 Cost Object Controlling

 Product Cost By Period.

 Product Cost By Sales Order.

Cost Object Controlling (CO-PC-OBJ)

Cost Object Controlling is an area in cost accounting that assigns the costs incurred in
the production of company activities (such as materials manufactured in-house) to those
activities. Cost Object Controlling supports you in:
 Reaching make-or-buy decisions
 Determining price floors
 Performing complex cost analysis (such as target/actual analysis)
 Determining inventory values
For general information on Cost Object Controlling, see the following section:
COST OBJECT CONTROLLING AND ITS SUBCOMPONENTS.

Cost Object Controlling in the system is divided into the following components:

 Product Cost by Period used for recurring periodic cost control of products that are
manufactured in the same way over an extended period of time.

 Product Cost by Order is mainly used to control the costs of individual production lots.

 Product Cost by Sales Order is used to control costs in complex make-to-order

production or customer-specific services, for example.

 Costs for Intangible Goods and Services The documentation for Cost Object
Controlling contains detailed information on the individual application components, on
the cost objects used in these components, on the corresponding quantity and value
flows, and on the functions available in each component.

Purpose
The Cost Object Controlling component is designed to answer the question: What costs have
been incurred for which objects? For this purpose, the component assigns costs to the
output of the company. The output can be materials manufactured in-house, individual
orders, or intangible goods.
This component provides real-time cost management functions that measure the cost of goods
manufactured in all plants.
Cost Object Controlling enables you to determine the cost of goods manufactured and the
cost of goods sold.
You can:
·        Establish planned costs (budgeted costs)
·        Record actual costs for the cost objects
·        Compare actual costs with target costs and with planned costs, and analyze
variances
·        Determine price floors for products or individual orders
You can use the functions of Cost Object Controlling by lot or by period.
Cost Object Controlling supplies basic information for the following business functions:
·        Price setting and general price policy
·        Inventory valuation
·        Cost of goods manufactured
·        Profitability analysis
·        Profit center accounting
Implementation Considerations
Here are some of the ways you can utilize Cost Object Controlling:
·        Determine whether the actual costs of an order matched or exceeded the planned
costs
·        Determine the production variances between actual costs and target costs, and
why these occurred
·        Decide whether to accept a particular sales order (whether the sales order will
be profitable)
·        Identify areas in your company where you have particularly low costs and
therefore which cost objects you should concentrate on
·        Decide whether it would be more profitable to manufacture a cost object in-
house or to outsource it
·        Determine whether and how the cost of goods manufactured can be reduced
Cost Object Controlling also can provide special information on:
·        The cost of unplanned scrap
·        Cost savings resulting from new production methods
 ·        Cost behavior during capacity bottlenecks
The cost of goods manufactured for finished products and the work in process for orders can
be used to capitalize the inventories in your balance sheet.

Integration
Before you can use Cost Object Controlling, you calculate the planned costs for each
product in a cost estimate. You can use different costing methods in Product Cost
Planning(CO-PC-PCP) for this purpose.
Cost Object Controlling accesses master data and transaction data in Production
Planning (PP), Production Planning - Process Industries (PP-PI), Materials
Management (MM), Sales and Distribution (SD), and Overhead Cost Controlling(CO-OM).
You can view the data of Cost Object Controlling in the Product Cost
Controlling Information System (CO-PC-IS).
When you settle, you can transfer the data of Cost Object Controlling to other components
in the system:
·        Actual Costing/Material Ledger (CO-PC-ACT)
·        Financial Accounting(FI) for purposes such as capitalizing unfinished and
finished products and automatically creating reserves
·        Profitability Analysis(CO-PA) to analyze the costs by market segment
·        Profit Center Accounting (EC-PCA) to analyze the results by profit center
Features
All postings of actual data that refer to a cost object result in an immediate debit of the
cost object.
The closing activities at the end of the period allow you to do the following:
·        Revaluate activities at actual prices
·        Allocate overhead using template allocation and by defining overhead rates for
cost objects
·        Determine the work in process (the value of unfinished goods)
·        Determine the variances between target costs and actual costs
·        Transfer the calculated data to other objects and application components
·        Compile periodic reports on a regular basis
Analysis functions are supported by the Cost Object Controlling Information System.
You can analyze planned costs, target costs, actual costs, and quantity information at
various levels such as the plant, product group, or individual cost object. The data is
always available in real time.
Drilldown capabilities enable you to access detailed information.

From the evaluations at plant level, you drill down to the product groups and
from there down to materials/products or individual orders.

Product Cost by Period

Purpose
The application component Product Cost by Period enables periodic analysis of costs at the
product level.
In contrast to Product Cost by Order in which you analyze costs by lot, in Product Cost by
Period you analyze costs by period. This means that you collect the costs on a cost object
over an extended period of time, and analyze the debits and credits in each period.
You can use the following cost objects in Product Cost by Period:
  Product Cost Collector
Product cost collectors enable you to collect costs at the product level
independently of the production type. Regardless of whether the production
environment is order-related production, process manufacturing, or repetitive
manufacturing, you collect the production costs for the product on a product cost
collector and analyze the costs in each period.
  Cost object hierarchies with their cost object nodes and assigned objects (such as
materials)
You can use cost object hierarchies in addition to product cost collectors. Costs
that cannot be assigned directly to particular orders (usually product cost
collectors) can be collected at higher levels by means of a cost object hierarchy.
In this case, the costs are collected on cost object nodes in the cost object
hierarchy. You can structure cost object hierarchies in different ways, for example
according to product group or area of responsibility. This enables you to collect
costs according to how closely the costs are related to the product. All orders
assigned to a cost object hierarchy must be settled in each period.
You can also periodically analyze and settle costs for manufacturing orders. However, it is
recommended that you settle manufacturing orders by lot rather than by period. If you want
to settle costs by period, you should use a product cost collector. If you want to collect
and analyze costs directly on manufacturing orders, read the information under Product Cost
by Order.
You can use the Product Cost by Period component for the following purposes:
 Create a preliminary cost estimate for product cost collectors
  Calculate and analyze target costs and actual costs for product cost collectors and
cost object hierarchies
 Calculate or update the work-in-process inventory and the finished goods inventory
 Calculate and analyze variances for each period
 Transfer data to Financial Accounting (FI)
 Transfer data to Profitability Analysis (CO-PA)
 Transfer data to Profit Center Accounting (EC-PCA)
 Transfer data to Actual Costing/Material Ledger (CO-PC-ACT)
You can use the Product Cost by Period component in the following production environments:
  Make-to-stock production

  Mass production based on sales orders if you are using a valuated sales order
stock and the production environment is repetitive manufacturing
Implementation Considerations
You normally use the Product Cost by Period component in the following situations:

 Repetitive manufacturing environments

In repetitive manufacturing environments, you always collect and analyze your costs
on product cost collectors.
 Make-to-order or process manufacturing when you are not interested in managing your
costs at the order level In this case, instead of using the manufacturing orders as
the basis for Cost Object Controlling, you create a product cost collector.
 When you have costs that you cannot (or do not want to) assign to particular orders
You then assign these costs to the cost object nodes in a cost object hierarchy.
Integration
For general information on Cost Object Controlling, refer to the section Cost Object
Controlling.
You can use both the Product Cost by Period component and the Product Cost by
Order component in conjunction with the Product Cost by Sales Order component.
When production orders or process orders are assigned to a cost object hierarchy, you use
the Product Cost by Ordercomponent in conjunction with the Product Cost by
Period component.
You can see the costs in the Product Cost Controlling Information System (see
also: Information System for Product Cost by Period).
Features
You analyze the costs of product cost collectors in the Product Cost by Period component.
Product cost collectors enable realization of lean cost management scenarios that are not
integrated with the logistics components.
The use of product cost collectors does not prevent you from performing logistical
functions on the manufacturing order or production version (such as goods issues,
confirmations, and goods receipts). The costs incurred from the logistical transactions are
updated directly on the product cost collector.

 You enter reporting point back flushes in repetitive manufacturing. The product
cost collector is charged with actual costs.
 You create a goods receipt in repetitive manufacturing. The product cost collector
is credited.
If you are in a sales-order-related production environment and are using a valuated sales
order stock in repetitive manufacturing, you can collect the costs for individual
requirements materials on product cost collectors.
You can use cost object hierarchies in addition to collecting costs at the level of product
cost collectors. You can distribute the costs assigned to the cost object nodes to the
orders on the basis of keys. You can then calculate and analyze the variances on the
orders. It is also possible to calculate the variances on the cost object nodes instead of
distributing the costs.
In the Product Cost by Period component you always calculate the work in process at target
costs. All orders used in the Product Cost by Period component have the settlement type
PER (periodic).
You can do the following at the end of the period:
 Allocate process costs to product cost collectors and to the cost object hierarchy.
 Revaluate activities and business processes at actual prices
 Allocate overhead
 Distribute the actual costs if you are using a cost object hierarchy
 Calculate work in process for the product cost collector
 Calculate variances for the cost object hierarchy or for the product cost collector
 Transfer data to other application components such as FI, EC-PCA, CO-PA, and CO-PC-
ACT
Constraints
Period-based cost analysis at the level of manufacturing orders is not recommended. At the
level of manufacturing orders, you should analyze lot-based costs in the Product Cost by
Order component.
In sales-order-related production, product cost collectors are possible if you are using a
valuated sales order stock and the production environment is repetitive manufacturing. If
you are manufacturing on the basis of production orders and process orders in sales-order-
related production, you cannot use product cost collectors as cost objects.
You cannot use the Product Cost by Period component together with the Product Cost by
Sales Order component in sales-order-related production environments when you are using
a non valuated sales order stock. The reason for this is that all orders in which the sales
order item is the settlement receiver have the settlement type FUL (full settlement).

Product Cost by Order

Purpose
The Product Cost by Order application component enables you to analyze costs at the level
of manufacturing orders. You can use the Product Cost by Order application component in
make-to-stock and sales-order-related production environments. In sales-order-related
environments, you can use Product Cost by Order in mass production on the basis of sales
orders and as a complement to the Product Cost by Sales Order component (including complex
make-to-order environments).
In Product Cost by Order, the manufacturing orders themselves are the cost objects. Costs
charged to manufacturing orders are usually analyzed and settled by lot. This means that
variances can only be analyzed after the entire planned production quantity has been put
into inventory.
The Product Cost by Order component allows you to do the following:
 Calculate and analyze planned costs, target costs, and actual costs of production
orders and process orders
 Calculate or update the work-in-process inventory and the finished goods inventory
 Calculate and analyze variances
 Transfer data to Financial Accounting (FI)
 Transfer data to Profitability Analysis (CO-PA)
 Transfer data to Profit Center Accounting (EC-PCA)
 Transfer data to Actual Costing / Material Ledger (CO-PC-ACT)
Implementation Considerations
You can use the Product Cost by Order component in the following situations:
 In sales-order-related production environments when you are using complex make-to-
order production with valuated and want to calculate the work in process and
variances at the level of the logistical orders (production orders and process
orders)
In this case you use the Product Cost by Order component together with the Product
Cost by Sales Order component.
 In sales-order-related production environments with mass production on the basis of
sales orders when you are using valuated sales order stocks and you want to
concentrate your cost-management efforts more on the costs of the logistical orders
than on the cost of the products
 In make-to-stock environments when you want to focus on the cost of the order
When based on manufacturing orders, the Product Cost by Order component is particularly
suitable for measuring the cumulative cost of lots (that is, when the settlement rule
specifies full settlement).
You can implement Product Cost by Order with production orders and process orders in
order-related production or process manufacturing environments.
Integration
For general information on Cost Object Controlling, refer to the section Cost Object
Controlling.
You can use both the Product Cost by Order component and the Product Cost by
Period component in conjunction with the Product Cost by Sales Order component.
You can use the Product Cost by Order component with projects.
You can look at the costs in the Product Cost Controlling Information System.
Features
You can analyze costs of manufacturing orders by period. However, SAP recommends lot-based
cost controlling for manufacturing orders. The manufacturing order must have settlement
type FUL (full settlement) in this case.
You can implement Product Cost by Order with or without the Production
Planning application component. If the Production Planning component is not installed, you
can create a production order without a quantity structure in Controlling.
In Product Cost by Order, you can link production orders and process orders into
a collective order.
You can represent joint production with process orders and production orders. (See
also: Special Requirements in Joint Production).
When you are costing by lot, you calculate the work in process using the actual costs
(difference between debits and credits for the order). When you are costing by period, you
calculate the work in process at target costs based on the confirmed operations or
reporting points.
You can do the following at the end of the period:
 Allocate process costs to the manufacturing orders
 Revaluate activities and business processes at actual prices
 Allocate overhead
 Calculate the work in process, variances, and scrap
 Transfer data to other application components such as FI, EC-PCA, CO-PA, and CO-PC-
ACT
The information system allows you to summarize the data in various ways, so that you can
view the costs by material, by order type, or by plant.
Constraints
If you are using the Product Cost by Sales Order component with a non valuated sales order
stock, you cannot calculate work in process or variances for production orders or process
orders assigned to a sales order item. Variance calculation is not supported by the system
when you are using a non valuated sales order stock. Standard costing is therefore not
possible in this case. However, all these functions are available if you are using
a valuated sales order stock.

PRODUCT COST BY SALES ORDER

Purpose
In the application component Product Cost by Sales Order, the sales document items (items
in inquires, quotations, or sales orders) function as the cost objects for which you can
determine costs and revenues in both planned and actual data.

If you have already created a sales document item that carries costs and revenues for an
inquiry or quotation, the subsequent sales document item (such as the sales order item)
references the previous one. This enables you to manage the costs of the entire sales and
distribution process. You can also flag a sales order item without a previous inquiry and
quotation as carrying costs and revenues.

In sales-order-related production, you use the functions of Product Cost

by Sales Order to collect and analyze the costs in complex make-to-order
production on the sales order item.

In mass production on the basis of sales orders, the focus of cost

management is on the material being produced. If you are using a valuated
sales order stock in mass production on the basis of sales orders, you can
collect and analyze the costs on manufacturing orders (production orders or
process orders) or product cost collectors. In this case you control the
costs of the products. The flow of quantities and values corresponds to
that of make-to-stock production, while the cost accounting method costs
the products.

For information on product cost management at the level of manufacturing

orders, refer to the following documentation:
Product Cost by Order
For information on product cost management at the level of product cost
collectors, refer to the following documentation:
Product Cost by Period
For information on the use of product cost collectors in sales-order-
related production, refer to the following section:
Product Cost Collectors in Sales-Order-Related Production
The documents Product Cost by Order and Product Cost by Period are also
relevant if you are a manufacturing enterprise and are interested in using
the Product Cost by Sales Order component in conjunction with Product Cost
by Order or Product Cost by Period.
You can use the Product Cost by Sales Order component in the following situations:
 When you are manufacturing in-house with reference to a sales order in complex
make-to-order production
 When you are purchasing customer-specific trading goods with reference to a sales
order and reselling them to your customers
 When you are providing services whose costs are assigned to a sales order
 When you want to collect the sum of the actual costs incurred for the sales order
item on the sales order item (standard cost of goods manufactured of sales plus
variances) For detailed information, refer to the sectionsValuated Sales Order
Stock and Settlement in Product Cost by Order or Period.
The Product Cost by Sales Order component enables you to do the following:
 Calculate and analyze planned costs and actual costs by sales document item
 Calculate and analyze planned revenues and actual revenues by sales document item
 Revaluate the activities and business processes allocated to the cost objects with
actual activity prices
 Allocate the overhead costs to the cost object using overhead calculation or
dynamic process allocation
 Calculate the value of goods that have been delivered to your customer but not
invoiced
 Create reserves automatically
 Transfer data to Financial Accounting (FI)
 Transfer data to Profitability Analysis (CO-PA)
 Transfer data to Profit Center Accounting (EC-PCA)
Implementation Considerations
You use the Product Cost by Sales Order component in the following situations:
 When you want to analyze costs and revenues for sales document items
 When you are using a non valuated sales order stock
Integration
Product Cost by Sales Order accesses master data and transaction data
in Controlling (CO), Sales and Distribution(SD), and Materials Management (MM). In
manufacturing enterprises, Product Cost by Sales Order also accesses data in Production
Planning (PP) or Production Planning for the Process Industries (PP-PI).
If you are a manufacturing enterprise, you normally use Product Cost by Sales Order in
conjunction with Product Cost by Order or Product Cost by Period.
To estimate the costs for materials, you use the Product Cost Planning component (CO-PC-
PCP).
You can view planned costs, target costs, and actual costs in the Product Cost Controlling
Information System (CO-PC-IS).
Features
With the Product Cost by Sales Order component you can collect and analyze costs for:
 The manufacturing orders (production orders and process orders) and product cost
collectors assigned to a sales order item
 The purchase orders assigned to a sales order item
 Funds commitments in inventory
You can supplement the display of these funds commitments with the purchase
requisition commitment and the purchase order commitment for the sales order item.
 The trading goods in a sales order item
 The service performed for a sales order item
Flagging a sales order item as carrying costs and revenues enables you to:
 Assign special direct cost of sales to the sales document item
 Allocate process costs (such as development costs) to the sales document item
You can do the following at the end of the period:
 Allocate process costs to sales order items
 Revaluate activities and business processes at actual prices
 Allocate overhead
 Perform results analysis
 Transfer data to other application components such as FI, CO-PA, and EC-PCA
 Enter a commitment carry forward at the end of the year
In Product Cost by Sales Order you normally use a valuated sales order stock. In a
manufacturing enterprise, the unfinished goods are valuated through the calculation of work
in process (WIP) on the manufacturing orders assigned to the sales order item. Materials
that have been manufactured but not yet delivered are valuated at the time of the goods
receipt posting for the manufacturing order (production order or process order). You can
evaluate goods that have been delivered but not yet invoiced using results analysis.
Settling to FI capitalizes goods in transit and goods at construction sites in your balance
sheet. You can also represent the valuation of goods in transit and goods at construction
site with the functions in FI.