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Cost Component Views in SAP Product Costing

TomKingI'm writing a book on SAP Product Cost Planning and in the process getting a better understanding of the importance of cost component views in product cost estimates.

The cost component split and cost component views provide valuable insight into a cost estimate. Setting up cost components correctly in a cost component structure leads you to a multi-faceted understanding of a product cost within a single cost estimate. At the beginning of the implementation our priority was to develop standard costs and we ignored additional information we could have obtained with a better understanding of cost component views.


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Figure 1: Cost Component Configuration

When you define a cost component with transaction OKTZ several settings control how you use it in a material cost estimate including whether the cost component is relevant to update material master fields. Each highlighted item in Figure 1 defines a category of cost. A cost component can be assigned to more than one category, with the exception of Cost of Goods Sold which defines one of two categories. Cost elements assigned to this cost component can either be for Cost of Goods Manufactured or Sales and Administrative Costs (or Not Relevant for either).

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Figure 2: Cost Component Views Configuration

A new implementation has eight pre-configured views as shown in Figure 2. You can define more.

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Figure 3: Cost Category Assignment to Cost Component Views

Cost of Goods Manufactured is selected in the Cost of Goods Manufactured Cost Component View in Figure 3. One or more categories can be assigned to a cost component view. For example, the Cost of Goods Sold cost component view combines Costs of Goods Manufactured and Sales and Administrative Costs. When you create a cost estimate, up to five Cost Component Views are displayed as shown in Figure 4. The costs displayed for each view are the cumulative values of the cost components in the cost estimate. You display the costs in any of the views by selecting one.

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Figure 4: Cost Component Views in a Cost Estimate

Multiple values are determined when you create a cost estimate. The External Procurement view shown in Figure 4, is based on the Initial Cost Split shown in Figure 3, which represents only purchasing costs as long as you correctly define the cost components. We missed this during our initial system implementation. We configured all cost components to be the same and missed out on the additional information that we could have easily obtained. For example, although we were interested in accounting for the effect of purchasing costs in our product, we completely missed what the External Procurement view could do for us. We could have also more easily accounted for the effects of transfer pricing with the proper setup of the Transfer Price Surcharge cost category. You can change the cost component definitions without causing cost component split issues and you can see the results immediately in existing cost estimates. The costs associated with each cost component view are created dynamically when viewing a cost estimate with CK13N.

You can update material master fields from the cost estimate. In addition to the Standard Price in the Costing 2 view, you can update three commercial inventory prices and three tax-based inventory prices in the Accounting 2 view. You can also update Planned Price fields in the Costing 2 view. You can only update the Standard Price with the Inventory Valuation cost category. The combined costs associated with all cost components assigned to that category make up the standard price.

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Figure 5: Costing Type Price Update

The Price Update field in the Costing Type shown in Figure 5 defines which material master fields you can update by the Costing Variant. The possible entries are No Update, Standard Price, Tax-based Price, Commercial Price and Prices Other Than Standard Price. Commercial and Tax-based price updates contain determination of lowest value logic. Commercial Inventory prices can only be updated from the Commercial Inventory cost component view, and Tax-based Inventory prices can only be updated from the Tax-based Inventory cost component view. For costing types defined as Prices Other than Standard Price, you have more flexibility as to which views you can update. You can use costing variants with this costing type to update the Planned Price fields in the Costing 2 view as well as the Commercial and Tax-based Inventory fields on the Accounting 2 tab. Cost component view comes into play for the updates as only the Commercial Inventory view can update the Commercial Inventory fields and only the Tax-based Inventory view can update the Tax-based fields. However, the “Determination of lowest value” logic is ignored for costing types with this price update definition, and the value defined in the cost estimate is always used for these fields. The costs associated with Planned Price 1, Planned Price 2, and Planned Price 3 can be assigned to costs of any cost component view. You can use these fields to store alternate cost component view prices. You specify the cost component view when you perform a price update with transaction CK24, as shown in Figure 6. Since the costs for all cost component views are generated for each cost estimate, all nine fields can be updated at the same time. You use Transaction CK24 not only to Mark and Release the standard price, but also to update other prices by selecting the options in the Update Prices in Mater Master Record section shown in Figure 6.

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Figure 6: Price update with "Prices Other than Standard Price"

The correct setup of cost component views is an important feature of product costing that can be overlooked in many initial implementations. At least this was the case in ours. During the time crunch of performing an implementation, decisions must be made quickly and without a full understanding of the possibilities, and you might not be able to get the full benefit of what the system offers you. Continue to take advantage of learning opportunities and look at the state of your implementations to find out what more you can get out of your investment.

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Tuesday, 16 August 2022

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