How does SAP determine costs?

How does SAP determine costs from material master through production orders, and settlement (including WIP settlement) including material, labor and overhead costs?

The cost flow diagram below can help answer this question. A material’s standard cost or moving average price is used for each material movement to an order. The cost component split contains the material, labor, and overhead portions based on the BOM, Routing, and Costing sheet. When a raw material is backflushed or issued to an order, it takes the material’s standard cost or moving average price. For semi-finished or finished goods, the cost of the material is made up on the backflushes/issues of component materials to the order (quantity issued times standard cost or MAP), routing activity confirmations (quantity times activity rate), and the costing sheet represents the overhead applied.