SAP Product Cost by Order

In Product Cost by Order, the production orders are treated as cost objects. Costs incurred/loaded to orders are usually analyzed and settled by lot.The variances can be analyzed after the entire planned production quantity has been put into inventory.

Purpose

1. Standard Costing of YARN, Fbric & Garments etc.

2. Control the cost of production,

3. Variance Analysis at production order level


Business Process

In discrete manufacturing environment, order related production is preferred. In Product Cost by Order, the manufacturing orders themselves are the cost objects. Costs incurred/loaded orders are settled periodically.

The variances can be analyzed after the entire planned production quantity has been put into inventory.

Production order creation is in PP.


Prerequisites

Costing variant, costing sheet for overhead calculation and cost component structure are defined as Standard Cost estimate.

Costing variant for planning and actual cost are defined.


Preliminary Cost Estimates

Preliminary costing in the Product Cost by order component calculates the costs for the production order as a pre-cost.

A preliminary cost estimate for a production order can calculate the costs for the production process, when a production order is saved or released, as per settings.

We can pre-cost a manufacturing order (production order) for the following purposes:

I. To calculate planned costs for material to be manufactured based on lot size of the order.

II. To determine planning variances and they are used to decide production version used.

III. To determine production variances later.

Pre-cost is done on the basis of BOM and routing. Pre-cost is done when the order is saved or released, according to the settings.

Actual Costs: Actual costs can be collected on the production order in the following ways:

It is through the logistical transactions (such as goods issues or confirmations for activity allocations) for manufacturing orders.

Directly, for example through G/L account postings in Financial Accounting (FI).

We can view the actual costs and the planned costs for the production order at any time.


Period End Closing

Actual Price for Activity

During the period we will capture the actual fixed overhead like salary, Administration Expenses stationery etc. at the relevant cost center from there it will charge to Process order on the basis of planned price.

At the end of the period when all expenses were booked/Provided into FI we will get the total actual cost at cost centers, we further need to allocate the cost as we have explained into cost center planning above, after allocation of actual cost, it may possible that there will be Over/Under absorbed cost at cost center means that we have not absorbed the total actual cost on the JOBs done during the period, to absorb the same we need to calculate the Actual price for the Activity types.

For Calculation of Actual Price we again need to split the actual cost as we have done for the Plan Price and then we need to calculate the actual price for the Activity.


Here we have taken example of textile unit.

It may possible that only one spindle of a Machine is working on job and rest of the spindles of the machine are rotating idle while overhead cost for the machine need to absorb machine wise per spindle hour basis, in such a case the cost for the idle spindles should not be absorbed on production order and remain un absorbed at cost centers being the period cost. This may be normal trend hence we need to calculate Activity Actual Price manually for the actual consumption of capacity and charge the same on production order through the functionality of revaluation. e.g. Say;

(i)Capacity of a Machine having 100 spindles working 2 shifts per day of 8 Hrs. per Shift and 30 days in a month i.e. 8X2X30X100=48000 Spindle hrs/Month.

(ii) Total Planned expenses for the month are Rs. 480000.00.

(iii) Actual utilization (spindles actually worked on JOB allotted)of Capacity 5000 Spindle hrs.

(vi) Actual Expenses for the Month are Rs.465000.00.

Activity Planned price = Rs.480000.00/48000=Rs.10.00 per spindle hr.

Cost absorbed at production orders=5000XRs.10.00=Rs.50000.00

Actual Activity Price should be= Rs.465000/48000=Rs.9.69 Per spindle hr.

Actual absorption on production order should be=5000X9.69= Rs.48450.00

Amount over absorbed on production order= Rs.50000-48450=1550.00 should be reverse from production orders to get the actual cost for the orders.

Total un absorbed cost at the cost center should be Rs.465000-48450=Rs.416550.00

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