Product Cost & Profitability SAP · 2020. 10. 13. · Overview of SAP •Design of SAP...

CMA Jayesh P Desaiwww.jayeshdesai.com

Webinar Oct 11, 2020

SAPfor

F inanceTransformation

Product Cost & Profitability Analysis

ICAI-WIRC

www.jayeshdesai.com 1

Disclaimer

“SAP” is a trademark of SAP AG, Neurottstrasse 16, 69190 Walldorf, Germany.

SAP AG is not the publisher of this material and is not responsible for any inaccuracy.

This presentation is made in my personal capacity and I do not represent SAP or any of its subsidiaries.

www.jayeshdesai.com 211-10-2020

3

Jayesh P Desai & Co.Cost Accountants

www.jayeshdesai.com

Profile

www.jayeshdesai.com11-10-2020

• Practicing Professional (Since 2017)• Business Valuation• Data Analytics – Product Costing, Pricing & Profitability

Analysis• SAP Consulting & Training

• Key Accomplishments• Developed Financial Model for Start-up in areas such as

Blockchain, AI, Data Analytics, Gaming, Online Education, E-commerce, Electric Vehicle

• Valuation of early and funded start-up, matured companies, CIRP under Companies Act, FEMA, IBBI and other needs

• Data Analytics for manufacturing companies in power, Consumer Durables, Injection Molding, Textiles

• SAP trainer for Institute of Cost Accountants of India. Conducted 2 sessions of 60 hours each with 150 participants

• Conducted several Webinars on SAP for Finance Professionals for over 200 participants

Jayesh P Desai & [email protected]

4

FCMA, CFA, CISA

CIA, PMP, UCLA (PGPX)

Registered Valuer (IBBI)

CMA Jayesh P Desai

Practicing Cost Accountant

DesaijayeshP


http://www.jayeshdesai.com/

mailto:[email protected]

https://www.linkedin.com/in/desaijayeshp/

• Corporate Professional (1991-2016)• Financial Accounting, Product Costing, Profitability Analysis,

Internal/ System Audit, Corporate Restructuring• SAP Implementation, Data Analytics, Project & Delivery

Management• Building Global Teams & Leadership, Leading Innovation

• Key Accomplishments• Worked with General Mills, IBM, Colgate, Bayer, Shaw

Wallace, General Motors• Over 20 years SAP experience as delivery manager,

consultant and power user • Implemented 4 SAP FICO projects with integration• Domain experience in Finance & Controlling in SAP

environment• Specialised in SAP Controlling (CCA, PC, COPA, PCA)• Lead & Delivered global SAP & Data Analytics projects.

Managed Global Teams in India, US, UK• Lead Innovation and Data Analytics initiatives across various

functions and countries

5

FCMA, CFA, CISA

CIA, PMP, UCLA (PGPX)

Registered Valuer (IBBI)

Jayesh P Desai & [email protected]

CMA Jayesh P Desai

DesaijayeshP





Content in the Series

Overview of SAP

• Design of SAP

• Enterprise Structure

• Modules & Business Processes

• SAP Live, Q & A

PC & CO-PA

• Product Costing

• Material Ledger

• Profitability Analysis

• SAP Live Q & A

9th

Oct

ob

er

10

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cto

ber

SAP Controlling Overview

• CO Enterprise Structure

• Controlling Master Data

• Cost Control

• SAP Live, Q & A


11

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11-10-2020

SAP Product Costing


Content


MAP versus SP

Value Flow in Production

FS in Mfg. Companies

Standard Costing Design

Components of Standard Costing

SAP Live- Purchasing- Consumption- COGM- COGS- Variances

11-10-2020

MAP versus SP


• Moving Average PricePrice that changes in consequence of usage and entry of invoices. Calculated by dividing the value of material by the quantity in stock. Automatically recalculated based on activity.

• Standard PriceConstant price without considering usage or invoices. Price variances are posted to price difference accounts; not affecting the standard price. Usually calculated at the beginning of each year.

In SAP, MAP is indicated by Price Control indicator as ‘V’ and Standard Price is indicated by ‘S’ in the material master

The decision on method of valuating material is taken at the time of creating/ extending the material master. Finished goods are valuated with standard price while RM/ PM may be MAP or standard price.

11-10-2020

Step 1: Goods Receipt (movement type 101), PO value Rs 3,600

Dr. RM Stock A/c Rs 3,600Cr. GR/ IR Clearing A/c Rs 3,600

40 Kg @90

Step 2: Goods Issue to Production Order (movement type 261)Production Order No. 100251

Dr. Consumption A/c Rs 1,800Cr. RM Stock A/c Rs 1,800

20kg @90

Issue of material to shop floor is recorded as consumption and not WIP

GR/ IR Clearing account gets nullified during invoice processing MIGO

Value Flow in Production – GR/GIUsing a simple scenario


Step 3: Production Order “Confirmed”No FI entry, only CO transfer from cost center to production orderActivity Rate INR 40 per kg

Dr CrFinished Goods

Production Order No. 100251

Goods issue of RM (step 2) 1,800

Machine Activity 800

Value Flow in Production - Activity


Step 4: Good Receipt of Finished Goods from shop floor (movement 101)

Dr. Finished Goods Stock A/c Rs 2,400Cr. COGM A/c Rs 2,400

Dr CrFinished Goods

Production Order No. 100251

Goods issue of RM 20 kg 1,800

Machine Activity 800

Goods receipt of Finished Goods

20 kg

2400

Value Flow in Production – GR of FG

Standard Cost per Kg

Raw Material 80

Activity 40

Total 120


Step 5: Good issue during PGI – 10 Kgs

Dr. Cost of Sales A/c Rs 1,200Cr. Finished Goods Stock A/c Rs 1,200

Dr CrP& L Account

Consumption A/c 20 kgs 1,800

COGS 10 kgs 1,200

COGM 20Kgs 2,400

Value Flow in Production - PGI


The variance, like WIP is calculated and maintained Production Order-wise and the formula for valuation also is the same, namely, the balance in the account, which is nothing but the difference between the total debits and the total credits in each Production Order.

Given that variance and WIP are calculated based on the same formula, it is understood that a Production Order can either be in WIP or have Variance. The entry that is passed for variance is

(20*80-20*90)

Dr Production Variance a/c Rs 200

Cr Cost of Goods manufactured a/c Rs 200

Value Flow in Production - Variance


Financial Statement

Manufacturing Account

Particulars Qty Rate Amount Particulars Qty Rate Amount

Consumption 20 90 1800 COGM 20 120 2400

Conversion Cost 1200 COGM- Variance 20 10 200

Under-absorbed Cost 400

3000 3000

Profit & Loss Account

Variance 200 Sales 10 250 2500

Under-absorbed Cost 400

COGS 10 120 1200

Other Cost 500

Profit 200

2500 2500

Balance Sheet

Inventory – FG 10 120 1200

Inventory - RM 20 90 1800

Standard Cost per Kg

Raw Material 80

Activity 40

Total 120



Material Master – FG

Work Centre

Routings –FG

BOM – FG

Cost Centre/ Activity Rate

Activity Quantity

RM/ PM Quantity

Costing Sheet

Base

OH Rate

RM

PM

Activity

OH

Cost Components are assigned

to Value Fields in PA

and provides

Cost of Sales

Controlled by:Costing Variant

Cost Elements

Cost ComponentMfg. Plant (IN15)

RM/ PM Price

Material Master – RM/ PM

X

X

X Cost Elements



www.jayeshdesai.com

• Material Master for FG, RM and PM• Price Control, Costing indicator, Plan price

for RM/ PM, Costing Lot

• BOM• Assembly

• Item with quantity

• Base qty

• Routings• Operations

• Work Centre, Cost Centre

• Activities

• Resources

• Cost Centers/ Cost Elements

• Activity Price Calculations

• Costing Variant

– Costing type

– Valuation Variant

– Date Control

– Qty structure control

– Transfer Control

– Reference Control

• Costing Sheet

• Plant, production version, etc

Master Data Configuration

• Material Cost Estimate/ Costing Run

(CK13N/ CK40N)

• Cost Centre Planning & activity rates

(KP06, KP26 and KSPI)

T-Codes

1711-10-2020

• Cost accounting using actual prices

• Storing values of stock in three different valuations – Legal, group, PCA

The Material Ledger(ML) is a tool within the CO Module that collects all transactional data for materials whose master data is stored in the material master. It acts as a subledger for selected materials that captures all goods movements, invoice values, transfers and price changes. On the basis of this data, the material ledger calculates and maintains the actual cost for these materials. This actual cost can then be utilized to valuate the material stock accounts. The material ledger makes stock valuation in up to three currencies and/or valuations possible.

Material Ledger


1. Actual Costing.

During the period, valuation of all goods movements is done with the preliminary valuation price which is normally the standard price. All variances from the preliminary valuation are maintained in the ML. At period end, revaluation of ending inventory can be performed with the determined actual price. This is not mandatory. Actual prices can be calculated for statistical purposes only.

2. Parallel currencies and/or valuations of material stocks.

All goods movements in the ledger can be maintained in 3 currencies. The values are translated into other currencies using the historical exchange rates. Prerequisite for usage of transfer pricing functionality.

Objectives




SAP Live



Content


• Income Statement Design

• Operating Concern

• OC & CA relationship

• PA Methods

• Characteristics, Value Field & Profitability Segment

11-10-2020

0 Fixed Assets

1 Current Assets

2 Net worth

3 Other Liabilities

4 Revenue

5 Material Cons.

6 Primary Cost

7 Other Expenses

8 Secondary Cost

9 Reporting

PP

MM

SD

Production Order

Production Cost Centre

Service Cost Centre

Marketing Cost Centre

General Ledger

SAP Modules

Income Statement Design


CC 1CC 2CC 3 CC 5CC 4

CA1 CA2 CA3

Operating Concern

FY Var

COA

FY Var

COA

FY Var

COA

Operating Concern

These are few possibilities

Operating Concern


Controlling Area & OC


Period accounting method Cost of Sales method

•Revenues

•Sales deductions

•Changes in stock

•Capitalized internal services

• Work in process

•Revenues

•Sales deductions

•Cost of sales

(incl. variances for period)

Total activities Gross result

•Total costs:

Material costs

Personnel costs

Other costs

•Sales and distribution costs

•Administrative costs

•Research & Development

Result Result

The period accounting approach - The total

costs for the period are compared with the total

operating output for the period. Adjustments

made for stock increase/ decrease. It shows by

Cost Element what was incurred.

In the cost-of-sales accounting approach

there is no differentiation according to cost

elements. Here the sales revenues are

compared with the manufacturing costs for the

products sold (cost of sale). The cost-of-sales

procedure therefore indicates where the costs

were incurred.

PA Methods


Characteristics


Value Field


A profitability segment corresponds to a market

segment. It is defined by a combination of

characteristic values

You can calculate the profitability of a profitability

segment by setting off its sales revenues against

its costs.

Profitability Segment


SAP Live



Content

What is Standard Costing?

Costing Methodology

Plant & Kitchen

Components


Price Calculations

Important Settings

Valuation

SAP Live


What is Standard Costing?


Standard Costing is used for determining cost of manufacturing product/ rendering services beforethe goods are sold or services rendered

It helps management in -• Determining Cost of Goods Sold

Sale – COGS = Gross Profit

• Valuation of Inventories (Legal Valuation)• Cost controlling• Profitability forecasting & analysis• Pricing

In this session, we will deal with manufactured products

11-10-2020

Costing Methodology


• Moving Average PricePrice that changes in consequence of usage and entry of invoices. Calculated by dividing the value of material by the quantity in stock. Automatically recalculated based on activity.

• Standard PriceConstant price without considering usage or invoices. Price variances are posted to price difference accounts; not affecting the standard price. Usually calculated at the beginning of each year.

In SAP, MAP is indicated by Price Control indicator as ‘V’ and Standard Price is indicated by ‘S’ in the material master

The decision on method of valuating material is taken at the time of creating/ extending the material master. Finished goods are valuated with standard price while RM/ PM may be MAP or standard price.

11-10-2020

Costing Methodology


• Make to Order

The planning and manufacturing process is initiated after receiving the sales orders from the customer.

The whole process is customer focused and throughout the manufacturing process the connection to the customer can be maintained.

The primary benefit of this process is that manufacturer can meet specific customer requirements and track the profitability of each sales order.

• Make to Stock

Characteristics of a Make-to-Stock (MTS) process are commodity-based end products

Production prior to sales order based on forecast

End products sold from inventory, controlling of inventory is critical and distribution and warehousing of end product is the norm.

We will consider Make to Stock scenario in this presentation

11-10-2020

Costing in SAP


• Standard Costing

• Target Costing

• Life Cycle Costing

• Joint Product

• Bi-product

• Mixed Costing

• Batch Costing

• Activity Based Costing

• Split Valuation

• With Quantity Structure

• Without Quantity Structure

• Simulation Costing

11-10-2020

Plant & Kitchen Similarity


Kitchen is a “plant” with several “Work Centre”www.jayeshdesai.com 3911-10-2020


MilkSugarMisc. Item

10 Ltrs5 Kgs1 Kg

252050

25010050 400

HeatingRefrig.WashingStorage

2 Hrs1 Hrs1 Hr5%

253015

50301520 115

515Estimated Cost

Per Unit Cost 5.15

Rosgulla 100 Psc.

Ingredients Qty Rate Tot

Tempting Rosgulla!

11-10-2020


MilkSugarMisc. Item

10 Ltrs5 Kgs1 Kg

252050

25010050 400

HeatingRefrig.WashingStorage

2 Hrs1 Hrs1 Hr5%

253015

50301520 115

515Standard Cost

Per Unit Cost 5.15

Rosgulla 100 Psc.

Ingredients Qty Rate Tot

Costing Lot

Finished Goods (FERT)

Raw Material (ROH)

Activities

Overhead

BOM

Routing

CS

Cost Component

Tempting Rosgulla in SAP!

11-10-2020

Components for Standard Costing


• Material Master for FG, RM and PM• Price Control, Costing indicator, Plan price

for RM/ PM, Costing Lot

• BOM• Assembly

• Item with quantity

• Base qty

• Routings• Operations

• Work Centre, Cost Centre

• Activities

• Resources

• Cost Centers/ Cost Elements

• Activity Price Calculations

• Costing Variant

– Costing type

– Valuation Variant

– Date Control

– Qty structure control

– Transfer Control

– Reference Control

• Costing Sheet

• Plant, production version, etc

Master Data Configuration

• Material Cost Estimate/ Costing Run

(CK13N/ CK40N)

• Cost Centre Planning & activity rates

(KP06, KP26 and KSPI)

T-Codes

11-10-2020


Material Master – FG

Work Centre

Routings –FG

BOM – FG

Cost Centre/ Activity Rate

Activity Quantity

RM/ PM Quantity

Costing Sheet

Base

OH Rate

RM

PM

Activity

OH

Cost Components are assigned

to Value Fields in PA

and provides

Cost of Sales

Controlled by:Costing Variant

Cost Elements

Cost ComponentMfg. Plant (IN15)

RM/ PM Price

Material Master – RM/ PM

X

X

X Cost Elements


• RM/ PM prices are based on market forecast or historical averages.

• These are entered in Planned Price field of Material Master

• Price Control is mostly ‘V’ but can also be ‘S’

• Activity prices involves cost centers and activity-dependent planning (KP06 and KP26)

Price Calculations


Head -Manufacturing

Baroda Plant Pune Plant Mumbai PlantMachine Activity Rate

Labor Activity Rate

Fixed Machine Cost

Capacity Machine Hour

+

Variable Machine Cost

Plan Machine Hour

=Machine Activity Price

Cost Centre

Product Product Product

Activity Price Calculations


• Plant

• Material Type

• Lot Size

• Proc Type

• Special Procurement

• With Qty Structure

• Planned Price

• Valuation Class

• Price Control

• Base UOM

• Material Origin

• Overhead Group

• Do Not Cost

• Production Version (MRP4)

Material Master Key Settings


• Base Quantity

• Production Relevant

• CostingRelevncy

• Assembly

• Material

• Component

• Quantity

• Plant

BOM Key Settings


• Resource

• Operations

• Plant

• Status

• Usage

• Activity Type

• Duration

• Costing Relevancy

Routing Key Settings


Configurations


• Once standard cost is released, all finished goods currently in stock, are re-valuated.

• Difference between old value and the new value gets posted to FI using MM procedures in OBYC.

• FG stock is reflected at current standard price

Valuation


Thanks!

www.jayeshdesai.com

[email protected]

SAP4Me

DesaijayeshP


Link to Recorded SAP

Webinar

11-10-2020




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Product Cost & Profitability SAP · 2020. 10. 13. · Overview of SAP •Design of SAP...

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