Dynamically Create a Standard Cost in a Sales Order Using Options Chosen for a Configurable Material

  • by Birgit Starmanns, Senior Director, Solution Marketing, EPM and Finance Solutions, SAP
  • December 2, 2010
For a configurable product, the options chosen during the sales order process can influence both the price of the product and the cost to manufacture it. Once the product options have been selected, they are used to create a cost estimate, which the system saves on the sales order item. The cost estimate is subsequently treated as a standard cost for the valuation of the cost of goods sold of the product and the calculation of the true manufacturing variances. Creation of the cost estimate is accomplished through a combination of configuration and master data leveraging variant configuration.
Key Concept
A cost estimate is a summary of all costs that make up the expected cost of manufacturing a product. These costs include the components as represented in a bill of material (BOM), the steps requiring labor or machine resources as represented in a routing, and overhead that is calculated using a costing sheet. For a configurable product, you can generate the cost estimate based on the product options chosen in the sales order process and treat it as a standard cost for the valuation of the cost of goods sold.

Many products in the market — from desktop computers to cars — allow customers to choose from a series of options to personalize the product. In SAP ERP, products that have such options are represented by configurable materials that use variant configuration to determine the rules governing the selection of the options. For example, if you are selecting options for a vehicle, some are mutually exclusive — you can only choose one engine for a car. On the other hand, other options can be selected together, including leather seats, an upgraded stereo system, and sports car tires. Taking the example even further, several options may have dependencies — you can only choose a convertible top color for a convertible body style, not for a coupe.

To report on true variances of the manufacturing process for product costing, it is essential that you do not simply write off a more expensive option as a variance. For example, a V8 engine costs more to produce than a V6 engine, so the variance should be calculated based on a standard cost that takes the more expensive component into account. This standard cost is calculated dynamically on a sales order item, based on the product options chosen, to ensure that only true inefficiencies in the manufacturing process (e.g., using more components than planned due to inadequate material quality) are written off as variances.

To illustrate the concepts in this article, I use the example of an automobile. Using the engine option as an example, the more expensive option results in a surcharge — a more expensive price for the customer. In addition, it also results in a more expensive cost of goods sold. I cover the steps necessary to ensure that the planned cost of a sales order item is accounted for as a standard cost for that order, through a combination of configuration and master data settings in FI, CO, and sales and distribution (SD), as well as the central logistics functions of variant configuration and the classification system. The process I describe assumes the use of valuated stock, available as of SAP R/3 4.0. Menu paths in this article are from an SAP ECC 6.0 system.

Birgit Starmanns

Birgit Starmanns is a senior director in solution marketing at SAP for EPM (Enterprise Performance Management) and Finance solutions. Birgit has more than 20 years of experience across solution marketing, solution management, strategic customer communities, and consulting. Her functional experience is in finance, including core SAP ERP and enterprise performance management, as well as customer relationship management, which has allowed her to focus on the integration of cross-functional business processes. Prior to joining SAP, she was a principal in management consulting organizations, redesigning business processes and implementing SAP R/3 and R/2 for numerous Fortune 500 and SME companies, with a focus on management accounting. Birgit holds a BA and an MBA from the College of William and Mary.

This June, Birgit Starmanns will be speaking at the SAPinsider Financials 2015 conference in Nice, France. View event details here.

 

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