How to Change the Cost Component Structure with SAP Material Ledger Active

How to Change the Cost Component Structure with SAP Material Ledger Active

By Constantino Solis Prego

Table of Contents

1. Map Origin Groups
2. Cost Component Groups
3. Sort Strategy
4. Split Strategy
5. Timing
6. Reporting
   
   

Introduction

This article explains how to change the cost component structure in six steps without losing cost component history.

The example is based on a typical food/beverage processing plant with two main lines: food/liquid processing and packaging. The initial cost structure follows an accounting scheme, mapping all the ingredients to one cost component, packaging materials to another, and labor, depreciation, and other production activities grouped into other 3 separate cost components.

Step.1 Map Origin Groups

The initial cost structure was as follows:

 First, origin groups are created with Transaction OKZ1, they must be maintained in the costing 1 view of each purchased material (ingredients and packaging materials). Origin groups can be edited collectively with transaction MM17.

This allows you to map purchased materials to different cost components, even when those materials are mapped to the same cost element. In transaction OKTZ, you assign cost elements together with origin groups to cost components, as shown in Figure 1.

Figure 1 Transaction OKTZ Origin Group

There is a limit of 20 cost components, with fixed and variable costs included, and 40 if you only include variable costs. You can include 60 and 120-cost components, respectively, with SAP S/4HANA.
You assign variable costs if you map cost components from purchased materials. If the cost component will also identify the cost from activities, you assign fixed and variable costs.

In a different process, we maintained master data to allow the split of labor cost into two different cost components, one for each main section of the factory.

That was done by creating a new activity type assigned to a separated secondary cost element A000000004, maintaining activities in routing properly, changing assessment cycles to organize receiver cost elements as we need, and finally maintaining table OKES with the splitting structure intended to have labor cost for section 1 and labor cost for section 2.

We initially designed the cost component, cost element, and origin group mapping on a spreadsheet, as shown in Figure 2, before customizing with Transaction OKTZ.

Figure 2 Transaction OKTZ after Assigning Origin Group

Step 2. Map Cost Component Groups

For every cost component, we maintained component groups 1 and 2  with Transaction OKTZ, as shown in Figure 3.

Figure 3 Cost Component Groups For a Cost Component

Cost Component groups provide you with more options in cost reporting, as shown in Figures 4 and 5, when you assign cost component group 2:

Figure 4 Costing Run: Analysis Step

Figure 4 displays the Cost Component Group 2 field in the costing run Analysis step.

Figure 5 Analyze/Compare Cost Estimates S_P99_41000111

Step 3. Sort Strategy

We included an alphanumeric prefix at the beginning of the cost component description, as shown in Figure 6, since the cost component numbering was rearranged due to adding our new cost components. By sorting the cost component description, you will have the rows sorted as you like in your cost reports.

Figure 6 Cost Components With Description Prefix

Now let’s discuss how to split the cost in the new cost components.

Step 4. Split strategy

We planned to include new cost components in the active cost component structure and, by using origin groups, split some of the original cost components into more than one.
For example, we had all the ingredients mapped to cost component one, and after the change, we moved some ingredients to the new cost component 6.

When viewing previous periods, the original cost component 1 identifies all ingredient costs. From period one, on the day the new structure is uploaded, the cost is split between cost components 1 and 6.

Figure 7 New Cost Component Mapping
We recommend you avoid the red section shown in Figure 7 by not including an existing cost component to identify the previous part of other cost components. In subsequent periods after the change in OKTZ configuration, cost component 2 identifies ingredient B and the remaining value of Packaging materials.

Now let’s discuss which day to upload the new OKTZ configuration.

Step 5. Timing

Change the cost component structure on the last day of month M-1 and release new standard cost estimates in month M.
Then, all material movements recorded in one month will be registered to the same cost component structure. If you change mid-month, Cost component 1 could identify costs related to ingredients A and B. Immediately after the configuration change, create a new costing run and release a new standard on the first day in month M before any material movement takes place.
To have efficient comparisons between actual cost (with the new structure) and standard cost, you should have the latest update with the new cost structure as soon as possible.
In the last step, we discuss the collaboration needed with your Analytics co-workers to ensure clean cost reporting.

Step 6. Reporting Strategy

Liaise with your Business Intelligence team, and prepare your analytics reports to have a clean history. You now have more cost components, and when checking past periods, their value may be zero. In the example shown in Figure 7, if you select previous periods, cost element one is called Ingredients A when, in the past, that cost component identified all ingredients.

Conclusion

By inserting new cost components into the active cost component structure and following some sort and split rules, we improved the actual price detail in material ledger reports without losing cost
component history.

About The Author

Constantino Solis Prego

Constantino Solis Prego is a senior SAP FICO end-user with implementation and training experience, including transformation projects for Central Finance, Profitability Analysis, Project System, and Product Costing. A corporate veteran of 15 years, he has worked in management consulting and various sectors such as heavy equipment, FMCG, textile, and apparel industry, with
extensive global rollout and localization experience.

You can connect with Constantino on LinkedIn.

Glossary

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.

Standard Cost Estimate

This is a material cost estimate used to calculate the standard price of a material. The cost estimate must be executed with a costing variant that updates the material master, and the cost estimate must be released. A standard cost estimate can be released only once per period and is typically created for each product at the beginning of a fiscal year or new season.

Origin Group 

An origin group separately identifies materials assigned to the same cost element, allowing them to be assigned to separate cost components. The origin group can also determine the calculation base for overhead in costing sheets.