Product Cost Planning
You know that it is very important for the company to know the true cost of its products. But how can these costs be made transparent? How can the calculation of the product costs be verified? What is the difference between costing the production of products and costing the provision of services? How can you ensure that the calculated costs are always up to date?
There are different business requirements for calculating the product costs depending on whether it is a service or a manufactured product.
A service is delivered by a service cost center and its activity types, for which a price is calculated during cost center planning. The costing typically includes additional costs like travel cost and the usage of IT equipment. A cost estimate of this type is called a cost estimate without quantity structure because the activity quantities must be entered in the cost estimate itself. Typically, such a service cost estimate is made for the sales order item with which the customer ordered the service.
This is different for a product that is manufactured in a production process. In this case, production planning and costing use a quantity structure, which consists of two components:
The bill of material (BOM) defines which materials are used to assemble the product, such as for a bike: the frame, a saddle, a handlebar, two wheels, and so on. Each BOM item contains the required quantity of raw material or parts.
- A routing defines which work steps make up the production of the product. Each step contains the planned production times needed within the production process. The step is assigned via a work center to a cost center and its activity types. Therefore the activity types of the cost center are assigned to the planned production times.
To calculate the cost of goods manufactured (COGM), SAP S/4HANA selects the material quantities from the BOM and the required production times from the routing.
Quantity Structure:
The quantities selected so far are valuated with their prices: The material used with the material prices and cost center activity types with the activity prices obtained from cost center planning.
The cost estimate adds overhead costs using an overhead scheme or internal process costs, for example, internal transportation.
By using a template, you can determine the number of transportation operations that are multiplied by a transportation cost rate.
Itemization:
The cost estimate with quantity structure represents the costs of a product in different ways:
- as an itemization,
- as a grouping of the costs in cost components,
- as a valuated costing structure.
Inventory Valuation:
The result of product costing is transferred to the material master as the standard price by means of the price update.
Any existing warehouse stock of the costed material is updated in the stock value.