The material chocolate is produced with two different machines. The run time of the older machine is considerably longer than the run time of the newer machine. A material is produced using two production versions . Both production versions contain the same BOM, but different routings. The production version 0002 is used for production on the older machine. This is only the case if the capacity of the first machine is exceeded. Approximately 90 percent of the manufactured quantity is produced with production version 0001, and 10 percent with production version 0002. A standard price should be determined that takes both production versions and their weighting based on a mixing ratio into account.
The standard price, that accounts for both production versions and their weighting, is calculated in a mixed cost estimate . Mixed costing is performed on the basis of procurement alternatives . The relationship between production versions is determined through the definition of mixing ratios.
In this example, a procurement alternative is created for every production version. The procurement alternative is defined through certain characteristic values.
Example:
Procurement alternative |
Characteristic |
Material |
Production Version |
Production Plant |
Planning Plant |
100138610 |
Character-istic value |
Chocolate |
0001 |
1000 |
1000 |
100138612 |
Characteristic value |
Chocolate |
0002 |
1000 |
1000 |
A mixing ratio of 9:1 is then defined for the procurement alternative.
When executing the standard cost estimate , the system calculates the standard costs for each procurement alternative and mixes them according to the mixing ratio. Then, the following cost estimates are stored in the system:
Standard cost estimate for material Chocolate , production version 0001 (procurement alternative 100138610) with standard costs of EUR 800 for 1000 bars
Standard cost estimate for material Chocolate , production version 0002 (procurement alternative 100138612) with standard costs of EUR 1200 for 1000 bars
Standard cost estimate for material Chocolate with standard costs of EUR 840 for 1000 bars
The price is calculated as follows:
9/10 x 800 EUR + 1/10 x 1200 EUR = 840 EUR
The standard cost estimate for the material is a mixed cost estimate. The result of the mixed cost estimate is the mixed price.
The mixed price is updated through the release of the standard cost estimate in the material master record as a standard price of EUR 0.84 per bar. The standard price is used for valuation of the material Chocolate . Because the material ledger is active, this valuation is only preliminary (see Actual Costing/Material Ledger below).
For more information, see:
Editing Procurement Alternatives
Creating/Changing Mixing Ratios
The results of the standard cost estimate for the material can be displayed as valuated BOMs in the Product Cost Planning Information System :
Valuated BOMs:
Material: Chocolate Plant: WC03 Hamburg Lot Size: 1000 bars |
||
Costing structure |
Value |
Quantity |
Chocolate |
EUR 840 |
1000 units |
Chocolate Production version 0001 |
EUR 800 |
1000 units |
Milk |
EUR 200 |
1,000l |
Cocoa |
EUR 500 |
1,000kg |
Activities (machine run time) |
EUR 80 |
2 hours |
Overhead (10% on milk) |
EUR 20 |
|
Chocolate Production version 0002 |
EUR 1,200 |
1000 units |
Milk |
EUR 200 |
1,000 l |
Cocoa |
EUR 500 |
1,000 kg |
Activities (machine run time) |
EUR 480 |
12 hours |
Overhead (10% on milk) |
EUR 20 |
In Cost Object Controlling , the actual costs for each production version should be collected and analyzed. For this reason, a Product Cost Collector is created for each production version in Product Cost by Period of Cost Object Controlling. When creating a product cost collector, the system generates a production process . As with the procurement alternative, the production process for the material Chocolate is defined through the characteristic values.
Example:
Production Process |
Characteristic |
Material |
Production Version |
Production Plant |
Planning Plant |
100138609 |
Characteristic value |
Chocolate |
0001 |
1000 |
1000 |
100138611 |
Characteristic value |
Chocolate |
0002 |
1000 |
1000 |
Within the system, every production process is linked with the corresponding procurement alternative that was created during mixed costing.
Two product cost collectors exist in the system, one for each production version. The production process is linked with the product cost collector. Every process order that is created for the characteristic values of the production process, is automatically assigned to the production process and, in turn, linked with the product cost collector.
See the document Product Cost by Period to find out which settings to make so that the costs of production are collected on a product cost collector.
In this example, a process order for 1000 bars of chocolate is created for production version 0001. During production, 1000 liters of milk are withdrawn from inventory. Before the milk is mixed with the cocoa, someone notices that the milk is sour. For this reason, another 1000 liters are withdrawn from inventory. The product cost collector is charged with the costs for 2000 liters of milk for the production quantity of 1000 bars.
Another 1000 bars of chocolate are produced with another process order for the same production version. Here, the actual costs are equal to the planned costs.
The following costs are charged to the product cost collector for the production of chocolate.
Product Cost Collector for Chocolate, Production Version 0001 |
|||
Quantity produced in the period |
2000 bars |
||
Input quantity |
Actual costs in EUR charged to the product cost collector |
||
Cocoa |
2,000 kg |
1,000 |
|
Milk |
3,000 l |
600 |
|
Activities |
4 hours |
160 |
|
Overhead (10% on milk) |
60* |
||
Sum of debits |
1,820 |
||
Credit |
1,680 |
||
Difference |
140 |
*The actual overhead is calculated in period-end closing.
A process order for 200 bars is created for production version 0002. During production, the actual costs are equal to the planned costs.
Product Cost Collector for Chocolate, Production Version 0002 |
|||
Quantity produced in the period |
200 bars |
||
Input quantity |
Actual costs in EUR charged to the product cost collector |
||
Cocoa |
200 kg |
100 |
|
Milk |
200 l |
40 |
|
Activities |
2.4 hours |
96 |
|
Overhead (10% on milk) |
4* |
||
Sum of debits |
240 |
||
Credit |
168 |
||
Difference |
72 |
*The actual overhead is calculated in period-end closing.
2200 bars of chocolate were produced in the period.
The difference on the product cost collector can be analyzed through variance calculation in period-end closing of Product Cost by Period. In variance calculation, the causes of the difference can be ascertained through the variance categories to which they are apportioned.
If a mixed cost estimate exists, the system used the itemization of the relevant quantity structure (in this case, production version 0001) to calculate the variances. This means that if the variances are calculated for the product cost collector that was created for production version 0001 (which is linked to production process 100138609), the system calculates the target costs on the basis of the standard cost estimate that was created for production version 0001 (for procurement alternative 100138610). Then, the system compares the target costs with the actual costs. The resulting value is then assigned to the individual variance categories.
In this example, the following variances exist for production version 0001.
Scrap Variances |
EUR 0 |
Mixed price variance |
EUR - 80*** |
Input price variances |
EUR 0 |
Output price variance |
EUR 0 |
Input quantity variance |
EUR 200* |
Lot size variance |
EUR 0 |
Resource-usage variance |
EUR 0 |
||
Remaining input variance |
EUR 20** |
*The input quantity variance was caused by the additional inventory withdrawal of 1000 liters of milk.
**The remaining input variance was caused by the calculation of overhead. Overhead was determined on the basis the costs for 2000 liters of milk instead of the planned 1000 liters of milk.
***The mixed price variance is calculated from the difference between the target credit, based on the standard costs of the procurement alternative, and the actual credit based on the mixed price:
Calculation of the mixed price variance:
Target credit based on the standard costs of the procurement alternative |
EUR 1600 |
- Actual credit based on the mixed price |
EUR 1680 |
= Mixed price variance |
EUR -80 |
In this example, the following variances exist for production version 0002.
Scrap variances |
EUR 0 |
Mixed price variance |
EUR 72*** |
Input price variances |
EUR 0 |
Output price variance |
EUR 0 |
Input quantity variance |
EUR 0 |
Lot size variance |
EUR 0 |
Resource-usage variance |
EUR 0 |
||
Remaining input variance |
EUR 0 |
Calculation of the mixed price variance:
Target credit based on the standard costs of the procurement alternative |
EUR 240 |
- Actual credit based on the mixed price |
EUR 168 |
= Mixed price variance |
EUR 72 |
See section Variance Categories for more information on mixed price variances and other variance categories.
The product cost collector is settled after variance calculation. During this settlement the following occurs:
The balance of the product cost collector is settled to Financial Accounting, Profit Center Accounting and Actual Costing/Material Ledger.
The individual variance categories are settled to Profitability Analysis .
As soon as the product cost collector is settled, single-level price differences appear in the material ledger data display. After multilevel price determination, no multilevel price differences appear in the data display as no activity price variances or variances in the prices of raw materials exist.
Quantity |
PreliminaryValuation |
Single-level price differences |
Multilevel price differences |
Price |
|
Beginning inventory |
0 units |
EUR 0 |
EUR 0 |
EUR 0 |
EUR 0 |
Receipts Production Production version 0001 Production version 0002 |
2200 units2000 units200 units |
EUR 1848EUR 1680EUR 168 |
EUR 212EUR 140EUR 72 |
EUR 0EUR 0EUR 0 |
EUR 0.94EUR 0.91EUR 1.20 |
Cumulated inventory |
2200 units |
EUR 1848 |
EUR 212 |
EUR 0 |
EUR 0.94 |
Ending inventory |
2200 units |
EUR 1848 |
EUR 212 |
EUR 0 |
EUR 0.94 |
The chocolate is produced with two different methods of procurement that vary in cost. If the chocolate is produced with production version 0001, it costs EUR 0.94 per bar. The chocolate produced with production version 0002 costs EUR 1.20 per bar. The actual price (price of ending inventory) is the mixed price from both production versions and is EUR 0.94.
For more information on the material ledger data display and single-level/multilevel material price determination, see the following: