Actual Costing with SAP Material Ledger

By John Jordan

  

SAP Material Ledger has two main functions:

• Carry inventory in multiple currencies and valuations
  
  
• Actual Costing

In this blog, we'll discuss Actual Costing in detail:

Actual costing generates a material ledger document for all goods movements at standard price (preliminary valuation). At period-end, the actual price is calculated for each material based on the actual costs incurred during the period. The actual price is called the Periodic Unit Price (PUP) and can be used for the following two functions at period-end:

1. Revaluate inventory

The material stock account is debited with the proportional price differences, and the price differences account is credited with the same amount. You use the actual price as the standard price for the next period.

2. Don't revaluate inventory

Price differences are posted to an accrual account. The amount that you would have posted to the material stock account is posted to another price difference account.

 Many companies do not revauate inventory initialy before they revaluate inventory.

You decide to revalue inventory or not according to which financial accounts are posted to during automatic account determination with configuration Transaction OBYC. If you want the system to calculate a PUP for your materials based on the actual costs incurred in a period, you activate actual costing in addition to activating the material ledger.

You activate actual costing with the IMG menu path:

Controlling - Product Cost Controlling - Actual Costing / Material Ledger - Actual Costing - Activate Actual Costing

The screen shown in Figure 1 is displayed.

 Figure 1: Activate Actual Costing
In this step, you activate actual costing for materials and activity consumption update in the quantity structure. Here's an explanation of each of the fields:
Act. Costing (3rd column: Activate Actual Costing): If you work with multilevel price determination in the Actual Costing component, select this checkbox to update the actual quantity structure.
ActAct (4th column Update of Activity Consumption in the Quantity Structure): Actual costing determines what portion of the variance you debit to the next-highest level using material consumption. The actual Bill of Material (BOM) enables variances to be rolled up over multiple production levels all the way to the finished product.

Left-click then right-click the field and select Possible Entries to display the list at the right in Figure 1.

The possible entries are explained as follows:

0. No activity update: Update is not active

1. Activity update not relevant to price determination: Update is active but not relevant to price determination. Consumption is updated in the quantity structure but not taken into account upon price determination.

2. Activity update relevant to price determination: Variances between the activity prices/process prices posted during the period and the actual price at the end of the period are adjusted subsequently. In addition, you must set multilevel price determination 3 in the Accounting 1 view.

You must use standard price control for all materials that you use in Actual Costing.

Period-End

After you activate actual costing, you'll need to run an actual costing report at the end of each period using transaction CKMLCP. The actual costing run screen, as shown in Figure 3, is similar to the standard cost estimate costing run screen.

 

First, assign plants to the actual costing run in the Plant Assignment tab, as shown in Figure 2.

Figure 2 Assign Plants CKMLCP

 

Then, follow the rows listed in the first Flow Step column in Figure 3.

Figure 3 Actual Costing Cockpit CKMLCP

  

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Glossary

 

Accrual Accounting

Accrual Accounting is a financial accounting method that allows a company to record revenue before receiving payment for goods or services sold and record expenses as they are incurred.

In other words, the revenue earned and expenses incurred are entered into the company's journal regardless of when money exchanges hands. Accrual accounting is usually compared to cash basis of accounting, which records revenue when the goods and services are actually paid for.

Bill of Material

A bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs and purchasing info records provide cost estimates with the information necessary to calculate the material costs of assemblies.

By-Product

A by-product is a product that is produced in conjunction with other products. The system does not create a separate order item for each by-product. The material valuation of a by-product is always based on the price specified by price control in the material master. If a by-product is indicated as being relevant to costing in BOM, the total cost of the process is reduced by the costs of the by-products

 

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Co-Product

You select the co-product indicator in the MRP 2 and Costing 1 views if a material is a valuated product that is produced simultaneously with one or more other products. Setting this indicator allows you to assign the proportion of costs this material will receive in relation to other co-products within an apportionment structure.

Backflush

Backflushing is the automatic posting of a goods issue for components in an order during confirmation. It reduces the amount of work in warehouse management, especially for low-value parts. The material components from the BOM are assigned to operations in the routing.

Base Quantity

All component quantities in a BOM relate to the base quantity. You increase the accuracy of component quantities by increasing the base quantity, similar in concept to the price unit.

 Base Unit of Measure

Material stocks are managed in the base unit of measure. The system converts all quantities you enter in other units of measure (alternative units of measure) to the base unit of measure.

Bill of Material

A bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs, and purchasing info records allow cost estimates to calculate material costs of assemblies.

BOM Application

A BOM application is a costing variant component for automatic determination of alternative BOMs.

BOM Group

A BOM group is a collection of BOMs for a product or number of similar products.

BOM Item Component Quantity

The quantity of a BOM item that is entered in relation to the base quantity of the product.

BOM Item Status

Six indicators, such as costing relevancy, are contained in the Status/Long Text tab of a BOM item.

BOM Status

This controls the current processing status of the BOM. For example, a BOM may have a default status of not active when initially created, which then may be changed to active when the BOM is available for use in material requirements planning (MRP) and released for planned orders.

BOM Usage

This determines a section of your company, such as production, engineering, or costing. You define which item statuses can be used in each BOM usage; for example, all items in BOMs with a certain usage may be relevant to production.

Bulk Material

Bulk materials are not relevant for costing in a cost estimate and are expensed
directly to a cost center. The Bulk Material checkbox is maintained in the MRP 2 view and the BOM item. If a material is always used as a bulk material, set the indicator in the material master. If a material is only used as a bulk material in individual cases, set the indicator in the BOM item, which has a higher priority.

Calculation Base

A calculation base is a group of cost elements to which overhead is applied. The calculation base is a component of a costing sheet, which summarizes the rules for allocating overhead.

Chart of Accounts

A chart of accounts is a group of general ledger accounts assigned to each company code. This chart of accounts is the operative chart of accounts used in both financial and cost accounting. All companies within the one controlling area must have the same operative chart of accounts. Other charts of accounts include the country-specific chart of accounts required by individual country legal requirements and the group chart of accounts required by consolidation reporting.

Company Code

A company code is the smallest organizational unit of financial accounting for
which a complete self-contained chart of accounts can be drawn up for external reporting.

Component Scrap

Component scrap is the percentage of component quantity that does not meet required quality standards before being inserted in the production process. The plan quantity of components is increased. Component scrap is an input scrap because it is detected before use in the production process. You can plan component scrap in the MRP 4 view and the Basic Data tab of the BOM item. An entry in the BOM item field takes priority over an entry in the material master MRP 4 view.

Condition

Conditions are stipulations agreed upon with vendors, such as prices, discounts, surcharges, freight, duty, and insurance. You maintain purchasing conditions in quotations, purchasing info records, outline agreements, and orders.

Condition Technique

The condition technique is used to determine the purchase price by consideration of all the relevant pricing elements. A feature of the technique is the formulation of rules and requirements.

Condition Type

A condition type is a key that identifies a condition. The condition type indicates, for example, whether the system applies a price, a discount, a surcharge, or other pricing, such as freight costs and sales taxes.

Confirmation

A confirmation documents the processing status of orders, operations, and individual capacities. You specify the operation yield, scrap and rework quantity, the activity quantity, work center, and who performed the operation.

Consignment Material

Consignment occurs when a vendor maintains a stock of materials at a customer site. The vendor retains ownership of the materials until they are withdrawn from the consignment stores.

Cost Center

A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period end.

Cost Component

A cost component identifies costs of similar types, such as material, labor, and overhead costs by grouping together cost elements in the cost component structure.

Cost Component Group

Cost component groups allow you to display cost components in standard reports. In the simplest implementation, you create a cost component group for each cost component and assign each group to a corresponding cost component. You assign cost component groups as columns in cost estimate list reports and costed multilevel BOMs.

Cost Component Split

The cost component split is the combination of cost components that makes up the total cost of a material. For example, if you need to view three cost components (material, labor, and overhead) for your reporting requirements, the combination of these three cost components represents the cost component split.

Cost Component Structure

You define which cost components make up a cost component split by assigning them to a cost component structure. Within the cost component structure, you assign cost elements and origin groups to cost components.

 

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Cost Component View

Each cost component is assigned to a cost component view. When you display a cost estimate, you can choose a cost component view, which filters the cost components displayed in the cost estimate.

Movement Type

This key indicates the type of material movement such as goods receipt, goods issue, and physical stock transfer. The movement type enables the system to find predefined posting rules, which determine how the stock and consumption general ledger accounts post and how the stock fields in the material master record are updated.

Raw Materials

Raw materials are items that you purchase from suppliers or vendors.

SAP Query

SAP Query is used to create reports for users who have little knowledge about SAP Table data storage structure. SAP Query allows evaluating data in the SAP system.

SAP Query offers users a broad range of ways to define reporting programs and create different types of reports such as basic lists, statistics, and ranked lists.

Valuation Class

The valuation class in the Costing 2 view determines which general ledger accounts are updated during inventory movement or settlement.

Cost Element

Cost elements are included as part of a general ledger account. Primary cost elements identify external costs, while secondary cost elements identify costs allocated within controlling, such as activity allocations from cost centers to manufacturing orders.

Cost Estimate

A cost estimate calculates the plan cost to manufacture a product or purchase a component. It determines material costs by multiplying BOM quantities by the standard price, labor costs by multiplying operation standard quantities by plan activity price, and overhead by costing sheet configuration.

Costed Multilevel BOM

A costed multilevel BOM is a hierarchical overview of the values of all items of a costed material according to the material?s costed quantity structure (BOM and routing). You display a costed multilevel BOM on the left side of a cost estimate screen. You can also view a costed multilevel BOM separately with Transaction CK86_99.

Event-Based Processing

As of SAP S/4HANA release 2022, event-based processing is available, where goods movements and confirmations represent events that trigger the calculation of overhead according to the costing sheet. Then, depending on the status of the order, this triggers either the posting of a journal entry for the work in process (WIP) or the cancellation of any existing WIP and the calculation of production variances.

Goods Issue

A goods issue is the movement (removal) of goods or materials from inventory to manufacturing or to a customer. When goods are issued, it reduces the number of stock in the warehouse.

GR/IR

GR/IR is the SAP process to execute the three-way match- purchase order, Material Receipt, as well as vendor invoice. You use a clearing account to record the offset of the Goods Receipt (GR) and Invoice Receipt (IR) postings. As soon as completely processed, the postings in the cleaning account balance.

Internal Order

An internal order monitors costs and revenue of an organization for short- to-medium-term jobs. You can carry out planning at a cost element and detailed level, and budgeting at an overall level with availability control.

Long-Term Planning

Long-term planning allows you to enter medium- to longer-term production plans, and simulate future production requirements with long-term MRP. You can determine future purchasing requirements for vendor RFQs, update purchasing info records, and transfer planned activity requirements to cost center accounting.

Margin Analysis

Margin Analysis is the refined version of Account-based COPA. The Universal Journal combines financial and managerial accounting and directly records all dimensions, including custom fields. Margin Analysis provides consistent financial information without any reconciliation needs along with a financial audit trail. All innovations developed for the Universal Journal are immediately available within Margin Analysis. A consistent approach ensures common usage of ledgers, currencies, valuations, predictions, and simulations, as well as their availability in planning and reporting.

Master Data

Master data is information that stays relatively constant over long periods of time. For example, purchasing info records contain vendor information such as a business name, which usually doesn?t change.

Material Master

A material master contains all the information required to manage a material. Information is stored in views, and each view corresponds to a department or area of business responsibility. Views conveniently group information together for users in different departments, for example, sales and purchasing.

Process Order

A process order is a manufacturing order that is used in process industries. A master recipe and materials list are copied from master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work-step that defines the detail of one part of the production process using a primary resource.
In process manufacturing, only phases are costed not operations. A phase is assigned to a subordinate operation and contains standard values for activities, which are used to determine dates, capacity requirements, and costs.

Procurement Alternative

A procurement alternative represents one of a number of different ways of procuring a material. You can control the level of detail in which the procurement alternatives are represented through the controlling level. Depending on the processing category, there are single-level and multilevel procurement alternatives. For example, a purchase order is single-level procurement, while production is multilevel procurement.

Production Order

A production order is used for discrete manufacturing. A BOM and routing are copied from master data to the order. A sequence of operations is supplied by the routing, which describes how to carry out work-steps.
An operation can refer to a work center at which it is to be performed. An operation contains planned activities required to carry out the operation. Costs are based on the material components and activity price multiplied by a standard value.

Product Drilldown Reports

Product drilldown reports allow you to slice and dice data based on characteristics such as product group, material, plant, cost component, and period. Product drilldown reports are based on predefined summarization levels and are relatively simple to setup and run.

Production Variance

Production variance is a type of variance calculation based on the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity delivered to inventory. You calculate production variance with target cost version 1. Production variances are for information only and are not relevant for settlement.

Production Version

A production version determines which alternative BOM is used together with which task list/master recipe to produce a material or create a master production schedule. For one material, you can have several production versions for various validity periods and lot-size ranges.

Purchase Price Variance

When raw materials are valued at the standard price, a purchase price variance will post during goods receipt if the goods receipt or invoice price is different from the material standard price.

Profitability Analysis

Costing-based profitability analysis enables you to evaluate market segments, which can be classified according to products, customers, orders (or any combination of these), or strategic business units, such as sales organizations or business areas concerning your company?s profit or contribution margin.

Profit Center

SAP Profit Center is a management-oriented organizational unit used for internal controlling purposes. Segmenting a company into profit centers allows us to analyze and delegate responsibility to decentralized units.

Purchasing Info Record

A purchasing info record stores all the information relevant to the procurement of a material from a vendor. It contains the Purchase Price field, which the standard cost estimate searches for when determining the purchase price.

Raw Materials

Raw materials are always procured externally and then processed. A material master record of this type contains purchasing data but not sales.

Routing

A routing is a list of tasks containing standard activity times required to perform operations to build an assembly. Routings, together with planned activity prices, provide cost estimates with the information necessary to calculate labor and activity costs of products.

Sales and Operations Planning

Sales and operations planning (SOP) allows you to enter a sales plan, convert it to a production plan, and transfer the plan to long-term planning.

S&OP is slowly being replaced by SAP Integrated Business Planning for Supply Chain (SAP IBP), which supports all S&OP features. S&OP is intended as a bridge or interim solution, which allows you a smooth transition from SAP ERP to on-premise SAP S/4HANA and SAP IBP. See SAP Note 2268064 for details.

SAP Fiori

SAP Fiori is a web-based interface that can be used in place of the SAP GUI. SAP Fiori apps access the Universal Journal directly, taking advantage of additional fields like the work center and operation for improved variance reporting.

Settlement

Work in process (WIP) and variances are transferred to Financial Accounting, Profit Center Accounting (PCA), and Profitability Analysis (CO-PA) during settlement. Variance categories can also be transferred to value fields in CO-PA.

Settlement Profile

A settlement profile contains the parameters necessary to create a settlement rule for manufacturing orders and product cost collectors and is contained in the order type.

Settlement Rule

A settlement rule determines which portions of a sender?s costs are allocated to which receivers. A settlement rule is contained in a manufacturing order or product cost collector header data.

Setup Time

You need setup time to prepare equipment and machinery for the production of assemblies, and that preparation is generally the same regardless of the quantity produced. Setup time spread over a smaller production quantity increases the unit cost.

Simultaneous Costing

The process of recording actual costs for cost objects, such as manufacturing orders and product cost collectors in cost object controlling, is called simultaneous costing. Costs typically include goods issues, receipts to and from an order, activity confirmations, and external service costs.

Source Cost Element

Source cost elements identify costs that debit objects, such as manufacturing orders and product cost collectors.

Source List

A source list is a list of available sources of supply for a material, which indicates the periods during which procurement is possible. Usually, a source list is a list of quotations for a material from different vendors.

 You can specify a preferred vendor by selecting a fixed source of supply indicator. If you do not select this indicator for any source, a cost estimate will choose the lowest cost source as the cost of the component. You can also indicate which sources are relevant to MRP.

Standard Price

The standard price in the Costing 2 view determines the inventory valuation price when price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.

Subcontracting

You supply component parts to an external vendor who manufactures the complete assembly. The vendor has previously supplied a quotation, which is entered in a purchasing info record with a category of subcontracting.

Tracing Factor

Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.

Universal Journal

The efficiency and speed of the SAP HANA in-memory database allowed the introduction of the Universal Journal single line-item tables ACDOCA (actual) and ACDOCP (plan). The Universal Journal allows all postings from the previous financial and controlling components to be combined in single items. The many benefits include the development of real-time accounting. In this book, we discuss both period-end and event-based processing.

Valuation Class

The valuation class in the Costing 2 view determines which general ledger accounts are updated as a result of inventory movement or settlement.

Valuation Date

The valuation date determines which material and activity prices are selected when you create a cost estimate. Purchasing info records can contain different vendor-quoted prices for different dates. Different plan activity rates can be entered per fiscal period.

Valuation Grouping Code

The valuation grouping code allows you to assign the same general ledger account assignments across several plants with Transaction OMWD to minimize your work.
The grouping code can represent one or a group of plants.

Valuation Type

You use valuation types in the split valuation process, which enables the same material in a plant to have different valuations based on criteria such as batch. You assign valuation types to each valuation category, which specify the individual characteristics that exist for that valuation category. For example, you can valuate stocks of a material produced in-house separately from stocks of the same material purchased externally from vendors. You then select procurement type as the valuation category and internal and external as the valuation types.

Valuation Variant

The valuation variant is a costing variant component that allows different search strategies for materials, activity types, subcontracting, and external processing. For example, the search strategy for purchased and raw materials typically searches first for a price from the purchasing info record.

Valuation Variant for Scrap and WIP

This valuation variant allows a choice of cost estimates to valuate scrap and WIP in a WIP at target scenario. If the structure of a routing is changed after a costing run, WIP can still be valued with the valuation variant for scrap and WIP resulting in a more accurate WIP valuation.

Valuation View

In the context of multiple valuation and transfer prices, you can define the following views:
? Legal valuation view
? Group valuation view
? Profit center valuation view

Work Center

Operations are carried out at work centers representing; for example, machines, production lines, or employees. Work center master data contains a mandatory cost center field. A work center can only be linked to one cost center, while a cost center can be linked to many work centers.

Work in Process

Work in process (WIP) represents production costs of incomplete assemblies. For balance sheet accounts to accurately reflect company assets at period end, WIP costs are moved temporarily to WIP balance sheet and profit and loss accounts. WIP is canceled during period-end processing following delivery of assemblies to inventory.

Cost Center

A cost center is master data that identifies where the cost occurred. A responsible person is assigned to the cost center that analyzes and explains cost center variances at period-end.

Internal Order

An internal order monitors the costs and revenue of an organization for short-to medium-term jobs. You can carry out planning at a cost element and detailed level and budgeting at an overall level with availability control.

Intra Materials

Intra Materials are intermediate materials generated in a process. They can be neither purchased nor sold. They do not have a purchase or sales view.

Investment Order

An investment order monitors investment costs to be capitalized and settled to fixed assets.

Master Recipe

A master recipe consists of a header and several operations, each of which is carried out at a primary resource

Phase

A process order consists of operations, each of which is carried out at a primary resource. An operation is subdivided into phases. A phase is an independent process step that contains the detailed description of a part of the entire manufacturing process.

Process Order

A process order is a manufacturing order used in process industries. A master recipe and materials list are copied from master data to the order. A process order contains operations which are divided into phases. A phase is a self-contained work step that defines