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Author's profile photo Rudra Prasanna Mohapatra

Understanding the Standard Product Cost Estimate

Understanding the Standard Product Cost Estimate

Product costing is one of the key areas in Manufacturing and process industries. It is used for estimating and valuating the internal cost of a product.Product cost planning is used for estimating/predicting the cost incurred in producing a Finished Product . This estimate is also used for budgeting purpose . When the material is actually produced, the actual cost is incurred and the variance between planned cost and the actual cost is calculated. Based on the magnitude of variance, decision is taken to re-estimate the cost of the materials.

Standard Cost estimate is the basis of product cost planning . This is nothing but the estimation of cost of a particular product, being manufactured.

Before getting in to SAP terminologies, let’s relate it with a very simple practical scenario, so that it is more clear and understandable.

Suppose a company is manufacturing glass containers. The components used are

  1. The Glass
  2. The Cap

The above two components are raw materials and the end product container is the finished good. Below diagram represents the entire production process.

Lets divide the discussion in to two parts.

1. Master data required for cost estimate creation

2. Cost estimate creation

1. Master data required for cost estimate creation

BOM : The component materials required for the finished good creation

Suppose as per estimation 1 Each Glass and 1 Each Cap combined to produce one container.

The above line defines the Bill Of Material i.e BOM

In SAP it looks as below CS02/CS03

Routing : The activity performed during the Production Process

As can be noted in the above screenshot, the glass undergoes an operation, where the machine runs for say 2 hours to produce the container body .

The above line defines Routing  and the machine used is the work center(tcode : CR01/02/03). The exact activity or the work carried out is the activity(KL01/02/03). Tcode is for the routing is CA01/02/03

KP26 : Activity cost planning

There is a source which would be maintained, so as to be referred as a base for the activity,

So that based on the number of hours spent, it will add up to the estimated cost of the material being costed. That source is KP26 .

As can be seen above 1 hour of the machine activity would cost 200 unit amount. In our case the number of hours is 2, hence the cost would be 400 unit.

2. Cost estimate creation

Now as we are done with the master data part lets look in to the cost estimate creation.CK11N is the t-code to create the cost estimate creation.Lets talk about the different parameters involved in the same.

Costing Variant

As can be seen in the below screenshot,which is the initial screen of CK11N, costing variant PPC1 is used. Costing variant is the basis of cost estimates creation. It holds important parameters like, whether or not standard price will be updated, what is the source from which the price will be picked, the default validity period of the cost estimate, any reference costing variant etc.

The configuration of the costing variant is one of the most important configuration, in the product cost planning.The costing variant PPC1, used below is a standard costing variant. Custom costing variants, can also be created.

Below is the resulting screen.


In the bottom grid, we see the itemization part . This is nothing but all the items that constitute the costing result. Based on the valuation strategy the cost are picked from the constituent materials. In the example above, we see Component Material cost(Picked from component Material master as per valuation strategy ) We can switch between itemization and cost component split.

Cost Component Split

Clicking on the below highlighted part takes us to the Cost Component Split. Cost component split is the split of the entire cost estimate among various cost buckets

Once the cost estimate is saved , the same is marked and released. After the same, the material standard price is updated.

The above explanation intends to simplify the basic understanding around cost estimate . This understanding can serve as the first step towards understanding the entire configurations pertaining to Standard Cost Estimates.

Your comments are most welcome.


Rudra Prasanna Mohapatra

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      Author's profile photo NARRA LINGESH

      It is very simplify and informative blog, thank you for sharing.:D



      Author's profile photo Rudra Prasanna Mohapatra
      Rudra Prasanna Mohapatra
      Blog Post Author

      Thanks for the comments.. 🙂



      Author's profile photo Nitisha Sharma
      Nitisha Sharma

      Dear Rudra,

      Very nice document...people like me who are new to CO module learn a lot by this kind of documents.. 🙂



      Author's profile photo Rudra Prasanna Mohapatra
      Rudra Prasanna Mohapatra
      Blog Post Author

      Hi Nitisha

      Thanks for your comments.The effort was to try and relate the costing in SAP to a simple practical scenario, so that understanding the underlying configurations will be easier.

      Glad that you find it useful.



      Author's profile photo Rajneesh Saxena
      Rajneesh Saxena


      I have seen other docs also on the same subject but this is the simplest and easiest one to understand. Great submission.

      It can be more informative if you write few words on overhead part also in your wonderful dialect.

      Keep on contributing to the space it helps community as a whole.


      Author's profile photo Rudra Prasanna Mohapatra
      Rudra Prasanna Mohapatra
      Blog Post Author

      Hi Sir,

      Thanks a ton for your appreciation. It motivates a lot. I will definitely try to submit something on the overhead part and also on the cost component part.Thanks again.



      Author's profile photo Former Member
      Former Member


      Goods docs simplest and easiest one to understand



      Author's profile photo Krishna Davuluri
      Krishna Davuluri
      1. Can you please let me know in which period do we need to perform cost estimate and 1. Mark&Release functionality .
      2. How many time can per perform cost estimate in a year.  Is it yearly or can we even perform monthly or bymonthly or quarterly or half yearly
      3. Is there there any GL posting if I per mark and release
        1. Performing mark & release 1st time for the material. i.e. in 1st year
        2. Performing mark & release 2nd time for the material. i.e. in 2nd year.
      Author's profile photo Archana Palani
      Archana Palani

      Dear Rudra,

      Very Nice blog and easiest to understand even if the person has no knowledge in FICO ,

      Being an ABAP developer this kind of articles will help us a lot.


      Thanks for sharing it.




      Author's profile photo Rohan Thakur
      Rohan Thakur

      Hey Rudra,

      Very nice and simple explanation! Thanks a lot


      Author's profile photo Periya Kattuva Sheik
      Periya Kattuva Sheik

      Good Document. Easy to understand. Keep it up...