Calculate Contribution Margins in CO-PA That Include All Production Variances

  • by Janet Salmon, Product Manager, SAP AG
  • May 15, 2005
Do the contribution margins for your products and customers reflect the actual costs of the goods sold? Learn how to use a little-known functionality in the material ledger to create an actual cost component split for each product and then transfer this split into Profitability Analysis (CO-PA).
Key Concept
Product Cost Planning (CO-PC-PCP) and Actual Costing (CO-PC-ACT) use the cost component split, one of the most important elements in Product Costing (CO-PC) customizing. Comprised of up to 40 cost components such as raw materials, freight costs, setup costs, labor costs, external processing, and material overhead, it is the same for all materials in a plant. Each cost component represents a group of cost elements, such as raw materials and activity costs, but a cost component split can include separate cost components for each purchasing condition (such as freight, duty, insurance, and activity type).

Do you calculate contribution margins based on standard costs and variances, or do your contribution margins reflect the actual costs to procure and manufacture the goods sold? Multilevel actual costing has been around since R/3 Release 4.5, yet many companies have yet to update Profitability Analysis (CO-PA) to reflect the changes.

In my last article, "Include Actual Costs in COGS with Material Ledger in Release 4.7," I showed you how to use the material ledger (CO-PC-ACT) to roll price differences through all levels of production so that the cost of goods sold (COGS) figure reported in FI would reflect the actual costs incurred in purchasing and production. In this article, I'll show you how to use Product Costing (CO-PC) to break down the COGS figure into its cost components and then transfer these figures into CO-PA.

Let's start with the typical postings in CO-PA when R/3 creates a sales order (document type A) or an invoice (document type F). In both cases, the valuation function in CO-PA pulls the standard cost estimate for the material sold from Product Cost Planning (CO-PC-PCP). This cost estimate uses the bill of material (BOM) and routing for the material to calculate the cost of goods manufactured for each material in the BOM and assigns the associated costs to product cost components.

Janet Salmon

Janet Salmon joined SAP in 1992. After six months of training on R/2, she began work as a translator, becoming a technical writer for the Product Costing area in 1993. As English speakers with a grasp of German costing methodologies were rare in the early 1990s, she began to hold classes and became a product manager for the Product Costing area in 1996, helping numerous international organizations set up Product Costing. More recently, she has worked on CO content for SAP NetWeaver Business Warehouse, Financial Analytics, and role-based portals. She is currently chief product owner for management accounting. She lives in Speyer, Germany, with her husband and two children.

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