Cost Estimate

The cost estimate enables you to calculate the non-order-related cost of goods manufactured and the cost of goods sold for products, based on the BOMs and Master recipes.

The precondition is that there is a quantitative structure products: BOM and Master recipe for materials whose costs are estimated. It is also necessary to correctly define the prices for activity types by allocating all machine and labor costs (wages, maintenance, energy, ...).

On this basic structure the overhead costs are added using a costing sheet. The final result is stock price of materials for Finished products and Semi-finished products.

Updating standard cost of materials (products) in the material master is carried out in two steps:

  • Marking
  • Releasing (Material master update)

Both steps are done with transaction code CK24. Update of Material master record automatically means the inventory revaluation of the material.

When standard price is marked, new calculated price is going to be "the future standard price" in material master.

When standard price is released, new calculated price is going to be "the current standard price" in Material master.

The price for one material can be released once per period, so the results of cost estimate should be well checked before releasing.

Costing runs are used for mass processing. Runs might be carried out periodically (once per month or once per year) to cost the entire product spectrum. After the execution of the material cost estimate, the costing results can be analyzed.

In order to valuate material movements in Logistics, the system accesses the costing results. The system calculates the costs by multiplying the quantity by the price. Cost estimate run will update the standard prices in the material masters of semi-finished and finished products. Also, several additional costing variants can be created in order to simulate cost calculation.

If a new product is launched by production, a new standard costing run has to be performed to calculate the standard price for this product and save it to Material master. This is necessary to have this calculation because without this the booking of the COGS will be incorrect for the related new material. For testing purposes the additional costing variant for simulation can be used in earlier stages.

With Costing run it is possible to create, mark and release cost estimates for more materials at once. There are 6 steps of this process.

SELECTION: All materials to be calculated are going to be selected, e.g. identified by material type.

EXPLODING BOM: by this process step all related materials according BOM-structure are identified to be calculated as well (e.g. when calculating a certain finished good material, within this process step system is identifying by reading BOM-structures all related semi-finished goods, raw materials and services which are needed to produce this material)

EXECUTING A COSTING RUN: Within this step the system is calculating the costs for all materials and BOM assemblies according the rules and settings which have been made for the chosen costing variant (in this case “standard-cost”).

ANALYZING THE COSTING RUN: The results of the costing run can be displayed and analyzed first, before they are released to material master. I.e. results can be compared with costing run from previous period or be compared to costing run based on planning figures.

MARKING PRICES: Before updating the standard-price, prices needs to be marked first. This process step is only needed for  update the standard-price but not, if the costing run is done for some other purposes like “planning” or the purpose of “transfer prices”.

All steps from costing run process can be done already in beforehand of a new month, (e.g. selection, exploding BOM, executing costing run and marking) without any impact to inventory stock evaluation or any impact to finance. The evaluation of all related materials within BOM structure follows the date of setting within the costing run.

RELEASING PRICES: In this (final) step of product costing the system is really updating new standard price to material master record. At the same time, the stock value of the material is changed and the new standard price for valuating material movements is active.