Product Cost Controlling (CO-PC) works out what a unit costs to make and compares that with what it actually cost. It is the part of CO most tightly bound to other modules: without correct PP and MM configuration it cannot function.
Standard and actual cost
| Kind | Meaning | Used for |
|---|---|---|
| Standard cost | What the unit ought to cost, estimated in advance | Inventory valuation, cost of sales, the baseline for variances |
| Actual cost | What it did cost | Measuring and explaining the variance from standard |
Most companies value inventory at standard, because actual cost moves daily and would make stock values unstable. Standard is the reference point, and the gap to actual is analysed as variance.
How the standard is built
The cost rollup needs three sets of master data.
- Bill of material: which components go into the product and in what quantity. The basis for material cost.
- Routing: which work centre performs which operation, and for how long. The basis for conversion cost.
- Activity rates: the rate per activity type on the cost centre behind each work centre.
Material cost (components ร their prices) and conversion cost (routing times ร activity rates) are summed, overhead is applied, and a product cost results.
Cost component structure
The result is not just a total. The cost component structure preserves the breakdown behind it.
| Component | What it contains |
|---|---|
| Raw materials | Purchase price of direct materials |
| Direct labour | Operator time ร labour rate |
| Machine cost | Machine time ร machine rate |
| Production overhead | Overhead applied from production departments |
| Subcontracting | Cost of processing performed outside |
The value of preserving the breakdown shows in multi-level products: for a finished item you can still see what proportion is raw material and what is conversion, however many semi-finished stages lie between.
Running a costing
| Step | Activity | Code | What happens |
|---|---|---|---|
| 1 | Create the cost estimate | CK11N | Explode BOM and routing and calculate |
| 2 | Review the result | CK13N | Check the breakdown for plausibility |
| 3 | Mark | CK24 | Flag it as the future standard |
| 4 | Release | CK24 | Update the material master standard price and activate it |
Actual cost on production orders
In real production the production order is the collector. It accumulates actual material quantities at actual prices and actual activity time at activity rates.
Receiving finished goods into stock, meanwhile, credits the order at standard cost. Debits are actual and credits are standard, and the difference is the production variance analysed at period end.
Costing variants
The costing variant controls the detail: which material price is used, which BOM and routing are selected, how overhead is applied.
It is assembled from a valuation variant, quantity structure control and date control. When the same product costs differently in two runs, the costing variant is usually the reason.