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Hi ML Friends. Thank for be interested in this post.

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Why this Document?

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I post this document because PPL find difficult and tricky to understand the costing and ML flow. Few companies run and analize standard cost with deep detail. Few user (and also few consultants)  understand the details in the flow of releasing a standard cost. Some months ago i face a problem with BF COGM (working with this BF in order to handle IFRS requirements) elated with the Standard Cost Release, that encourage me to write this post.

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What you will find here?

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This document is intended to explain (in a funny, relax and naive way i mean i write this just for fun, im not working) the release of a new standard cost  with ML Active and Production Order GR done in previous month after MMPV done (LOL, this is in order to complicate a bit more the scenario). This is not a BASIC explanation about ML. I asume you know what is PRD PRY PRV, Standard Cost, Controlling Level, ML Kardex just for mention some topics.

During the creation of the document lots of ideas blow, and I just write it. Dont expect perfect english cos english is not my 1st language im doing my best without spending lot of time.

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Warning: Forbiden read this document without a calc in your hands and lot of cofee! Just Kidding, Indeed i encourage you to do the calcs, this is the only way to learn! You will see the word WHY lot of times, because i want you  question yourself about the way system work. I assume you knowtha basics of ML.

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Ok lets begin:

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Imagine you dont know the company, nor the production process. The customer want you explain what happened in the standard cost release.

In my example we are going to analyze periods 04 and 05 of our Unknown Material (I dont post the name of the material 😛 )

This is the CKM3n of the Unknown Material on period 04 after we do ML CLose.

01 ckm3n 04.jpg

This is the screen of CKM3N in period 05:

05 ckm3n 05.jpg

Standard cost in per04 is 318,976, keep note of this value.

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In may  we release a new standard cost of 273,606

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02  NewStandard 05.jpg

System post doc “change in material price” = opening stock * (new standard – old standard)

= (318,976 – 273,606) * (6977) = 316546488

03 Change MatCostDoc.jpg

Why? Because during the month stocks are valuated at Standard cost and the system store the difference between standard and actual in price difference account.  In my example, at the time of Standard Cost release (00:01 of may 1st) don’t have actual cost, so the post is between old and new standard.

Also check that this line don’t have price diff, (PrelinVal = ActualVal).

Well, in FI the post is

04 FI StdCst Release Doc.jpg

, so standard cost release hit BSX Stock Account! Keep this in mind. Also keep in mind UMB is the difference between Previos and New standard, at this moment actual cost dont play.

WHY system post UMB? Because stock is valuated at standard cost during the month, and need to create a revaluation line. In theory, UMB is P&L account if you dont work with ML (in order to compensate Balance), but in the next steps will be cleared.

Ok, now analyze the next step:

In In ML Close of per 04, system calculate an actual cost of 405219. The End stock is valuated at actual cost 

06 EndStock per05.jpg

Check the beginning stock of p05 valuated at actual cost is 7539.4 * 405219 = 3055107944 (problem due to rounding, because price unit is 1, but don’t worry this is another history)

07 Begin Stock per 05.jpg

Other detail, 7539.4 is the initial stock of per 05 at the time of ML Close, not at the time of MMPV. OK, bear in mind that you often do ML Close day 04, 05… 10 of the “next month”, and during this days companies do GM in the previous month. This is real world!

Because ML always valuate stocks and GM during the period at standard cost, the column Price dif store the difference of the Beginning stock at actual cost and the new standard cost, exactly than it works with GM

(405219 – 273606) * 7539.4 = 992282868.

Why? Because this is the system design. This price difference is way the system know what is the actual cost, also of the beginning stock, and will use it in ML close of May in order to calculate the actual cost and revaluate COGS and Stock.

OK, what happen in FI?

12 ML Close UMB.jpg

Gosh,  Complicated? Indeed not!

  • – UMB in Standard Cost Release + UMB created with PP Gr of per 04 posted in month 05 is cleared with UMB ML Close.

This are the 3 PP GR

08 PP GR.jpg

316546488 + 9250943 + 7726511 + 8538634 = 342062576 Done! Everything fit!

  • – Price difference PRY + PRV =  129,307,185 +         862,975,683        =  992,282,868
  • – BSX 650220292 return the stock cost to the standard of the previous month. WHY?

09 End Stock per04.jpg

OK, this operation is tricky.  This is the way the system match the stock value of previous and  next month without much effort, because always have refference to the previos standard cost.

At this step, UMB is clear, and all the money is in Price Difference Account (PRY/PRV). So, in the initial stock line of CKM3N you can see the stock at Standard Cost and Actual Cost, and the Price difference. Also remember, if you check Balance Account, its valuated at standard because ML CLose post BSX.

Well, that is! So, the formula

actual cost (actual value) = Preliminary valuation + Price difference

is also valid for the initial stock, of course after ML close of the previous period.

Next step is easy (i mean, this is the behavior of ML), we are only going to validate the end stock is valuated based in the beginning actual stock.  The idea here is not explain the full ML cycle, i supouse you already know about it.

In order to evaluate the actual cost of the end inventory of MAY, the formula is

END STOCK (ACTUAL COST) = BEGIN STOCK (ACTUAL COST) + RECEPIPTS (ACTUAL COST) – CONSUMPTION (ACTUAL COST)

10 End Stock per05.jpg

3,055,107,944 + 628,843,374 – 652,932,875 = 3,031,018,443

Unit cost of end inventory = 3,031,018,443 / 10,121.300 = 299,469

You can verify this calc in the screen ok ckm3n.

11 actual cost per05.jpg

Doc created by Arturo Senosain on June 2013. Feel free to share, don’t forget give credits.

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About Me

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Product Costing is my favorite topic in SAP. I work mainly as PP and CO-PC Consultant.  The 1st time i listened about ML was in 2001 when I worked in a company that produce Cosmetics in Peru.  At this times, ML was other stuff i mean customer have to create their own Z in order to revaluate COGS. WIP Revaluation dont exist. CKMVFM dont exist. In spite i dont study computer sciences in this company i learn to write and debug abap code, and without fear modify standard SAP code. Nice days!

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21 Comments

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  1. Michael Savarimuthu

    Arturo,

    I can only say one thing …. WOW!!!

    After reading this document, I feel humbled.  I thought I knew something about costing, ML, etc.  Now I know, I have a long way to go.

    >>>”Few user (and also few consultants)  understand the details in the flow of releasing a standard cost”.  Very true, starting with me.

    I recommend that SAP buy this document for a $1 million and make this document part of SAP Best Practices documents.

    Thanks for the wonderful document!

    Cheers,

    TD

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  2. Oscar Delgado

    Excellent document, thank you very much, it’s really helpful to understand the standar and actual cost behavior.

    It´s exactly what I looking for, thank you again.

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  3. Krishna Achanta

    Excellent document, As u said i have used my calculator and excel sheet whereever required to analyze your document.I understood only after going though your document thrice.

    Thanks for a wonderful document

    Krishna

    (0) 
  4. BHIMAPPA KAMMA

    Excellent document

    But i have one question

    How the standard cost estimate has been changes in this example

    Generaaly the standard cost will not change every month.

    Please tell me

    Thanks

    Bhiam

    (0) 
    1. Michael Savarimuthu

      Bhiam,

      It depends on business requirement if and when to change the standard cost.  In our company we have actual costing with Material Ledger, and at the end of each month after the actual periodic unit price is calculated, we mark and release that price as the standard price for the next month.

      Cheers,

      TD

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      1. BHIMAPPA KAMMA

        Hello  Toidi

        Thank you very much

        But in CKMLCP we have only marking of price

        How you release standard cost for the material using CK24 or how?

        Please explin me

        Once again thank you very much

        Cheers

        Bhima

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  5. Patricia Gama

    Hello Bhiam

    Standard cost can change every single month, this used to be a very common procedure in Brazil for instance, where price of raw materials used to change every month and this needed to be reflected on finished good.

    Hope that helps.

    cheers

    Patricia

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    1. arturo senosain Post author

      Hello Bhiam

      I was in some companies that NEVER in their live run a standard cost, other companies run every month and other every 3 or 4months.. so there is no rule. If you askme what is the best practice, my only answer is “depends on what you need”

      In the specific case of the company that Never run standard cost, they just change their standard cost every 3 or 4 months with MR21. The reason is 1 PP order produce about 50 co-products in different rates and mixes.. i mean, every order and production process is different so no exist a “standard production”, and they wnat to set the standard cost based on the market sales price and a markup.

      Arturo!

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  6. Valentín Padilla Alcocer

    Dear Arturo,

    Very helpful document.
    Do you have any documentation where I am able to see how sales order stock / COGS is revaluated during actual cost calculation. Specially with M valuation.

    Thanks in advance.

    (0) 

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