A six-month or yearly cost rollup is a task most accountants usually don't look forward to. R/3 removes a lot of the routine, manual work, typically reducing the time taken from a month to several days. However, there's more to the task than just executing the costing run. The cost accountant's role becomes one of analyzing costing run messages and taking action on any highlighted problems. Hundreds or thousands of messages can result from a costing run. This article describes one source of such error messages and presents a little-known technique - the use of the material status field in the material master - to reduce the volume of messages to be analyzed. This allows cost accountants to spend more time addressing the issues arising from relevant messages.
A six-month or yearly cost rollup is a task most accountants usually don’t look forward to. R/3 removes a lot of the routine, manual work, typically reducing the time taken for a rollup from a month to several days. However, there’s more to the task than just executing the costing run. The cost accountant then must analyze costing run messages and take action on any highlighted problems.
Hundreds or thousands of messages can result from a costing run. These problems usually include logistics master data issues that need correction, such as a missing bill of materials (BOM) or routing (task list) for an in-house-produced assembly. However, as you will see, the system can also generate unnecessary error messages. This article describes one source of such error messages and presents a little-known technique—the use of the material status field in the material master—to reduce the volume of messages to be analyzed. This allows cost accountants to spend more time addressing the issues arising from relevant messages. First, I’ll give some background on system messages.
System Messages
To ensure the integrity of the calculated standard price during a costing run, the system exhaustively checks all related master data, configuration, and settings. A system message is generated for every problem detected, categorized by importance:
- I Information: not necessarily a problem, for information only
- W Warning: problems that may or may not affect the cost estimate
- E Error: problems that will cause the cost estimate to be incorrect
Inventory cannot be revalued by releasing a standard cost estimate until all error messages are eliminated. Eliminating costing run error messages can approach an art form since thousands of messages can result, especially from a costing run involving tens of thousands of materials. See Figure 1 for an example of a costing run with numerous error messages.
Figure 1
Costing run with error messages
A costing run is really just a mass processing of single cost estimates. Each costing run message, also known as a "cost estimate message," is generated by single cost estimates within the costing run.
By clicking on a symbol in the Log column shown in Figure 1, you can display a list of costing run messages. Figure 2 shows four messages selected from this list. The four messages all relate to Material 7202002. Two error messages and two information messages result from the missing BOM and routing. If this were an actual error, you would simply introduce the missing BOM and routing to eliminate the messages.
Figure 2
Four messages from a costing run log
But what if material 7202002 is an assembly that is not produced any more, and the BOM and routing have been deliberately deleted? The system still tries to create a cost estimate for the obsolete material even though it may not be required. Flagging the material for deletion merely results in an additional warning message confirming that the material is flagged for deletion, as shown in Figure 3.
Figure 3
Extra message results from setting the deletion flag
You can eliminate or reduce the number of error messages through several methods. (See, "Tips for Reducing Error Messages," below.) This article looks at the use of the material status option. Although I’m focusing on the case of obsolete materials, the technique can just as easily be applied to other situations, such as for new products that are progressing through development stages and not yet ready for production. These materials can be assigned a "material" status of development, for instance, instead of "obsolete," and be treated as not relevant for costing.
Note
You usually set a different material status for an obsolete material versus a discontinued material. Obsolete materials are generally not for further use. For example, the material may be out of date or have a design problem. Typically, in this situation you would decide to scrap or sell the remaining inventory. Discontinued materials will be replaced by another material once the remaining inventory is consumed.
Material Status Field
The material status field in the material master allows you to make a material not relevant for costing, so that it is not included in the costing run. The system does not attempt to create a cost estimate for the material, and the messages in Figure 3 are not generated.
Figure 4 shows where you can enter the plant-specific material status field in the general data section of the material master costing view, using transaction code MM02. If the costing view is not created, and you still need to set the material as not relevant for costing, the plant-specific material status field is also available in several other views, such as the MRP1 purchasing and work scheduling views.
Figure 4
Costing view of material master—plant-specific materials status field
You can set up many different types of material status, as shown in the possible entries list in Figure 4. This list may differ for each R/3 installation, since it is user defined. Material status can be used for purposes other than costing, such as to issue a warning or error message when creating a purchase or production order.
Configuration Settings C and D
Let’s look at the configuration settings behind the Obsolete Material Status shown in the possible entries list in Figure 4, with transaction OMS4. Figure 5 shows the entries available in the costing section, one of several areas where options can be set. The entries of interest for my example are options C and D, since these allow the material to be made not relevant for costing.
Figure 5
Material status settings available for costing
Before examining the details of these options, I’ll explain the background of their use further. The system permits you to set any material with a material status of "not relevant" for costing. In most cases, this is a useful method for reducing the number of irrelevant costing run messages. However, depending on the configuration of the material status, you will either get a warning or an error message in the cost estimate of any assemblies that still use the material as a component. This is a safeguard against setting an obsolete material status when you are unaware that the material is still used as a component in an assembly. You have two options to deal with this situation.
Option C in Figure 5 ensures that a warning message is issued during the creation of a cost estimate of a main assembly if you assign a status of obsolete to a component or sub-assembly still in use. Since this is only a warning, not an error, message, the cost estimate of the main assembly can still be released. Figure 6 shows the main assembly cost estimate with a status of Costed without errors.
Figure 6
Cost estimate with warning message for obsolete component
Option C ensures that the cost of the obsolete component or sub-assembly is not included in the cost of the main assembly. You can use the warning message as an indicator when investigating the deletion of the obsolete part from the main assembly. If you want to guarantee that the cost estimate of a main assembly with obsolete components will not be released, then you should consider option D.
Option D ensures that an error message is issued during creation of a cost estimate of a main assembly if you give a component or sub-assembly a status of obsolete. The cost estimate of the main assembly cannot be released since the cost estimate status is Costed with errors, as shown in Figure 7. The component or sub-assembly either has to be deleted from the main assembly or substituted with a non-obsolete material in order for you to to release the cost estimate of the main assembly.
Figure 7
Cost estimate with error message for obsolete component
But what if you decide to cost the main assembly with the cost of the obsolete part included, and then consume the remaining obsolete inventory? In this case, you need to eliminate the error message. If it is an obsolete assembly, with a missing BOM and routing, then one option is to change the Procurement type in the MRP1 view of the obsolete assembly from E (In-house production) to F (External procurement) in the obsolete part, as shown in Figure 8.
| Figure 8 |
Procurement type field in MRP1 view of material master |
Note
The use of material status to detect obsolete materials included in BOMs illustrates the important role costing plays in integrity checking of logistics master data. Apart from using costing to create cost estimates, you can also create costing runs to specifically detect problems with master data. For example, you could create a costing run just to detect in which BOMs a material with an obsolete status is still included.
This indicates to the system that there is no need to search for a BOM and routing for the obsolete part. The component is treated as a purchased part and is valued at the moving average or standard price, depending on the valuation strategy as specified in the costing variant. Figure 7 indicates where the costing variant is displayed in the cost estimate. Double-click on the underlined costing variant, PPC1, and then click on the Valuation Variant button to see the valuation strategy.
The material status option may involve more work in the initial setup and initial maintenance of master data. However, the number of costing run messages is soon reduced substantially, and as a result, so is ongoing maintenance.
Other Tips for Eliminating Error Messages
Several methods in addition to the use of the material status field reduce error messages. The first method below explains how to analyze costing run messages. The next two methods can be used as alternatives to material status to eliminate unnecessary messages. After several iterations of this process, you should be left with mostly relevant messages to investigate.
- An initial sort-by-message type (I, W, E) allows you to analyze error messages that you understand. Fix the problems causing these messages, and then re-run the costing run. This is an iterative process, which is faster and more efficient than it first appears. One source of an error, such as a missing BOM and routing for in-house-produced assembly, could result in several error messages in total, as you can see in Figure 2. If you correct the error, the four messages are eliminated.
- Selecting the No costing indicator in the costing view of the material master, as shown in Figure 4, eliminates all messages associated with this material. Cost estimates for assemblies with this as a component include the value of the component based on its existing standard or moving average price. One disadvantage to this is that you lose visibility of when the material may still be used in existing and active assemblies.
- You can de-select the With qty structure indicator in the costing view of the material master, as shown in Figure 4. The quantity structure is another term for a combination of BOM and routing. This method eliminates the error messages, but introduces a new information message indicating that the indicator is de-selected. Cost estimates for assemblies with this component include the value of the component. A disadvantage with this method is that the system takes extra time to search for cost estimates without quantity structure before creating a cost estimate with quantity structure for the component. In large costing runs with many such materials, the extra processing time can be significant.
John Jordan
John Jordan is a freelance consultant specializing in product costing and assisting companies gain transparency of production costs resulting in increased efficiency and profitability. John has authored bestselling SAP PRESS books Product Cost Controlling with SAP and Production Variance Analysis in SAP Controlling.
You may contact the author at jjordan@erpcorp.com.
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