This lesson will help you to describe which price is used to valuate the input material used in the BOM.
You also want to know how the activities used in the routing are valuated. Which cost rate is used for these?
Explaining the Valuation of Quantity Structure
Objective
After completing this lesson, you will be able to explain how valuation uses material and activity price data.
Lesson Overview
Bill of Material Valuation
The different elements of the Bill of Material (BOM) selected in a Cost Estimate need to be valuated. You should consider that these valuations can be maintained with a multi-ledger approach (not covered in this course). Based on settings gathered in a valuation variant (not covered in this course), which helps to determine automatically which material prices are to be applied for each item of the BOM, the elements to be valuated are identified through the type of item M (Material) and later grouped in the Material Costs cost component.
Note
The valuation variant for ledger 0L is predelivered. If you want to create your own for use in additional ledgers, you create a new entry. Then you assign the valuation alternative for the respective ledger.Cost Rollup
This cost rollup includes the cost of goods manufactured from all the materials in a multilevel production structure within the costs of the material located at the top of the structure. The costs are rolled up automatically.
More precisely, the costs for the materials with the lowest costing level are first calculated and assigned to cost components.
The materials in the next-highest costing level (such as semi-finished materials) are then costed. The costs for the materials valuated first are rolled up and become part of the costs of goods manufactured in the next-highest level.
This process is continued until the costing results of the highest material in the structure (such as the finished product) contain the cost of goods manufactured for every material in the structure.
Note
For the Cost Accountant - Inventory business role, an app can be used to check which valuation strategy was used: Manage Material Valuation.Valuation Price According to Price Control in Material Master
In this strategy, for materials identified:
- With price control S, the standard price is used (in most cases for finished and semifinished goods).
- With price control V, the moving average price (in most cases for raw materials and materials procured externally).
Note
S & V codes refer to the price type in the Accounting 1 view in the Material Master of each BOM item.Routing Valuation
Once the routing is selected and applied for the material you want to produce, you should also calculate production costs, including activity valuation. The routing for a cost estimate with quantity structure is used to determine which work centers are included in the production process. Each work center is assigned to one specific cost center. For each operation, the routing must specify:
- Where the work is to be performed (work center).
- What production activities will be performed (activity type).
- How much activities will be used.
Using activity type planning, controlling must provide a price (cost rate) to charge the cost center when this activity is performed. As a prerequisite, the activity types used for costing must be planned for the cost center, while the actual duration of the activity is defined in the routing. A cost rate for each relationship has also been input, onwards.
The formula determines how the total execution time for the standard value should be calculated: setup (lot size quantity independent) versus machine time (lot size quantity dependent). Production costs are the combination of data from production planning with Cost Center Accounting elements.
The routing is assigned to a work center. Therefore, the routing describes the necessary quantity of an activity and the location of its operations for a specific material production.
The work center describes where you perform an operation. It is linked to a cost center to charge activity costs. Through the link to a cost center and the activity type planning for the cost center, you can calculate the planned activity prices for the work center.
By doing this, you make sure that the cost of labor will be part of COGM.
Log in to track your progress & complete quizzes