Make Inventory Valuation More Accurate by Manually Adding Actual Costs to Materials

  • by Muralidharan Sethuraman, Director Enterprise ERP IT Finance, Johnson Controls
  • April 28, 2010
In product cost controlling-based standard costing, various options exist to add additional costs to a product cost estimate, such as the use of an overhead costing sheet, an additive cost estimate, or statistical pricing conditions. Understand the solution to add actual costs manually to a material that is subjected to actual costing in the material ledger. Learn the business reasons for manual cost addition to a material and how to use transaction MR22 to influence actual cost computation of a material.
Key Concept
Manual cost addition with transaction MR22 is unlimited and allows an automatic change of the cost in all material ledger currencies. It also has flexibility that allows users to enter cost details for multiple materials.

In a typical manufacturing company when a costing run is performed, the finished goods cost is rolled up using bill of material (BOM), routing and activity prices, and procurement purchasing conditions. However, there may be many other costs or expenses that are not booked directly. Although they are associated with the material, they are booked as periodic expenses in general ledger accounts. Such cost elements may not be picked up in a cost estimate directly and may need to be included in an indirect manner. Approaches include the use of an overhead costing sheet, an additive cost estimate to add extra cost items, and accrual purchasing conditions. Selection of any of these options varies based on the business scenario and type of standard costing design in the SAP system.

In actual costing in the material ledger, the SAP system records the actual cost associated with a material based on valuated inventory goods movement transactions, invoice postings, associated price and exchange rate differences, production variance settlement postings, and so on. Based on these actual costs booked to the material, the system computes the periodic unit price (or actual cost) following the price determination process. You cannot follow any of the approaches that are typically used in product costing for manual cost addition in the material ledger.

I’ll explain a solution that helps you add additional actual costs manually to a material so that the actual cost computed by price determination is accurate. Since most people know about standard costing and approaches such as additive costing and overhead sheets, in this article I focus on the option used in the material ledger actual costing scenario.

In the first section of this article, I’ll explain the various business scenarios that necessitate manual cost addition to a material.

Muralidharan Sethuraman

Muralidharan Sethuraman is director enterprise ERP IT finance at Johnson Controls. He has more than 16 years of industry experience leading and managing multiple SAP implementation and business transformation programs across geographies. Muralidharan is currently leading the SAP S/4HANA program at Johnson Controls. He specializes in SAP Financials and has done design lead, solution architect roles in global SAP implementation programs. Muralidharan is a subject matter expert in the areas of product cost analysis and management, inventory and working capital management, management reporting and profitability analysis, financial analytics and reporting, and business planning. He has published multiple articles in Financials Expert in these areas.

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