Product Cost by Period: Scenario 
You use the Product Cost by Period component in the following situations:
When you want to collect costs on a product cost collector independently of the production type
When you don't want to (or cannot) assign costs directly to a product cost collector or manufacturing order and are therefore using a Cost Object Hierarchy
Prerequisites
Decide what type of processing you want.
You have the following options in the Product Cost by Period component:
You can collect the costs on product cost collectors and calculate the work in process and variances in each period.
You can collect the costs on cost object hierarchies, distribute the costs to the objects assigned to the cost object hierarchy, and calculate the variances in each period.
You can collect the costs on manufacturing orders (production orders and process orders) and calculate the work in process and variances in each period.
Recommendation
In the Product Cost by Period component, SAP recommends that you use product cost collectors.
In repetitive manufacturing environments, you always use a product cost collector. In order-related production and process manufacturing, you specify whether the actual costs should be collected on the manufacturing order or on a product cost collector. You specify this as a default value in the order type.
Process
Product Cost by Period with Product Cost Collector
You create the product cost collector for the Production Process. The production process is defined in accordance with a Controlling Level.
You create a product cost collector. In repetitive manufacturing, you must create a product cost collector for each production version.
You create a preliminary cost estimate for the product cost collector.
In repetitive manufacturing you can specify the actual quantities to be valuated on the basis of the preliminary cost estimate, or default them for confirmation.
The preliminary cost estimate for the product cost collector can also be used for target cost calculation. These target costs can be used for the following:
For the valuation of work in process and unplanned scrap (scrap variance)
For the calculation of production variances
For the distribution of actual costs when a cost object hierarchy is being used
You enter actual costs:
In order-related production, you enter the actual costs by means of postings for the production order.
For example, milestone confirmations for the individual operations can be entered for a production order.
In process manufacturing, you enter the actual costs by means of postings for the process order.
In repetitive manufacturing, you enter the actual costs by means of postings for the run schedule header, such as reporting point backflushes for an individual reporting point. In repetitive manufacturing, the reporting point backflushes are normally associated with a backflush and an automatic goods receipt at the time of the last reporting point backflush.
When you use a product cost collector, all actual data entered for the production order, for the process order, and for the run schedule header debit the product cost collector rather than the order.
Goods receipts for the production order, process order, or run schedule header credit the product cost collector.
You perform the activities required to close the period
You can perform the following activities on a product cost collector:
Allocate process costs
Revaluate activities and business processes at actual prices
Calculate overhead
Calculate work in process (WIP)
The WIP calculation process determines the inventory values of the unfinished products. In the Product Cost by Period component you always calculate the work in process at target costs.
Calculate variances
When it calculates the variances, the system assigns the difference between the debit and credit of the product cost collector to variance categories. A variance category indicates the variances that are due to a single cause.
In the Product Cost by Period component, work in process and variances can exist simultaneously on a product cost collector during a single period.
The variance calculation process also calculates the value of the unplanned scrap. The scrap is valuated at target costs.
If you are using a cost object hierarchy, you always calculate the variances at the level of the hierarchy – even when you have distributed the costs and want to calculate the variances for the assigned objects (such as product cost collectors).
Settlement
The following happens during the settlement process:
The work in process is transferred to Financial Accounting (FI) and Profit Center Accounting (EC-PCA).
The order balance is transferred to Financial Accounting (FI) and (if active) Profit Center Accounting (EC-PCA) and Actual Costing/Material Ledger (CO-PC-ACT).
The variances are transferred to Profitability Analysis (CO-PA).
Product Cost by Period with a Cost Object Hierarchy
If you are using a cost object hierarchy, actual costs that you cannot (or don't want to) assign to a product cost collector or manufacturing order can be assigned to the cost object hierarchy.
When you are using a cost object hierarchy, two different scenarios are possible: cost object hierarchy with actual cost distribution and cost object hierarchy without actual cost distribution. For detailed information, refer to the relevant sections.
More Information
Preliminary Costing of Product Cost Collectors
Actual Costs in Cost Object Controlling
Goods Receipts in Cost Object Controlling
Period-End Closing in Product Cost by Period
Actual Cost Distribution in Cost Object Hierarchies
Work in Process in Product Cost by Period
Settlement in Product Cost by Order or Period
Basic Information on Cost Object Hierarchies
Examples for Cost Object Hierarchies
Period-End Closing for Cost Object Hierarchies Without Distribution
Period-End Closing for Cost Object Hierarchies With Distribution
If you are using a product cost collector in sales-order-related production for an individual requirements material, there are a number of special requirements. For more information, see the following section: