Product Cost Planning in SAP – Key Components

What is Product Cost Planning in SAP Controlling?

Product Cost Planning is an area within SAP Product Cost Controlling, where the companies can plan costs for materials without referring to Production Orders, and other cost controlling objects.

We can use Product Cost Planning to distribute the costs of the company’s products. Such as-

Manufactured materials
Services
Other intangible goods

Benefits of Product Cost Planning in SAP

Product cost planning helps us to analyse the cost of material and resolve various queries such as:

In the production process, what is value addition at a particular point?
Likewise, what proportion of that added value can we attribute to a particular unit of the organization?
To know the Cost of Material, cost of production and overhead costs in the production process.
What measures can we take to improve the overall efficiency of the production?
Finally, is it possible to sell the product at a competitive and profitable price in the market?

You surely knew that product cost planning is a very important aspect of Product Costing in the SAP ERP application of an organization. So, now we discuss the main components of SAP Product Cost Planning. These play a very important role in SAP Product Costing.

Do Read: A complete guide on SAP Product Costing

Components of Product Cost Planning

Material Cost Estimate with Quantity Structure

Here in the Material Cost estimate, we can calculate the Cost of Materials based on a quantity structure in Production planning. In this component, we also integrate the Controlling with the Production Planning (PP) module.

Material Cost Estimate without Quantity Structure

Conversely, in this component, the system calculates the Cost of Materials without a quantity structure in the Product cost calculation process.

Price Update

In this component, we can transfer the results of material cost estimates to the Material Master.

In any organizational structure, we need to assign each company code to the controlling area. Since we evaluate the Materials at the Valuation area level (normally it is Plant) therefore we need to define the plant as the valuation level.

Organizational Hierarchy in SAP Product Cost Controlling

Please note that for Product Cost Planning, we need to create master data such as Bills Of Material (BOM), Routings and work Centres in other modules of SAP like Production Planning (PP Module).

We also need to create Master data such as cost centres, activity types and business processes in the Overhead cost controlling module.

Cost Component Split

Cost Components is the breakdown of costs into units. It provides detailed cost information for accounting purposes. We can use the Cost Component splits to break down the cost of a material process or activity type. The cost component split provides a method to see details of the cost estimate and standard cost. An important link exists between the cost component structure in product costing planning configuration and the Material Ledger. Both SAP ERP Finance functionalities share the same cost component structure definition (main and auxiliary cost components split). The same cost component split that is used to update standard cost is also used by the actual cost component split in the Material Ledger.

Important to read:- SAP Material Ledger in S4 HANA

Types of Cost of Production calculation under standard costing

Automatic Costing

The system automatically determines the material’s quantity structure (BOM & Routing) and calculates it from the PP module.

Unit Costing

Here the system calculates the Cost of Production without accessing BOM & routings from the PP module. (Cost of Production could either be the additive cost estimate with quantity structure or material cost estimate without Quantity structure).

Multilevel Unit Costing

Likewise, the system calculates the cost estimate (taken without the Quantity structure) also without accessing BOM and routing in the PP module. In this costing method, we will enter the cost components or cost line items manually.

You may want to Read: Preliminary Costing in SAP Product Costing

Conclusion

Product Cost Planning in SAP is important for SAP FICO Consultants as well as the SAP S/4HANA Finance Consultants.

Specifically, in all manufacturing industries, product cost planning plays a very important role.

This is to say, for the calculation of production cost variance, the planned cost calculation is mandatory. It is nothing but the Standard Cost itself.

So if you are working in such kind of manufacturing industry, or just preparing for SAP Controlling Interviews, learning Product cost planning is a must.

However, if you are looking out to make a career in SAP FICO or for job opportunities in S/4HANA Finance, you still must have a good hold on this subject, so as not to lose any lucrative opportunity.

Read About Product Costing Planning in Detail:- Complete Guide

Also Learn: Concept of Cost Object Controlling in SAP

Pradeep