Dear Prashanth Reddy,
Please go through below subject about Product cost. and also refer below links......!
- . Product cost controlling (COPC)
a. Product cost planning
b. Cost object controlling
c. Actual costing / Material ledger - a. Product cost controlling (COPC)
Product Cost Controlling is concerned with all aspects of planning the cost of producing products or services, as well as tracking and analyzing the actual costs that are incurred in the production process. Product Cost Controlling consists of the following components:
Product Cost Planning is used for preliminary costing and can answer the following questions:
- What will be the cost of producing a certain product or service?
- Is external procurement less expensive than in-house production?
- What are the costs of production, if we assume an ideal situation?
This estimate could then be used as a baseline against which we can compare other "real world" production scenarios.
b. Cost Object Controlling focuses on tracking the actual direct costs of production and the period end closing process.
- Actual production costs are accumulated as raw materials are issued and labor is performed. This information allows detailed comparisons between the planned cost and the actual cost of any given production phase.
- Period end closing procedures include the application of overhead costs, calculation and posting of the value of goods still in production (work in process), calculation of variances between standard and actual costs, and settlement of variances to the CO-PA, EC-PCA and FI modules.
c. Actual Costing / Material Ledger is used to calculate actual costs for each material at the end of the period. Materials and their movements are valued with a standard price during the period. Any variances from this standard are collected in the material ledger when invoices are received or orders settled. During period end closing these variances are used to calculate an actual price for the material in the closed period. Postings can be made in FI to reflect this price.
a. Product Cost Planning refers to the creation of cost estimates for the production of goods or services. If a quantity structure (Bill of Material and routing) is available in the PP (Production Planning) module of the R/3 system, you can create a cost estimate automatically using the PP data. If no quantity structure is available in R/3, the cost items can be entered manually by means of unit costing, or can be transferred automatically from a non-SAP system using batch input.
A Bill Of Material (BOM) is a complete, formally structured list of the components that make up a product or assembly. The list contains the material number of each component, together with the quantity and unit of measure. The components are known as BOM items. A BOM can include materials that have their own BOMs.
The work center is the physical location at which an operation is carried out. When the master record for a work center is created in PP, it is linked to a cost center, and also the various activity types produced by the cost center. This link allows access to the activity type unit prices, which are used in valuing labor (or machine time) supplied by the cost centers in a production process.
The Routing lists the specific steps required to manufacture a product. These "steps" are called operations. The routing specifies the following for each operation:
- the work center which carries out the operation
- the default values used for calculating dates, capacities and production costs
- whether the costs of an operation are taken into account for costing
- The material components needed to carry out an operation.
- b. In Cost Object Controlling, the costs incurred in the production of a product or service are collected on a cost object (such as a production order). Various types of cost objects can be used, depending on your controlling requirements. These include production orders, sales orders, process orders or product cost collectors. Cost Object Controlling also provides tools for calculating Work In Process, scrap costs, and variances at period end close.
Cost Object Controlling includes three principal steps:
1. Preliminary costing of the cost object,
2. Simultaneous costing, and
3. Period-end closing.
- 1.Preliminary costing refers to the calculation of planned costs for a cost object, such as a production order. Planning variances can be determined by comparing the results of preliminary order costing with the standard cost estimate for the quantity of material to be produced with the order.
- 2. In Cost Object Controlling, as quantities of raw materials are issued for use in a production scenario, either from inventory or from external purchase, their value is accumulated on the appropriate cost object (such as a production order). Similarly, as an activity type is performed in the production scenario (such as hours of direct labor), the cost of that activity is also accumulated on the cost object. This process is termed simultaneous costing. It refers to the posting of cost to a cost object by the same transaction that documents the material issue or activity completion. (The transaction that is used to document the completion of units of an activity is called a confirmation.) The simultaneous costing concept may sometimes be referred to as valuation of quantity flows to a cost object.
- 3.Period-end closing refers to a series of tasks performed at the end of each accounting period. This includes calculating applicable overhead costs, calculation of work in process (WIP), calculation of variances, and settlement (which passes information to Financial Accounting, Profit Center Accounting, and Profitability Analysis).
Various standard reports are provided to analyze the costs posted to cost objects. n
- c. Actual Costing is used to calculate actual product costs at period end close. The result may be transferred to the material master as a weighted average price for the closed period. The values connected with material movements are collected in the Material Ledger. Both single-level settlement and multi-level settlement functions are available to calculate the actual material costs at period end close.
Actual Costing uses the Material Ledger to store material prices in up to three currencies and according to three valuation strategies (group, legal and profit center).
Actual Costing aims to provide the actual costs for each material at period close. Each material movement is recorded in the Material Ledger together with the preliminary valuation and any variance (from invoice or order settlement). Material settlement is used to integrate this variance into the material price at period close.
Both single -level and multi-level material settlement are available. Multi-level settlement is used to reconstruct the quantity structure based on the material movements for the period, and assign variances for the raw materials to the finished and semi-finished products as follow-up costs.
The actual price for each material can be updated to the material master for the closed period.
Profitability management
o Profitability analysis (COPA)
o Profit center accounting
Profitability Reporting:
- Profitability Analysis (CO-PA) lets you analyze the profitability of segments of your external market. These segments can be defined according to products, customers, geographic areas, and numerous other characteristics, as well as your internal organizational units such as company codes or business areas. The aim is to provide your executive management, sales, marketing, planning, and other groups in your organization with decision-support from a market-oriented viewpoint.
- Profitability Analysis (CO-PA) enables you to analyze profits and contribution margins for market segments of your company. The objective of CO-PA is to support sales, product management, and corporate-wide planning and decision-making, using an external view from a market-oriented perspective.
Responsibility Reporting:
Profit Center accounting (EC-PCA) lets you analyze internal profit and loss for profit centers. This makes it possible for you to evaluate different areas or units within your company. You can structure profit centers according to region (branch offices, plants), function (production, sales), or product (product groups, divisions). Profit Center Accounting is a component of the "Enterprise Controlling" module.
- A profit center is a management-oriented organizational unit used for internal controlling purposes. Dividing your company up into profit centers allows you to analyze areas of responsibility and to delegate responsibility to decentralized units, thus treating them as "companies within the company". EC-PCA lets you set up your profit centers according to product (product lines, divisions), geographical areas (regions, offices or production sites) or function (production, sales).
- Profit
- The Information System provides a tool for evaluating plan and actual data. Numerous standard reports are provided, and you can create your own custom reports as well. Reports can be executed for Profit Centers or Profit Center groups. Profit Center Accounting can report on selected balance sheet items, such as Assets, AR/AP, Material Inventory, and Work in Process. This permits the calculation of certain financial key ratios such as ROI (Return on Investment). Other reporting capabilities include detailed information on the source objects (e.g. cost centers, internal orders) that contributed costs posted to profit centers.
Methods of Profitability Management Two accounting methods can be used for generating profitability statements:
The cost-of-sales method and the period accounting method. Applying either method to a given set of business transactions under a given set of accounting standards should yield the same bottom-line result (profit), in concept. The difference is in how the overall profit and loss picture is presented.
Companies must choose one of these methods for generating their external income statements. The choice is often determined by country-specific legal requirements. However, the methods facilitate two different types of analyses, both of which a company may find useful. So it may be worthwhile to track information in both ways for internal profit reporting.
Cost-of-sales accounting: With this method, the emphasis is on matching the revenues for goods and/or services provided (the value that a company receives as a result of sales) against the related costs/expenses for those items (the value that is lost when products are transferred out of the company). This accounting method provides profit and loss information in a manner that is particularly effective for various margin analyses. Consequently, it is especially useful for the sales, marketing, and product management areas.
Period accounting: With this method, the emphasis is on summarizing productive activity through changes in the value of certain asset categories over the course of a period, for a given organizational unit. This accounting method presents the revenues that have been recognized for the period, and also the various period costs/expenses (such as personnel costs, depreciation, etc.). But it also includes the changes for the period in inventory value, work-in-process, and fixed assets. As such, it is useful as a measure of productivity for profit centers.
LInks:
http://help.sap.com/printdocu/core/print46c/en/data/pdf/COPCIS/COPCIS.pdf
http://help.sap.com/printdocu/core/Print46c/en/data/pdf/COPCPCP/COPCPCP.pdf
http://help.sap.com/printdocu/core/print46c/en/data/pdf/ides/idescopc/idescopc.pdf
Best Regards,
Krish.
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