Rosana Fonseca
Practical Guide to SAP® Material
Ledger (ML)
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Table of Contents
Cover
Title
Copyright / Imprint
Preface
1 Introduction to SAP Material Ledger
1.1 Overview: What is SAP Material Ledger?
1.2 Main functions of SAP Material Ledger and general concepts of actual
product costing
2 Key design definitions and important considerations when implementing SAP
Material Ledger
2.1 Driving factors to implement SAP Material Ledger
2.2 Choosing the best inventory valuation method for your company
2.3 Material price determination setup
2.4 Multiple currencies
2.5 Price differences
3 Configuration for activating SAP Material Ledger and actual costing
3.1 Activation of valuation areas for SAP Material Ledger
3.2 Assign currency types to SAP Material Ledger type
3.3 Currency and valuation profile definition
3.4 Assignment of currency type and valuation view of a valuation profile
definition
3.5 Assignment of currency and valuation profile to controlling area
3.6 Create version for group valuation
3.7 Assign SAP Material Ledger types to a valuation area
3.8 Multiple valuation approaches activation
3.9 Maintain number ranges for material ledger documents
3.10 Configure dynamic price changes
3.11 Material price update
3.12 Actual costing configuration
3.13 SAP Material Ledger as related to automatic account determination
3.14 SAP Material Ledger production start-up
3.15 SAP Material Ledger settings in COPA
4 Integrated flow of transactional data into SAP Material Ledger
4.1 Standard cost set-up and cost roll-up process
4.2 Purchase of raw material
4.3 Manufacturing process using product cost by order
4.4 Sales of finished product
4.5 Flow of sales data into COPA
5 Month-end closing process
5.1 Critical checkpoints throughout the month and during the month-end closing
5.2 Cost center closing process
5.3 Production order closing
5.4 Periodic actual costing run
6 Actual costs review and reporting
6.1 Manufacturing cost center—zero balance
6.2 CKM3N walkthrough of a finished product analysis status and actual cost
results for a material
6.3 Reviewing material master after material ledger close
6.4 Reviewing SAP Material Ledger closing document and general ledger
entries
6.5 Price difference accounts after materials ledger closing
6.6 Material price analysis (CKM3N)—integrated view
7 Periodic valuation in COPA
8 SAP Material Ledger reporting
8.1 Material list with price and inventory values
8.2 Other useful material ledger reports
8.3 Material ledger document reports
8.4 Drilldown reporting
9 List of main SAP Material Ledger tables
10 Overview of advanced and newest SAP Material Ledger functions
10.1 Manual change of actual cost component splits
10.2 Distribution of usage differences (DUV)
10.3 Alternative valution run (AVR)
10.4 Business functions (enhancement packages 5 and 6)
A The Author
B Disclaimer
Preface
The purpose of this book is to guide you through the main functionality of SAP
Material Ledger while describing its integration with other functional areas within
SAP. In reading this book on SAP Material Ledger, you will also get a deeper
understanding of product costing as it relates to material ledger actual costing.
By following the lessons in this guide, you will find that SAP Material Ledger is not
as complex as it first may seem. The book is designed to be a simple and
practical guide on how to configure, implement, and use SAP Material Ledger
efficiently. The examples in the book are derived from practical and common
scenarios that would normally arise in typical environments where SAP Material
Ledger is being used or implemented. Examples ranging from manufacturing to
buying and selling as well as financial month-end closing activities are
demonstrated and explained. These examples will serve to guide you to better
understand and feel more at ease with the process of actual costing using SAP
Material Ledger by demonstrating the necessary day-to-day material ledger tasks.
The examples serve to describe each process in a logical way, focusing on its
operation within the context of execution while also noting the integration points
and their impacts. Other benefits include various additional hints and tips along
the way, which show you how to deal with steps or issues that can commonly
arise as part of the material ledger process.
The main focus or intent of this book is the practical side of the material ledger. By
using examples that will frequently appear, especially in regards to the closing of
actual costs and the reconciliation of the price differences within general ledger
(G/L) accounts after the monthly process, the book also covers the most common
reports to analyze actual costs at month end. You will quickly gain both confidence
and a practical understanding of the key concepts of the material ledger, its
configuration, and the business transactions that affect product costing with actual
costing and more importantly its integration into the other modules of SAP.
It is important for you to be familiar with the standard costing process in SAP to
gain a deeper understanding of SAP Material Ledger and to grasp the content of
this book more easily.
Lastly, I hope this book will contribute to your learning or extend your knowledge
of actual costing with SAP Material Ledger.
We have added a few icons to highlight important information. These include:
Tips
Tips highlight information concerning more details about the subject being
described and/or additional background information.
Examples
Examples help illustrate a topic better by relating it to real world
scenarios.
Attention
Attention notices draw attention to information that you should be
aware of when you go through the examples from this book on
your own.
Finally, a note concerning the copyright: all screenshots printed in this book are
the copyright of SAP SE. All rights are reserved by SAP SE. Copyright pertains to
all SAP images in this publication. For simplification, we will not mention this
specifically underneath every screenshot.
1 Introduction to SAP Material
Ledger
SAP Material Ledger is a powerful tool for cost management. It is a
component of the SAP Product Cost Controlling module that manages
inventory at actual cost and in multiple currencies and valuations. SAP
Material Ledger leverages a full absorption costing method by which all
manufacturing costs are absorbed by the units produced. The unit cost of a
product typically includes materials, direct labor, and both fixed and
variable manufacturing overhead.
Companies use SAP Material Ledger to manage their inventory in both standard
cost and actual cost. Standard cost is an estimated or predetermined cost that
represents the total cost of performing an operation or producing a good or
service under normal conditions. In a standard cost system, the standard cost is
used throughout the month to value any material movement transactions. At the
end of the month, SAP Material Ledger then calculates the actual costs for the
period, taking into account all material movements and invoices associated with
the raw materials, actual costs of the confirmations to the production orders, and
any price difference. This actual periodic cost is an actual weighted moving
average that is available through SAP Material Ledger.
SAP Material Ledger has been available for many years. It was developed
primarily to meet the needs of companies in Asia, South America, and Russia
where there is a legal requirement to value the inventory at actual cost at the end
of each month. SAP Material Ledger has extensively evolved since its initial
version and even companies with no legal requirement to have their inventory
valued at actual cost have been implementing SAP Material Ledger, given that it
is extremely helpful to manage costs in a manufacturing or process industry
environment.
Many people approach me and ask which product costing methodology my clients
use. When I answer, “Actual costing with SAP Material Ledger,” many are
surprised and ask, “How is that possible? They must take weeks to complete their
month-end close. I have heard that SAP Material Ledger is very complicated and
onerous to manage.”
With this book, you will learn that SAP Material Ledger is not as intricate as it
seems. This quick reference is a practical and simplified guide on how to design,
configure, implement, and use SAP Material Ledger efficiently. Practical examples
of integrated processes from making, buying, and selling to month-end closing
steps provide an effective reference guide to build or increase your knowledge of
actual costing with SAP Material Ledger while making your day-to-day material
ledger tasks clear and comprehensible. Each process is discussed within the
context of its execution across various functional areas in SAP. You will also find
several hints and tips throughout the book on how the price differences in G/L
accounts are set and how to reconcile such G/L accounts after the material ledger
periodic actual costing process. There are also insights on important checkpoints
during the month and closing actual costs at the end of the month. You will see
that monitoring material transactions regularly will greatly minimize issues in the
closing with SAP Material Ledger.
The main purpose of this book is to help you become familiar with or improve your
knowledge of SAP Material Ledger by using simple non-convoluted language
through step-by-step instructions on how to design, configure, and use SAP
Actual Costing with SAP Material Ledger effectively.
The book is divided into ten chapters. Each chapter provides details on how the
business process relates to and integrates with SAP Material Ledger and other
modules and functional areas of the organization. Throughout the book, you will
find a brief context of each subject and practical examples of day-to-day activities
reflected in product cost and which help you gain a better understanding of SAP
Material Ledger.
1.1 Overview: What is SAP Material Ledger?
The name SAP Material Ledger leads people to think this function resides under
the materials management module (MM). In fact, SAP Material Ledger is a
component of the product cost controlling (CO-PC) sub-module of SAP
Controlling (CO) and it is a subsidiary ledger for materials.
SAP CO is the management accounting module in SAP that contains several submodules for cost center accounting, overhead accounting, product cost
controlling, and profitability analysis.
Finance and accounting pertain to the financial accounting (FI) module.
Product costing is a very complex process in any industry and is used to manage
costs related to a manufacturing process. In SAP, product costing integrates with
many other modules and supplies basic information for business processes used
by various other SAP functional areas such as valuation of goods in materials
management (MM), costs to determine price in sales and distribution (SD) pricing
procedures, and ultimately it sets the standards to measure production efficiency
in manufacturing orders in the production planning (PP) module.
Product costing is comprised of the following tools in SAP:
Product cost planning (CO-PC-PCP)
Costs are planned for the materials and cost objects in cost accounting.
Cost object controlling (CO-PC-OBJ)
Area that assigns costs incurred to the products manufactured to inventory or
make-to-order production. Examples of cost objects within cost object
controlling are: Production order, process order for process industries, and
cost collectors.
Actual costing/material ledger (CO-PC-ML)
Material prices are carried in multiple currencies/valuations and actual
costing.
Although product costing is subdivided into three sub-components, this book
focuses on material ledger functionality only.
It is essential that you are familiar with and have a good understanding of the
principles of product costing in SAP to appreciate the value of SAP Material
Ledger.
Standard cost is frequently referenced during the course of this book; therefore it
is extremely important that you understand what standard cost is and how it is
used in SAP before diving into SAP Material Ledger.
Standard cost system is the process by which a company estimates a preliminary
target of what it expects a unit of product to cost for a determined period for
planning purposes. In an SAP environment with standard cost, all material
movement transactions such as purchases of raw materials, production, and
transfers across different plants (sites/locations) of the company are recorded at
standard values throughout the month.
SAP Material Ledger’s primary function is to handle actual costing. It collects price
differences against standards that result from goods and invoice receipts related
to purchased orders and production variances, for example. At month end, these
variances to standards are allocated back to the cost of the products—from raw
material to finished products—across multiple levels of the production structure by
using the multilevel cost roll-up function in actual costing with SAP Material
Ledger. This process allows companies to have a clear view of the actual
performance of the production process in relation to targets while providing a
valuable insight into process inefficiencies.
Variances to standards are captured separately in the G/L in the financial
accounting module. However, if you use SAP Material Ledger, these variances
are not only tracked separately in the accounting module, but they can also be
reconciled by product and plant, helping you to carry out analysis and
comparisons against targets.
The fact that SAP Material Ledger carries the variances across several
manufacturing levels adds a great transparency on the value-added processes.
SAP Material Ledger is a hybrid of standard cost and monthly weighted average
cost. The actual weighted average cost is called periodic unit price (PUP). PUP
changes periodically as a result of goods movements and invoice entries. It is
available only if the material ledger is active for the material and it is set as
settlement price control 3 (discussed in Section 2.3). The PUP is used to revalue
ending inventory at month end. This is an optional function where actual cost is
not a legal requirement.
Periodic unit price (PUP) is discussed in later chapters.
1.2 Main functions of SAP Material Ledger and general concepts of actual
product costing
It is important to be familiar with the concepts behind actual costing with SAP
Material Ledger before looking at its configuration setup.
Note that SAP Material Ledger does not exist in isolation; it extends standard
costing functionalities. SAP Material Ledger is mainly designed to be used in a
manufacturing sector where there is a production or processing of goods for use
or sale. SAP Material Ledger functionality is not available for the SAP Retail
Business solution.
The main purpose of SAP Material Ledger is to manage product costing and
inventory in multiple currencies and valuations using actual prices. On a high
level, actual costing with SAP Material Ledger is done in three steps:
1. Preliminary valuation at standard cost and recording of price differences
2. Price determination: calculation of periodic unit price (PUP) for single and
multilevel products
3. Revaluation of inventory with periodic unit price (PUP)
1.2.1 Multiple currencies and valuation overview
Another great feature of SAP Material Ledger is the multiple currency valuation. A
total of three currencies and two valuation views are possible:
Local currency (legal valuation in the currency of company code)
Group valuation (corporate group valuation for reporting purposes)
Profit center (profit center valuation, for transfer pricing functionality, for
example)
If a company is not using SAP Material Ledger, normally the valuation is done in a
single currency, which is the company code currency. SAP Material Ledger
enables the valuation in two additional currencies for group valuation flow and
reporting. Typically, if the company operates in many different countries, then the
second currency or valuation is set as group currency so that it can easily
consolidate the information in a single currency across different regions, i.e., U.S.
dollars. The third currency (profit center valuation) is commonly used in
multinational corporations to represent the transfer price for valuation of intercompany transactions across different locations and regions. This combination of
currency and valuation is called a valuation approach.
In an actual costing environment, all goods movements within a period are valued
at standard cost, which is called preliminary valuation. At the same time, price and
exchange rates differences are collected in SAP Material Ledger. Any material
movement originated during a goods receipt or invoice receipt of a product is
recorded in SAP Material Ledger. Business transactions relevant for valuation are
translated using historical exchange rates, directly at time of posting.
Currency amounts that come from stock valuation, invoice verification, material
cost estimates, and order settlement are translated into the other currencies in the
respective areas and updated in SAP Material Ledger as shown below.
Examples of exchange rate updates with parallel valuation
Invoice receipt postings: Amount is translated into the
currencies managed in SAP Material Ledger at the current
exchange rate. In standard SAP, exchange rate differences are
calculated by comparing the exchange rates at goods receipt and
invoice receipt. This can be changed through the Invoice Verification
configuration menu.
Settlement of production order: Values are not translated in SAP Material
Ledger, but transferred directly from the two currencies or valuations from
SAP Material Ledger. The amount in the third currency is translated from the
company code currency using the average rate.
Marking a standard cost: Results are not translated in SAP Material Ledger,
they are transferred directly from the standard cost estimate. The amount in
the third currency is translated using the amount in the company code
currency and the exchange rate at time of marking.
Note that the translation procedure mentioned above could cause some
discrepancies on the price of a material from one currency to another over a
period of time. You define how you would like translations to occur in the financial
accounting configuration and you can choose whether translations should be
made starting from the transaction currency (currency in which an individual
document is generated in the system) or from the company code currency. The
exchange rate type to be used can also be determined in this configuration,
typically the average rate is used.
1.2.2 SAP Material Ledger data collection
SAP Material Ledger data collected throughout the period is used in the price
determination during the periodic actual costing run to calculate the actual
weighted average cost for the month (the periodic unit cost) for each material. All
actual costs for the month are absorbed and prices and exchange rate differences
rolled to the next level of production to determine the true actual cost for the
period in question.
Details on the actual cost roll-up and revaluation of consumption that occurs at
month end will be discussed in Section 5.4.
1.2.3 Actual cost component split
In addition to the actual costing functionality and valuation of inventory in multiple
currencies, one of the outstanding functionalities of SAP Material Ledger is the
actual cost component split. The actual cost component split groups the actual
costs into buckets across multiple manufacturing levels, providing the company
with a view of the major relevant elements of the total cost, such as labor costs,
raw material costs, freight costs, etc. SAP Material Ledger uses the same
standard cost component structure for the cost component split at actual cost.
Having this information available for each product and plant combination enables
the company to do important cost analysis more effectively by comparing actuals
to standard costs, as well as understanding the breakdown of their costs with the
functions provided by SAP Material Ledger. Using actual cost component split
data can assist the company in making decisions more readily on topics such as
whether to make or buy, as it provides great details on the manufacturing and
purchase costs.
Since actual costing information is updated at the level of the procurement
alternatives and procurement processes (different options to procuring a material),
it is also possible to compare different sources of supply for analysis of the actual
costs.
The actual cost component split that is available for cost of goods manufactured
can also be transferred to the controlling sub-module, profitability analysis
(COPA), so you can have both the standard and actual cost of goods sold
(COGS) in COPA, the total, and the cost component breakdown. The actual cost
in COPA is attained by revaluing the cost of goods sold for the period once the
actual cost is known. Updating the actual cost of goods sold in COPA allows the
company to use gross margin reports with different dimensions to analyze sales
results using up-to-date information, identifying the most profitable products, for
example, and alternatively working towards cost reduction to stand out in today’s
highly competitive business environment.
Refer to Section 6.2 to see an example of a product with cost of goods sold
revaluation in FI at month end and Chapter 7 for the actual cost in COPA.
These important SAP Material Ledger functionalities can support the company to
improve business process efficiency while providing continuous relevant
information for cost management accounting.
SAP Material Ledger streamlines the cost process into a fully integrated business
scenario that consists of cost planning, production, actual costing, and profitability
analysis as you will see in Chapters 4 through 7.
2 Key design definitions and
important considerations when
implementing SAP Material Ledger
This chapter dives into discussing the main functions of SAP Material
Ledger and how they relate and integrate with finance (FI) and logistic
modules such as: MM, PP, and SD. It also covers key design definitions
required for a sustainable SAP Material Ledger solution.
This chapter will cover the main prerequisites and set the stage for the next
chapter, which deals with configuring SAP Material Ledger with a focus on a longterm solution.
2.1 Driving factors to implement SAP Material Ledger
In today’s competitive business environment, companies demand higher
productivity and better cost control to cope with market changes and constant
competitive pressure. It is essential that companies have the appropriate tools to
make decisions more readily.
Actual costing with SAP Material Ledger allows organizations to compare
variances between their standards (best estimates) and their actual costs.
Actual costing provides visibility of up-to-date costs on a monthly basis, offering
the company accurate information in up to three currencies and valuation views,
which works very well, especially in companies with worldwide operations.
If your product prices are constantly fluctuating or if the region where your
company is located is going through high inflation rates, then SAP Material Ledger
can also be useful to address continuous variances to standards by providing
current costs for decision-making.
Moreover, if your company is a manufacturing company which runs SAP, then
SAP Material Ledger is the right tool for you to manage your costs. SAP Material
Ledger is part of standard out-of-the-box SAP which is available for all clients. You
just need to configure and activate it according to your business requirements.
2.2 Choosing the best inventory valuation method for your company
Price control indicates the valuation method of a material in a specific plant. There
are two types of price control indicators: Standard price (S) and moving average
price (V). The price control is assigned to a material in the accounting 1 view of
the material master.
Standard cost is an estimated cost, which is fixed for a period of time
according to the company’s definition. Generally, it follows the budget cycle of
the company and is determined based on a target of what the expected unit
cost of a product is to be, but it can also be changed more often based on
internal decisions. Standard price and standard cost terminologies are used
interchangeably in this book and is also common in companies that run SAP.
Moving average price (MAP) is a weighted average cost that changes
according to each goods receipt and/or invoice receipt (if invoice differs from
purchase price).
Although moving average price reflects the most up-to-date data, it can cause
other valuation problems when there is a stock shortage or the stock level is too
low for the price difference to be posted, which can lead to unrealistic price as the
remaining inventory is adjusted with the total invoice price difference.
Whenever there is a stock shortage, the system cannot allocate the variance
(which can be positive or negative), and it remains on the purchase price
difference account in the G/L as the system cannot allocate it to the inventory.
When working with moving average price, the timing on which the transaction
occurs is critical. For an adequate valuation of the transaction at actual cost, there
is a high dependency on the time at which the goods receipt and invoice receipt
are posted and a material is issued from inventory.
The same principle applies for variances related to a settlement of a
manufacturing order.
As mentioned earlier, when using SAP Material Ledger, materials with standard
price control will be adjusted to an actual weighted moving average price at month
end, which becomes your periodic unit price (PUP). PUP is discussed in detail
during the actual costing closing in Section 5.4.
In an SAP Material Ledger environment, typically all raw materials, semifinished
products, or packaging materials used in a multilevel production structure, such as
materials used in a manufacturing process (components of a Bill of Materials) are
set as standard price (price control S). Maintenance, repairs, and operations
(MRO) materials are set as moving average price (price control V) as they are not
used in a manufacturing process and therefore not relevant for standard cost
valuation.
These definitions and related settings are extremely important to prevent
over/under absorption balances on cost centers after the month-end closing. As
you will see in Section 5.4, SAP Material Ledger revalues the consumption of
materials at month end when there is a price difference to be allocated.
Revaluation of consumption is done using the original cost element or an alternate
account, as you will see in the configuration Section 3.11.1.
Below is an example of the impact of a material with standard price control and
price determination 3 being consumed to a manufacturing cost center.
Revaluation of material with standard price control consumed to a nonmanufacturing cost object.
Let’s say you set a raw material with a standard price and then it
gets consumed to a manufacturing cost center during the month.
At month end, when actual costs are calculated and posted
during the SAP Material Ledger post-closing step, the cost center
will receive an additional amount related to the price difference apportionment.
And the cost center that had already been completely absorbed will now have
an under/over absorption balance, which requires a manual journal entry to
clear out the cost center.
If you are using, or intend to implement SAP Material Ledger, make sure you have
the right price control design in place and try not to include materials with
standard price consumed to a cost center or to a non-manufacturing cost object to
avoid rework at month end. Materials with a standard price should always be used
in a production process along with an appropriate cost object such as production
order, process order, sales order stock, etc., so that all price differences and
revaluations of consumption are fully absorbed automatically by the system,
preventing any additional manual clearing process.
2.3 Material price determination setup
The material price determination indicates how the valuation of a material should
occur after each business transaction for a material relevant for valuation. If SAP
Material Ledger is active, this field has to be set up in the material master using
an appropriate combination of price control and material price determination.
If SAP Material Ledger is activated for a valuation area, the accounting 1 view
looks slightly different than the regular screen without a material ledger. Additional
fields become available when using SAP Material Ledger or split valuation.
The following two price indicator options are available in the material master
(accounting 1 view) for price determination. Accounting 1 view contains current
valuation data of a material.
Transaction-based (2)
If you select this option, you can keep your inventory price control indicator as V
(moving average) or S (standard price). If the material has price control S, the
moving average is calculated for information purposes only, it is not used for
valuation as the price control is standard. Materials with the transaction-based
indicator option are not considered later in a multilevel actual costing.
Single/Multilevel (3)
If you choose this option, the price control has to be S (standard price). A moving
average (period unit price) is calculated at month end. Single/Multilevel price
determination allows you to calculate single and multilevel price differences and
carry them over through a multiple level manufactured production structure.
An appropriate combination of price control and price determination for a
multilevel actual costing is shown in Table 2.1.
Price control
Price determination indicator
V (Moving average) 2 (Transaction based)
S (Standard price)
3 (Single/Multilevel)
Table 2.1: Material price determination
2.4 Multiple currencies
Multiple currency definition is a very critical step when designing your product cost
system with SAP Material Ledger. Choosing the appropriate valuation that meets
the needs of the company has to be carefully decided. The multiple currency
function is only available if SAP Material Ledger is active. Once the material
ledger is configured and activated you cannot change the settings. So, make sure
you have the correct currency and valuation combination before you activate SAP
Material Ledger.
You can manage a maximum of three valuation approaches in two currencies in a
parallel valuation. All valuation approaches that you maintain in the currency and
valuation profile must also be managed in SAP Material Ledger. The system
checks whether the valuation approaches in controlling, the material ledger, and
financial accounting, as well as the settings for the company codes, depreciation
areas, and plants are consistent with the valuation profile.
In SAP Material Ledger, you can use a combination of currency types defined in
financial accounting and controlling.
As mentioned earlier, the combination of currency and valuation is called as a
multiple valuation approach. The SAP recommendation is to use the group
currency as the controlling area currency to ensure compatibility of information
throughout the materials management, financial accounting, and controlling
components.
For illustration purposes, a couple of examples of currency type and valuation
combination setup are shown below. See Figure 2.1 for an example of group
valuation and Figure 2.2 for a profit center valuation example.
Figure 2.1: Parallel valuation—group valuation example
Legal (company code currency)—currency code 10. This is local currency of
the company code, which represents the legal entity in SAP. An example of a
local currency is USD (American dollar).
Group (group currency)—to enable reporting across multiple legal entities
with different company code currencies—currency code 30. An example of a
group currency is EUR (Euro).
Group valuation (group currency, group valuation), can be a different
currency, which is based on a valuation for the corporate group (typically for
profit elimination), currency code 31.
Figure 2.2: Parallel valuation—profit center valuation example
Legal and group explained above in Figure 2.1.
Profit center (for usage of transfer pricing functionality) in group currency—
currency code 32.
Profit center valuation can be used to manage transfer pricing for inter-company
transactions (internal transfers of goods between profit centers valued with a
specific price for management purposes).
In the example used throughout this book, you will be using the group
currency/group valuation approach from example in the Figure 2.1.
2.5 Price differences
Before learning the SAP Material Ledger configuration, it is important to know the
definitions of the various price differences in SAP when using the standard cost
valuation method approach.
A comprehensive understanding of the concepts of these differences will help you
grasp SAP Material Ledger quickly while building your knowledge in both standard
and actual costing processes in SAP.
2.5.1 Purchase price variances
Purchase price difference or purchase price variance (commonly known as PPV)
occurs when the purchase price from external procurement differs from the
standard cost of the material set up in the material master, at the time of the
goods receipts. Invoice receipts can also create price differences if the price
differs from the purchasing document. The price difference amount is collected at
the material and plant levels and stored in SAP Material Ledger.
Subcontracting activities and subsequent charges can also create purchase price
variances.
An example of a purchase price difference and where it is stored in SAP Material
Ledger is provided in Section 4.2.
2.5.2 Exchange rate differences
Exchange rate differences occur when the exchange rate of the goods receipt
with reference to a purchase order differs from the exchange rate at the time of
invoice receipt. The same concept applies when the invoice receipt is done before
the goods receipt.
2.5.3 Manufacturing variances (in-house production)
Manufacturing variances represent the variance (remaining balance) of cost of
production on the production order and it is calculated based on the difference
between the total of the debits minus credits. Debit entries on production orders
occur when consumption of materials (i.e. raw materials or semifinished products)
and activity type confirmations are charged to the order. When the production is
complete and the products are moved into inventory, the order is credited. If the
order status indicates final delivery or is technically completed, then the balance
on the order is a variance. However, if the order is not yet completed, the balance
is considered a work-in-process.
The production order variance is transferred to financial accounting and SAP
Material Ledger when the order settlement is carried out.
Maintenance orders that are settled to a material can also create variances. This
book emphasizes manufacturing variances only.
Production order variance is also stored in SAP Material Ledger as a price
difference. Refer to Section 5.3.3 for an example.
2.5.4 Stock transfer variances
Stock transfer variances occur when material movements are posted using
standard cost. That is, when transferring a product between two plants with
different standard costs, a price difference is created and the receiving material
will carry the variance.
2.5.5 Initial entry of stock balances
An initial entry of stock balances using external values can also create a
difference if the value posted is different from the current standard price. Typically,
this activity is only done when migrating from a legacy system to SAP. There are
ways to prevent the system from creating such variances, depending on your data
migration process.
2.5.6 Debit and credit of a material
Debit and credit entries made directly to a material using transaction code MR22
are also treated as differences and are captured in SAP Material Ledger.
Adjustments are required when there is a need to correct a high price difference
that could lead to a distortion of the material price and when it is no longer
possible to reverse the original entry that caused the difference. An example
would be a goods receipt with an incorrect price unit or base unit of measure that
caused a high price difference identified after the material had been consumed.
Another example is when closing SAP Material Ledger it becomes necessary to
fix non-distributed differences that appeared after material price determination due
to a shortage of inventory. This topic is briefly discussed again in Section 5.4.7.
3 Configuration for activating SAP
Material Ledger and actual costing
This chapter shows how to configure SAP Material Ledger by providing the
IMG menu path, transaction code (whenever available), and screen shots of
all basic required configurations, as well as hints and tips on how to design
a sustainable material ledger solution. It also covers its integration with SAP
costing-based profitability analysis in the COPA sub-module.
Other related configurations that affect SAP Material Ledger are also explained in
the following sections.
Note that for some SAP Material Ledger functionalities to become available, you
have to activate the business function, financials extension (EA-FIN). Additional
information on business functions and how to activate them are provided in
Section 10.4.
3.1 Activation of valuation areas for SAP Material Ledger
This step explains how to activate SAP Material Ledger for valuation area M110.
This plant is used for all material ledger configuration and business process
examples in this book.
The SAP recommendation is to activate SAP Material Ledger for all plants that
belong to the same company code to ensure consistency with financial accounting
and materials management.
The valuation areas that will have SAP Material Ledger activated are configured in
transaction code OMX1 or through the IMG menu path: CONTROLLING • PRODUCT
COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • ACTIVATE VALUATION AREAS
FOR MATERIAL LEDGER.
Double click on ACTIVATE MATERIAL LEDGER (as shown in Figure 3.1) to configure the
activation of SAP Material Ledger.
Figure 3.1: Activation of SAP Material Ledger
Figure 3.2 shows the configuration screen for the Activation of Material Ledger.
Figure 3.2: Activation of SAP Material Ledger configuration
Select the ML ACT checkbox. In the PRICE DETER field, specify the material price
determination type to be used when creating material in the plant you are
activating. Set it to 3 (Single level and multilevel price determination). This can be
changed to 2 for those materials that will be set up as price-control moving
average (V) while creating the material master accounting 1 view.
You can also make the price determination binding in the valuation area when
material is created. If you set this field, all materials in the valuation area cannot
have the price determination changed. Do not set this indicator if you want to
change the price determination at any future time.
Once you save the configuration, a warning message (see Figure 3.3) comes up
to remind you that live data must be converted to the material ledger (required
only if you are in a live system).
Figure 3.3: Information message to convert live data to material ledger
The configuration shown in Figure 3.2 indicates the valuation area will be using
SAP Material Ledger. Once this is defined, you must complete the production
start-up step before you create a new material master record (new SAP
implementations). If you are activating SAP Material Ledger in a live system, then
you must convert the data to SAP Material Ledger. Refer to Section 3.14 for the
production start-up steps.
Before activating SAP Material Ledger, you should also check some relevant
settings such as currencies and account determination to ensure there is nothing
missing.
By selecting the option Check Material Ledger Settings (see Figure 3.4), you will
be able to review the material ledger settings. It is important to run this step once
you complete the SAP Material Ledger configuration and before the start-up step.
Figure 3.4: Check SAP Material Ledger settings
Material Ledger plant configuration settings
This step can be performed at any time to verify SAP Material
Ledger settings. Make sure you run this step before you make the
material ledger productive. These definitions can be accessed
through the IMG menu path mentioned above or using
transaction code CKM9.
Please refer to Section 3.14 for an example of CKM9 for plant M110 before the
production start-up of material ledger.
3.2 Assign currency types to SAP Material Ledger type
Next, create SAP Material Ledger types to define the currencies to be available.
You can define up to three currency types to each material ledger type. Valuation
areas and plants that belong to the same company code should use the same
material ledger type.
Make sure that the currency setting in financial accounting and in SAP Material
Ledger are correct before the SAP Material Ledger production start-up. You
cannot change the currencies, currency types, or material ledger types after
production start-up.
To keep information consistent across MM, FI, and CO, the SAP recommendation
is to use group currency as the controlling area currency. However, the company
code currency can also be used.
The configuration can be accessed through transaction code OMX2 or the IMG
menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL
LEDGER • ASSIGN CURRENCY TYPES TO MATERIAL LEDGER TYPE.
In your example (see Figure 3.5), use a combination of currency types from FI
and CO. If you don’t want the currency types taken from FI and CO, then set the
Manual indicator and specify the currency types under Define individual
characteristics. Manual currency type must contain the currency type 10
(company code currency).
Figure 3.5: Define SAP Material Ledger type and currencies
3.3 Currency and valuation profile definition
To use the parallel valuation approach to manage transfer prices or group
reporting purposes, for example, you have to make the necessary settings in CO.
Multiple valuation approach assignments are controlling-area dependent.
You only need the currency and valuation profiles if you want to manage various
valuations in parallel in your system.
The configuration to create a currency and valuation profile is accessed through
IMG path: CONTROLLING • GENERAL CONTROLLING • MULTIPLE VALUATION
APPROACHES/TRANSFER PRICES • BASIC SETTINGS • MAINTAIN CURRENCY AND VALUATION
PROFILE or via transaction code 8KEM. See Figure 3.6.
Figure 3.6: Create currency and valuation profile
3.4 Assignment of currency type and valuation view of a valuation profile
definition
The next step is to define the additional currency types and valuation views. The
valuation view represents the way of viewing and valuing the business
transactions in a company. There are a few options to choose from, for example,
legal, group, or profit center valuation as discussed in Section 2.4.
Click on DETAILS and enter the currency type and valuation view (Figure 3.7).
Company code currency is mandatory and it is already maintained when you call
this screen.
Figure 3.7: Assignment of currency type and valuation view of a valuation profile
You assign the currency type and valuation view to the valuation profile you want
to represent scenarios for group valuation or transfer prices to the respective
controlling area. You must ensure that the controlling area currency of the affected
controlling area corresponds to either the group currency (currency type 30) or the
company code currency (currency type 10).
In the example, enter Group Valuation, in addition to the Legal valuation, which is
mandatory.
3.5 Assignment of currency and valuation profile to controlling area
The next step is to assign the CURRENCY
the CONTROLLING AREA . See (Figure 3.8)
AND
VALUATIONS profile created above to
This configuration can be accessed through the IMG path: CONTROLLING • GENERAL
CONTROLLING • MULTIPLE VALUATION APPROACHES/TRANSFER PRICES • BASIC SETTINGS •
ASSIGN CURRENCY AND VALUATION PROFILE TO CONTROLLING AREA.
Figure 3.8: Assign a currency and valuation profile to the controlling area
In this step, you assign the currency and valuation profile to the controlling area
indicating that you want to use different valuation scenarios. These settings
enable you to create actual versions for your valuation views.
The controlling area currency has to be either the group currency (currency type
30) or the company code currency (currency type 10).
3.6 Create version for group valuation
Version allows you to have independent sets of planning and actual data to
manage alternative planning scenarios with different assumptions.
Define additional versions for group valuation with the attributes as shown in
Figure 3.9.
The configuration for version for group valuation can be accessed through
transaction code OKEQ or following the IMG menu path: CONTROLLING • GENERAL
CONTROLLING • MULTIPLE VALUATION APPROACHES/TRANSFER PRICES • BASIC SETTINGS •
CREATE VERSIONS FOR VALUATION METHODS.
Figure 3.9: Define version for group valuation
Figure 3.10 shows the controlling area settings.
You can check if the valuation is consistent by clicking the VALUATION button.
Results are shown in Figure 3.11.
Figure 3.10: Version settings in the controlling area
Figure 3.11: Valuation profile and versions consistency check
3.7 Assign SAP Material Ledger types to a valuation area
Now go back to the SAP Material Ledger configuration. In this activity, assign the
SAP Material Ledger type created in Figure 3.5 to the valuation area(s).
Only one material ledger type can be assigned to each valuation area, however,
the same material type can be assigned to several valuation areas. All plants
belonging to the same company code must have the same material ledger type.
You configure this step through transaction code OMX3 or the IMG menu path:
CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER •
ASSIGN MATERIAL LEDGER TYPES TO VALUATION AREA. See Figure 3.12.
Figure 3.12: Assign SAP Material Ledger type to a valuation area
3.8 Multiple valuation approaches activation
In this step, activate the multiple valuation profiles in the controlling area (see
Figure 3.13). This ensures all settings related to parallel valuation approaches are
consistent across different application components.
Select the Check activation step first to make sure all settings are properly
defined before running the activation step.
Figure 3.13: Activate multiple valuations
Figure 3.14 shows the activation log results. Activation was carried out without
errors.
Figure 3.14: Valuation profile activation results
3.9 Maintain number ranges for material ledger documents
A material ledger document records the changes that result from business
transactions relevant for valuation. Each business transaction such as goods
movements, invoice receipts, and material price changes has a material ledger
document associated to it.
A material ledger document must be clearly identified in the system. This is
achieved by saving each transaction in the material ledger under a unique number
range that is reserved for SAP Material Ledger in FI.
Usually, it is not necessary to create new groups. If new groups are created, they
must be assigned to the correct number range for the new group of material
ledger documents. Standard SAP has the following groups for material ledger
documents segregated by transaction type:
Material ledger update (Group 01)
Material ledger closing (Group 02)
Material ledger price changes (Group 03)
Single-level material ledger settlement (Group 04)
Multilevel material ledger settlement (Group 05)
Material ledger repair (Group 06)
Material ledger closing cumulative valuation (Group 07)
A number range of 100,000,000 document numbers is assigned to each group of
material ledger documents.
The configuration to maintain the material number ranges can be accessed
through transaction code OXM4 or via IMG menu path: CONTROLLING • PRODUCT
COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • MAINTAIN NUMBER RANGES FOR
MATERIAL LEDGER DOCUMENTS. See Figure 3.15.
Figure 3.15: Maintain number ranges for SAP Material Ledger documents—selection screen
When you click on MAINTAIN NUMBER RANGES
different options appear:
FOR
MATERIAL LEDGER DOCUMENTS, three
Number Ranges for Material Ledger Documents
Maintain Financial Accounting Document Types
Accounting Document Number Ranges
Double click NUMBER RANGE FOR MATERIAL LEDGER DOCUMENTS (Figure 3.15).
A new screen (Figure 3.16) pops up. Click the GROUPS button or press “F6”.
Figure 3.16: Maintain number range for SAP Material Ledger documents
Update the number range and description of the group number range as shown in
Figure 3.17.
Figure 3.17: Assign SAP Material Ledger grouping to a number range
To display all material ledger number range intervals as shown in Figure 3.18, go
back to the first screen (Figure 3.15) and select the option Intervals.
Figure 3.18: SAP Material Ledger doc number range intervals
The document type ML (material ledger) and number range that begins with 47
are reserved for material ledger documents in FI. Review the configuration to
ensure the document type is properly maintained in FI.
Go back to the step shown in Figure 3.15 and now select Maintain Financial
Accounting Document Types as shown in Figure 3.19.
Figure 3.19: Maintain financial accounting document types
Here you can check whether the ML document is maintained with the appropriate
number range 47 (Figure 3.20).
Figure 3.20: Review ML document type in FI
The next step is to check whether the number range 47 has been maintained for
your company code. Go back again to step shown in Figure 3.15 and choose the
third step Accounting Document Number Ranges. A new screen appears where you
can enter the company code (Figure 3.21).
Figure 3.21: Update number range 47 for ML documents in FI
Enter the company code and click on the INTERVALS button. Update the number
range from 4700000000 to 4799999999 and save it.
3.10 Configure dynamic price changes
This is an interesting piece of configuration and it can be used for two different
purposes:
1. Release marked standard cost estimates as standard price
If the dynamic price release is configured and you have standard cost marked as
future price, the first goods movement that occurs in a new posting period will
trigger the release of the new standard price, providing that the effective date of
the planned price has been reached. This can be extremely useful, for example, in
preventing a valuation with incorrect standard prices for situations where the
release step had been forgotten.
2. Release actual costs (periodic unit price) as a new standard price
This can be used, for example, when the company wants to use the PUP for the
month as the new standard price for a future period. This function is enabled by
running the marking step in transaction CKMLCP (as discussed in Section 5.4). A
predetermined effective date for the new standard price is required when
performing this step. Keep in mind that you can only release a determined period
unit price at the earliest 2 periods after the closed period.
Dynamic price release example
If you are closing period 03/2015, then you can release this future
price at the beginning of period 05/2015. The release can be
done manually through CKME. However, if you have missed this
step upon the first goods movement, the system will release the
cost automatically for you if the dynamic price release is active.
The automatic release of planned prices is configured using transaction code
OMX5 or through the IMG menu path: CONTROLLING • PRODUCT COST CONTROLLING •
ACTUAL COSTING/MATERIAL LEDGER • CONFIGURE DYNAMIC PRICE CHANGES.
Enter 1 in the PRICE RELEASE indicator field to activate the dynamic price release
for marked standard cost (Figure 3.22).
Figure 3.22: Dynamic release of planned price
3.11 Material price update
Here you can define how the valuation from relevant transactions is collected in
the material ledger and how valuations should be treated during the closing
entries of material price determination.
Single-level material price determination takes into account the differences that
arise directly when a material is procured.
3.11.1 Define movement type groups for material ledger updates
In this step, you define movement type groups for material ledger updates. The
movement type groups determine how the revaluation of consumption should be
done when closing material ledger.
There are three options for the revaluation of consumption to specific movement
types:
(1) No Revaluation (Collective account assignment — COC)
(2) Revaluation of G/L Account (CF)
(3) Revaluation of G/L Account and CO Account Assignment (CC)
For example, movement type 601, which is a sales movement type, if you want to
revalue the G/L account only, then you assign the movement type to group CF.
For movement types where you would like to also revalue the cost object, then set
it to CC.
To determine the movement type groups for material ledger use transaction code
OMX7 or the IMG menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL
COSTING/MATERIAL LEDGER • MATERIAL UPDATE • DEFINE MOVEMENT TYPE GROUPS OF
MATERIAL LEDGER. See Figure 3.23.
Figure 3.23: Define movement type group for ML update
Assign revaluation of consumption 2 to CC movement type group to revalue the
CO cost object in addition to the G/L account. Assign 1 to CF movement type
group to revalue the FI original G/L account only.
3.11.2 Assign movement type groups of the material ledger
The next step is to assign the movement type group CC or CF to single-level
movement types such as those shown in the examples from Table 3.1. Multilevel
movement type 261, for example, is revalued through multilevel price
determination when closing the material ledger; therefore it should not be set up in
this configuration.
Movement type
Movement type group
201—Consumption to cost center
CC
202—Consumption to cost center reversal CC
601—Sales delivery
CF
602—G/L to delivery (Reversal)
CF
Table 3.1: Example of ML movement type group assignment
ML movement type group configuration tip
Do not forget to assign an ML movement type group to the
reversal movement type as well
Never assign an ML movement type group to multilevel
movements such as 261—consumption to production order and
301—Stock transfer.
This configuration can be accessed through transaction code OMX0 or via IMG
menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL
LEDGER • MATERIAL UPDATE • DEFINE MOVEMENT TYPE GROUPS OF MATERIAL LEDGER.
(Figure 3.24 and Figure 3.25).
Figure 3.24: Assign ML movement type groups to sales movement type
Figure 3.25: Assign ML movement type groups to cost center consumption
Revaluating collective account assignments
Do not forget to assign the ML movement type group for all single movement
types that your company uses that are relevant for revaluation. If you do forget,
the revaluation using the original account assignment does not occur. However,
you may prefer not to revalue a cost center that has already been settled and
cannot receive more postings. Therefore, when making the closing entry in
CKMLCP, the revaluation amounts for all movement type consumption
alternatives that were not set as relevant for revaluation (CC or CF) will be posted
to a collective account. The collective account must be created for the transaction
key COC in (Revaluation of other consumables) in the automatic account
determination table OBYC. This configuration is covered in Section 3.13.10.
3.11.3 Define material update structure
A material update structure contains categories that group different transactions,
such as goods receipts, invoice receipts, settlement of production order, etc., in
the material ledger.
Standard SAP setup comes with structure 0001 where categories are defined
such that the valuation price from material settlement corresponds to the weighted
average price.
You can access this configuration through transaction code OMX9 or via IMG
menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL
LEDGER • MATERIAL UPDATE • DEFINE MATERIAL UPDATE STRUCTURE.
Normally, you don’t need to edit this section as the system will automatically use
the material update structure 0001. However, you can maintain these settings if
they do not meet your needs. Figure 3.26 shows the standard material update
structure.
Figure 3.26: Define material update structure
Highlight material update structure 0001 and click on MAINTAIN MATERIAL UPDATE
STRUCTURE to assign specific procurement categories and consumption types to a
specific category for a single level (see Figure 3.27).
Figure 3.27: Maintain material update structure
Figure 3.27 shows the standard SAP settings. Typically, procurement categories
(process categories that begin with B) are activities related to goods receipts (for
example, purchase orders, production, subcontracting, and stock transfers) and
consumption types (process categories that begin with V) are activities associated
to withdrawals (for example, consumption to a production orders and cost
centers).
A number of additional process categories are available to be added to the
standard categories, if you want a further breakdown of the process categories,
for example, purchase order, production, subcontracting, etc.
3.11.4 Assign material update structure to a valuation area
The next step is to assign material update structure 0001 to the valuation area.
(see Figure 3.28).
This configuration can be accessed through transaction code OMX8 or via IMG
menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL
LEDGER • MATERIAL UPDATE • ASSIGN MATERIAL UPDATE STRUCTURE TO A VALUATION AREA.
Figure 3.28: Assign material update structure to a valuation area
3.12 Actual costing configuration
This is the last section of the actual costing configuration.
This is where you define the plants relevant for actual costing and how the actual
quantity structure and activity types’ revaluation should occur.
3.12.1 Activation actual costing
This step determines how the actual costing for materials and activity
consumption should be updated in the quantity structure in actual costing with
SAP Material Ledger.
Figure 3.29 shows how to activate the actual costing for a plant. You can access
the configuration through IMG menu path: CONTROLLING • PRODUCT COST
CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • ACTUAL COSTING • ACTIVATE ACTUAL
COSTING.
Figure 3.29: Activation of actual costing
In order to have multilevel price determination, the indicator ACTUAL COSTING must
be set. This will ensure that the actual quantity structure is updated.
The next field (after actual costing—Figure 3.29) is to indicate how the activity
type revaluation should take place. The following options are available.
1. Activity update not relevant for price determination
If you select option 1, the variance between standard and actual activity rates are
revalued against the original cost objects (i.e. production order, business
process). The revaluation is done at the cost-object level rather than product level
at month end and the variance is updated in the original cost object.
Manufacturing cost center over/under absorptions are then cleared during the
revaluation process.
These variances are rolled up to the multilevel production structure which is also
updated to actual costs.
2. Activity update relevant to price determination
If you select option 2, you can no longer revalue the actual activity rates directly to
the cost objects, instead, this is done at the material level during the material
ledger closing. Actual consumption of lower-level materials and their price
differences are updated at the quantity structure level in the material ledger and
taken into account for the price determination.
In the scenario, use option 2 so as not revalue the original cost object. In countries
where actual costing is a legal requirement, it is a best practice to use option 2
and completely perform all the revaluation when closing the material ledger
instead of revaluing the production orders.
If you choose option 1, the revaluation of a cost object that occurs during the
material ledger closing brings additional variances caused by either activity rate
differences or material price variances that update the cost object and create
subsequent variances for objects that would have been already settled. The new
values cause additional rework as the balances need to be cleared manually
through a journal entry in FI. In order to avoid these additional steps to clear
subsequent variances in the controlling cost objects, it is recommended that you
use option 2 and treat all revaluations at the same time in the material ledger
actual costing run.
As you will be using option 2, the variances between the plan price and the actual
price are adjusted during the material ledger closing. The cost center or business
process is then credited and the material associated with the consumption is
debited. In the context of multilevel price determination, these variances are rolled
up through the production structure to the finished product in the same way that
material price variances are rolled up. Please see Chapter 6 for an example.
Option 2 provides similar results to option 1. However, the revaluation is not
available in the production order, meaning the production order or any other
manufacturing cost object will have only actual volumes valued at standard costs.
The actual costs will only be available in the material ledger. A good advantage of
this option is to have the actual bill of materials available in the material ledger.
Moreover, this is a clean solution where after the settlement is done for the month,
the orders will not have any additional actual costs coming in that create
incremental balances to orders that have already been settled.
Given that you will be using the function REVALUATION AT ACTUAL PRICES at period
closing, a G/L account is required for the actual price adjustment to clear the
credit in cost center balances. This configuration has to be maintained in the
automatic account determination table OBYC for the transaction key GBB-AUI.
Further details on all account determination requirements for SAP Material Ledger
are in Section 3.13.9.
3.12.2 Controlling level for transactions in material ledger
Here you can define your own controlling level for transactions that you would like
to differentiate in the material ledger, in addition to the standard levels provided by
SAP. See Figure 3.31.
The controlling level is also used in other product cost components. It determines
the characteristics with which the procurement alternatives and procurement
processes are generated and for which data is updated into Product Cost
Planning, Product Cost by Period, and the Actual Costing/Material ledgers. In the
material ledger component, the controlling level is used to analyze actual costs for
business transactions.
There is only one controlling level for each plant and process category for a given
material. Using various characteristics, this controlling level determines the level
of detail of the procurement alternatives created. If you do not set any specific
controlling level, the system automatically sets the level to Plant/Material. If you
want to see more detailed information for your transactions, you can define
additional controlling levels, for example, purchasing organization and vendor, for
purchased materials, and production version for manufactured products.
The menu path where you can display or maintain the existing controlling level
can be assessed through IMG menu path: CONTROLLING • PRODUCT COST
CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • ACTUAL COSTING • CREATE USERDEFINED NAMES FOR RECEIPTS/CONSUMPTIONS.
When you execute this transaction, three different options pop up in the next
screen, as shown in Figure 3.30.
You can choose to define new controlling levels for Receipts and/or
Consumptions, or you can just display the existing controlling level. Figure 3.31
shows an overview of the controlling level.
Figure 3.30: Create user-defined names for receipts and consumptions
These are the standard SAP options for controlling levels.
Figure 3.31: Display controlling levels
3.12.3 Activation of actual cost component split
In this step, you can activate the actual cost component split for each valuation
area.
The actual cost component split groups the actual costs according to cost
components across multiple manufacturing levels. The system retains the source
cost details whether they are material costs, production costs, or subcontracting
costs and determines the actual costs for each level of the production structure
through the multilevel price determination. This functionality allows you to analyze
actual costs throughout various production levels and compare your standard cost
to the actual cost using the same cost component view used in product cost
planning, meaning the same cost breakdown for standard and actuals. For
example, you can display cost information for a certain product and analyze, in
detail, all levels of production, procurement, and manufacturing costs for each
activity type using the actual bill of material and the cost component view. Please
refer to Sections 6.6 and 6.6.2 for an example of a cost component split and
actual bill of material after closing material ledger.
SAP Material Ledger uses the same cost component used in product cost
planning, which has to be defined before the calculation of a standard cost for a
product.
The actual cost component split is updated with the following business
transactions:
Changes in stock
Invoice verification execution
Order settlements
Price changes
Material debits and credits
Goods Receipts/Invoice Receipts (GR/IR) account maintenance
Single-level material price determination
Multilevel material price determination
Closing entries
The activation of the actual cost component split configuration is through IMG
menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL
LEDGER • ACTUAL COSTING • ACTIVATE ACTUAL COST COMPONENT SPLIT.
Select the field Actual Cost Comp Split Active, as shown in Figure 3.32 for your
valuation area to activate the actual cost component split.
Figure 3.32: Activation of actual cost component split
The actual cost component split functionality can only be activated if the material
ledger and actual costing are active.
Note that the actual cost component split activation can only be done at the
beginning of a period as a cost component split cannot be created for posted
transactions.
If you are already using the material ledger and want to activate the actual cost
component split afterwards, you have to set the indicator for activation of the
actual cost component split as shown in Figure 3.32 and then execute the report
MLCCS_STARTUP to create the data for the actual cost component split.
The actual cost component split can also be used in profitability analysis (COPA)
to revalue the cost of goods sold. Please refer to Section 3.15.4 for the
configuration details.
3.12.4 Activation of work in process (WIP) at actual costs
The WIP revaluation updates the price differences from materials and
manufacturing costs to the work in process (WIP) proportionally to the quantities
that have already been consumed and are still in process at month end. The
actual produced quantities are adjusted in the material ledger so that they take
WIP into account and allocate the differences only to the delivered semifinished or
finished goods during the multilevel price determination.
The price differences assigned to WIP are posted to WIP inventory accounts
when the closing entries are made in the actual costing run. Refer to Section 6.6.3
for a complete example of WIP at actual cost.
The WIP G/L accounts for the price differences are determined using transaction
keys WPM (for material price differences) and WPA (for internal activities price
differences) from the account determination table OBYC. When the order is
complete, the differences are written off to the G/L accounts that are automatically
determined using transaction keys PRM (material price diff. write-off from WIP)
and PRA (activity price differences write-off from WIP). These differences are then
posted to the produced products during the material ledger closing. Further details
on those transaction keys can be found in Sections 3.13.13 and 3.13.14.
If you want to revalue WIP actual costs, you must activate this function for each
plant in which you want to use the WIP revaluation. All supplying plants must also
be activated for WIP revaluation.
The WIP revaluation must be activated before the start of the period in which you
want to revalue WIP.
The configuration for activating WIP at actual costs can be accessed through the
IMG menu path: CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL
COSTING/MATERIAL LEDGER • ACTUAL COSTING • ACTIVATE WIP AT ACTUAL COSTS.
Click on NEW ENTRIES and enter your plant, period, and year for which the WIP
revaluation is effective and select the field WIP ACTIVE (Figure 3.33).
Figure 3.33: Activation of WIP revaluation at actual costs
3.13 SAP Material Ledger as related to automatic account determination
Before looking into the automatic account determination settings specific to SAP
Material Ledger, it is important to understand the integration among inventory
management, product costing, and accounting.
Typically, material master setup for material movement transactions in SAP are
plant-specific, which means they are managed at material type and valuation
area/plant levels. Materials that are relevant for valuation are set up with
accounting views and costing views. When a material is created, a valuation class
must be assigned to the accounting 1 view in the material master. The valuation
class is a four-character code which groups and further divides a material type.
Valuation classes are usually determined by accounting as this defines the G/L
accounts used for material movement transactions with financial impact.
Examples of valuation classes are: raw materials, packaging materials, finished
products, spare parts, etc.
For each material movement, such as goods receipt from a purchase order,
delivery of a product to a customer, or stock transfers between plants for an
inventory management transaction that is relevant to financial and cost
accounting, postings made to G/L accounts in the FI module will have to be
identified by an accounting document. The G/L account is derived automatically
from a default combination of configuration settings of material type, valuation
class of material, and (in the case of split valuation) the valuation type and
movement types.
The mechanism to automatically determine the G/L account for each business
transaction is called automatic account determination. This functionality can
minimize the inputs and errors made by users who perform the transactions as
they do not have to determine the appropriate G/L account numbers.
The account determination configuration table contains different settings that
allow the system to find the appropriate posting account using a variety of data.
Chart of accounts of the company code
The automatic account determination has to be defined individually for each chart
of accounts.
Valuation grouping code of the valuation area
The valuation grouping code allows you to set various account determination
settings within a chart of accounts when a chart of accounts is to run differently for
certain company codes or plants (valuation areas). This makes it possible to
assign a different G/L account for the same valuation class under two different
company codes within the same chart of accounts.
Transaction or event key (internal processing key)
Transaction key, event key, or processing key is a key used to differentiate
account determination by business transaction. For example, you must
differentiate the G/L account posted by goods receipt transaction and posted by
invoice receipt transaction.
These transaction keys are determined automatically from the transaction (invoice
verification) or the movement type (inventory management). In the account
determination configuration, all you have to do is assign the relevant G/L account
to each posting transaction.
Account grouping
Account grouping is used only for offsetting entries, such as consignment
liabilities and price differences. There is an additional key called the account
modification key which is assigned to each transaction event key which provides a
further breakdown of the posting transactions, such as: physical inventory
adjustments, consumption account to a cost object, goods issue to sales, etc. An
account grouping is assigned to each movement type in inventory management
which uses the posting transaction offsetting entry for inventory posting. G/L
accounts must be assigned for every account modification key (grouping code).
For example, transaction key event GBB contains account modification keys BSA,
INV, VBR, and VAX.
Valuation class
The valuation class allows you to define automatic account determination that is
dependent on the material. For example: you post a goods receipt of a raw
material to a different stock account than if the goods receipt were for finished
goods, even though the original transaction entered is the same for both
materials.
This is achieved by assigning different valuation classes to the materials and by
associating different G/L accounts to the posting transaction for every valuation
class.
The automatic account determination configuration is done through transaction
OBYC or using the IMG menu path: MATERIALS MANAGEMENT • VALUATION AND
ACCOUNT ASSIGNMENT • ACCOUNT DETERMINATION • ACCOUNT DETERMINATION WITHOUT
WIZARD • CONFIGURE AUTOMATIC POSTINGS.
You can go straight to CONFIGURE AUTOMATIC POSTINGS if you have already done the
other prerequisite settings, such as grouping codes, valuation classes, etc. See
Figure 3.34.
Figure 3.34: Automatic account determination configuration
From the screen shown in Figure 3.34, you can double click on a transaction key
event in the TRANSACTION column and a new screen will pop up where you can
select your chart of accounts (Figure 3.35).
Review the configuration for transaction event key BSX (inventory postings) from
Figure 3.34.
Enter your chart of accounts (in this scenario, use CAUS) and hit “Enter”.
Figure 3.35: OBYC (BSX)—selection of chart of accounts
Figure 3.36 shows the grouping code (valuation modification) US01, a few
different valuation classes, and the G/L account defined for each combination of
grouping code and valuation class.
You can change or add new valuation classes to the same grouping code. To
create a new entry, click on NEW ENTRIES (identified by a white sheet button).
Repeat the same steps for any of the transaction keys from OBYC table (Figure
3.34).
Figure 3.36: Automatic posting configuration (BSX)
Now that you have an understanding of how the automatic postings work, it is
time to learn about the transaction key events and account modification keys
related to the material ledger.
Table 3.2 shows a comprehensive list of the transaction keys used in conjunction
with material ledger.
Table 3.2: Material ledger related transaction keys in OBYC
A brief explanation for each of the keys is provided below.
3.13.1 Inventory posting (BSX)
This transaction key is used for all postings to inventory accounts at standard cost
throughout the month. At month end, when material ledger is closed and the
actual cost is known, the price difference portion related to ending inventory is
posted to the same inventory account, unless you choose not to revalue the
inventory.
The revaluation amount is identified by a specific document type (ML—Material
Ledger Settlement), so that you can easily filter the entries related to material
ledger revaluation. These entries are further discussed in detail in Section 6.2.
3.13.2 Price differences (PRD)
The PRD transaction key is used to post price differences that arise from material
movements with a value that differs from the standard price that is set in the
material master or invoices. Examples include: goods receipts against purchase
orders and invoice receipts (if the invoice price differs from the PO price and the
standard price).
Price differences can also arise in the case of materials with moving average
price, if there is not enough stock to cover the invoiced quantity or variances from
order settlement.
The settings for transaction event key PRD can be done with or without an
account modification key. In order to have more visibility to the various types of
price differences according to specific business processes, distinguish the
variances by G/L account. This helps you monitor the variances throughout the
month and facilitate the reconciliation process after month end.
Transaction event key PRD can be further split into the following account
modification or account grouping categories:
None (blank)—Variances related to purchase price variances
PRA—Variances related to goods issues movements
PRF—Variances related to production order variances
PRU—Variances related to stock transfer postings (external amounts)
3.13.3 Price differences—multilevel (PRV)
The PRV transaction key is used in the material ledger closing to post multilevel
price differences to inventory or to write off differences related to revaluation of
consumptions, for example, cost of goods sold.
A further breakdown of accounts is possible by using account modification keys:
PNL—Transfer PRD to the next level
PPL—Take PRD from a lower level
3.13.4 Price differences—single level (PRY)
The PRY transaction key is used in the material ledger closing to post single-level
price differences to inventory or to write off differences related to revaluation of
consumptions, for example, cost of goods sold.
Similar to PRV, a further breakdown of accounts is possible by using account
modification keys:
PNL—Transfer PRD to the next level
PPL—Take PRD from a lower level
3.13.5 Exchange rate difference for open items (KDM)
Transaction key KDM is used for posting exchange rate differences that arise from
a purchase order invoice posted with an exchange rate that is different from the
goods receipt for materials with standard price, or stock under coverage/shortage
for items valued at moving average price.
3.13.6 Exchange rate differences from material ledger lower levels (KDV)
Transaction key KDV is used in the material ledger closing to settle multilevel
exchange rate differences to inventory or to write off exchange rate differences
related to revaluation of consumptions, for example, cost of goods sold.
3.13.7 Price difference from inventory revaluation (UMB)
When a new standard cost is released, the system writes the results of the new
cost estimate to the material master record as current standard price. The
standard price is then active for financial and cost accounting and it is used to
value the material until the next time a standard cost estimate is released. When
updating the new standard price (releasing of cost estimate), materials with an onhand inventory balance are revalued once the new standard cost is released. As a
result, the new inventory balance is the new unit standard price multiplied by the
total quantity. The difference between the new inventory balance and the previous
amount creates a revaluation, which is posted to the account assigned to the
transaction key event UMB (Gain/loss from revaluation).
Postings related to inventory revaluation originating from the release of a cost
estimate are cleared from the UMB account when the material ledger for the
previous period is closed. That means the amount posted to this account is
transferred back to inventory to determine the actual unit cost and then it is offset
against transaction key PRY.
Therefore, the balance of the UMB account related to inventory revaluation should
always be zero at month end.
The UMB transaction key is also used with debit and credit postings using
transaction code MR22.
However, in this situation, the balance on the account is not cleared out at month
end; only the offsetting account, PRD transaction key, gets cleared. You may need
to create a journal entry to adjust the balance from this account depending on the
transaction you are trying to adjust.
3.13.8 Price differences from stock transfer (AUM)
Transaction key AUM is used to post price differences that arise from materials
with different valuation when doing material-to-material transfers or in transfer
postings that involve two plants when a complete value of the issuing material
cannot be posted to the value of the receiving material. The receiving material will
carry the variance.
This applies to both materials with a standard price and materials with a moving
average price control.
3.13.9 Activity price revaluation (GBB-AUI)
Transaction key GBB-AUI is used to post the over/under absorption of a
manufacturing cost center. This revaluation occurs during the actual costing run
posting. The variance is allocated proportionally to its corresponding materials
based on the quantity that was absorbed from the cost center to the production
orders in the course of the month through an activity type or business process.
Please refer to Section 6.1 for an example of an activity price revaluation.
3.13.10 Revaluation of other consumables (COC)
COC is the account used to post price differences related to single-level
consumption not revalued using the original cost element. For example, a
consumption of material to a cost center, where the movement type is not set up
to be revalued using the original account and the cost object, as discussed in
Section 3.11.2.
The calculation of this revaluation is done when performing the “revaluation of
consumption” step in the Actual Costing run at month end.
3.13.11 WIP from activity price differences—(WPA)
The WPA account is used to post the material ledger revaluation from the WIP
revaluation step on the actual costing run. These are price differences from the
actual price calculation of activity type or business process that are to be assigned
to the work-in-process inventory.
With WIP revaluation activated, you have to maintain the accounts in the account
determination for the revaluation.
You may use the same WIP G/L account that is configured in the ‘Posting rules in
WIP calculation and Result Analysis’—OKG8—in order to have both the WIP at
standard cost plus the variances from material ledger on the same account, this
may facilitate the analysis of the overall WIP balances.
3.13.12 WIP from material price differences (WPM)
Similar to the WPA transaction key above, the G/L account assigned to WPM is
used to post the material ledger revaluation from the WIP revaluation step on the
actual costing run. These are price differences related to material consumed to
process orders that are still in process and are to be assigned to the work-inprocess inventory.
Again, since you activated WIP at actual cost, this transaction key must be
maintained with the appropriate G/L accounts. Regarding the G/L account to be
used for this process, the same principle from transaction WPA mentioned above
can be utilized for material revaluation. By using the same G/L account as
inventory WIP, your total WIP is assigned to a single account which may facilitate
further analysis. Different G/L accounts can also be used for this purpose, but
note it has to be a balance sheet account.
3.13.13 WIP from material price differences write-off (PRM)
The PRM account is used to cancel the WIP from material price differences
posted initially to a WPM account. This entry only occurs when the production
order is complete. This is the offset account of the WPM transaction key. The G/L
account is usually a P&L statement account which is typically not created as a
cost element.
3.13.14 WIP from activity price differences write-off (PRA)
The PRA account is used to cancel the WIP from activity price differences posted
initially to a WPA account. Similar to PRM, this entry only occurs when the
production order is complete. Therefore, this is the offset account of a WPA
transaction key. The G/L account is usually a P&L statement account which is
typically not created as a cost element. The same account defined for a PRM
transaction key could be used here.
3.13.15 Accruals and deferrals account in material ledger (LKW)
The LKW account is used when you choose not to revalue the ending inventory
values with the material ledger variances (price and exchange rate differences).
Instead, all price differences are posted to this account.
In countries where actual costing is a legal requirement, this transaction key
should not be maintained.
3.14
SAP Material Ledger production start-up
Now that you have completed all SAP Material Ledger configuration settings and
all relevant automatic accounting determination configurations have been done,
you can move to the Production Startup of Material Ledger, and set the valuation
areas as productive.
This is a very critical step and it is important to make sure all material ledger
related settings are properly defined:
Confirm that all currency settings are correctly configured for FI and in SAP
Material Ledger.
Confirm that the attributes of the material types in IMG Logistics—General
are correct; the only materials that will be converted to material ledger are
materials relevant for valuation. Make sure that all plants you want to activate
in SAP Material Ledger are set as active for the material ledger. The SAP
recommendation is to activate the material ledger for all plants belonging to
the same company code because the invoice verification cannot enter
invoices that contain materials from plants with active material ledgers and
other materials from plants with inactive material ledgers.
Remember that in a brand new implementation, the material ledger start-up
occurs before you start creating material master records.
Also remember that from the moment of material ledger activation in the IMG
to the end of the production start-up, you cannot perform any goods
movements in the affected plants in a testing or live system (best practice is
to do the configuration in a development system and then migrate to other
systems). It is also not possible to create material master records until the
start-up is complete.
Material Ledger production start-up warning
After production start-up of SAP Material Ledger, no changes in
the currencies, currency types, or material ledger types are
allowed.
If you are activating the material ledger in a live system, there are other aspects of
the data migration, such as open purchase orders and production orders that
should be taken into account for a proper conversion to the material ledger.
Usually, the inventory balances in second and third currency types in the subledger do not equal the same amounts in the G/L. Therefore, a reconciliation of
material sub-ledger and G/L after material ledger start-up should occur. You can
use transaction CKMADJUST or FAGL_ML_ADJUST, if you are using the new
G/L for the reconciliation of the FI accounts for the second and third currency with
the material ledger.
For more information on the required steps to activate the material ledger in a
production system, please refer to SAP OSS note 596558.
The relevant material ledger settings highlighted above can be reviewed through
transaction code CKM9 or can be accessed through the IMG menu path:
CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER •
ACTIVATE VALUATION AREAS FOR MATERIAL LEDGER.
It is highly recommended that you run this transaction before the start-up so that
you can review any incomplete or incorrect settings. See Figure 3.37: Check
material ledger settings.
Figure 3.37: Check material ledger settings—selection screen
Enter the plant number and click Execute or press “F8”.
Review all settings such as currencies, exchange rate, and account determination
by clicking on the NEXT PAGE button or pressing “Page down”. See Figure 3.38.
Figure 3.38: Check material ledger settings
If you are comfortable with all material ledger settings, then proceed to the startup step (Figure 3.39).
3.14.1 Setting SAP Material Ledger as productive
Once the settings in CKM9 are reviewed, proceed to the start-up activity in
transaction CKMSTART or access it through the IMG menu path: ACCOUNTING •
CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER •
ENVIRONMENT • PRODUCTION STARTUP • SET VALUATION AREAS AS PRODUCTIVE. See Figure
3.39.
Deactivation of Material Ledger
SAP Material Ledger should not be deactivated after its start-up in
a production system. This can cause several issues related to
inventory valuation, profit center accounting, and controlling. If
you absolutely need to deactivate the material ledger, please
review SAP OSS note 425487 or contact your SAP consultant for additional
advice on this procedure.
Figure 3.39: SAP Material Ledger start-up
Enter one or more plants.
Enter an exchange rate type. If you want to translate the current inventories
into multiple currencies and valuations using a historical exchange rate or
average exchange rate for production start-up of the material ledger, you can
define a new currency type to be used only for production start-up.
Choose the method of processing (background or foreground). If you are
dealing with a large amount of data, it is best to run the program in
background mode. If you are starting a brand new SAP implementation and
have not yet created material master records, you may run it in foreground. .
Click the Execute button or press “F8”.
If you are running in background mode, check the results in the log by going to
SYSTEM (very top menu) • OWN JOBS or enter the transaction code SMXX.
Once the processing is complete, a log report is provided for each master data
and transactional data item that requires conversion and reconciliation with FI
(Figure 3.40).
Figure 3.40: SAP Material Ledger start-up results log
The system does the following with the SAP Material Ledger start-up:
Turns on the SAP Material Ledger active indicator in the accounting 1 view of
all the material master records of the plant
Sets the price determination indicator in the material master records to price
determination 2
For plants with existing material master records, if you want to use the
material price determination 3, you now have to change the price
determination from 2 to 3
To change the material price determination to 3, you can use transaction code
CKMM or access it through the IMG menu path: ACCOUNTING • CONTROLLING •
PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • ENVIRONMENT •
PRODUCTION STARTUP • CHANGE MATERIAL PRICE DETERMINATION.
Note that if you are activating the SAP Material Ledger in a production system,
transactional data is also converted, such as inventory values, purchase orders,
etc. Please refer to SAP OSS note 596558 for the list of steps to be executed for
the production start-up as well as the reconciliation of material sub-ledger with the
G/L procedures.
3.15 SAP Material Ledger settings in COPA
This section looks at the settings in COPA, the profitability analysis component of
the controlling module. This configuration allows you to revalue the cost of sales
at actual cost as well as transfer the actual cost component split. An example of
the periodic valuation process is shown in Chapter 7.
Note that only the specific settings for actual costing are covered. The COPA
configuration goes beyond the topics highlighted here and without the completed
configuration settings in COPA, the ML will not work.
3.15.1 Define and assign valuation strategy
The purpose of this activity is to define valuation strategies and assign them to a
point of valuation (trigger point for the valuation in COPA). The quantities
transferred from the SD (sales and distribution) invoice are valued with the costs
calculated in the product cost estimate. If a valuation strategy calls for valuation
using material costing, the system uses the point of valuation to control which cost
estimates are pulled and how the cost components are assigned to value fields in
COPA.
You can access this activity through transaction code KE4U or IMG menu path:
CONTROLLING • PROFITABILITY ANALYSIS • MASTER DATA • VALUATION • VALUATION
STRATEGIES • DEFINE AND ASSIGN VALUATION STRATEGY. See Figure 3.41.
Figure 3.41: Cost estimate valuation strategy definition
Here you define the valuation strategy (as shown in Figure 3.42). The valuation
strategy determines which method to use to value a material cost estimate in
COPA. Select the Mat Cstg field to indicate that you want to perform material
costing valuation in COPA. Enter a value in the QTY FIELD for the cost component
of the material costing to be multiplied for the valuation. In this example, the
quantity field is ABSMG.
You may also use a costing sheet or a user exit to satisfy all your requirements.
Figure 3.42: Define cost estimate valuation strategy
Click the entry VALUATION STRATEGY and then click on ASSIGNMENT
STRATEGY (Figure 3.43).
OF VALUATION
Figure 3.43: Assignment of valuation strategy to point of valuation
The next step is to add a combination of point of valuation and record type. Add
both the point of valuation 01 (real-time valuation of actual data) and 02 (periodic
revaluation of actual data) for the record type F (billing data). Assign the valuation
strategy M01.
This indicates the use of the material cost in COPA for standard and actual costs.
3.15.2 Define access to actual costing in SAP Material Ledger
In this step, you first have to create the costing keys for valuation with actual costs
of goods manufactured. A costing key is a 3-digit code used to determine which
material cost will be used to calculate a value field in COPA. Here you can specify
the valuation view, for example, legal, group, or profit center valuation along with
the level of detail you want to see in COPA. You can choose to transfer just the
total actual cost or both cost component split and the total cost.
This configuration can be accessed through IMG menu path: CONTROLLING •
PROFITABILITY ANALYSIS • MASTER DATA • VALUATION • SET UP VALUATION USING MATERIAL
COST ESTIMATE • DEFINE ACCESS TO ACTUAL COSTING/MATERIAL LEDGER. See Figure
3.44.
Figure 3.44: Costing key configuration for actual cost—legal valuation
You have to define one costing key for each valuation view. Figure 3.44 shows the
costing key (ML2) for legal valuation and you are choosing to transfer both the
cost component split and total cost to COPA.
The second costing key, MG2, (shown in Figure 3.45) will be used for group
valuation. You will use the same type of valuation as MLG2 (transfer cost
component split and total cost) to be consistent with the actual cost valuation in
both views.
Figure 3.45: Costing key configuration for actual cost—group valuation
Now highlight each costing key and click VAL.FLD ALLOCATN
AVERAGE PRICE (shown in Figure 3.46).
FOR
PERIODIC MOVING
Figure 3.46: Costing key for legal and group valuation
Assign the operating concern and the value field, which then enable the total cost
to be updated in COPA as shown in Figure 3.47. Operating concern is an
organization unit defined to perform profitability analysis of your company. It can
be costing-based (where the COPA data is stored in characteristics and value
fields) or account based (where information is available by G/L accounts).
Repeat the step for each costing key.
In this example, your total actual cost of goods sold for the legal view will be
assigned to value field VV816 (Figure 3.47), and the group valuation view is
pointed to VV817 (Figure 3.48).
Figure 3.47: Assignment of value field for COGS—legal valuation
Figure 3.48: Assignment of value field for COGS—group valuation
3.15.3 Assignmnt of costing keys to material types
The costing keys defined in the previous step have to be assigned to material
types.
This configuration can be accessed through IMG menu path: CONTROLLING •
PROFITABILITY ANALYSIS • MASTER DATA • VALUATION • SET UP VALUATION USING MATERIAL
COST ESTIMATE • ASSIGN COSTING KEYS TO MATERIAL TYPES. See Figure 3.49.
Figure 3.49: Assignment of costing keys to material type
As you can see in Figure 3.49, there are specific costing keys for standard cost
and now you assign the costing keys ML2 and MG2 to the point of valuation 2
(Periodic valuation at actual cost).
For illustration purposes, the example only uses material type FERT, but you
should assign all saleable material types that your company uses.
3.15.4 Assignment of value fields to cost component split in COPA
Now that the actual costing keys that you will be using for cost component split
with actual valuation have been defined, the next step is to assign the value fields
for each cost component from the cost component structure. These are
transferred to COPA when running the periodic valuation at month end. Refer to
Chapter 7 for a detailed example.
Access the activity using transaction code KE4R or through IMG menu path:
CONTROLLING • PROFITABILITY ANALYSIS • MASTER DATA • VALUATION • SET UP VALUATION
USING MATERIAL COST ESTIMATE • ASSIGN VALUE FIELDS. See Figure 3.50 and Figure
3.51.
Figure 3.50: Setup of cost component split update in COPA
Enter your Operating concern and Cost component structure (Figure 3.50).
Figure 3.51: Assignment of cost component to value field—PV02
Enter point of valuation 02 for each cost component from your cost component
structure and the value fields to which the actual cost should be transferred to
COPA. FIELD NAME 1 column is used for the legal valuation and FIELD NAME 2 is
used for group valuation value fields.
Value fields for standard cost valuation are also set up in the same transaction for
point of valuation 01 and this has already been set for the operating concern
MD01 (Figure 3.52).
Figure 3.52: Assignment of cost component to value field—PV01
4 Integrated flow of transactional
data into SAP Material Ledger
This chapter walks you through a complete manufacturing process from the
purchase of raw materials to sales, including the material ledger,
accounting, and COPA documents for each goods movement. It also
highlights important things to watch out for throughout the month in order
to minimize issues during the actual costing closing at month end.
The following data and examples used in this chapter are for illustration purposes
only. Examples and data may not represent the correct proportion of materials
and dollar amounts as compared to a real scenario in your company.
You will find detailed explanations to how these business transactions flow to a
material ledger, the impact in the G/L, and valuation in the context of product
costing using standard and actual costing functions.
Keep in mind that before you initiate any material movement transactions in SAP,
you need to make sure you have calculated and released a standard cost for each
material with valuation, regardless of its type, i.e. finished goods, semifinished
goods, raw materials, etc.
4.1 Standard cost set-up and cost roll-up process
This section briefly explains the concept of cost roll-up. This process is not
covered in detail as the book’s main focus is the actual costing process with
material ledger.
It is important to calculate and release a standard cost for each material relevant
for valuation before any material movement transactions. This will ensure you
have the appropriate cost component breakdown to be used in further analysis
and comparison between plan and actuals.
The cost roll-up includes the cost of goods manufactured of all materials in a
multilevel production structure within the costs of the material located at the top of
the structure. The costs are automatically rolled up using the costing levels,
starting from the lowest level and then carrying results over to next highest costing
level where the cost is calculated for all materials.
The process continues until it reaches the costing results of the highest material in
the bill of material and the finished product cost of goods manufactured contains
the cost of each material on the BOM, including its own BOM and lower levels.
Costing results are passed on to the costing of each next level of a product and
assigned to the applicable cost component according to the cost component
structure.
For the purpose of the cost component split, it is important to define the cost
component structure and design the cost splitting structure in a way that provides
costing information in the level of detail that your company needs.
View Figure 4.1 through Figure 4.5 to see the results of the standard cost of the
product to be used in your business scenario transactions in this chapter. The
standard costing in the group valuation view (Figure 4.3) has been defined as
group currency for simplicity. However, you can define specific price conditions for
mark-up and/or mark-down to be used along with the purchase info records to
meet your own needs.
For further information on the standard cost master data and configuration
settings, please refer to Espresso Tutorials book Practical Guide to SAP CO-PC
(Product
Cost
Controlling)—http://www.espressotutorials.com/Controlling_S0064.php
Figure 4.1 shows the standard costing results for a finished product. The value of
$75.63 will be used during the month to value any material movement transaction.
Variances to standard are captured separately in specific G/L accounts as well as
in the material ledger (shown in later sections).
Figure 4.1: Cost estimate—summary view
In Figure 4.2 you can see a different format of CK11N to review the standard
costing results.
The view displays the standard cost-by-cost component. It is important to ensure
the standard cost component split is done as it will be used to value the material
movement transactions, including the cost of goods sold. The cost component
split flows to COPA, which will allow you to review your cost of sales using the
cost component breakdown. This is a great functionality that provides detailed
information in COPA, which can be a good help to support your company when
analyzing and reporting cost of goods sold, profitability, or gross margin in COPA.
You can choose to report your cost of goods sold by nature of expenses or total,
as well as profitability by product or any other characteristics available in COPA.
Figure 4.2: Cost component view
Figure 4.3 shows the standard costing results in group valuation view.
Figure 4.3: Group valuation view
Once the standard cost is released, the results are stored in the material master,
as shown in Figure 4.4. There is a specific bucket for each cost by currency type
in the ACCOUNTING 1 view. The actual cost results that will be calculated at month
end are also stored in the material master in the periodic unit price (PER. UNIT
PRICE) field. This will be explained in detail later in Section 6.3.
Figure 4.4: MM03—Current standard costing results—accounting 1 view
Figure 4.5 shows the current costing run results and specific details such as when
the standard cost was released, period, year, valuation variant, costing version,
and the standard cost itself.
Figure 4.5: MM03—Current costing run results view
4.2 Purchase of raw material
This section reviews a purchase of a raw material with a purchase price variance.
Figure 4.6 displays the results of a good receipt of a raw material purchased in the
material ledger—transaction CKM3N. The standard cost for the item is $1.00 and
the purchase price is $1.50. Therefore, there is a $0.50 price difference per unit,
which results in $15.00 of purchase price difference with 30 units.
The valuation at standard price is updated as a preliminary valuation in the
material ledger. The purchase price difference is captured in a separate column
and whenever there is an exchange rate difference, this can be also captured
separately from the PPV.
The estimated actual cost at a material throughout the month is available as a
statistical price, in this example, $1.50. This is a statistical actual cost at a certain
point in time; it does not represent the final actual costs for the month as there
could be additional variances received before month end. In this case, for
example, there could be a receipt of an invoice with additional price differences for
raw materials. For a semifinished or finished product, the periodic actual cost is
only known after the actual costing calculation where the actual cost roll-up takes
place and updates the price differences from lower-level materials. The material
ledger month-end process is covered in Section 5.4.
Figure 4.6: Material price analysis—purchased material
If you want to display all receipts for this material, you can expand the RECEIPTS
category (see Figure 4.7) and that will show all transactions categorized as
receipts for this material. Invoice receipts generally fall under the receipts
category.
Figure 4.7: CKM3N—Goods receipt document
Drilldown functionality is available in CKM3, so you can double click on the
transaction that you want to review and the system displays the material ledger
document screen (Figure 4.8).
Figure 4.8: Display of a material ledger document
From the material ledger document, you can display accounting documents, the
source document, additional details on material ledger document, or simply return
to the material price analysis. The material ledger document contains other
additional details on the material ledger update.
Next is a review of the accounting documents (see Figure 4.9).
When you click the ACCOUNTING DOCUMENT, as shown in Figure 4.8 the screen
below (Figure 4.9) will pop up and you can double click on the ACCOUNTING
DOCUMENT NUMBER to view details of the accounting entries, as shown in Figure
4.10.
Figure 4.9: List of documents in accounting
As you can see in Figure 4.10, the price difference of $15.00 has been posted to
the purchase price variance account (same amount in CKM3N).
Figure 4.10: Accounting document for raw material goods receipt
4.3 Manufacturing process using product cost by order
Next is a review of the manufacturing process using a production order and how it
updates to the material ledger upon material movement transactions against a
production order.
Figure 4.11 shows the consumption of a raw material to the production order
60003765. Each material movement transaction is recorded in the material ledger
and can be displayed using CKM3N.
All material movement transactions are valued at standard cost, as you can see in
Figure 4.11. Although, this raw material has been bought for $1.50, the standard
cost is $1.00, which is the cost updated to the production order. The variances to
standard cost are captured in the material ledger and will be allocated to the
relevant products at month end during the actual costing closing. Details are
found in Section 5.4.
Figure 4.11: CKM3N—Consumption of raw material to production order
Figure 4.12 shows production order 60003765 with all consumptions (identified as
GOODS ISSUES) and internal activities (identified by CONFIRMATIONS) and delivery to
stock of the finished product (identified by GOODS RECEIPT).
It is important to note that the TOTAL ACTUAL COST column represents actual
quantities valued at standard cost, even though the production orders can be
revalued at actual cost rates at month end. For this example, there is no revaluing
of the orders as shown in the configuration step in Section 3.12.1.
Therefore, the production orders remain valued at standard cost and the products
produced in a month are updated to actuals in the material ledger. You do not lose
visibility of the information as an actual material quantity structure is available
where you can see the valuation for all different levels of the actual BOM and the
variance received from lower levels can be easily obtained. Refer to Section 6.6.2
for more detail on the actual bill of material report.
Figure 4.12: Production order cost analysis
The production order functionality does not change with the use of a material
ledger. In the example shown in Figure 4.12, the balance on the order is $54.75
and the order has been completely delivered. Therefore, the balance is a
manufacturing variance.
Orders are usually debited with the costs during consumption of materials and
confirmation of activity type. When a product is delivered to inventory, the orders
are credited. The remaining balance is a variance if the orders are fully delivered.
If the order has a balance and it is still not complete, then the order will be
considered as work-in-process (WIP), which is described through the month-end
closing steps in Section 5.3.1.
4.4 Sales of finished product
This section contains a sales process example.
The sales process in SAP consists of a few different activities, such as quotation,
sales order processing, shipping, and invoicing.
In this section, the focus is on the shipping and invoicing steps.
Typically, the sales order has the condition records for cost, revenue, freight, etc.,
that are mapped to value fields in COPA and which will be updated when the
invoicing process is completed.
At the time of a goods issue that occurs during the shipping process, inventory,
material ledger, and the G/L are updated.
Similar to other scenarios discussed in this chapter, cost of goods sold are booked
at standard cost throughout the month and revalued at actual at month end.
Figure 4.13 shows CKM3N, a goods issue of a finished product to a sales order.
Figure 4.13: CKM3N—Goods issue for a sales order
If you double click on the MATERIAL LEDGER DOCUMENT and then go to
DOCUMENT (Figure 4.14) you will see details of the accounting entries.
ACCOUNTING
Figure 4.14: Accounting document for cost of goods sold
Note that for cost-based COPA, the COGS amount will get posted only at time of
billing, not at the time of a goods issue. See Section 4.5 for further details.
4.5 Flow of sales data into COPA
As you have activated COPA to be updated at standard and actual costs, the
goods issue of a product does not flow to COPA at the same time the accounting
document and inventory are updated. The updates into COPA take place later
when the billing document is created and posted. Therefore, both revenue and
cost of goods sold are updated into COPA at the same time.
FI and COPA will not balance until the billing document is processed. It is
important to reconcile FI and COPA to ensure there are no imbalances due to
incomplete billing documents. Whenever there is a delivery where the revenue
cannot be recognized in a certain period, it is extremely important to create
accruals of the revenue in both the G/L and COPA, so that there is no mismatch
between the two modules. COPA is typically used to report gross margin by line of
business, product hierarchy, customer, etc., therefore it should have accurate
information.
Figure 4.15 displays the billing document for the shipment done in the prior step.
From the billing document (transaction VF03), you can navigate through the
accounting document, special ledger, controlling, and profitability analysis
(COPA).
Double click on the PROFITAB. ANALYSIS document to review COPA entries, as
shown in Figure 4.15.
Figure 4.15: List of Documents in Accounting from billing document
Figure 4.16 shows the line item document in COPA (transaction KE24). In KE24,
you can change the layout and add any desired fields. If you want to review the
characteristics or value fields of a particular document, you can double click on
the document number
Figure 4.16: Actual line item document in COPA
Figure 4.17 contains value fields updated from the sales document. As you can
see, revenue and cost of goods sold are now updated into COPA. The cost of
sales by cost component is available in both legal and group valuation views as
per your configuration settings.
Figure 4.17: Value fields display in a COPA document
From KE24, you can navigate through other transactions if you need to check any
information while analyzing COPA entries. To do so, click on the INTEGRATION
function, as shown in Figure 4.17, and a new screen (Figure 4.18) will pop up
where you can choose from the different options available such as display
customer master, billing documents, etc.
Figure 4.18: Integration function in KE24
5 Month-end closing process
This chapter describes the actual costing closing steps using the
transactional data created in Chapter 4. It also reviews the prerequisites
steps for the multilevel actual costing run in the material ledger, which
includes cost center allocations, actual rates for activity types, production
order settlement, and then finally demonstrates the steps for completing the
periodic costing calculation using the material ledger cockpit. Each step is
explained in detail and you will see how the price differences are calculated
and carried over from level to level, all the way up to the finished products.
The chapter also covers the final actual costing results posted to the ending
inventory, cost of sales, and any other cost object subject to revaluation.
Following in Chapter 6 is a walkthrough of the various types of cost variances and
the effect of those accounts after actual costing closing process takes place.
5.1 Critical checkpoints throughout the month and during the month-end
closing
5.1.1 Checkpoints during the month
Active review of purchase price variances
It is important to actively review the purchase price variances (PPV) accounts
throughout the month to minimize significant cost fluctuation and issues with the
material ledger at month end. If there is a huge deviation one day, it should be
investigated. There is probably a standard cost, purchase price, or unit of
measure issue. If caught early, you could potentially reverse the goods receipt, fix
the material master, and repost the goods receipt. If the issue is related to
standard cost, it can be fixed for the subsequent month.
Large favorable variances due to incorrect data leading to a negative periodic unit
can be a problem when closing the material ledger.
How do you do a PPV analysis? If you don’t have a purchase price variance
report in your company, you may use the PPV G/L account to review the largest
differences. Using the G/L account balances report FS10N (for classical G/L) or
FAGLB03 (if you are using the new G/L), drill down to the line item details if you
think the variance amounts are not reasonable. Using the G/L line item report, you
will be able to drill down further to the Purchase Order as well as material master
to review the standard cost.
Production orders
Monitoring production order variances can also minimize issues at month end and
avoid significant variances that would skew the unit cost of production or cost of
goods sold of a product.
Absorption costs
Review your absorption costs for manufacturing costs during the month. If there is
a large variance against plan and the production is running smoothly, it may
indicate issues with the activity confirmation process and not inefficiency as it may
seem. This check will prevent large activity price variances due to under or over
absorption amounts during the month end
5.2 Cost center closing process
It is expected that when you start the month-end closing process, all material
movement transactions, expenses, payroll, and accrual postings to cost centers
are finalized. Back-dated postings are not allowed to prevent issues with
additional balances coming in to objects already closed.
5.2.1 Cost center allocations
Before you start the allocation process make sure your settlement of internal
orders, plant maintenance, service orders, projects, etc., to a cost center are
complete.
Your company may use allocation methods (assessment or distribution) to move
costs among cost centers and finally to manufacturing cost centers.
For simplicity’s sake, the book does not cover the assessment and distribution
processes. If you would like to have more information on these steps, please refer
to Espresso Tutorials book Practical Guide to SAP CO-PC (Product Cost
Controlling). http://www.espresso-tutorials.com/Controlling_S0064.php
The cost center in the next example (Figure 5.1) shows all expenses already
allocated to manufacturing cost center 121001.
The report can be accessed through transaction code S_ALR_87013611 or
through the IMG menu path: ACCOUNTING • CONTROLLING • COST CENTER ACCOUNTING •
INFORMATION SYSTEM • PLAN/ACTUAL COMPARISONS • S_ALR_87013611 - COST
CENTERS: ACTUAL/PLAN/VARIANCE .
Figure 5.1: Manufacturing cost center after allocation
As you can see in Figure 5.1, the cost center has an under absorption amount of
$23,099.03, which means the cost center spent more than what was applied
through production during the month.
Since you are using actual prices with the material ledger functions, the difference
of $23,099.03 will be proportionally allocated to the products manufactured in the
month or to the material in process (WIP). The cost center will be credited with the
remaining unfavorable variance and the cost center balance will become zero.
The final posting to the manufacturing cost center only occurs when you do the
final step of the actual costing closing in the material ledger cockpit, as you will
see in Section 5.4.8.
In order to calculate the actual prices for activity types, the following two steps,
actual costing splitting and actual activity price calculation, are required.
5.2.2 Actual cost splitting
The procedure for the actual price calculation does not differ from plan price
calculation.
The actual cost splitting function divides the manufacturing costs into the
manufacturing activity types and ultimately to the cost components.
All expenses posted to the manufacturing cost center 121001 are broken down
into the activity types using the proportions predetermined, according to the
splitting rules, for example, labor costs, machine costs, etc.
The actual cost splitting uses the same cost splitting structure that is defined for
the plan rates, unless you use the primary cost component split. The primary cost
component split is an alternative way of displaying the cost of goods
manufactured of a product. This function assigns the costs of the internal activities
split into the original production elements. For example, wages can be indicated
as such in the cost estimate or actual cost rather than being included in the
secondary cost element for the activity allocation.
Create a cost center group and assign all desired manufacturing cost centers, so
that you can run the actual cost splitting and easily compare with the cost center
report.
To perform this step, you may access the transaction code KSS2 or navigate
through the IMG menu path: ACCOUNTING • CONTROLLING • COST CENTER ACCOUNTING •
PERIOD-END CLOSING • SINGLE FUNCTIONS • SPLITTING. See Figure 5.2.
Figure 5.2: Actual cost splitting selection screen
As shown in Figure 5.2, enter the Cost center value or Cost center group,
Version, or Period to which you are closing the month, and the Fiscal Year. Run
in test mode first, review the results, and then execute in update mode.
Figure 5.3: Actual cost splitting results
Figure 5.3 shows the results of the actual cost splitting. Data is available in the
controlling area and object currency.
In order to check the amounts, do the following:
Adjust the layout to display the TARGET COSTS, ACTUAL COSTS and ACTUAL COST
BALANCE.
Compare the values with the report S_ALR_87013611 (Figure 5.1) to ensure
100% of the costs are being split correctly. Target costs represent the plan
costs, Actual costs is the total debit column and the actual cost balance
represents the over/under absorption amount from the cost center report, see
Figure 5.1.
Any discrepancy between cost splitting and the cost center report could be due to
a missing cost element in the cost splitting structure assignment in OKES or
missing cost center assignments to the cost splitting structure in OKEW. In either
case, correct the settings, re-run KSS2, and repeat the validation steps.
Figure 5.4, Figure 5.5, and Figure 5.6 show the MD cost splitting structure in
OKES. There are three assignments for the activity types: Labor, Machine, and
Overhead.
Figure 5.4: Cost splitting structure configuration
The labor assignment (Figure 5.5) has the cost element group MD_LAB which
contains all cost elements for expenses associated to labor.
Figure 5.5: Assignment of cost element and activity type to splitting rule
The activity type range indicates the activity type that is related to labor, in
scenario M100.
In Figure 5.6, you can see the method for the splitting rules used to split the cost
of activity types. For your scenario, use activity quantity (12) for all activity types.
Figure 5.6: Splitting rules method
5.2.3 Actual activity price calculation
In this step, the system calculates actual prices for activity types based on actual
cost splits done in the previous step and the actual activity quantities. You are only
using activity types, but it is important to emphasize that this can also be used for
business processes when using ABC costing.
The actual prices calculated here are utilized to revalue the activities when
performing SAP Material Ledger closing. The system uses the difference between
plan and actual prices to process the revaluation for all produced materials that
had activity type consumption during the month. This revaluation clears out the
producing cost centers when running the material ledger post-closing step.
The transaction code to execute actual cost splitting is KSII or you can navigate
through the menu path: ACCOUNTING • CONTROLLING • COST CENTER ACCOUNTING •
PERIOD-END CLOSING • SINGLE FUNCTIONS • PRICE CALCULATION. See Figure 5.7.
Figure 5.7: Actual price calculation—selection screen
Enter a Cost center group, Period, and Fiscal Year and then click the EXECUTE
button.
You can see the price results in Figure 5.8.
Figure 5.8: Price calculation results
It is highly recommended that you validate the actual rates results before
performing the material ledger closing to ensure the actual prices calculated are
correct to clear out the manufacturing cost centers. This anticipates and prevents
potential issues when closing the material ledger.
This validation can be done using a Microsoft Excel spreadsheet. You can easily
export the results to Excel by clicking the CALCULATOR button. Alternatively, you can
download the report using the other export functions available on the tool bar.
Make sure your layout has the required columns, as shown in Figure 5.8.
For this quick validation of actual rates versus cost centers, do the following:
Export the report KSII as Excel format
The template shown in Table 5.1 can be used as reference to build the
validation. The ‘Total calculated’ amount is obtained as follows: a = (b/c) x d
Table 5.1: Actual rates validation with cost center report
Compare the results obtained with the cost centers. In case of differences, do
not proceed with the material ledger closing since the balances will remain on
the cost center when the material ledger posting is complete.
Possible reasons for the discrepancy between the two balances:
Expenses posted after executing the actual expenses splitting. If this is the
cause of the problem, go back to KSS2 and calculate the actual cost splitting
again and then recalculate the actual rates in KSII and re-do the validation.
A new cost center is not automatically assigned to the cost splitting structure.
When new manufacturing cost centers are created, make sure they are
assigned to the cost splitting structure (OKEW). If this is the reason for the
problem, it can be identified when validating the cost splitting in the prior step.
5.2.4 Activity type price report
If you want to compare or verify plan rates against actual rates, use report KSBT.
Enter a cost center group, a cost center, or a list of cost centers. For your
scenario, use the same cost center group MD1200-10 used to calculate the actual
prices. Fill in Version 0, Fiscal Year, and From Period and then click the EXECUTE
button (Figure 5.9).
Figure 5.9: Activity type price report selection screen
Figure 5.10 shows the plan and actual prices. The PRICE INDICATOR 1 is for plan and
5 for actuals values.
Figure 5.10: Activity type price report results
As explained earlier, for your scenario, the activity type revaluation occurs while
running the post-closing step in SAP Material Ledger rather than using the
revaluation process to the production orders.
The cost center revaluation is posted to G/L account 231850 as you will see in
Section 6.1.
The actual price calculation is the last step for cost center month-end closing.
Now move on to the production order closing process.
5.3 Production order closing
The production order closing steps do not differ from the regular process when
using the material ledger.
For your scenario, you are not using overhead costs with costing sheets and you
do not have co-products in your manufacturing process, therefore, only the three
steps below are required to close the production orders.
Work-in-process calculation
Variances calculation
Settlement of production orders
5.3.1 Work-in-process calculation (WIP)
The work-in-process (WIP) calculation function determines the costs incurred for
orders that have not been fully delivered to stock. This process values the
unfinished products (work in process).
The status of the order determines how the order is settled. The actual costs of
the production order are only settled if the order has been technically completed
(TECO) or delivered (DLV). For orders that have been released (REL), settlement
only posts the WIP to FI (for orders which the WIP were determined).
The WIP for each production order is determined by calculating the difference
between the debit and the credit of actual costs incurred to each production order
(that is, the difference between the debits for goods issues, internal activity
allocations, and overhead on the one hand, and the credits for goods receipts on
the other).
Once the order is fully delivered to stock, any remaining WIP is reversed, and the
order cost balance is settled to manufacturing variance.
The difference between the WIP in the current period and the WIP in the previous
period corresponds to the inventory change of unfinished products.
The WIP is transferred to Financial Accounting (FI) when the process order
settlement is carried out and updates the WIP inventory balance sheet accounts.
The WIP revaluation at actual cost occurs when closing the material ledger, as
discussed in Section 5.4.6.
Figure 5.11 shows transaction code KKAO for collective order processing. The
transaction for one order is KKAX and it can be accessed through the menu path:
ACCOUNTING • CONTROLLING • PRODUCT COST CONTROLLING • COST OBJECT CONTROLLING
• PRODUCT COST BY ORDER • PERIOD-END CLOSING • SINGLE FUNCTIONS • WORK IN
PROCESS.
Figure 5.11: Work-in-process calculation collective processing
Figure 5.12 shows the WIP results. The WIP is calculated in both legal and group
valuation. The first order 60003765 has been completed and the status is TECO,
therefore there is no WIP for this order. The orders 60003766 and 60003767 have
cost balances, but no goods receipt has been completed yet and the status is REL
(released), which means these orders are still in process and therefore they will
be accounted for as WIP for the month.
Figure 5.12: Work in process object list
5.3.2 Variance calculation
Before executing the settlement step, run the variance calculation. The variance
calculation provides detailed cost information categorizing the variances in
different buckets to support further variance analysis so that you can improve your
cost process.
During the variance calculation process, the system assigns each variance to a
variance category. The variance category indicates the cause of the variance
(such as BOM change or change of lot size) to enable further analysis. When the
production order is settled, the variance (order balance) is transferred to FI.
Settlement also feeds data from cost object controlling to material ledger and
actual costing, profit center, and COPA.
The variances are broken down into several input and output variance categories
as listed below:
Input price variance
Input quantity variance
Resource-usage variance
Remaining input variance
Scrap variance
Remaining variance
Output price variance
Lot size variance
Mixed-price variance
To calculate variances in product cost by order, the manufacturing order must
meet the following conditions:
Settlement Type FUL (Full settlement type) in settlement rule
Status DLV (delivered) or technical Complete (TECO)
The transaction code to calculate the variance for a single order is KKS2—
Individual Processing or KKS1—Collective Processing, or you can navigate
through menu path: ACCOUNTING • CONTROLLING • PRODUCT COST CONTROLLING • COST
OBJECT CONTROLLING • PRODUCT COST BY ORDER • PERIOD-END CLOSING • SINGLE
FUNCTIONS • VARIANCES.
You have only one order with status TECO, so run transaction KKS2 for the order
60003765. Figure 5.13 shows the variance calculation screen. Enter order
number, Period, Fiscal Year, and select Detail List.
Figure 5.13: Variance calculation for individual processing
Figure 5.14 shows the results of the variance calculation. The variance of $54.75
is the same as the production order balance in Figure 4.12. The variance is now
broken down into different variance categories that make up the total variance
amount.
Figure 5.14: Variance calculation list
Figure 5.15 shows what the collective processing transaction (KKS1) looks like.
You have to select a plant and production orders option, fill in the Period, Fiscal
Year, and then select Detail list. The recommendation is to run background
processing in a production system to optimize the processing time and minimize
performance issues.
Figure 5.15: Variance calculation collective processing
Since these two orders are still in process (not in status DLV or TECO), the
system cannot calculate the variances, Figure 5.16 shows the error messages
due to an inappropriate status.
Figure 5.16: Variance calculation log messages
5.3.3 Production order settlement
Settlement is the last step for production order closing processing.
Order settlement transfers the actual costs assigned to the order to one or more
receivers (normally the material being manufactured as defined by the settlement
rule). The variances between the original inventory valuation and the actual costs
are transferred to financial accounting, profit center accounting, and profitability
analysis.
In simple words, the settlement does the following:
Brings the order balance to zero
Transfers the difference between the preliminary inventory valuation and the
variance to SAP Material Ledger as a price difference
Does not revalue materials when the variances are settled to FI since you are
working with standard cost
To be able to settle the costs, all production orders must have a settlement rule to
carry the balance to FI. Settlement rules are typically created when the production
order is saved in SAP, according to predefined configuration settings.
The transaction code to settle one order is KO88 and collective processing is
CO88. The settlement rule can also be accessed through the menu path:
ACCOUNTING • CONTROLLING • PRODUCT COST CONTROLLING • COST OBJECT CONTROLLING
• PRODUCT COST BY ORDER • PERIOD-END CLOSING • SINGLE FUNCTIONS • SETTLEMENT.
Perform the settlement for plant M110 (Figure 5.17).
Select the type of orders, in your case, With Production Orders, then enter the
Period, and Fiscal Year.
Figure 5.17: Order settlement collective processing
Figure 5.18 shows production order 60003765 is 100% complete, so the balance
gets posted to a manufacturing variance account (see Figure 5.20).
Figure 5.18: Order settlement detail list
Review the accounting documents to ensure all orders were settled and the G/L
entries are as expected.
From the details list screen (Figure 5.18), you can navigate to the accounting
document. Click on ACCOUNTING DOCUMENTS and a new screen will pop up with all
DOCUMENTS IN ACCOUNTING created during the settlement (Figure 5.19).
Figure 5.19: Documents in accounting after order settlement
Figure 5.20 shows the variance posted to a price difference account as mentioned
earlier in this chapter.
Figure 5.20: Accounting document for an order settlement
The same variance is posted at the same time to material ledger and can be seen
in CKM3N (Figure 5.21).
Note that the variance is updated to the price difference column in CKM3.
Figure 5.21: Material price analysis after order settlement
Figure 5.22 shows the two other production orders that are not yet completed, so
they are WIP and will be accounted for as such.
Figure 5.22: Production order list for WIP orders
Now look at the accounting entries for the order 60003767 (Figure 5.23). As you
can see, this is posted to the WIP G/L accounts. When the order status changes
to delivered or technically complete, the WIP will be reversed.
Figure 5.23: Accounting document for a WIP order
5.3.4 Review production order zero balance report
After orders are settled, make sure all production orders that should have settled
were settled correctly.
SAP offers the report KOC4 or S_ALR_8701327 where you can review the order
balances and variances (Figure 5.24).
Select your plant(s) and order type(s).
Figure 5.24: Order selection screen
Figure 5.25 shows the
TOTAL ACTUALS
and WIP by order. After the settlement is
carried out, the balances in these two columns have to agree. This indicates that
the only orders that have balances are the ones in WIP. If there is an order with
actual cost that is not in WIP, then you have to run the closing step for that order.
Figure 5.25: Order selection results list
This is also a great report to analyze the variances after month end as it provides
the variance by category.
It can also be a useful tool during the month to monitor the order deviations, as
you can also set thresholds for the variances on the selection screen (Figure 5.24)
by clicking DEFINE EXCEPTION.
5.4 Periodic actual costing run
Now that you have completed the cost center and production order closing, which
means all costs and price manufacturing differences are captured, you can start
the actual costing and material ledger closing.
This chapter walks you through each step of the actual costing closing cockpit. It
shows how to complete the month-end process and provides an explanation of
each step along with screen shots demonstrating how to execute the actual
costing closing. There are also details on how to check the anticipated actual
costing results before you finally post the actual costing to financial accounting.
As mentioned in earlier chapters, the purpose of SAP Material Ledger is to carry
inventory values in multiple currencies and value the inventory at actual costing at
the month-end closing.
What does the actual costing material ledger closing do?
It calculates a weighted average actual cost. This actual cost is called
periodic unit price (PUP).
It rolls up the variances between standard and actual cost for each material
collected during the month over multiple production levels all the way to the
finished products through the multilevel cost function. Ending inventory also
receives a portion of the variances.
It posts variances pertaining to consumption, such as sales, to cost of goods
sold to offset a portion of the price differences that occurred during the month.
This process is called revaluation of consumption.
It allocates price differences to work in process materials. This process is
called WIP revaluation.
Actual costing multilevel processing determines what portion of the variance has
to be moved to the next-highest level using material consumption. The actual
BOM enables variances to be rolled up over multiple production levels all the way
to the finished product as well as variances from activity rates related to
manufacturing cost centers.
Actual costing periodic closing warning
Do not miss the actual costing closing in any period.
The transaction code to perform actual costing and close SAP Material Ledger is
CKMLCP. It can be accessed through the IMG menu path: ACCOUNTING •
CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER •
ACTUAL COSTING.
The first step is to create a costing run and assign the relevant plants. A costing
run has to be created to perform the actual costing every month and it allows you
to select the period and plants to which you will be closing the material ledger.
The process for costing cockpit: actual costing has the following steps and they
have to be performed in the given order:
1. Selection
2. Determine sequence
3. Single-level price determination
4. Multilevel price determination
5. Revaluation of consumption
6. Post closing
7. Mark material prices
The only step you will not be running is the last step, ‘Mark material prices’. This
step is optional and can be used in cases where you want to set the new periodic
unit as a new standard price. This process is discussed in Section 3.10, item 2,
and provides an example.
The last step you will run, ‘Post closing’, is when the variances are posted to the
G/L and the material ledger status is updated to Closing Entry Completed—status
70.
Figure 5.26 shows an example of an actual costing run. Enter a name for your
costing run (M100_SEP, in this example), period, and fiscal year and click on
the SHEET button to create the costing run. Also enter a description for the costing
run, so you can identify it when using the drop-down list functionality.
Figure 5.26: Actual costing run setup
The next step is the selection step, where you select the plants that you will be
closing. This costing run is for plant M110, as shown in Figure 5.27. There could
be one or several plants assigned to the same costing run. However, it is essential
to close all plants that belong to the same company code in the same costing run
so that multilevel variances can be transferred to the receiving plant.
A costing run can have plants attached to multiple company codes, depending on
your business process. You don’t need to create a costing run for each company
code.
As you can see (Figure 5.27), plant M110 has been selected for this costing run.
Make sure you have all your plants selected and then click SAVE.
Figure 5.27: Actual costing run plant assignment
You may collapse the GENERAL DATA view and expand the PROCESS tab as shown in
Figure 5.28.
Figure 5.28: Process tab layout selection
Figure 5.29: Actual costing run steps
Now that the costing run is set up, you can start running the actual costing steps
in the sequence as shown in Figure 5.29, from Selection through Post closing.
For each step on the cockpit, you first need to define the parameters and then
execute the step itself.
5.4.1 Selection
All materials for the given plant(s) that will be part of the actual costing process
are selected in this step.
A list of the plants involved indicating how many materials were selected in each
plant is displayed. For each plant, there is a hierarchical display with information
about the materials selected.
When you click PARAMETERS (Figure 5.29), a new screen will pop up (Figure 5.30)
for you to fill in some fields.
Figure 5.30: Actual costing run selection—parameter screen
Review your costing run ID and specify the Processing option as Background
Processing. Run all steps in the background when dealing with large amounts of
data. For your example, run all steps in the foreground as there are just a few
materials attached to this plant.
Save it and click on the
screen.
BACK ARROW
button to move back to the main cockpit
Now you are ready to execute the first step. Click the EXECUTE button.
Figure 5.31: Actual costing run selection
To review the processing status, update the status by clicking on the REFRESH
button. When you press the REFRESH button, another screen will pop up (Figure
5.32), click DIRECT PROCESSING. Once the process is complete, a log is updated. If
there are any errors, the number of errors is displayed on the respective step.
Click on the log sheet to review the errors.
Repeat this for all subsequent steps.
Figure 5.32: Execution type to refresh processing status
Figure 5.33 shows the results of the selection process. As you can see, the status
is green (no errors found) and it gives the number of materials that will be part of
the costing run (10).
Figure 5.33: Actual costing: selection results
If you click on the HIERARCHY button to expand the selection on how the materials
are grouped, then you can see further details such as material type, valuation
class, material group, and division (Figure 5.34).
Figure 5.34: Actual costing: selection results—extended view
Click on the BACK ARROW button to move back to the main cockpit run screen.
Figure 5.35 shows the main cockpit screen after refreshing the status.
Figure 5.35: Selection step status
5.4.2 Sequence determination
In this step, the system establishes the costing run sequence to be executed by
selecting the list of materials from the lowest material to the highest level,
resulting in a multilevel structure. The multiple levels identified here result in the
actual BOM that is used in the multilevel price determination step.
An example of this list of materials and its level is shown in Figure 5.37. A level is
identified by a material and its associated procurement or production process.
Click on CHANGE PARAMETERS for ‘Determine sequence’ step and update as shown in
Figure 5.36.
Figure 5.36: Determine costing sequence parameters
Save it and click on the
screen.
BACK ARROW
button to move back to the main cockpit
Now you are ready to execute the first step. Click the EXECUTE button.
Figure 5.37 shows the results of the step ‘Determine costing sequence.’ There are
9 materials at level 1 and one at level 2. The status is green, meaning no errors
found.
Figure 5.37: Determine costing sequence results
Click on the BACK ARROW button to move back to the main costing cockpit screen.
Figure 5.38 shows the main costing cockpit screen after refreshing the status of
the costing sequence determination.
Figure 5.38: Costing sequence status
Next, perform single-level price determination.
5.4.3 Single-level material price determination
In this step, prices are calculated for each individual material. Results are updated
in all valuation approaches in the material price analysis (CKM3N).
For material price determination, the system treats single-level materials as a
basis for multilevel price determination as part of the cost roll-up. Single-level
price determination is a prerequisite for multilevel price determination.
Single-level material price determination takes into account the differences that
arise directly when a material is obtained, either through an external procurement
process or an in-house production.
Price differences
Price differences occur when the amount posted for a material movement differs
from the standard price in the material master record. The following main
transactions can cause price differences:
Goods receipts resulting from a purchase order
Invoice receipts
Settlement of process orders
Stock transfer postings
Initial entry of stock balances
Exchange rate differences
Exchange rate differences occur when an amount in a foreign currency is
translated using different exchange rates. This is the case, for example, when the
exchange rate applied to the invoice differs from the exchange rate applied when
the goods receipt was posted.
Differences from revaluations
Differences from revaluations occur from a credit/debit to a material (MR22) or a
material price revaluation due to standard price changes.
Change parameters for SINGLE-LEVEL PRICE DETERMINATION (Figure 5.39) and update
the fields as shown in Figure 5.40.
Figure 5.39: Single-level price determination
Figure 5.40: Single-level price determination parameters
Treating materials already processed:
There are two options:
Process again
Do not process
These fields control whether all material prices in the valuation area are
determined again when repeating a material price determination step or only the
prices for materials that were not processed should be determined.
Select the indicator PROCESS AGAIN if you want to re-determine all material prices.
If you want to settle only those materials that were not settled successfully in the
last material settlement, select the DO NOT PROCESS indicator. The advantage here
is that fewer materials are settled.
If you make any changes to a material during the actual costing run, then the
recommendation is to select the PROCESS AGAIN indicator to ensure the most
updated information is picked up. To avoid errors with single and multilevel price
determination for subsequent levels, SAP recommends running the
price determination with the option: materials already processed: process
again.
Parameters:
You can set a threshold percentage for a warning or error message to compare
the actual cost results against the standard cost for the period or actual cost from
the preceding period.
This is useful to avoid significant price changes for a material. This warning
message highlights the materials with large variances according to the percentage
selected.
For your example, select 10% for a warning message against the standard prices.
Save your settings and click on the
cockpit screen.
BACK ARROW
button to move back to the main
Before the single-level price determination step can be performed, you have to
authorize the execution of the step by clicking on the LOCK button (Figure 5.39).
Notice that when you unlock for the single level, the multilevel step is also
authorized.
Now you are ready to execute the single-level step. Click the EXECUTE button.
Figure 5.41 shows the single-level price determination log results. There are some
warning messages now and these are related to costing variances based on the
10% threshold as shown in Figure 5.40. Click the MESSAGES button to review the
warning messages.
Figure 5.41: Single-level price determination results
Materials 1567, 1573, and 1579 have exceeded the established threshold of 10%
(Figure 5.42). At this point, you should analyze the transactions posted in the
month for these items and try to identify the cause of the cost increase.
Transaction CKM3N should be used for this analysis and to review the single-level
price determination for any other material. Please see Figure 5.43.
Figure 5.42: Warning messages for price changes in single-level price determination
Check the results of the single-level price determination in CKM3N.
Review the raw material 156, which is one of the raw materials purchased with a
price higher than standard cost as discussed in Section 4.2.
Enter the material number, plant, period, and fiscal year. Now click on the PRICE
AND INVENTORY VALUES button to display the standard cost, the new PUP, and the
weighted average actual cost.
If you expand the GOODS RECEIPT portion, you will see the goods receipt details.
This material has a standard price of $1.00 and it was purchased for $1.50,
therefore a 50% variance is highlighted during the actual costing run (Figure
5.42).
This raw material has been 100% consumed to production, the total price
difference of $15.00 will be carried over to the finished product 1579 produced in
the month and a portion will be allocated to WIP as you will see in the next step
when the multilevel price determination is performed.
Note that the PERIOD STATUS of the material has changed to PRICE DETERMINED
(SINGLE LEVEL) and it also shows the outstanding steps to be completed. Hover
your mouse over each button to display the description of the outstanding or
completed steps.
Figure 5.43: CKM3N—Material price analysis after a single-level price determination
Now go to CKMCLP again and click on the BACK ARROW button to move back to the
main costing cockpit screen.
Figure 5.44 shows the single-level price determination status after refreshing the
status.
Figure 5.44: Costing cockpit after single-level price determination
Next, perform multilevel material price determination.
5.4.4 Multilevel price determination
Multilevel price determination calculates the periodic price for the entire
production process of a material.
It is common to have both single-level and multilevel price variances within
multilevel production. Shared material components that have single-level price
differences will result in multilevel price differences. Because of this, all
differences are then aggregated and rolled up from the raw materials up to the
finished products, using all manufacturing levels.
Therefore, actual prices contain the price differences incurred for the actual
quantity produced or procured externally for each period. This allows you to have
an actual cost system that results in actual BOMs valued at actual costs, in
addition to your standard cost system.
The multiple production levels that are reflected in the actual BOMs are
established in the actual costing run, in the ‘Determine sequence’ step.
The periodic price calculated here is used in the valuation of the inventory (raw
material, semifinished and finished products) for the period. See the example in
Section 6.2.
Change PARAMETERS for MULTILEVEL PRICE DETERMINATION (Figure 5.45) and update
as shown in Figure 5.46.
Figure 5.45: Actual costing run—multilevel price determination
Figure 5.46: Multilevel price determination parameters
Similar to the single level, in the multilevel step you can also set a percentage
threshold to warn when the price variance is reached. The system will perform the
price determination, but it will issue a warning message as well.
You can also set a percentage for the overall variance to avoid a significant price
change for a material. If the new cost is above the percentage defined, the system
will issue an error message and it will not perform the price determination.
For your scenario, use 10% for the multilevel variances warning message.
Click on EDIT and then select SHOW
the screen, as seen in Figure 5.47.
POST PROCESSING OPTIONS.
New fields appear on
In case you need to re-run the multilevel for one or several materials without
running it for all items, you can expand the post-processing options and update
the material number and plants to be reprocessed. This function can be useful for
further analysis of errors, for example, for a specific material, but you should
always carry out the multilevel step for all materials, otherwise there could be
dependent subsequent materials not reprocessed.
Save your settings and click on the BACK ARROW button to move back to the main
cockpit screen.
Now you are ready to execute the multilevel price determination. Click the EXECUTE
button.
Figure 5.47: Multilevel price determination post-processing options
Figure 5.48 shows the multilevel price determination log results.
Click the MESSAGES button to review the warning messages.
Figure 5.48: Multilevel price determination results
Use CKM3N to check the results of the multilevel material price determination.
Now that the multilevel price determination is performed, look at the cost of the
finished product—material 1579. Please see Figure 5.49.
Figure 5.49: CKM3N—Price analysis after multilevel price determination
Enter material number, plant, period, and fiscal year. Now click on the PRICE AND
INVENTORY VALUES button to display the standard cost and the new PUP, which is
the weighted average actual cost.
This product has the standard price of $75.63 and the actual cost calculated is
$96.46. Note that this is the PUP for this product in September and that would be
the amount you will see in your balance sheet account in FI after the post-closing
entries step occurs.
If you expand the ENDING INVENTORY portion at the bottom of the screen, you will
see the difference received from single and multilevel price determination steps. If
you DOUBLE CLICK on each entry, you will see the details of each variance that
comprises this total. This type of analysis is covered in Section 6.2.
This product has one unit sold, therefore, a portion of the total price differences
will be allocated to cost of goods sold during the ‘Revaluation of consumption’
step.
Note that the PERIOD STATUS of the material has changed to PRICE DETERMINED
(MULTILEVEL). There are three more steps (Revaluation of consumption, WIP
revaluation, and Post closing) left to be completed.
Now go back to CKMCLP again and click on the
to the main cockpit screen.
BACK ARROW
button to move back
Figure 5.50 shows the main cockpit screen after refreshing the status.
Figure 5.50: Costing cockpit—multilevel price determination status
5.4.5 Revaluation of consumption
Revaluation of consumption determines and distributes the differences in
proportion to the usage quantity for all receiving costs objects (which can be a
cost center, internal order, G/L account for cost of goods sold, for example, etc.,)
depending on where original consumption occurred.
The revaluation only occurs for single-level consumption alternatives, as multilevel
consumption has already been revalued by multilevel material price
determination. Revaluation of consumption can be done using the original or a
collective account assignment (as discussed in Sections 3.11.2 and 3.13.10).
For your scenario, all consumption movement types have been mapped to
revalue the original account assignment, which means, COGS, for example, will
be revalued using the original G/L account (893010—Figure 4.14, Section 4.4).
In case of any consumption movement types not mapped in the SAP Material
Ledger configuration, (see Section 3.11.2 as relevant for revaluation), the actual
cost differences will be posted to a collective account assignment—Transaction
key COC, as discussed in Section 3.13.10.
Change PARAMETERS for REVALUATION
shown in Figure 5.52.
OF
CONSUMPTION (Figure 5.51) and update as
Figure 5.51: Actual costing run—revaluation of consumption
Figure 5.52: Revaluation of consumption parameters
Save the settings and click on the
cockpit screen.
BACK ARROW
button to move back to the main
Now you are ready to execute the Revaluation of Consumption. Click the EXECUTE
button.
Figure 5.53 shows the Revaluation of Consumption log results.
The status is green, which means there are no errors.
The revaluation amount is going to be posted to the original G/L account as
expected. The amounts in local and group currency are available on this report.
Please note this is just the anticipated revaluation, there is no accounting posting
yet. The accounting postings only take place when the ‘Post closing’ step is
performed.
Figure 5.53: Revaluation of consumption results
Go back to CKM3N and click on the REFRESH button to update the data and reflect
the information from the revaluation that you just ran for material 1579.
If you have closed CKM3N, just enter the material, plant, period, and fiscal
year again.
Now expand the CONSUMPTION category as shown in Figure 5.54. Note that the
same amount seen in the CKMLCP report is available in CKM3N. The cost of
goods sold in account 893010 will be increased by $20.83 when you run the postclosing step.
Figure 5.54: CKM3N—Revaluation of consumption analysis
Go back to CKMCLP again and click on the
BACK ARROW
button to move back to
the main cockpit screen.
Figure 5.55 shows the costing cockpit screen after refreshing the status data.
Figure 5.55: Costing run—revaluation of consumption status
5.4.6 WIP revaluation
The WIP revaluation function allows you to revalue material and activity type
price differences related to items consumed to products that are still in process.
These price differences are pro-rated to the unfinished products which are part of
the work in process for the month.
Change PARAMETERS for WIP REVALUATION (Figure 5.56) and update as shown in
Figure 5.57.
Figure 5.56: Actual costing run—revaluation of WIP
WIP revaluation also includes the option to run the step for single or multiple
materials. Click on EDIT and then select Show extended selection. New fields
appear that need to be filled in: MATERIAL, PLANT, and VALUATION TYPE (in case your
company has materials subject to split valuation to manage particular valuation
area separately). See Figure 5.58.
Figure 5.57: WIP revaluation parameters
Figure 5.58: WIP revaluation extended selection options
Save the settings and click on the
cockpit screen.
BACK ARROW
button to move back to the main
Now you are ready to execute the WIP Revaluation. Click the EXECUTE button.
Figure 5.59 shows the WIP Revaluation results log.
The status is green, which means there are no errors. Both materials and
activities were successfully executed.
Figure 5.59: WIP revaluation results log
Go back to CKMCLP again and click on the
the main cockpit screen.
BACK ARROW
button to move back to
Figure 5.60 shows the main cockpit screen after refreshing the status data.
Figure 5.60: Actual costing run—WIP revaluation status
5.4.7 Analysis of the not distributed values—value flow monitor
Now that you have completed all calculation steps of the actual costing run,
before post closing, which is the last step in the scenario, it is extremely important
to analyze if all price differences will be fully allocated to the products.
After running actual costing, sometimes there are price differences that the
system could not allocate. You can see these amounts in CKM3N (material price
analysis) or by checking the price difference G/L account balance in FI.
The report Value Flow Monitor (transaction CKMVFM) allows you to analyze price
differences which were not distributed or not included in the cost of the materials
for the month. This report is a great tool to analyze where these unallocated
amounts come from. Run this report before you post the material ledger entries.
The material ledger should not contain any ‘Not Included’ differences. If it does,
the price differences accounts will not zero out and the actuals costs will not
include the full amount of the differences, which means your inventory or cost of
goods sold could be over- or understated.
‘Not Included’ differences of a material are differences of the cumulative inventory
that were not allocated to usages or ending inventory by the price determination.
Examples of possible reasons for ‘Not Included’ differences are listed below.
The multilevel price determination was not carried out.
The revaluation of single-level usages or WIP revaluation was not carried out.
The cumulative inventory is too small to include all differences (stock
shortage). A price limiter logic (discussed below) prevents the distribution of
the differences to skew the price of the material.
The multilevel price determination did not clear all differences to higher levels
because an output material did not have any acquisitions in the period in
question; however, it has invoice receipts with price differences or variances
from settlement of production orders.
The transaction for the value flow monitor is CKMVFM. It can also be accessed
through the menu path: ACCOUNTING • CONTROLLING • PRODUCT COST CONTROLLING •
ACTUAL COSTING/MATERIAL LEDGER • INFORMATION SYSTEM • VALUE FLOW MONITOR.
Figure 5.61 shows the selection screen for this report.
Figure 5.61: Value flow monitor—selection screen
At the bottom of the screen (Figure 5.62), you will have to provide a name for the
extract before you run the report. For performance reasons, you must create an
extract for each run; this is a mandatory field.
Figure 5.62: Value flow monitor—selection screen extract name
Run the report for company code M100 and plant M110.
It is important to select the plants and, if possible, the material number range so
that the report can be executed faster.
You can select either the option to display all materials or the option to display
only materials with not distributed or not included differences.
If there are
no open differences, the system will issue the message ‘No data selected’.
Reconciliation between FI and SAP Material Ledger
If you choose the option Reconciliation FI with ML, the system
automatically selects the relevant price difference accounts for
the reconciliation of FI accounts with SAP Material Ledger.
However, if you have activated the summarization of FI
documents, the reconciliation may not return accurate information as the
values that are defined by the material are deleted from the relevant tables.
Do not choose this option if you are using FI summarization.
For illustration purposes, run the report with all price differences so that you can
see how the report looks. Figure 5.63 shows the report output.
Figure 5.63: Value flow monitor—initial view
You can see all materials grouped by valuation class. You can expand to see the
materials assigned to each plant. If you look at the columns to the right of each
material, you will see the breakdown of the differences allocated to cost of goods
sold, WIP, and ending inventory. If you click on VIEW for the drop-down list, you will
see that you can change the output to show the data in a different layout or only
NOT DISTRIBUTED VALUES.
If there are any non-distributed values, then check the documents that cause the
non-distributed or not included values in CKM3N. There is also drilldown
functionality on this report, so if you double click on any material item, you will go
to CKM3N so that you can do further analysis on the material movements and
price differences. This is handy, especially when reviewing items with amounts not
distributed.
In the case of not distributed values related to price differences to a goods receipt
from prior months, you can authorize the system to include the differences to the
cost of the items. You have to delete the PRICE LIMITER QUANTITY in CKMVFM. Then
you will have to repeat the material ledger steps to ensure all price differences are
now allocated accordingly.
In CKMVFM, if you highlight the MATERIAL and click the NOT
will see exactly where the undistributed values come from.
DISTRIBUTED
button, you
If the existing differences cannot be absorbed due to stock shortage, which
misrepresents the actual price, investigate the material movements that caused
the discrepancy using CKM3N and then determine the best way to create an
adjustment. Sometimes, you need to use MR22 to adjust those large favorable
price differences so that the system can post without any issue. If a credit price
difference is so high the inventory would become negative, the system cannot
post the closing for that item. In that situation, you may have to use MR22 to
reduce the price difference to an acceptable amount.
Note that after any material movement or price adjustments, the SAP Material
Ledger closing steps have to be carried out from the start, so that the system uses
the most updated data.
Additional information on how to analyze the non-allocated price differences and
possible causes of the issues can be found in SAP OSS Notes 908776, 744090,
and 2123418.
Further details on how to delete the price limiter quantity for not distributed
differences can be found in OSS notes 1871499 and 2207543.
You can also change the display view of CKMVFM. Figure 5.64 shows the
material list view, which is a flat ALV list and it does not have the ALV trees as
seen in Figure 5.63.
Figure 5.64: Value flow monitor—material list view
For your scenario, there is no price difference not distributed, not allocated, and
not included. There is only one material relevant to multilevel price determination
and both single-level and multilevel steps are completed, as shown in Figure 5.64,
so now the only outstanding step in the material closing example is post closing.
5.4.8 Post closing
All calculations performed in prior steps in CKMLCP are posted when running the
post-closing step. This is the final step needed to complete the actual costing
process.
If you are revaluing the inventory, this activity posts the price differences and
exchange rate differences assigned to ending inventory to the material
inventory account. If you are not revaluing the inventory, then the actual
variance is posted to the account(s) assigned to LKW transaction key OBYC
as discussed in Section 3.13.15.
The activity posts the price differences and exchange rate differences that are
assigned to Revaluation of Consumption to the original P&L accounts. You
can see these amounts as well as the closing document in material price
analysis.
The system automatically changes the material price control in the previous
period from standard price S to moving average price V in the material
master and updates the periodic unit price (PUP). The price control is
changed to indicate that the PUP is already calculated and new movements
in the previous period are no longer allowed.
The preliminary valuation price (standard price) remains unchanged and can
continue to be displayed in the material master or material price analysis
(CKM3N).
Price and exchange rate differences posted to inventory accounts for the previous
period are immediately reversed on the first day of the subsequent month. Those
values become the beginning price difference for the current month. Further
details on this are mentioned in Section 6.4.
Now that you have an understanding on what the post-closing step really does, go
ahead and execute this step.
Click on CHANGE PARAMETERS for POSTING CLOSING in CKMCLP (Figure 5.65) and
update as shown in Figure 5.66.
Figure 5.65: Actual costing run—post closing
Figure 5.66: Post closing—parameters screen
Update the processing type accordingly. Select EXECUTE, if you are running the
post-closing. If a reversal is required after closing the material ledger, then you
would choose the REVERSE option.
Parameters:
If you have chosen to revalue the inventory and consumption usages, make sure
to select the three fields listed below (and as shown in Figure 5.66):
REVALUATE MATERIAL
REVALUATE CONSUMPTION
SET CO ACCOUNT ASSIGNMENT
As mentioned at the beginning of this chapter, when dealing with a large volume
of data, always run this step in the background.
The recommendation is also to run the post-closing step in test mode first, before
update mode.
At the bottom of the screen (Figure 5.66), you will see the parameter NO. OF
MATERIALS IN ML DOC. This indicates how many materials one material ledger
document should contain. The program normally works with a package size of 50,
which is this default in the parameters of closing entries.
When executing the closing entry, if the error F5 727 “MAXIMUM NUMBER OF ITEMS IF
FI REACHED” occurs, you will have to reduce the number of documents per ML
document and complete the closing entries for the remaining materials. This error
occurs if the materials to be posted in a processing package generate too many
line items. The FI document must not contain more than 999 line items.
Save the settings and click on the
costing cockpit screen.
BACK ARROW
button to move back to the main
Similar to single-level and multilevel steps, you have to authorize the post-closing
entries before you perform this activity. Click on the LOCK button to allow the
posting entries (Figure 5.65).
Now you can proceed with the post closing. This is the last step in the actual
costing cockpit. Click the EXECUTE button.
Figure 5.67 shows the post-closing run results log.
The status is green, which means there are no errors. Both materials and
activities were successfully posted.
Figure 5.67: Post-closing results log
Click on the BACK ARROW button to move back to the main cockpit screen.
Figure 5.68 shows the main costing cockpit screen after refreshing the status.
Figure 5.68: Actual costing run—post-closing status
You have now finished the actual costing run process.
You should know about a few review or reconciliation steps which can be useful to
analyze the posted entries and to ensure the manufacturing cost center and price
difference accounts have been cleared out properly.
Chapter 7 shows you how to update the cost of goods sold in COPA through the
periodic valuation process to have both COPA and FI balanced.
6 Actual costs review and reporting
This chapter walks you through some important validation steps after
performing the material ledger closing. You will see a few SAP standard
reports that you can run to review actual cost results as well as to ensure
the price differences have been fully absorbed by the actual costing closing
process.
The chapter also covers the material price analysis (CKM3N) using the materials
from earlier examples so that you can see exactly how they look after material
ledger closing. You will also explore some other reports that can be used for
further analysis and to manage your product cost at actual costs.
6.1 Manufacturing cost center—zero balance
Review cost center report S_ALR_87013611 for the manufacturing cost centers to
ensure a zero balance. This will assure that over/under absorption has been fully
absorbed during the actual cost roll-up.
Fill in the controlling area, fiscal year, period, and the manufacturing cost
center group or values.
For this scenario, use the manufacturing cost center 121001, as shown in Figure
6.1.
Figure 6.1: Cost center report—after actual costing closing
As you can see in Figure 6.2, cost center 121001 has been fully revalued during
the material ledger post closing. Just a few cents left over due to rounding
differences.
Figure 6.2: Cost center report—over/under absorption balance
The revaluation is posted to a primary cost element, in this example, 231850,
which is assigned in OBYC under transaction key AUI as discussed in Section
3.13.9.
6.2 CKM3N walkthrough of a finished product analysis status and actual
cost results for a material
Now that the material ledger is closed, look through the finished product 1579
again in CKM3N, and review the material ledger status and the actual costs
results.
Figure 6.3 shows the material status as ‘Closing Entry Completed’, that status in
the material ledger table is identified as 70. At this point, all materials with price
indicator 3 and price control ‘S’ other than Status ‘01 - New Objects’ should have
the status 70. This can be checked using another inventory report (shown in
Section 8.1).
Now expand all categories from RECEIPTS to ENDING INVENTORY so that you can see
all transactions and the entries related to the material ledger.
Start with the RECEIPTS category. As you see in Figure 6.3, the total amount
received from lower levels is $49.38. If you double click on this amount, the
material ledger document details are displayed (see Figure 6.4).
Figure 6.3: Material price analysis after material ledger close
In Figure 6.4 you can see the breakdown of the differences that comprise the total
from lower levels of $49.38, which were calculated during the multilevel price
determination. The price differences are coming from raw materials and activity
type variances. You can also review further details by double clicking on the
material or activity type.
You can also change the layout to display additional fields available in the material
ledger document.
Figure 6.4: Material ledger document display
Now move on to the CONSUMPTION category, there is just one sales transaction
(Figure 6.3)
COGS at standard price are $75.63 plus a material ledger revaluation of $20.83.
Total COGS = $75.63 + 20.83 = $96.46. This is the amount expected in the G/L
account 893010 (see Figure 6.5).
Note that the material ledger closing document type is ML, which makes it easy to
identify the material ledger entries, especially if you want to see the actual cost
delta on the COGS or inventory G/L accounts.
Figure 6.5: Accounting document for a COGS revaluation
How does the system determine the revaluation amount?
The price difference amount to be allocated to consumption (sales, production,
transfer to higher level materials, and transfer to other plants or ending inventory)
is calculated as follows:
(Cumulative Price difference / Cumulative Inventory Qty) x Consumption Qty
($104.13 / 5) x 1 = $20.83 (rounded to 2 decimal places).
This is the per unit price difference that each consumption will receive as
revaluation. In this example, there is only one unit sold for this finished product
and that is the revaluation amount. The same principle applies for lower-level
materials as raw materials and semifinished products or finished products used in
another finished product production process.
The same formula is applicable to exchange rate differences if you are tracking
the amount separately.
As this product has ending inventory, it will also receive the same price difference
proportion, which is $20.826 x 4 = $83.30. Therefore, the ending inventory at
actual cost should be $385.82, preliminary valuation of $302.52 (standard cost)
plus $83.30 (actual cost variance). The unit actual weighted average cost is
$385.82 / 4 = $96.46. See Figure 6.7.
The inventory revaluation is posted to the same inventory balance sheet account
(see Figure 6.6).
Figure 6.6: Accounting document for inventory revaluation
Figure 6.7: Material price analysis—ending inventory values
While in CKM3N, if you click on PRICE AND INVENTORY VALUES, you will see the unit
standard cost, PUP, the actual cost, and the total inventory value at actuals (see
Figure 6.8).
Note that the price control has changed to V, which indicates the actual cost
process is complete for this period and no additional transactions are allowed for
this product. The standard cost remains unchanged as the PUP is updated in a
separate field.
A review of the closing document for this product as well as the journal entries are
found in Section 6.4.
Figure 6.8: Material price analysis—price and inventory values
6.3 Reviewing material master after material ledger close
The prices, inventory values, and price controls (shown in Figure 6.8) can also be
seen in MM03—accounting 1 view (see Figure 6.9).
Figure 6.9: Accounting 1 view—after material ledger close
6.4 Reviewing SAP Material Ledger closing document and general ledger
entries
Price and exchange rate differences posted to inventory accounts for the previous
period are immediately reversed on the first day of the subsequent month. Those
values become the beginning price difference for the current month (Figure 6.15).
These values can be displayed in the material price analysis (CKM3N) or in
FS10N (classic G/L) or FAGLB03 (if you are using a new G/L).
Starting from CKM3N, click the CLOSING DOCUMENT button (Figure 6.10) and this
will take you to CKMB (material ledger document), Figure 6.11.
Figure 6.10: Material price analysis—closing document
From the ML closing document, navigate to the accounting documents by clicking
the ACCOUNTING DOCUMENTS option.
Figure 6.11: Material ledger closing document
Figure 6.12 shows a list of financial documents. Note that there are two
accounting documents, the first one 4700000000 is related to month-end entries
for the period you are closing, September (see Figure 6.13). The next document
4700000001 contains the reversal entries in the next period (October), see Figure
6.14.
If you double click on the FIRST ACCOUNTING DOCUMENT (Figure 6.12) it will take you to
FB03 (Display accounting documents). See Figure 6.13.
Figure 6.12: List of documents in accounting
Figure 6.13 shows the material ledger accounting entries made to finished product
1579. The ending inventory is booked to G/L account 792000 and the cost of
goods sold revaluation is posted to 893010 (our original COGS G/L account).
Note that the posting period is 9 for this closing period (previous period).
Figure 6.13: Accounting document for material ledger closing
Figure 6.14 shows the accounting document that was created simultaneously with
the prior document 4700000000. These are the reversal entries in the subsequent
month (10), which are always posted on the first day of the current month
(October, in this example).
Figure 6.14: Accounting document with material ledger reversing entries
Look at CKM3N, now in period 10 (Figure 6.15). You see the price difference
reversal entry of $83.30. This becomes the beginning price difference for period
10. When the material ledger is closed for period 10, this price difference amount
is taken into account to calculate the new actual cost for this month, in addition to
the price difference that will occur throughout period 10.
Figure 6.15: Material price analysis—beginning price difference
6.5 Price difference accounts after materials ledger closing
As you have seen in prior chapters, material movements valued at standard price
typically create price differences that accumulate throughout the month, and when
the material ledger is closed, the materials that have price differences are
apportioned to ending inventory, WIP, or consumption, depending on the material
transactions. In that way, all price differences are allocated to actual product
costing and the G/L accounts used for this process should net to zero to ensure
the material ledger has absorbed all price difference captures during the month.
Ideally, you should reconcile the set of G/L accounts assigned to the transaction
keys listed below to confirm the price differences have been 100% allocated and
the G/L account balances net to zero. During this type of analysis, you may find
issues related to movement types not properly mapped that are being posted to
the collective account assignment that probably were not caught during the
material ledger closing. So it is important to execute this reconciliation on a
monthly basis.
The G/L accounts assigned to the following transaction keys should net to zero
after material ledger closing:
Price differences from consignment material consumption (AKO)
Price differences from stock transfer (AUM)
Exchange rate difference from MM ( KDM)
Exchange rate differences from material ledger lower levels (KDV)
Price difference postings (PRD)
Price difference lower levels (PRV)
Price difference ML settlement (PRY)
Price difference from inventory revaluation (UMB)
Now take a look at the price difference account balances in period 9 for company
code M100.
Use transaction code FAGLB03 for this analysis (Figure 6.16).
Enter your price difference accounts, your company code, and your fiscal year,
and then click EXECUTE.
Figure 6.16: Price difference G/L accounts balance
As you can see below, the balance is zero, which means all actual
costing/material ledger entries were successfully absorbed and posted during
period 9 actual costing.
If you want to see the line item details, you can double click on the balance row
for the period in question (Figure 6.17).
When there is a leftover balance, you have to identify the material numbers and
analyze the transactions in CKM3N to see what caused the non-absorption.
Figure 6.17: Price difference G/L accounts balance reconciliation
Figure 6.18 shows the line items for the price difference in the G/L accounts. As
you can see, all material ledger closing entries are identified by document type
ML. The text field also provides further detail on the type of entry made (singlelevel or multilevel).
Figure 6.18: Price difference accounts—line item display
6.6 Material price analysis (CKM3N)—integrated view
This section reviews some integrated functions available in CKM3N. This
functionality can be useful when analyzing a multi-level product with several
transaction movements.
You will see that you can navigate to different reports from CKM3N without having
to use different transaction codes.
6.6.1 Cost components split of a product in SAP Material Ledger
Now you will look at the cost component split of finished product 1579.
You can display the cost component split from CKM3N or directly from the cost
component split transaction MLCCSPD.
In the CKM3N initial view (Figure 6.19), click the LIST button to display the cost
component screen (Figure 6.20). Alternatively, use transaction MLCCSPD.
Figure 6.19: Material price analysis—integrated view
Figure 6.20: Actual cost component split in code currency
In Figure 6.20 you can see the actual cost component split for the finished product
1579.
If you want to review the cost component at standard price, you can just change
the TYPE OF PRICE.
The default base quantity is costing lot size, but if you click on the drop-down list,
you can change to CURRENT INVENTORY, PRICE UNIT, or USER ENTRY and define the
quantity that you would like to display the cost component. This is a functionality
that allows you to see exactly the proportion of cost for each cost component or
group of expenses.
Actual cost and cost component are also available in group currency and group
valuation. To display them, just change the CURRENCY/VALUATION VIEW on the screen
(Figure 6.20).
Figure 6.21 shows the actual costing component split in group currency.
Figure 6.21: Actual cost component split in group currency
In CKM3N, It is also possible to display the cost component for each group of
transactions (beginning inventory, receipts, consumption, and ending inventory).
In CKM3N initial view, just change the view to the COST COMPONENT, as shown in
Figure 6.22.
Figure 6.22: CKM3N Cost component view
6.6.2 Actual bill of material at actual cost
From CKM3N (Figure 6.22), click the ACTUAL BOM button to display the actual
BOM (multilevel quantity structure) valued at standard and actual cost.
Alternatively, you can use transaction code CKMLQS (Figure 6.24).
Figure 6.23 displays the actual BOM for the total production of the month. Here
you can do further analysis as well as display a specific transaction in CKM3N.
The actual BOM shows the total production volume valued at standard cost
(preliminary valuation), the price difference for each level, the total actual cost,
and per unit. Multi- and single-price differences are also available on this report.
The total production volume is shown by default, but you can change it by clicking
on the CHANGE BASE QTY button.
Figure 6.23: Actual bill of material
If you are accessing the actual BOM directly from transaction code CKMLQS, you
have to enter material, plant, valuation type (if working with split valuation),
period, and fiscal year, and then click EXECUTE or press “F8”. See the selection
screen in Figure 6.24.
Figure 6.25 shows the report output. The report is exactly the same when
accessing through CKM3N, the only difference is that this transaction does not
show the CKM3N report on the right-hand side. You can navigate to CKM3N, by
double clicking on any item of the BOM.
Figure 6.24: CKMLQS—Actual bill of material selection screen
This is a powerful report to analyze monthly production costs, manage variances,
and improve the cost controls.
From this screen you can navigate to CKM3N for further analysis.
Figure 6.25: Actual bill of material report
You are encouraged to explore the other integration functions in the CKM3N
transaction.
6.6.3 WIP at actual cost
Another great report for analysis of work in process at actual cost is transaction
COMLWIPDISP—Display of WIP for Actual Costs.
Fill in your company code and your plant(s), or you can run the report at the
company level, if you want to reconcile the total WIP from this report with FI
balances. You can also run the report for a specific material, material type,
business area, etc.
For now, run the report for plant M110, as shown in Figure 6.26.
Figure 6.26: WIP at actual costs report—selection screen
In Figure 6.27 you see the total WIP per production order, the WIP at standard,
WIP price differences, and the accumulated amount. For subsequent months, you
can also add WIP change columns to the report.
If you want to review the price differences breakdown for a specific production
order, just highlight the ORDER or any field in the order row and click on DETAILED
REPORT WIP and the detail will be displayed at the bottom of the screen, as shown
in Figure 6.28.
Figure 6.27: WIP at actual costs report
Figure 6.28: WIP price differences—detailed report
The total WIP Cumulative of $82,717.82 shown in Figure 6.27 should balance with
the WIP G/L accounts after material ledger closing. For your case, you have only
one account and it matches the G/L balance, as you can see in Figure 6.29.
Figure 6.29: WIP G/L account balance in FI
7
Periodic valuation in COPA
This chapter looks at the periodic valuation in COPA; the cost of goods sold
updated to actuals in COPA after the Material Ledger close
Once the material ledger actual costing process is completed, the periodic
valuation in profitability analysis can be performed.
The periodic valuation function for the valuation of actual cost in COPA is
performed through transaction KE27. This process accesses the periodic unit
price for a period for which you must have performed all of the required closing
operations in the material ledger. Otherwise, the results would be determined
incorrectly, as the final unit price or cost component split is not available yet.
The periodic valuation allows you to value the cost of goods sold at actual cost.
This function is identified as point of valuation 1 (Periodic valuation) in COPA line
item transaction code KE24. Point of valuation refers to the trigger point when
COPA is updated with the costing key valuation.
Basically, all sales are posted during the month using the standard cost in COPA,
as discussed in Section 4.5. At month end, you have the option to update the
COGS to the latest actual costs, the PUP.
The system posts the total actual costing using different value fields and in
separate line items. The original documents from the sales order or billing
document from sales and distribution (SD) remain unchanged.
As you are updating the cost of goods sold with the actual cost, update the billing
data (F). The periodic valuation function is also available for the record types A
(incoming sales orders) and any other user-defined record types.
The transaction to run the period valuation in COPA is KE27 and the IMG menu
path is: ACCOUNTING • CONTROLLING • PROFITABILITY ANALYSIS • ACTUAL POSTINGS •
PERIOD-END CLOSING • PERIODIC VALUATION • EXECUTE.
Figure 7.1 shows the selection screen for the periodic valuation.
Enter the FROM PERIOD (period or fiscal year dates), RECORD TYPE (F for billing
data), select Periodic Valuation and then click on SELECTION CRITERIA option and
update the data as shown in Figure 7.2.
In a production system, the recommendation is to run first in test mode and check
the log output for any error messages before you perform the activity in update
mode.
Figure 7.1: Periodic valuation—selection screen
In Figure 7.2, enter your CO Area and Company Code. There could be several
company codes and controlling areas attached to the same periodic run,
depending on your business requirements.
Now click the VALUE FIELD button to select the value fields for actual cost (Figure
7.3).
Figure 7.2: Periodic valuation: selection criteria
In Figure 7.3 you see the selection of value fields to be used in the periodic
valuation as defined in the configuration step (described in Section 3.15.4) for
both the legal and group valuation.
Once all relevant value fields are selected, click EXECUTE or press “F8”. The log
output is shown in Figure 7.4.
Figure 7.3: Periodic valuation—value fields selection
Figure 7.4: Periodic valuation—log output
For a periodic valuation executed without errors you can display the results from
this screen in a few different ways. These simulation options are useful before you
run the process in update mode.
Using KE24 to display line items
For this option, you have to click on the button DISPLAY USING LINE ITEM SIMULATION.
Using KE30 to display line items
Click on DISPLAY USING REPORT SIMULATION.
Using list of values for delta line items
Click on the LIST button.
Note that the delta line item contains the document number of the original line
item in the field REFERENCE DOCUMENT NUMBER, as shown in Figure 7.5. There are
two line items: one for operating concern currency and the other for company
code currency.
Figure 7.5: Periodic valuation: actual line item list
You can just double click on the line item document or change the report layout to
display the value fields that are being updated to actual cost for your review.
As mentioned earlier in this chapter, the delta line items are also identified as 1
(periodic valuation) in the field point of valuation in COPA line items.
In case you need to reverse the periodic valuation line items, use transaction
KE27S and then post again with KE27.
Once you have performed a periodic valuation, you can display the new values in
the COPA information system, either using KE24 or KE30 (if you have your own
COPA reports).
Review the periodic valuation in KE24 for finished product 1579. See Figure 7.6.
Figure 7.6: COPA line items—periodic valuation
Note that the periodic valuation transferred the total COGS as well as the actual
cost component split as defined in the configuration settings in COPA. The
amounts posted are exactly the same as the amounts found in CKM3N (cost
component view), Figure 7.7.
Similar information is available in group currency.
You have to use the value fields for actual costs and build a summary report in
KE30, according to your company requirements.
Figure 7.7: COGS breakdown by cost component
8 SAP Material Ledger reporting
This chapter reviews some key reports in SAP Material Ledger aside from
CKM3N and the ones mentioned in Chapter 6.
8.1 Material list with price and inventory values
This is a good report for inventory balances. It provides the inventory volumes for
selected materials or valuated sales order, and project stocks for a specific period.
The materials can be grouped by material type and valuation class and you can
also define other totals and subtotals according to selected criteria. This report
contains useful information for comparison of the standard price and PUP as it
provides standard cost, unit actual cost, and variance % from actual. In addition to
standard and total inventory values, it also details price and exchange rate
differences applied to the ending inventory.
The IMG menu path for the material ledger information system is ACCOUNTING •
CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER •
INFORMATION SYSTEM • OBJECT LIST.
S_P99_41000062 - PRICES AND INVENTORY VALUES
Enter a material, range, or list of values, or run the report for a PLANT.
If you click on the EXTENDED SELECTION button (plus sign button), additional fields will
become available for filtering your data such as MATERIAL TYPE, VALUATION CLASS,
etc.
You can also select the currency/valuation desired for the report as shown in the
selection screen in Figure 8.1.
Figure 8.1: Price and inventory values report—selection screen
The material ledger status for each material is also available on this report, as you
can see in Figure 8.2. In this example, all materials for plant M110 have the status
70 (closing entry completed).
Another great feature is the drilldown capability, if you double click on any item, it
will take you to CKM3N.
Figure 8.2: Price and inventory values report
8.2 Other useful material ledger reports
Some other useful material ledger reports are listed below. Note some of them
may have been mentioned during the material ledger closing:
CKMTOPPRICEDIF—Materials with Largest Moving Price Difference
S_ALR_87013180—Materials by Period Status
CKMTOPSTOCKVAL—Materials with Highest Inventory Value
S_ALR_87013181—Material Prices and Inventory Values Over Several
Periods
MLCCSPD—Cost Components for Price
S_ALR_87013182—Transaction History for Material
CKMLQS—Valuated Multilevel Quantity Structure
COMLWIPDISP—Display of WIP for Actual Costs
CKMCCD—Display Actual Cost Component Splits
8.3 Material ledger document reports
Material ledger documents can be displayed in several ways using the drilldown
functionalities from the finance module, for example, or they can be accessed
directly using any of the reports listed below.
CKMB—Material Ledger Document
CKMS—Searching for a Material Ledger Document
CKMPCD—Price Change Document
8.4 Drilldown reporting
CKM3N is a powerful transaction code to obtain information about standard and
actual data along with the cost component split. However, you can only run
CKM3N for a single product, sales order stock, or project at a time. SAP offers
other tools where you can get the material ledger information for multiple
materials unlike CKM3N.
Transaction KKML0 provides the collective CKM3N. As a prerequisite, you have
to define the new reports with the general drilldown reporting tool functionality to
use along with CKM3N to obtain material ledger information.
You can define your reports using the following transactions:
KKML0—Execute report
KKML1—Create report
KKML2—Change report
KKML4—Create form
KKML5—Change form
KKMLV—Global variables
KKML7—Maintain key figures
The standard material ledger drilldown report function does not provide a cost
component split. You can enhance the report by using user exits to obtain the cost
component split.
There is also a standard extractor, for example, 0CO_PC_ACT_10, to pull
material ledger cost component split data to BW (business warehouse).
SAP has created several enhancements that improve the reporting capabilities in
SAP Material Ledger. Some of these extended functionalities are to be used with
SAP HANA and SAP BusinessObjects.
For further details on the new reporting capabilities in material ledger reporting,
please refer to the OSS notes below.
1664155—ERP Accelerators: Material Ledger - BW Extraction
1654843—ERP Accelerators: Material Ledger - Virtual Info Provider
1654782—ERP Accelerators: Material Ledger - Price Analysis
1654778—ERP Accelerators: Material Ledger - Period End Closing
1654225—Derivation of customer specific fields in table FCML_MAT
1639462—ERP accelerators: enhancements in ML drilldown reporting
9 List of main SAP Material Ledger
tables
This chapter briefly highlights the main material ledger tables that can be
used to pull data to build additional custom reports or queries to support
your product cost with material ledger reporting.
Below you will find a list of useful SAP tables related to product costing with
material ledger (Table 9.1).
Table
Description
MLHD
Material Ledger Document: Header
MLCD
Material Ledger: Summarization Record (from Documents)
MLCR
Material Ledger Document: Currencies and Values
MLIT
Material Ledger Document: Items
MLPP
Material Ledger Document: Posting Periods and Quantities
CKMLHD
Material Ledger: Header Record
CKMLCR
Material Ledger: Period Totals Records Values
CKMLPP
Material Ledger Period Totals Records Quantity
CKMLPR
Material Ledger: Prices
CKMLPRKEKO
Material Ledger: Cost Component Split (Header) for Prices
CKMLKEPH
Material Ledger: Cost Component Split (Elements)
CKMLPRKEPH
Material Ledger: Cost
CKMLKEV
Material Ledger: Cost Component Split (Control Record)
MLMST
Material Ledger Document: Costing Run Header Data
MLPPF
Material Ledger Document: Field Groups (Posting Periods)
MLCRF
Material Ledger Document: Field Groups (Currencies)
MLCRP
Material Ledger Document: Price Changes (Currencies, Prices)
MLWIPHD
WIP Document in Material Ledger—Header
MLWIPIT
WIP Document in Material Ledger—Lines
CKMLCRWIP
Material Ledger: WIP Period Records (Values)
CKMLPPWIP
Material-Ledger: Period Records WIP (Quantities)
Table 9.1: SAP Material Ledger tables
10 Overview of advanced and
newest SAP Material Ledger functions
Now that you have covered the basics of SAP Material Ledger, this chapter
highlights some of the advanced functions and also briefly explains the
newest functionalities that SAP made available in enhancement package
(EHP) 5 and EHP 6. These new functions will help you to improve your cost
management process as well as value your inventory in accordance with the
accounting principle required for your company. All the functionalities can
be used in addition to the ones already mentioned throughout the book.
10.1 Manual change of actual cost component splits
Typically, SAP updates the cost component split automatically based on the
business transaction. However, there could be cases where you need to manually
update the cost component split. The function allows you to update the split
values for each procurement alternative. Reasons why you may need to change
the cost component split include:
Actual cost component split was missing when the actual posting was made
Individual values in a cost component split are incorrect
The manual actual cost component split can be performed using transaction
CKMCCC or through the menu path: ACCOUNTING • CONTROLLING • PRODUCT COST
CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • MATERIAL LEDGER • SET PRICES.
Alternatively, you can access this function from CKM3N.
Note that the functionalities mentioned in Section 10.2 through Section 10.4
require configuration settings before you execute those transactions. If you think
these solutions could be helpful to your business, you may wish to discuss with
your SAP consultant, business analyst, or system integrator.
10.2 Distribution of usage differences (DUV)
If you use backflushing to record consumption of materials and activities to
manufacturing orders, these consumptions are posted using the planned
quantities.
Backflushing is nothing but an automatic goods issue process that posts the
goods issue when you confirm the operations of an order. This process reduces
the effort for assembly lines to pick the materials to use, however, it creates
inventory differences as the actual consumption was not reported when creating
the goods issue. At month end, a physical inventory count is carried out and the
inventory differences can be distributed to the manufacturing orders proportionally
to the usage in the month.
The system validates the material document information by looking at material
number, plant, storage location, stock type, batch, and movement type.
This function can also be useful in oil and gas companies, for example, which
handle inventory through pipeline where materials are consumed directly into
production process and normally have differences due to temperature-volume
correction factors.
The distribution of inventory differences is performed in transaction CKMDUVMAT
or accessed through menu path: ACCOUNTING • CONTROLLING • PRODUCT COST
CONTROLLING • ACTUAL COSTING/MATERIAL LEDGER • ACTUAL COSTING • DISTRIBUTION OF
USAGE VARIANCES.
10.3 Alternative valution run (AVR)
The alternative valuation run (AVR) is a costing tool similar to the actual costing
cockpit discussed in Section 5.4. The AVR is normally used in addition to the
costing run for the periodic actual costing. The main advantage of AVR is that you
can accumulate the inventory values over several periods, unlike the periodic
actual costing run that can only be performed once for each month. Multiple
alternative runs are possible for each material and period.
The AVR can be used as an alternative valuation to meet other company
requirements such as:
To determine actual costs according to different accounting principles (IFRS,
IAS, US-GAAP, etc.)
To accumulate actual inventory values over several periods for reporting
purposes; frequently used to determine YTD accumulated actual costs
To calculate actual costs using different activity type prices as a new cost
center version is defined for AVR
The alternative valuation run is only available if you have activated the actual
costing. It works similar to the actual costing run and it aggregates all receipts,
price differences, and consumptions to determine the accumulated price for the
period of the AVR costing run. SAP refers to this accumulated price as
cumulation.
AVR runs are stored separately from periodic costing data. The following reporting
and analysis tools can be used for AVR in the same way as periodic actual
costing:
Price analysis on material level (CKM3N)
Valuated multilevel quantity structure (CKMLQS)
Value flow monitor (CKMVFM)
Analysis of the AVR Data Cumulation (CKMLAVREXP)
Data comparison between actual costing run and AVR data
(CKMLAVRPERD)
Data extraction to BW to define your own reports
Figure 10.1 shows an example on how the cumulation run works by aggregating
the periodic values into an accumulated price over multiple periods.
Figure 10.1: Alternative valuation run example (Source: SAP help portal)
You can choose to transfer the alternative valuation run results to FI and a cost
center or calculate the values for information purposes.
The transaction code to perform the alternative valuation run is CKMLCPAVR. It is
a costing cockpit similar to CKMLCP.
10.4 Business functions (enhancement packages 5 and 6)
Business functions are functionalities that SAP makes available through an
enhancement package where the clients have the option to activate them or not.
You may just activate a function which is relevant for your business.
Most of the time, companies don’t even realize they have such great
functionalities that could be very useful as part of their standard system, if
activated.
To make the most of SAP, you should know about the new financial- and
controlling-related business functions that are available with enhancement
packages 5 and 6. Note that these business functions do not have licensing
implications.
Enhancement packages are software innovations that are optionally installed on
client demand, unlike support packages which are mandatory as they contain
fixes and/or legal changes.
Typically an enhancement package contains the current enhancements as well as
content from earlier packages.
Transaction SFW5 (switch framework) shows the business functions available.
Alternatively, you may use SAP Portal to research the business functions that you
may need.
You should discuss with your system administrator if you would like to turn on
such selected business functions.
Occasionally, CO advancements or innovations can be found under logistics
because of the integrated nature of SAP ERP.
10.4.1 Parallel valuation of cost of goods manufactured (FIN_CO_COGM)
The business function parallel valuation of cost of goods manufactured
(FIN_CO_COGM) allows you to manage parallel accounting in SAP. This
extended function may be required to accommodate actual costing in different
accounting principles, for example, IFRS, local GAAP, etc.
It supports the valuation of cost of goods manufactured using multiple accounting
principles in parallel, providing an integrated and traceable valuation process that
eliminates manual activities for valuation of inventory accounting to generate your
financial statements.
This function can be used with the new G/L accounting or classic G/L accounting.
This function is very integrated with FI as it affects several parts of the balance
sheet, including assets, inventory, and work in process (WIP). Multiple valuation
approaches impact activities such as transfer of depreciation from asset
accounting to controlling, calculation of activity prices to reflect multiple
accounting valuation, alternative activity rates from cost center accounting using
alternative version to determine the second inventory valuation, and parallel
accounting for fixed assets.
Figure 10.2 illustrates the value flow for the multiple valuation of cost of goods
manufactured and the relevant integration points between FI and CO.
Figure 10.2: Value flow for the multiple valuation of cost of goods manufactured—source: SAP Help Portal)
Neither the intercompany process nor the periodic costing run change with the
use of the parallel valuation of cost of goods manufactured.
At the end of the month, you carry out a periodic costing run for your actual
costing (transaction CKMLCP) and an alternative valuation run (transaction
CKMLCPAVR) for the parallel COGM valuation.
You perform the parallel valuation using the same costing cockpit for the
alternative valuation run (AVR), which was discussed in Section 10.3. When
setting up the CKMLCPAVR, you must indicate that the run is for parallel costs of
good manufactured.
You can also post the results to FI to reflect the inventory values according to
different accounting principles. You should indicate that option in the settings tab
of the costing run.
AVR results are compared by material with the current material valuation. The
difference is posted to a delta stock account with transaction key BSD and the
offset account is UMD.
In order to keep the parallel valuation separate, the recommendation is to have a
G/L account other than BSX for BSD transaction key in OBYC.
10.4.2 Stock in transit and actual costing (LOG_MM_SIT)
The business function LOG_MM_SIT activates two main new functions: Stock in
Transit for Transfer and Sales Processes; and Cross-Company-Code Actual
Costing.
Stock in transit for transfer and sales processes
The new functionality for processing stock in transit allows you to control and
record the title transfer of a material in cross-company-code stock transfer
processes, returns, and in sales transactions with external customers. Stock in
transit becomes more visible in the system until it reaches the final destination.
Stock in transit does not need the controlling or material ledger. It only needs
logistics. However, cross-company actual costing requires material ledger.
Cross-company code actual costing
The cross-company code actual costing is a welcomed function that many
companies have desired for a long time. This functionality allows the selling plant
to transfer the actual cost to the buying plant. It ensures cost transparency and a
correct valuation within the inter-company transfer price group policy, as the
markup component is visible in the material ledger price analysis.
When you turn on this business function, you can extend material and actual
costing to run across company codes without losing actual costs and actual cost
component split data at the receiving company code. The intercompany sales
process remains unchanged with the business function, but it allows transfer of
the costs and cost component split information from the sending company code to
the receiving company code. Intracompany profit (mark-up) is tracked and it is
shown in CKM3N under a column called DELTA COMPANY CODE.
From a valuation standpoint, three different implementation options are available:
Legal view (LV), transparent legal view (TLV), or group view (GV). You need to
evaluate the most adequate valuation method for your company. You may need to
activate a BADI to control how the cost component split should be transferred
from cross-company code in the legal view.
You should explore these subjects in greater detail if you decide to use these new
functionalities.
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A The Author
Rosana Fonseca is an independent SAP Financials consultant who has been
working in SAP since 1999. She is SAP certified in FI and CO modules and has
extensive experience in SAP global projects in the USA, Canada, Europe, UK,
Asia, and South America, which includes different industry segments such as
Mining, Oil & Gas, Chemicals, Electronics, Energy, Food and Consumer Goods,
Telecom, and Aerospace.
She is originally from Brazil, but is also a Canadian citizen. She currently lives in
Toronto in her adopted country Canada.
B Disclaimer
This publication contains references to the products of SAP SE.
SAP, R/3, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP BusinessObjects
Explorer, StreamWork, and other SAP products and services mentioned herein as
well as their respective logos are trademarks or registered trademarks of SAP SE
in Germany and other countries.
Business Objects and the Business Objects logo, BusinessObjects, Crystal
Reports, Crystal Decisions, Web Intelligence, Xcelsius, and other Business
Objects products and services mentioned herein as well as their respective logos
are trademarks or registered trademarks of Business Objects Software Ltd.
Business Objects is an SAP company.
Sybase and Adaptive Server, iAnywhere, Sybase 365, SQL Anywhere, and other
Sybase products and services mentioned herein as well as their respective logos
are trademarks or registered trademarks of Sybase, Inc. Sybase is an SAP
company.
SAP SE is neither the author nor the publisher of this publication and is not
responsible for its content. SAP Group shall not be liable for errors or omissions
with respect to the materials. The only warranties for SAP Group products and
services are those that are set forth in the express warranty statements
accompanying such products and services, if any. Nothing herein should be
construed as constituting an additional warranty.
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