3 Steps to Find the Standard Cost for a Configurable Product

  • by Akhilesh Mittal, Lead Consultant, Infosys Technologies Ltd.
  • November 15, 2006
Variant configuration functionality in SAP allows you to have one material master, product bill of material, routing, and sales pricing when customers configure a product from several options. However, a standard SAP system 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 configurable materials result in multiple standard costs.
Key Concept

A standard cost is a cost you use to measure production efficiency for manufactured products. It is significant for organizations as it helps them in valuating the finished and semi-finished products (inventory valuation). Inventory valuation forms a part of the current assets in the balance sheet. You also can use standard cost for margin analysis using the Profitability Analysis (CO- PA) module in SAP. A product can have only one standard cost at a given time for correct valuation of inventory and margin analysis. SAP recommends the use of standard cost for finished and semi-finished products. Alternatively, you can use moving average price, but it leads to unrealistic inventory valuations and you can’t conduct margin analysis in the absence of standard cost.

Variant configuration functionality allows customers to select product features according to their requirements. An example of a configure-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 for such a configurable product (material type KMAT) is a challenge. The product configuration is dynamic; the customer configures the product when it places the sales order. In the case of a static product, you can easily upload the standard cost for a finished good product (material type FERT) to the material master. R/3 provides the costing run functionality through transaction code CK40N, which you can use to upload the standard cost to the material master for correct material valuation. Although my example refers to R/3, the functionality also works in mySAP ERP Central Component (ECC).

Since R/3 provides calculation of standard cost only for those materials whose composition (product BOM) is known, it cannot calculate the cost for a configurable material using Costing Run functionality (transaction CK40N). However, you can use a workaround to dynamically calculate the standard cost for a configurable 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.

Akhilesh Mittal

Akhilesh Mittal is a lead SAP consultant at Infosys Technologies Ltd. with eight years of consulting and industry experience. He has experience in FI and CO along with exposure to SD. Akhilesh is currently a consultant in the SAP space for a leading organization in the high technology domain. He has a degree in electronics and communication engineering from IIT Guwahati and an MBA in finance and systems from IIM Lucknow.

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