Last Updated on January 1, 2023 by Pradeep
What is SAP Preliminary Costing?
Preliminary Costing is the first step in cost object controlling, which involves preliminary costing for manufacturing orders. It allows you to determine the planned costs of a product cost collector or manufacturing order.
What do we do in Preliminary Costing?
In preliminary costing, we evaluate bill of materials (BOM) components and routing activities using the valuation variant specified in the costing variant. You determine the costing variant by the order type, which is a required field when creating an order. Then, the system calculates overhead expenses using the costing sheet if specified in the valuation variant.
We can display a list of production orders with T Code– COOIS.
The CONTROL tab displays production order fields relevant to the costing of the order.
Let’s check the fields in the costing selection of the production order CONTROL Tab.
Related: SAP Product Costing – Know Everything
Fields in Production Order Control Tab in Preliminary Costing
It’s important to know the use of available fields in the Production order and how these are important for the costing system.
Costing Variant for Planned Costs
The costing Variant Plan field specifies which costing variant you use to determine plan costs. Likewise, the order type determines the default costing variant which in turn determines the valuation variant.
You can maintain the default values for order types with Transaction OKZ3. This setting further allows you to display and maintain values for a combination of plant and order types. In my example, it is ZC11 which in turn determines the valuation variant C11.
Costing Variant for Actual Costs
the Costing Variant Actual field specifies which costing variant you use to determine production order actual costs. The order type determines the costing variant – in my example, it is ZC12, which in turn determines the valuation variant C12.
Costing Sheet in Preliminary Costing
A costing sheet determines the allocation of overhead costs from cost centers to manufacturing orders. The costing sheet field from the valuation variant, which in turn is determined by the costing variant.
Overhead Key
An overhead key allows you to assign specific overhead rates to individual orders or to groups of orders. This functionality gives you flexibility in assigning overhead for frequent calculation and maintenance of overhead rates.
Result Analysis Key
We use the result analysis Key to determine the period-end Work In Process (WIP) calculation. The system only calculates WIP on orders with an entry in this field.
Variance key in Preliminary Costing
The system calculates variances at the period ending on manufacturing orders and product cost collectors containing a variant key. This key defaults from the Costing 1 view when you create manufacturing orders and product cost collectors.
The variance key also determines if you subtract the value of scrap from actual costs before variances are determined.
Determine Plan Costs
The determine PLAN Costs field determines when the system saves manufacturing order plan costs. If you click on the field display the three possible entries are available.
Do Not Determine planned Costs when Saving
If you specify to not calculate any planned costs when saving the manufacturing order, you can calculate the planned costs of the order at any time. You can select this option to reduce the time required when saving many manufacturing orders.
Determine Planned Costs when saving, If Released
A manufacturing order status” Released” indicates that you can post actual costs to the order. If you create manufacturing orders well in advance of releasing them, you can consider selecting this option to save time when initially saving many manufacturing orders.
Determine Planned Costs When saving
This is the most common setting. It indicates that planned costs are calculated when the manufacturing order is initially created and saved. This allows us to correct any costing errors earlier than the other two options.
Also Read: Product Costing Interview Questions
Display Planned Cost
We can display production order planned costs by selecting Goto-Costs-Analysis from the Production Order menu.
The production order planned costs display in the “Total PLAN Costs column” let’s discuss each section.
Goods Issue
When you create the production order, the system copies the BOM to the production order. You can determine the planned goods issues to the production order from the BOM. Then further display it as a plant and material combination in the origin column.
Confirmation
When you create the production order, the system copies the routing to the production order. Further, it determines the planned activity confirmations from the operations in the routing. Finally displays as a cost center and activity combination in the Origin column.
Overhead
You determine the Overhead by the costing sheet in the production order Control Tab as Displayed. A costing sheet determines the allocation of overhead costs from cost centers to manufacturing orders. Subsequently, the cost center that receives the credit is displayed in the origin column.
Goods Receipt
You are typically entering a material when you create a production order The production order contains all of the information necessary to manufacture the material. When you place the manufactured material into inventory, the production order receives a credit based on the standard price of the plant and material shown in the Origin column.
Why Preliminary Costing is required for You?
If you are in implementation and working on SAP Controlling part, you require to know this area of Cost Object Controlling in SAP.
In this blog, we looked at preliminary costing for manufacturing orders. We discussed relevant fields in the production order costing tab and how to display a preliminary cost estimate.
Hence, if you are learning SAP Product Costing as part of your S/4HANA Finance training then also you should gain a good knowledge of Preliminary costing in SAP.
Since Preliminary Costing is a technical subject of Product Costing, it involves calculation and analysis. So, you do get in deep studying this subject.
Watch Related Video: Preliminary Cost Calculation in SAP
Read Detailed Guide:- SAP Product Cost Planning
