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Sunday, 21 July 2019 23:03

Cost Component Views in SAP Product Costing

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TomKingI've recently been writing a couple of books on SAP Product Cost Planning, and getting a better understanding of the importance of cost component views in product cost estimates.

The cost

component split and cost component views provide valuable insight into what makes up a cost estimate. Setting up cost components correctly in a cost component structure can lead you to a multi-faceted understanding of a product’s cost even within a single cost estimate. Our major goal was to develop standard costs, and at the beginning of the implementation we ignored additional information we could have obtained with a fuller understanding of cost component views.

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Figure 1: Cost component configuration

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When a cost component is defined in transaction OKTZ, there are several settings that control both how it is used in a material cost estimate as well as whether the specific cost component is relevant for updating the cost in a particular material master field. Each of the highlighted items in Figure 1 above defines a category of cost. A specific cost component can be assigned to more than one cost category. The exception to this is the Cost of Goods Sold area. This actually defines one of two different categories in an either/or selection. Cost elements assigned to this cost component can either be for Cost of Goods Manufactured and Sales or Administrative costs (or not relevant for either).

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Figure 2: Cost component view configuration

Figure 2 shows the defined cost component views for the implementation. A new installation comes with eight pre-configured views, but others can be added as needed.

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Figure 3: Cost category assignment to a cost component view

The above example in Figure 3 assigns the Cost of Goods Manufactured category to the cost component view Cost of Goods Manufactured. One or more of these categories can be assigned to a given cost component view. For example, Cost of Goods Sold combines the categories Sales and Administrative Costs and Costs of Goods Manufactured. When creating a cost estimate, up to five of these views are directly visible in the result (Figure 4). The values displayed for each view are made up of the cumulative values of the cost components included in the cost estimate. Although only five of these views are readily available in the cost estimate, the costs can be displayed in any of the configured views by selecting a specific view.

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Figure 4: Cost component views in a cost estimate

One result of this is that multiple values are automatically determined when creating one cost estimate, and each has its own special purpose. For example, the External Procurement view, which is based on the Initial Cost Split that contains special logic to represent only purchasing costs, will automatically account for the purchase price portion of any cost estimate as long as the cost components have been defined properly. This is something that we didn’t pick up on during our initial system implementation. However, it is easily remedied as the costing category portion of the cost component definition can be changed and would go into effect immediately.

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Being able to see these costs in a cost estimate is one thing, but even better is the fact that SAP provides places in the material master to be able to store this information as well. Besides the standard cost that is updated on the Costing 2 tab, there are three commercial inventory prices and three tax-based inventory prices that can be updated on the Accounting 2 tab of the material master. In addition, the Planned Price fields on the Costing 2 tab can also be used for update. There are rules about which cost component view is used for each of the material master fields. The Inventory Valuation Cost category is the only one that is used for updating standard costs. The combined costs associated with all cost components which are assigned to that category make up the standard cost. Another rule that comes into play is the configuration of the Costing Type.

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Figure 5: Price update definitions for various costing types

The Price Update field in the costing type definition using transaction OKKI (Figure 5) defines which fields can be updated for the Costing Variant. The possible definitions are No Update, Standard Price, Commercial Inventory, Tax-based Inventory, and Prices Other than Standard Price. Commercial and Tax-based Inventory price updates contain special “Determination of lowest value” logic used when updating those fields. Commercial Inventory prices can only be updated from the Commercial Inventory cost component view, and Tax-based Inventory prices can only be updated from the Tax-based Inventory cost component view. For costing types defined as Prices Other than Standard Price, there is a lot more flexibility as to which views can be used for update. First of all, costing variants using this costing type can be used for updating the Planned Price fields in the Costing 2 tab of the materials as well as the Commercial and Tax-based Inventory fields on the Accounting 2 tab. Cost component view comes into play for the updates as only the Commercial Inventory view can update the Commercial Inventory fields and only the Tax-based Inventory view can update the Tax-based fields. However, the “Determination of lowest value” logic is ignored for costing types with this price update definition, and the value defined in the cost estimate is always used for these fields. The costs associated with Planned Price 1, Planned Price 2, and Planned Price 3 can be assigned to costs of any cost component view. This makes these fields ideal for storing alternate cost component view costs. The cost component view is specified when performing a price update with transaction CK24 (Figure 6). In addition, since the costs for all cost component views are always generated for a cost estimate, all nine fields can be updated at the same time. Transaction CK24 is used not only for releasing the standard costs (Mark and Release), but it is also used to update these other costs as well by selecting the Other Prices option.

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Figure 6: Price update with "Prices Other than Standard Price"

The proper setup of cost component views is an important feature of product costing that may have been overlooked in many implementations. At least this was the case in ours. During the time crunch of performing an implementation, decisions must be made quickly and without a full understanding of the possibilities, and you might not be able to get the full benefit of what the system offers you. Continue to take advantage of learning opportunities and look at the state of your implementations to find out what more you can get out of your investment.

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