Profit Center Q&A

Profit Center

What is the basic purpose of creating a Profit Center?

The basic purpose of creating a Profit Center is to analyse the revenues

and costs for a particular product line, or a plant or a business unit.

Though you can generate balance sheets and profit and loss accounts

per Profit Center still a profit center should basically be used as a tool

only for internal reporting purposes.

If legally one has to produce the Balance sheets and Profit and Loss

Accounts for a profit center then it is advisable to create it as a company

code instead of a profit center

How does the cost and revenue flow to the Profit Center?

The profit center is stored in the cost center this way the costs flow to the

profit center.

The profit center is also stored in material master. This way all sales

orders created for the finished product automatically picks up the profit

center from the material master and all the revenues and costs coming

from this sales order for that finished product is passed on to this profit

center.

A profit center document is created in addition to the Finance document

whenever revenue or consumption takes place. This document contains

the details of the profit center.

Once both the costs and revenues flow to the profit center you can write

reports using the Report Painter to get intelligent analysis. You can also

use SAP standard reports

Statistical key figures are created in the cost center accounting

module. Now the same statistical key figures are required in the

profit center accounting module. Is it required to maintain the

statistical key figure in PCA module?

No. Since the statistical key figures are created in a controlling area.

Profit center is a sub module within controlling area. The statistical key

figure is created for the controlling area and as such is available in profit

center accounting module.

What are the precautions to be taken while maintaining the 3KEH

table for profit center accounting?

You should not maintain the customer and vendor reconciliation

accounts in the 3KEH table. Further you should also not maintain the

special GL accounts in this table. Since we are transferring the customer

and vendor balances to profit center module through separate month end

programs. If the reconciliation’s accounts are maintained here it will

result in double posting in the profit center module.

Should secondary cost elements be maintained in the 3KEH table?

No. Since here we maintain only those accounts for which the value

should flow from FI to PCA. Secondary cost elements are already defined

in the controlling module which will reflect in the postings in PCA also

How can the default settings be maintained for cost elements per

company code?

The default settings can be maintained in transaction OKB9. Here we

can specify for a company code, cost element which is the cost center to

be defaulted or whether profitability segment is to be automatically

derived. Further we can also maintain whether business area is

mandatory or profit center is mandatory and can maintain the default

business areas and profit centers.

What are the other important activities in Profit Center?

The assignments of profit center to the cost center and also assignment

of profit center to the material master is what will determine the success

of the Profit center posting. If these assignments are wrongly done then

the profit center postings will not come in properly.

Profitability Analysis Q&A

Profitability Analysis

Explain the organizational assignment in the PA module?

The operating Concern is the highest node in Profitability Analysis.

The operating concern is assigned to the Controlling Area.

Within the operating concern all the transactions of Profitability Analysis

are stored.

The operating concern is nothing but a nomenclature for defining the

highest node in PA.

What is the functionality of the PA module?

PA module is the most important module when it comes to analyzing the

results of the organization.

In this module you basically collect the revenues from the sale order , the

costs from the production order, cost center or internal order and

analyze their results.

The interesting part about this module is that when it collects the costs

and revenues it also collects the characteristics associated with the costs

and revenues and this is what makes it stand out

So for e.g. using PA module you can find out the following:

Profit of a certain product

Profit of a certain product in a certain region

Profit of a certain product in a certain region by a certain customer

Profit of a certain product in a certain region by a certain sales person

And the list can go on in depth

It is one of the most wonderful modules in the SAP

How do you get all those characteristics defined above and how do

you analyze them?

To do so while defining Operating concern one has to define

Characteristics and Value fields.

What are characteristics and Value Fields?

In the operating concern two things are basically defined

a) Characteristics

b) Value Fields

Characteristics are nothing but those aspects on which we want to break

down the profit logically such as customer, region product, product

hierarchy, sales person etc

Value Fields are nothing but the values associated with these

characteristics

Eg Sales, Raw Material Cost, Labour Cost, Overheads etc

Once you define the characteristics and value fields these values are

updated in the table.

From where does the characteristics come from?

The characteristics which are defined above basically comes from either

the Customer Master or the Material Master.

How does various values( revenues and costs) flow into PA?

The Sales Revenue comes from the Condition Type in SD.

We need to map the Condition Type in SD to the respective value fields in

customizing to have the revenue flow into PA.

The Cost comes from Cost estimates which are transferred using the PA

transfer structure which we have covered in the Product costing section.

The various cost components of the cost component structure is assigned

to the value field of PA module and this is how the costs come into PA.

Once the actual revenue and the std cost defined above are captured in

PA the variances are also transferred into PA.

This way the std cost variances equal the actual cost.

So actual revenue- actual cost helps us determine the profit.

How do you configure the assignment of variances from product

costing to COPA module?

The variance categories from product costing along with cost element is

to be assigned to the value fields in COPA

Once you have captured all the costs and revenues how do you

analyze them?

The costs and revenues which we have captured in the above manner are

then analysed by writing reports using the Report Painter Functionality

in SAP.

What is characteristic Derivation in Profitability Analysis Module?

Characteristic Derivation is usually used when you want to derive the

characteristics . An example of this could be say you want to derive the

first two characteristics of product hierarchy.

In such cases you define characteristic derivation where you maintain

the rules, which contain the table names of the product hierarchy fields

and the number of characters to be extracted, and it also specifies the

target characteristic field in PA.

What is the basic difference in customizing in Profitability analysis

as compared to other modules?

In PA when we configure the system i.e. creating operating concern,

maintain structures no customizing request is generated. The

configuration needs to be transported through a different transaction

called as KE3I.

What is the difference between Account based Profitability Analysis

and Costing based Profitability Analysis?

Account based Profitability analysis is a form of Profitability analysis (PA)

that uses accounts as its base and has an account based approach. It

uses costs and revenue elements.

Costing based Profitability Analysis is a form of profitability analysis that

groups costs and revenues according to value fields and costing based

valuation approaches. The cost and revenues are shown in value fields.

What are the advantages and disadvantages of Account based

profitability analysis vis-à-vis costing based profitability analysis?

The advantage of Account based PA is that it is permanently reconciled

with Financial accounting.

The disadvantages are that it is not powerful as the costing based PA,

since it uses accounts to get values. No Contribution margin planning

can be done since it cannot access the standard cost estimate. Further

no variance analysis is readily available.

The advantages of the Costing based PA are manifold. They are as

follows: -

· Greater Reporting capabilities since lot of characteristics are

available for analysis.

· This form of PA accesses the Standard cost estimate of the

manufactured product and gives a split according to the cost

component split (from the product costing module) when the bills

are posted.

· Contribution margin can be planned in this module since the

system automatically accesses the standard cost estimate of the

product based on the valuation approaches.

· Variance analysis is ready available here since the variance

categories can be individually mapped to the value fields.

Disadvantages:-

Since it uses a costing based approach, it does not sometime reconcile

with financial accounting.

Can both Account based and Costing based Profitability analysis be

configured at the same time?

Yes. It is possible to configure both types of costing based profitability

analysis at the same time.

What is the advantage of configuring both the type of Profitability

analysis together?

The advantage of activating account based profitability analysis along

with costing based PA is that you can easily reconcile costing based

profitability analysis to account based profitability analysis, which means

indirectly reconciling with Financial accounting.

Is there any additional configuration required for Account based

profitability analysis as compared to costing based profitability

analysis?

No. There are no special configurations required except for activating the

account based profitability analysis while maintaining the operating

concern.

What is the difference between Profitability analysis and Profit

center accounting?

Profitability analysis lets you analyze the profitability of segments of your

market according to products, customers, regions, division. It provides

your sales, marketing, planning and management organizations with

decision support from a market oriented view point.

Profit center accounting lets you analyze profit and loss for profit centers.

It makes it possible to evaluate different areas or units within your

company. Profit center can be structured according to region, plants,

functions or products (product ranges).

What configuration settings are available to set up valuation using

material cost estimate in costing based profitability analysis?

In Costing based Profitability analysis you define costing keys. A costing

key is a set of access parameters which are used in valuation to

determine which data in Product cost planning should be read. In the

costing key you attach the costing variant.

In the costing key you specify whether the system should read the

current standard cost estimate, the previous standard cost estimate or

the future standard cost estimate or a saved cost estimate.

The configuration settings to determine this costing key is as follows:-

1) Assign costing keys to the products – Three costing keys can be

attached to a single product for a specific point of valuation, record

type, plan version.

2) Assign costing keys to Material types

3) Assign costing keys to any characteristics – You can use your own

strategy to determine the costing keys. This is through user

defined assignment tables.

Material Ledger Q&A

Material Ledger

What precautions have to be taken while switching on the material

ledger for a plant?

A material ledger once activated for a plant cannot be switched off.

Therefore it is important that the material ledger be activated carefully

for a plant.

How do you go about configuring material ledger?

The following are the steps:-

1) Activate Valuation Areas for Material Ledger

2) Assign Currency Types to Material Ledger Type

3) Assign Material Ledger Types to Valuation Area

4) Maintain Number Ranges for Material Ledger Documents

5) Activate Actual costing (whether activity update relevant for price

determination)

6) Activate Actual cost component split

7) Customizing settings in OBYC

What are the problems faced when a material ledger is activated?

When a material ledger is activated it is imperative that actual costing

run has to be done every month. Actual costing run needs to be done

immediately after the new month roll over. After the actual costing run

you cannot post any MM(Materials Management) entry to the previous

period.

What are the options available while performing revaluation in an

actual costing run?

There are 2 options available:-

Revaluation – You can revalue the finished goods stock

Accrual – You can accrue the revaluation gain or loss without actually

changing the price in the material master.

What is the configuration setting to be done for posting the accrual

in the actual costing run?

In transaction code OBYC select transaction key LKW and maintain the

balance sheet account for accrual.

What are the steps to be taken before you execute an actual costing

run?

The following are the steps to be taken:

1.) Execute all the allocation cycles in the cost center

accounting module.

2.) Execute actual activity price calculation.

3.) Revalue all the production orders with the actual activity

prices. The under or over absorbed cost on cost centers are

passed on to the production order through this step of

revaluation of production orders.

4.) Calculate overheads, do a variance calculation and finally

settle the production order.

5.) Finally execute the actual costing run.

What happens in an actual costing run?

In actual costing run there is a process of single level price determination

and multi level price determination. The production price difference

variances are collected on the material ledger for each of the finished

goods and semi finished goods.

During single level price determination the price difference collected on a

single finished product is allocated to consumption. This allocation to the

consumption is not individually allocated to the good issues.

In multi level price determination the price difference is allocated to

individual goods issue. The price differences are passed on to the next

level of consumption.

The system calculates a weighted average price for the finished goods

and semi finished goods. This weighted average price is called as the

periodic unit price

What happens when the revaluation is done in actual costing run for

the previous period?

When revaluation is performed in actual costing for the previous period

the price control in the material master is changed from S to V and the

periodic price is updated as the valuation price for the previous period.

What is the importance of the price determination indicator in the

material master for the purpose of actual costing run?

There are 2 price determination indicators in the material master when

material ledger is activated.

They are as follows:-

2 – transaction based

3 – Single level / multi level

In case of material masters having price determination indicator 2 no

actual costing will take place. In case of material masters having price

determination indicator 3 actual costing will take place.

What should be the price control for a material master which has a

price determination indicator 3 where material ledger is activated?

In such a case only price control S is possible where the price

determination 3 is activated in material master.

Product Costing Q&A

Product Costing

What are the important Terminologies in Product Costing?:

Results Analysis Key – This key determines how the Work in Progress is

calculated

Cost Components - The break up of the costs which get reflected in

the product costing eg. Material Cost, Labour Cost, Overhead etc

Costing Sheets - This is used to calculate the overhead in

Controlling

Costing Variant - For All manufactured products the price control

recommended is Standard Price. To come up with this standard price for

the finished good material this material has to be costed. This is done

using Costing Variant. Further questions down below will explain this

concept better.

What are the configuration settings maintained in the costing

variant?

Costing variant forms the link between the application and Customizing,

since all cost estimates are carried out and saved with reference to a

costing variant. The costing variant contains all the control parameters

for costing.

The configuration parameters are maintained for costing type, valuation

variants, date control, and quantity structure control.

In costing type we specify which field in the material master should be

updated.

In valuation variant we specify the following

a) the sequence or order the system should go about accessing

prices for the material master (planned price, standard price,

moving average price etc).

b) It also contains which price should be considered for activity price

calculation and .

c) How the system should select BOM and routing.

How does SAP go about costing a Product having multiple Bill of

materials within it?

SAP first costs the lowest level product, arrives at the cost and then goes

and cost the next highest level and finally arrives at the cost of the final

product.

What does the concept of cost roll up mean in product costing

context?

The purpose of the cost roll up is to include the cost of goods

manufactured of all materials in a multilevel production structure at the

topmost level of the BOM(Bill of Material)

The costs are rolled up automatically using the costing levels.

1) The system first calculates the costs for the materials with the

lowest costing level and assigns them to cost components.

2) The materials in the next highest costing level (such as semifinished

materials) are then costed. The costs for the materials

costed first are rolled up and become part of the material costs of

the next highest level.

What is a settlement profile and why is it needed?

All the costs or revenues which are collected in the Production order or

Sales order for example have to be settled to a receiver at the end of the

period. This receiver could be a Gl account, a cost center, profitability

analysis or asset. Also read the question “What is a cost object “ in the

section Controlling.

In order to settle the costs of the production order or sales order a

settlement profile is needed.

In a settlement profile you define a range of control parameters for

settlement. You must define the settlement profile before you can enter a

settlement rule for a sender.

The Settlement Profile is maintained in the Order Type and defaults

during creating of order.

.

Settlement profile includes:-

1) the retention period for the settlement documents.

2) Valid receivers GL account, cost center, order, WBS element, fixed

asset, material, profitability segment, sales order, cost objects, order

items, business process

3) Document type is also attached here

4) Allocation structure and PA transfer structure is also attached to the

settlement profile e.g. A1

The settlement profile created is then attached to the order type.

What is Transfer or Allocation structure?

The transfer structure is what helps in settling the cost from one cost

object to the receiver. It is maintained in the Settlement profile defined

above.

The Transfer structure has 2 parts:

a) Source of cost elements you want to settle

b) Target receiver whether it is a Profitability segment or fixed asset or

cost center

So basically for settling the costs of a cost object you need

to define the Transfer structure where you mention what

are the costs you want to settle and the target receiver for

that.

This information you fit it in the settlement profile which

contains various other parameters and this settlement

profile is defaulted in the Order type. So every time a

order is executed the relevant settlement rule is stored

and at the month end by running the transaction of the

settlement of orders all the cost is passed on to the

receiver

So to put in simple terms:

a) You define your cost object which could be a

production order a sales order for eg

b) You collect costs or revenues for it

c) You determine where you want to pass these costs or

revenues to for eg if the sales order is the cost object

all the costs or revenues of a sales order could be

passed to Profitability Analysis

What do you mean by primary cost component split?

Primary cost split is defined when you create a cost component

structure. When you switch on this setting, the primary cost from the

cost center are picked up and assigned to the various cost components.

How do primary costs get picked up from cost center into the cost

component structure?

This is possible when you do a plan activity price calculation from SAP.

The primary cost component structure is assigned to the plan version 0

in Controlling .

Is it possible to configure 2 cost component structures for the same

product in order to have 2 different views?

Yes it is possible. We create another cost component structure and

assign it to the main cost component structure. This cost component

structure is called Auxiliary cost component structure which provides

another view of the cost component structure.

How do you go about configuring for the sales order costing?

The flow is as follows:

Sales order -> Requirement Type-à Requirement Class-> All settings for

controlling

In a sales order you have a requirement type .In configuration, the

requirement Class is attached to the requirement type and in this

requirement class all configuration settings are maintained for

controlling.

In the requirement class we attach the costing variant, we attach the

condition type EK02 where we want the sales order cost to be updated,

and the account assignment category. In the account assignment

category we define whether the sales order will carry cost or not. In case

if we do not want to carry cost on the sales order we keep the

consumption posting field blank.

We also define here the Results Analysis version which helps to calculate

the Results Analysis for the Sales order if required.

There are 2 plants in a company code. First plant is the

manufacturing plant and another plant is the selling plant. Finished

goods are manufactured at the manufacturing plant and transferred

to the selling plant. How is standard cost estimate calculated at the

selling plant given the fact that the cost at both the plant should be

the same?

The special procurement type needs to be configured which specifies in

which plant the system is to look up for cost. Here a special procurement

key specifying plant 1 (manufacturing plant) should be configured.

This special procurement type must be entered in the costing view or the

MRP view of the Finished good material master record in plant 2.

When you cost the finished good at plant 2, the system will transfer the

standard cost estimate from plant 1 to plant 2

What is mixed costing in SAP? Give an example to explain.

Mixed costing is required when different processes are used to

manufacture the same material. Mixed costing is required when you have

different sources of supply for purchasing the material.

Let us take an example:-

There is a finished good Xylene which can be manufactured by 3

different processes.

The first process uses an old machine and labour. The processing time is

9 hrs to manufacture.

The second process uses a semi-automatic machine and labour. The

processing time is 7 hrs to manufacture.

The third process uses a fully automatic machine and the processing

time is 5 hrs.

Thus cost of manufacture for the 3 processes is different. By using Mixed

costing you can create a mixed price for the valuation of this finished

good.

What configuration needs to done for using Mixed costing?

Quantity Structure type for mixed costing must be configured. Here we

specify the time dependency of the structure type . The following options

exist

a) You have no time dependency.

b) It is based on fiscal year

c) It is based on period

This quantity structure type is then assigned to the costing version.

Lets say for a product there exists three production versions.

Explain the process how you would go about creating a mixed cost

estimate?

The process of creating a Mixed cost estimate would be as follows:-

1) Create procurement alternatives for each of the production version.

2) Define Mixing ratios for the procurement alternatives

3) Select the configured quantity structure type and execute a

material cost estimate based on the costing version.

What is Mixing ratios and why are they required to be maintained

before creation of cost estimate?

Mixing ratios are weighting factors assigned to the procurement

alternatives. This weighting factor is obtained from the planning

department based on the usage of the procurement alternatives during

the planning year.

For e.g.

Procurement alternative 1 (production version 1) 40% will be

manufactured

Procurement alternative 2 (production version 2) 35% will be

manufactured

Procurement alternative 3 (production version 3) 25% will be

manufactured

This % will be maintained as mixing ratios.

Thus when system calculates the mixed cost estimate, system will first

cost each of the production version and then multiply each of the costs

with the weighting factors.

Thus

240 (cost of prod. Vers 1) X 40 = 9600

210 (cost of prod. Vers 2) X 35 = 7350

160 (cost of prod vers 3) X 25 = 4000

Mixed costs 17350/100 = 173.5

There are Result analysis categories in WIP (Work in Process). What

do you mean by the result analysis category Reserves for unrealized

costs?

If you are calculating the work in process at actual costs, the system will

create reserves for unrealized costs if the credit for the production order

based on goods receipts is greater than the debit of the order with actual

costs incurred. The Result analysis category RUCR (Reserves for

unrealized cost) would need to be maintained. Normally this is not

maintained in most of the companies.

Which is the Result analysis category which is normally maintained

for the WIP (Work in Process) calculation?

The Result analysis category WIPR - Work in process with requirement

to capitalize costs is normally maintained for WIP calculation

How do you define a By-product in SAP?

A By-product in SAP is defined as an item with a negative quantity in the

Bill of Material. By-product reduces the cost of the main product. There

is no Bill of Material for a By-product.

How do you calculate the cost for a By-product in SAP?

The cost for the By-product is the net realizable value. This is manually

maintained in the system for the by-product through transaction code

MR21 Price change.

How do you define a Co-Product in SAP?

A Co-product (primary product or by-product) is indicated by a tick in

the costing view of the material master. In the BOM all the primary

products are represented as an item with negative quantity. A primary

product is also indicated as a co-product in the BOM of the leading coproduct.

For primary products the costs are calculated using the

apportionment method, while for by-products the net realizable value

method applies.

Is it possible to use Standard SAP Co-product functionality in

Repetitive manufacturing?

No. It is not possible to use the Standard Co-product functionality in

repetitive manufacturing

How do you got about defining CO-Product functionality in

Repetitive manufacturing?

In the Repetitive manufacturing you need to use the Costing BOM for the

other co-product. Through arithmetical calculation you need to maintain

the quantities in the costing BOM. This co-product will be shown as a

negative item in the leading co-product.

You get an error while executing a cost estimate which says” Item

no 1 (which is a raw material) is not assigned to the cost component

structure?

What could be the possible cause of error in this scenario?

The consumption GL code for the material master is not assigned to the

cost component structure. To find out how you can know which GL code

to assign read the next question.

In the above scenario how do you know which cost element is being

called for?

In this case you need to the use simulation mode OMWB in MM and

enter the material code plant and the movement type 261 (issue against

production order). You will see the account modifier VBR and against

which the GL code is available.

You get an error while executing a cost estimate, which says” Item

no. 1 (which is a raw material) is not assigned to the cost

component structure?

In this case everything is perfectly configured, what could be the

possible error in this scenario?

In the material master of the raw material the valuation class updated in

the accounting view will be incorrect.

Is it possible to calculate standard cost estimate for a past date?

No. It is not possible to calculate standard cost estimate for a past date.

What is the difference between a product cost collector and

production order?

Both of these are cost objects which collect production costs for

manufactured product. Product cost collector is a single order created for

a material. All the costs during the month for that material is debited to

single product cost collector. No costing by lot size is required in case of

product cost collector.

The latter is where there are many production orders for a single material

during the month. Costs are collected on each of this production order.

Costing by lot size is the main requirement in case of production orders.

What is the meaning of preliminary cost estimate for product cost

collector?

Preliminary costing in the product cost by period component calculates

the costs for the product cost collector. In repetitive manufacturing you

can create cost estimate for specific production version.

Why is preliminary cost estimate required?

The preliminary cost estimate is required for the following:-

Confirm the actual activity quantities.

Valuate work in process

Calculate production variances in variance calculation

Valuate the unplanned scrap in variance calculation

Is it possible to update the results of the standard cost estimate to

other fields such as commercial price, tax price fields in the

accounting view?

Yes. It is possible to update the standard cost estimate to other fields

such as commercial price etc. in accounting view.

How do you configure that the results of the standard cost estimate

are updated in other fields other than the standard price?

The price update in the material master is defined in Costing type. This

costing type is attached to the costing variant.

What do you mean by Assembly scrap and how is it maintained in

SAP?

Assembly scrap is scrap that is expected to occur during the production

of a material which is used as an assembly.

If a certain amount of scrap always occurs during the production of an

assembly, the quantities and activities used must be increased by the

system so that the required lot size can be produced.

To increase the lot size of an assembly you can enter a percentage, flatrate

assembly scrap in the MRP 1 view of the material master record.

This assembly scrap is reflected in all the subordinate components. The

system increases the quantity to be produced by the calculated scrap

quantity. This increases both the materials consumed and the activities

consumed and consequently the cost.

How are scrap costs shows in the standard cost estimate?

Scrap costs are assigned to the relevant cost component and can be

shown separately for a material in the costed multilevel BOM.

How are scrap variances calculated?

Scrap variance are calculated by valuating the scrap quantities with the

amount of the actual costs less the planned scrap costs.

What do you mean by Component scrap and how is it maintained in

SAP?

Component scrap is the scrap of a material that is expected to occur

during production. When an assembly is produced with this component,

the system has to increase the component quantity to enable to reach

the required lot size. The component scrap can be entered in the BOM

item or in the MRP 4 view of the material master

What do you mean by Operation scrap and how is it maintained in

SAP?

Operation scrap is a scrap that is expected to occur during production.

Operation scrap is used to reduce the planned input quantities in follow

up operations and to calculate the precise amount of assembly scrap.

Operation scrap can be maintained in % in the routing and in the BOM.

What are the implications if the operation scrap is maintained in

the routing and if it maintained in the BOM?

If the operation scrap is maintained only in the routing, the costing lot

size is reduced by this percentage.

If the operation scrap is maintained in the BOM, the planned input (not

the output quantity) is increased and any assembly scrap is reduced.

What is the meaning of additive costs in SAP and why is it required?

Additive costs are used to add costs manually to a material cost estimate

when it cannot be calculated by the system. Examples of such costs are

freight charges, insurance costs and stock transfer costs.

What is the configuration required for additive costs?

To include additive costs in the material cost estimate you need to set the

indicator “Incl. additive costs” for each valuation strategy in the valuation

variant.

Further you also need to set in the costing variant to include additive

costs.

How do you configure split valuation?

The configuration steps involved in split valuation:-

1) Activate split valuation – Configure whether split valuation is

allowed for the company code.

2) Determine the valuation categories and valuation types that are

allowed for all valuation areas.

3) Allocate the valuation types to the valuation categories

4) Determine the local valuation categories for each valuation area

and activate the categories to be used in your valuation area.

What is valuation category and valuation type in split valuation?

In split valuation the material stock is divided according to valuation

category and valuation type.

Valuation category determines how the partial stocks are divided

according to which criteria. The following valuation categories are preset

in the standard SAP R/3 system –

B - Procurement type

H – Origin type

X – Automatic batch valuation

Valuation type describes the characteristic of individual stock.

e.g. EIGEN Inhouse production (SAP standard)

FREMD External procurement (SAP standard)

Valuation types are assigned to valuation categories.

What are the steps involved before you run a cost estimate for a

split valuated material?

The following are the steps:-

1) Create procurement alternatives based on the valuation types for

the material.

2) Maintain Mixing ratios for the procurement alternatives

How do you create a material master with split valuation?

To create a split valuated material master proceed as follows:-

1. First create a valuation header record for the material. Update the

Valuation category field on the accounting screen; leave the

Valuation type field blank. In the Price control field, enter V

(moving average price). When you save, the system creates the

valuation header record.

2. Then create the material for a valuation type.

Call up the same material in creation mode again. Due to the fact

that a valuation header record exists, the system requires you to

enter a valuation type for the valuation category.

3. Repeat Step two for every valuation type planned.

When a standard cost estimate is run for a finished good does SAP

calculate cost estimate for its components such as raw and packing

material?

Yes. SAP calculates the cost estimate even for raw and packing material

and stores it in the standard price field for information purposes

How do you prevent the system from calculating the cost estimate

for raw and packing material when you run a standard cost estimate

for the finished goods?

To prevent the system from calculating cost estimates for raw and

packing material, you need to select the “No costing” checkbox in the

costing view of the material master.

How is it possible to apply 2 different overhead rates for 2 different

finished goods?

It is possible through overhead groups. You configure 2 overhead keys.

Define rates for each of this overhead key. These two overhead keys is

then assigned to the two overhead groups. These overhead groups are

attached in the costing view of the finished goods material master.

Work in Progress

In period 1 there is a WIP posted of 22000 USD in period 2 some

further goods issue are done to the extent of 15000 USD . How will

system calculate WIP for period 2?

System will post a delta WIP of 15000 USD in period 2.

What is the basic difference in WIP calculation in product cost by

order and product cost by period (repetitive manufacturing)?

Generally in product cost by order, WIP is calculated at actual costs and

in product cost by period WIP is calculated at target costs

What are the configuration settings for calculating WIP in SAP?

You define secondary cost elements of type 31 first.

You then need to define the Results Analysis version

This results analysis contains line ids which are basically nothing but

break up of costs

Next you define assignments-> here you assign source cost elements to

the line ids defined above

You also define the secondary cost elements which are assigned to the

line ids.

In the end you define the Finance GL accounts which are debited and

credited when a Work in Progress is calculated.

Please refer to the configuration document for more detailed information

How does SAP calculate Work in Process (WIP) in product cost by

order?

The system first runs through all the production order for the month and

checks for the status of each production order. If the status of the

production order is REL (Released) or PREL (Partially released) and if

costs are incurred for that order system calculates WIP for the

production order.

The system cancels the WIP for the production order when the status of

the order becomes DLV (delivered) or TECO (Technically complete).

There is a production order with order quantity 1000 kgs. During

the month 500 kgs of goods were produced. What will be the system

treatment at the month end?

The system will first check the status of the production order. Since the

status of the order is not DLV (Delivered) it will calculate a WIP for the

production order.

Why does the system not calculate variance for the 500 kgs which

has been delivered?

In the product cost by order component the system does not calculate a

variance for partially delivered stock on the production order. Whatever

is the balance on the production order is considered as WIP. In the

product cost by period component, system will calculate WIP as well as

variance provided

Is the WIP calculated in the product cost by order component at

actual costs or standard costs?

In the product cost by order component the WIP is calculated at actual

costs.

Is the WIP calculated in the product cost by period component at

actual costs or target costs?

In the product cost by period component the WIP is calculated at target

costs.