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3 Steps to Find the Standard Cost for a Configurable Product
by Akhilesh Mittal, Consultant, Infosys Technologies Ltd. Costing, CO-PA

Variant conf iguration f unctionality in SAPallows you to have one material master, product bill of material, routing, and sales pricing when customers conf igure a product f romseveral options. However, standard SAP
allows you to maintain only one standard cost in the accounting view of the material master. Use this method to dynamically produce a standard cost when conf igurable materials result in multiple standard costs.

Key Concept
A standard cost is a cost you use to measure production ef f iciency f or manuf actured products. It is signif icant f or organizations as it helps themin valuating the f inished and semi-f inished products (inventory
valuation). Inventory valuation f orms a part of the current assets in the balance sheet. You also can use standard cost f or margin analysis using the Prof itability Analysis (CO-PA) module in SAP. A product can have
only one standard cost at a given time f or correct valuation of inventory and margin analysis. SAPrecommends the use of standard cost f or f inished and semi-f inished products. Alternatively, you can use moving
average price, but it leads to unrealistic inventory valuations and you cant conduct margin analysis in the absence of standard cost.
Variant conf iguration f unctionality allows customers to select product f eatures according to their requirements. An example of a conf igure-to-order (CTO) product is a laptop with options such as RAM, a hard disk, a
processing unit, and a mouse.
Determining the standard cost f or such a conf igurable product (material type KMAT) is a challenge. The product conf iguration is dynamic; the customer conf igures the product when it places the sales order. In the case
of a static product, you can easily upload the standard cost f or a f inished good product (material type FERT) to the material master. R/3 provides the costing run f unctionality through transaction code CK40N, which you
can use to upload the standard cost to the material master f or correct material valuation. Although my example ref ers to R/3, the f unctionality also works in mySAPERPCentral Component (ECC).
Since R/3 provides calculation of standard cost only f or those materials whose composition (product BOM) is known, it cannot calculate the cost f or a conf igurable material using Costing Run f unctionality (transaction
CK40N). However, you can use a workaround to dynamically calculate the standard cost f or a conf igurable product at the time of the creation of a sales order. This three-step approach is not documented elsewhere; I
developed it through experience and research.
Note
A sub-optimal solution would be to create a separate material master f or each possible product conf iguration and store the standard cost in the material masters. However, this would imply that you cant leverage the
variant conf iguration f unctionality provided by SAPf or conf igurable products by maintaining only one material master, one routing, and one bill of material (BOM). With my approach you can use the variant conf iguration
f unctionality f or material maintenance and work around the restriction of one standard cost per material.
Define Configurable Products
You can use material type KMAT to def ine conf igurable products in R/3. To do this, use transaction code MM01 and material type KMAT to manually def ine the material master. You can make material conf igurable by
going to the material master basic data view. Check the Material is configurable check box. You need to do this only once initially while creating the material master. This is a prerequisite f or using variant conf iguration
f unctionality in an SAPsystem.
Figure 1 shows an example of a conf igurable laptop, def ined using material type KMAT, which demonstrates the problemof standard cost calculation.

Figure 1 Conf igurable material check box in material master basic data view
The illustration of a conf igurable laptop in Table 1 shows that the customer can choose among three types of hard disk, two types of RAM, two types of processor, and two variants of keyboard and mouse. The
possible number of product combinations f or one KMAT material here is 24 [3*2*2*2]. The standard cost of any one of these product combinations is the sumof the standard costs of its parts that constitute the product.
The R/3 material master provides the f lexibility to store only one standard cost, but the problemhere is the need to maintain multiple standard costs f or one KMAT material. Now Ill guide you through all the SAP
conf iguration steps to cost conf igurable products.

Configuration 1 Amount Configuration 2 Amount
Hard disk (20 GB) $100 Hard disk (80 GB) $200
RAM(64 MB) $200 RAM(128 MB) $350
Processor (1 GHz) $400 Processor (1 GHz) $400
Keyboard/mouse (KB) $25 Keyboard/mouse (KB) $25
Standard cost $725 Standard cost $975
Total standard cost = the sumof the standard cost of components
Possible standard cost = multiplication of the number of characteristic values
Table 1 Illustration of dynamic cost calculation
SAP Configuration
You use three pieces of conf iguration to calculate the product cost dynamically f romits parts during the sales order creation. Once the systemhas calculated the standard cost in the sales order, you can use the same
standard cost to book inventory cost at the correct standard cost in the accounting documents. Later on, you can use this f or margin analysis. The three pieces of R/3 conf iguration are independent of each other and
they work together to make the costing of conf igurable products work in R/3:
Step 1. Set up the variant conf iguration relevant f or standard costing
Step 2. Modif y the Sales and Distribution (SD) pricing procedure
Step 3. Put user exit changes in place f or a third-party procurement scenario
Step 1. Set Up the Variant Configuration Relevant for Standard Costing
Create a material master f or the KMAT material in my example in Table 1, a laptop by using transaction code MM01. Create a material master f or all the characteristic values. Characteristic values are the
components of the laptop, such as 20 GB hard disk, 40 GB hard disk, and 80 GB hard disk (Table 1). This example has nine characteristic values: 3+2+2+2=9.
Enter 0.01 in the Standard Price f ield (Figure 2) in the accounting view of the KMAT material as the dummy standard cost. I use a dummy standard cost in the material master because standard R/3 tries to pick the
standard cost of the material f romthis f ield (MBEW-STPRS) in the material master f or valuating the inventory in the subsequent accounting documents. If you leave this f ield blank, R/3 shows an error at the time of
accounting document creation because of the f ailure of initial R/3 checks. The process I amdescribing does not remove the SAPdata validation checks as these are done automatically by the standard SAPcore code
logic. Rather, it alters the logic f or picking the standard cost.

Figure 2 Dummy standard cost
Use the variant conf iguration f unctionality to def ine the product characteristics. Follow this process to capture the dynamic standard cost f or the conf igurable product in the sales order through pricing ref erence
characteristic:
Create a pricing ref erence characteristic via transaction code CT04
Add a procedure to characteristic values via transaction code CT04
Include the pricing ref erence characteristic when you def ine the class f or the KMAT material via transaction code CL01
You determine the product conf iguration at the time of sales order creation. At a technical level, this implies the selection of characteristic values that constitute the conf igurable product. The systemrequires the
characteristic values of the product during the sales order pricing f or calculation of standard cost. The pricing ref erence characteristic acts as a mediumto make the characteristic values available at the time of sales
order pricing.
Create a pricing reference characteristic via transaction code CT04. Create a ref erence characteristic with a characteristic group REF using transaction code CT04 (Figure 3). Enter REF in the Chars Group f ield.
Enter ZPRREFCHAR in the Characteristic f ield. Then enter the start date, in my example 10/05/2006, to provide the validity start date of the characteristic. Press Enter and click on the Yes button to create a new
characteristic. Fill in the Basic data tab to def ine the pricing ref erence characteristic.

Figure 3 Pricing ref erence characteristic
Connect the pricing ref erence characteristic with the sales procedure by manually entering the communication structure SDCOM in the Table name f ield in the Addnl data (additional data) tab (Figure 4). You must do
this to make the variant conf iguration values available to the SD module through the SDCOM communication structure. Once the setup is complete, the systemautomatically transf ers the product conf iguration (selected
characteristic values of the product) to sales order pricing f or dynamic computation of the standard cost.

Figure 4 Ref erence table in pricing ref erence characteristic
Add a procedure to characteristic values via transaction code CT04. Write $self.<Ref Char>='<Char Value>' in the procedure (Figure 5), replacing <Ref Char> with the name of the ref erence characteristic
and <Char Value> with the name of the characteristic value. In my example, these ref er to ZPRREFCHAR and ZRAM-VAR1, respectively. Do this when you def ine the characteristics using transaction code CT04. Go to
the Values tab and f romthe menu path select Extras>Object dependencies>Editor. Select Procedure as the relationship type to input the illustrated code, which you must do f or all the characteristics other than the
pricing ref erence characteristic. This enables the ref erence characteristic to hold the values of selected characteristic values.
Include the pricing reference characteristic when you define the class for the KMAT material via transaction code CL01. Use transaction code CL01 and enter 300 in the Class type f ield to enable use of the
characteristics to conf igure a material. Include the pricing ref erence characteristic as def ined in the Class def inition (Figure 6).

Figure 5 Def ine the procedure

Figure 6 Pricing ref erence characteristic in class def inition
The conf igurable product (the laptop) and the product characteristics have just one link, which you can create manually through transaction code CU41 by def ining a prof ile f or the conf igurable material and then
associating it with the Class. It is essential to include the pricing ref erence characteristic in the def inition of Class to link it with the conf igurable product so you can use it during sales order pricing.
Step 2. Modify the SD Pricing Procedure
Follow three procedures to produce SD pricing procedure changes:
Create a new pricing condition f or recording the standard cost in SD documents via transaction code V/06
Create condition records f or the new pricing condition via transaction code VK11 to maintain the standard cost of all the characteristic values
Modif y the SD pricing procedure to add the new cost condition
Create a new pricing condition for recording the standard cost in SD documents via transaction code V/06. In transaction code V/06 (Figure 7) set Cond.category (condition category) to O. Condition category O
enables it to interact with the communication structure SDCOM and f etches the product conf iguration characteristic values as stored in the pricing ref erence characteristic.

Figure 7 Def ine cost condition
Create condition records for the new pricing condition via transaction code VK11 to maintain the standard cost of all the characteristic values. Use transaction code VK11 to create condition records f or all the
characteristic values to store the standard cost associated with each part (Figure 8). You can access these condition records f romthe sales order pricing procedure to populate the new cost condition (standard cost
condition ZCOS in my example), which later on adds up in the sales order pricing procedure to f ormthe standard cost of the conf igured product.

Figure 8 Condition records
Modify the SD pricing procedure to add the new cost condition. Use transaction code V/08 to select your pricing procedure. Go to Control in the lef t side panel and add the requirement to the new cost condition so it is
selected only f or KMAT materials (Figure 9). Enter B in the SubT (Subtotal Type) column to add the standard costs of all the characteristics. Use the opposite requirement logic to limit the SAPstandard cost condition
VPRS in the pricing procedure (Figure 10).

Figure 9 Pricing procedure

Figure
10
VPRS requirement
In the sales order, the ref erence pricing procedure passes on the characteristic values to SD pricing through the SDCOM structure. The new standard cost pricing condition picks up the standard cost condition value f or
the characteristic f romthe condition table, which is maintained on the basis of the characteristic value VARCOND-KOMP f ield (Figure 11). The subtotal adds up the standard cost condition values and writes it to VBAP-
WAVWR.

Figure 11 Illustration of a sales order
You use the VBAP-WAVWR f ield to post the goods issue at standard cost if the KMAT material is not a sales order stock. For sales order stock, make a modif ication in user exit MV50AFZ1
(USEREXIT_SAVE_DOCUMENT_PREPARE or USEREXIT_SAVE_DOCUMENT) to ref erence the standard cost f romVBAP-WAVWR instead of EBEW-STPRS, which is the sales order stock valuation table. If the
production order is created with ref erence to the sales order line item, then it makes the stock a sales order stock. Under such a scenario, standard SAPref erences the EBEW-STPRS f ield f or standard cost. Theref ore,
you must modif y the user exit so the systemcan pick up the standard cost f romVBAP-WAVWR and not f romEBEW-STRPS.
The systempasses on the cost condition to billing through a copy routine. Map the new pricing condition to a value f ield in Prof itability Analysis (CO-PA) so you can use the standard cost in CO-PA f or prof itability analysis.
Step 3. Put User Exit Changes in Place for a Third-Party Procurement Scenario
Third-party procurement implies creation of a purchase order (PO) f romthe sales order. In this case the KMAT material needs to be sales order stock. A sales order stock implies that the sales order itself must trigger the
purchase order. The schedule lines of the sales order line itemcapture the purchase order inf ormation so that the vendor can supply directly to the customer against the specif ic sales order material conf iguration.
R/3 automatically triggers user exit ZXCKAU04 at the time of goods receipt on the PO. For sales order stock, the systemautomatically picks up the standard cost f romEBEW-STPRS f or creating the accounting
documents. Use the VBAP-WAVWR value through the user exit to book the inventory at standard cost at the time of goods receipt (movement type 101E). Use the user exit ZXCKAU04 to record this value in the EBEW-
STPRS f ield. Per standard SAPlogic, post goods issue (PGI) against the sales order (movement type 601E) happens at the standard cost in the EBEW-STPRS f ield. I already stored the standard cost value through the
user exit in this f ield; the systemautomatically makes the bookings at the standard cost at the time of PGI.
R/3 automatically triggers user exits ZXEPFF02 and ZXEDFU02 at the time of creation of an inter-company A/PIDoc through billing output condition RD04 f romthe inter-company billing document. RD04 is an SAP
predef ined billing output that you need to associate with the output determination procedure that the inter-company billing document uses. RD04 automatically generates the inter-company A/PIDoc.
You need to create inter-company A/Pand A/R documents within the company codes to ref lect the purchase of the product f romthe vendor plants company code by the company code attached to the sales
organization. Use these to capture the standard cost f romthe EBEW-STPRS f ield. This change is required in specif ic scenarios in case the company code of the sales organization and the vendor plant are dif f erent.
Note
In the case of a multi-company code scenario (using dif f erent currencies), youll have to adjust the standard cost value stored in the EBEW-STPRS f ield f or the appropriate f oreign exchange rate. This is required
because the VBAP-WAVWR f ield stores the value in the document currency of the company code to which you assign the sales organization. You need to store the value in the EBEW-STPRS f ield in the currency of
the valuation area (company code to which you assign the plant), and in case of a multi-company code scenario, the two currencies might be dif f erent. You can calculate the exchange rate using the SAPstandard
f unction READ_EXCHANGE_RATE, which you can view using transaction code SE37. When multiplied by the value in VBAP-WAVWR it gives the exchange rate adjusted value f or EBEW-STPRS.
User exit ZXF06U06 is f or the processing programof the inter-company A/PIDoc. This user exit is required only when you need to write additional processing logic f or processing the inter-company A/PIDoc.
An example of the use of this user exit would be to pass ref erence values to an inter-company A/Pdocument. The inter-company A/Pdocument doesnt contain the link with the customer sales order. If you need this link
to conduct reconciliation of A/Pdocuments with ref erence to the sales order, you can code the logic to populate the sales order ref erence in the inter-company A/Pdocument in this user exit. For the solution discussed in
this article, you dont need to make modif ications to this user exit.

Akhilesh Mittal is an SAPconsultant at Inf osys Technologies Ltd. with f our years of consulting experience. He has experience in the SAPFI module along with exposure to the Sales and Distribution module. Akhilesh is
currently a consultant in the SAPspace f or a leading organization in the high technology domain. He has a degree in electronics and communication engineering f romIIT Guwahati and an MBA in f inance and systems f rom
IIMLucknow. You may contact himby email at Akhilesh_mittal@inf osys.comor akhileshmittal@yahoo.com.

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