In today's challenging manufacturing industry, knowing the true cost of your products is essential to stay competitive. However, many manufacturers still struggle with this, because they:

rely on incorrect actual cost prices, which leads to inaccurate profitability results and complicates decision-making.
perform product cost planning outside of SAP, which adds complexity and extra work.
avoid implementing actual costing entirely out of concern for increased complexity and workload.

With SAP Product Costing, achieving accurate cost transparency, can be done in 5 steps.

What is SAP Product Costing?

SAP Product Costing is an embedded CO module in S/4HANA developed for cost planning, material pricing, and inventory valuation. Proper use of its functionalities can help you:

determine the true cost of your products,
identify variances and cost drivers - and their root causes,
accurately value your inventory based on actual costing,
invest your time in analysis instead of manual calculation work.

Plan your costs

Planning your costs supports you in make-or-buy decisions. Before you begin production, it's a good idea to estimate the cost price of your materials as a basis for inventory valuation. By breaking down the standard cost into different cost components (material cost, production cost, process cost, overhead cost, etc.), you can more easily identify which material, activity or overhead has the most impact on your cost structure. Cost estimates should be as realistic as possible – although they're used as a benchmark, which means they may very well deviate from actual costs.

Need help planning your costs in SAP?

Watch our detailed webinar to get a head start

(Actual) costs capturing

When production orders start coming In, you can start capturing your actual costs. SAP Product Costing distinguishes between:

the planned cost (step 1)
the target cost: an estimated final cost once a certain quantity has been produced
the actual cost: the effective cost price stated on the production order

SAP Product Costing helps you identify variances at different levels (consumptions, confirmations, indirect overheads, etc.) and their root causes (quantity differences, unforeseen consumption of components, change in standard prices, etc.).

Complete your month-end close checklist

At the end of the month, when you have a clear overview of all goods produced during that month, it's time to complete a number of month-end close tasks to delineate your cost variances. SAP Product Costing assists you in the following tasks:

Revalue your costs at actual rates, taking into account variances like e.g. labor costs that surpassed initial estimates.
Add actual overhead costs post consumption.
Calculate Work-in-Progress (WIP): i.e. the products that you cannot add to your inventory yet as they were not finished by month-end.
Let the system calculate cost price variances, quantity variances, etc.
And finally, consolidate all variances and integrate the total difference into your actual cost calculation.

SAP Product Costing S4 HANA Manufacturing costs

Note that S/4HANA automatically generates all calculations. This means you get automatic insight into actual cost variances. In addition, if you have multiple production units, even abroad, this makes it very easy to map those transactions inter-company and keep track of price variances.

Calculate actual costs with the Actual Costing Cockpit

Use the Actual Costing Cockpit to determine the actual cost price of all materials within its scope. By accounting for variances of underlying materials, this tool ensures that the final cost of materials accurately represents the true cost. This is then automatically reflected in your inventory and margin through corresponding correction bookings.

Use the Material Ledger in S/4HANA when calculating actual costs. The tool collects all data related to material transactions, including master data from the system (name, quantity, properties, etc.), and gives you a clear picture of where all materials are: in inventory, production, or shipping. All this data is then used to value materials, thereby forming the basis for calculating actual costs.

Start analyzing

With the powerful Actual Costing Cockpit handling all the intricate calculations, you can fully focus on analyzing your results. What's more, SAP supports you with handy reports. For example, you can delve into material-level details, observing all movements and variances from a single screen. Alternatively, you can compare monthly actual cost prices, both at absolute and percentage variances.

Take product costing to the next level with Flexso’s Product Cost Simulator App

By connecting with SAP Analytics Cloud, you can take your financial planning even further. For example, you can re-estimate your production costs, make intelligent pricing forecasts at any time and perform scenario analyses (e.g. COVID, soaring energy prices, Brexit, etc.).

Using Flexso's SAP Product Cost Simulator – now available in the SAP Store – you can calculate a new standard price for your entire product portfolio and anticipate future trends and evolutions.

The benefits of SAP Product Costing in a nutshell

SAP Product Costing sets the stage for cost and profitability transparency. The tool:

enables you to accurately value your inventory,
reduces manual calculation work and provides you with additional reporting options,
helps you analyze your results, make better decisions, and continuously improve on the floor,
ensures that figures provided to the management are accurate and able to drive sales and revenue projection in any financial year.