The table design for actual costing has been optimized for database space consumption and support of transactional processes and evaluation of the ML data in the context of reporting is very complex. Therefore, several new Database tables were created to support reporting ‘Aggregate’ scenarios and these can be filled on the fly or periodically: FCML_MAT: A table of materials extended by reporting dimensions such as product group, business area etc.

• . FCML_REP: Table of values and quantities by procurement alternative
• . FCML_ALT / FCML_PROC master data of the Alternatives and Processes. Only
  needed for Virtual Info Provider, providing the possibility to report on inputs and
  usage (BOM).
• . Also the Cost Component Split Information can be replicated (HANA table FCML_CCS_REP)

The biggest value creator however, is ‘actual costing’, which can provide a goldmine of information. The benefits of the activation of ‘actual costing’ are now relatively easy to achieve as an active ML (the material ledger), a pre-requisite for actual costing, is already required to be activated in S/4HANA. This is especially true for manufacturing companies that run on slim margins. Actual costing facilitates a variety of reports that allow a company to analyze actual COGS in detail by cost component. This can provide crucial decision-making information when comparing product cost / profitability between e.g.

• . Two (dierent) products, and
• . the same product being produced in multiple plants, and
• . the same product being produced one plant on dierent production lines as well as,
• . Comparison of in-house production, with subcontracted production, and outside procurement scenarios, etc.

The system ‘costs’ (calculates the actual prices of) the cost center activities monthly and thereby accommodates an in-depth variance analysis of the assigned spending variances by material/cost component. A new account key in S/4HANA (PRL) also allows a separate GL account for posting these spending variances during the closing entry for increased transparency.

Furthermore, S4/HANA now supports GL account postings for COGS at standard by cost component, with the option to revalue the COGS by component at actual during the ML closing entry posting.

Example: Splitting the Cost of Goods Sold posting
In the account determination for material movements, you have defined account X00000 as the COGS account (GBB/VAX/VAY). Based on the settings, a goods issue in the amount of $1000 is posted proportionally to the target accounts for each cost component as follows:

Note: Lines 2,3 negate each other.
To check the results of the COGS split, you can compare the posted amounts with the (quantity adjusted) cost components of the relevant cost estimate (standard and/or actual).

Even an actual ‘primary’ cost component breakdown can be calculated and posted in cost-based CO-PA (COGS) and the new ‘Margin Analysis’. In fact, the latest S/4HANA releases can also post the actual COGS in FI by cost component, by means of revaluation of the standard COGS at month-end.

Example, Primary cost component split

Moreover, and this is important for manufacturing organizations, the system allows the revaluation of activities at actual (Spending variances) to bypass the Production orders. These variances are now pushed back directly from the cost centers responsible and accountable for them to the manufactured materials. Plant/Production managers normally have no control over the indirect overhead cost nor wage increases that are allocated to ‘their’ production orders, and hence this is a positive development, as this piece of convoluting spending variance information is now removed from the manufacturing order reporting, where it didn’t belong in the first place.

In addition to the activation of actual costing, materials need to be set up correctly before the system starts collecting the supporting information. As per the valuation methods depicted below, that means setting the price determination for all materials involved in manufacturing, e.g. Raw materials, Semi-finished, and Finished products, to a ‘3’ (Actual costing with Single/Multi-level price determination).

Actual costing requires Price determination '3'

Another benefit of the Material ledger, which combines actual costing with the multiple currencies and valuations capability, is the ability to calculate an alternative actual cost and the activation of parallel accounting of COGM based on this alternative. This functionality requires the switch framework activation of business function FIN_CO_COGM. A new menu will open up to configure parallel COGM after this is activated. This can be useful if e.g. IFRS compliance needs to be costed and posted in parallel to local GAAP.

E.g. USGAAP vs IFRS compliant actual costing can be set up and executed as depicted below:

the bottom line

In order to capture variances, we first have to set a ‘standard’ for a certain timeframe. Minimum time frame is one (1) period/month, but depending on your industry, typically this is a year. While we stated that ML is the enabler, there are some other prerequisites to set the proper standards and make this all work in addition to the ML, and Actual costing activation. Therefore, CO-PC (Product costing) must be set up to provide the correct standard cost for all materials ‘impeccably’, which includes e.g.

• . The ‘quantity structure’; all the supporting master data on the MM/PP side should be set up correctly e.g.
  • - BOM’s, Routings, Recipes,
  • - Work centers, Resources,
  • - Production versions, cost collectors,
  • - Formulas,
  • - PIR’s (these carry the expected prices for procurement materials),
  • - Material masters, e.g. all manufacturing related materials should be activated for Multilevel variance tracking (price determination = ‘3’),
  • - Procurement alternatives and controlling levels,
  • - Mixed costing ratios.
• . The valuation (of the quantity structure):
  • - Cost center planning by cost element, and activity,
  • - Cost center allocations (in plan and actual) from indirect to direct,
  • - Activities should be used to split (and retain) visibility in fixed and variable plan cost, wherever possible and practical,
  • - Activity planned quantities transferred from the proper production plan for the year (e.g. S&OP, MRP, or LTP),
  • - Prices and pricing conditions for procured materials,
  • - The matching up of the cost and the activities in order to achieve full absorption for the year in plan, (NOTE: full cost absorption is not required, but usually recommended)

NOTE: There is a wide variety of system configuration choices for ML, and actual costing, and those laid out above are the most beneficial choices (when implemented correctly).

We’d be honored to help you/your company make the right choices on your roadmap into the future.