Calculation of the Cost of Goods Manufactured

Use

Costing is used to calculate the cost of goods manufactured and the cost of goods sold for each product unit. The cost of goods manufactured consists of all the costs incurred in the manufacture of a material. It comprises the following:

• Material costs
• Production costs

Features

Costing calculates the cost of goods manufactured for each material made in-house in the BOM structure.

The materials in a BOM are called BOM components; these can consist of a material without its own BOM (such as a material component, purchased part, or raw material), or a material with its own BOM (assembly). If the product has a multilevel BOM, the costs for the material components are calculated and taken into account when the next-highest assembly is costed.

The structure of the BOM determines the sequence in which the materials are costed. After exploding the BOM from top to bottom and assigning costing levels, the system then costs from the bottom up. The BOM components with the lowest costing level (or the highest low-level code ) are costed first, then the BOM components (assemblies) with the next highest costing level, and so on up to the highest material. The resultant costs are, in the process, rolled up. towards the top.

A cost component split is generated for every BOM component, grouping the costs into material costs, production costs, and costs for external procurement, for example. The structure of the cost component split is the same for each BOM component. The cost component Material costs for the finished product thus contains all the material input costs of the subordinate BOM components. You define the structure of this cost component split in Customizing for Product Cost Planning in a cost component structure.

Costing can also determine the cost of goods manufactured for materials produced in another plant if the two plants are assigned to the same controlling area, and the company codes of the plants use the same cost component structure. In this case, the structure of the cost component split must be the same in both plants. ( See also: Transfer of Existing Costing Data or Special Procurement in Costing)

You can add manually-entered costs to the material costs by means of an additive cost estimate that contains separate cost components. This enables you to include in the cost estimate costs that, although they actually exist, cannot be taken into account automatically by the system. Examples of such costs are freight charges, insurance costs, stock transfer costs, incomplete BOMs, and routings. You can also create a separate cost estimate for raw materials. For further information, see Raw Material Costing.

The manually-entered (that is, additive) costs can only be used for planning purposes in the R/3 System.

You can represent cost accounting in the R/3 System as absorption costing and as variable costing. When you use variable costs, make sure that when you define cost components, you indicate only the variable part of the activity types as being relevant to stock valuation. This ensures that, when allocating costs to internal activities, only the variable activity type prices are credited, even when you carry out confirmations. You can pass on the fixed portion for each assessment at period end directly to Profitability Analysis (CO-PA). The variable costs of goods manufactured are passed on by billing documents to CO-PA.