# AD Hoc cost estimate for planning scenarios

Product Costing is the tool used in SAP for planning costs and establishing material prices.

It helps in estimating the Cost of goods sold manufactured and COGS of each for each product unit.

Product costing has three basic functions:

• Product cost planning
• Cost Object Controlling
• Material ledger

In this blog we will go through the cost planning activities and discover how we can use the Ad hoc cost estimate to calculate different planned costs for a semi-finished or finished material based on different planning scenarios.

As you know, the cost estimate in SAP can provide us a plan of how procuring components and producing assemblies and finished goods will cost.

Product cost is typically calculated several weeks before the start of next year, analyzed and released on the first day of next year.

Releasing standard cost estimates update inventories, the new material standard price become the new price in the material master for all purchasing and production activities.

The cost estimate can be calculated once by year, by quarter or month (Not recommended) and released depending on the business need and price fluctuations.

In parallel Ad hoc cost estimate can be used for planning to calculate different planned prices depending on different business scenarios.

Nowadays the world faces increasingly challenging global environment with high inflation, some customers want to see the impact of high inflation on their product based on different scenarios.

We suppose we have three planning scenarios based on the inflation rate prevision:

Costing variants:

In SAP we can use ad hic planned cost estimate variants to calculate the cost estimate based on the different scenarios.

To achieve this, we need to create new ad hoc costing variants:

• ZPL1: Planned price (Up scenario)
• ZPL2: Planned price (Fair scenario)
• ZPL3: Planned price (Down scenario)

Costing variant

Valuation variant (Material valuation):

For each costing variant we need to create a valuation variant with the good strategy sequence.

Sequence strategy

ZPL1 = > P01 => Planned price 1

ZPL2 = > P02 => Planned price 2

ZPL3 = > P03 => Planned price 3

Valuation variant (Activity valuation):

For activity type we can use the same planning version 0 (Used for standard price) or create a planning version for each valuation variant.

P1: Up scenario

P2: Fair scenario

P3: Down scenario

Activity types strategy

NB: If we create different planning versions, we need to manage the activity prices valuation for each planning version in KP26.

Once created we need to maintain the planned price 1 in material master (Costing view 2) for all the BOM components.

Planned prices

NB : If we want to use the MPV or standard price instead of planned price for some material, we can change the strategy sequence in the valuation variant.

Ad hoc cost estimate using costing variant ZPL1:

We can now go and calculate the AD hoc cost estimate using costing variant ZPL1

We should select the planned costing variant depending on the scenario. (ZPL1 to update planned price 1)

Because we used ZPL1 costing variant planned price 1 was picked up from the material master (Costing view 2/ Planned cost 1).

We can mark and release the Ad hoc cost estimate.

We should select other prices and choose planned price 1.

Mark and release Planned cost

Planned price 1 can be released.

Planned price 1

As we can see the planned price 1 in the FG was updated.

We can process as before to update planned price 2 and 3.

For more information and to get updated with all new SAP S/4 Hana insights I encourage you to follow the SAP S/4HANA Finance: https://blogs.sap.com/tags/67837800100800006927/