Following the Material Cost Estimate Calculation in the scenario

Product costing is used to calculate the cost of goods manufactured and is the basis for the standard price of finished goods and semi-finished products. The standard costs can be updated in the material master as a future standard price (marking the cost estimate) or as the current standard price (releasing the cost estimate).

A standard cost estimate of the material is created for the combination of material, plant, costing variant, and costing version.

The quantity structure of the cost estimate contains BOM and routing information for the production of the product. Therefore, the material cost estimate is used to calculate the target costs, which in turn is the basis for the valuation of the following values:

• Material
• Activity and overhead costs per lot size
• Work in process (WIP)
• Different costs

A costing variant is the central control element of a cost estimate and contains important control parameters for the automatic determination of the quantity structure and for the price update in the material master.

Costing variant PPC1 stands for standard price costing. Each costing variant contains a valuation variant and a costing type.

The valuation variant determines the prices with which the strategies materials, activity types, subcontracting, external activities, and overhead costs are valuated. The valuation variant searches through the various price sources listed for each of these strategies. The price sources are searched in the order in which they are entered in the strategy. The first price found using the strategy is selected for costing.

For activity types, the price is taken from Cost Center Accounting.

An event-based costing sheet is stored for the calculation of the overhead costs for finished and semi-finished products. In the case of the application scenarios, the costing sheet 1010EP - Event based costing sheet (DE) is stored.

The purpose of the material cost estimate is defined in the costing type, that is, the field in the material master record into which the costing results are to be transferred (price update). The costing type standard price defined in the scenario updates the standard price in the material master.

The figure above shows that to transfer the cost estimate to inventory valuation after the material cost estimate has been executed and saved, it must first be marked and then released in order to actually update the prices in the material master. The display shows to which fields of the material master the prices in our scenario are updated for each of the two steps.

The costing sheet 1010EP - Event Based Costing Sheet (DE) stored in the valuation variant is the overhead costing sheet.

Storage costs for which rent and depreciation are incurred, regardless of whether the room is full or only half used, and the costs for processing the purchase are independent of the production quantities. It is therefore more difficult for these two cost blocks to relate to the products.

In comparison, time specifications for machines and personnel from the task list are very good keys for transferring costs to materials.

Therefore, the costs of the purchasing and storage cost centers are calculated as a percentage overhead on the costs of raw material. The surcharge is entered manually in the procedure.

For the costing sheet 1010EP - Event-based costing sheet (DE) used in the scenario, the Event-Based switch is selected.

The event-based overhead calculation therefore generally allows the automatic posting of overhead amounts together with other business transactions in Management Accounting and Margin Analysis.

The figure above provides an overview of the structure of the costing sheet used in the scenario to calculate event-based overhead rates.

The cost basis is defined using selected cost elements. The previous posting acts as a cost basis, while the actual costs of an object within a selected period are always used for period-end overhead calculation.

The figure above shows the structure of the pricing procedure for the handlebar scenario.

The calculation base determines which direct costs are to be applied to the overhead.

First, the direct material cost in line 100, which is referenced in base Y001. The cost element group 1200_CE is stored here.

Then the base Y002 of the production costs in line 200. It contains the cost element group 4500_CE.

The overhead is used to determine the percentage overhead on the direct costs and the conditions (dependencies) under which the overhead is to be calculated. In our scenario, there is only a dependency on the plant, so that the defined overhead is calculated for each plant. In our scenario, it is therefore only possible to store separate overhead rates for actual and plan. However, this is not the case. The overhead for material overhead costs (Y0H1) is 7% for actual and plan. Overhead for production overhead (Y0H2) has been set to 10% for actual and plan.

The credit specifies the credit object and the credit cost element.

In our scenario, if the material costs are debited with overhead, cost center 10101201 - Purch & Store 1 (DE) is also credited (Y10). If the production costs are applied to the costs, it is cost center 10101301 - Manufacturing 1 (Y20).

The overhead is allocated using a special overhead cost element (cost element of category 41). In the case of material overhead, cost element 94111000 - OH Material is used, in the case of production overhead, cost element 94112000 - OH Production.

Note that the Fxd % field is prefilled with "*" in both credit objects (Y10 and Y20). This means that the fixed and variable portions of the overhead are determined in the same way as the distribution of the fixed and variable costs of the calculation base.

The direct material cost in base Y001 was assigned to cost element group 1200_CE.

The production costs in basis Y002 cost element group 4500_CE.

The figure above shows that for the direct material costs of base Y001, cost element 51100000 - Consumption - Raw Material is assigned in cost element group 1200_CE, in addition to other cost elements.

You can also see that in the case of direct production costs, represented by the cost element group 4500_CE in basis Y002, the secondary cost elements are stored in the master record of the activity types that are used to produce the handlebar.

You can use the MM account determination to identify why cost element 51100000 - Consumption - Raw Material was defined as the base cost element of the material costs in cost element group 1200_CE.

For all three raw materials in our scenario, the valuation class 3000 - Raw Materials is assigned in the material master. The valuation class is used to determine the G/L account for the material stock account. In our case of material costing, the planned consumption of the material is of interest, which is the automatic offsetting entry of a material stock change.

Accordingly, the account determination display shows the transaction/event key GBB (offsetting entry for inventory posting) predefined by the system.

In the system, several general modification keys are assigned to each valuation class. These give an indication of the cause of the posting. In our case, the general modification key VBR - Consumption is assigned to the valuation class 3000 - Raw Materials.

Expense account 51100000 - Consumption Raw Material is assigned to this combination of valuation class 3000 - transaction key GBB and general modification key VBR in mm account determination for debit and credit postings. This account has been assigned to cost element group 1200_CE.

Before we calculate the standard price of the Handlebar along the cost estimate, follow the following figure to get a summary of all the relevant data related to the material costs and production costs.

The following figure describes how direct material costs and material overhead are calculated for a handlebar.

The total costs of the scenario determined here are simultaneously and only variable costs, namely both individual and overhead costs.

For the overhead costs, this results from the setting "Fxd %" * in the overhead of the costing sheet, which is determined according to the fixed and variable portions of the overhead in the same way as the distribution of the fixed and variable costs of the calculation base.

The cost center 10101201 - Purch & Store 1 (DE) in the Resource column is the credit cost center with regard to the material overhead costs according to the costing sheet.

The following table shows the calculation of the production costs - direct and overhead costs - as well as the fixed and variable cost portions.

The cost center 10101301 - Manufacturing 1 in the Resource column is the credit cost center with regard to the production overhead costs according to the costing sheet.

The following table summarizes all determined data and shows that the total costs for creating a handlebar are EUR 97.20.

Of these, EUR 80.70 are the variable costs and EUR 16.50 are the fixed costs.

After the material cost estimate has been carried out, you must save it.

To transfer the cost estimate to inventory valuation, mark the cost estimate and then release it.

Through marking, the material knows what price it will have in the future. The marked status is set in the affected cost estimate.

In the material master, the marked price is visible in the Costing 2 view under the Future button. The period for the price update is also visible.

The release that is always carried out on the first day of a period, generates a price change document and an accounting document. The material stock is revaluated, which you can see in the Total Value field in the Accounting 1 view of the material master.

In the material master record, costing 2 view, the new price has shifted under the Current button.