SAP standard solutions provide you with tools to analyze the origins of actual production costs and the sources of costs variances. They help you understand gaps between your budget/standard (preliminary valuation) costs and actual production costs. Then you can easily examine your company's gross profitability by various product and customer dimensions. By transferring actual production costs to CO-PA you will be able to compare your target profitability with actual profitability by different market segments and therefore provide accurate cost and profitability data to management. This process will also help you eliminate differences between an FI P&L report and a Profitability Analysis (CO-PA) profit contribution report. When actual costing is used along with CO-PA, you obtain advantages, such as:

• Consistency between P&L reports in FI and profit and loss (P&L) contribution reports in CO-PA
• Analysis of costs and profit contribution in detail or by high-level dimensions in total or by cost components and inter-product cost comparison through uniform units of measure (UOM)

As an expansion of the product costing component, the purpose of actual costing is to determine actual costs for externally procured materials and in-house produced materials. The actual costs calculation is performed on a total level and optionally also by cost components. Production quantities are typically recorded in industry-specific UOM such as BOX in the beverages industry and ROL in the fabrics industry. These measures do not allow for an inter-product cost comparison. CO-PA allows the recording of actual quantities in standard UOM in order to carry out the comparison. Material ledger reports are primarily useful for analysis of price and exchange rate variances. The transfer of actual production costs to CO-PA allows an aggregate analysis of costs by all product dimensions (product groups, product hierarchies, and other material characteristics). Periodic cost valuation of sales facilitates the creation of gross and operational profit contribution reports consistent with FI profit by all customer dimensions. SAP standard material ledger reports and reporting tools allow for the analysis of a single material actual cost component split, or multiple materials analysis of total actual costs only. Single material actual total cost and cost components split analysis is available through standard SAP transaction code CKM3. Multiple materials total actual costs analysis can be available through the material ledger standard drill-down reporting tool. However, material ledger drill-down reporting does not include an option for actual cost components split analysis.

This article focuses primarily on the customizing needed to transfer actual production costs to CO-PA. However, in order to provide a complete picture, I provide a brief overview of the reports and reporting tools in the material ledger as well as the customizing needed to activate an actual cost component split.

Activate an Actual Cost Component Split

Figure 1 shows the activation screen of actual cost components. To activate an actual cost component split, execute transaction code SPRO and follow menu path Controlling > Product Cost Controlling > Actual Costing/Material Ledger > Actual Costing > Activate Actual Cost Component Split. After you click the execute icon beside Activate Actual Cost Component Split, the system displays the screen shown in Figure 1. As shown in Figure 1, the activation needs to be defined for each plant in each company code. The ActCstCmpSplt Active (actual cost component split active) check box needs to be marked for each plant relevant for actual costs component split analysis. (Only production plants are candidates.) Figure 2 shows the initialization program (MLCCS_STARTUP) in the ABAP Editor transaction (transaction code SE38) that you need to run after you activate the actual cost component split for the first time for a plant as shown in Figure 1.

Main Standard Material Ledger Reports and Reporting Tool

In this section I describe the standard price analysis reports and material ledger drill-down reporting tool. They both can provide important data on product price determination. To access the main material price analysis report in the material ledger, execute transaction code CKM3. The material ledger drill-down reporting tool is a standard SAP report painter used for user custom reports creation.

The Material Price Analysis Report

The material price analysis report presents a detailed view of valuated transactions and the results of a material price determination. To display this report, execute transaction code CKM3. This action displays the Material Price Analysis screen (Figure 3). The material price is explained by its preliminary price and by its price and exchange-rate differences in a plant in a period within a price determination structure. Data is shown according to process categories and procurement alternatives. The line items can be reached under the procurement alternatives. The material ledger data is divided into the following categories (Figure 3):

• Beginning Inventory
• Receipts
• Cumulated Inventory
• Consumption
• Ending Inventory

To see the report in the desired currencies and valuations click the Curr./Valuation drop-down button highlighted in red in Figure 3. The possible number of choices is determined by the number of currencies and valuations defined in the system. For example, in a system configured to use only legal valuation and two currencies, the drop-down menu offers two choices: company code currency and group currency. In a system configured with two valuations and two currencies, the system shows four possible choices and so forth. In the View field (located directly below the Curr./Valuation drop-down button in Figure 3), the possible views are Price Determination Structure, Cost Components, Price History, and Plan/Actual Comparison. In the Price Determination view, all price difference categories can be added to the layout by clicking the change layout icon (the icon circled in red in Figure 3). This action displays the price difference categories in the screen shown in Figure 4. By clicking the actual quantity structure icon (the third icon in the menu bar at the top of Figure 3), the left side of the screen shown in Figure 3 displays the actual Quantity structure (Actual bill of material + Actual Activities). By clicking the View drop-down list (below the Value field highlighted in Figure 5), you can switch to the Cost Components view. This view shows the data of the material price analysis broken down into cost components. The data is displayed in accordance with the period status in all set currencies and valuations. In the actual Cost Components view (below the highlighted Value field in Figure 5), you can set actual costs values to each of the following by selecting the needed value type (the red rectangle in Figure 5):

• Actual Value = Preliminary valuation + Price Differences + Exchange rate differences
• Preliminary valuation – Price according to standard Cost Estimate
• Current Price – Price per material UOM
• Price Differences (All and different types of it)
• Exchange rate differences

As shown above, the main advantage of the cost components view is its ability to present exact sources of production costs. This view also shows variances by each cost component, a feature that significantly leverages variance analysis because it allows tracing of variances sources and their relative weight in total variance. For a detailed description of the material price analysis report, see SAP help: https://help.sap.com/saphelp_erp60_sp/helpdata/en/1e/760868807c11d38aa90000e83234f3/content.htm

The Material Ledger Drill-Down Reporting Tool

The material ledger drill-down reporting tool is a standard SAP report painter that allows you to create custom reports by preconfigured key figures and characteristics. This tool enables the easy creation of custom reports that can provide mass analysis of materials total costs and price differences by a basic UOM. However, it does not allow analysis of an actual cost component split. You can customize the standard drill-down functionality of the tool to execute material ledger reports (transaction code KKML0). The same customization technique is used to create profitability reports in CO-PA (transaction code KE30) and execute reports in FI (transaction code FGI0). There are no SAP pre-configured reports. The customizing is done in two steps. Form definition is done by executing transaction code KKML5. You can use the following characteristics:

• Valuation Class
• Company Code
• Valuation Type
• Currency
• Price determination
• Product hierarchy
• WBS Element
• Process category
• Division
• Valuation View
• Sales Document
• Special Stock
• Profit Center currency type
• Currency type/val.
• Year, Posting period
• Material Group
• Material
• Material Type
• Base Unit

The following key figures can be used to define a form:

• 1Lvl PrDif (first level price difference)
• M-lvl ERD (multilevel exchange rate difference)
• MLvl PrDif (multilevel price difference)
• PrelimVal (preliminary valuation)
• Quantity
• Sing-1 ERD (single-level exchange rate difference)

Figure 6 is an example of a possible form definition (through transaction code KKML5) that allows material price analysis (as in transaction code CKM3) for multiple materials. The lead column lists procurement and consumption categories based on the inventory life cycle. The other columns show materials price determination flow, from preliminary valuation to total value. You can define the report (transaction code KKML2) for each subset of characteristics listed above to analyze materials inventory valuation by different data slices. For example, an analysis by material type can show an aggregate view of all raw materials price determination. You then can further slice the data by valuation class and then by material group and further until the exact origins of price variances and materials cost sources are fully understood. To define a report, execute transaction code KKML2. To execute a report use transaction code KKML0. For a detailed technical explanation on material ledger drill-down reports, refer to “How to Create Drill-Down Reports for the Material Ledger” by Mehulkumar Patel.

Report Materials: Cost Component Split

By applying SAP Note 1579535 in your system, a mass cost components and total costs analysis report will be available to you. Execute transaction code ZMLLIST_NEW to access the report named Materials: Cost Component Split. SAP created this report as part of a country-specific development for Russia (component XX-CSC-RU) to provide a solution to the one material price analysis limit set by the Material Price analysis report (transaction code CKM3). The Materials: Cost Component Split report provides multiple materials analysis of total cost and by cost components split in all defined material ledger currencies or valuations. This report was created as a consulting note. It is open for further customer enhancements, but will not be further supported by SAP. For further details, refer to SAP Note 1579535 – “Complete materials report from ML splitted [sic] by cost elements” (https://service.sap.com/sap/support/notes/1579535).

Transfer Material Ledger Actual Costs and the Actual Cost Component Split to CO-PA

Actual costs and actual cost components are transferred to CO-PA by cumulative inventory value. This type of cost represents the gross cost of goods sold and therefore allows for an easy definition of gross profit contribution reports in CO-PA through standard drill-down reporting tools (transaction code KE35, transaction code KE32, and transaction code KE30) or through the transfer of relevant value fields and characteristics to an SAP Business Warehouse (SAP BW) data warehouse solution. CO-PA customizing involves five steps:

1. Assign CO-PA quantity fields to actual costing or material ledger valuation in CO-PA valuation strategy
2. Define a CO-PA costing key to establish a connection to the material ledger or actual costing results
3. Define the material types relevant for an actual costing results transfer to CO-PA
4. Define an assignment of cost components to CO-PA value fields
5. Define the transfer of production quantities to CO-PA

Step 1. Assign CO-PA Quantity Fields to Actual Costing or Material Ledger Valuation in CO-PA Valuation Strategy

Use transaction code KE4U to select your CO-PA actual valuation strategy and then select the Details folder (marked by red rectangle) as shown in Figure 7. This action displays the screen shown in Figure 8. Set the valuation sequence in the fields under the Sequence column, and in Qty field column, select the quantity field by which the transferred actual production costs should be valuated. Select the Mat. cstg checkbox and click the save icon to save your entries. (Figure 8).

Step 2. Define a CO-PA Costing Key to Establish a Connection to Material Ledger or Actual Costing Results

As shown in Figure 9, to define a costing key representing the type of costs to be transferred, execute transaction code SPRO and follow menu path Profitability Analysis > Master Data > Valuation > Setup Valuation Using Material Cost Estimate > Define Access to Actual Costing/Material Ledger. Select the options highlighted in the red rectangle in Figure 9 to transfer actual costs and actual cost components costs. Then double-click the Val.Fld Allocatn for Periodic Moving Average Price sub-folder marked by the blue rectangle in Figure 9.   This action displays the value field assignment screen shown in Figure 10. As shown in Figure 10 assign the value field that will be assigned the total actual cumulated production costs by a periodic valuation process (described later in this article) to field Act. costs marked in red.

Step 3. Define the Material Types Relevant for an Actual Costing Results Transfer to CO-PA

Execute transaction code KE4J to reach the table shown in Figure 11. Assign the costing key defined in Figures 9 and 10 to point of valuation 02 (Periodic), Record type (C for valuation by production quantities, or F for valuation by quantities sold and billed), relevant material types, and validity date. Click the save icon to save your entries.

Step 4. Define an Assignment of Cost Components to CO-PA Value Fields

You can define an assignment of a value field to each cost component or assign several cost components to aggregate value fields for material and production costs. For example, if there are a number of raw material cost components, you can assign all to one value field, named Material Costs, or assign each to a separate parallel value field. To assign cost components to value fields, execute transaction code SPRO and follow menu path Profitability Analysis > Master Data > Valuation > Setup Valuation Using Material Cost Estimate > Assign Value Fields. This action displays the screen shown in Figure 12. As shown in Figure 12, you assign a cost component to the periodic point of valuation (PV = 02). In the F/V (fixed and variable costs) column, you enter 3 to transfer the total of fixed and variable costs. You can also enter 1 for fixed costs only or 2 for variable costs only. Assign a Value field to each cost component in the same column number as in Figure 11. Because the ZA1 costing key was assigned to the C.key 1 column in Figure 11, the cost component assignment should be entered in the Fld Name 1 column in Figure 12.

Step 5. Define the Transfer of Production Quantities to CO-PA

This step has the following prerequisites:

• The transfer of production orders variances to CO-PA is already configured.
• Quantity fields for production quantity were defined and assigned to the relevant operating concern: one to record quantity in industry UOM and another in standard UOM (such as KG, TON, MR).
• Alternative UOM conversion to standard UOM was defined in all material master data which belong to the material type defined in Figure 11.
• Transfer of production quantities to CO-PA is configured for record type C (Settlement) as shown in Figure 11.

Execute transaction code KEI1 to reach the variances transfer structure table shown in Figure 13. Select the CO-PA transfer structure assigned to your production order types. In the Assignment lines folder (marked in yellow in Figure 13), add an assignment to Quantity Produced. Be sure to select the check box for Quantity billed/delivered (the Source assigned check box is selected for assignment lines that are assigned to cost variances only) to instruct the system to transfer quantities and Value field assignment to instruct the system that a value field will be assigned the quantity transferred in this assignment line. Select the highlighted line Qtty Produced assignment line 100 in Figure 13 and double-click the Value fields folder marked in blue. This action displays the table shown in Figure 14. Assign the quantity field (step prerequisite) defined before as shown in Figure 14:

• In Field Quantity/Value – Select Quantity Field
• In Field F (Fixed/Variable) – Select 3 to transfer sum of fixed and variable
• In Field Value Field – Select the quantity field you created as prerequisite in basic UOM

Click the save icon (not shown) save your entries. Production quantities transferred to CO-PA through quantity field VVPRQ during periodic valuation are kept in a basic UOM. This UOM is typically industry specific (for example ROL in the fabric industry or BOX in the beverage industry) and does not allow an inter-product cost comparison. To allow an inter-product actual cost comparison, you must keep quantities in standard UOM. This is done by adding another quantity field and assigning it to the needed standard UOM in the assign CO-PA standard quantity transaction (transaction code KE4MS) as shown in Figure 15. After you execute transaction code KE4MS, the system displays the table shown in Figure 15. In Source quantity enter the quantity field that was assigned in Figure 14. In Quantity enter the quantity field that will be assigned quantities in standard UOM and in Unit enter the conversion UOM. Click the save icon to save your entries. You have completed the customizing steps. Now I demonstrate how to perform periodic actual valuation in CO-PA.

Performing Periodic Actual Valuation for the Transfer of Actual Production Costs

The prerequisite for performing periodic actual valuation for the transfer of actual production costs is a complete actual costing run for the analysis period. Run an actual periodic valuation using transaction code KE27. In the screen that the system displays, enter the parameters as shown in Figure 16. Choose the period interval and select (menu option) Record Type F to perform an actual valuation by the quantity sold. Select Record Type C to perform an actual valuation by the quantity produced (Attention: Quantity includes production orders that were in the status work in process [WIP] in the previous period). Select the required valuation view radio button. The default is Legal. The Profit Center Valuation View is also available if you have parallel valuation set up. In the Options section, select the Periodic Valuation check box. Now click the Selection Criteria button in Figure 16. This action opens the table shown in Figure 17. Restrict the records that need to be valuated by setting the appropriate value to the characteristics or choose all values to be valuated by using the asterisk (*) as shown in Figure 17. Now click the Value Fields button in Figure 17. This action opens the table shown in Figure 18. Choose the actual production costs value fields and actual production quantities fields to be valuated as shown in Figure 18. Click the execute icon in Figure 18 to perform an actual valuation. At this point you can define reports in CO-PA incorporating these fields to analyze production costs or the cost of goods sold and gross profit contribution reports.