Material Standard Cost Estimate (CO-PC-PCP)

[DafinaZahra]

Material cost estimation is a process of calculating the expected cost of manufacturing or procuring material. This is used to determine the standard cost of a product based on its components, production activities, and the overhead costs.

Cost estimation considers several factors such as raw material price, labor costs, machine costs, overhead costs, and subcontracting costs. It ensures accurate product costing, inventory valuation, and profitability analysis. This will be used to determine the pricing of the product and budgeting.

Integration with other module
Integration with other module

Costing materials with a quantity structure enables you to calculate the cost of goods manufactured and cost of goods sold for each product unit without reference to orders. A quantity structure typically consists of a bill of material (BOM) and a routing. But in the process industries, a recipe is used instead of a BOM. You can use the results of material cost estimates with a quantity structure to value materials at standard cost.

The principle of product cost estimation
The principle of product cost estimation

We can cost out individual materials, or multiple materials simultaneously in costing runs. Then, standard costs can be updated to the material master as the future standard price or current standard price.

A. Costing Structure
1. Costing Variant (T-Code: OKKN)
You can define how the cost estimate is calculated by customizing the cost control which contains costing type, valuation variant, and date control.

Maintain costing variant

• Costing Type: Determines the purpose of the cost estimate (e.g., standard cost estimate, simulation, product cost collector, etc).
• Valuation Variant: Determines whether standard price or moving average price is used. It also specifies how materials, activity types, and overheads are valued.
• Quantity structure (BOM & Routing): BOM is to define raw materials and semi-finished products used as the component to produce a product. Routing is to define the operations, work centers, and activities for production. 
  

  B. Steps in Material Cost Estimate with Quantity Structure
  These are the end-to-end process flow from creating material to material price analysis. But in this article we will just focus on the material cost estimate calculation part.

  
  Material cost estimation flow in SAP

  1. Go to transaction code CK11N

  Here you need to fill the material and plant. For the costing data, choose the costing variant you want to use as you’ve been configuring it in T-Code OKKN before.

  
  Material cost estimate with quantity structure initial screen

  The dates need to be in the period of the cost center you maintain when maintaining the activity price at T-Code KP26.

  
  Material cost estimate with quantity structure initial screen (Dates)

  2. Make sure all cost structure error status is green. Usually there will be an error message if the calculation is not complete. For example you didn’t fill the cost center planning in KP26. Or you enter the wrong period of pricing so the cost will not be calculated. 

  On the cost component view, you can see the COGS and COGM has been calculated based on production routing, bill of material, and other expenses.

  
  Material cost estimate with quantity structure

  3. After you get the cost estimate, go to transaction code CK24 to mark and release the standard price. Insert the posting period and make sure the quantity that cost estimate updated successfully is not 0.

  
  Mark standard price

  Then, you can check the price at material master (T-Code: MM02/MM03 → Costing 2).
  The marked price will appear as the future price, but you can also still see the current price before we run the material cost estimate.

  
  Material master: Costing 2 Future Price

  If you are sure with the standard price calculation, you can go back to CK24 to release the standard price.

  
  Release standard price

  You can check back on the material master, the material cost estimate is moved to the current price after we release it.

  
  Material master: Costing 2 Current Price

  So that's basically how you calculate the standard cost from material cost estimates. Feel free to discuss more if you have any other insights or questions! Hope this helps to understand the basics of material cost estimation. 

  A lifetime learner,
  Dafina