Defining cost object controlling for production orders

Objective

After completing this lesson, you will be able to outline cost object controlling in SAP S/4HANA

Cost object controlling

What is a cost object? Isn't it the same as a product? But how is the cost of producing a product calculated? This was the task of product cost planning in the previous lesson. But what happens if actual costs occur that have not been planned and have therefore not been costed? And what about the profit that can be generated with a product? How are costs and cost variances on the one hand, and profit on the other hand, accurately calculated and analyzed in SAP S/4HANA? How does the analysis of the results differ if we only consider costs during production compared to when revenues from sales are included?

First of all, you might wonder what is meant by a cost object and whether different types of cost objects are used in the SAP S/4HANA system. From a business point of view, the cost object equals the product. From the SAP S/4HANA perspective, the cost object is derived from the product and therefore, there are different cost object types depending on what the cost object refers to. Cost objects may:

  • Carry costs only when producing products (manufacturing order). The manufacturing orders are analyzed for variances.
  • Carry costs when delivering and carry revenues when billing (sales order item). The sales order items are evaluated by results analysis.

You want to know how these two types of cost objects are used in two differing scenarios:

  • Make-to-Stock (MTS). In MTS, standard products are industrially produced in stock. We are dealing with a manufacturing order. It is therefore the cost object for production and shows which plan, target, and actual costs have been calculated or occurred respectively.
  • Make-to-Order (MTO). The scenario is called "make-to-order" because it refers to a sales order and its items. A sales order item contains a standard product, a configured product or a service.

    In the case of a product, a sales order stock will be created. In the case of a service, there is no manufacturing order, as the service is allocated as an activity from the cost center providing the service to the sales order item.

    • If there is a manufacturing order, it is handled in the same way as in the MTS scenario.
    • The sales order item, however, which carries costs and revenues, is evaluated with results analysis.

Make-to-stock

The order is created manually in order-related production or by converting the planned orders generated in production planning.

The figure describes the process flow in a Make-to-Stock scenario.

Make-to-Order for Services

In Product Cost by Sales Order, a distinction must be made between a scenario with production or with services (without production):

In the scenario with production, on the one hand, controlling is carried out on the production order in the same way as in the make-to-stock scenario. The variances are analyzed for the production order. For the corresponding sales order, the actual costs from the delivery and the actual revenues from the billing document are automatically assigned to the sales order item if this is set as the cost object.

The figure describes the process flow in a Make-to-Order Services scenario

In the scenario without production, a service is provided in Product Costs by Sales Order.

This is done by entering the actual activity quantity performed by the employees of the service cost centers. These actual activity quantities are allocated to the sales order item – usually via manual activity allocation or automatic process allocation.

In addition, actual costs can be posted by account assignment of postings to the sales order item, for example, through the additional procurement of external services that support your own service.

Or spare parts that are withdrawn from the warehouse to perform repair services at the customer site.

In resource-related billing, the actual activity quantities are used as the basis for calculating the invoice amount. The actual revenues from the billing document are then assigned to the sales order item.

In contrast to the production order, a results analysis is carried out for the sales order item instead of a variance analysis. Is the relation of plan costs to actual costs balanced against the relationship of plan revenues and actual revenues? Otherwise, reserves for unrealized costs, imminent loss, or simply work in process are calculated if actual costs have been incurred but not yet billed.

If the sales order item is part of a larger project and must therefore be evaluated in the context of the project, then a project’s work breakdown structure (WBS) element can also be assigned to the sales order item. With this assignment, the actual values posted to the sales order item end up in the WBS element.

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