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Basics of Costing – Understanding Actual Cost

January 27, 2014 | 2,855 Views |
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Hello Friends,

I try to put together a common document for Actual Cost, the information is available in SCN forums and i try to put it together in a document form so it is available at one place,

In my earlier Documents I have explained about standard costing and various settings required for executing Standard Cost estimate. In this document we will talk about more on Actual Costs.

T-code KKBC_ORD – Looking at below screenshot it shows the actual cost postings at different time of transactions and its origin. I will try to explain where does these things flow from.

Capture.JPG.png

Figure 5.1

Note- KKBC_PKO can be used to see the above transactions as well.

There are several business transactions where we got actual costs; based on posting origin we can divide the transactions External Postings ( Any other module origin such as FI, PP, SD, MM) to Controlling called Primary Cost.

Business transactions within controlling module called Secondary costs we will see in detail about these in this document. I must say there is various documents and discussion in Forum about these things. However i would like to elaborate more on what is the financial impact during different stages of transactions

Primary Costs

We will take example of production order here, During Goods are issued from Inventory P/L account is debited and B/S account is credited automatically. For this we generally create identically primary cost element of consumption account. Posting to these consumption accounts (primary cost elements) also generate parallel postings to a controlling cost object. In this case

At GI:

  1. (BSX) Raw Mat a/c (or Semi-finished a/c or others depending on the val. class)
  2. (GBB – VBR) Prod. Order Consumption a/c or material consumption a/c (also called offsetting entry)

At GR:

  1. (BSX)  Semi-finished a/c or others depending on the val. class)
  2. (GBB – AUF) Prod. Order output a/c or Prod. Output a/c

Figure 5.2

Outside buys, sub-contracting scenarios where we purchase services or goods are recorded as credit to GR/IR account and debit to external expenses account.

Secondary Costs

When the production activities confirmed, the cost center is credited and product cost collector is debited. A production cost center receives debit due to primary costs such as payroll, Electricity etc. Confirmation of these activities allocates these activities across many products.

Capture.JPG.png

Figure 5.3

Credits

Finished goods are derived from the production order. The credit value is calculated by multiplying standard price by finished goods quantity delivered to inventory .Total variance is the order balance

Capture.JPG.png

Figure 5.4

This balance post after the variance calculation, this is basically the difference between standard cost and actual cost. Now let’s talk about actual cost

Post Actual Cost Let’s create and release a production order CO01.

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Figure 5.5

Confirm Activities CO11n, while confirming you can see there are different this is when the actual Secondary cost get posted to Controlling.

There is no accounting entry for activity confirmation only CO postings happens

          Dr  Production order

                     Cost center Cr

Capture.JPG

Fig 5.6

and during Activity confirmation posts accounting with below entry

Dr. Activity cost GL(P/L)

          Activity cost GL(P/L) Cr

During closing activities we execute several other transactions to settle the costs, Overhead calculation and the variances. I will try to cover these in my next postings.

Note-This is basics document and intended for basic understanding of Actual Cost.I will continue to edit the document after the suggestion.

Best Regards

Hrusikesh Dalai

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52 Comments

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  1. Sushma Reddy

    Hrusikesh,

    I am liking your documents, I am still reading your other documents about standard costing, This one is simply great very simple to understand.

    keep it up!!

    Sushma

    (0) 
    1. Hrusikesh Dalai Post author

      Maheswar,

      Sorry i never heard if we have any specific document for that, You may need to specify what documents you need and then seach the forum.

      BR

      Hrusikesh

      (0) 
  4. Sumit Koshal

    Hi Hrusikesh

    Nice document, can you please share a document on actual activity rate calculation and revaluation of production order with actual activity rates T.codes KSII and CON2…. because that will complete the cycle.

    I am actually looking for these closing activities of CO

    Regards,

    Sumit Koshal

    (0) 
      1. Devendra F

        Hi Hrusikesh,

        Thanks for your comment,Your contribution definitely superb,

        It is the big task for the consultant to explain the subject in simple and easiest manner,You have made it through your FIVE STAR SERIES.

        Really great,

        With Regards,

        Devendra

        (0) 
  12. Big Choi

    Hi..

    I think that if you use standard cost for raw material and calculate actual cost through material ledger, KKBC_ORD don’t  report actual Data.

    Because raw material’s cost in KKBC_ORD report is only standard cost, not actual cost.

    (0) 
    1. Hrusikesh Dalai Post author

      Yes i agree Big Choi ! Sorry This document covers the topic where Material ledger is not active. I am sorry i should include this somewhere in my Notes. Thanks for clarifying and explaining.

      Best Regards

      Hrusikesh

      (0) 
  13. Anand Kumar Kancharla

    Hi,

    All the goods movements in process order or production order happens only at Standard price. The actual cost column gives Actual qty x Standard price. Here system will not take actual price.

    Regarding activities, after revaluation of order we get actual hours consumed x actual price calculated in KSII. 

    Regards

    Anand

    (0) 
    1. Hrusikesh Dalai Post author

      Anand,

      thank You for looking at it, I agree well this document is intend for basic understanding of Actual cost i will come up with my next document which will cover more topics like variances and period end closing activities.

      Thanks.

      Hrusikesh

      (0) 
  16. Subhasis mishra

    Hi Hrusikesh,

    Thanks a lot for sharing this document.

    I have one question: In accounting principle we have 4 types of valuating the inventory throughput method, direct or variable costing method, full absorption method and the activity based costing method. SAP supports only activity based costing method or all.

    Can you please share the configuration document related to Activity costing set up?

    Thanks in advance:)

    Regards

    Subhasis

    (0) 
    1. Hrusikesh Dalai Post author

      Subhasis,

      Ans-All method .

      SAP has flexibility in design which can support all of these methods.

      I have not having any document but there are several available in SCN and sap help.

      Thanks

      Hrusikesh

      (0) 
  22. Ganesh K.B.

    Hi Hrusikesh,

    Nice article given in a simple manner.  Would suggest if you can give it with a simulated scenario and provide the entries etc. to suit the scenario it would reach other in a better way.

    Thanks for the effort.

    Good Luck.

    (0) 
    1. Hrusikesh Dalai Post author

      Thanks Ganesh This document is very generalise idea for beginners and those who wanted to understand Costing basics.

      However i will try to come up with something as you suggested in future.

      (0) 
  25. Sharvari Joshi

    Hello Hrushikesh,

    This is one of the superlative document by time. Excellent presentation. Thank you very much for sharing your exceptional knowledge on the forum and people who is really looking for learning product costing. This is something really easy and understanding.

    I have request to you that can you please understand us the report KKS2 which is for “Calculation of Variance” in your variance analysis report.

    Your help would be great for people here.

    Regards,

    Sharu.

    (0) 
  26. Krishna Raj Pattath Sankaran

    Hi Hrushikesh,

    That was great explanation and simple too! Thanks for sharing.

    Would like to read something on “Project settlement to profitability segment” and explanation of related configurations.

    Thanks,

    Krishna Raj

    (0) 
  27. Satya Yenumula

    Hi Hrushikesh,

    Nice explanatory document,  but C011N, it is the planned activity cost only right, but month end, we need to calculate actual activity and overhead rate and revaluation of the production order or PCC.

    Regards,

    Satya

    (0) 

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