Product Cost Planning (PCP) 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.
When you create a cost estimate with a quantity structure, you must enter the costing variant, material, plant, and lot size.
The dates proposed from the costing variant specify the following details:
- The period of validity of the cost estimate (costing date from or to)
- The selection date for the BOM and routing (quantity structure dates)
- The pricing data for the material components and activities (valuation date)
Itemizations, Cost Element Itemizations, and Cost Component Splits
The costing results can be saved and displayed as itemizations, cost-element itemizations, or cost-component splits. The itemization shows detailed information about the origin of the costs, such as the quantities and prices of the materials and internal activities used.
The cost-element itemization groups the individual costing items into cost elements.
Cost elements are determined in the following ways:
- Through account determination for materials
- Through activity type master record, or through activity type planning for activities
- Through the process master record for processes
The cost-component split groups the cost elements into cost components. When a multilevel structure is valued, the cost component split rolls up so that the original identity of the costs is retained for analysis.
The standard price for the material in the material master record is updated when a standard cost estimate is marked and released. This results in the revaluation of inventory.
Prerequisites for marking or releasing a standard cost estimate include the following:
- The standard cost estimate must be free of errors (status KA, valued without errors).
- The marking and release of a standard cost estimate must be allowed. The company code and period in which the standard cost estimate can be marked with a set costing variant are entered in the authorization for marking. The employee responsible for setting up authorization does so once per period. If you mark a standard cost estimate, the results are updated in the material master records as the future standard price.
When you release the standard cost estimate, the future prices are updated as the current standard price.
You can release a standard cost estimate only once per period, unless you delete the previously released standard cost estimate (by using a special program) from the database. Before you release the standard cost estimate for a product, you must check the standard cost estimate to ensure that it is correct. Specialized reports in the information system allow you to do this.
Integration – Standard Price and Standard Cost Estimate
Price control plays a crucial role in material valuation. When the price control indicator field is set to S, the inventory is valuated at the standard price. In addition, goods movement is valuated directly in the system, using a price selected in accordance with the price control indicator.
If the standard price was updated by a standard cost estimate, it can be used in COC. The system can use the itemization of standard cost estimates to determine the target costs for manufacturing orders. You can analyze the difference between the target cost and actual cost at the level of variance categories, such as quantity and price variances. The saved itemization provides the basis for variance calculation.
In profitability analysis, you can use standard cost estimates (or other material cost estimates) to compare the revenues of the billed quantity with the cost component split of the product.
A standard price is also required in the material ledger to determine the actual price.