In continuity to my previous blog on Product Cost by Order method for Product Costing, in this article I am going to discuss the Product Cost by Period Cycle.
The Product Cost By Product Cost Collector is the tool under Cost Object Controlling which is used in the Repetitive Manufacturing scenario. This is useful for the business using mass production or made to stock approach to manage it production to gain the benefits of economy of scales. Generally, in FMCG industries where periodic sales would be foretasted and the demand for product is based on the period, the Production is schedule and executed as per periodic demand foretasted. The Product Cost by Period method will be useful for Product Costing.
We start the process from the Plan Activity Price calculation which is used to post the activity costs on Production Order/ Product Cost Collector(Planned order) later on during confirmations through formula,
(Actual qty *Plan Price (KSPI))
We have three work centers (3001, 3002 & 3003) providing three different activities (MCH, PRCS & ASMB) respectively as shown below.
Product Cost By Period Cycle,
Now, let see the BOM and Routing for FG3 we going to manufacture. The BOM we used in our example is Single level BOM (without SFGs) as the figure below illustrates,
The Master data preparation for manufacturing FG3 are,
1- BOM (Bill of Material for FG3)
2- Work Center (3001- 3002- 3003)
3- Rate Routing (which is used in case of Repetitive Manufacturing)
Also in Rate Routing we assigned the control keys in which we have defined milestones/ operations at which we do the confirmation known as reporting points.
4- Execute Planned Cost estimate.
Now, we are going to procure the RM3 through Procure to Pay process as shown below,
Now, we assigned the RM3 to Operation 010 (first reporting point) in routing so that when we do the confirmation for this operation the RM3 quantity is by default suggested and posted along with it.
Info : Raw materials can be issued to product cost collector using any one of the following 3 ways
- Manual goods issue: We use transaction MB1A to issue goods manually to order.
- Back flushing: For this settings need to be done in MRP2 view of material master and may be in work center master data.
- Automatically through routing operation confirmation: For this we need to assign the components to operation in BOM master data as shown in this setting.
Also we create production version which is the combination of BOM and Routing. For every Production version we create separate Product cost collector. We assign the Production Version in MRP4 view of FG Material Master.
As all the prerequisites are set, it’s time to take off. From here we start the end user process for Repetitive Manufacturing,
First we create the the Product Cost Collector then Planned order with planning table where planned order number is generated and the we schedule that planned order using the transaction shown in the below figure,
After scheduling Planned order we do confirmation for Assembly Back-flush (which includes Raw material and component both) for Reporting point & operation 010.The accounting entry for Raw Material Consumption is generated here,
Cr Inv RM (Balance sheet account)
Now, we do the confirmation for other two RP 030, as the result of this transaction FG Good receipt takes place which in turn calculates Target Cost by formula,
Target Cost = Actual GR Qty * Plan Price(Current. Cost est.)
The account entry for FG Good receipt (mvt type 261) is following,
Db Inv FG (Balance sheet account)
Cr Change in Inv (P&L account -COGS)
The process is illustrated in the figure below,
Following are the reports shown in the figure below to analyse and make corrections in the Repetitive Manufacturing process,
Now, in case of scrap posting we run the following transaction shown in figure below, here we are posting the scrap qty 5 units for Reporting Point 030 i-e; Operation 020 & 030.
Here comes the time to land the flight, means to perform month end activities for Product costing by period,
First you need post Actual cost through Finance to Production cost centers, then calculate Actual activity price which is going to be used in Activity price Variances through CON1 which need to be executed if you are not using ML/Actual Costing.
We also calculate overhead as a part of month end activity for Product Cost collector.
The figure below depicts the list of activities/ transactions performed for month end closing.
WIP (Work in Process) calculation is also one activity needed to be performed as a part of Month End closing activities. Unlikely to Product cost by Order here WIP is calculated on Target Cost which in case of Product by order is the Actual Cost of order if order is not TECO or Fully Delivered.
In below figure the transaction for WIP calculation is shown,
The WIP is calculated for every Reporting point. As in our case 300 qty is confirmed at RP 010 and at RP 030 (which includes OP20 & OP30) only 275 qty including 5 qty of scrap is confirmed. This is shown in the below figure,
Now the Variance Calculation is performed, the variance for only 270 qty is calculated which is confirmed at RP 030 (means OP 020 & OP 030).
The formula to calculate Variance is shown the figure below,
Here, you can also see that WIP for 25 qty and variance for 300 qty both are calculated at the same time through formula,
Variance= Actual Costs- Target Cost(270 item) – WIP(25 items) – Scrap(5 items)
Similar to Product Cost by Order the final transaction is the settlement for WIP and Variance which are already calculated in previous transaction.
Now its time for safe and secure landing, as a result of settlement the Variances are calculated and posted to Material and CO-PA. Plus following accounting entries for WIP and variance is generated as shown below,
Db Production Variance (P&L account COGS)
Cr Change in stock (P&L account COGS)
Db WIP Inventory (Balance sheet account)
Cr WIP Offset (P&L account COGS)
After settlement we check the Product Cost Collector report using T-Code: KKF6N > Cost Analysis,
Note that variance is calculated and the remaining balance of Product cost collector is WIP.
Repetitive manufacturing is bit complex process with various scenarios, in this article the slight overview of Product cost by Period process is given. In the next and last blog of this series of Product Costing in SAP I will discuss the the Product Costing By Sales Order Cycle.
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