SAP Cost Object Controlling in Make-to-Stock Production

In make-to-stock production, you can use SAP Cost Object Controlling for Product Cost by Oder and by Period. Lets us understand this.

Product Cost by Order

You can manage your costs at the level of production orders and process orders. You can analyze cumulative costs or period costs.

Product Cost by Period

Following you can do with Product Cost by period:-

Manage your costs by a period at the level of production cost collectors.
Create a production cost collector for run schedule headers for the combination material/production version at the plant level or only for materials at the plant level.
Further, it allows you to use cost object hierarchies for cost management when you have costs that you cannot easily assign to particular orders, production cost collectors, production versions or materials.
Also, use cost hierarchies with production or process orders.

The sequence of Steps in SAP Cost Object Controlling Scenario in Make-to-Stock Production

SAP Cost Object Controlling involves the following steps:-

Preliminary Costing

The Preliminary Costing calculates the planned costs for each order. You can determine the planning variances by comparing the results of preliminary order costing with the standard cost estimate for the material.

Simultaneous Costing

Each time you make a relevant posting, simultaneous costing collects the costs for the internal activities, the external activities and the material used.

It provides you with an overview of the costs incurred up to a certain point in time. Here you can also make sure that each posting that is relevant to Controlling is assigned to both a cost element and a cost object.

Final Costing

Final costing evaluates the order at the end of the period by performing period-end closing activities such as cost allocation.

Types of Cost Objects in S4 HANA

Cost Objects are the units to which you can assign costs according to the cause using Cost Object Controlling.

It involves the following costs objects:-

General cost objects
Products
Orders (Production Orders and process orders)
Production Cost Collectors
Cost object hierarchies and their cost object nodes
Sales document items (Item in an inquiry, quotation or sales order)
Projects and their WBS element

General Cost Objects

For intangible goods and services. Cost Object Controlling uses general cost objects. For these general cost objects, you can do the following:-

Calculate planned costs and actual costs
Pass actual costs on to other objects in the SAP S/4 HANA (such as Profitability segments or GL accounts)
Analyze planned costs and actual costs
You can evaluate general cost objects by period or cumulatively

Products

For materials, you can calculate the planned costs in cost estimates created in Product Cost planning. These cost estimates serve the following purpose:-

Calculate the costs for a product before an order to commence manufacturing is placed
Optimize the cost of goods manufactured of a product using comparative cost estimates
Provide information for the following functions:-
- Comparing a cost estimate and an order
- Variance calculation
- Contribution margin accounting
- Inventory valuation

Orders/ Production Cost Collectors

You can manage internal activities using orders (production orders and process orders) or production cost collectors. At the order level, the SAP cost object controlling is used to:-

Calculate the order-related costs
Calculate the work in process for each order
Optimize the order-related costs

For production orders/process orders, you calculate & settle variances for Profitability Analysis. You can also evaluate the confirmed scrap in variance calculation.

Only costs are collected on these orders. When the orders are complete, they are delivered to inventory. There is no direct link between the sales order and the production order.

Importantly, you can’t compare costs and revenues to each other until the profitability analysis stage (COPA).

Master Data of the Controlling Module

Cost Center Accounting Master data in SAP Cost Object Controlling

Cost Center

These are the organizational unit at which costs are incurred. Each work center is linked to one and only one cost center.

Activity Type

The activities performed at a cost center are expressed as activity types. Activities are evaluated with activity prices, which are either set manually by the user or established by the system iteratively for all cost centers. In the latter case, the system computes the activity types by the planned activity ( or depending on the system setting, by the capacity).

Actual costs are collected for each cost center. You can determine actual activity prices for the individual activity types and evaluate the object that used the activities of the cost center.

Cost Element

Each posting of costs must be assigned to a cost element. The system differentiates between the following cost elements:-

Primary cost elements
Secondary cost elements

The cost element type specifies the business transactions for which a cost element can be used. The following primary cost elements are used in SAP Cost Object Controlling.

01- Primary Cost elements – These can be debited with all primary postings (such as FI or MM). Accounting documents are generated for these postings
22- Cost elements for external settlement – These are required, for example for settling orders or project costs to CO-external objects. CO external objects are such things as Fixed assets, materials (MM) or G/L accounts (FI). Settlement generates an accounting document.

Secondary cost elements in SAP Cost Object Controlling:-

21- Cost elements for internal settlement– These are used for settling order or project costs to Co-internal objects such things as orders, profitability segments, cost centers and projects.
31-Cost elements for result analysis -These are used for saving the data generated during WIP calculation or results analysis on the order or project.
41-Cost Elements for overhead
43-Cost Elements for direct internal activity allocation to allocate costs. The system uses these in internal activity allocation to allocate costs. While it uses the secondary cost elements only within the Controlling component.

Master Data of the Production Planning Module

When you create a standard cost estimate or a production order in the Production planning module, the system accesses different types of master data to create the quantity structure for costing

The production planning component normally contains the following data for each finished or semi-finished product.

BOM

List of material components that are required to manufacture the product
Can contain materials that have their own BOMs

The BOM usage indicates whether the BOM is relevant to costing.

You specify the following for each BOM item:-

Whether the material component is considered in the cost estimate
Whether the material component is kept in stock or procured externally
Whether the input quantity is independent of the lot size (that is independent of the quantity produced)
Whether the material should be treated as a co-product

Routing in SAP Cost Object Controlling

Describes the sequence of the operations required to manufacture a product.

Specifies such things as:-

Whether an operation is included in the costing
Whether an operation is processed internally or externally
Whether and how an operation is confirmed
What material components and production resources are required in the operation
Whether a good receipt is posted when the operation is confirmed
Whether rework is carried out through the operation

The routing contains standard values for the execution of the operation. The system calculates the planned costs for the internal activities in the operation by interpreting these standard values using the formula in the work center.

In the routing, the base quantity (such as the piece quantity) usually remains constant. The required times (such as the processing time for each operation) are maintained through standard values.