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SAP cost estimates determine how the procurement type sources the material. Material requirements planning (MRP) guarantees material availability by monitoring stocks and requirements and by generating planned orders for procurement and production. A cost estimate needs data on how the material is procured as the first step in determining material cost.
Let’s see how to display procurement types and then look at how cost estimates use this information.
The Procurement type is located in the MRP 2 view, which you access with Transaction MM02 or via menu path: Logistics • Material Master • Material • Change • Immediately
Navigate to the MRP 2 tab to display the screen shown in Figure 1.
Figure 1: Procurement Type in MRP 2 View
To display a list of possible entries for Procurement type, right-click in the field, and select Possible Entries. A list of possible procurement types is displayed as shown in Figure 1.
This means the cost estimate will search for Production information such as a bill of material (BOM) and a routing. A BOM is a structured hierarchy of components to build an assembly. A routing is a list of tasks containing standard activity times required to build an assembly.
This means the cost estimate will search for purchasing information usually from a purchasing info record containing vendor quotations for the material.
This means a planned (proposed) order generated by MRP can be converted into either a production order or purchase requisition. A cost estimate will be based on a BOM and routing if they are available; that is, the procurement type will behave as an in-house production. You can make the cost estimate treat the material as though it’s externally procured with an entry in the special procurement type field, as discussed below.
The Special procurement field immediately below the Procurement type field shown in Figure 1 in the Procurement section of the MRP 2 View more closely defines the procurement type. For example, it may indicate if the item is produced in another plant and transferred to the plant you are looking at.
A cost estimate typically follows the MRP special procurement type when determining costs. However, an entry in the Special Procurement Type for Costing field in the Costing 1 view as shown in Figure 2 will be used by Costing instead of the MRP setting.
Figure 2: Special Procurement Type for Costing
The special procurement type can be used to override the procurement type. For example, if you enter a special procurement type that contains an external procurement type (F) in configuration Transaction OMD9, the material will behave as if it’s externally procured, regardless of the procurement type setting.
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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.
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
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.
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.
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.
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.
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.
A BOM application is a costing variant component for automatic determination of alternative BOMs.
A BOM group is a collection of BOMs for a product or number of similar products.
The quantity of a BOM item that is entered in relation to the base quantity of the product.
Six indicators, such as costing relevancy, are contained in the Status/Long Text tab of a BOM item.
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.
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 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.
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.
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.
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 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.
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.
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.
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.
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 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.
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.
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 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.
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.
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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John Jordan is a seasoned SAP consultant with 20+ years of experience in SAP S/4HANA Controlling. As Lead SAP S/4HANA Controlling Consultant at ERP Corp, he specializes in seamless transitions to SAP S/4HANA, focusing on Product Costing, Material Ledger, and Margin Analysis.
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