date, period, or value for the period indicator. Using the plan period indicator, specify the date for which the system looks for a valid material cost estimate in the database for product costing.

The following options are available for setting the plan period indicator:

• 0: Future standard cost estimate

• 1: Current standard cost estimate

• 2: Past standard cost estimate

• 3: Standard cost estimate valid on the posting date

• 4: Standard cost estimate valid on the date of goods issue

If you enter 0, 1, or 2 for the plan period indicator, the system reads the standard cost estimate as valid on the first day of the period. These indicators refer to the future, current, or past period for which the standard cost estimate is valid, according to the entries in the valuation segment of the relevant material master record.

If you enter 3 or 4 for the plan period indicator, the system reads the standard cost estimate as valid on the posting date or date of goods issue, regardless of what is stored in the material master.

Valuation Using Product Costing: Combination of Characteristics

In addition to assigning the costing keys to products or material types, you can assign the costing keys to any combination of characteristics. This allows greater flexibility and control in using costing keys.

You can use up to three characteristics (such as plant, product, and group) as source fields. In this way, you do not need to assign costing keys to one specific material or material type. You can also assign costing keys to a combination of different characteristics. This makes it possible to access the cost of goods manufactured from different plants.

In case the product costs and inventory valuation is calculated based on the actual costing logic, you need to make sure that the COGS revaluation based on the actual costs at period-end would be represented in your profitability reporting as well. Including the split into material, labor cost and other COGS categories. By adding this functionality, we can now cover all different product costing scenarios, presenting the cost of goods sold split in a correct way within the margin reporting, without the need for reconciliation.

Enhanced functionality enables to split costs of goods sold during more processes such as third party or other processes with account assignment to internal orders or projects. COGS Splitting customizing has been adjusted. Previous COGS Split functionality which processed the splitting only for goods movements with reference to a sales order is still available.

Define settings for posting the cost of goods sold split into different accounts based on the cost components in the underlying costing sheet. In the IMG you make settings for posting the cost of goods sold to different accounts based on the cost component split. To do this, you create a cost splitting profile and assign it to a source account. The source account is the one which is selected by the account assignment (transaction OMWB), when a goods issue will be posted for the material. If you want to use the splitting profile for materials for which the goods issue is posted to different accounts, you have to assign the splitting profile to all such accounts.

Account based split. If you set the flag for Account Based Split, COGS is always split when the source account is posted. Otherwise COGS is only split for goods movements relating to sales orders and its delivery.

1. Define a cost splitting profile and assign it to a company code. This determines the chart of accounts used for the cost splitting profile. Define a cost splitting profile and assign it to a controlling area. If you select Account-Based Split, COGS is always split, for example

   • Stock transfers

   • Inter-company sales

   • Third-party sales

   • Sales processes posted to internal orders

   • Sales processes posted to projects

   • Internal processes in Financial Accounting or Controlling, such as FB01 and FB50

2. 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.

3. Under Target Accounts, enter the account for each cost component in the cost component structure. Define one of the accounts as the default. Amounts for cost components for which no target account is specified will automatically be posted to the default account. When you assign target accounts to cost components, all cost components in the cost component structure are available for selection, including cost components for sales and administration costs. However, when the COGS split is posted, only cost components that are marked as Cost of Goods Manufactured are used.

4. 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.

5. Under Company Code Settings, assign the cost splitting profiles to company codes. Each company code needs to use the same chart of accounts as the controlling area assigned to the cost splitting profile.

6. Under Document Type Mapping, you can specify a document type to be used instead of the original document type of the COGS split. The COGS split document always uses internal number assignment. If the original document type uses external number assignment, specify a mapping for internal number assignment.

• Valuation supplements transaction data with estimated or calculated values.

• Valuation can be used with actual or planning data.

• Product cost estimates are transferred to CO-PA for margin reporting.

• Cost components are mapped to value fields or accounts for detailed analysis.

• Costing keys determine which cost estimate is used for valuation.