Basic Information on Cost Object Hierarchies

Use

A cost object hierarchy is used to collect actual costs in the following situations:

When the costs cannot be collected on a product cost collector or manufacturing order
When you don’t want to collect the costs on a product cost collector or manufacturing order because you are not interested in tracing costs to that level

Prerequisites

The orders assigned to a cost object hierarchy must be settled by period. This means that the following settings must be made in Customizing for Product Cost Controlling under Define Default Values for Order Types :

For manufacturing orders and CO production orders, the default rule must be PP2 (Production Material Periodic Settlement).
For product cost collectors, the default rule must be STR (with strategy for tracing factor determination).

Product cost collectors are always settled by period.

You can assign the following combinations to the lowest nodes of the cost object hierarchy:

Material/plant
Material/plant/ production process

All manufacturing orders or product cost collectors for the entered combinations are automatically assigned to the relevant cost object.

Production processes can already exist in the following situations:

When you have activated the component Actual Costing/Material Ledger and manufacturing orders have been created for the plant material
When you have created a mixed cost estimate with procurement alternatives for the material
When you are using product cost collectors

If you are using product cost collectors, the system creates a production process for each product cost collector.

You create the production process for the cost object hierarchy manually only when no production process for the plant material exists (see also Creating Production Processes for Cost Object Hierarchies ).

The production process is updated to the manufacturing order or product cost collector. All manufacturing orders or product cost collectors for that production process are automatically assigned to the relevant cost object node .

Features

Cost object nodes are represented in the system by a technical object called the cost object ID .

Based on the combination assigned to the lowest cost object nodes ( Material/Plant/Production Process or Material/Plant ), the system assigns to the cost object hierarchy the product cost collectors or manufacturing orders created for the particular combination.

Note Note

If you have used cost object hierarchies for the combination material / plant / production version, it is recommended that you create production processes with the Controlling level Production Version . Existing cost object hierarchies of the specified combination are converted.

End of the note.

You can structure hierarchies in different ways:

By product group
By area of responsibility (such as by production line)

You structure a cost object hierarchy by creating one or more cost object nodes for each level of the hierarchy at which you want to collect actual costs. The master record of a lower-level cost object node specifies the cost object node above it in the hierarchy.

You can assign material numbers, or materials numbers and production processes, to the lowest levels of the hierarchy. The system automatically assigns to the lowest node in the hierarchy the product cost collectors or manufacturing orders collectors created for the material/plant or material/plant/production process. Orders of the following order types can be assigned:

04 CO production order
05 product cost collector
10 production order
40 Process order

Manufacturing orders with which co-products were produced can also be assigned to the cost object hierarchy (see also: Special Features in Joint Production ). A prerequisite is that you have specified in the cost object category in Customizing that distribution is active for the cost object hierarchy.

There are two different processing methods:

Cost object hierarchy with distribution

The costs posted to the cost object nodes are distributed to the lowest nodes of the hierarchy (that is, to the single objects assigned to the cost object hierarchy, such as product cost collectors and manufacturing orders). Variances are calculated at the level of the orders (normally product cost collectors). Distribution of actual costs is appropriate when you are interested in analyzing the costs at the level of the assigned single objects.
Cost object hierarchy without distribution

You calculate the variances at the level of the cost object nodes. This is appropriate in cases such as when you want to analyze the costs by product group (with a cost object hierarchy structured according to product groups) or by production line (with a cost object hierarchy structured according to areas of responsibility).

The costs assigned to the cost object nodes are settled from the cost object hierarchy. There are two types of settlement: settlement by means of material account determination and settlement by means of manual account assignment. SAP recommends settlement by means of material account determination.

See also: Settlement Rules for Cost Object Hierarchies

Once you assign a material to a cost object hierarchy, all production orders, process orders, product cost collectors, and so forth for this material are automatically assigned to the cost object hierarchy as well.

This means that variances for these orders must always be calculated for the cost object hierarchy as a whole.

Note Note

If you only want to assign certain orders for the material to the cost object hierarchy, go into Customizing for Product Cost Controlling under Start of the navigation path Cost Object Controlling Next navigation step Product Cost by Period Cost Object Hierarchies Define Cost Object Categories for Cost Object Hierarchies End of the navigation path and set the Control Through Variance Key indicator. Then the system will only assign orders for a material to the cost object hierarchy for which no variance key is specified. Only the variance key of the highest cost object node is relevant to variance calculation for the cost object hierarchy.

End of the note.

You can only perform a G/L account posting for a cost object node if the G/L account under which the posting is to be made has a field status group that allows an additional account assignment to a cost object ID.

If you want to enter a goods receipt for a cost object ID, the movement type must allow this account assignment.

Stepwise Contribution Margin Accounting

Cost object hierarchies enable you to represent contribution margin accounting with different types of contribution margins in the system. You can collect variable costs at the level of the single objects, while assigning fixed costs to the cost object nodes in the cost object hierarchy. For example, you can assign product fixed costs to a cost object node Material , product group fixed costs to a cost object node Product group , and so forth. You can leave the cost center fixed costs at the cost centers and pass them from there to Profitability Analysis (CO-PA) using assessment, while passing the variances for each cost object node from Cost Object Controlling to CO-PA.

Constraints

You cannot use the following business transactions for cost object nodes:

Confirmation
Backflush
Goods receipt

You cannot calculate work in process for cost object nodes.