Managing Master Data and Product Cost Calculation

After completing this lesson, you will be able to:

After completing this lesson, you will be able to:

  • Describe the necessary steps for Product Cost Calculation

Current Process Step

Please have a look at the Scope Item Overview that Paul has prepared for you.

To see the selected scope items, select the business process steps.

Plants, Distribution Centers (DCs), vendors, and customers are basic logistics objects for supply chain planning.

Supply chain planning deals with materials, which are defined in the form of material masters. For the plants used for production, you must also create work centers, BOMs (Bill of Material) and routings in addition to the materials to support planning tasks.

Product Master Record (Material Master Record)

As we have already heard, the product or material master is divided into different areas or departments. We will now talk about the planning and production and have a look at our newly finished product. This product has been created with the material type "finished product" and that includes data from production – work scheduling data and planning – MRP data. We want to show how the work scheduling data is relevant for production and the data relevant for pre-planning.

Paul prepared an overview for you. Please have a look at the interaction below, to learn about the data in the Product Master Record.

We will have a closer look at the MRP relevant data and the fields when we extend our newly created product master to be used in the Materials Requirements Planning in the next lesson.

How to Display a Finished Product

Master Data - BOM

BOMs are one necessary component for the Product Master Record.

Go to the meeting with Paul to learn more about them.

How to Change a Bill Of Material

Master Data - Work Center

Let’s move on to Work Centers, another component for the Product Master Record.

Work Centers are used in the following applications:

  • Routings (Production Planning)
  • Networks (Project System)
  • Inspection plans (Quality Management)
  • Maintenance routings (Enterprise Asset Management)

A work center is generally a specific geographical location in the plant. For example, a specific machine or department in a plant.

As we also need to define "who" is doing the work, we need to create work centers. A work center in SAP S/4HANA could be a person, a group of persons, a machine, a group of machines or the combination of both.

A work center is where an operation or an activity is carried out in a plant. It therefore specifies where production ultimately takes place.

Let’s discuss 2 Work Center topics in detail, capacities and costing.

Work Center Capacities

The available capacity of the work center and the data needed to calculate the costing of work completed is stored in the work center. The default values define data that has to be transferred into the operation of the routing or are used as a reference.

The capacities that are available to a work center are explicitly specified in the work center. In this case, you may certainly use more than one capacity for each work center. For example, you can assign both machine capacity and labor capacity to a work center.

Work Centers contain the available working time. Moreover, formulas specify how long the capacities will be loaded by a certain operation.

Work Center Costing

Since the work center provides working time, it also generates internal costs for labor. To calculate the costs, the work center is assigned to a cost center. As we have heard in the Controlling section, a cost center provides different output. This output is named activity type. To differentiate labor processing time, machine time, and setup time related to different costing rates, we assign the different activity types to the work center in the costing tab.

How to Display a Work Center

Master Data - Routing

Routing is the last component of the Product Master Record we will talk about.

Follow the interaction to see Paul’s explanation.

How to Change a Routing​

Product Cost Planning Overview

Business Scenario

Now that we know about the necessary master data records in production, we will have a look at how to calculate our costs of goods manufactured (COGM). This will lead us again to Controlling because the calculation of product costs is part of Product Cost Calculation.

Product Cost Planning Overview

Product cost planning assists employees in operational decision making for manufactured products by providing the following detailed information:

  • Cost of goods manufactured, and the cost of goods sold
  • Calculation of the break-even price for the product
  • Comparison of production cost in large versus small lot sizes
  • Production cost breakdown and comparison, for example, material costs and wages
  • Optimization of the production process
  • Production cost by organizational unit
  • Manufacturing cost by plant
  • Effect of primary costs on production costs

In the SAP S/4HANA application, materials can be valuated with a standard price, which can be set by a standard cost estimate.

Figure color code:

  • Dark green: Controlling
  • Light green: Finance
  • Black: Production
  • Purple: Procurement

Different stages of the product lifecycle are as follows:

  • Product idea or simulation – At the start of the product lifecycle, Product Cost Planning is used to provide initial cost projections. The projections, which are usually based on existing similar products or structures, must be delivered quickly. These projections must be flexible and variable to accommodate the simulated cost projections.
  • Product design and specification – At the product design and specification stage, costs can increase as refinements are made to original specifications.
  • Prototype of new product – After transition to the prototype stage, the first constructive data can be entered in the form of a bill of material (BOM). During this phase, the need for integration and direct access to data in logistics increases. The person responsible for Product Cost Planning creates the data missing from logistics.
  • Market maturity of product – After products attain market maturity, the integration of master data for tangible goods has a significant impact. At this stage the cost of the product or product range is monitored periodically at regular intervals and cost shifts are analyzed.
  • Continuous improvement-Improvements in the production process of important products must be reflected by and analyzed in Product Cost Planning.

When the complete master data (BOM and routing) is available in the system, you can create a material cost estimate with a quantity structure, which automatically calculates the cost of goods manufactured and the cost of goods sold from existing data in logistics, such as BOM and routing.

Now that we have all the required master data for a material cost estimate with a quantity structure, we want to see the impact of this calculation:

  1. First, we will calculate our COGM (Costs Of Goods Manufactured)
  2. Second, we will update our standard price in the product master

Material Cost Estimate with Quantity Structure

The results of a cost estimate created with quantity structure are identical to the results of a cost estimate created without quantity structure. The only difference is the origin of the information. The valuation principles explained in earlier units also apply here. The term quantity structure refers to the use of production master data, such as BOM and routing.

It is only the method by which you obtain the costing results that differs. Material costing with quantity structure can determine the product structure and production plans as entered in logistics and convert them to structures of the itemization and the cost component split.

The costing result, itemization, cost component report, and costed BOM are visible from a single screen. You can execute detailed reports directly from the cost estimate screen. Overall log contains the complete list of messages for all the materials costed. It contains display variants (which you can customize) that enable you to perform summarized analysis of the errors. Double-clicking on the material in the header of a cost estimate or in the status display displays the messages specific to the particular material.

How to Create a Material Cost Estimate

Master Data - Prices

The prototype of our new product has been successful, and production is to commence shortly. We need to calculate and set an accurate initial standard price. We must make all the settings required for valuation and use the correct quantity structure. For this reason, you require the following knowledge:

  • An understanding of prices in material master
  • An understanding of the procedure to update the standard price

Therefore, Paul and you need help from another colleague. Start the interaction to learn more.

How to Release a Standard Cost Estimate

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