Concept of Product Cost Planning in SAP Product Costing

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What is Product Cost Planning in SAP Controlling

Product Cost Planning is an area within SAP Product Cost Controlling, where the companies can plan cost for materials without referring to Production Orders, and other cost controlling objects.

We can use Product Cost Planning to distribute the costs of the company’s products, such as

Manufactured materials
Services
Other intangible goods

Product cost planning helps us to analyze the cost of material and resolving various queries such as:

• In the production process, what is value addition at a particular point?
• What proportion of that added value can be attributed to a particular unit of the organization?
• To know the Cost of Material, cost of production and overhead costs in the production process.
• What measures can be taken to improve the overall efficiency of the production?
• Is it possible to sell the product at a competitive and profitable price in the market?

I hope, now you would be able to understand what is actually the product cost planning and what is its importance in the SAP ERP application of an organization. Now let us know the main components of this area of SAP Product Costing.

Components of Product Cost Planning

Material Cost Estimate with Quantity Structure

Here, we can calculate the Cost of Materials on the basis of a quantity structure in Production planning. In this component, we integrate Controlling with Production Planning (PP) module.

Material Cost Estimate without Quantity Structure

In this component, we can calculate the Cost of Materials is calculated without a quantity structure in Production Planning.

Price Update

In this component, we can transfer the results of material cost estimates to the Material Master.

In any organizational structure, each company code needs to be assigned to the controlling area. Materials are evaluated at Valuation area level (normally it is Plant) therefore we need to define the plant as the valuation level.

Organizational Hierarchy in SAP Product Cost Controlling

Please note that for Product Cost Planning, we need to create master data such as BOM, Routings and work Centres in other modules of SAP like Production Planning (PP Module).

We also need to create Master data such as cost centers, activity types and business process in Overhead cost controlling module.

Types of Cost of Production calculation under standard costing

Automatic Costing

The quantity structure (BOM & Routing) for the material is automatically determined and calculated from the PP module.

Unit Costing

Here the Cost of Production is calculated without accessing BOM & routings from the PP module. (Cost of Production could either be the additive cost estimate with quantity structure or material cost estimate without Quantity structure).

Multilevel Unit Costing

Here also the cost estimate (taken without the Quantity structure) is calculated without accessing BOM and routing in PP module. In this costing method, we will enter the cost components or cost line items manually.