Material Ledger in SAP S4HANA [PDF]

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Paul Ovigele

Material Ledger in SAP S/4HANA® Functionality and Configuration

Dear Reader, I recently helped my parents pack up my childhood home. This came with the chaos you’d expect from a dive into the deeper recesses of a house: dusty shelves in the basement filled with books, old bikes and deflated basketballs in the garage, purses in the back of a closet containing expired library cards and crinkled receipts from 2005. Sometimes you don’t truly appreciate the emotional value of your belongings until you’re sifting through forgotten keepsakes. Of course, organizations don’t have the luxury of accumulating unregulated stuff, and the value of their goods isn’t emotional but economic. Items in inventory must be strictly accounted for in order to track the varying costs and value of materials. Excel spreadsheets (or, in my case, Sharpie-scribbled labels on taped-up boxes) don’t cut it for companies operating in our increasingly complex, globalized economy. For SAP S/4HANA customers, the solution is the Material Ledger—and for FI-CO consultants, accountants, and controllers making the most of it, the key is this book. If you have feedback about Material Ledger in SAP S/4HANA: Functionality and Configuration, I’d love to hear it. Your comments and suggestions are the most useful tools to help us make our books the best they can be. Please feel free to contact me and share any praise or criticism you may have. Thank you for purchasing a book from SAP PRESS! Megan Fuerst

Editor, SAP PRESS [email protected] www.sap-press.com Rheinwerk Publishing • Boston, MA

Notes on Usage This e-book is protected by copyright. By purchasing this e-book, you have agreed to accept and adhere to the copyrights. You are entitled to use this e-book for personal purposes. You may print and copy it, too, but also only for personal use. Sharing an electronic or printed copy with others, however, is not permitted, neither as a whole nor in parts. Of course, making them available on the Internet or in a company network is illegal as well. For detailed and legally binding usage conditions, please refer to the section Legal Notes. This e-book copy contains a digital watermark, a signature that indicates which person may use this copy:

Imprint This e-book is a publication many contributed to, specifically: Editor Megan Fuerst Acquisitions Editor Emily Nicholls Copyeditor Julie McNamee Cover Design Graham Geary Photo Credit iStockphoto.com/859878940/© 4kodiak Production E-Book Hannah Lane Typesetting E-Book SatzPro, Krefeld (Germany) We hope that you liked this e-book. Please share your feedback with us and read the Service Pages to find out how to contact us. The Library of Congress has cataloged the printed edition as follows: Names: Ovigele, Paul, author. Title: Material ledger in SAP S/4HANA : functionality and configuration / Paul Ovigele. Description: 1st edition. | Bonn ; Boston : Rheinwerk Publishing, 2019. | Includes index. | Identifiers: LCCN 2019011808 (print) | LCCN 2019013705 (ebook) | ISBN 9781493218264 () | ISBN 9781493218257 (alk. paper) Subjects: LCSH: Inventory control--Data processing. | Cost control--Data processing. | SAP HANA (Electronic resource) Classification: LCC TS160 (ebook) | LCC TS160 .O95 2019 (print) | DDC 658/.05--dc23 LC record available at https://lccn.loc.gov/2019011808

ISBN 978-1-4932-1825-7 (print) ISBN 978-1-4932-1826-4 (e-book) ISBN 978-1-4932-1827-1 (print and e-book) © 2019 by Rheinwerk Publishing, Inc., Boston (MA) 1st edition 2019

Contents Preface .....................................................................................................................................................

1

1.1 1.2

1.3

15

Introduction to the Material Ledger in SAP S/4HANA

21

What Is the Material Ledger? .........................................................................................

21

The Before: The Material Ledger in SAP ERP ...........................................................

26

1.2.1 1.2.2 1.2.3

Inventory Valuation ............................................................................................. Multiple Valuation Approaches ....................................................................... Actual Costing .......................................................................................................

28 35 40

The After: The Material Ledger in SAP S/4HANA ..................................................

47

1.3.1

SAP S/4HANA Finance .........................................................................................

47

1.3.2 1.3.3

Why Is the Material Ledger Mandatory? ...................................................... Inventory Valuation in SAP S/4HANA ............................................................

53 54

1.4

Summary .................................................................................................................................

58

2

Configuring Currency Types, Ledgers, and Valuation Views

61

Defining Currency Types for the General Ledger ..................................................

62

2.1.1 2.1.2

Standard SAP Currency Types ........................................................................... Defining Standard Currency Types in the Universal Journal .................

62 66

2.2

Currency Conversion Settings for Company Codes ..............................................

69

2.3

Defining the Currency and Valuation Profile ..........................................................

71

2.3.1 2.3.2

72

2.1

2.3.3 2.3.4

Maintaining the Currency and Valuation Profile ....................................... Assigning the Currency and Valuation Profile to the Controlling Area .................................................................................................... Creating Versions for the Valuation Methods ............................................ Activating the Currency and Valuation Profile ...........................................

73 73 74

7

Contents

2.4

Defining Ledgers for Valuation Views .......................................................................

75

2.4.1 2.4.2

Multi-Valuation Ledger ...................................................................................... Single Valuation Ledger .....................................................................................

76 78

2.5

Defining Ledgers for Controlling Versions ...............................................................

79

2.6

Material Ledger Activation for Currencies and Valuations ..............................

80

2.6.1 2.6.2 2.6.3

Defining Material Ledger Types and Assigning Currency Types .......... Assigning Material Ledger Types to Valuation Areas .............................. Activating Material Ledgers for Valuation Areas ......................................

81 82 83

2.7

Summary .................................................................................................................................

85

3

Group Currency and Valuation

87

3.1

Group Currency ....................................................................................................................

87

3.1.1 3.1.2 3.1.3

88 91 93

3.2

Setting Up Group Currency for a Company Code ..................................... Changing Material Cost ..................................................................................... Making a Purchase ..............................................................................................

Group Valuation ..................................................................................................................

95

3.2.1 3.2.2

Transfer Pricing with Group Valuation ......................................................... Group Valuation with Standard Cost ............................................................

96 97

Cross-Company Purchasing ............................................................................................

111

3.3.1 3.3.2

Intercompany Setup ........................................................................................... Intercompany Scenario ......................................................................................

112 117

3.4

Summary .................................................................................................................................

127

4

Profit Center Valuation

129

4.1

Transfer Pricing Logic with Profit Center Valuation ............................................

130

4.1.1 4.1.2 4.1.3

130 131 139

3.3

4.2

8

Defining the Currency Type for Profit Center Accounting ..................... Defining Transfer Pricing for Profit Center Valuation ............................. Settings for Internal Goods Movement ........................................................

Standard Cost and Profit Center Valuation .............................................................

143

4.2.1

143

Defining a Costing Variant for Profit Center Valuation ..........................

Contents

4.2.2 4.2.3 4.2.4 4.2.5

Assigning Transfer Price Variant to the Costing Version ........................ Configuring a Delta Cost Component .......................................................... Configuring a Special Procurement Key ....................................................... Calculating Standard Cost .................................................................................

148 148 150 152

4.3

Cross-Profit Center Purchasing ...................................................................................... 157

4.4

Manufacturing Orders with Profit Center Valuation .......................................... 161 4.4.1 4.4.2

Material Consumption in a Different Profit Center .................................. Goods Receipt in a Different Profit Center ..................................................

162 165

4.5

Summary ................................................................................................................................. 169

5

Configuring Actual Costing

5.1

Material Ledger Activation for Actual Costing ....................................................... 172 5.1.1 5.1.2

5.2

Defining Movement Type Groups of the Material Ledger ...................... Assigning Movement Type Groups of the Material Ledger .................... Defining the Material Update Structure ...................................................... Assigning Material Update Structure to the Valuation Area ................

176 177 178 180

Actual Costing ....................................................................................................................... 181 5.3.1 5.3.2 5.3.3 5.3.4 5.3.5

5.4

172 175

Material Update ................................................................................................................... 175 5.2.1 5.2.2 5.2.3 5.2.4

5.3

Maintaining Number Ranges for Material Ledger Documents ............ Configuring Dynamic Price Changes .............................................................

171

Activating Actual Costing .................................................................................. Creating User-Defined Names for Receipts/Consumption .................... Assigning User-Defined Names for Receipts/Consumption ................. Activating Actual Cost Component Split ...................................................... Activating Work in Process at Actual Cost ...................................................

181 183 184 186 187

Account Determination .................................................................................................... 188 5.4.1 5.4.2 5.4.3 5.4.4 5.4.5 5.4.6 5.4.7

Cost/Price Differences for the Material Ledger .......................................... Materials Management Exchange Rate Differences ............................... Revaluation of Other Consumables .............................................................. Accruals and Deferred Accounts for the Material Ledger ....................... Activity Price Differences .................................................................................. Material Ledger Cost Center Absorption ..................................................... Work In Process from Price Differences—Material ...................................

189 191 193 194 196 197 198

9

Contents

5.4.8 5.4.9 5.4.10

Work in Process from Price Differences—Activity Types ....................... Differences of Canceled WIP—Materials ..................................................... Differences of Cancelled WIP—Activity Types ..........................................

199 200 202

5.5

Summary .................................................................................................................................

203

6

Actual Costing Run and Analysis

205

6.1

Actual Costing Cockpit ......................................................................................................

206

6.2

Actual Costing Run .............................................................................................................

207

6.2.1 6.2.2 6.2.3 6.2.4 6.2.5 6.2.6 6.2.7

Setup ........................................................................................................................ Selection .................................................................................................................. Preparation ............................................................................................................ Settlement .............................................................................................................. Post Closing ............................................................................................................ Mark Prices ............................................................................................................. Additional Options ..............................................................................................

208 210 212 218 222 225 228

6.3

Alternative Valuation Run ..............................................................................................

232

6.4

Material Price Analysis .....................................................................................................

239

6.4.1 6.4.2 6.4.3 6.4.4 6.4.5 6.4.6

Navigating the Material Price Analysis ......................................................... Price Determination Structure ........................................................................ Price History ........................................................................................................... Material Price Analysis for Old SAP ERP Data ............................................. Actual Cost Components ................................................................................... Valuated Quantity Structure ............................................................................

240 245 250 252 253 256

6.5

Activity Consumption Analysis .....................................................................................

258

6.6

Value Flow Monitor ...........................................................................................................

262

6.6.1 6.6.2 6.6.3

Not Distributed Differences ............................................................................. Not Allocated Differences ................................................................................. Using the Value Flow Monitor .........................................................................

263 265 267

General Ledger Postings Made by the Material Ledger .....................................

269

6.7.1 6.7.2

Closing Document of the Material Ledger .................................................. Analyzing General Ledger Postings Made by the Material Ledger ......

269 270

Summary .................................................................................................................................

274

6.7

6.8

10

Contents

7

Actual Costing and Peripheral Transactions

7.1

Changing Standard Cost Mid-Month .......................................................................... 275 7.1.1 7.1.2

7.2

7.2.4

Debiting/Crediting a Material Directly ......................................................... Defining Reasons for the Price Change ......................................................... Debiting/Crediting a Material with an Alternative General Ledger Account ..................................................................................... Debiting/Crediting a Material to a Specific Cost Component ..............

280 282 284 285

Distributing Consumption Variances ......................................................................... 289 7.3.1 7.3.2 7.3.3

7.4

276 277

Debiting/Crediting Material ........................................................................................... 279 7.2.1 7.2.2 7.2.3

7.3

Restriction on Changing the Standard Cost Mid-Month in SAP ERP ... Changing the Standard Cost Mid-Month in SAP S/4HANA ...................

275

Activating Distribution of Consumption Variances .................................. Distributing Differences for Materials .......................................................... Distributing Differences for Activities ...........................................................

289 294 299

Manually Changing Cost Components ...................................................................... 303 7.4.1 7.4.2

Price Difference Account for Cost Component Change .......................... Changing the Cost Component .......................................................................

303 304

7.5

Deactivating Statistical Moving Average Price ...................................................... 307

7.6

Summary ................................................................................................................................. 310

8

Parallel Cost of Goods Manufactured

8.1

What Is Parallel Cost of Goods Manufactured? ..................................................... 311

8.2

Activating the Business Function ................................................................................. 313

8.3

Maintaining the Valuation View .................................................................................. 315

8.4

Defining Ledgers and Accounting Principles ........................................................... 317

8.5

Configuring Parallel Valuation ...................................................................................... 319

8.6

Calculating a Parallel Activity Rate ............................................................................. 321 8.6.1 8.6.2

Calculating the Depreciation in Different Accounting Principles ........ Posting Activity Consumption to a Production Order ..............................

311

322 325

11

Contents

8.7

Calculating with Multiple Costing Runs ...................................................................

332

8.7.1 8.7.2

Actual Costing Run .............................................................................................. Alternative Valuation Run .................................................................................

332 333

8.8

Summary .................................................................................................................................

338

9

Balance Sheet Valuation

339

9.1

What Is Balance Sheet Valuation? ..............................................................................

339

9.2

Configuring Balance Sheet Valuation ........................................................................

341

9.2.1 9.2.2 9.2.3 9.2.4 9.2.5 9.2.6 9.2.7 9.2.8 9.2.9

Activating FIFO/LIFO Valuation ....................................................................... Defining Valuation Level ................................................................................... Defining FIFO/LIFO-Relevant Movement Types ........................................ Defining FIFO/LIFO Methods ............................................................................ Configuring FIFO/LIFO Valuation Areas ....................................................... Defining LIFO Layer Versions ............................................................................ Defining Document Types for the Lowest Value Method ...................... Defining Movement Types for the Lowest Value Method ..................... Defining Key Figure Scheme ............................................................................

341 342 343 343 344 345 346 346 347

9.2.10 9.2.11

Setting Up Valuation Alternatives ................................................................. Defining the FIFO Variant .................................................................................

347 348

FIFO Valuation ......................................................................................................................

349

9.3.1 9.3.2 9.3.3 9.3.4 9.3.5

Creating a Purchase Order and Goods Receipt .......................................... Activating a FIFO Material ................................................................................. Calculating Periodic Receipt Values ............................................................... Calculating the FIFO Price ................................................................................. Updating the Material Price .............................................................................

349 353 355 356 360

LIFO Valuation ......................................................................................................................

361

9.4.1 9.4.2 9.4.3

Creating Purchase Orders and Goods Receipts .......................................... Activating a LIFO Material ................................................................................. Calculating the LIFO Price ..................................................................................

362 364 367

9.5

Lowest Value Determination .........................................................................................

368

9.6

Using Balance Sheet Valuation in Actual Costing ................................................

372

9.7

Summary .................................................................................................................................

374

9.3

9.4

12

Contents

10 The Material Ledger and Peripheral Applications

375

10.1 Split Valuation ...................................................................................................................... 375 10.1.1 10.1.2 10.1.3 10.1.4

Configuring Split Valuation .............................................................................. Creating a Material Master with Multiple Valuation Types .................. Procuring Split Valuated Materials ................................................................ Calculating Actual Cost for Split Valuated Material .................................

376 379 382 383

10.2 Actual Costing for Make-to-Order Products ............................................................ 385 10.2.1 10.2.2

Make-to-Order Production Process ................................................................ Calculating the Actual Cost ...............................................................................

385 388

10.3 Daily Actual Costs ................................................................................................................ 392 10.3.1 10.3.2 10.3.3

Creating Actual Costing Runs for Future Periods ...................................... Creating Variants for Actual Costing Steps ................................................. Creating and Sequencing Background Jobs ................................................

392 395 400

10.4 Exchange Rate Differences .............................................................................................. 403 10.4.1 10.4.2 10.4.3

Configuring the Treatment of Exchange Rate Differences .................... Purchasing a Material with Exchange Rate Differences ......................... Exchange Rate Differences in the Material Price Analysis .....................

404 406 410

10.5 Actual Costing across Company Codes ...................................................................... 412 10.5.1 10.5.2 10.5.3 10.5.4

Cross-Company Scenario ................................................................................... Setting Up Actual Costing across Company Codes ................................... Material Price Analysis before the Actual Costing Run ........................... Material Price Analysis after the Actual Costing Run ...............................

413 415 416 420

10.6 Profitability Analysis .......................................................................................................... 425 10.6.1 10.6.2

COGS Account Split by Cost Components .................................................... Production Variance Account Split by Variance Categories ...................

426 437

10.7 Summary ................................................................................................................................. 443

11 Reporting

445

11.1 ABAP List Viewer Reports ................................................................................................. 445 11.1.1 11.1.2

Prices and Inventory Values .............................................................................. Materials with Largest Moving Price Differences ......................................

446 451

13

Contents

11.1.3 11.1.4

Materials with Highest Inventory Value ...................................................... Display of Work in Process for Actual Costs ................................................

452 453

11.2 Drilldown Reports ...............................................................................................................

457

11.3 SAP Fiori Applications .......................................................................................................

461

11.3.1 11.3.2

Trial Balance App .................................................................................................. Material Inventory Values Apps ......................................................................

462 471

11.4 CDS Views ...............................................................................................................................

480

11.5 Summary .................................................................................................................................

482

12 Conclusion

483

12.1 What You’ve Learned ........................................................................................................

483

12.2 Potential Areas for Innovation ......................................................................................

486

Appendices

489

A

Transitioning to the Material Ledger in SAP S/4HANA ......................................

491

B

General Ledger Line Item Texts from Material Ledger Postings ....................

519

C

Material Ledger Comparison: SAP ERP versus SAP S/4HANA .........................

523

D

Bibliography ..........................................................................................................................

525

E

The Author .............................................................................................................................

527

Index ........................................................................................................................................................

529

Service Pages ................................................................................................................................... Legal Notes .......................................................................................................................................

 I   II

14

0

Preface

The Material Ledger in SAP S/4HANA is a broad and encompassing SAP functionality that allows a lot of flexibility in the way inventory is recorded, valuated, analyzed, and reported. This book goes into great detail to break down the different functionalities of the Material Ledger into easily “digestible” parts. One notion that this book attempts to dispel is that the Material Ledger is only for companies that need actual costing. You’ll see that actual costing (which has been improved significantly with SAP S/4HANA) occupies around half of this book, and the other half looks at various other functionalities of the Material Ledger, such as parallel valuation, intercompany and intracompany transfer pricing, balance sheet valuation, SAP Fiori apps that can be used for inventory valuation reporting, and so on. Step-by-step instructions are included for how to set up the configuration of the different Material Ledger functionalities as well as scenarios that show how and when these functionalities can be used.

Who This Book Is For Because of its comprehensive nature, this book will be beneficial to beginner, intermediate, and advanced users, and it will be helpful to people who work with the financial accounting (FI) area in SAP as well as some of the logistics areas, such as materials management, production planning, and sales and distribution. For this book, SAP S/4HANA 1809 is being used, which is the latest functionality available at the time of writing this book.

How This Book Is Organized This book is divided into 11 chapters that focus on various processes within the Material Ledger. You can approach this book with the flexibility of either using the whole book as a reference or focusing on what you’re interested in (or what is valuable to your business) on an à la carte basis. The chapters will walk through the functionality and configuration of the Material Ledger as follows:

15

Preface

쐍 Chapter 1: Introduction to the Material Ledger in SAP S/4HANA

This chapter explains what the Material Ledger is, how it has evolved from SAP ERP to SAP S/4HANA, and how the two systems compare. Two new tables that exist in SAP S/4HANA and how they are different from those in SAP ERP are discussed. This chapter explains why the Material Ledger has been made mandatory in SAP S/4HANA for customers who use inventory valuation. 쐍 Chapter 2: Configuring Currency Types, Ledgers, and Valuation Views

This chapter explains the new approach for defining parallel currencies in the Universal Journal and how these currencies are integrated with valuation views and management accounting/controlling (CO) versions. It introduces the new concept of single valuation and multi-valuation ledgers and discusses the features of each option. 쐍 Chapter 3: Group Currency and Valuation

SAP S/4HANA has improved the transparency into the actual cost flow and transfer prices. This chapter explains how to set up and use the transfer pricing process with group valuation in the Material Ledger for both standard and actual cost. It demonstrates an intercompany purchase and sale and shows how the intercompany profit is eliminated in the group valuation view. 쐍 Chapter 4: Profit Center Valuation

This chapter explains how the transfer pricing process works using profit center valuation in the Material Ledger. It examines the business case for using profit center transfer pricing, including how to use this functionality with both standard and actual cost. The chapter further demonstrates how a markup is added in the profit center valuation view when there is a sale between two profit centers. 쐍 Chapter 5: Configuring Actual Costing

This chapter discusses the different configuration steps of actual costing such as the definition and assignment of Material Ledger types, update structures, and actual cost component split. It also explains the configuration of the accounts posted with actual costing. 쐍 Chapter 6: Actual Costing Run and Analysis

This chapter explains the process of new actual costing in SAP S/4HANA using the Material Ledger and highlights the changes to the data flows and closing process. It also explains the various ways to analyze the postings that have been made by the Material Ledger actual costing calculation such as with material price analysis and valuated quantity structure transactions.

16

Preface

쐍 Chapter 7: Actual Costing and Peripheral Transactions This chapter describes peripheral transactions that may impact actual costing,

such as changing the standard cost during the month, debiting or crediting a material directly, distributing consumption variances, and changing the actual cost component split. 쐍 Chapter 8: Parallel Cost of Goods Manufactured This chapter discusses the case for using parallel cost of goods manufactured

(parallel COGM) to calculate an alternative activity rate for a different accounting principle. In addition, it addresses how this parallel activity rate is used to calculate a different actual cost at the end of the period. 쐍 Chapter 9: Balance Sheet Valuation This chapter explains the basic process of balance sheet valuation in SAP S/4HANA

using the Material Ledger. It discusses the methods of valuing inventory according to various methodologies such as first in, first out (FIFO) and last in, first out (LIFO). It further demonstrates how the alternative valuation run (AVR) can be used to recalculate the balance sheet value in accordance with these methodologies. 쐍 Chapter 10: The Material Ledger and Peripheral Applications Companies use their SAP systems in different ways, and not all companies use the

system in the way the standard Material Ledger functionality is expected to be used. This chapter explains how the Material Ledger works with these specialized scenarios and highlights the flexibility that can occur when using the Material Ledger. 쐍 Chapter 11: Reporting This chapter explains basic reporting and analytics functionality in SAP S/4HANA

for Material Ledger data. It introduces the relevant SAP Fiori apps, such as the Trial Balance app and the Material Inventory Values apps, and discusses other traditional reporting options, including drilldown reports and ABAP List Viewer (ALV) reports. 쐍 Chapter 12: Conclusion The conclusion of the book summarizes the previous chapters and describes the

potential areas for innovation in the Material Ledger. 쐍 Appendices A–D These useful appendices are provided for your reference to supplement your understanding of the Material Ledger in SAP S/4HANA. The material covered includes how to transition to the Material Ledger in SAP S/4HANA (Appendix A); the line item texts in general ledger (G/L) transactions from actual costing

17

Preface

(Appendix B); the differences between the Material Ledger in SAP ERP and SAP S/4HANA (Appendix C); and a list of further reading on the topic (Appendix D).

Acknowledgments My first Material Ledger implementation was for a European company in 2001. At that time, very little was known about the Material Ledger, and the European client needed it for multiple currencies/valuation purposes. On that project, there wasn’t much that needed to be done after configuring the Material Ledger’s currency and valuation profile and activating group valuation. The functionality worked pretty much as expected, as it provided multiple ways to view inventory values according to local currency and group currency. Over the next few years, I started to get involved with more complex and nuanced Material Ledger implementations that served different purposes, such as actual costing, transfer pricing, and actual contribution margin by cost components. Still, these were typically only requested by companies in industries where tracking the cost of production in process manufacturing (e.g., the chemicals, food and beverage, and pharmaceuticals industry) was important or in companies that operated in countries (e.g., Brazil) where actual costing is required. When in discussions with SAP customers in industries different from those just mentioned, I began to notice a pattern of responses about the module being “complicated to set up and understand,” “not very forgiving,” and, in most cases, simply “not worth the effort.” It was hard to argue with some of those points, and it did not help that compared to the other modules in the CO module, there wasn’t much instructional material on the Material Ledger to be found online. With my experience and observations, built up over a number of years of implementing the Material Ledger, I began to find that I had become essentially the industry “go-to” person for any Material Ledger issues and questions. This was also supported by my speaking on the subject at various SAP conferences worldwide, writing wellcirculated articles and blogs on the Material Ledger, and, ultimately, becoming a recognized thought leader on the topic by my peers. I felt increasingly that there should be more education on this topic and an emphasis on the innumerable benefits that it provides to companies. This conviction was further emphasized when SAP announced that with the release of SAP S/4HANA version 1511, the Material Ledger was a required functionality. This set off a lot of chattering, confusion, and angst in the SAP financials industry, and once again I found myself as the go-to person to

18

Preface

explain what this decision was going to mean for customers that were reluctant to implement the Material Ledger in the first place. This brings us to this book. I would like to thank my parents Bruce and Helen, for instilling in me the qualities of discipline, patience, and diligence that have all proved very useful during my SAP career. I would like to thank my wife, Whitney, and kids, Sebastian and Sloane, for the love and support they gave me during the writing of this book. I would like to thank Emily Nicholls and Megan Fuerst of SAP PRESS for the amazing editing work that was done, particularly on the dense and rather complex topic that is the Material Ledger.

19

Chapter 1 Introduction to the Material Ledger in SAP S/4HANA The Material Ledger is a subledger that provides a more detailed view of inventory transactions and enables multiple valuation methods and actual costing. In SAP S/4HANA, it serves as the model for inventory management.

Welcome to two of the most fascinating topics in SAP—the Material Ledger and SAP S/4HANA. Each of these topics contains so much information that it’s quite challenging to combine it all into one book. Nevertheless, we’ve included the most important information relevant to SAP customers embarking on a journey to the Material Ledger in SAP S/4HANA. Many of you may be somewhat familiar with the SAP ERP system. However, you may not be familiar with either the Material Ledger or SAP S/4HANA. We’re therefore beginning with a chapter that explains what the Material Ledger is (Section 1.1), how it has evolved from SAP ERP (Section 1.2) to SAP S/4HANA (Section 1.3), and how the two systems compare. We’ll introduce the new tables in SAP S/4HANA and discuss how they are different from those in SAP ERP. We’ll also explain why the Material Ledger has been made mandatory in SAP S/4HANA for customers that use inventory valuation.

1.1 What Is the Material Ledger? The Material Ledger is an interesting topic to define because there isn’t really a formal definition for it. Even those who know what it does and have been involved in Material Ledger projects may not necessarily be able to define it. We’ll therefore attempt to do this by breaking down the term into its two words: material and ledger. In SAP, the word material is a good or service that is subject to transactions such as purchasing, sales, production, warehouse and inventory management, and so on.

21

1

Introduction to the Material Ledger in SAP S/4HANA

Each material represents a unique data object that is stored in SAP tables and contains several attributes, such as plant, storage location, profit center, sales organization, standard cost, and many more. The master data of a material contains hundreds of fields that serve different purposes. In addition, the material can be subclassified according to what it’s used for, as follows: 쐍 Raw materials

Basic materials that are used in the production process. 쐍 Semifinished goods

Partly produced materials that are used in the production of other goods. 쐍 Trading goods

Materials that are purchased for resale. 쐍 Finished goods

Goods that have been completed by the manufacturing process. The material master is a record of all the information necessary for maintaining a material and is organized into views. These views correspond to the areas in which the material is used. Figure 1.1 shows the Basic data 1 view of the material master.

Figure 1.1 Basic Data 1 View of the Material Master

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What Is the Material Ledger?

The word ledger refers to a record of business transactions that relate to a financial category and form part of a company’s financial statement. The common types of ledgers are the accounts payable (AP) ledger (for vendor transactions), the accounts receivable (AR) ledger (for customer transactions), and the fixed assets ledger (for property, plant, and equipment transactions), which ultimately roll up into the general ledger (G/L) for all financial transactions. It’s typical to refer to AP, AR, and fixed assets as subledgers of the G/L. In fact, it’s this subledger category that the Material Ledger fits into. Just as AP is a subledger of the G/L that provides a more detailed analysis of vendor transactions and AR provides a more detailed analysis of customer transactions, the Material Ledger provides a more detailed analysis of inventory transactions. The value of materials (also called stock value or inventory value) often represents a significant portion of the assets in a company’s balance sheet. A typical balance sheet, as shown in Table 1.1, contains assets and liabilities that are made up of various ledgers and subledgers. ASSETS

$

Current Assets Inventory

LIABILITIES

$

Current Liabilities 4,000

Interest Payable

200

Accounts Receivable

500

Accounts Payable

3,000

Cash

400

Loans

2,800

Noncurrent Assets

Shareholders’ Equity

Land and Buildings

5,100

Preferred Stock

1,000

Furniture

3,000

Common Stock

2,000

Equipment

2,000

Retained Earnings

6,000

TOTAL

15,000

TOTAL

15,000

Table 1.1 Sample Balance Sheet Showing Assets and Liabilities

We can think of the Material Ledger as a subledger that provides a more detailed view of inventory transactions. This is a pertinent definition of the Material Ledger for this book because it reflects the role that the Material Ledger plays in SAP S/4HANA as opposed to its role in SAP ERP, where it’s used more for specialized cases (which we’ll discuss in the next section).

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The Material Ledger consists of two main functionalities: actual costing and parallel valuation. A common misconception about the Material Ledger among SAP customers is that it refers solely to actual costing because actual costing tends to get the most attention. Therefore, when hearing the term “Material Ledger,” many immediately think of actual costing, not parallel valuation. Conversely, when the actual costing functionality is mentioned, it’s usually referred to generically as a “Material Ledger functionality.” This type of confusion is pretty typical in SAP circles and similarly applies to other SAP ERP Financials components, for example, referring to Profitability Analysis (CO-PA) as costing-based CO-PA only and ignoring account-based CO-PA (which we’ll discuss further in Chapter 10); and referring to the new G/L as document splitting only while ignoring the parallel ledger functionality. All these misconceptions need to be cleared up when customers move to SAP S/4HANA because in each of the circumstances described, the additional functionalities (parallel valuation in the Material Ledger, account-based CO-PA, and parallel ledger) are gaining more prominence than before. Even though the Material Ledger serves as a subledger for inventory transactions, it’s important to understand that it’s much more than that. This is because the way that inventory is valued could be different from company to company, depending on various factors, such as the country or industry the company is in or the management requirements for how inventory should be reported. Now that we’ve defined the Material Ledger and how it serves as a subledger for inventory valuation, let’s understand how it fits into the traditional SAP accounting structure. Accounting in SAP has been traditionally categorized into the Financial Accounting (FI) and Controlling (CO) modules, which are a part of SAP ERP. The FI module deals with external financial reporting, such as the balance sheet and income statement. These types of reports are usually for legal and regulatory purposes, and they generally follow a standard format and rules governed by the General Accepted Accounting Principles (GAAP) of that country. The CO module deals with internal management reporting, such as cost center, product cost, and CO-PA reports. These types of reports are usually tailored to internal management requirements for the purposes of planning, controlling, and decision-making. The part of the CO module that deals with the valuation of inventory is Product Cost Controlling. It handles the various components that are used to establish the cost of a product. As a major part of the Material Ledger’s functionality deals with the calculation of actual cost for a product, it typically resides within the CO module, as shown in Figure 1.2.

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1.1

What Is the Material Ledger?

Accounting

Financial Accounting (FI)

Controlling (CO)

Product Cost Controlling

Product Cost Planning

Cost Object Controlling

Actual Costing/ Material Ledger

Figure 1.2 The Material Ledger as a Subledger of the Controlling Module

Note: The Material Ledger and Actual Costing You’ll also notice in Figure 1.2 that the name Material Ledger is preceded and combined with actual costing. This is normally how it’s shown in most SAP application menus and is probably one of the reasons why, as mentioned earlier, there is a conflation of actual costing with the Material Ledger.

Even though the Material Ledger falls within the CO menu, it has as much impact on the FI module as it does in the CO module because of its impact on the inventory transactions that are posted to the G/L. The Material Ledger’s reach even spans across the accounting modules, as it serves as an interface with the logistics modules, such as Materials Management (MM), Production Planning (PP), and Sales and Distribution (SD). Generally, companies have been tentative about implementing the Material Ledger because they feel that it requires too much discipline, increases the tasks at monthend, and may be too complicated to implement and understand. Initially, the Material Ledger was only implemented by organizations in specific industries (e.g., chemicals, oil and gas, food, and metals) and specific countries (e.g., Brazil and Turkey)

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because there was either a business or legal justification for doing so. Some of the companies that implement the Material Ledger do so after several years of implementing SAP in order to give them some time to stabilize their current setup. This has been a more common approach in the past 10 years and has led to a significant increase in the number of companies that are now using the Material Ledger. This increase in companies that adopt the Material Ledger has also been caused by some of the following benefits that an organization can gain from the Material Ledger in SAP: 쐍 Ability to value inventory based on actual cost 쐍 Easy identification of intercompany profit in inventory 쐍 Flexibility of viewing material costs in multiple currencies 쐍 Transparency of all material activities carried out within a period 쐍 Ability to set up and identify transfer pricing between profit centers 쐍 Reporting of true cost of sales by transferring variances for unsold stock to inven-

tory These benefits do need to be weighed against some limitations that also exist with the Material Ledger implementation, as follows: 쐍 To add extra currency/valuation views to an existing SAP system, you may need to

undergo a system landscape optimization (SLO) project, which adds extra time and cost to the implementation. 쐍 After the Material Ledger’s actual costing is activated, you can only update your

standard cost at the beginning of the period (before any movements have been made for that material), and it needs to be constant for at least one month. 쐍 Many of the Material Ledger reports allow you to view only one material at a time.

Note that some of these limitations that exist in the SAP ERP system have now been addressed in SAP S/4HANA. These will be discussed further in this section, as well as throughout the book as a whole.

1.2 The Before: The Material Ledger in SAP ERP As mentioned in the previous section, accounting in SAP ERP is divided into two main modules: FI and CO. These modules separate financial accounting and management accounting tasks, as follows:

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1.2 The Before: The Material Ledger in SAP ERP

쐍 FI

– G/L accounting – AP – AR – Fixed assets – Treasury 쐍 CO

– Cost Center Accounting – Cost Element Accounting – Profit Center Accounting – Product Cost Controlling – Profitability Analysis (CO-PA) This separation, which existed with the inception of SAP, was useful to keep external reporting, which usually has legal and regulatory significance, from internal reporting, which is more for management decision-making. The benefit of this approach is that the external reports, such as financial statements and cash flow statements, aren’t influenced by the more subjective and allocation-based model of the internal reports. The problem with this approach was that the tables for external financial reporting were separate from those of internal reporting. Therefore, in certain cases, reconciliation issues often existed between the two modules. In the classic G/L, a reconciliation program (Transaction KALC) was normally used to bridge the gap between the two modules. When SAP introduced the new G/L in 2004, the reconciliation issues were partly resolved because the new G/L table FAGLFLEXT encompassed previously separate tables. In addition, the new G/L introduced real-time integration between FI and CO, which meant that you didn’t need to run Transaction KALC to bridge the gap between FI and CO. Instead, any postings in the CO module that were across company codes, profit centers, functional areas, or business areas would lead to an automatic FI posting that replicated this reallocation and hence reconciled the FI and CO modules. Further enhancements were made to future releases of SAP ERP 6.0, such as drilldown reporting in the Material Ledger, allowing for better analysis of inventory transactions and variances for multiple materials, and the introduction of new fixed assets, which allow for better segregation of parallel depreciation areas with parallel ledgers.

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These improvements to the SAP ERP system moved the FI components closer to a universal single source of truth, with more flexible reporting structures. Figure 1.3 shows a depiction of this revamped structure.

• Classic General Ledger • Special Ledger • Profit Center

• Costing-Based CO-PA • Account-Based CO-PA

SAP General Profitability Ledger Analysis

New Fixed Assets • Fixed Asset Accounting

Material Ledger • Material Ledger • Inventory Management

Figure 1.3 Revamped FI Components in SAP ERP

The Material Ledger is one of the components that has undergone incremental improvements over the years. In the SAP ERP system, it served an overall purpose of providing better data for specific inventory valuation scenarios, such as actual costing and parallel valuation. Before discussing these two functionalities, we must first define inventory valuation and how it’s used in SAP ERP.

1.2.1 Inventory Valuation Inventory valuation is the process of establishing a cost for the materials that are owned and used by a company. We’ll now discuss the different approaches for valuing inventory in SAP ERP. You can think of these as the building blocks of the Material Ledger in SAP S/4HANA.

Standard Costing Standard costing is an effective method of recording stable prices for your materials that can be benchmarked against any price fluctuations. Standard costs are typically set every year but can also be done more frequently. The rule of thumb is that you should generally not change your standard cost multiple times during the month because this makes it a little more difficult to control your inventory costs. By having

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1.2 The Before: The Material Ledger in SAP ERP

a stable cost, you can therefore perform variance analysis to better understand whether you’re producing efficiently or whether your raw material prices are reasonable. However, a weakness of the standard costing process is that the variances that relate to unsold inventory remain in the profit and loss (P&L) account (price variance) and aren’t posted back to inventory. The standard cost is indicated with an S in the Price control field in the Accounting 1 view of the material master, as shown in Figure 1.4.

Figure 1.4 Material Master with Standard Price Control

Moving Average Costing Moving average costing is a good method of keeping your material costs up to date, particularly in cases where the prices keep fluctuating. Each time you perform a goods receipt or invoice receipt, the moving average price is updated based on taking the total inventory value (i.e., taking the latest purchased price into account) and dividing it by the total inventory quantity. Any variances that occur for a material are posted directly to the inventory account if there is enough quantity in inventory to

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cover the variance. Moving average price is normally used with raw materials (material type ROH), spare parts (material type ERSA), and trading goods (material type HAWA). The moving average price is indicated with a V in the Price control field in the Accounting 1 view of the material master, as shown in Figure 1.5.

Figure 1.5 Material Master with Moving Average Price Control

The price control methods just described are used for inventory valuation of any transaction (e.g., goods receipt, goods issue, inventory write-off, etc.) made for the specific material. The price in the material master is multiplied by the quantity of the inventory transaction, which will give the inventory value for that transaction.

Other Valuation Methods In addition to price control, balance sheet valuation methods provide a value of the amount of inventory left in stock. Examples of the balance sheet valuation methods are as follows:

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1.2 The Before: The Material Ledger in SAP ERP

쐍 First in, first out (FIFO)

This approach assumes that the first batch of inventory that is purchased is the first inventory to be consumed. This means that where prices are rising, the inventory that is consumed is valued at a lower cost than the inventory that remains in stock. 쐍 Last in, first out (LIFO)

This approach assumes that the last batch of inventory that is purchased is the first inventory to be consumed. This means that where prices are rising, the inventory that is consumed is valued at a higher cost than the inventory that remains in stock. 쐍 Lowest value determination

This approach, also known as lower of cost and market or lowest value principle, assumes that the value of inventory is the lower of the historical cost and the replacement cost (or market value). These balance sheet valuation methods will be discussed in more detail in the context of SAP S/4HANA in Chapter 9. Table 1.2 shows the different approaches that can be used for valuing inventory. Scenario

Inventory On Hand

100 EA of product A is bought at $10 each.

100 EA

40 EA of product A is consumed.

60 EA

90 EA of product A is bought at $12 each.

150 EA

50 EA of product A is consumed.

100 EA

Table 1.2 Inventory Valuation Scenario

The ending inventory on hand of 100 EA can be valued according to the following methods: 쐍 Standard cost

With this approach, a constant price of say $11 will be used to value the inventory: ($11 × 100) = $1,100. 쐍 Moving average price

With this approach, the inventory will be valued at a weighted average cost based on the remaining inventory after the first purchase (60 EA) and the new inventory

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from the second purchase (90 EA). The calculation will therefore be as follows: (60 EA × $10) + (90 EA × $12) divided by 150 EA = $11.20. When multiplied by the remaining inventory (100 EA), this will give $1,120. 쐍 FIFO

With this approach, the latest consumption of 50 EA is assumed to be part of the earlier batch, which cost $10. Therefore, only 10 EA of the first batch remains, and the rest of the inventory (90 EA) is valued at the latest price of $12: (10 EA × $10) + (90 EA × $12) = $1,180. 쐍 LIFO

With this approach, the latest consumption of 50 EA is assumed to be part of the latest batch, which cost $12. Therefore, 60 EA of the first batch remains, and the rest of the inventory (40 EA) is valued at the latest price of $12: (60 EA × $10) + (40 EA × $12) = $1,080. 쐍 Lowest value principle

With this approach, it’s assumed that the lower of the inventory cost and the market value will be used. Because the market value is assumed to be the latest cost ($12), which is higher than the historical cost ($10), the remaining inventory will be as follows: (100 EA × $10) = $1,000. Some companies value their inventory with a combination of standard cost or moving average price and one of the inventory valuation methods just described (FIFO, LIFO, or lowest value principle). For example, the lowest value principle could compare the market cost ($12) with either the standard cost ($11) or moving average price ($11.20) to determine which value should be used in the balance sheet.

Inventory Valuation Attributes As you can see from the preceding example, inventory valuation (sometimes called “material valuation”), which is the product of the quantity of a material multiplied by the cost of the material, can vary in the way that it’s valued, depending on the approach that is used. Certain attributes of a material, as described here, can further break down the valuation of a material as well: 쐍 Valuation area

This determines on which organizational level the valuation of a material is made. The two types of valuation area are plant and company code.

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1.2 The Before: The Material Ledger in SAP ERP

쐍 Valuation class

This determines (along with other account determination keys) the G/L accounts that will be posted to for any valuation-relevant transactions, such as goods issues and goods receipts. It also allows the following: – Inventory values of materials of the same material type to be posted to different G/L accounts – Inventory values of materials of different material types to be posted to the same G/L account Typical valuation classes are shown in Table 1.3. Valuation Class

Description

3000

Raw materials

3040

Spare parts

3100

Trading goods

7900

Semifinished goods

7920

Finished goods

Table 1.3 Valuation Classes 쐍 Valuation category

This determines whether the various batches of inventory for the material are valued together or separately. Typical valuation categories are as follows: – Blank: Inventory is valued together. – Procurement type (B): Inventory is valued separately based on the procurement type (i.e., in-house or external). – Origin type (H): Inventory from different countries can be valued separately. – Automatic batch valuation (X): Each batch of inventory can be valued separately. 쐍 Valuation type

This determines the criteria by which inventory can be valued depending on one of the valuation categories defined. For example, if the valuation category (ValCat column) is set to X, then the valuation types will be based on batches that can be

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valued separately. The combination of valuation categories and valuation types are used when split valuation is active. Split valuation will be discussed further in Chapter 10, Section 10.1.

Inventory Valuation Tables Inventory valuation for materials is stored in various tables in SAP ERP. These tables contain the cost, quantity, and total value for material inventory on hand. The main table for inventory valuation is table MBEW; however, there are other inventory valuation tables, based on the nature of the inventory, as shown in Table 1.4. Each valuation table has a corresponding history table (with a suffix of H), which also stores any changes in material cost over different periods. Table

Description

MBEW

Material Valuation

MBEWH

Material Valuation: History

EBEW

Sales Order Stock Valuation

EBEWH

Valuation of Sales Order Stock: History

OBEW

Valuated Stock with Subcontractor

OBEWH

Valuated Stock with Subcontractor: History

QBEW

Project Stock Valuation

QBEWH

Valuation of Project Stock: History

Table 1.4 Material Valuation Tables

An example of the data that is stored in material valuation table MBEW is shown in Figure 1.6. You’ll see in Figure 1.6 that several of the inventory valuation fields we’ve discussed, such as valuation area (ValA), valuation category (ValCat), and valuation type (Val. Type), are present in table MBEW. You can also see the price control (Pr.) of S (for standard cost) and V (for moving average price).

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1.2 The Before: The Material Ledger in SAP ERP

Figure 1.6 Material Valuation Table MBEW

1.2.2 Multiple Valuation Approaches Now that we’ve looked at inventory valuation in SAP ERP, it’s time to discuss one of the key objectives of the Material Ledger, which is the parallel valuation/parallel currencies functionality, also known as multiple valuation approaches. So far, we’ve looked at inventory valuation as a single value (e.g., standard cost or moving average price) in the material master. This approach works well for organizations that aren’t affiliated with other entities outside their country or geographical region. Today, with the increasing nature of globalization, mergers and acquisitions, and cross-border operations, it’s typical for organizations to expect different views of inventory valuation using multiple currencies and valuation methods. For that reason, the Material Ledger provides the functionality to use parallel currencies, parallel valuation approaches, or both for inventory valuation. We’ll address these two functionalities separately.

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Parallel Currencies The parallel currencies functionality allows inventory values to be recorded in up to three currencies. There are three ways to derive these currencies in SAP ERP: 쐍 Derive the currencies from FI

Here you can use the currencies that are set up as additional local currencies in the FI module. For companies that use the classic G/L, the currencies will be at the company code level; for companies that use the new G/L, the currencies will be at the leading ledger level, as shown in Figure 1.7.

Figure 1.7 Additional Local Currencies for a Company Code

As you can see in Figure 1.7, the company code VE01 has three currency types: Company code currency, Hard currency, and Group currency. All three currencies will be available in the Material Ledger if the CT from FI option is selected in the configuration menu, as shown in Figure 1.8.

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1.2 The Before: The Material Ledger in SAP ERP

Figure 1.8 Assigning Currency Types to Material Ledger Type 쐍 Derive the currencies from CO

Here you can use the currencies that are set up as additional local currencies in the CO module, as shown in Figure 1.9.

Figure 1.9 Maintaining the Currency and Valuation Profile

As shown in Figure 1.9, there are two currencies (Company code currency and Group currency), which will be adopted by the Material Ledger if you select the CO CrcyTyp option shown in Figure 1.8. You’ll also notice that each currency type is combined with a Valuation View (discussed in the next section).

Note: Reconciling Currency Types You can select both the CT from FI and CO CrcyTyp options, and the Material Ledger will adopt the currency types from FI and CO to ensure that FI, CO, and the Material Ledger currencies are reconciled. 쐍 Derive the currencies manually

Here you can enter up to three currency types manually. The currency types that you can choose from are shown in Table 1.5.

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Currency Type

Description

10

Company code currency

11

Company code currency, group valuation

12

Company code currency, profit center valuation

20

Controlling area currency

30

Group currency

31

Group currency, group valuation

32

Group currency, profit center valuation

40

Hard currency

50

Index-based currency

60

Global company currency

Table 1.5 Currency Types Available for Manual Selection

Parallel Valuation The parallel valuation functionality allows inventory values to be recorded in up to three valuation approaches, as follows: 쐍 Legal valuation

This is the default valuation approach. A company code that is used in SAP records all transactions in the legal view to be compatible with the rules of the country that the company resides in. 쐍 Group valuation

This approach is used where an organization is made up of multiple entities that transact with each other and want a group view of inventory costs that eliminates any intercompany profit. 쐍 Profit center valuation

This approach is used where a company contains subentities that are represented by profit centers and want to record any profit that occurred from transactions between these subentities.

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1.2 The Before: The Material Ledger in SAP ERP

Note: Further Coverage Group valuation and profit center valuation will be described in further detail in Chapter 3 and Chapter 4, respectively.

Multiple valuation views are usually combined with multiple currencies and are set up in Transaction 8KEM, as shown in Figure 1.10. Once set up, the Accounting 1 view of the material master will show the standard cost (or moving average price) with these valuation views.

Figure 1.10 Material Master with Multiple Valuation Views

As shown in Figure 1.10, the standard cost of material FG233 appears in three currencies/valuation views. Therefore, the inventory valuation for this material will be recorded for each currency/valuation view by multiplying the quantity of the transaction with all three valuation views, and these values will be stored in Material Ledger table CKMLCR (shown in Figure 1.11).

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Figure 1.11 Material Ledger Table CKMLCR

1.2.3 Actual Costing The second key objective of the Material Ledger in SAP ERP is the actual costing functionality. This functionality revalues the standard cost of a material based on the cumulative variances that exist in that period. This revalued cost, which is called the periodic unit price (PUP) or actual cost, can then be applied to cost of goods sold (COGS), work in process (WIP), other goods issues, or ending inventory. For a material to be relevant for actual costing in SAP ERP (as well as in SAP S/4HANA), a couple of prerequisites must be applied to the material master: 쐍 The material should have a price control of S (standard cost)

Standard cost price control was discussed earlier in this chapter. Of the two types of price control (standard cost and moving average price), only the standard cost price control is relevant for actual costing. This is because moving average price is, by itself, a form of real-time actual costing as it changes each time there is a price change that deviates from the current price. In addition, for the actual cost to be calculated, the variances that occurred for that period need to be considered. Variances are usually only posted when the material is valued at standard cost and not moving average price (where they occur only in special circumstances). Price control is an option in the material master’s Accounting 1 view, which should have the value S. 쐍 The material should have a price determination of 3 (single-/multilevel)

Price determination is also an option in the material master’s Accounting 1 view, which is only relevant when the Material Ledger is active. It determines whether the material is subject to the Material Ledger’s actual costing or not. There are two types of price determination:

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1.2 The Before: The Material Ledger in SAP ERP

– Transaction based (2): With this setting, the Material Ledger is active, but actual costing isn’t. This option is available for materials with standard price and moving average price. – Single-/multilevel (3): With this setting, the Material Ledger and actual costing are active. This option is available for materials with standard price only. Figure 1.12 shows a material that is valid for actual costing because it has a Price Determ. of 3.

Figure 1.12 Material Master with Price Determination of “3”

Another thing to note about a material with a price determination of 3, is that the name of the moving average price field in the material master is changed to Per. unit price (periodic unit price). As shown in Figure 1.13, there are two prices for the material in the Accounting 1 view. The Standard Price of $136.52 is the price that the material is valued at (because the Price control is set to S), and the Per. unit price of $134.54 is the actual cost, which is calculated at the end of the month.

Figure 1.13 Prices and Values for Material with Price Determination “3”

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During the month, the PUP serves as a “statistical” moving average price. This is because even though this price isn’t used to value the material, anytime a goods receipt or invoice receipt (or order settlement) is made, the statistical moving average price is recalculated, just as it would be if the moving average price was active for that material. This allows you to get an indication of the actual cost of a material even before you run the actual costing run at the end of the month.

Note: Statistical Moving Average Price The statistical moving average price update is recalculated and locked during the processing of goods movements, which can slow down the throughput of inventory transactions.

For the actual cost to be calculated, the actual costing cockpit needs to be executed. The actual costing cockpit includes eight separate execution steps, as shown in Figure 1.14.

Figure 1.14 Actual Costing Cockpit in SAP ERP

Each step serves a specific purpose in the calculation of a material’s actual cost, as explained here: 쐍 Selection

In this step, all materials that have a price determination of 3 and goods movements or transactions that create variances within the period are selected for further processing with the actual costing calculation.

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쐍 Determine Sequence

In this step, the system sequences the materials according to which lower-level materials are consumed into higher-level materials. For example, if a raw material is consumed on a production order of a finished product, or if inventory is transferred from one plant to another, these materials will be part of the hierarchy of manufacturing levels that will be selected for multilevel price determination. 쐍 Single-Level Pr. Determination

In this step, any price and exchange rate differences that occur for a material on its own level will be determined. This is the first point where the system calculates an actual cost by taking the standard cost of cumulative inventory and adding any price or exchange rate differences that were posted during the period. 쐍 Multilevel Pr. Determination

In this step, the variances of lower-level materials will be proportionally transferred to any higher-level materials that they were consumed into, as determined during the sequencing step. In addition, any variances on cost centers that represent the differences between the plan and actual activity rates will be transferred to the materials on the production orders that these activities were consumed into. 쐍 Revaluation of Consumption

In this step, the variances of any materials that are consumed into nonmaterial receiving objects (e.g., cost centers, work breakdown structure [WBS] elements, cost of sales, etc.) will be proportionally transferred to these objects or to a generic G/L account that represents the variances allocated to consumption. 쐍 WIP Revaluation

In this step, the variances of any materials consumed in production orders that are still in progress will be proportionally transferred to the WIP account (or an equivalent account that is set up for this purpose). 쐍 Post Closing

In this step, all the calculations that have been made in the preceding steps will be posted to the G/L, and the material status will be set as Closing Entry Complete. At this point, it won’t be possible to make any inventory postings for the period that has just been closed. 쐍 Mark Material Prices

In this step, you can choose to mark the actual cost that was calculated by the Material Ledger as a standard cost for a future month. The earliest period that you can use the actual cost as a future standard cost is two months after the period that has just been closed.

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In addition to the actual costing run, you can choose to use an alternative valuation run (AVR), which will calculate a different actual cost based on specific criteria, such as an average of actual costs across several months or an alternative actual cost using a separate accounting principle. To access the AVR, you need to use a separate Transaction CKMLCPAVR, which looks like the screen in Figure 1.15 when executed.

Figure 1.15 Alternative Valuation Run Cockpit

As you can see from Figure 1.15, the AVR has similar execution steps as the main actual costing run. The two steps that are unique to the AVR are explained as follows: 쐍 Cumulate Data

In this step, all the quantity structures of previous actual costing runs (from the initial cumulation period specified) are cumulated in this costing run. 쐍 Determine Delta Postings

In this step, the difference between the cost that is calculated from the AVR and the cost calculated from the main costing run is determined, and this difference is posted to delta accounts in the Post Closing step.

Material Price Analysis After the actual costing cockpit has been run, you can get a detailed analysis of the data that contributes to the computation of the actual cost shown in Figure 1.16.

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Figure 1.16 Material Price Analysis in SAP ERP

As shown in Figure 1.16, the Price Determination Structure view of the material price analysis shows the Quantity, PrelimVal (preliminary valuation), and Price (and exchange) differences that are used to calculate the actual price of the material. Other views that can be displayed in the material price screen (by clicking on the View dropdown options) are Price History, Cost Components, and Plan/Actual Comparison. Several tables store the periodic results of the Material Ledger actual costing data. These tables store the header or line item data for the Material Ledger price, quantities, and actual cost component split. During the Material Ledger conversion in SAP ERP, material valuation tables and purchase order history tables are replicated into Material Ledger tables (shown in Figure 1.17), by Transaction CKMSTART (Material Ledger Production Startup). Material Valuation Tables MBEW

EBEW

OBEW

QBEW

Material Ledger Tables

Material Ledger Production Startup

Purchase Order History Tables EKBE

EKBZ

Material Ledger Production Startup

CKMLHD

CKMLPP

CKMLCR

CKMLPR

MLWERE

MLBE MLBECR

Figure 1.17 Material Ledger Conversion Tables in SAP ERP

As shown in Figure 1.17, the Material Ledger tables are populated with data from existing SAP tables. This is the case for companies that already have SAP implemented

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before implementing the Material Ledger. For companies that are implementing the Material Ledger along with an SAP implementation, no conversion is needed. However, in both cases, after the Material Ledger is active, both the material valuation/ purchase order history and the Material Ledger tables will be posted in parallel.

Challenges with the Material Ledger in SAP ERP As robust as the Material Ledger functionality in SAP ERP is, the following challenges exist that may cause issues with processing and analyzing the data: 쐍 Potential reconciliation issues with FI currencies

Because you have an option to choose currency types from FI and CO, or do so manually, there is the potential that the currencies in the Material Ledger won’t be reconciled with the currencies in FI if you don’t explicitly choose the Curr from FI option. As the FI module is usually the source of truth, this could create issues with consistent reporting. 쐍 No clear separation of valuation views in all financial reports

Although the Material Ledger allows for multiple valuation views in SAP ERP, this only exists in certain FI reports (e.g., G/L reports) and Material Ledger reports (e.g., material price analysis), and there isn’t a coherent distinction of these views in all FI reports. 쐍 Duplication of inventory valuation data

As we’ve mentioned, the inventory valuation data is updated in the inventory valuation data tables (tables MBEW, OBEW, etc.) and the Material Ledger tables (tables CKMLPR, CKMCLR, etc.) in parallel. Therefore, this leads to some data redundancy issues in the system. 쐍 Several execution steps in the costing run

There are several execution steps in the actual costing cockpit, which, depending on the number of material records processed within the month, could take several hours to complete and hence prolong the period close process. 쐍 Lock issues with statistical moving average price

If you use actual costing and have the statistical moving average price active, this will reduce the throughput when goods movements are made because the calculation of moving average is locked during incoming movements and hence slows down data processing.

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1.3 The After: The Material Ledger in SAP S/4HANA We’ve seen how the Material Ledger functions in the SAP ERP system. Now, let’s look at the changes that have been introduced with SAP S/4HANA.

1.3.1 SAP S/4HANA Finance SAP S/4HANA Finance is a revolutionary step that SAP has made to revamp the finance accounting function as part of an overall IT transformation. This process has evolved over several years (shown in Figure 1.18) and has increasingly added more functionality to each previous release.

SAP Business Suite powered by SAP HANA

SAP Simple Finance on SAP HANA

SAP Simple Finance 1503

SAP S/4HANA Finance 1605

SAP S/4HANA 1511

SAP S/4HANA 1709

SAP S/4HANA 1610

SAP S/4HANA 1809

Figure 1.18 SAP S/4HANA Evolution

Figure 1.18 shows the evolution of the different forms of SAP HANA up until the latest release of SAP S/4HANA 1809. We’ll provide a brief discussion of the functionality and improvements made with each release: 쐍 SAP Business Suite powered by SAP HANA (2012)

SAP HANA was introduced as an in-memory database, which provides faster access to data that is stored in the RAM and allows for parallel processing of a multi-core CPU architecture. Its column-based storage structure allows for exponentially faster reporting runtimes and better compression of the information in the database. 쐍 SAP Simple Finance on SAP HANA (2014)

SAP capitalized on the superfast database of SAP HANA to make some optimization improvements with SAP tables. A key improvement was the removal of totals and aggregate tables, which store summarized data, and allowing direct access to

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the transactional tables. The benefit of this improvement is that it reduced redundancies and streamlined the FI table structures. 쐍 SAP Simple Finance 1503 (2015)

The removal of aggregate and totals tables (made with SAP Simple Finance) gave way to the development of one huge table ACDOCA (also called the Universal Journal), which combined several disparate tables from G/L Accounting, Fixed Assets, Overhead Cost Controlling, CO-PA, and the Material Ledger. 쐍 SAP S/4HANA 1511 (2015)

The improvements made to SAP Simple Finance were also extended to other functionalities, such as Logistics (LO) and Inventory Management (IM). At this point, the Material Ledger was made to be mandatory. 쐍 SAP S/4HANA Finance 1605 (2016)

This release brought some enhancements to SAP Simple Finance 1503 and introduced SAP Fiori apps for an improved user interface (UI). 쐍 SAP S/4HANA 1610 (2016)

This release included significant changes beyond the FI functionality. In relation to FI, table MATDOC was introduced that combined the header and item transactional tables for goods movements. The actual costing cockpit and structure was changed significantly. In addition, the business partner concept was introduced to consolidate the master data of customers and vendors. 쐍 SAP S/4HANA 1709 (2017)

This release introduced smart master data, a new migration cockpit, and improved inventory throughput and reporting speeds. It also enhanced the integration with the SAP cloud solutions and SAP Leonardo (for machine learning). 쐍 SAP S/4HANA 1809 (2018)

This release continues the enhancement of current functions and introduces some new ones. For example, major improvements were made to the accountbased CO-PA in the Universal Journal, such as the inclusion of statistical conditions and sales order projections.

SAP S/4HANA Finance Core Areas When we discussed the SAP ERP system earlier in this chapter, we mentioned that there were several improvements that SAP made to the SAP ERP system over the years. Even with these improvements, SAP ERP Financials still faces some challenges:

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쐍 Numerous tables that aren’t integrated and require reconciliation 쐍 UI that needs to be updated and more user-friendly 쐍 Inflexible and disparate reporting tools 쐍 Lack of integrated planning that spans all the FI components

With the advent of new technologies, such as the Internet of Things (IoT), collaborative social media platforms, embedded and predictive analytics, machine learning, and so on, it was time for the SAP ERP Financials components to get a facelift. This “facelift” came initially in the form of SAP Simple Finance, which was one of the first application areas to be enhanced after the SAP HANA database was introduced. It made sense for the first area of SAP HANA-based improvement to be the FI module because most SAP customers use this module, and it serves as the backbone of a wellfunctioning SAP ERP system. SAP S/4HANA Finance has restructured its core solution areas as shown in Figure 1.19.

Core Accounting

Basic Financial Operations

Cost Management and Profitability Analysis

Accounting

Accounts Receivable

Cost Management

Closing Operations

Accounts Payable

Product Cost Management

Financial Reporting

International Trade Management

Cost and Profitability Analysis

Figure 1.19 Solution Areas in SAP S/4HANA Finance

These core areas in SAP S/4HANA Finance are described here: 쐍 Core accounting

This area covers the Universal Journal, which integrates the fields of various individually separate modules, such as fixed assets, the Material Ledger, CO-PA, and general CO. It also includes the closing cockpit, which helps automate and standardize the period-end processes across multiple entities. Another aspect of the core accounting function is the flexible multidimensional reporting that you can

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get from SAP Fiori reports (e.g., the Trial Balance app) that are based on the Universal Journal. 쐍 Basic financials operations

This area covers the traditional FI components such as AP and AR. Improvements have been made in these areas such as the integration of the customer and vendor master data under the business partner object. This area also includes improvements to international trade management functionality, such as Intrastat reporting and international trade compliance. 쐍 Cost management and CO-PA

This area covers the part of SAP that was previously contained in the CO module, such as cost center accounting, cost element accounting, product cost controlling, and CO-PA. Improvements in this area include quicker and more granular reporting, faster processing of allocations (not impinged by data issues), and real-time derivations, which aid a fast close process.

Universal Journal The key functionality in SAP S/4HANA Finance that radically changes the structure from SAP ERP is the Universal Journal, which was introduced with SAP Simple Finance 1503. This is an all-encompassing table that combines the major components of the FI and CO functionalities into one structure, as shown in Figure 1.20. This approach adds further credence the single source of truth model that SAP has been touting since its inception.

SAP General Ledger

Profitability Analysis

Fixed Assets

Universal Journal

Material Ledger

Overhead Cost Controlling

Figure 1.20 Universal Journal in SAP S/4HANA

Some of the key features of the Universal Journal are as follows: 쐍 There is no need to perform reconciliation between the functionalities because

they are now stored in the same table ACDOCA.

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쐍 Secondary cost elements that were in the CO module in SAP ERP are now part of

the G/L. 쐍 A planning equivalent of the Universal Journal is stored in table ACDOCP. 쐍 CO-PA characteristics are separate fields in the Universal Journal. 쐍 Only account-based CO-PA is integrated with the Universal Journal. Costing-based

CO-PA still resides in separate tables. 쐍 You can add extra custom fields to the Universal Journal by extending the coding

block. 쐍 Several ledgers can be used in the Universal Journal, such as the leading ledger,

which is mandatory; parallel ledgers; extension ledgers; and predictive/simulation ledgers. 쐍 A single report, such as the Trial Balance report, can serve as a G/L report, a cost

center report, a CO-PA report, and a Material Ledger report by selecting or deselecting the available fields in the Universal Journal. 쐍 Eight freely definable currencies exist in the Universal Journal, in addition to the

company code and global currencies. 쐍 Semantic tagging and flexible hierarchy functionalities allow for dynamic report-

ing of the Universal Journal.

Ledgers In SAP R/3, there was really only one ledger that was used for financial reporting in the G/L. If you used a parallel ledger (e.g., to add an additional currency or use a difference fiscal year variant), you would have needed to implement the special purpose ledger. In subsequent releases of SAP ERP, the functionality of the special purpose ledger was incorporated into the G/L, where the concept of using parallel ledgers was more emphasized (particularly when used in conjunction with different accounting principles). In this instance, there was the concept of the leading ledger (the main book of record) and nonleading ledgers (subsidiary ledgers representing a different accounting approach). In SAP S/4HANA, the concept of using different ledgers is taken to a much higher level (the G/L is automatically activated with SAP S/4HANA), and the distinction between the leading and parallel ledgers isn’t as stark. In fact, you could say that the parallel ledger approach in SAP S/4HANA places all standard ledgers at the same level of reporting and gives you the ability to have a completely distinct set of books between two different ledgers that are in the same company code.

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Financial Reporting in SAP S/4HANA A huge challenge with SAP ERP modules has been the reporting options that are available. While the traditional SAP ERP reports are usually accurate and integrated with the source data, they are sometimes lacking in terms of user-friendliness, easy navigation, and drilldown reporting capabilities. Financial users usually download the SAP ERP reports into Microsoft Excel to overcome some of these issues. Companies that use reporting tools such as SAP Business Warehouse (SAP BW) or SAP BusinessObjects have better reporting capabilities than those that strictly use SAP ERP; however, these companies also complain about the nonreal-time nature over SAP BW and SAP BusinessObjects because they are usually updated on a batch basis overnight or at certain intervals. SAP Fiori was introduced in 2013 (and popularized around 2016) as a personalized and simplified user experience for SAP applications. It provides better and easier access to SAP data and allows quicker decisions to be made based on the instant insight that the data provides. It’s also seamlessly viewable on mobile devices and therefore allows for information to be accessed while on the move. The advent of SAP Fiori has helped to alleviate some of the issues with SAP ERP reporting as well as the overall SAP UI. While SAP Fiori is still being rolled out to encompass other SAP areas, there are a significant number of applications available for the FI functionalities, as shown in Figure 1.21.

Figure 1.21 Financial Reporting Applications in SAP Fiori

The SAP Fiori apps (like the ones shown in Figure 1.21) are role-based apps that exist in most of the major SAP functions and can be transactional (meaning they can be used

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to perform transactions such as posting a document) or analytical (meaning that they can be used for reporting and analysis) in nature. We discuss SAP Fiori apps further in Chapter 11.

1.3.2 Why Is the Material Ledger Mandatory? We’ve seen that with SAP S/4HANA Finance, there is a focus on simplification of data structures and flexible reporting. Let’s now look at how SAP has applied these principles to inventory valuation. One of the changes that SAP made with SAP S/4HANA 1511 was to make the Material Ledger mandatory. This decision led to a lot of confusion in the SAP industry because the Material Ledger is normally perceived as a tool that is used for companies within specialized industries or specific countries (as mentioned in Section 1.1). In addition, the Material Ledger had gained the reputation over the past few years of being complicated to set up and understand, which led to some trepidation about the decision to make it mandatory for all customers that have inventory valuation requirements. We’ll therefore provide a breakdown of why the Material Ledger is mandatory with SAP S/4HANA and what it means for SAP customers. As mentioned earlier in this chapter, the Material Ledger has two objectives: actual costing and parallel currencies/valuation. There is now a third objective of the Material Ledger, which is its role as an inventory valuation subledger. If your organization records inventory in its balance sheet, you’ll need to have a subledger for inventory postings, which provide more granular details of inventory transactions than those that exist in the G/L (as is done with AP, AR, and fixed assets, which are also subledgers of the G/L). This inventory subledger already existed in the SAP ERP system in the form of the inventory valuation tables xBEW(H). To continue with the theme of simplification and integration that was done with the Universal Journal for disparate FI tables (tables BSEG, COEP, ANLA, etc.), the same approach needed to be done for inventory valuation tables. The option for SAP was therefore to either introduce a completely new data model or to improve on one that already existed. When SAP did its research on the utilization of the Material Ledger among its customers, they found the following: 쐍 The Material Ledger is a mature and widely used solution. 쐍 More than 10,000 companies are using the Material Ledger in all continents.

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쐍 Some focus countries (e.g., Brazil and Turkey) and industries (e.g., oil and gas,

chemicals, and food) use the Material Ledger to satisfy specific legal or business requirements. 쐍 The Material Ledger is used by both large and small-to-medium sized businesses

worldwide. 쐍 There is currently no other competing application that provides similar function-

ality. 쐍 There is a growing use of the Material Ledger among SAP customers.

For these reasons, it made sense to leverage off the existing functionality of the Material Ledger to create a unified subledger for inventory valuation in SAP S/4HANA. This setup also future-proofs the SAP system for other functionalities of the Material Ledger, such as actual costing and parallel valuation, as well as new technological changes that SAP will introduce as it continues to revolutionize the financials landscape.

1.3.3 Inventory Valuation in SAP S/4HANA Inventory management in SAP S/4HANA is SAP’s revamped version of the traditional IM module in SAP ERP. It takes advantage of the power of the SAP HANA database, hence increasing system processing efficiency and the runtime of reports. The SAP S/4HANA IM functionality’s main difference compared to traditional IM in SAP ERP is that it uses the Material Ledger as a basis. This means that the objectives of the Material Ledger that were mentioned earlier in this chapter (parallel valuation, parallel currencies, actual costing, and balance sheet valuation) will apply to IM as well. Note that not all companies (particularly the smaller ones) will need to implement these options, even when the Material Ledger is active. However, these functionalities will be able to be implemented in the future (if needed) without going through a rigorous Material Ledger conversion project, which could take several months for SAP ERP systems.

Note: Additional Functionality Inventory management in SAP S/4HANA also comprises other new functionality such as real-time inventory management in which the digital and physical inventory quantities are synchronized in real time. Unfortunately, this is outside the scope of this book.

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The valuation methods in inventory management in SAP S/4HANA are therefore a combination of the traditional inventory valuation methods with the Material Ledger functionality. Table 1.6 shows a summary of these valuation method along with their price determination values. Valuation Method

Price Determination

Standard costing

쐍 2 (transaction based) 쐍 3 (single-/multilevel)

Moving average price

쐍 2 (transaction based)

Balance sheet valuation

쐍 2 (transaction based) 쐍 3 (single-/multilevel)

Actual costing

쐍 3 (single-/multilevel)

Table 1.6 Price Determination for Valuation Methods

In addition, all companies that use inventory will benefit from the enhanced reporting capabilities using various SAP Fiori apps for instant insight into inventory valuation and activity, as shown in Figure 1.22.

Figure 1.22 SAP Fiori Apps for Inventory Valuation

Another key enhancement is the higher throughput of inventory transactional processing, which is due to the simplification of the underlying data structures needed for inventory valuation. The traditional inventory valuation tables (e.g., tables MBEW, OBEW, EBEW, and QBEW, mentioned earlier) are aggregate tables. This means that they summarize the data in the source database so that when these tables are queried, the system resources aren’t heavily impacted. However, with the speed of SAP HANA,

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any queries can be directly read from the database without the need for these aggregate tables. Therefore, instead of having several aggregate tables, SAP S/4HANA has a few tables that contain all the source data needed for reporting, and this data can be accessed in a granular form as needed without necessarily affecting the performance of the system. We’ll now discuss the new table structure for inventory valuation and the old tables that have been replaced. They can be divided into the following four categories: 쐍 Material valuation tables

These are the tables that store the quantities and values of several types of inventory, such as unrestricted inventory, sales order inventory, and project inventory. The data from the SAP ERP tables MBEW, OBEW, QBEW, and so on, as well as their corresponding history tables (designated by an H at the end of the table name), are now part of the Universal Journal (table ACDOCA). This data also exists in the Material Ledger document tables MLDOC and MLDOCCCS (via an extract of table ACDOCA called ACDOCA_M_EXTRACT) as shown in Figure 1.23. The old inventory valuation tables still exist in SAP S/4HANA, but they store master data values only. SAP ERP Material Valuation

MBEW/H EBEW/H OBEW/H QBEW/H

Universal Journal

SAP S/4HANA Material Ledger Document

ACDOCA MLDOC MLDOCCCS ACDOCA_M_EXTRACT

Figure 1.23 Material Valuation Table Changes 쐍 Material movement tables

These are the tables that store the goods movements (goods receipts, goods issues, etc.) transactions for a material. The SAP ERP tables MKPF (Material Document Header) and MSEG (Material Document Segment), along with the material master tables MARC, MARD, MKOL, MCHB, and so on (and their corresponding history tables), have been replaced with a single table MATDOC, as shown in Figure 1.24. 쐍 Material Ledger periodic tables

These tables store the Material Ledger documents that are posted on a material level, when an inventory-related or Material Ledger transaction is made. There are

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numerous Material Ledger document tables in SAP ERP (e.g., tables MLHD, MLIT, MLPP, MLCR, MLCRF, etc.) and Material Ledger summarization tables (e.g., tables CKMLHD, CKMLCR, CKMLPP, etc.) that are now replaced with new document table MLDOC, as shown in Figure 1.25. SAP ERP Material Movement

MSEG MKPF

SAP S/4HANA Material Ledger Document

SAP ERP Material Master

MATDOC

MARC/H MARD/H MCHB/H MKOL/H MSKA/H…

Figure 1.24 Material Movement Table Changes

SAP ERP Material Ledger Tables

SAP S/4HANA Material Ledger Document

MLHD, MLCR, MLPP… CKMLHD, CKMLCR, CKMLPP…

MATDOC

Figure 1.25 Material Ledger Table Changes 쐍 Material Ledger cost component tables

These tables store the Material Ledger documents that are posted on a cost component level when an inventory-related or Material Ledger transaction is made. The document table (table MLKEPH) and summarization table (table CKMLKEPH) for cost component split has now been replaced with new document table MLDOCCCS, as shown in Figure 1.26.

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SAP ERP Material Ledger Cost Component Tables

SAP S/4HANA Material Ledger Cost Component Table

MLKEPH CKMLKEPH

MATDOCCCS

Figure 1.26 Cost Component Table Changes

Some of the classical tables, such as table MKPF and table MSEG, still exist in SAP S/4HANA. However, they exist as compatibility views, which means that although you can still see the data in these tables and base (old) custom reports on these tables, they don’t store data physically in the database. Instead, when these tables are queried, they fetch the data from the new table MATDOC, which they are dependent on. The same logic applies to the material master attribute tables (tables MARC, MARD, etc.). They store the master data physically but access the valuation data as a view based on table MATDOC. For the Material Ledger document tables (tables MLHD, MLIT, etc.), there are no compatibility views due to radical changes that were made with the actual costing model in SAP S/4HANA. Any custom reports can still read the old Material Ledger data before the conversion to SAP S/4HANA.

1.4 Summary In this chapter, we provided a definition of the Material Ledger by breaking out the two words “material” and “ledger.” We showed how the Material Ledger serves as a subledger for the inventory value that is shown in the balance sheet. We also saw where the Material Ledger fits into the traditional SAP FI components and how it’s connected to the LO modules. We then looked at the inventory valuation methods (standard cost, moving average price, and balance sheet valuation) in the SAP ERP system and walked through an example of how they can provide different values for the ending inventory that you have on hand. Afterward, we looked at the different attributes of the material master that can affect inventory valuation, such as the valuation area, valuation class, valuation category, and valuation type. We then provided a brief overview of the two key functionalities of the Material Ledger in SAP ERP, which are parallel valuation and

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Summary

actual costing, and how the material valuation tables are converted to Material Ledger tables. This led into introducing how SAP S/4HANA has evolved over the years and how the Material Ledger fits into the SAP S/4HANA digital core. We then rounded out the chapter by looking at how the numerous inventory valuation and Material Ledger tables in SAP ERP have been supplanted by a few encompassing tables in SAP S/4HANA. In the next chapter, we’ll proceed with how to configure the basic settings of the Material Ledger, such as the setup of currencies, ledgers, and valuation views, and the assignment of currency types to Material Ledger types.

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Chapter 2 Configuring Currency Types, Ledgers, and Valuation Views SAP S/4HANA introduces new options for configuring ledgers and currencies and mapping them to company codes and valuation views. These settings are integrated with the activation of the Material Ledger.

In this chapter, we’ll discuss the setup of the currency types and currency conversion settings that are used in SAP S/4HANA. The standard SAP currency types, such as document currency, company code currency, controlling area currency, group currency, and so on, exist in SAP S/4HANA. The conversion settings for these currency types determine what source currency the conversion is to be made from, what exchange rate type is used for the translation, and whether the currency translation is to be done in real time or as part of the period-end foreign currency valuation. We’ll begin in Section 2.1 with a discussion of the baseline settings for the Universal Journal that impact the Material Ledger, such as the currency types, ledgers, and valuation views. In Section 2.2, we’ll walk through how you can create additional currency types that have currency conversion settings specific to particular company codes. We’ll then walk through the setup of a currency and valuation profile in Section 2.3 and how to activate multiple valuation views, such as group and profit center valuation. These valuation views can be combined with the currency types to create a valuation approach, such as group valuation/group currency. In Section 2.4, we’ll look at the two types of ledgers that can be used with these valuation views—single valuation ledger and multi-valuation ledgers—and discuss the pros and cons of each. We’ll then discuss the mapping of ledgers to controlling (CO) versions in Section 2.5 so that any CO activity is linked with the Universal Journal ledger. We’ll close in Section 2.6 with a look at how to configure the basic settings of Material Ledger and how to assign the currency types of the Universal Journal to the Material Ledger type.

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2.1 Defining Currency Types for the General Ledger Every transaction that updates the general ledger (G/L) is done in at least one currency. The definition of the currency depends on several organizational units, such as the transaction, client, country, company code, controlling area, and master data. In SAP, a single transaction could contain multiple currencies depending on the currency types that have been set up. In this section, we’ll discuss SAP’s standard currency types and how they are defined in the Universal Journal.

2.1.1 Standard SAP Currency Types Currency types specify what the currency is being used for. The currency key (e.g., EUR, USD, etc.) that is assigned to a currency type is configured in different ways, depending on the function of the currency type. The following standard currency types are available in SAP: 쐍 Document currency (00) This is the currency that an accounting document is posted in. The currency that is entered (either manually or automatically) in an accounting document is the document currency. You can see in Figure 2.1 that the document is posted in EUR;

therefore, EUR is the document currency for this posting.

Figure 2.1 Document Currency in an Accounting Document 쐍 Company code currency (10) This currency of the company code usually coincides with the currency of the country that the company code resides in. The company code currency is part of the company code settings in Transaction OX02. In Figure 2.2, you can see that in

the configuration of Company Code 1010, the Currency EUR has been defined. Therefore, EUR is the company code currency for this company code.

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Figure 2.2 Company Code Currency Settings

If company code currency 10 is combined with a valuation view, then the last digit of the currency type will represent the valuation view. For example, currency type 11 represents company code currency/group valuation and currency type 12 represents company code currency/profit center valuation. We’ll discuss valuation views in Chapter 3 and Chapter 4. 쐍 Controlling area currency (20)

This currency of the controlling area is set up in the configuration settings of the controlling area (Transaction OKKP). In Figure 2.3, you can see that the Currency USD has been assigned to Controlling Area A000. Therefore, USD is the controlling area currency for any company codes assigned to controlling area A000.

Figure 2.3 Controlling Area Currency Setting

You’ll notice from Figure 2.3 that the Currency Type that was set up for the controlling area is Group currency (30). This is because the controlling area currency

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(20) can only be used in CO, and not in financial accounting (FI). Therefore, to have better integration between the FI and CO currencies, the group currency is set as the controlling area currency. We’ll discuss group currency next. 쐍 Group currency (30)

This currency type is defined for the client in the settings for the SAP client in Transaction SCC4. You can see in Figure 2.4 that Client 100 is set up with a Currency of USD. Therefore, USD is the group currency for any company codes in this client.

Figure 2.4 Group Currency Setting in the Client

If group currency 30 is combined with a valuation view, then the last digit of the currency type will represent the valuation view. For example, currency type 31 represents group currency/group valuation, and currency type 32 represents group currency/profit center valuation. We’ll discuss valuation views in Chapter 3 and Chapter 4. 쐍 Hard currency (40)

This currency is used for external reporting for some countries with high inflation. It’s assigned to the Country settings in Transaction OY01. Figure 2.5 shows a Hard Currency of USD being assigned to the country Argentina. 쐍 Index-Based Currency (50)

This currency is used for external reporting for some countries with really high inflation. It’s assigned to the Country settings in Transaction OY01. Figure 2.5 also shows an Index-Based Currency of EUR being assigned to the country Argentina. 쐍 Global company currency

This currency is assigned to the company (trading partner) configuration in Transaction OX15.

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Figure 2.5 Hard Currency and Index-Based Currency Settings

Note: Company versus Company Code Note that a company is different from a company code. A company is a consolidation unit that defines a company code, vendor, or customer, as a trading partner. A company code is assigned to a company, and the company code and company are usually given the same number.

In Figure 2.6, you can see that Company 1010 has been assigned to Currency EUR. Therefore, EUR is the global currency for company 1010.

Figure 2.6 Global Currency Settings

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쐍 Controlling object currency

This is the currency type of the controlling object, such as a cost center, internal order, production order, or work breakdown structure (WBS) element. Figure 2.7 shows the Currency EUR assigned to Cost Center 10101301. Therefore, currency EUR is the controlling object currency.

Figure 2.7 Controlling Object Currency Assignment

The company code currency usually defaults as the controlling object currency; however, the controlling object currency can be changed if the company code currency is the same as the controlling area currency.

2.1.2 Defining Standard Currency Types in the Universal Journal In the SAP ERP system, you had the option of having three currency types in the FI module for each company code (unless you used the special purpose ledger, in which

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case you could add an additional currency type), two currency types in the CO module, and three currency types in the Material Ledger. In SAP S/4HANA, the Universal Journal now allows the addition of eight extra userdefined currency types. When added to the company code currency and the global (controlling area) currency, this means that there are now 10 available currency fields in FI. These currency types, along with their associated field names in the Universal Journal (table ACDOCA), are shown in Table 2.1. Currency Type

Table ACDOCA Field

Source

Local currency

HSL

Company code

Global currency

KSL

Controlling area

First free currency

OSL

User-defined

Second free currency

VSL

User-defined

Third free currency

BSL

User-defined

Fourth free currency

CSL

User-defined

Fifth free currency

DSL

User-defined

Sixth free currency

ESL

User-defined

Seventh free currency

FSL

User-defined

Eighth free currency

GSL

User-defined

Table 2.1 Currency Fields in the Universal Journal

Note that even though you now have up to 10 fields available in the Universal Journal, that doesn’t mean you need to use all of them. In fact, many companies will use only two of the currency types—local and global. However, this expansion of currencies gives you more options to use additional currency types in your company code. The local and global currency types are available for all ledgers; however, the userdefined currency types are ledger-dependent. Let’s now define the standard currency types for the Universal Journal. To do so, go to the configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Ledger • Define Settings for Ledgers and Currency Types or use Transaction FINSC_LEDGER. In the subsequent screen, double-click the Currency Types folder, which will take you to the screen shown in Figure 2.8.

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Figure 2.8 Standard Currency Types

The columns shown in Figure 2.8 are described here: 쐍 Currency Type

Two-digit key that represents the currency type. 쐍 Description

Currency type description. 쐍 Settings Def. Level

Definition level for the currency type settings that determines whether the currency type is to be used for all company codes (Global) or can be selected for particular company codes (Company Code-Specific). As you can see, this field is gray for some of the currency types, which means the standard system setting is fixed, and you can’t change it. Fields in white are changeable. Now create one user-defined currency type by clicking on the New Entries button to open the screen shown in Figure 2.9.

Figure 2.9 User-Defined Currency Type

Select your Currency Type (YL, in this example) as a Legal Valuation currency type, and enter a Description and Short Description of the currency type. In addition, select Company Code-Specific in the Settings Def. Level column, which means that you’ll be able to further define this currency type based on the company code.

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Note: Currency Type Naming A user-defined currency type can only be created starting with a Y or Z. In addition, unlike the standard currency types, the second digit of the user-defined currency type doesn’t need to represent the valuation view.

2.2 Currency Conversion Settings for Company Codes For any currency types that had a definition level set to Global, you can define the conversion settings by double-clicking on the Global Currency Conversion Settings folder in the left panel of the screen shown earlier in Figure 2.8. The Global Currency Conversion Settings screen appears as shown in Figure 2.10.

Figure 2.10 Global Currency Conversion Settings

For any currency types that had a definition level set to Company Code-Specific, double-click the Currency Conversion Settings for Company Code folder on the left panel of the screen shown earlier in Figure 2.8, which will take you to the Currency Conversion Settings for Company Code screen as shown in Figure 2.11.

Figure 2.11 Currency Conversion Settings for Company Code

The main columns shown in Figure 2.11 are explained as follows: 쐍 Company Name

The company name the currency type settings are defined for. 쐍 Currency Type

The currency type that is being assigned to the company code. 쐍 Source currency type

The currency type that the exchange rate is based on to convert to the defined

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currency type. For example, if the company code currency is USD, this will be the source currency that is translated to the target currency type. 쐍 Exch. Rate Type

The type of exchange rate (set up in Transaction OB08) that will be used for the currency conversion from the source currency to the target currency. 쐍 Trans. Date Type

The effective date that the exchange rate is based on. 쐍 Real-Time Conversion

Choice of whether the currency conversion will be done immediately or will be converted during Transaction FAGL_FCV (Foreign Currency Valuation) at periodend. If the box is checked, it means that the conversion will be done in real time. Now, you can add the new currency type (YL) created earlier and assign it to company code 1010. To do that, click the New Entries button to arrive at the screen shown in Figure 2.12.

Figure 2.12 Currency Conversion Settings for Currency Type

As you can see in Figure 2.12, the currency conversion settings have been set up for Currency Type YL in Company Code 1010. Assign a Source currency type of Document Currency with an S… field of 00, which means that where necessary, the translation for this currency will be based on the document type. Then, assign an Exch. Rate Type of M Standard translation, which is the exchange rate type that will be used for the currency translation, and a Trans.Date Type of Posting date, which means that the exchange rate that is valid for the posting date will be used for the translation. Check the Real-Time Conversion box, which means that the translation will take place in real time as opposed to taking place at the end of the month.

Note: Depreciation Areas For every standard currency type that is assigned to a company code, you need to have an equivalent depreciation area in the new asset accounting (AA) functionality, which the parallel currency is assigned to. This is done in Transaction OABT. For userdefined currency types, you don’t need a specific depreciation area in AA.

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2.3 Defining the Currency and Valuation Profile Now that you’ve seen the setup of currency types, let’s look at how to set up valuation views. You only need to set up valuation views if you want to manage different valuations in parallel. Multiple valuations refers to the ability to value inventory by more than one valuation method. For example, a company may value its inventory for legal purposes at 100,000 EUR. However, if 10% of that inventory cost was due to the markup from an intercompany purchase, then it makes sense to eliminate this amount for group reporting purposes. Therefore, for the same quantity of inventory, there would be two valuations: one for legal and one for group reporting requirements (see Table 2.2). Legal Valuation

Group Valuation

100,000 EUR

90,000 EUR

Table 2.2 Transaction Showing Legal and Group Valuations

There are several reasons why a company would want their inventory to have different valuation views. Following are the common ones used in SAP: 쐍 Legal valuation

Every company needs to value inventory using a method that complies with the legal rules within its jurisdiction. These valuation rules are normally based on the accounting standard used for that country. In addition, every legal entity (represented as a company code in SAP) records its inventory value separately from any other legal entity, even though they belong to the same group of companies. 쐍 Group valuation

In the case of a multinational organization with legal entities in several countries, the parent company would normally want to view its inventory position for the whole group. This means that any intercompany profit that results from the sale from one affiliated entity to another should be eliminated. In effect, the organization will treat all companies in the group as if they are one company from an inventory valuation standpoint. 쐍 Profit center valuation

For management reporting purposes, certain companies may want to report an income statement for their divisions separately, even though these divisions don’t exist as separate company codes. If one division sells to another, and they exist in the same company, they would want to record revenue for the selling

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entity and cost of sales for the buying entity. Therefore, the inventory that is held for the buying entity will include any profit that was created by the selling entity. When you think about it, profit center valuation is the reverse of group valuation because group valuation treats several companies as one company and eliminates any intercompany profit, whereas profit center valuation can treat one company as several companies and include an intercompany profit. When you add the valuation view to a currency type, this is known as a valuation approach. We briefly described valuation approaches earlier in Section 2.1, when we referred to the group currency/group valuation view. The term group currency refers to the currency type, whereas group valuation refers to the valuation view. We also said that the standard currency type for group currency/group valuation is 31, with 30 representing the group currency and 1 representing the group valuation. Let’s walk through the major steps in setting up your currency and valuation profile.

2.3.1 Maintaining the Currency and Valuation Profile If you want to manage multiple valuations in parallel, you’ll need to set up a currency and valuation profile by going to the configuration menu path Controlling • General Controlling • Multiple Valuation Approaches/Transfer Prices • Basic Settings • Maintain Currency and Valuation Profile. You can then click the New Entries button, give your Curr/Val. Profile a name and description, and double-click the Details folder to arrive at the screen shown in Figure 2.13.

Figure 2.13 Currency and Valuation Profile

As you can see in Figure 2.13, valuation number 0 defaults to currency type 10 Company code currency and a Valuation View of Legal Valuation. You can then enter valuation numbers “2” for currency type 30 Group currency and Valuation View Group Valuation, and valuation number “3” for currency type 30 Group Currency and valuation view Profit Center Valuation. Save your settings by clicking the Save button.

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Note: Retroactive Enablement As of SAP S/4HANA version 1809, you can’t enable multiple valuations retroactively. Therefore, if you want to use multiple valuations, you need to enable them in SAP ERP before moving to SAP S/4HANA. If you’re doing a greenfield implementation of SAP S/4HANA, this isn’t applicable.

2.3.2 Assigning the Currency and Valuation Profile to the Controlling Area Now that you’ve defined the currency and valuation profile, you need to assign it to a controlling area. You can do this by going to the configuration menu path Controlling • General Controlling • Multiple Valuation Approaches/Transfer Prices • Basic Settings • Assign Currency and Valuation Profile to a Controlling Area. Assign the currency and valuation profile to the controlling area, as shown in Figure 2.14.

Figure 2.14 Assigning the Currency and Valuation Profile to the Controlling Area

In this example, we’ve assigned the C+V Prof. TP01 to Controlling Area A000, and checked the Act (activate) checkbox to ensure that transfer pricing between company codes is possible.

2.3.3 Creating Versions for the Valuation Methods Now that you’ve assigned the currency and valuation profile to the controlling area, you need to create additional versions that represent each valuation view. This allows certain CO functionalities, such as work in process (WIP) calculation, to be done in the respective valuation view. To do this, go to the configuration menu path Controlling • General Controlling • Multiple Valuation Approaches/Transfer Prices • Basic Settings • Create Versions for the Valuation Methods. Click New Entries to arrive at the screen shown in Figure 2.15. Enter “0”, “TP1”, and “TP2” in the Version column, and assign them to the Valuation Views Legal Valuation, Group Valuation, and Profit Center Valuation, respectively. Make sure that the Actual checkbox is active for all three versions. The operational Version 0 (Plan/actual version) represents the leading valuation in CO, which is the

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version that CO functions such as planning, plan/actual comparisons, and price calculation are based on.

Figure 2.15 Maintaining Versions for Valuation Views

2.3.4 Activating the Currency and Valuation Profile To use the transfer pricing functionality in the controlling area, you need to activate the currency and valuation profile. This is done by going to the configuration menu path Controlling • General Controlling • Multiple Valuation Approaches/Transfer Prices • Activation • Multiple Valuation Approaches: Check/Execute Activation or by using Transaction 8KEP and arriving at the screen shown in Figure 2.16.

Figure 2.16 Activating the Currency and Valuation Profile for the Controlling Area

Enter your Controlling Area (“A000”, in this example), and select the Activate in controlling area option. Click the Execute button to get to the screen shown in Figure 2.17.

Figure 2.17 Active Status for the Currency and Valuation Profile

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You can see in Figure 2.17 that the status of the currency and valuation profile has been set to Active. This means that the group and profile center valuation views are now available in controlling area A000.

2.4 Defining Ledgers for Valuation Views There are three main types of ledgers in the Universal Journal, as follows: 쐍 Standard ledger

This main ledger contains all the postings that relate to it. The standard ledger can either be a leading ledger or a nonleading ledger. To see the settings, go to Transaction FINSC_LEDGER (the same transaction we used when defining the currency types in Section 2.1.2), and double-click the Ledger folder, which will take you to the screen shown in Figure 2.18.

Figure 2.18 Leading and Nonleading Ledgers

As you can see in Figure 2.18, the ledgers 0L and 2L are set up as Standard Ledgers based on their Ledger Type. However, Ledger 0L is the leading ledger because it has the Leading checkbox activated, making it the primary ledger for any postings in the respective company code. The nonleading ledger is a parallel ledger that can accept all postings to the leading ledger, as well as any specific postings to its own ledger (e.g., GAAP adjustments). 쐍 Extension ledger

This nonstandard ledger indirectly inherits the postings of its underlying ledger. Similar to the nonleading ledger, you can make postings directly to the extension ledger. The main difference between the extension ledger and the parallel ledger is that the postings that go to the underlying ledger don’t also go to the extension ledger. Instead, the extension ledger reads the postings from its underlying ledger. This helps to save database space because the postings aren’t happening simultaneously in two ledgers. Figure 2.19 shows an example of an extension ledger.

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Figure 2.19 Extension Ledger

As you can see in Figure 2.19, Ledger E0 has been set up with an Extension Ledger type and an Underlying Ledger of 0L, which is the leading ledger. Any postings made in ledger 0L will be read by the extension ledger, and any postings made directly to ledger E0 will only be viewable in that ledger. 쐍 Simulation ledger

This version of the extension ledger allows you to simulate financial postings before the actual posting is done. It can be used for simulating the foreign currency valuation (Transaction FAGL_FCV) results before the period-end, as well as for other statistical reporting purposes. Figure 2.20 shows an example of a simulation ledger.

Figure 2.20 Simulation Ledger

You can see in Figure 2.20 that Ledger U1 has been set up with a Ledger Type of Extension Ledger and an Extn. Ledger Type of Simulation Extension Ledger. This means that postings to this ledger can be made to simulate financial results that don’t update the G/L. Now that we’ve discussed the main ledgers available with the Universal Journal, let’s look at how the standard ledgers (leading and nonleading) can be integrated with the valuation views. There are two options for combining ledgers with valuation views: single valuation ledger and multi-valuation ledger. We’ll discuss each of them separately.

2.4.1 Multi-Valuation Ledger Using a multi-valuation ledger is the more common approach to setting up a ledger. In fact, if you’ve used valuation views in SAP ERP, it’s an approach that you’re accustomed to. It involves using the same ledger for all valuation views. Features of the multi-valuation ledger are as follows:

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쐍 No valuation view is assigned to the ledger. 쐍 Currency types of all valuation views can be used with this ledger. 쐍 Separate amount columns are used to distinguish the different valuation views. 쐍 The memory footprint of the database is reduced. 쐍 The period-end activities are reduced because all valuation views are processed at

once. Now let’s see how multi-valuation ledgers are set up by looking at the valuation view for leading ledger. To do so, go to Transaction FINSC_LEDGER, select Ledger 0L, and double-click the Ledger folder, which will take you to the screen shown in Figure 2.21.

Figure 2.21 Valuation View of the Multi-Valuation Ledger

As you can see in Figure 2.21, the Valuation View of Ledger 0L is blank, which means it’s valid for all valuation views. Now let’s look at the currency types that are assigned to a company code in this ledger. Double-click the Company Code Settings for the Ledger folder. This will take you to the screen shown in Figure 2.22.

Figure 2.22 Currency Types for the Multi-Valuation Ledger

As you can see in Figure 2.22, company code (CoCd) 1010, which exists in Ledger 0L, has been assigned four currency types as follows: 쐍 10: Local currency type

Company code currency with legal valuation. 쐍 30: Global currency type

Controlling area (and group) currency with legal valuation.

쐍 31: Freely defined currency type 1

Group currency with group valuation. 쐍 32: Freely defined currency type 2

Group currency with profit center valuation.

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You can therefore see that multiple valuation views (legal, group, and profit center) exist in a single ledger 0L. You should also note that only these four currency types will be available in the Material Ledger. Even if we defined an extra currency type (e.g., currency type YL created earlier), this wouldn’t be available as a Material Ledger currency type because the Material Ledger still only offers three valuation approaches (i.e., combinations of currency types and valuation views).

2.4.2 Single Valuation Ledger Introduced with SAP S/4HANA 1605, this new type of ledger approach provides the option to use a single ledger for each valuation view. This option provides a clear separation of postings and reporting of financial results based on the various financial regulations. Features of the single valuation view are as follows: 쐍 A specific valuation view is assigned to each ledger. 쐍 More transparency is provided of postings and reporting of financial results for

each valuation view because you’ll be able to specify the ledger that is unique to each valuation view. 쐍 Only the currency types of the associated valuation view can be used with this led-

ger. Let’s see how single valuation ledgers are set up by looking at the valuation view for a specific ledger. Go to Transaction FINSC_LEDGER, select Ledger ML, and double-click the Ledger folder, which will take you to the screen shown in Figure 2.23.

Figure 2.23 Valuation View of the Single Valuation Ledger

You can see in Figure 2.23 that Ledger ML has been assigned a Valuation View of Legal Valuation. This means that any postings or reports for this ledger will only be valid for the legal valuation view. Let’s now look at the currency types assigned to a company code in this ledger. Just as we did with the multi-valuation view example, click the Company Code Settings for the Ledger folder to get to the screen shown in Figure 2.24.

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Figure 2.24 Currency Types for the Single Valuation Ledger

As you can see in Figure 2.24, CoCd (company code) 1010, which exists in Ledger ML, has been assigned only two currency types (local and global). If you double-click the line with the company code, you’ll see the valuation views that are assigned to this ledger, as shown in Figure 2.25.

Figure 2.25 Valuation Views of the Single Valuation Ledger

As you can see in Figure 2.25, Ledger ML only contains Currency Types (10 and 30) that have a legal valuation view because this is the valuation view that was assigned specifically to this ledger.

2.5 Defining Ledgers for Controlling Versions Because of the integration of FI and CO in the Universal Journal, both modules make use of the same database table ACDOCA, and their settings need to be synchronized. Therefore, the ledgers that are created need to be assigned to CO versions to ensure that any postings to the ledgers will be read in CO.

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To do this, go to the configuration menu path Controlling • General Controlling • Multiple Valuation Approaches/Transfer Prices • Basic Settings • Define Ledger for CO Version. Click New Entries to go to the screen shown in Figure 2.26.

Figure 2.26 Defining Ledgers for CO Versions

Assign Ledger 0L to each Version (0, TP1, and TP2) in Controlling Area A000. Now the data for the currency types in ledger 0L can be read in CO. Click the Save button to save your settings.

2.6 Material Ledger Activation for Currencies and Valuations Now that the ledgers, currency types, and valuation views have been set up, we need to integrate these settings with the Material Ledger and ensure that the Material Ledger is activated. First, because the Material Ledger is mandatory in SAP S/4HANA, most of the settings in this section will already be active, as they are part of the conversion process to SAP S/4HANA. However, if you create a new plant, the Material Ledger won’t automatically be active for that plant. You’ll need to activate that plant for the Material Ledger and make the plant productive by going to the application menu path Accounting • Controlling • Actual Costing/Material Ledger • Environment • Production Startup • Set Valuation Areas as Productive. (We’ll discuss the process of making a plant productive for the Material Ledger in Appendix A.)

Note: Plants in the Material Ledger Although most Material Ledger configuration screens label the Plant field as Valuation Area, we’ll use the terms “plant” and “valuation area” interchangeably. It’s also possible for the valuation area to also represent the company code (as mentioned in Chapter 1), but this isn’t typically done when using the Material Ledger.

Now we’ll walk through how the currency types that were shown earlier in this chapter are assigned to the Material Ledger type.

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2.6.1 Defining Material Ledger Types and Assigning Currency Types In this configuration step, you need to define the Material Ledger type and assign it to the relevant currency types from FI. You can access the configuration for defining the Material Ledger type and assigning it to currency types by going to the configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Assign Currency Types and Define Material Ledger Type. Then, click New Entries, and enter the relevant ML Type and Description, as shown in Figure 2.27.

Figure 2.27 Defining Material Ledger Types

You’ll notice from Figure 2.27 that the Manual checkbox is automatically selected for the newly created Material Ledger type TP01. If you’re familiar with this screen in SAP ERP, you know that you had the option (as mentioned in Chapter 1) to either select the currency type from FI or CO, or to input it manually. However, in SAP S/4HANA, you’re forced to choose the Manual checkbox for the following two reasons: 쐍 You’re only allowed to use the currency types from FI. Because of the integration

between the Material Ledger and the Universal Journal (table ACDOCA), the currency types used in the Material Ledger should be available in FI. 쐍 The FI currency types in the Universal Journal have been increased to eight (from

three in SAP ERP). However, in the Material Ledger you’re still only able to use three currency types. If you simply selected the CT from FI option, the system won’t know which of the eight currency types (aside from currency type 10) you want to use for the Material Ledger. Therefore, you explicitly must state which additional currency types (from FI) you want to use by choosing the Manual checkbox and double-clicking on the Define individual characteristics folder, as shown in Figure 2.28.

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Figure 2.28 Assigning Manual Currency Types to the Material Ledger Type

Figure 2.28 shows that three currency types (Company code currency; Group currency, group valuation; and Group currency, profit center valuation) have been assigned to Material Ledger type TP01. If you want to use different currency types for different plants, then you’ll need to create multiple Material Ledger types by repeating the previous steps.

2.6.2 Assigning Material Ledger Types to Valuation Areas Now that the Material Ledger type TP01 has been configured with its respective currency types, you need to assign this Material Ledger type to the relevant valuation areas (plants). You can assign multiple valuation areas to the same Material Ledger type, but you can’t assign one valuation area to multiple Material Ledger types. In addition, if several valuation areas exist in the same company code, then they should all be assigned to the same Material Ledger type. To maintain this setting, go to the configuration menu path Controlling • Product Cost Controlling • Actual Costing/ Material Ledger • Assign Material Ledger Types to Valuation Area. Click New Entries and make the necessary assignments, as shown in Figure 2.29.

Figure 2.29 Assigning Material Ledger Types to Valuation Areas

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Assign your valuation areas (in this example, 1710 and 1711), which belong to the same company code (1710), to the Material Ledger type TP01. The Status column shows whether the Material Ledger currencies are allowed in FI: if the indicator is green, they are allowed; if red, they aren’t allowed. If you click the Status button, you’ll see an overview of the statuses for the various currency types, as shown in Figure 2.30.

Figure 2.30 Overview of Currency Type Statuses for the Valuation Area

You’ll see from Figure 2.30 that the statuses for each currency type shows whether the currency type is integrated with FI, whether it’s an FI currency type that is or isn’t valid for the Material Ledger, or whether it’s a currency type that is neither valid in FI or the Material Ledger.

2.6.3 Activating Material Ledgers for Valuation Areas As mentioned earlier in this chapter, all valuation areas should be active for the Material Ledger, so this setting should already be made. However, it’s important to check these settings after an SAP S/4HANA conversion to ensure that they are activated correctly. To check these settings, go to the configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Activate Material Ledgers for Valuation Areas. You’ll then be taken to the Select Activity screen shown in Figure 2.31.

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Figure 2.31 Activity Selection for Activating the Material Ledger

Double-click the Activate Material Ledger option, which will take you to the screen shown in Figure 2.32.

Figure 2.32 Activating Valuation Areas for the Material Ledger

You can see from Figure 2.32 that each Valuation Area in their respective company codes have the ML Act. checkbox selected, which means they are active for the Material Ledger. You’ll also see that the Status box (as we mentioned earlier) shows whether the currencies are integrated with FI. The last two columns on the right-hand side are more complex, as follows: 쐍 Price Deter.

As you saw briefly in Chapter 1, Section 1.2.3, price determination determines whether actual costing will be performed for that plant or not. 2 means that actual costing won’t be performed, whereas 3 means that actual costing will be performed. A price determination option is mandatory for every inventory-relevant material in that plant. You can see that Valuation Areas 1710 and 1711 will be relevant for actual costing, whereas Valuation Areas 1800 and 2000 won’t be relevant for actual costing. Every material that is created in the plants will have a Price Determ. that is set in Figure 2.32.

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If you want to change the price determination of a material after it has been created, go to application menu path Accounting • Controlling • Actual Costing/Material Ledger • Environment • Change Material Price Determination or use Transaction CKMM. (We’ll discuss this process further in Appendix A.) 쐍 Price Det. Binding in Val Area

This checkbox determines whether the default Price Determ. set in the previous column can be changed after the material has been created. We mentioned that you can use Transaction CKMM to change the material price determination after the material has been created. However, if the Price Det. Binding in Val Area checkbox is activated, you won’t be able to change the price determination for any materials in that plant. Instead, you have to uncheck this box to do so.

2.7 Summary In this chapter, we went through the basic configuration settings for the Universal Journal in terms of ledgers, currency types, and valuation views. First, we looked at the standard currency types in the G/L and how the currency keys are assigned to them. We explained that you can add eight user-defined currency types in the Universal Journal, but in the Material Ledger, you can only use three. We then walked through the configuration steps for assigning currency types to company codes and creating a custom currency type. After that, we explained what a currency and valuation profile is and showed how it’s configured for legal, group, and profit center valuation views. We then showed how the currency and valuation profile is activated and assigned to a controlling area and version. We then explained the different ledgers that exist in the Universal Journal and how they are defined. We introduced the two types of standard ledgers that can be combined with valuation views—single valuation ledger and multi-valuation ledger—and how they are configured. We rounded out the chapter by discussing the baseline Material Ledger settings, including assigning Material Ledger types to currency types and valuation areas and activating the Material Ledger. In the next chapter, we’ll look at one of the main valuation approaches used in the Material Ledger: group currency and valuation.

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Chapter 3 Group Currency and Valuation Group currency translates material costs for a group into a unified currency. Group valuation allows for the exclusion of intercompany profits from transactions that occur between affiliated companies.

In this chapter, we’ll discuss group currency, group valuation, and how they can be set up and used. The terms group currency and group valuation are usually concatenated to become group currency/group valuation, as we mentioned a few times in the previous chapter. However, many companies that use group currency don’t use group valuation because many companies that used group currency in SAP ERP may not have used the Material Ledger. Now that the Material Ledger is mandatory with SAP S/4HANA, they may want to know how group currency works with the Material Ledger, but not necessarily activate group valuation. Therefore, we want to treat the two concepts separately to start with. We’ll first look at how to set up group currency alone with the Material Ledger in Section 3.1, and then we’ll show how group currency and group valuation can be used in conjunction. We’ll then show how to calculate standard cost in the group valuation view Section 3.2, including how to set up a costing variant with settings that are specific to group valuation, and configuring a delta cost component split. In Section 3.3, we’ll demonstrate the configuration that is needed for cross-company purchasing, and walk through a detailed scenario.

3.1 Group Currency We mentioned in the previous chapter that group currency is the currency that is set up for the client. This means that all company codes in the same client will have the same group currency. We also said that it’s advisable to make the controlling area currency the same as the group currency to smooth the integration between the controlling (CO) and financial accounting (FI) functionalities. Even if you have the group currency enabled in FI and CO, this doesn’t necessarily mean that it’s automatically

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available in the Material Ledger. In this section, we’ll first recap a few configuration steps that were shown in Chapter 2, Section 2.1.1, to demonstrate how group currency is set up in the Material Ledger for a specific company code. Then, we’ll walk through some key transactions you can use with group currency.

3.1.1 Setting Up Group Currency for a Company Code First, let’s look at the currency of the company code EU10. To do this, go to Transaction OX02, and double-click Company Code EU10, as shown in Figure 3.1.

Figure 3.1 Currency for Company Code EU10

As you can see in Figure 3.1, Company Code EU10 has a Currency of EUR. Now view the group currency that is set up for this company code by going to Transaction FINSC_ LEDGER, selecting Ledger 0L, and double-clicking the Company Code Settings for the Ledger folder. You’ll arrive at the screen shown in Figure 3.2.

Figure 3.2 Currency Settings for Company Code EU10

As you can see in Figure 3.2, Company Code EU10 has two currency types: company code currency (Local Curr. Type) 10 and group currency (Global Curr. Type) 30. You’ve

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already seen that the company code currency is EUR. Now you can see the group currency by double-clicking on the Currency Conversion Settings for Company folder shown in Figure 3.2, which will take you to the screen shown in Figure 3.3.

Figure 3.3 Group Currency Settings for Company EU10

You can see in Figure 3.3 that the group Currency Type 30 with Currency USD is enabled for Company Code EU10. This group currency is based on the Company Code Currency as a Source currency type, and the Exch. Rate Type M (Standard translation at average rate) is used to convert the company code currency to the group currency. This conversion between the company code currency EUR and the group currency (USD) is set up in the exchange rate tables in Transaction OB08, as shown in Figure 3.4.

Figure 3.4 Exchange Rate between EUR and USD

Here, the exchange rate between EUR and USD is 1 EUR to 1.25 USD. Now take a look at the Material Ledger settings for any plants assigned to company code EU10 by going to Transaction OMX3 and looking at the Material Ledger type assigned to the plant in Company Code EU10 (see Figure 3.5).

Figure 3.5 The Material Ledger Type for Company Code EU10

As you can see in Figure 3.5, the plant (Valuation area) 101O, which is assigned to Company Code EU10, is assigned to Mat. ledger type 9300.

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To see the currency types that are assigned to this Material Ledger, go to Transaction OMX2, select Mat. Ledger Type 9300, and double-click the Define individual characteristics folder to view the data shown in Figure 3.6.

Figure 3.6 Currency Types for Material Ledger Type 9300

You can see in Figure 3.6 that the Mat. Ledger Type 9300 has two currency types assigned to it: Company code currency (10) and Group currency (30). We showed how this is done in Chapter 2, Section 2.1.2. Assign this Material Ledger type 9300 to the plant (171O) in company code EU10 to enable the group currency in the Material Ledger for this company code. To now see how the material master in this plant looks with the company code currency and group currency, go to Transaction MM03 and select the Accounting 1 view for material HAWA-123 in plant 101O (see Figure 3.7).

Figure 3.7 Material Master in Company Code and Group Currency

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You can see in Figure 3.7 that the material HAWA-123 has a Company code currency of 1.00 EUR. This is translated into the group currency (USD) using the exchange rate that we saw in Figure 3.4 of 1 EUR to 1.25 USD. Therefore, the Group currency for this material is 1.25 USD.

Note: Standard vs. Per Unit Price You’ll notice that there are two price fields shown in Figure 3.7: Standard Price and Per. unit price. Because the price control (Prc. Ctrl) of this material is V, the Per. unit price is the valuation price, and the Standard Price is statistical.

You’ll also notice that the currency types shown in the material master don’t specify which valuation view is used. When this happens, it means that the currencies are at legal valuation. You can therefore say that the material has a valuation approach of company code currency/legal valuation and group currency/legal valuation. For convenience in this section, we’ll only mention the currency type, as it’s assumed that the valuation view is legal, unless specified otherwise.

3.1.2 Changing Material Cost Let’s now perform a few transactions for this material. The first transaction we’ll show is the changing of the cost of this material. Because the material is valued at moving average price (indicated by a price control of V in Figure 3.7), you can change the material price using Transaction MR21, as shown in Figure 3.8.

Figure 3.8 Price Change for Material HAWA-123

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You enter the new price in the New price column. In Figure 3.8, the material price has been changed from 1.00 EUR to 1.20 EUR. Note that there are two tabs in the screen, which are EUR Co.Code and USD Group. If you’ve used Transaction MR21 without the Material Ledger active, you may not be familiar with these two tabs in this screen. They appear because the price change will need to be done in both the company code currency (EUR) and the group currency (USD). You can do this in one of the following ways: 쐍 Click the USD Group tab, and directly enter the equivalent USD amount in New

Price field of that tab. 쐍 Click the USD Group tab, highlight the line with the material, and click the Trans-

late Selected Objects button (highlighted in Figure 3.8). This will lead to the popup box shown in Figure 3.9.

Figure 3.9 Translation of Currency Type during Price Change

You can see in Figure 3.9 that the system is proposing the translation from EUR Company code currency. It also gives the option of the type of price you want to change. The Valuation Price is the price the inventory is valued at (the moving average price, in the example), whereas the Statist. Price is the standard price. Click the Confirm Entry button to save your changes. Now you can go back to the Accounting 1 view for this material and see what has changed, as shown in Figure 3.10. You can see in Figure 3.10 that the Company code currency price has changed to 1.20 EUR, while the Group currency price has changed to 1.50 USD, which is the USD translation of the EUR amount at the exchange rate shown earlier in Figure 3.4.

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Figure 3.10 Material Master after Price Change

3.1.3 Making a Purchase Now, you can make a purchase for this material to see how it affects the material master and relevant reports. For a purchase of 1,000 pieces at a price of 1.80 EUR, the purchase order is shown in Figure 3.11.

Figure 3.11 Purchase Order for Material HAWA-123

After performing a goods receipt for the purchase order, the Company code currency and Group currency for material HAWA-123 will look like that in Figure 3.12.

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Figure 3.12 Material HAWA-123 after Purchasing 1000 PC

The material HAWA-123 now has a price of 1.80 EUR in Company code currency, which was translated into 2.25 USD in Group currency, and a Total Stock value of 1,000 PC. Let’s see what the posting looks like in the Universal Journal (table ACDOCA), as shown in Figure 3.13.

Figure 3.13 Table ACDOCA Showing Company Code and Group Currency

You can see that the company code and group currencies are shown in table ACDOCA for this material. In SAP ERP, these values will normally be viewed in the material valuation table MBEW, but in SAP S/4HANA, these values are shown in the Universal Journal. You’ll also be able to view the values in the SAP Fiori reports for inventory, such as the Material Inventory Values – Balance Summary report, shown in Figure 3.14.

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Figure 3.14 SAP Fiori Report for Material HAWA-123

You can therefore see that for every inventory posting, you’ll be able to track both the company code and group currency on a material level. Without the Material Ledger, if you had group currency activated, you would have been able to see this information on a general ledger (G/L) basis and not a material basis as well. We’ll now take a look at the other valuation approach segment for group reporting, which is group valuation.

3.2 Group Valuation Group valuation creates a separate view that can be used to display the inventory results of a group of affiliated companies as if they were a single entity. It’s not a requirement that you activate group valuation in SAP S/4HANA, even if you’re a multinational organization. For example, if an organization has multiple entities, but the transactions between entities occur at cost (meaning that no profit is being made from the sale between entities), then there may not be a use for group valuation. It’s simply an option that you can use if you want to view inventory data on a group basis by eliminating any intercompany profit in inventory. Group valuation should not be confused with consolidation. While consolidation involves the reporting of financial statements of multiple companies as if they were a single entity, group valuation does this on a more granular level, for each individual material. Consolidation involves the elimination of more than just inventory profit, such as the elimination of payables and receivables, elimination of intercompany debt, and elimination of revenues and expenses. Group valuation information can be used to feed the data that is needed for consolidation, but it’s unlikely that consolidation data is used in group valuation. Let’s begin by looking at one of the key determinants for group valuation: transfer pricing. We’ll then explain how to calculate a standard cost with group valuation by creating a costing variant for group valuation and activating cross company costing.

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We’ll discuss how to configure a delta cost component split and a special procurement key for transfers between plants in different company codes. We’ll also show how an intercompany markup is included in the standard cost by using an additive cost and how this looks in a standard cost calculation.

3.2.1 Transfer Pricing with Group Valuation With the advent of globalization, mergers, and acquisitions between companies in different countries, many organizations operate in regions with varying fiscal requirements. Therefore, organizations need to be aware of the legal and fiscal implications of establishing a price for buying and selling products in the affiliated entities in these countries. A key factor to having a smooth intercompany process is setting up a pricing structure that conforms with the requirements of all countries involved but also leads to a sufficient redistribution of profit from countries in high tax jurisdictions to countries in low tax jurisdictions. Transfer pricing is the method of establishing this pricing structure. Because the transfer price is usually set by the organization itself, as opposed to an external supplier, it’s important for the organization to keep track of the original cost of the product because this is what (when compared with the revenue from an external sale) constitutes the real profit to the organization. Group valuation aids with the tracking of this original cost because it eliminates any of the intercompany profit between the entities, which, while useful from an internal profitability point of view, doesn’t contribute to the overall gross margin of the organization. Figure 3.15 shows a supply chain with transfer pricing relationships between affiliated companies with legal and group valuation values. In this example, three companies (A, B, and C) belong to the same group. Company A is a manufacturing entity that produced a product at a cost of $100. This product was then sold to Company B (a distribution entity) at a transfer price of $110. Company B then sold the product to Company C (a selling entity) at a transfer price of $150. You see that while the legal valuation shows the transfer price of the product that is sold from one entity to the next, the group valuation still shows the original cost of $100. If company C sold the product to an external customer for, say, $200, then the profit in company C will be $50 ($200 – $150) based on legal valuation, but the profit to the group as a whole will be $100 ($200 – $100). You can therefore see how you can report two different profits in parallel depending on who the audience is.

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If you want to treat each company as an autonomous entity and report their profit separately, then the legal valuation view will be used. If you want to report the overall profit of the group, then the group valuation view will be used.

Company A • Legal: $100 • Group: $100

Company B • Legal: $110 • Group: $100

Company C • Legal: $150 • Group: $100

Figure 3.15 Internal Supply Chain with Legal and Group Valuation

3.2.2 Group Valuation with Standard Cost Now let’s look at how you can create a standard cost estimate for group valuation, which represents a cost that excludes the intercompany profit included in the transfer price. Although this process isn’t mandatory, if you already calculate a standard cost estimate (in the legal view), and you now have group valuation activated (as we discussed in Chapter 2), you’ll also need to perform a standard cost calculation for the group valuation view. The process for calculating a standard cost for group valuation is called group costing. It’s basically a way of calculating a standard cost of materials for the whole group, which can be used in parallel with the standard cost of the materials in a particular company. For a multinational organization, it may make sense for the company code-specific standard cost estimate to be calculated by the specific entity, while the group cost is calculated by the parent company. Several configuration steps are required for this. Let’s walk through these steps and then show the results of the cost estimate in both the legal and group views and how they differ.

Costing Variant for Group Valuation First, you need to define a costing variant for group valuation. A costing variant controls all the settings for calculating a standard cost estimate. If you already use cost estimates, then you probably already have one set up for the legal view (although, without the Material Ledger, it may not be apparent that the costing variant is for a

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specific view). The standard costing variant for legal valuation is normally PPC1, but some companies tend to define their own costing variant with a different name. The costing variant has the following five components: 쐍 Costing types

This specifies to which field in the material master the costing results are transferred. 쐍 Valuation variants

This contains the parameters that are required for calculating the cost estimate. 쐍 Date control

This controls the dates on which the quantity and valuation structure are created. 쐍 Quantity structure control

This specifies how the system searches for valid alternative bills of material (BOM) and routings. 쐍 Transfer control and reference variants

This setting prevents the system from creating a new cost estimate for a material when one already exists. For group valuation purposes, you only need to create two of these components: costing types and valuation variants. The other components can be the same as the ones for the legal view. Let’s start with creating a costing type for group valuation. The costing type specifies which field in the material master the costing results will be transferred to. To configure a costing type for group valuation, go to the configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Material Estimate with Quantity Structure • Costing Variant: Components • Define Costing Types or use Transaction OKKI. In the subsequent screen, click the New Entries button to access the screen shown in Figure 3.16. Enter a value for Costing Type and a short description (in this example, Costing Type G1 – Standard Cost (Group)). In the Price Update tab, choose a Price Update of Standard Price and a Valuation View of Group Valuation. This means that when the standard cost for group valuation is released, it will be stored in the Standard Price field of the material master. Now, click the Misc. tab to open the screen shown in Figure 3.17. Create a Calculation Base by selecting Cost of Goods Manufactured from the dropdown. This means that any overhead will be calculated using the cost of goods manufactured (COGM) value as a basis. The Partner Version shows the value-added chain

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for every stage of the internal procurement process. By defining a Partner Version, you’re specifying which organizational unit represents a partner. Because you’re doing group costing, use a Partner Version that has the organizational unit of Company Code.

Figure 3.16 Costing Type for Group Valuation

Figure 3.17 Misc. Tab of Group Costing Type

To create the partner version that you’ll assign to the costing type, click the Create icon highlighted in Figure 3.17. The screen shown in Figure 3.18 appears. Name your partner version, and select the Partner type. In this example, a Partner Version is created called “Company Code,” and the Company Code checkbox is selected in the Partner tab. This Partner Version is then assigned to the costing type shown previously in Figure 3.17. Click the Save button to save the costing type.

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Figure 3.18 Partner Version for the Costing Type

Next, you’ll create a valuation variant for group valuation. The valuation variant contains the parameters that are required to calculate the standard cost. To configure a valuation variant for group valuation, go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Material Estimate with Quantity Structure • Costing Variant: Components • Define Valuation Variants or use Transaction OKK4. In the subsequent screen, click the New Entries button to access the screen shown in Figure 3.19.

Figure 3.19 Valuation Variant for Group Valuation

Here, you can create a name for your valuation variant (in this example, Z01 – Planned Valuation: GRP). Copy all the settings from the valuation variant of the legal view because you want most of the costing parameters of the legal and group view to

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be the same. The only thing that is different is that in the legal view, you want to be able to include additive costs in the cost estimate (because the additive costs will represent the intercompany markup), whereas you don’t want to include additive costs in the group view. Therefore, don’t select the Incl. Additive Costs checkbox. There are several ways to add an intercompany markup to your cost estimate, such as the following: 쐍 Using an overhead costing sheet 쐍 Using a condition type from a purchasing info record 쐍 Using additive costs or a user exit

In the example we’ll show later in this section, you’ll use an additive cost to add the intercompany markup. However, depending on which method you choose, you need to make sure that the group valuation variant doesn’t include this setting because you don’t want the intercompany markup to be included in the group valuation view. Click the Save button to save your settings for the valuation variant. Now that you’ve created a costing type and valuation variant for group valuation, you’ll create costing variants for group valuation and add these components to it. To do this, go to configuration menu Controlling • Product Cost Controlling • Product Cost Planning • Material Estimate with Quantity Structure • Define Costing Variants or use Transaction OKKN. In the subsequent screen, click the New Entries button to go to the screen shown in Figure 3.20.

Figure 3.20 Defining the Group Costing Variant

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Here, you can provide a name for your costing variant (we’ve created Costing Variant ZPC1 for group valuation). Assign the Costing Type to Standard Cost (Group) and the Valuation Variant to Planned Valuation: GRP using the dropdowns. Select the Date Control and Qty Struct. Control settings that are used for the legal valuation costing variant. These settings already exist in the standard system, so we’ll adopt them. However, if your group valuation cost has different Date Control and Qty Struct. Control settings, then you can create your own and change them accordingly. Click the Save button to save this costing variant.

Activating Cross-Company Costing In a transfer pricing scenario, it’s very likely that you transfer products between company codes. In that case, you’ll want to activate cross-company costing. This means that the standard cost calculation can access information in more than one company code. This activation is only done on the legal valuation view because the group valuation view already accesses costing information across company codes. In addition, by activating cross-company costing, you can transfer the cost from the sending company to the receiving company and, if relevant, add a markup in the receiving company. To activate cross-company costing, go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Selected Functions in Material Costing • Activate Cross Company Costing or use Transaction OKYV. In the subsequent screen, click the New Entries button to access the screen shown in Figure 3.21.

Figure 3.21 Activating Cross Company Costing

Select the Cost Across Company Codes checkbox to activate cross-company costing. As you can see in Figure 3.21, cross-company costing has been activated in Controlling Area A000 for the legal valuation Costing Type 01 and Valuation Variant 001. This means that a product in one company code can access the cost of a lower-level product in a separate company code. Click the Save button to save your settings.

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Configuring a Delta Cost Component When you use transfer prices in group costing, you’ll most likely want to identify the profit that is made between companies. This way, you can easily recognize the amount of intercompany profit that is included in the cost of inventory of a company that bought a product from an affiliate company. To achieve this, you’ll need to create a delta cost component. You create this cost component by going to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Basic Settings for Material Costing • Define Cost Component Structure or using Transaction OKTZ. Click the cost component structure Y1, and then double-click the Cost Component with Attributes folder. Click New Entries to access the screen shown in Figure 3.22.

Figure 3.22 Delta Cost Component

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Create Cost Comp. 999 in Cost Comp. Str. Y1. This delta cost component will be available in the group valuation view in the standard cost component reports. Following are descriptions of the key fields highlighted in Figure 3.22: 쐍 Roll up Cost Component

By clicking on this field, the delta cost component value will be retained through the supply chain if there are transfers between multiple companies. 쐍 Not Relevant

This option means that although the delta cost component will be available, it won’t be relevant for inventory valuation or any other category specified. 쐍 Delta Profit for Group Costing

Checking the Company Code box enables the delta profit to show up in this cost component. This indicator can only be set up for one cost component in the cost component structure. Now double-click the Cost Component Views folder to see the cost component views shown in Figure 3.23.

Figure 3.23 Cost Component View Selection

In Figure 3.23, you can see the different views on the right part of the screen. Each of these views can represent a different way to look at the cost components of the standard cost. Double-click the Cost of Goods Sold view to arrive at the screen shown in Figure 3.24. Select the filter you want to use. For this example, select Delta Profit Comp. Code to be able to see the delta profit when you click on the Cost of Goods Sold view for the group valuation standard cost. Save the settings by clicking the Save button.

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Figure 3.24 Cost of Goods Sold Cost Component View

Configuring a Special Procurement Key In this step, you’ll configure a special procurement key so that the cost of a receiving product can access the cost from a sending product in a different plant. The special procurement key can be used to access the cost from an alternative plant that is in the same or different company code as the receiving plant. In this scenario, the sending plant will be in a different company, and, in conjunction with cross company costing, the special procurement key will allow the receiving plant (1710) to access the cost of the sending plant (1010) that is in a different company. To set up the special procurement key, go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Material Cost Estimate with Quantity Structure • Settings for Quantity Structure Control • Material Data • Check Special Procurement Types. In the subsequent screen, click New Entries to access the screen shown in Figure 3.25. Set up special procurement type (Sp.Pr.Type) Z2 in Plant 1710, which is set for External procurement (F), and specify a Special procurement of Stock transfer (U) from Plant 1010. Click the Save button to save your settings.

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Figure 3.25 Define Special Procurement Key

Next, add this special procurement key to the Costing 1 view (heading not shown) of the material in the receiving plant by entering “Z2” in the SpecProcurem Costing field, as shown in Figure 3.26.

Figure 3.26 Adding the Special Procurement Key to the Material Master

Now that the special procurement key Z2 has been added to the material master of the receiving plant (1710), this material can access the cost of the material in the sending plant 1010.

Using Additive Cost for Intercompany Markup Now let’s add a markup to the receiving company’s material. We mentioned earlier in this chapter that there are several ways to include a markup in the standard cost estimate. In this scenario, you’ll use the additive cost functionality. Additive cost allows you to add an extra cost into the calculated standard cost. To enable the additive cost for stock transfers, you first need to make a configuration change to the costing variant of the legal view. To do this, go to the costing variant Transaction OKKN, and doubleclick Costing Variant PPC1 to arrive at the screen shown in Figure 3.27.

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Figure 3.27 Enabling Additive Costs for Stock Transfers

Check the Include Additive Costs with Stock Transfers checkbox for Costing Variant PPC1. This means that the additive costs will be included in the cost estimate that is calculated from a cross company stock transfer. Click the Save button to save your settings. To create the additive costs, go to Transaction CK74N to open the screen shown in Figure 3.28.

Figure 3.28 Selection Screen for Creating Additive Costs

Enter your Material (in this example, “RAW-123”) in Plant 1710, and specify the Costing Variant as PPC1 (for the legal valuation view) and the Costing Version as 1. Press the (Enter) button twice to access the screen shown in Figure 3.29.

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Figure 3.29 Entry Screen for Creating Additive Costs

Enter a Price - Total of “0.25”, which represents the intercompany markup for Material RAW-123. This amount will be added to the standard cost estimate of this material.

Standard Cost Calculation Now that you’ve made all the relevant configuration settings for group costing, you can calculate the standard cost for material RAW-123 in the legal and the group views. Start with calculating the standard cost in the legal view by going to Transaction CK11N; entering the Material as “RAW-123”, the Plant as “1710”, and the Costing Variant as “PPC1”; and pressing the (Enter) key twice. This will take you to the screen shown in Figure 3.30.

Figure 3.30 Cost Estimate in Legal View

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As you can see in Figure 3.30, the cost estimate for material RAW-123 in plant 1710 is $1.50. This is made up of the cost estimate of $1.25 from material RAW-123 in plant 1010 and the additive cost of $0.25, which represents the intercompany markup. Now you can look at the standard cost in the group view. To do this, go back to the selection screen of Transaction CK11N; enter the Material as “RAW-123”, the Plant as “1710”, and the Costing Variant as “ZPC1”; and press the (Enter) button twice. This will take you to the screen shown in Figure 3.31.

Figure 3.31 Cost Estimate in the Group View

As you can see in Figure 3.31, material RAW-123 in plant 1710 has a standard cost of 1.25 USD. It doesn’t include the additive cost because that represents the intercompany markup, which isn’t part of the group valuation cost. However, you can also see that the Cost of Goods Sold view shows a cost of 1.50 USD. This is the cost in the legal view, which includes the intercompany markup. Double-click the Cost of Goods Sold view to go to the Cost Components screen, as shown in Figure 3.32. As you can see in Figure 3.32, the cost components of the Cost of Goods Sold view shows a breakdown of the material’s standard cost as well as the Delta Profit (0.25 USD) that is contained in the transfer price from the sending company. This profit will be viewable on any cost component report as long as you select the Cost of Goods Sold view, and it will help you identify any intercompany profit in inventory.

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Figure 3.32 Delta Profit in Cost Component Split

Now take a look at the released standard cost in the material master by going to Transaction MM03 and viewing the Accounting 1 view, as shown in Figure 3.33.

Figure 3.33 Material Master after Releasing Standard Cost

As you can see in Figure 3.33, material RAW-123 has a Standard Price in legal valuation (Company code currency) of 1.50 USD, and in group valuation (Group currency, group val) of 1.25 USD. The parallel view will be reflected with every material movement and thereby provide multiple approaches for valuing this material.

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3.3 Cross-Company Purchasing Now we’ll look at a scenario where there is a cross-company purchase between two companies to see the impact on the legal and group valuation views. First, look at the sample data of the selling and buying companies you’ll be using in this scenario, as shown in Table 3.1. Field

Selling

Buying

Company Code

1710

1010

Country

US

Germany

Material

FG-100

FG-100

Plant

1710

1010

Exchange Rate

1.25 USD

1 EUR

Standard Cost – Legal

20 USD

16 EUR

Standard Cost – Group

20 USD

20 USD

Intercompany Vendor/Customer

100071

100070

Sales/Purchase Price

30 USD

24 EUR

Table 3.1 Data for Materials in an Intercompany Scenario

As you can see in Table 3.1, the scenario involves two companies, one in the United States (1710), which is the selling company, and the other in Germany (1010), which is the buying company. The standard cost in the legal view is represented in their respective local currencies, while the standard cost in the group view is the same for both companies. The US company is set up as an intercompany vendor (100071), whereas the German company is set up as an intercompany customer (100070). In this scenario, the US company will sell 1 EA of material FG-100 to the German company for 30 USD, which is 24 EUR. Let’s walk through both the setup and the steps to complete a cross-company purchasing scenario.

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3.3.1 Intercompany Setup Note that for the intercompany process to work correctly with group valuation, an IDoc needs to be used to post the intercompany billing document, which will automatically post an intercompany vendor invoice. Most of the settings that are needed for this to work are done in the logistics functionality (as described in SAP Note 31126), so we won’t go through them here. Instead, we’ll walk through the main settings that are relevant for group valuation to function properly.

Valuation Difference Account First, you’ll define a valuation clearing account for both companies 1010 and 1710. This account records the difference between the transfer price and the selling company’s cost. Therefore, it represents the intercompany profit that was made from the sale. To configure this account, go to configuration menu path Controlling • General Controlling • Multiple Valuation Approaches/Transfer Prices • Level of Detail • Define Valuation Clearing Account or use Transaction 8KEN. This will take you to the popup screen shown in Figure 3.34.

Figure 3.34 Company Code for Valuation Clearing Account

In the Posted in company code field, enter “1010”, which means that this is the company code that you want to configure the account for. Now press the (Enter) key, and click New Entries in the subsequent screen to arrive at the screen shown in Figure 3.35. Enter trading partner (Tr.prt) “1710” and assign account “23000500” as the debit and credit valuation clearing accounts. This means that when an intercompany transaction is done in company code 1010 with a customer or vendor with the trading partner 1710, this will be considered a business transaction between group companies.

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This account will be shown only in the group (or profit center) valuation view as a difference between the payable/receivable to the vendor/customer and the cost of the product in the group valuation view.

Figure 3.35 Valuation Clearing Account Setup for Company Code 1010

Now click the Save button to save your settings for company 1010, and make the same setting for company 1710, which is shown in Figure 3.36.

Figure 3.36 Valuation Clearing Account Setup for Company Code 1710

Set up the valuation clearing account for company code 1710 with a trading partner of company 1010 so that when an intercompany transaction is done in company code 1710 with a customer or vendor with the trading partner 1010, this will be considered a business transaction between group companies. Click the Save button to save your settings.

Trading Partner and Plant in the Vendor Master Next, you’ll assign the trading partner to the master data of the intercompany vendor. Table 3.1 listed the intercompany vendor in this scenario as 100071, which will be set up in company code 1010 (i.e., the buying company code). You can access the master data of this vendor by going to Transaction BP and entering the vendor number as a business partner.

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Note: Transaction BP In SAP S/4HANA, Transaction BP is used to create and change the vendor and customer master data. Transactions XK01/FK01/MK01 and XK02/FK02/MK02 are now obsolete.

Then, select the Change in BP role as Supplier (Fin.Accounting) (defined), and enter the Trading partner as “1710” in the Control tab, as shown in Figure 3.37.

Figure 3.37 Trading Partner in the Vendor Master

Now change the Change in BP role field to Supplier (defined), and enter the Plant in the Vendor: General Data tab, as shown in Figure 3.38.

Figure 3.38 Plant in the Vendor Master

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As you can see in Figure 3.38, Plant 1710 has been assigned in the master data of vendor 100071 to define this vendor as the shipping plant in an intercompany transaction. Click the Save button to save your settings.

Trading Partner in the Customer Master Now you’ll assign the trading partner to the master data of the intercompany customer. Table 3.1 listed the intercompany customer in this scenario as 100070. This customer is set up in company code 1710 (i.e., the selling company code), so you can access the master data of this customer by going to Transaction BP. Enter the customer number as a Business Partner, and select the Change in BP role as Customer (Fin.Accounting) (New). Enter the Trading partner in the Control tab, as shown in Figure 3.39.

Figure 3.39 Trading Partner in the Customer Master

As you can see in Figure 3.39, the trading partner for company 1010 has been assigned in the master data of customer 100070, which represents the buying company.

Intercompany Pricing Procedure Conditions Now let’s consider the intercompany pricing procedure, and make sure that the relevant condition for group valuation is set up. To do this, go to Transaction V/08, select the standard Intercompany Pricing Procedure ICAA01, and double-click the Procedures – Control Data folder. This will take you to the screen shown in Figure 3.40.

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Figure 3.40 Intercompany Pricing Procedure with Group Valuation

As you can see in Figure 3.40, the Condition KW00 is present in the intercompany pricing procedure, which means that the group valuation cost of the selling company will be stored in this condition and will be posted to the revenue account in the group valuation view when the intercompany billing document is posted.

Note: Intercompany Pricing Procedure This condition is normally available in the standard intercompany pricing procedure ICAA01. However, if it’s not present in your system, you’ll need to create it as a statistical condition with condition category b (transfer price for group valuation) in Transaction V/06.

You’ll also notice that there are two other conditions shown in the screen: 쐍 PC00

This represents the revenue in the profit center view. It’s a statistical condition with condition category c (transfer price for the profit center) in Transaction V/06. If profit center valuation is active, a condition record needs to be set up for this condition to store the sales price of the selling profit center. This condition record is set up in Transaction VK11, where you can enter the sales price in the Amount field, as shown in Figure 3.41. 쐍 PCVP

This condition represents the cost in the profit center view. It’s a statistical condition with condition category h (transfer price for the profit center) in Transaction V/06. It’s an automatic condition and therefore doesn’t need a condition record. We’ll discuss profit center valuation in Chapter 4.

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Figure 3.41 Condition Record for Condition Type PC00

3.3.2 Intercompany Scenario Now we’ll walk through the cross-company process using the data that we’ve set up for this scenario.

Creating an Intercompany Purchase Order First, you’ll create a purchase order for the intercompany process. To do that, go to Transaction ME21N to arrive at the screen shown in Figure 3.42.

Figure 3.42 Creating an Intercompany Purchase Order

Enter the Purch. Org. as “1010”, the Purch. Group as “001”, and the Company Code as “1010” in the header section. Then go to the line item section, and enter the line item number (Itm) as “10”, the Material as “FG-100”, and the PO Quantity as 1 EA. Then enter the Deliv. Date as “01/07/2019”, the Net Price as “24.00” EUR, and the Plant as “1010”. Now click the Save button to create the purchase order.

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Creating a Delivery Now you need to deliver the purchase order. To do this, go to Transaction VL10B, enter the purchase order number, and click the Execute button. This will take you to the screen shown in Figure 3.43.

Figure 3.43 Creating the Delivery for Intercompany Purchase Order

Select the line with the purchase order, and click the Background button (not shown) at the bottom of the screen. This will create a line with the delivery document number, as shown in Figure 3.44.

Figure 3.44 Delivery Document Created

Next, click the delivery document number to arrive at the screen shown in Figure 3.45.

Figure 3.45 Entering the Picked Quantity

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Enter a Picked Qty of “1” EA in the delivery document, which will represent the quantity of material FG-100 that will be picked from plant 1710. Click the Save button to save the delivery. Now that the quantity has been picked, go back into the delivery document, and click on the Post Goods Issue button highlighted in Figure 3.45. This will create a material document that you can see by clicking on the Document Flow button on the same screen, which will lead to the screen shown in Figure 3.46.

Figure 3.46 Document Flow after Goods Issue

You can see in Figure 3.46 that a material document number 4900000519 has been created from the goods issue. Navigate from this document to the accounting documents by going to Transaction MIGO, entering the material document number, and clicking on FI Documents in the Doc Info. tab. This will take you to the popup screen shown in Figure 3.47.

Figure 3.47 List of Accounting Documents after Goods Issue

You can see in Figure 3.47 that there are two accounting documents created, one for each company code. Let’s look at each document separately. First, double-click the 4900000109 Accounting document in company code 1010. This will take you to the screen shown in Figure 3.48.

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Figure 3.48 Goods Receipt Accounting Document in the Legal View

As you can see in Figure 3.48, the accounting document in company 1010 is a goods receipt document because company 1010 is the buying company. You’ll notice that the amount posted to the inventory account 13400000 is 16 EUR, which is the legal view standard cost in plant 1010; the amount posted to the GR/IR account is 24 EUR, which is the purchase/transfer price, and the variance is 8 EUR. This represents the legal valuation view of the accounting document. You’ll also notice that there is a cross-company number with this document (Cross-Comp.No). This indicates that it’s an intercompany transaction, based on the simultaneous goods receipt (in company 1010) and goods issue (in company 1710). Now go to the group currency/group valuation document by clicking the Display Currency button shown in Figure 3.48. This will take you to the Display Currency for Document popup screen shown in Figure 3.49.

Figure 3.49 Selecting the Group Currency Group Valuation View

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Select the Group Crcy/Grp Valuation view. Click the Continue/Confirm button, which will take you to the screen shown in Figure 3.50.

Figure 3.50 Goods Receipt Accounting Document in Group View

The group view of the goods receipt document shows a debit to inventory and a credit to the GR/IR of 20 USD. This represents the group standard cost in plant 1010. You’ll notice that the variance which showed up in the legal view is 0.00 in the group view because the purchase price is equal to the group cost. Now go back to the List of Documents in Accounting popup screen (refer to Figure 3.47), and double-click document number 4900000167 in company code 1710. This will take you to the screen shown in Figure 3.51.

Figure 3.51 Goods Issue Accounting Document in Legal View

You can see that the accounting document in company 1710 is a goods issue document because company 1710 is the selling company. You’ll notice that the amount credited to the inventory Account 13400000 and debited to the cost of goods sold (COGS) Account 50300001 is 20 USD, which is the legal view standard cost in plant 1710. This represents the legal valuation view of the accounting document. You’ll also notice the same cross-company number (Cross-Comp.No) that you saw earlier in Figure 3.48.

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Now go to the group currency/group valuation document by clicking the Display Currency button shown in Figure 3.51, selecting the Group Crcy/Grp Valuation option, and clicking on the Continue/Confirm button. This will take you to the screen shown in Figure 3.52.

Figure 3.52 Goods Issue Accounting Document in Group View

As you can see in Figure 3.52, the group view of the goods issue document shows a credit to inventory and a debit to the COGS account of 20 USD. This represents the group standard cost in plant 1710. Now that you’ve seen the goods movement document in the legal and group views in both company codes, let’s create the intercompany billing document.

Creating an Intercompany Billing Document To create the intercompany billing document, go to Transaction VF01, and enter the delivery Document “8000123” (see Figure 3.53).

Figure 3.53 Billing Document Entry Screen

Press the (Enter) key to go to the billing document details screen shown in Figure 3.54. As you can see in Figure 3.54, the intercompany billing document will be created for 30 USD and represents the sale of 1 EA of Material FG-100 to customer (Payer) 100070, which represents company 1010.

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Figure 3.54 Billing Document Detail Screen

Click the Save button to post the billing document. Now you can view the accounting document by going go Transaction VF03, entering the Billing Document number just created, and clicking on the Accounting button, as shown in Figure 3.55.

Figure 3.55 Accessing the Accounting Document from a Billing Document

When you click the Accounting button, the subsequent screen will show the accounting document number of the billing document that you created. By double-clicking on the accounting document number, you’ll be taken to the screen shown in Figure 3.56.

Figure 3.56 Accounting Document of the Billing Document in the Legal View

As you can see in Figure 3.56, the accounting document shows a debit to the customer reconciliation Account 12300000 (representing plant 1010) and a credit to the

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revenue Account 41000000 of 30 USD, which is the sales price. This represents the legal view of the accounting document. Now go to the group currency/group valuation document by clicking on Display Currency (not shown), selecting the Group Currency/Group Valuation option, and clicking on the Continue/Confirm button. This will take you to the screen shown in Figure 3.57.

Figure 3.57 Accounting Document of the Billing Document in the Group View

As you can see in Figure 3.57, the group view of the accounting document shows a debit to receivables account 12300000 of 30 USD (representing the sales price), a credit to revenue account 41000000 of 20 USD (representing the group cost), and the difference of 10 USD goes to valuation clearing account 23000500, which we defined earlier in Figure 3.36. This represents the intercompany profit. Now that you’ve created the intercompany billing document, let’s create the intercompany payable document.

Creating an Intercompany Payable Document To create the intercompany payable document, you’ll need to create an IDoc by going to Transaction VF31, which is the transaction to create an output document from a billing document, arriving at the screen shown in Figure 3.58.

Figure 3.58 Entry Screen for Creating the IDoc

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Enter your Billing Document number (shown in Figure 3.55), and check the Intercompany billing checkbox. Then, click the Execute button (not shown), which will take you to the screen shown in Figure 3.59.

Figure 3.59 Output from the Billing Document

Select the Bill. Doc. number, and click the Process button at the bottom of the output screen (not shown). If the document was processed successfully, a message at the bottom of the screen will appear, as shown in Figure 3.60.

Figure 3.60 Message from Processing Output

You can now view the intercompany payable document that was created by the IDoc. Although there are several ways to do this, you can simply go to the accounting document that was created previously in Figure 3.57 and choose Environment • Document Environment • Relationship Browser from the menu bar. A very useful document appears that shows all the documents connected to your intercompany scenario, as shown in Figure 3.61.

Figure 3.61 Relationship Browser of the Intercompany Scenario

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As you can see, all the connected documents in your intercompany scenario are shown in the relationship browser. Navigate to the intercompany payable document by double-clicking on the highlighted Accounting document 5100000037 in company 1010, which will take you to the document shown in Figure 3.62.

Figure 3.62 Intercompany Payable Document in the Legal View

The accounting document shows a debit to the COGS account 50300001 and a credit to the intercompany payable account 21300000 of 24 EUR, which is the purchase price. This represents the legal view of the accounting document. Now go to the group currency/group valuation document by clicking on the Display Currency button (not shown), selecting the Group Currency/Group Valuation option, and clicking on the Continue/Confirm button. This will take you to the screen shown in Figure 3.63.

Figure 3.63 Intercompany Payable Document in the Group View

As you can see in Figure 3.63, the group view of the accounting document shows a debit to COGS account 50300001 of 20 USD (representing the group cost), a credit to intercompany payables account 21300000 of 30 USD (representing the purchase price), and the difference of 10 USD goes to the valuation clearing account 23000500, which we defined much earlier in Figure 3.36. This debit of $10 offsets the credit of $10 posted in the intercompany receivables document (refer to Figure 3.57) and thereby eliminates the intercompany profit when reported with the group valuation view.

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3.4 Summary

3.4 Summary In this chapter, we looked at a key valuation approach: group currency and group valuation. First, we looked at how group currency is defined and assigned to a company code and the Material Ledger. We also showed how the group currency can be changed when updating a material’s cost. We walked through how to define a costing variant for group costing and how to track the delta profit made between companies when calculating the group standard cost. Looking at a detailed intercompany scenario, we showed the Material Ledger configuration and master data settings that need to be made in an intercompany transaction, and then we looked at the materials movement, intercompany sales, and intercompany purchase documents that are created both in the legal and the group valuation views. In the next chapter, we’ll discuss the profit center valuation view.

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Chapter 4 Profit Center Valuation Profit center valuation provides a separate view for valuing inventory in accordance to transfer pricing condition values that are set up between profit centers that transact with each other.

In the previous chapter, we discussed one of the main valuation views used with the Material Ledger: group valuation. In this chapter, we’ll discuss another common valuation view—profit center valuation. Before we start this discussion, let’s look at what a profit center is typically used for. Of all the master data objects in SAP, the profit center is the one that has had the most facelifts. This is partly because SAP has been changing the purpose of a profit center since introducing it. Another factor that contributes to the variability of the profit center is that SAP customers tend to use profit centers in a variety of ways (apart from SAP’s intended purpose) such as the following: 쐍 A strict representation of plants 쐍 A one-to-one match with cost centers 쐍 A catchall for any controlling (CO) postings that don’t have a cost object

These uses probably have something to do with the fact that most traditional accounting systems didn’t have profit centers. Therefore, when companies implemented SAP for the first time, they couldn’t quite figure out what to do with it and used it more as a placeholder for technical purposes, rather than as an organization unit for management reporting purposes. A profit center represents a business unit that is used to determine profit for internal areas of responsibility. Most companies have an idea of what represents a profit center, but they may not have structured the SAP system in a way that they can easily isolate the results of their profit centers. In cases where different business units in an organization report their profits on a profit center level, it’s useful to identify the revenues that take place for both internal and external entities. It’s easier to identify the external revenue for a profit center because this is simply the sales that occur from

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billing transactions with external customers which get posted to revenue (and cost of sales) accounts. However, it’s a little trickier to record internal revenues on a profit center basis because most of these transactions don’t create postings to revenue accounts. Instead they are either stock transport orders, which involve the transfer of materials from one plant (and profit center) to a different plant (and profit center), or production orders, which occur when the consumption of a material in one profit center is used in the manufacturing order of a material in a different profit center. In this chapter, we’ll look at the transfer pricing logic with profit center valuation (Section 4.1), and show how a standard cost can be calculated for profit center valuation (Section 4.2). We’ll then walk through scenarios where profit center transfer pricing is calculated when there are material transfers across profit centers (Section 4.3), and when manufacturing orders are created using materials in a different profit center (Section 4.4).

4.1 Transfer Pricing Logic with Profit Center Valuation If you want to record the internal profit between profit centers, you’ll need to use the transfer pricing functionality with profit center valuation. This allows you to activate transfer prices for exchanges between profit centers and hence monitor their internal profits. Therefore, a stock transfer between two plants (with different profit centers) in the same company code will constitute a sale for the sending plant in the profit center valuation view, even though it will simply be a consumption in the legal valuation view. In this section, we’ll show the configuration that is needed to define a currency type for profit center valuation, define transfer pricing for profit center valuation, and define the accounts that are used for internal goods movements.

4.1.1 Defining the Currency Type for Profit Center Accounting The first setting you’ll make is to define the group currency as the profit center currency. This will enable the display of profit center reports in this currency. To do this, go to configuration menu path Controlling • Profit Center Accounting • Basic Settings • Controlling Area Settings • Maintain Controlling Area Settings or use Transaction 0KE5. The screen shown in Figure 4.1 appears. Enter currency type “30” (group currency) as the PCtr Local Currency Type. This will ensure that profit center reports are updated in this currency (in addition to the

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document currency and company code currency). Then select Profit Center Valuation as the Valuation View, which will ensure that the data is stored in the profit center valuation view of the controlling area. Click the Save button to save your settings.

Figure 4.1 Defining the Profit Center Currency in the Controlling Area

4.1.2 Defining Transfer Pricing for Profit Center Valuation Now you’ll define the transfer pricing for profit center valuation. To do so, go to configuration menu path Financial Accounting • General Ledger Accounting • Business Transactions • Parallel Valuation Approaches/Transfer Prices • Basic Settings for Pricing or use Transaction 8KEZ. On the Pricing: Maintain Condition Type main screen that appears, go to the Condition types section (top-left), as shown in Figure 4.2.

Figure 4.2 Condition Types Section

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Figure 4.2 shows several folders in which condition types can be created, depending on how you want to enter the transfer price.

Note: Standard Condition Types Depending on your system, you may find that the transfer price settings are already available with the standard condition types TPB2 (Costing Basis), TPB1 (Material Ledger), TP01 (Transfer Price – Fix), and TP02 (Markup). In our case, we’ll assume that there are no standard condition types set up and create them from scratch.

Let’s walk through the various conditions that must be created.

Planned Transfer Price To create the transfer price as a percentage of the standard cost, you first need to create a base condition. To do this, click the Base Condition from Costing folder, and then click the Create button. You can then enter the details that appear on the right side of the screen, as shown in Figure 4.3.

Figure 4.3 Creating a Base Condition Type

Enter a base Condition Type “TP05”, label it “Standard Cost”, and select the Base Condition Type from Costing option that appears at the bottom of the screen. Now let’s create another condition type that represents a percentage applied to this base condition. Click on the Percentage Overhead folder shown in Figure 4.2, click on the Create button, and then enter the details, as shown in Figure 4.4. Enter a Condition Type as “MU01” (Markup Standard), and select the Percentage Overhead option shown at the bottom of the screen.

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Figure 4.4 Creating a Percentage Condition Type

Now let’s create the condition records for this condition type by clicking on the Records for Cond. Type button shown in Figure 4.4, which will bring up the popup box shown in Figure 4.5.

Figure 4.5 Key Combination for Percentage Condition Type

The Key Combination popup shows criteria that can be chosen to enter the percentage condition. These criteria are called access sequences and are usually combined with condition types to determine which fields the condition type applies to. You can create your own access sequences (using Transaction 8KEA) if the criteria shown don’t match your requirements. However, for this example, you’ll use one of the standard access sequences. Select the Dependent on material and receiver profit center option, and click the Choose button to arrive at the screen shown in Figure 4.6.

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Figure 4.6 Selection Screen for the Condition Record

Enter the Controlling Area (“A000”) and Plant (“1710”) for this condition record. Plant 1710 represents the sending plant for the material that you want to apply a markup to. Click the Execute button to arrive at the screen shown in Figure 4.7.

Figure 4.7 Entering the Transfer Price Markup

Enter a 10% markup for material RAW-100 in the Amount field in profit center YB110. Profit center YB110 represents the receiving profit center. This means that if you calculate the standard cost for this material in profit center YB110, a 10% markup will be added to the standard cost from plant 1710. Clicking on the Save button saves your settings and returns you to the main Pricing screen. The next step is to create a pricing procedure, which will link the two condition types (TP05 and MU01) that were created. To do so, click on the Create button in the Pricing procedures section (left-middle part of the main screen), as shown in Figure 4.8.

Figure 4.8 Pricing Procedures Section

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After you’ve clicked the Create button, you’ll arrive at the screen shown in Figure 4.9.

Figure 4.9 Pricing Procedure for Transfer Pricing

This screen links the markup condition type to the base condition type for standard cost. Enter the Pricing procedure as “TP0002” and a description. Then in the first row, enter “010” in the Step column, but leave Cntr blank; it will default to 000. Then enter the base condition type for standard cost “TP05” in the CTyp column. Don’t enter anything in the Reqt and AltCBV columns, and they will default to a number of zeros. In the second row, enter Step “020”, leave Cntr blank, and enter the markup condition type “MU01” in the CTyp column. Then enter the number “010” in the From column and “010” in the To column. This means that this condition type (MU01) will be based on the condition type in step 010 (which is the standard cost condition type TP05). The next condition type you’ll create is a base condition type from the Material Ledger price (as opposed to the standard cost, which we created earlier). To do this, go back to the Condition Types section of the Pricing screen, and click the Create button to access the screen shown in Figure 4.10. Enter a Condition Type of “ML01” and description of “ML Base Condition”, and select the Base Condition Type from Material Ledger option shown at the bottom part of the screen. You can use the same percentage condition type (MU01) that you applied to the standard cost condition as the Material Ledger condition. This means that the same transfer price condition that applies to the standard cost will be applied to the Material Ledger cost. You can therefore create a pricing procedure that links both condition types by clicking the Create button in the Pricing procedures section (refer to Figure 4.8). The screen shown in Figure 4.11 appears. This screen links the markup condition type to the base condition type for the Material Ledger (ML01). Enter the Pricing procedure name as “TP0003” and a description.

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Then in the first row, enter “010” in the Step column, and leave Cntr blank to default to 000. Then enter the base condition type for Material Ledger “ML01” in the CTyp column. Don’t enter anything in the Reqt and AltCBV columns, and they will default to a number of zeros. In the second row, enter Step “020”, leave the Cntr button blank, and enter the markup condition type “MU01” in the CTyp column. Then enter the number “010” in the From column and “010” in the To column. This means that this condition type (MU01) will be based on the condition type in step 010, which is the Material Ledger condition type ML01.

Figure 4.10 Creating a Base Condition Type for the Material Ledger

Figure 4.11 Pricing Procedure for the Material Ledger Transfer Price

Actual Transfer Price Now, let’s create another condition type—a fixed condition type—which will represent a fixed transfer price that is posted when an actual transfer posting (or consumption posting) is done between materials in different profit centers. To do

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this, go back to the Condition Types section of the Pricing screen, and click the Create button to arrive at the screen shown in Figure 4.12.

Figure 4.12 Creating a Fixed Condition Type

Enter a Condition Type as “FX01” and a description as “Fixed Price”. Select the Fixed Price option at the bottom of the screen. Now, create the condition record for this condition type by following the same steps you used for condition type MU01. You’ll then get to the screen shown in Figure 4.13.

Figure 4.13 Entering the Fixed Transfer Price Amount

Enter a transfer price in the Amount field (“1.20” for Material RAW-100 in Partner PC YB110, in this example). This transfer price will be charged anytime there is a transfer

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(or consumption) posting from plant 1710. Save your settings to return to the Pricing screen. Next, create a pricing procedure for condition type FX01 by clicking on the Create button in the Pricing procedures section shown earlier. The screen shown in Figure 4.14 appears.

Figure 4.14 Pricing Procedure for Fixed Transfer Price

Enter the name of the Pricing procedure as “TP0001” and the description as “Fixed Transfer Price”. Then enter condition type (CTyp) “FX01”, and press the (Enter) key, and the Description of this condition type (Fixed Price) will default automatically. Then enter “000” in the From and To fields, and press the (Enter) key again. The other two columns (Reqt and AltCBV) will default as 0000000. Next you need to add the pricing procedures that you’ve created to the plan and actual transfer price variants. To do this, click the Create button in the Transfer price variants section (bottom-left of the screen) shown in Figure 4.15.

Figure 4.15 Transfer Price Variants Section

After you’ve clicked the Create button, you’ll arrive at the screen shown in Figure 4.16.

Figure 4.16 Assigning the Pricing Procedure to the Actual Transfer Price Variant

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Enter the actual transfer pricing variant “000” in the Trans. Price Variant field for Controlling Area “A000”, and assign the pricing procedures TP0001 and TP0003 that we created for the fixed transfer price and Material Ledger transfer price markup, respectively, to the Proc. column. Put pricing procedure TP0001 before TP0003 by entering an Or (order of pricing procedures) value of “01” for TP0001 and an OR value of “02” for TP0003. Now, when there is an actual posting that involves a sending and receiving profit center, the system will first look for a fixed transfer price (TP0001) between the two profit centers; if it doesn’t find one, the system will use the transfer price markup of the Material Ledger (TP0003) of the sending profit center as the transfer price. Finally, check the Condition Analysis checkbox so that you can analyze how the transfer price was derived when the relevant postings are made. Now go back to the Transfer price variants section, and click the Create button again to arrive at the screen shown in Figure 4.17.

Figure 4.17 Assigning the Pricing Procdure to the Plan Transfer Price Variant

Enter the plan transfer pricing variant “PC0” in the Trans. Price Variant field for Controlling Area “A000”, and assign the pricing procedure (TP0002) that you created to the Proc. column. This means that the pricing procedure will be valid for standard cost calculation of materials transferred between profit centers. Once again, select the Condition Analysis checkbox. Now click the Save button to complete the transfer pricing setup.

4.1.3 Settings for Internal Goods Movement Now we’ll define the accounts that will be posted in the profit center view when there are goods movements between profit centers. These postings will generate revenue in the sending profit center and a goods receipt in the receiving profit center. To configure the relevant accounts, go to configuration menu path Accounting • General Ledger Accounting • Business Transactions • Parallel Valuation Approaches/

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Transfer Prices • Settings for Internal Goods Movements • Define Account Determination for Internal Goods Movements. Click New Entries to arrive at the screen shown in Figure 4.18.

Figure 4.18 Defining Accounts for Internal Goods Movements

Define the accounts for internal goods movements according to the material types of FERT (finished goods), HALB (semifinished goods), and ROH (raw materials). The columns that the accounts have been assigned to are described here: 쐍 Internal rev.

This internal revenue account for the sending profit center is based on the transfer price amount multiplied by the quantity transferred to the receiving profit center. 쐍 Chg. stock

This internal cost of goods sold (COGS) account for the sending cost center is based on the value of inventory in the profit center valuation view of the sending profit center. 쐍 Delivery from PrCtr

This internal goods receipt account in the receiving profit center is based on the transfer price amount multiplied by the quantity transferred from the sending profit center. 쐍 Chg in Stock:RecSide

This offset to the Delivery from Profit Center amount in the receiving profit center ensures that the values in the receiving profit center don’t affect profits.

Note: Creating Internal Goods Movement Accounts Internal goods movement accounts should be set up as non-operating expense or income accounts (in Transaction FS00) and not as cost elements. In addition, they should be created in all company codes that have profit center valuation active in the controlling area.

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Let’s walk through a simple scenario that shows how these accounts are posted. In this scenario, 100 PC of a material (with a cost of $1) in profit center A is transferred to a different plant in profit center B. The transfer price is $1.20. The posting in the legal view is shown in Table 4.1. Account

Debit

Credit

Profit center A

Inventory

–

$100

Profit center B

Inventory

$100

–

Table 4.1 Sample Posting in the Legal View

The same posting in the profit center view is shown in Table 4.2. Account

Debit

Credit

Profit center A

Inventory

–

$100

Profit center A

Internal rev.

–

$120

Profit center A

Chg. stock

$100

–

Profit center B

Inventory

$120

–

Profit center B

Delivery from PrCtr

$120

–

Profit center B

Chg. stock

–

$120

Table 4.2 Sample Posting in the Profit Center View

As you can see in Table 4.2, there are several more lines on the profit center posting, including the generation of Internal rev. in the sending profit center and Delivery from PrCtr, which can be interpreted as internal COGS, in the receiving profit center. The next setting is to assign an account for production variances that occur from the delivery of one profit center to another. To do that, go to configuration menu path Accounting • General Ledger Accounting • Business Transactions • Parallel Valuation Approaches/Transfer Prices • Settings for Internal Goods Movements • Define Account Determination for Prod. Variance for Delivery to Another PrCtr. Click New Entries to access the screen shown in Figure 4.19.

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Figure 4.19 Profit Center Production Variance Account

Assign account “54530000” to the Prod. variances column as the production variance account when a material that exists in one profit center is delivered to a production order that has a different another profit center and there is a difference between the plan and actual cost of goods manufactured (COGM). You’ll notice that we assigned the valuation classes (ValCl) for Raw Materials, Semifinished Goods, and Finished Goods, as well as the valuation grouping code (VGCd) 0001, to the same account 54530000 because we want this account to be valid for all valuation classes in Controlling Area A000. Another setting to make for internal goods movement between profit centers is to define the movement types that should not be considered relevant for transfer pricing. A typical example is with the scrapping goods movements because scrapping is usually posted to a cost object linked to a profit center that isn’t necessarily relevant for internal profit reporting. Note that in the standard SAP system, all the movement types that should not be considered as internal goods movements between profit centers have already been defined. However, if you’ve created any custom movement types, you can add them to the table by going to configuration menu path Accounting • General Ledger Accounting • Business Transactions • Parallel Valuation Approaches/Transfer Prices • Settings for Internal Goods Movements • Define Special Handling for Internal Goods Movements. You can then click New Entries and enter any custom movement types, as shown in Figure 4.20.

Figure 4.20 Defining Movement Types for Special Handling

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You can see in Figure 4.20 the definition of the scrapping movement types (MvT) 951 and 952, which have a category of RMWA (meaning they are material management [MM] goods movements) as special handling movements. Therefore, they won’t be represented as flows of materials between profit centers. Click the Save button to save the settings.

4.2 Standard Cost and Profit Center Valuation Let’s now look at how you can create a standard cost estimate for profit center valuation. Just as we said with group valuation (in Chapter 3), this process isn’t mandatory, as you can manually update the profit center valuation cost in standard or moving average price without calculating it through the system. However, if you already calculate a standard cost estimate in the legal view, you should also calculate the standard cost in the profit center view if profit center valuation is active. This profit center valuation standard cost will then serve as a basis for the transfer price from actual goods movements between profit centers to be compared to. In this section, we’ll walk through the several required configuration steps and then show the results of the cost estimate in both the legal view and profit view, including how they differ.

4.2.1 Defining a Costing Variant for Profit Center Valuation First, you need to define a costing variant for profit center valuation. A costing variant controls all the settings for calculating a standard cost estimate. The costing variant has six components: 쐍 Costing types 쐍 Valuation variants 쐍 Date control 쐍 Quantity structure control 쐍 Transfer control 쐍 Reference variants

For profit center valuation purposes, you’ll only need to create two of these components: costing types and valuation variants. The other components can be the same as the ones for the legal view.

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Costing Types Let’s start by creating a costing type for profit center valuation. The costing type specifies which field in the material master the costing results will be transferred to. To configure a costing type for profit center valuation, go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Material Estimate with Quantity Structure • Costing Variant: Components • Define Costing Types or use Transaction OKKI. In the subsequent screen, click the New Entries button, and you’ll go to the screen shown in Figure 4.21.

Figure 4.21 Costing Type for Profit Center Valuation

Enter your Costing Type and description (“P1” and “Standard Cost (Profit Cent)”, in this example). In the Price Update tab, select Standard Price from the Price Update dropdown and Profit Center Valuation from the Valuation View dropdown. This means that when the standard cost for profit center valuation is released, it will be stored in the Standard Price field of the material master. Now click the Misc. tab to arrive at the screen shown in Figure 4.22. For your Calculation Base, select Cost of Goods Manufactured from the dropdown. This means that any overhead will be calculated using the COGM value as a basis. For the Partner Version, select Profit Center from the dropdown. The partner version shows the value-added chain for every stage of the internal procurement process. By defining a partner version, you’re specifying which organizational unit represents a

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partner. To define your partner version, click the Create icon highlighted in Figure 4.22, and enter the data shown in Figure 4.23.

Figure 4.22 Misc. Tab of Profit Center Costing Type

Figure 4.23 Partner Version for Profit Center Costing Type

Create a Partner Version called “Profit Center”, and check the Profit Center box in the Partner tab. Then, assign this partner version to the costing type shown previously in Figure 4.21. Now click the Save button to save the costing type.

Valuation Variant Next, you’ll create a valuation variant for profit center valuation. The valuation variant contains the parameters that are required to calculate the standard cost. To configure a valuation variant for group valuation, go to configuration menu path

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Controlling • Product Cost Controlling • Product Cost Planning • Material Estimate with Quantity Structure • Costing Variant: Components • Define Valuation Variants or use Transaction OKK4. In the subsequent screen, click the New Entries button to access the screen shown in Figure 4.24.

Figure 4.24 Valuation Variant for Profit Center Valuation

Create Valuation Variant/Plant “Z02” with description “Planned Valuation: PRCTR”. Copy all the settings from the valuation variant of the legal view so that the costing parameters of the legal view and profit center view are the same. Click the Save button to save the settings for the valuation variant.

Costing Variant Now that you’ve created a costing type and valuation variant for profit center valuation, you’ll create a costing variant for profit center valuation and add these components to it. To do this, go to the configuration path Controlling • Product Cost Controlling • Product Cost Planning • Material Estimate with Quantity Structure • Define Costing Variants or use Transaction OKKN. In the subsequent screen, click the New Entries button to arrive at the screen shown in Figure 4.25. Create costing variant “ZPC2” for profit center valuation. Select Standard Cost (Prof Cent) from the Costing Type dropdown, and Planned Valuation: PRCTR from the Valuation Variant dropdown. Select the Date Control and Qty Struct. Control settings that are used for the legal valuation costing variant.

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Figure 4.25 Defining the Profit Center Costing Variant

Now click the Qty Struct. tab. You’ll see the screen shown in Figure 4.26.

Figure 4.26 Cost Beyond Profit Center Boundaries

Select No from the Pass On Lot Size dropdown, and select the Cost Beyond Profit Center Boundaries checkbox in the Qty Struct. tab of the costing variant for profit center valuation. By making this setting, for any costs that are done across profit centers, the receiving profit center will also be able to recost the sending profit center. If you don’t check this box, the receiving profit center will simply inherit the cost from the sending profit center and won’t recost it. Click the Save button to save this costing variant.

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4.2.2 Assigning Transfer Price Variant to the Costing Version In Section 4.1.2, you created a plan transfer price variant of PC0, in which you assigned the pricing procedure TP0002 for adding a markup to the standard cost. You’ll now assign this transfer price variant to the costing type for profit center valuation (P1) that you created previously. To do this, go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Selected Functions in Material Costing • Define Costing Versions. In the subsequent screen, click the New Entries button to open the screen shown in Figure 4.27.

Figure 4.27 Assign Transfer Price Variant to Costing Version

Assign Variant for Transfer Price PC0 to Costing Version 1 and Costing Type P1. Costing Version 1 is the default costing version, which is used in combination with the costing variant to calculate the standard cost. By making this assignment, anytime you use the profit center costing variant, the system will search for a transfer price markup that should be added to the standard cost of the receiving profit center. Click the Save button to save your settings.

4.2.3 Configuring a Delta Cost Component When you use transfer prices, you’ll most likely want to identify the profit that is made between the profit centers. This way, you can easily recognize the profit in inventory in the cost of a product. To achieve this, you’ll need to create a delta cost component by going to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Basic Settings for Material Costing • Define Cost Component Structure or using Transaction OKTZ. Click the Cost Component Structure Y1, and then double-click the Cost Component with Attributes folder. Click New Entries to arrive at the screen shown in Figure 4.28.

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Figure 4.28 Delta Profit for Profit Center Valuation

Create a delta cost component (Cost Comp.) “998” in cost component structure (Cost Comp. Str.) “Y1”. This delta cost component will be available in the group costing cost component reports. The key fields highlighted in Figure 4.28 are explained here: 쐍 Roll up Cost Component

By clicking on this field, the delta cost component value will be retained through the supply chain if there are transfers between multiple profit centers. 쐍 Not Relevant

Although the delta cost component will be available, it won’t be relevant for inventory valuation or any other category specified.

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쐍 Delta Profit for Group Costing

Checking the Profit Center checkbox enables the delta profit between profit centers to show up in this cost component. This checkbox can only be set up for one cost component in the cost component structure. Now double-click the Cost Component Views folder on the left panel of the screen (not shown), which shows the different ways to look at the cost components of the standard cost. Click the New Entries button to arrive at the screen shown in Figure 4.29.

Figure 4.29 Delta Profit Center Cost Component View

Create a Cost Comp. View “9” named “Delta Profit Center”, and check the Delta Profit, Profit Ctr checkbox. In addition to the COGM, this will show the delta profit that is made between profit centers in group costing. Note that this delta profit will only be shown in the group costing variant (ZPC1, which you created in Chapter 3) and not the profit center costing variant. Click the Save button to save your settings.

4.2.4 Configuring a Special Procurement Key In Chapter 3, Section 3.2.2, we showed you how to configure a special procurement key so that the cost of a receiving product can access the cost from a sending product in a different plant. In that scenario, you configured a special procurement key

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between plants 1010 and 1710, which were in different company codes. Here, you’ll use the same transaction to configure another special procurement key between plants 1710 and 1711, which are in the same company code. Go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Material Cost Estimate with Quantity Structure • Settings for Quantity Structure Control • Material Data • Check Special Procurement Types. In the subsequent screen, click New Entries to arrive at the screen shown in Figure 4.30.

Figure 4.30 Configuring a Special Procurement Key between Plants

Set up special procurement key (Sp.Pr.Type) Z1 in Plant 1711. Set the Procurement type to External procurement (F), and specify a Special procurement of Stock transfer (U) from Plant 1710. Click the Save button to save your settings. Next, add this special procurement key to the material master of the receiving plant (1711) by going to Transaction MM02, as shown in Figure 4.31.

Figure 4.31 Adding the Special Procurement Key to the Material Master

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Enter the special procurement key “Z1” to the SpecProcurem Costing field, and enter your Costing Lot Size as “1”. This will allow the material to access the cost of the material in the sending plant 1710.

4.2.5 Calculating Standard Cost Now that you’ve made all the relevant configuration setting for profit center valuation costing, you can calculate the standard cost for material RAW-100 in the legal, group, and profit center views. Let’s start with calculating the standard cost in the legal view. To do this, go to Transaction CK11N (this will typically be done en masse using Transaction CK40N); enter the Material “RAW-100”, Plant “1711”, and Costing Variant PPC1; and press the (Enter) key twice. This will take you to the screen shown in Figure 4.32.

Figure 4.32 Cost Estimate in Legal View

As you can see in Figure 4.32, the cost estimate for material RAW-100 in plant 1711 is $1.00. Now let’s look at the standard cost in the group view. To do this, go back to the selection screen of Transaction CK11N; enter the Material “RAW-100”, Plant “1711”, and Costing Variant “ZPC1”; and press the (Enter) key twice. The next screen that is displayed is the Transfer Price Condition Record screen (which you set up earlier in Figure 4.13). This is shown in Figure 4.33.

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Figure 4.33 Transfer Price Simulation Screen for FX01

As you can see in Figure 4.33, the Transfer Price Condition Record screen is shown with the $1.20 price that you entered when creating condition record FX01. This is a simulation screen that shows what the transfer price calculation is going to be. This screen is displayed because you selected the Condition Analysis checkbox when you created the transfer price variant PC0 (refer to Figure 4.17). Now you can exit the Transfer Price Condition Record screen, which will take you to the group cost calculation shown in Figure 4.34.

Figure 4.34 Cost Estimate in the Group View

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There are a couple of things to note in Figure 4.34. First, the standard cost in group valuation is $1.00. In addition, one of the Cost Component Views (called Delta Profit Center) shows the standard cost as $1.20. This is the cost component view that you created earlier in Figure 4.29, and it shows the profit that was transferred (in the profit center view) between affiliated entities. To add this delta profit center cost component view to the standard cost calculation screen, you have to click on Settings • Cost Display in the menu bar and then enter the Delta Profit Center view in the third row of the Cost for View section shown in Figure 4.35.

Figure 4.35 Delta Profit Center in Costs for View

Now, go back to the standard cost calculation screen, and double-click the Delta Profit Center view shown in Figure 4.34, which will take you to the cost components screen shown in Figure 4.36.

Figure 4.36 Delta Profit PRCTR in Cost Component Split

As you can see in Figure 4.36, the cost components of the delta profit view shows a breakdown of the Direct Material cost as well as the Delta Profit: PRCTR of $0.20 that

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is contained in the transfer price from the sending profit center. This profit will be viewable on any cost component report (as long as you select the Delta Profit Center view) and will help you identify any intracompany in inventory. Now let’s look at the standard cost in the profit center view. To do this, go back to the selection screen of Transaction CK11N; enter the Material “RAW-100”, Plant “1711”, and Costing Variant “ZPC2”; and press the (Enter) key twice. The next screen that is displayed is the Transfer Price Condition Record screen (similar to the one shown in Figure 4.33). However, this time it shows the transfer price from condition record MU01 (created earlier in Figure 4.7), which has a 10% markup on the standard cost of plant 1710 (see Figure 4.37).

Figure 4.37 Transfer Price Simulation Screen for MU01

This simulation screen is displayed because you selected the Condition Analysis checkbox when you created the transfer price variant PC0 (refer to Figure 4.17). Exit this screen by clicking the Exit button, which will take you to the standard cost calculation screen shown in Figure 4.38. You can see in Figure 4.38 that the standard cost in the profit center view amounts to $1.10. This represents the standard cost from the sending plant 1710 plus a 10% markup, which was entered in condition record MU01. Now let’s look at the released standard cost in the material master by going to Transaction MM03 and viewing the Accounting 1 view, as shown in Figure 4.39.

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As you can see in Figure 4.39, material RAW-100 has a standard cost in legal valuation (Company code currency) of 1.00 USD, group valuation (Group currency, group val) of 1.00 USD, and profit center valuation (Group currency, profit center) of 1.10 USD. The parallel views will be reflected with every material movement and thereby provide multiple approaches for valuing this material.

Figure 4.38 Cost Estimate in the Profit Center View

Figure 4.39 Material Master after Releasing Standard Cost

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4.3 Cross-Profit Center Purchasing Let’s now look at a material transfer across profit centers and how the postings look in the legal view and the profit center view. Using the material RAW-100 for which a transfer price was set up in the condition record FX01 (refer to Figure 4.13), you’ll transfer 10 PC of inventory of this material from plant 1710 (and profit center YB111) to plant 1711 (and profit center YB110). Use Transaction MIGO to do the transfer with movement type 301, and then enter the data as shown in Figure 4.40.

Figure 4.40 Material Transfer Entry Screen

Enter the document and posting date for the posting. In the Transfer Posting tab, enter the Material number “RAW-100” in the lower field, the Plant “1710”, and the Stor. loc. “171b” in the From section. This is the material/plant where the inventory is being transferred from. Then, enter the Material number “RAW-100” in the lower field, the Plant “1711”, and the Stor. loc. “171B” in the Dest section. This is the material/ plant where the inventory is being transferred to. Enter the quantity of “10” in the Qty in UnE field. This represents the amount of inventory being transferred. Now click the Post button, which will take you to the Transfer Price Simulation screen shown in Figure 4.41.

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Figure 4.41 Transfer Price Simulation for Material Transfer

You can see in Figure 4.41 that the transfer price amount that is simulated in the Condition Value field is 12.00 USD. This is because you set up a fixed transfer price from plant 1710 to profit center YB110 of $1.20, and you’re transferring 10 EA. Click the Exit button to exit the Transfer Price Simulation screen so that the document is posted. Take a look at the posted document by clicking the Display button at the top of the Transaction MIGO screen, entering the number of the document that was posted, and clicking the FI Documents button, as shown in Figure 4.42.

Figure 4.42 Displaying the FI Document from the MM Document

This will take you to the List of Documents in Accounting popup box shown in Figure 4.43.

Figure 4.43 Documents in Accounting Popup Screen

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Double-click the Accounting document line to view the document posted in the legal view, as shown in Figure 4.44.

Figure 4.44 Legal View of Accounting Document

The legal view of the document that was posted shows a credit of $10 to the inventory account for material RAW-100 in profit center YB111 and plant YB110. The $10 is calculated as the $1.00 standard cost of the material in legal view (refer to Figure 4.39) multiplied by the transferred quantity of 10 PC. Now let’s look at the posting in the profit center view. To do this, click the Display Currency button highlighted at the top of Figure 4.44. This will take you to a popup screen, where you’ll select the Group Crcy/Prof.Cent.Val. option shown in Figure 4.45 so you can see the document in the group currency/profit center valuation view.

Figure 4.45 Display Currency for Document Screen

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After you click the Continue/Confirm button at the bottom of the screen, this will take you to the profit center view of the document shown in Figure 4.46.

Figure 4.46 Profit Center View of the Accounting Document

As you can see in Figure 4.46, the profit center view of the document contains several more lines than the legal view. We’ll explain each of the lines shown in order of their line item number in Table 4.3. Line

Account

Amount

Explanation

1

13100000

–10

The inventory value transferred from the sending profit center valued at the profit center view standard cost

2

13100000

11

The inventory value transferred into the receiving profit center valued at the profit center view standard cost

3

54500000

–12

4

54510000

10

The internal COGS in the sending profit center valued at the profit center view standard cost

5

54520000

12

The internal goods receipt in the receiving profit center valued at the transfer price

6

54510000

–12

The offset to the internal goods receipt in the receiving profit center valued at the transfer price

7

29500100

–12

The document splitting zero balancing account to make the sending profit center subtotal to zero

8

29500100

12

The document splitting zero balancing account to make the receiving profit center subtotal to zero

The internal revenue in the sending profit center valued at the transfer price ($1.20 for 10 PC)

Table 4.3 Explanation of Profit Center View Postings

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Line

Account

9

52512100

Amount 1

Explanation The difference between the profit center view standard cost in the sender ($10) and receiver ($11) profit center

Table 4.3 Explanation of Profit Center View Postings (Cont.)

Now let’s take a look at this document in the Universal Journal by going to Transaction SE16N and entering “ACDOCA” in the Search in Table field, as shown in Figure 4.47.

Figure 4.47 Profit Center Document in the Universal Journal

As you can see in Figure 4.47, the Universal Journal (table ACDOCA) shows the document with the legal view (Amnt in CC) and the profit center View (AmntCrcy2) side by side for each combination of profit center (Profit Ctr) and partner profit center (Partner PC).

4.4 Manufacturing Orders with Profit Center Valuation Now let’s consider profit center transfer pricing scenarios as they relate to production. Let’s first take a look at the data of the two materials you’ll be using in this section in Table 4.4.

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Material

Profit Center

Standard Cost Legal View

Standard Cost Profit Center View

RM-103

YB110

$1.00

$1.00

SG-102

YB111

$1.00

$1.20

Table 4.4 Materials for Profit Center Valuation Manufacturing Scenario

As you can see in Table 4.4, the raw material RM-103 and semifinished material SG102 belong to different profit centers (YB110 and YB111). Both materials have the same standard cost in the legal view, but they have different standard costs in the profit center view. We’ll now take a look at what happens in profit center valuation when there is a material consumption in a different profit center and when there is a goods receipt in a different profit center.

4.4.1 Material Consumption in a Different Profit Center In the first scenario, we’ll see what happens when a raw material that belongs to one profit center is consumed in a production order of a material that belongs to a different profit center with a transfer price between the two profit centers. To view the transfer price that has been set up between these profit centers, go to Transaction 8KEZ, as you did earlier in this chapter, and look at condition record FX01, as shown in Figure 4.48.

Figure 4.48 Transfer Price for Material RM-103

As you can see in Figure 4.48, a transfer price of 2.00 USD has been set up for Plant 1710 and Material RM-103 with a Partner PC of YB111. This means that anytime material RM-103 is consumed in a production order for a material with profit center YB111,

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there will be a transfer price of $2 that is earned by profit center YB110, which is the profit center of material RM-103. Now let’s look at a production order that was created for material SG-102 by going to Transaction CO03, entering the production order number, and pressing the (Enter) key (see Figure 4.49).

Figure 4.49 Production Order 1000186 for Material SG-102

You can see in Figure 4.49 that production order 1000186 for material SG-102 in plant 1010 has been created. The total quantity of the production order of 100 EA has been fully delivered. Let’s now see the cost of the raw material consumption that has been done for this production order. In the menu bar, choose Goto • Costs • Analysis, which will take you to the screen shown in Figure 4.50.

Figure 4.50 Cost Analysis for Production Order 1000186

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In Figure 4.50, you can see in the highlighted line that a Total Actual Qty of 100 EA of material RM-103 has been consumed in production order 1000186, with Total Actual Costs of 100 USD (meaning the cost of material RM-103 is $1). Navigate to the accounting document for the raw material consumption. To do this, double-click the Consumption - Raw Material line, and in the subsequent screen, choose Environment • Accounting Documents from the menu bar. Double-click the Accounting Document, which will take you to the screen shown in Figure 4.51.

Figure 4.51 Accounting Document of Raw Material Consumption

In Figure 4.51, you can see the accounting document from the raw material consumption posting. It shows a credit of $100 coming out of the inventory account and a debit of $100 going into the consumption account. The $100 is based on the standard cost of the raw material ($1) multiplied by the quantity consumed (100 EA). This accounting document represents the legal valuation view of the posting. Next, navigate to the profit center view by clicking on the Display Currency button highlighted in Figure 4.51, selecting the Group Crcy/Prof.Cent.Val. option, and clicking on the Confirm button. This will take you to the screen shown in Figure 4.52. The profit center view of the documents shows several more lines, including the sending (YB110) and receiving (YB111) profit centers. This posting is similar to the one shown earlier in Figure 4.46 where we explained the logic of that document, so we won’t do so again here. However, note that the $100 in lines 1 and 5 represents the standard cost in profit center view ($1), and the $200 in all the other lines represents the transfer price that we set up of $2 (refer to Figure 4.48) multiplied by the quantity consumed (100 EA).

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Figure 4.52 Profit Center View of Raw Material Consumption Posting

4.4.2 Goods Receipt in a Different Profit Center In the second scenario, we’ll see what happens when a material that belongs to one profit center in received on a production order that is in a different profit center with a transfer price between the two profit centers. In this example, the material in question is the semifinished material SG-102 (shown in Table 4.4), which belongs to profit center YB111 and will be produced on a production order that belongs to profit center YB110. Let’s go to the production order that was created to view the profit center assignment to the order by using Transaction CO03, entering the production Order number, pressing the (Enter) key, and then clicking the Assignment tab (see Figure 4.53).

Figure 4.53 Profit Center Assigned to a Production Order

As you can see in Figure 4.53, Profit Center YB110 has been assigned to the production Order 1000189, which was used to produce the Material SG-102, even though this material’s own profit center is YB111. Now navigate to the delivery cost of material SG-102 on production order 1000189 by selecting Goto • Costs • Analysis to open the screen shown in Figure 4.54.

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Figure 4.54 Cost Analysis for Production Order 1000189

You can see in the highlighted line that a Total Actual Qty of 100 EA of Material SG-102 has been received in production Order 1000189, with Total Actual Costs of 100 USD (meaning the cost of material SG-102 is $1). Navigate to the accounting document for the received material by double-clicking on the Consumption – Raw Material line and choosing Environment • Accounting Documents in the subsequent screen. Double-click the Accounting Document, which will take you to the screen shown in Figure 4.55.

Figure 4.55 Accounting Document of Goods Receipt in the Legal View

The accounting document from the material receipt posting shows a debit of $100 going into the inventory account (13300000) and a credit of $100 to the

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actual production account (55100000). The $100 is based on the standard cost of the material SG-102 ($1) multiplied by the quantity received (100 EA). This accounting document represents the legal valuation view of the posting. Next, navigate to the profit center view by clicking the Display Currency button highlighted earlier in Figure 4.51, selecting the Group Crcy/Prof.Cent.Val. option, and clicking the Confirm button. This will take you to the screen shown in Figure 4.56.

Figure 4.56 Profit Center View of the Material Receipt Posting

You can see in Figure 4.56 that the profit center view of the documents shows several more lines, including the sending (YB110) and receiving (YB111) profit centers. This posting is similar to the one shown earlier in Figure 4.46, so we won’t explain the logic again here. Now, let’s calculate a variance for the production order. To do this, go to the Transaction KKS2, enter the production order number, and click Execute, which will lead to the screen shown in Figure 4.57.

Figure 4.57 Variance Calculation for the Production Order

As you can see in Figure 4.57, the variance calculation shows a Variance of 0.00. This is because the consumption amount based on the legal view standard cost (of $1) of the raw material RM-103 of $100 is equal to the receipt amount based on the standard cost (also of $1) of SG-102 of $100 (refer to Figure 4.54).

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Now that you’ve calculated a variance for the production order, you can settle the variance of the order. Go to Transaction KO88, enter the production order number, and click the Execute button. Then in the subsequent screen, click the Detail Lists button to reveal the screen shown in Figure 4.58.

Figure 4.58 Settlement of the Production Order

As you can see in Figure 4.58, the settled value of the production order is 0.00. Navigate to the accounting documents to show the legal and profit center views. First, click the Accounting documents button highlighted in Figure 4.58, and then double-click Accounting documents in the subsequent screen. This will take you to the screen shown in Figure 4.59.

Figure 4.59 Accounting Document of Settlement in the Legal View

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Summary

In Figure 4.59, you can see the accounting document from the settlement posting. It shows a zero-value posting in both the debit and credit accounts. This accounting document represents the legal valuation view of the posting. Navigate to the profit center view by clicking the Display Currency button highlighted in Figure 4.59, selecting the Group Crcy/Prof.Cent.Val. option, and clicking the Confirm button. This will take you to the screen shown in Figure 4.60. As you can see in Figure 4.60, the accounting document in the profit center view shows a favorable variance of $20, which is debited to account 55100000 and credited to account 54530000. You configured account 54530000 in Figure 4.19 earlier in this chapter. The amount of $20 represents the difference between the profit center view standard cost of the raw material ($1) and the profit center view standard cost of the semifinished good ($1.20) multiplied by the delivered quantity (100 EA).

Figure 4.60 Accounting Document of Settlement in the Profit Center View

4.5 Summary In this chapter, we discussed the profit center valuation view. First, we defined the term “profit center” and explained how it had served different purposes in SAP through the years. We then showed the different ways to set up transfer prices between profit centers, such as a markup of the standard cost of a material that is transferred to a different profit center, and a fixed price that is set when the material in one profit center (or plant) does business with another profit center. We then walked through the configuration of the accounts for internal goods movements and

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production variances in the profit center view. After that, we explained how costing variants were set up to calculate a standard cost for profit center valuation. We then rounded out the chapter by looking at a couple of scenarios where transfer pricing can be used in the manufacturing process. In the first scenario, we showed the transfer pricing process when a raw material in one profit center is consumed by a production order for a material in a different profit center. In the second scenario, we showed a semifinished good that was received on a production order in a different profit center. In both scenarios, we examined the relevant accounting documents in the legal view and profit center view, including how they differed. In the next chapter, we’ll discuss the configuration needed to set up actual costing with the Material Ledger.

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Chapter 5 Configuring Actual Costing Configuring actual costing involves the definition and assignment of Material Ledger types, update structures, and actual cost component split. It also involves configuring the accounts posted with actual costing.

We’ve discussed actual costing as one of the key objectives of the Material Ledger. In fact, it’s sometimes confused as being the sole objective of the Material Ledger. Although this isn’t the case, actual costing is one of the more unique functionalities in SAP S/4HANA (and even other enterprise resource planning [ERP] systems as well) that performs calculations and computations which are extremely difficult to replicate outside the system. For that reason, the setup of actual costing involves an intricate sequence of steps that need to be done correctly for the calculations to perform as expected. Incorrect setup could lead not only to incorrect actual cost values but also to errors in other functionalities such as production planning (PP), purchasing, and materials management (MM). The purpose of actual costing is to use the transactions that occur for a material during the month to calculate its actual cost. This actual cost is typically the addition of the standard cost of the material plus the variances that occurred for the month. It sounds simple when mentioned that way, but it can get complicated depending on the processes that occur for the material, such as goods receipts, invoice receipts, order confirmations, consumption, and so on. In addition, if the material is maintained in multiple currencies or is used in several other materials, more layers of complexity are added to the calculation. In this chapter, we’ll provide step-by-step instructions for configuring actual costing in SAP S/4HANA. We’ll walk through the configuration needed to set up number ranges and dynamic price changes in the Material Ledger (Section 5.1), define material

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update structures (Section 5.2), and activate actual costing and key settings (Section 5.3). We’ll also provide systematic instructions regarding what is needed to configure the G/L accounts that are used with actual costing in Section 5.4.

5.1 Material Ledger Activation for Actual Costing We’ve already walked through some of the general configuration settings for the Material Ledger in Chapter 2, Section 2.6. This included the assignment of currency types to Material Ledger types, the assignment of Material Ledger types to valuation areas, and the activation of the Material Ledger for valuation areas, which should automatically be active in SAP S/4HANA. In this part of the chapter, we’ll start off by going through the general Material Ledger settings that are useful for actual costing, such as maintaining number ranges and configuring dynamic price changes.

5.1.1 Maintaining Number Ranges for Material Ledger Documents Number ranges need to be defined for any price changes or any debits/credits that are made to materials. These number ranges are usually categorized into groups that are based on different Material Ledger processes. Normally, the number ranges that are set up in the system are enough for all Material Ledger processes. However, it’s useful to make sure they are set up correctly and understand the purpose of the number range groups. You can access the Material Ledger number ranges by going to configuration menu Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Maintain Number Ranges for Material Ledger Documents (Figure 5.1).

Figure 5.1 Activity Selection for Material Ledger Number Ranges

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5.1

Material Ledger Activation for Actual Costing

As shown in Figure 5.1, there are three activity selections for Material Ledger number ranges: 쐍 Number Ranges for Material Ledger Documents

This shows the number ranges in the number range groups that have been set up for different Material Ledger activities. These number range groups and their corresponding Material Ledger activities are listed in Table 5.1. No.

Range From

Range To

Material Ledger Activity

1

1000000000

1999999999

ML Update

2

2000000000

2999999999

ML Closing

3

3000000000

3999999999

ML Price Change

4

4000000000

4999999999

ML Single Level/DUV

5

5000000000

5999999999

ML Multilevel/WIP

6

6000000000

6999999999

ML Repair

7

7000000000

7999999999

ML Alternative Valuation Run

8

8000000000

8999999999

Delta Posting for Balance Sheet Valuation

Table 5.1 Number Range Groups in the Material Ledger

Note: Number Range for Standard or Moving Average Price Even if you don’t use actual costing, number range group 3 will be used for any postings that update the standard or moving average price for a material. 쐍 Maintain Financial Accounting Document Types

This shows the document type that is set up for the financial postings that are made with the post closing step of the actual costing run (see Chapter 6, Section 6.2.5). There is a standard Material Ledger document type, ML, which is used for all Material Ledger financial accounting (FI) postings, as shown in Figure 5.2.

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Figure 5.2 Material Ledger FI Document Type

As you can see in Figure 5.2, Document type ML has a Number range of 47. 쐍 Accounting Document Number Ranges

Here, you’ll see the range that relates to the number range number 47, which is linked to the ML document type as shown in Figure 5.3.

Figure 5.3 FI Number Range for Material Ledger Documents

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This number range isn’t to be confused with the number ranges shown in Table 5.1. Those number ranges are specific to Material Ledger tables (in object ML-BELEG), whereas this number range is the FI number range that relates to Material Ledger postings (in object RF_BELEG).

5.1.2 Configuring Dynamic Price Changes The dynamic price release functionality enables the automatic release of a planned price that is valid on a specified date when the first goods movement is made in a new month. The planned price that is released is accessed from either of the following fields in order of priority: 쐍 Future Cost Estimate field in the Costing 2 field of the material master 쐍 Future Price field in the Accounting 1 view of the material master

To set the dynamic price release, go to configuration path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Configure Dynamic Price Changes (Figure 5.4).

Figure 5.4 Activating Dynamic Price Changes

As you can see in Figure 5.4, the dynamic price release isn’t active for plant 1710 (i.e., the Price Release field is blank), and it’s active for plant 1711 (i.e., the Price Release field is set to 1).

5.2 Material Update During the Material Ledger update, data is collected from inventory-relevant transactions in different categories in the Material Ledger according to the material update structure. These transactions may or may not have an influence on the actual cost

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calculation, depending on the category they belong to. For example, a receipt category always has an effect on the actual cost but a consumption category doesn’t. You can specify whether a transaction has an effect on the actual cost of the material by assigning it to the other receipts/consumptions category so that it has an effect or to the consumption category so that it doesn’t. Before discussing how the material update is made in the Material Ledger, let’s looks at examples of the categories of material transactions that influence the actual cost calculation (Table 5.2). Material Transaction

Category

Influences Actual Cost?

Goods receipt

Receipts

Yes

Invoice receipt

Receipts

Yes

Production order settlement

Receipts

Yes

Debit/credit material

Other receipts/consumption

Yes

Goods issue to production order

Consumption

No

Goods issue to sales order

Consumption

No

Stock transfer out

Consumption

No

Table 5.2 Influence of Material Transactions on Actual Cost Calculation

As you can see in Table 5.2, all receipts categories influence the actual cost calculation, whereas consumption categories don’t. The standard material update structure follows this logic. Therefore, if you want all receipts to affect the actual cost calculation, but don’t want consumption to affect the actual cost calculation, then you don’t need to change the standard system settings. However, if you want certain material movements that are categorized as receipts not to influence the actual cost calculation or if you want material movements that are categorized as consumption to influence the actual cost calculation, then you need to proceed with the steps shown in this section.

5.2.1 Defining Movement Type Groups of the Material Ledger In this configuration step, you can define the movement type groups that will determine the categories the material movements will be assigned to. You can do this by going to configuration menu path Controlling • Product Cost Controlling • Actual

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Costing/Material Ledger • Material Update • Define Movement Type Groups of Material Ledger. On the screen that appears, click the New Entries button to arrive at the screen shown in Figure 5.5, where you can enter your movement type groups.

Figure 5.5 Defining Movement Type Groups for the Material Ledger Update

As you can see in Figure 5.5, the following three movement type groups (MTG) have been defined: 쐍 OR – Other Receipts

This movement type group has been defined to categorize specific movement types that are usually consumption-based as receipts in the Material Ledger, so that they are relevant for the actual cost calculation. 쐍 CF – Reval of FI Account

This movement type group has been set up with a Reval. of Consumption indicator of 1. This means any variances that apply to a material consumed with the respective movement type will revalue the original G/L account. We’ll discuss the revaluation of consumption functionality further in Chapter 6. 쐍 CC – Reval of FI and CO

This movement type group has been set up with a Reval. of Consumption indicator of 2. This means any variances that apply to a material consumed with the respective movement type will revalue the original G/L account and controlling (CO) account assignment. We’ll discuss the revaluation of consumption functionality further in Chapter 6.

5.2.2 Assigning Movement Type Groups of the Material Ledger Now that the movement type groups have been defined, you can assign them to the relevant movement types, so that the transactions that are posted with these movement types are assigned to their required categories. To do so, go to configuration

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menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Update • Assign Movement Type Groups of Material Ledger (Figure 5.6).

Figure 5.6 Assign Movement Type Group to Movement Type 952

Assign the Movement Type Group OR (other receipts) to the movement type (Trans.Ty) 952 so that this movement type (for consumption) will be categorized as a receipt and hence influence the actual cost calculation.

5.2.3 Defining the Material Update Structure Now that you’ve assigned the movement type group to the respective movement type, you need to assign the movement type group to the material update structure. The material update structure contains the mapping of process categories (e.g., production, procurement, stock transfer, and material transfer postings) to categories (e.g., receipts, other receipts, and consumption). You can define the material update structure by going to configuration path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Update • Define Material Update Structure. The standard material update structure already has the mappings of process categories (PCat) to categories (Cat), as shown in Figure 5.7. The keys in the Cat column in Figure 5.7 are described here: 쐍 ZU: Receipts 쐍 VP: Other receipts/consumption 쐍 VN: Consumption

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Figure 5.7 Standard Material Update Structure

Therefore, movement type 952, which is usually a consumption movement type, will naturally be assigned to category VN. If you use this movement type with a cost center, its process category will be VK (cost center). To change this movement type so that it influences the actual cost calculation, assign PCat VK (cost center) to the MTG OR (other receipts) and the Cat VP (other receipts/consumption), as shown in Figure 5.8.

Figure 5.8 Assignment of Movement Type Group to Material Update

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With the setting shown in Figure 5.8, any transactions that use movement type 952 will show up in the other receipts/consumption category and hence influence the calculation of actual cost.

5.2.4 Assigning Material Update Structure to the Valuation Area Now that the material update structure has been updated, it needs to be assigned to the respective valuation areas, so that the defined mappings of process categories to categories are available in the Material Ledger for that plant. This is done via configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Update • Assign Material Update Structure to a Valuation Area, which will take you to the screen shown in Figure 5.9.

Figure 5.9 Assigning Material Update Structure to Valuation Areas

Map the standard Matl Update Struct. 0001, which contains the standard process category/category mapping as well as the movement type group assignment, to the relevant valuation areas. This means that anytime movement type 952 is posted to a cost center, it will be categorized in in the Other Receipts/Consumption folder in the Material Price Analysis (accessed via Transaction CKM3), as shown in Figure 5.10.

Figure 5.10 Material Price Analysis Showing Other Receipts/Consumption

You can see in Figure 5.10 that the posting of 100 EA made by movement type 951 shows up in the Other Receipts/Consumption folder in the Material Price Analysis

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screen, which means that it will be used in the calculation of the actual cost. We’ll discuss the Material Price Analysis further in Chapter 6, Section 6.4.

5.3 Actual Costing Actual costing is calculated during the execution of the actual costing cockpit for every period. For plants enabled for this process, they must be activated for actual costing in addition to being active for the Material Ledger. We’ll now walk through the series of steps needed to activate actual costing as well as some supplemental settings which will provide more accuracy to the actual cost.

5.3.1 Activating Actual Costing The first step of actual costing configuration is to activate actual cost for each plant. This is done via configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Actual Costing • Activate Actual Costing. This will take you to the screen shown in Figure 5.11.

Figure 5.11 Activity Selection for Activating Actual Costing

In this screen, double-click Activate Actual Costing to activate actual costing for each relevant plant by selecting the Act. Costing checkbox, as shown in Figure 5.12.

Figure 5.12 Activating Actual Costing

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In this screen actual costing is activated for plants (Plnt) 1710 and 1711. Descriptions follow for the two other columns in this screen: 쐍 Activity consumption update (ActAct)

This column relates to the update of the consumption of activities and business processes in the actual quantity structure (viewable in Transaction CKMLQS) and whether the variances of the production cost centers (based on the difference between the plan and actual activity rates) are to be used to revalue the materials that are produced through that cost center. The settings of the activity consumption update are explained in Table 5.3. Actual Consumption

Description

Meaning

0

No activity update

Activity consumption doesn’t update the actual quantity structure.

1

Activity update not relevant to price determination

Activity consumption updates the actual quantity structure, but cost center variances aren’t considered in calculating actual cost.

2

Activity update relevant to price determination

Activity consumption updates the actual quantity structure, and cost center variances are considered in calculating actual cost.

Table 5.3 Settings for the Activity Consumption Update

If you use the cost object controlling functionality’s Revaluation at Actual Prices function, or Transaction CON2, you’ll need to set the activity consumption update (ActAct) indicator to 1; otherwise, the production cost center will be credited twice (once during the Revaluation at Actual Prices step, and the other during the Post Closing step of the Material Ledger (see Chapter 6, Section 6.2.5). In the example in Figure 5.12, ActAct has been set to 2, meaning that we don’t use the Revaluation at Actual Prices functionality but would like the production cost center variance to be used in the calculation of the actual cost of the material.

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쐍 Credit of cost centers (CreditCCt)

This column is only relevant if you’ve chosen option 2 (activity update relevant to price determination) in the ActAct column. It controls which actual costing run is used to credit the production cost centers. The settings are as follows: – Blank: This setting means that the cost center will be credited during the main actual costing run. – 1: This setting means that the cost center will be credited during the alternative valuation run (AVR). We’ll discuss the AVR further in Chapter 6, Section 6.3. In the example in Figure 5.12, CreditCCt has been set to blank, meaning that we want to use the main actual costing run to credit the production cost centers.

5.3.2 Creating User-Defined Names for Receipts/Consumption If you want to differentiate a material movement transaction so that it’s easily recognizable in the Material Ledger reports, you can create a controlling level and label it with a user-defined name. A controlling level is a subdivision of a process category. We showed examples of process categories earlier in Figure 5.7, such as Procurement (B+) and Consumption (V+). To create a user-defined name for receipts and consumption, you can go to configuration path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Actual Costing • Create User-Defined Names for Receipts/Consumption. You’ll then see the screen shown in Figure 5.13.

Figure 5.13 Activity Selection for Creating User-Defined Names

You have the option to define user-defined names for receipts and/or consumption. To create a user-defined name for consumption, double-click Define User-Defined Name for Consumption, click New Entries in the subsequent screen, and then enter the data shown in Figure 5.14.

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Figure 5.14 Define User-Defined Names for Consumption

Enter controlling level “Z002” in the ControlLvl column, and give it the name “TESTCL” in the User-Defined Name field. Now you need to assign this controlling level to the appropriate process category.

5.3.3 Assigning User-Defined Names for Receipts/Consumption Before assigning the user-defined names to a process category, you need to make sure that you’ve set up the appropriate movement type groups and assigned them to the movement types that you want to distinguish with the user-defined name. You’ve already created movement type group OR and assigned it to movement type 952 earlier in Figure 5.6. Now you’ll assign this movement type group to movement type 951, as shown in Figure 5.15.

Figure 5.15 Assigning Movement Type Group to Movement Type 951

Next, assign the controlling level by going to configuration path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Actual Costing •

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Assign User-Defined Names for Receipts/Consumption. This takes you to the Select Activity screen shown in Figure 5.16.

Figure 5.16 Activity Selection Screen for Assigning User-Defined Names

Because we want to assign user-defined names for consumption, double-click on Assign User-Defined Names for Consumptions, click New Entries, and enter the data in the screen shown in Figure 5.17.

Figure 5.17 Assigning User-Defined Names for Consumption

Assign process category V+ for Consumption and movement type group OR to controlling level Z002 that you created. This means that anytime movement type 951 is used, it will be categorized in a specific Consumption folder in the Material Price Analysis screen (accessed via Transaction CKM3), as shown in Figure 5.18.

Figure 5.18 Material Price Analysis Screen Showing the Consumption Controlling Level

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You can see in Figure 5.18 that the controlling level TESTCL is shown separately in the Consumption folder of the Material Price Analysis screen. This will distinguish it from other consumption transactions for that material. We’ll discuss the Material Price Analysis screen further in Chapter 6, Section 6.4.

5.3.4 Activating Actual Cost Component Split The cost component split is a very useful function in product cost controlling. It breaks out the material cost into the various components that make up the cost. These components are based on the cost elements that are assigned to the raw materials, activity types, and other inputs that are used to procure the main material. The cost components are set up in the cost component structure of the product cost planning functionality using Transaction OKTZ. An example of a cost component structure is shown in Figure 5.19.

Figure 5.19 Cost Component Structure in Product Cost Planning

As shown in Figure 5.19, there are several cost components in a cost component structure. These cost components are also used in the Material Ledger, to break out the actual cost of a material. To use the cost component split in the Material Ledger, you need to activate it by going to configuration path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Actual Costing • Activate Actual Cost Component Split. You can then activate the settings for the relevant plants by selecting the ActCstCmpSplt Active checkbox, as shown in Figure 5.20. In Figure 5.20, the actual cost component split has been activated for plants 1710 and 1711. This means that you’ll be able to break out the actual cost components for the materials in these plants. We’ll show how actual cost components can be analyzed in Chapter 6, Section 6.4.5.

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Figure 5.20 Activating the Actual Cost Component Split

5.3.5 Activating Work in Process at Actual Cost Work in process (WIP) is the amount posted to the balance sheet when a manufacturing order has neither been delivered nor completed. If the input materials on a manufacturing order are valued at standard cost, then the WIP amount (typically the difference between the input materials/activities and the produced material) will also be valued at standard cost. If you want the WIP amount to be valued at actual cost, then you need to activate the WIP at actual cost functionality. You can do this by going to configuration menu Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Actual Costing • Activate WIP at Actual Cost. Click New Entries and activate the relevant plants by selecting the WIP Active checkbox, as shown in Figure 5.21.

Figure 5.21 Activating WIP at Actual Cost

In Figure 5.21, WIP at actual cost has been activated for plants 1710 and 1711, 1 has been entered in the From Per. column, and 2018 has been entered in the From Year column. When making this activation, you need to make sure that it’s done before the start of the period that you want to use the functionality in. Therefore, the setting won’t be

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active for the actual cost calculation in the period that you made the activation. Instead, it will be active at the beginning of the subsequent month.

5.4 Account Determination Account determination in SAP is the way that postings made in other functionalities are updated in the G/L. For the Material Ledger, account determination settings are needed because the post closing step in the actual costing cockpit generates postings in the G/L (see Chapter 6, Section 6.7). The account determination configuration table for the Material Ledger is the same table that is used for inventory management transactions (e.g., goods issues and goods receipts) and invoice verification (e.g., invoice receipts). To access this table, you need to go to configuration menu path Materials Management • Valuation and Account Assignment • Account Determination • Account Determination without Wizard • Configure Automatic Postings or use Transaction OBYC. When you get to the subsequent screen, click the Cancel button, and then click Account Assignment to get to the screen shown in Figure 5.22.

Figure 5.22 Account Determination for Inventory Management

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The account determination table on this screen contains descriptions of different types of inventory transactions along with their corresponding three-digit transaction keys. This screen only shows the top part of the Transaction list. There are several more below, which you can scroll down to see, to configure the keys that are relevant to the Material Ledger. We’ll discuss these in the following sections.

5.4.1 Cost/Price Differences for the Material Ledger The first transaction key that you’ll configure is for single-level/multilevel price determination (transaction key PRY). This represents the variances that are proportionally assigned to ending inventory or to another product that the material is consumed into. To illustrate this, consider the following example: 30 lbs of material A (with a standard cost of $9) were purchased during the month at a purchase price of $10. Then, 10 lbs of this material were issued to a production order for material B, leaving 20 lbs of material A in inventory. The account postings for the goods receipt of material A are shown in Figure 5.23. Goods Receipt WRX 300

BSX 270

PRD 30

Figure 5.23 Goods Receipt with Variance

You’ll see from Figure 5.23 that there is a purchase price variance (PRD) of $30. This is calculated as the difference between the value in the goods receipt/invoice receipt account (WRX), which represents the purchase price multiplied by the quantity received, and the inventory account (BSX), which represents the standard cost multiplied by the quantity received. At the end of the month, the post closing step of the actual costing cockpit is executed, and a portion of the variance based on quantity consumed relative to total quantity will be transferred from material A to material B. However, instead of crediting the original PRD account, a Material Ledger variance account (PRY) is used, as shown in Figure 5.24.

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Post Closing of the Material Ledger PRY - Material B 10

PRY - Material A 30

BSX 20

Figure 5.24 Price Difference for Inventory Revaluation

Note: Variance Accounts You should keep the Material Ledger variance accounts separate from the original variance accounts so that it’s easy to identify the accounts that are posted to and from the Material Ledger.

As you can see in Figure 5.24, the variance from material A (PRY - Material A) has been proportionally transferred to the Material Ledger variance account of material B (PRY - Material B). This proportion is based on the quantity of inventory (10 lbs of 30 lbs, hence, one-third) that was transferred from material A to B. The remaining quantity (20 lbs of 30 lbs, hence, two-thirds) is posted to the inventory account for material A (BSX). This remaining quantity that is posted to inventory at the end of the closed month is immediately reversed at the beginning of the next month. Therefore, in the example, the amount of $20 will be transferred from the inventory account (BSX) back to the Material Ledger variance account (PRY), as shown in Figure 5.25. Post Closing of the Material Ledger BSX 20

PRY - Material A 20

Figure 5.25 Reversal of the Material Ledger Variance in the Subsequent Month

As you can see in Figure 5.25, the variance of $20 from material A, which was posted to the inventory account (BSX) in Figure 5.24, has been transferred back to the Material Ledger variance account (PRY - Material A) in the subsequent month.

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The Material Ledger variance account can be configured by scrolling down the account determination screen shown previously in Figure 5.22, double-clicking Transaction PRY, and entering the data shown in Figure 5.26.

Figure 5.26 Accounting Determination for Transaction Key PRY

Enter the accounts for Transaction PRY by Valuation class and Valuation modif. so you can assign separate G/L accounts to different types of material (raw materials, semifinished goods, etc.). In addition, in the preceding example, there are separate accounts for debits and credits; however, if you don’t need this distinction, you can use the same accounts for both debits and credits. This account is usually a P&L account that is included in the same range as the original variance accounts.

5.4.2 Materials Management Exchange Rate Differences Now that you’ve configured the account for the Material Ledger variances, you can also configure the accounts for exchange rate differences (transaction key KDM). This account uses the same logic of proportioning variances (only, in this case, it’s the exchange rate differences being proportioned) that the Material Ledger variances use to determine how much of the variance should be assigned to the material itself versus another material or cost object. Exchange rate variances can occur when a

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purchase order was created in a different currency from the currency of the company code. Let’s assume that the scenario with material A is the same as in the previous example, except that the variance is exclusively due to an exchange rate difference. At the end of the month, when the post closing step of the actual costing cockpit is executed, it will proportionally transfer the exchange rate difference from material A to material B using the exchange rate difference account (KDM) as shown in Figure 5.27. Post Closing of the Material Ledger KDM - Material A 30

KDM - Material B 10

BSX 20

Figure 5.27 Exchange Rate Difference for Inventory Revaluation

To configure this account, go to the account determination table (refer to Figure 5.22), and double-click Transaction KDM. This opens the screen shown in Figure 5.28.

Figure 5.28 Account Determination of Transaction Key KDM

Assign the relevant accounts to transaction key KDM. This account will be posted to during the Post Closing step of the actual costing cockpit, if there is an exchange rate difference posted during the month for material. This account is usually a P&L account that is in the same range as other exchange rate difference accounts.

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5.4.3 Revaluation of Other Consumables During the month, there could be goods issues for materials where the receiving object isn’t another material. Examples of these transactions are applying goods issues to a cost center, scrapping a material to a profitability segment, or issuing a product to a sales order. When this happens, there are three general ways to treat the variances that occur for that material: 쐍 Leave the variance in the variance account

If you want to use this option, don’t check the Revaluate Consumption box in the post closing step of the actual costing cockpit (we’ll discuss revaluation of consumption in Chapter 6). 쐍 Transfer the variance to the original account that was posted to

If you want to use this option, assign a revaluation of consumption movement type group (CC or CF), as shown earlier in Figure 5.5, to the relevant movement type and also check the Revaluate Consumption box in the post closing step of the actual costing cockpit. 쐍 Transfer the variance to a generic account

If you want to use this option, assign an account to transaction key COC, and don’t assign a revaluation of consumption movement type group to the relevant movement type. This is the option we’ll discuss here. Let’s assume that material A (that we looked at in the previous section) with the variance of $30 wasn’t consumed on the production order of material B, but, instead, the 10 lbs were issued to a cost center. In that case, when the post closing step of the actual costing cockpit is executed, the accounting postings will look like those shown in Figure 5.29. Post Closing of the Material Ledger PRY 30

COC 10

BSX 20

Figure 5.29 Revaluation of Consumption Posting

As you can see in Figure 5.29, the proportional variance from material A ($10) has been posted to the COC account with the remainder ($20) being posted to the inventory (BSX) account. To assign this account, go to the account determination table

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(refer to Figure 5.22), double-click Transaction COC, and enter the relevant account as shown in Figure 5.30.

Figure 5.30 Account Determination of Transaction Key COC

Assign an account to transaction key COC. This account will receive any proportional variances from materials that are issued to nonmaterial receivers (if you have not opted to transfer the variances to the original account that was posted). This account is usually a P&L account that is in the same range as other cost of sales accounts.

5.4.4 Accruals and Deferred Accounts for the Material Ledger One of the key objectives of actual costing is to revalue the inventory left in stock. This revaluation leads to a posting to the inventory G/L account. While this functionality is required by several countries, such as Brazil and Turkey, some companies like to gain the benefits of actual costing without revaluing their inventory G/L accounts. This could either be because they want to monitor the calculated actual cost for a while before using it to revalue inventory or because they only want to use the actual cost for internal management reporting purposes, and hence not impact the G/L. You have the option to post the proportional material variances to an account that is separate from the regular inventory account. We’ll continue to use material A to provide an example of how this works with transaction key LKW. Let’s assume that you don’t want to revalue inventory with the proportional material variances. If that’s the case, when you execute the post closing step in the actual costing cockpit and don’t check the Revaluate Material box, the postings will look like the ones shown in Figure 5.31.

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Post Closing of the Material Ledger PRY 30

COC 10

LKW 20

Figure 5.31 Revaluation Variance to a Deferral Account

As you can see in Figure 5.31, the remaining variance from material A isn’t posted to inventory (BSX) as was done in Figure 5.24, but instead it’s posted to an alternative account that has a transaction key of LKW. To assign this account, you can go to the account determination table (refer to Figure 5.22), double-click Transaction LKW, and enter the relevant account as shown in Figure 5.32.

Figure 5.32 Account Determination of Transaction Key LKW

Assign the relevant accounts to transaction key LKW. This account will receive any proportional variances from materials that are left in inventory (if you haven’t checked the Revaluate Materials box in the post closing step of the actual costing cockpit). Some companies choose to set up this account as a balance sheet account that is in the same range as the normal inventory accounts. Other companies set it up as a P&L account so that the revaluation isn’t shown in the balance sheet.

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5.4.5 Activity Price Differences In Section 5.3.1, we mentioned that you could choose to activate the activity consumption update (i.e., ActAct in Figure 5.12) when you activate actual costing. The consequence of this is that the variance on a production cost center (the difference between the plan and actual activity price of material A, in the example) can be proportionally transferred to the materials that are produced in that cost center (material B, in the example). If you choose to use this option, when you execute the post closing step in the Material Ledger, an accounting posting is made that transfers the variance from the cost center account into an activity price variance account, as shown in Figure 5.33. Post Closing of the Material Ledger GBB-AUI 15

PRL 15

Figure 5.33 Activity Consumption Allocation

In Figure 5.33, the cost center variance of $15 is assumed. When the post closing step in the actual costing cockpit was executed, this variance was credited from the cost center (using transaction key GBB-AUI) and debited to the activity price variance account (PRL) for the produced material. The amount of $15 will then be transferred from the activity price variance account (PRL) to the Material Ledger variance account (PRY) of material B as a multilevel variance (this is the proportional variance that is transferred from a consumed activity to a produced material), as shown in Figure 5.34. Post Closing of the Material Ledger PRL 15

PRY - Material B 15

Figure 5.34 Multilevel Determination of Activity Price Variance

To assign this account, go to the account determination table (refer to Figure 5.22), double-click Transaction PRL, and enter the relevant account as shown in Figure 5.35.

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Figure 5.35 Account Determination of Transaction Key PRL

Assign accounts to transaction key PRL. This account will receive any proportional cost center variances that are allocated to the respective activities consumed from those cost centers and then further allocated to the materials that are produced from those activities.

5.4.6 Material Ledger Cost Center Absorption As with the immediately preceding scenario, this account is used if you choose to activate the activity consumption update (i.e., ActAct in Figure 5.12) when you activate actual costing. This is the account that credits the cost center using transaction key GBB-AUI with the offsetting entry going to the activity price difference (PRL) account shown in Figure 5.34. To assign this account, go to the account determination table, double-click on Transaction GBB, and enter the relevant account for General modification AUI, as shown in Figure 5.36. Assign an account by Valuation modif. and General modification AUI to the relevant Valuation classes. The first line shown doesn’t have any Valuation class because the posting from the GBB-AUI account to the PRL account isn’t related to any material (but instead to a cost center), so there won’t be a valuation class associated with the account determination. The reason that we’ve left the Valuation classes 7900 and 7920 in the account determination table is because they are inherited from the SAP ERP settings, where the GBB-AUI account is posted to a Material Ledger variance (PRV) or WIP variance (WPM) account that does have a valuation class.

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Figure 5.36 Account Determination for Transaction Key GBB-AUI

5.4.7 Work In Process from Price Differences—Material When we briefly discussed the revaluation of WIP in Section 5.3.5, we mentioned that you can activate WIP revaluation so that any variances on a material or activity that is consumed on an incomplete manufacturing order can be proportionally transferred to a WIP variance account. Now we’ll look at an example of the postings that are made if material A with a price variance of $10 was issued to an incomplete manufacturing order of material B. When you execute the post closing step in the Material Ledger, an accounting posting is made that transfers the proportional variance from the Material Ledger variance account (PRY) of material A to the WIP price variance account (WPM), as shown in Figure 5.37. Post Closing of the Material Ledger PRY - Material A 10

WPM 10

Figure 5.37 WIP Revaluation from Material

To assign this account, go to the account determination table (Figure 5.22), doubleclick Transaction WPM, and enter the relevant account as shown in Figure 5.38.

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Figure 5.38 Account Determination for Transaction Key WPM

Assign an account to transaction key WPM. This account will receive any proportional material variances that are issued to an incomplete manufacturing order when WIP revaluation is active. This account is usually set up as a balance sheet account in the same range as the standard WIP balance sheet account (in Transaction OKG8), so that when you add both accounts together, you come up with the WIP at actual cost.

5.4.8 Work in Process from Price Differences—Activity Types The logic of WIP revaluation of materials described in the previous section also applies to cost center activities. We mentioned in Section 5.3.1 that you have the option of revaluing inventory with cost center variances (the difference between plan and actual activity prices). If you choose to activate the activity consumption update (i.e., ActAct in Figure 5.12), and the cost center activities are consumed to an incomplete manufacturing order, the cost center variances will be transferred to a WIP variance account. Now let’s look at an example of the postings that are made if the activity of a cost center with a price variance of $15 was consumed on an incomplete manufacturing order. When you execute the post closing step in the Material Ledger, an accounting posting is made that credits the cost center account (GBB-AUI) and debits the WIP price variance account for activity types (WPA), as shown in Figure 5.39.

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Post Closing of the Material Ledger GBB-AUI 15

WPA 15

Figure 5.39 WIP Revaluation from Activities

To assign this account, go to the account determination table (refer to Figure 5.22), double-click Transaction WPA, and enter the relevant account as shown in Figure 5.40.

Figure 5.40 Account Determination for Transaction Key WPA

Assign an account to transaction key WPA. This account will receive any proportional activity type variances that are issued to an incomplete manufacturing order when WIP Revaluation is active.

5.4.9 Differences of Canceled WIP—Materials When an incomplete manufacturing order is completed in a subsequent month (or more quantities of the produced product are delivered) the WIP value is reduced from the WIP variance account. When you execute the post closing step in the Material Ledger, an accounting posting is made that proportionally reduces the amount in the WIP variance account (WPM) and posts the offsetting entry to the WIP variance write-off account (PRM), as shown in Figure 5.41.

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Post Closing of the Material Ledger WPM 10

PRM - Material A 10

Figure 5.41 Cancellation of WIP for Material Variances

As you can see in Figure 5.41, the $10 WIP variance that was posted to the WIP variance account (WPM) account in Figure 5.37 has been completely transferred to the WIP variance write-off account (PRM). The amount of $10 will then be transferred from the WIP variance write-off account for materials (PRM) to the Material Ledger variance account (PRY) of material B as a multilevel variance (this is the proportional variance that is transferred from a consumed material to a produced material), as shown in Figure 5.42. Post Closing of the Material Ledger PRM - Material A 10

PRY - Material B 10

Figure 5.42 Multilevel Determination of Material WIP Variance

To assign this account, go to the account determination table (refer to Figure 5.22), double-click Transaction PRM, and enter the relevant account as shown in Figure 5.43.

Figure 5.43 Account Determination of Transaction Key PRM

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Assign an account to transaction key PRM. This account will receive any reduction of WIP from the WPM account when a delivery is made on a previously incomplete order, and it will subsequently transfer this variance to the PRY account of the delivered material. The PRM account is usually set up as a P&L account that is in the same range as the other variance accounts.

5.4.10 Differences of Cancelled WIP—Activity Types The logic of WIP variance cancellation for materials described previously also applies to cost center activities. When there is a WIP reduction, a proportional amount is transferred from the WIP variance account (WPA) to the WIP variance write-off account for activities (PRA), as shown in Figure 5.44. Post Closing of the Material Ledger WPA 15

PRA 15

Figure 5.44 Cancellation of WIP for Activity Variances

The amount of $15 will then be transferred from the WIP variance write-off account (PRA) to the Material Ledger variance account (PRY) of the produced material as a multilevel variance, as shown in Figure 5.45. Post Closing of the Material Ledger PRA 15

PRY - Material B 15

Figure 5.45 Multilevel Determination of Activity WIP Variance

To assign this account, go to the account determination table (refer to Figure 5.22), double-click Transaction PRA, and enter the relevant account as shown in Figure 5.46.

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Figure 5.46 Account Determination of Transaction Key PRA

Assign an account to transaction key PRA. This account will receive any reduction of WIP from the WPA account postings when a delivery is made on an incomplete order and subsequently transfer the WIP variance to the PRY account of the produced material.

5.5 Summary In this chapter, we walked through the detailed configuration for actual costing. First, we looked at the specific steps needed to activate the Material Ledger for actual costing, which involved the standard setup of the Material Ledger number ranges and configuring dynamic price changes. Next, we looked at the settings needed to define the material update structure, such as creating and assigning movement type groups, configuring the material update structure, and assigning this structure to the relevant valuation areas. We then walked through the steps for activating actual costing—with or without activity consumption update, creating and assigning user-defined names for receipts and consumption, and activating the actual cost component split. Finally, we looked at the different account determination settings that are needed for actual costing and showed how they are typically posted in the G/L. In the next chapter, we’ll walk through the steps for executing the actual costing cockpit, as well as its transactions, which can be used to analyze the actual cost data.

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Chapter 6 Actual Costing Run and Analysis The actual costing run is a sequence of steps that are carried out at the end of the month to calculate the actual cost for every material that has price determination-relevant activity during the period. You can then analyze your results using the material price analysis.

In Chapter 5, we covered the steps needed to set up actual costing and configured the accounts that are posted to when the actual costing cockpit is run. In this chapter, we’ll introduce the actual costing cockpit and walk through the different steps that need to be carried out to calculate the actual cost. Before we begin with these processes, let’s discuss actual costing means and why it’s needed by some companies. For materials that are valued at a standard cost, the Material Ledger tracks all the goods movements and price and exchange rate differences for that material within a period. Then, at the end of the period (actually sometime during the subsequent period), the actual costing run calculates an actual cost (also known as the periodic unit price [PUP]) by taking the value of the cumulative inventory at standard cost, adding the price (or exchange rate) differences, and dividing by the cumulative inventory. We’ll use a simple example to illustrate this in Table 6.1. Material A

Quantity

Preliminary Valuation

Price Difference

Actual Cost

Beginning inventory

1 EA

$10

–

$10

Receipts

2 EA

$20

$6

$13

Cumulative inventory

3 EA

$30

$6

$12

Consumption

2 EA

$20

$4

$12

Ending inventory

1 EA

$10

$2

$12

Table 6.1 Sample Actual Costing Calculation for a Material

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As you can see in Table 6.1, material A has a beginning inventory of 1 EA, with a standard cost of $10. Then a receipt was made for 2 EA, with a variance of $6. Therefore, the cumulative inventory is 3 EA (1 EA + 2 EA), which when multiplied by the standard cost of $10 gives a preliminary valuation of $30. Then, when you add the variance of $6 to the preliminary valuation, this gives you $36. Then, when you divide this amount ($36) by the cumulative inventory of 3 EA, you get the actual cost of $12. This actual cost of $12 is applied to the consumption quantity of 2 EA and the ending inventory of 1 EA. A company that uses actual costing will therefore have a more accurate cost to value inventory, and any consumption to cost of sales, work in process (WIP), or other materials that are produced from this material. The key to enabling this calculation to take place is to execute the actual costing cockpit, which we’ll discuss at a high level in Section 6.1. We’ll then walk through an actual costing run in Section 6.2. After that, we’ll look at how to calculate an alternative valuation run (AVR) in Section 6.3. Then we’ll look at various ways of analyzing the actual cost such as the material price analysis (Section 6.4), activity consumption analysis (Section 6.5), and the value flow monitor (Section 6.6). Finally, we’ll look at how to interpret the general ledger (G/L) postings that are created from the actual costing run in Section 6.7.

6.1 Actual Costing Cockpit You’ll normally execute the actual costing cockpit as one of the last steps in the period-end process, which is usually in the first week of the new period. Before you start the process, several prerequisites must be met: 쐍 Ensure that all goods movements have been completed for the period

The Material Ledger tracks the goods movements for the period and uses this as a basis to calculate the actual cost. After the post closing step of the actual costing cockpit has been run, you should not post any further goods movements for that period. 쐍 Make sure all variances are collected in the price and exchange rate variance

accounts For this requirement, there are a couple of things to note: First, when the term “price variance” is used in the Material Ledger, it’s normally used to distinguish it from “exchange rate variances”. Therefore, price variances include purchase price variances, production variances, stock transfer variances, and so on. Second, the

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only variances that are considered by actual costing are those created automatically by the system and not variances that are manually posted. 쐍 Make sure that any adjustments to variance accounts are made This means that if you use transactions that directly debit or credit a material (e.g.,

Transaction MR22), this should be done ideally before the actual costing cockpit is run. Once again, any manually posted variance adjustments (e.g., using Transaction FB50) will be ignored. 쐍 Calculate actual activity prices This is needed particularly if you’ve set the activity consumption update indicator

(ActAct) to 2, as discussed in Chapter 5. The activity price variances are then used to revalue the inventory of the respective produced materials. 쐍 Make sure that the new material period is open

As the Post Closing step of the actual costing cockpit performs a posting in both the current period and the new period, you need to make sure that the new period is open (with Transactions MMPV and OB52) before this step is run.

Note: New Actual Costing This actual costing cockpit has been in existence since the release of the Material Ledger in 1996. SAP has made some tweaks to the actual costing cockpit since then, but the most significant changes were made in SAP S/4HANA 1610. In fact, these changes are so significant that SAP refers to this new model as “new actual costing.” In this book, we’ll continue to use the term “actual costing” because we’re still in the early stages of this inception, and sometimes these new labels don’t stick, or may become obsolete over time.

6.2 Actual Costing Run For those who have used the actual costing run in SAP ERP, you’ll notice two immediate changes in SAP S/4HANA: 쐍 The runtime of the program is much faster because the actual costing cockpit is

leveraging the speed of the SAP HANA in-memory database, as well as the streamlined table structure, to process the data. 쐍 Instead of eight execution steps as discussed in Chapter 1, there are five execution

steps. Each of these steps is carried out with a different program from the ones in SAP ERP. The mapping of the old steps to the new steps is shown in Figure 6.1.

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SAP ERP

SAP S/4HANA

Selection

Selection

Determine Sequence

Preparation

Single Level Price Determination, Multilevel Price Determination, Revaluation of Consumption, WIP Revaluation

Settlement

Post Closing

Post Closing

Mark Material Prices

Mark Material Prices

Figure 6.1 Mapping of Actual Costing Steps from SAP ERP to SAP S/4HANA

As you can see in Figure 6.1, all the steps in SAP ERP are covered in SAP S/4HANA. The major difference is that four of the steps (single-level price determination, multilevel price determination, revaluation of consumption, and WIP revaluation) in SAP ERP are combined into one step (settlement) in SAP S/4HANA. We’ll walk through these five steps, as well as your additional options, in the following sections. Before we get started, let’s set up the actual costing cockpit for the actual costing run in the next section.

6.2.1 Setup To access the actual costing cockpit, go to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Actual Costing • Edit Costing Run or use Transaction CKMLCP. In the ensuing screen, click the Create Costing Run button to access the screen shown in Figure 6.2. Enter a Costing run name, description, and period, and then select the Actual Costing Run option. The other options in the screen are AVR with Run Reference, which is for

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creating the AVR with a template (discussed in Section 6.3), or Classic AVR, which is for creating the AVR from scratch.

Figure 6.2 Create Material Ledger Costing Run

Click Continue and assign the relevant plants to the costing run, as shown in Figure 6.3.

Figure 6.3 Assigning Plants to the Actual Costing Run

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Assign Plant 1710 and Plant 1711 to the actual costing run by selecting the relevant plants on the right part of the screen and clicking on the arrow pointing to the left (not shown) to move the plants to the left part of the screen. Click the Save button, and then click on the Processing button, which will take you to the screen shown in Figure 6.4.

Figure 6.4 Actual Costing Run Processing Screen

As you can see in Figure 6.4, the five execution steps mentioned earlier in this chapter are shown in the Processing area. The last eight columns of the screen are split between material statuses (Mat Stat) and activity type statuses (Act Stat). Now let’s proceed will executing the steps of the actual costing cockpit.

6.2.2 Selection In this step, all materials that have a Price determination indicator of 3 as well as all activity types in plants that have an activity consumption update (ActAct) indicator of 2, will be selected for processing. Click the Select Parameters icon in the Preparation row shown in Figure 6.4 to go to the screen shown in Figure 6.5. Figure 6.5 shows that you have the option for Parallel Processing by selecting the relevant Server Group (this option wasn’t available in the selection screen of SAP ERP).

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The option enables you to spread the processing of the job over several servers, but we won’t use the Parallel Processing option in our example.

Figure 6.5 Selection Parameters for the Preparation Step

Save the parameters, and click the Execute button. This will take you to the screen shown in Figure 6.6.

Figure 6.6 Output Log for the Selection Step

As you can see in Figure 6.6, 25 materials and 3 activities have been selected and were successful. Now you can go back to the main screen of the actual costing cockpit and proceed with the Preparation step.

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6.2.3 Preparation This step prepares the materials for settlement. Specifically, it does the following: 쐍 Prepares the single-level settlement by calculating the amount of variance that

relates to the material itself 쐍 Determines the sequence for multilevel price determination by checking which

materials and activities have been consumed into higher-level materials 쐍 Prepares the revaluation of consumption by calculating the variances that should

be transferred to nonmaterial receivers 쐍 Prepares the WIP revaluation by determining the amount of WIP reduction (i.e.,

the amount that is no longer part of WIP) and WIP consumption (i.e., the amount that was previously WIP that can be used to revalue the produced material) Now, let’s see how the actual costing cockpit looks just before the Preparation step, as shown in Figure 6.7.

Figure 6.7 Actual Costing Cockpit before the Preparation Step

To use the Preparation step, click the padlock icon in the Authorizn column. This will allow the processing for both the Preparation and Settlement steps. You’ll also notice that the Locked column shows an X in the Preparation step. By clicking the X, you can lock the period (i.e., period that is being closed) from any goods movements. However, any goods movements in the current period won’t be locked. Remember that the period being processed for actual costing is normally the period before the current period. If you try to perform a goods movement in the period that is locked, you’ll get the error message shown in Figure 6.8. As you can see in Figure 6.8, an error is generated when an attempt was made to post a goods movement in period 11 (the period that is being closed). Go back to the Preparation step of the actual costing cockpit, and click the Select Parameters icon to open the screen shown in Figure 6.9.

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Figure 6.8 Error Message for Posting Goods Movement in a Locked Period

Figure 6.9 Selection Parameters for the Preparation Step

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You can see that the selection parameter screen shown in Figure 6.9 has different selection options. We’ll discuss each option separately: 쐍 Treating Materials/Activities Already Processed

This option controls whether the materials that have already been processed will be selected again during a reprocessing of the Preparation step. The default option is Do not process. It’s normally sufficient to leave it with this option because, for example, if you’re reprocessing a raw material, the system will also process all the finished goods that the raw material was consumed in. 쐍 Processing Options

This option determines whether you want to process the documents in the foreground or the background. This decision normally depends on the number of materials that are being processed. 쐍 Parallel Processing

If you decide to process the documents in the background, you can choose to use this option, which will spread the job over different servers, by entering a Server Group that will be used and the Maximum Number of Tasks that can be processed in parallel. The Basis team will normally provide the Server Group that is set up for parallel processing. 쐍 Process only selected Materials/Activities

This option allows you to choose only certain materials or activities for the Preparation step. When you click the Process selected Materials / no Activities option, the screen will look like Figure 6.10.

Figure 6.10 Processing Only Selected Materials and No Activities

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As you can see in Figure 6.10, you can enter several attributes that relate to materials to filter the selection for the Preparation step. If you click the Process selected Activities / no Materials option, you’ll get the screen shown in Figure 6.11.

Figure 6.11 Processing Only Selected Activities and No Materials

As you can see in Figure 6.11, you can enter selected Cost Centers, Activity Types, or Business Processes to filter the selection for the Preparation step. Note that if you choose the Process selected Materials / no Activities option in Figure 6.9, you won’t be able to select any activities; likewise, if you choose the Process selected Activities / no Materials option, you won’t be able to select any materials. 쐍 Status Check for Previous Period

This option allows you to process materials and activities in the Preparation step even though the previous period hasn’t been closed. If you’re familiar with this issue in SAP ERP, you probably used the workaround of entering the value “MUST_ XXXX” (where XXXX corresponds with the short key of the appropriate step) in the Transaction Code field of the parameters screen. In SAP S/4HANA, this workaround is no longer needed. Instead, by choosing the Allow Open Status for Previous Period (Exceptional Processing -> F1) option, you’ll get a warning message instead of an error message saying that the previous period is still open for the relevant materials/activities. This option should only be used in exceptional circumstances and is recommended only in the following scenarios: – In a test system, where the actual costing run hasn’t been run in previous months and you want to test the actual costing run for a current month – In a production system for the first Material Ledger close just after the plant has been set to productive – In a production system, where there were errors with the previous actual costing run, and it’s too late to reprocess it

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Click the Save button to save the parameters of the Preparation step, and then click the Execute button to go to the screen shown in Figure 6.12.

Figure 6.12 Output Log for the Preparation Step

The output log shows which materials and activities have been processed successfully and which have errors. You can see that 24 materials are successful, 1 material has errors, and 3 activities are successful. You also see that the log shows the results according to Costing Level. Costing levels represent the levels of the materials/activities in the actual quantity structure, as illustrated in Figure 6.13.

Finished

Costing Level 2

Semifinished

Raw Material

Raw Material

Costing Level 1

Costing Level 0

Figure 6.13 Illustration of Costing Levels

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As you can see in Figure 6.13, raw materials are usually on level 0 (or blank), a semifinished good that is produced from the raw material will be at level 1, and a finished good that is produced from the semifinished good will be at level 2. Click the Messages button at the top-right corner of the screen shown in Figure 6.12 to get to the explanation of the error message (see Figure 6.14).

Figure 6.14 Error Message for the Preparation Step

As you can see in Figure 6.14, the error occurred because material RM15 wasn’t closed in the previous period. Therefore, select the Allow Open Status for Previous Period (Exceptional Processing -> F1) option (in the parameter screen of the Preparation step shown previously in Figure 6.9) to allow processing even if the material isn’t closed in the previous period. This setting is shown again in Figure 6.15.

Figure 6.15 Allowing Open Status for the Previous Period

Now that you’ve made this setting, click the Save button to save the parameters, and execute the Preparation step again. This will now take you to the screen shown in Figure 6.16. As you can see in Figure 6.16, all materials and activities are now processed successfully. One other thing you’ll notice is that the log text says Warning/Error Messages collected. Check the Log. When you click the Messages button at the top-right of the screen, you’ll see the message as shown in Figure 6.17. The same message that was shown in Figure 6.14 shows up here; however, this time it’s a warning message because you’ve allowed processing for the material even though the previous period isn’t closed.

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Figure 6.16 Output Log for the Preparation Step after Fixing the Error

Figure 6.17 Warning Message for the Preparation Step

Go back to the main screen of the actual costing cockpit, and proceed with the Settlement step.

6.2.4 Settlement This step uses the quantity structures, actual activity prices, and cost sequence determination data formulated during the Preparation step to calculate the actual cost for the materials and activities. Any variances from beginning inventory and receipts as well as well as consumption variances (these are variances on transactions that are categorized in the Consumption folder of the price determination structure) are considered. Specifically, this step carries out the following four major functions, which were separate steps in SAP ERP:

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쐍 Single-level price determination

This task calculates the amount of variance from the material itself that will be used to revalue the material. 쐍 Multilevel price determination

This task calculates the variances from lower-level materials and activity types that will be used to revalue the material. 쐍 Revaluation of consumption

This task calculates the variances that will be transferred to nonmaterial receivers. 쐍 WIP revaluation

This task calculates the variances that relate to WIP revaluation and WIP reduction. Let’s see how the actual costing cockpit looks just before the Settlement step, as shown in Figure 6.18.

Figure 6.18 Actual Costing Cockpit before the Settlement Step

To carry out the Settlement step, click the Select Parameters icon in the Settlement row to get to the screen shown in Figure 6.19, which shows the selection options for the Settlement step parameters.

Figure 6.19 Selection Parameters for the Settlement Step

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Some of the parameter fields of the different steps of the actual costing cockpit are similar, so let’s walk through the part of the screen that wasn’t already shown in Figure 6.5: 쐍 Stock Coverage Check

We mentioned that the single-level price determination calculates the material variances that will be used to revalue inventory. However, these variances will only be used if there is enough inventory left in stock (this is called the stock coverage check). If there isn’t enough inventory left in stock, then the system will only use a proportional amount of the variances to revalue inventory. The system does this to avoid a significant variance amount being allocated to an insignificant amount of inventory, which could have the potential of distorting the actual cost calculation and possibly creating a negative cost. However, if you don’t want the system to apply a stock coverage check, you can select the No Stock Coverage Check checkbox. When this is done, any variances for a material will be used to revalue the material, regardless of the inventory level. 쐍 Automatic Error Management

During the single-level and multilevel price determination, it’s possible that a negative price is calculated (even if the Stock Coverage Check function is active). In this case, if you select the Negative Price: Alternative Price Strategy option, the system will use an alternative price to calculate the actual cost. This alternative price is accessed according to the following sequence: – Receipt price: The system accesses the alternative price by first looking at the price of receipts for the period. – Beginning inventory price: If the receipts price is negative or zero, then the system uses the beginning inventory price. – Actual cost of previous period: If the beginning inventory price is also negative or zero, the system will use the actual cost (PUP) of the previous period. – Standard cost of current period: If the system can’t find an actual cost for the previous period or if the material hasn’t been closed in the previous period, then the system will use the standard cost of the current period. Another occurrence that could cause errors or negative prices, is with the convergence of a cycle. Here is an example of a cycle that converges. Material A is consumed in material B, material B is consumed in material C, material C is consumed in material D, and material D is consumed in Material A (see Figure 6.20).

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Material A

Material D

Material B

Material C

Figure 6.20 Materials in a Convergence Cycle

When this happens, the variances in material A, which are proportionally allocated to the subsequent materials, will eventually end up back in material A and will continue to iterate through the cycle. Sometimes the cycle doesn’t converge during the multilevel price determination process. If that is the case, then by choosing the No Convergence with Cycle: Cut Critical Connections checkbox, the system will process the cycle again by cutting off some or all of its connections so that the multilevel price determination is processed for all the materials in the cycle. 쐍 Processing Options

If you want to run the program in the background, then you can check the Background Processing checkbox (we do not need to do this in our example). If you want to see an output log once the program is completed, then you can click the Save Log checkbox. Click the Save button to save the parameters of the Selection step, go back to the main screen of the actual costing cockpit, and click the Execute button. The output log screen shown in Figure 6.21 will appear. As you can see in Figure 6.21, 25 materials and 3 activities have been processed successfully. Next, go back to the main screen of the actual costing cockpit, and proceed with the Post Closing step.

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Figure 6.21 Output Log for the Settlement Step

6.2.5 Post Closing In this step, the information that is calculated from the Settlement step is posted to the G/L and the relevant cost objects. The Material Ledger documents are created in tables MLDOC and MLDOCCCS for the closed period, and they are reversed in the next period. Let’s see how the actual costing cockpit looks just before the Post Closing step, as shown in Figure 6.22.

Figure 6.22 Actual Costing Cockpit before the Post Closing Step

As you can see in Figure 6.22, three of the steps of the actual costing cockpit are completed successfully, leaving the Post Closing and Mark Prices steps to be completed. Notice that there is a locked padlock in the Authorizn column of the Post Closing row. To carry out the Post Closing step, click this padlock icon in the Authorizn column to allow the processing for this step. Then, click the Select Parameters icon in the Parameters column to get to the screen shown in Figure 6.23.

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Figure 6.23 Selection Parameters for the Post Closing Step

Let’s walk through the following parameter fields that haven’t already been discussed in the preceding steps: 쐍 Processing type

In this section, you can execute the post closing step by clicking the Execute button (the default option). When you do this, the relevant postings are made to the Material Ledger accounts (described in Chapter 5), and inventory postings can no longer be made in the period. In addition, the status of the materials is set to Closing Entries Completed. If you click the Reverse button, the postings are reversed, and the material and activity type statuses are reset to the Settlement Completed status. 쐍 Parameters

The following settings in this section determine the type of postings that will be made: – Revaluate Material: The setting determines whether inventory will be revalued with the actual cost that was calculated during the settlement step. The system then changes the price control of the material from S (standard price) to V (PUP) for the closed period, while the current period will continue to have the price control of S (standard cost).

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– Revaluate Consumption: With this setting, the Revaluation of Consumption variances that were calculated from the settlement step will be posted to their corresponding G/L accounts. – Set CO Account Assignment: With this setting, the controlling (CO) account assignment (e.g., cost center, order, or profitability segment) will be updated with the G/L posting during the revaluation of consumption posting. 쐍 Processing Options

This section provides the following options for how you want to process the Post Closing step: – Background Processing: Choose this option if you want the system to process the results in the background. This is recommended if there is a huge amount of data to be processed. – Test Run: You can choose this option if you want to simulate the results of the post closing step, without making any postings or updating the database. This is recommended if you want to see the results of this step without making the postings. – Save Log: This provides the option to save the log of the posting. – No. of Materials in ML Doc.: This field allows you to enter the maximum number of materials that can appear in a Material Ledger accounting document. This could be useful if the system produces an error message saying that the maximum number of financial accounting (FI) lines have been reached. In that case, you can reduce the number of materials to be included in this field and process the remaining materials separately. Click the Save button to save the parameters of the Post Closing step, and go back to the main screen of the actual costing cockpit. Click the Execute button to go to the screen shown in Figure 6.24. As you can see in Figure 6.24, 25 materials and 3 activities have been processed successfully with the post closing step. Now, go back to the main screen of the actual costing cockpit, and proceed with the mark prices step.

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Figure 6.24 Output Log for the Post Closing Step

6.2.6 Mark Prices In this step, you can choose to mark the PUP as the standard cost of the following month. When you do so, the actual cost that was calculated with the settlement step is populated in the Future Price field of the Accounting 1 view of the material master.

Note: Actual Costing Run Calendar As stated earlier in this chapter, the actual costing run is normally physically performed in the month that follows the month that is being closed. In our example, we ran the actual cost for the month of November, but this would probably have taken place sometime near the beginning of December. Therefore, if we’re marking the prices of the November month, it will most likely take effect in January because the month of December will already have inventory transactions posted.

Let’s see how the actual costing cockpit looks just before the Mark Prices step (see Figure 6.25). As you can see in Figure 6.25, four of the main steps of the actual costing run have been completed successfully. To carry out the Mark Prices step, click on the Select Parameters icon in the Parameters column to get the screen shown in Figure 6.26.

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As you can see in Figure 6.26, the parameters screen for the Mark Prices step allows you to choose whether you want the price to be marked on a manual date or at the beginning of the following period. Choose the Beginning of Following Period option so that the price is marked at the beginning of the period following the physical date that you’re executing the actual costing run (this will be the month of January in our example). Click the Save button to save the parameters, go back to the main screen of the actual costing cockpit, and click the Execute button.

Figure 6.25 Actual Costing Cockpit before the Mark Prices Step

Figure 6.26 Parameters Screen of the Mark Prices Step

Let’s now look at an example of a material that has a marked price from the example costing run. This can be done by going to the Accounting 1 view of the material master (using Transaction MM03) and scrolling down to the Future price field, as shown in Figure 6.27. As you can see in Figure 6.27, there is a future price of $0.89 which is valid from the first of January 2019. This future price can be released as the standard cost either by executing Transaction CKME or automatically by using the dynamic price release functionality (configured in Chapter 5, Section 5.1) upon the first goods movement of that material in the month.

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Figure 6.27 Future Price in the Material Master

Note: Future Price Priority If there is a future cost in the Costing 2 field of the material master, this will take priority over the Future price field in the Accounting 1 view of the material master when the cost is released.

Now that you’ve completed the mark prices step, go back to the main screen of the actual costing cockpit, as shown in Figure 6.28.

Figure 6.28 Actual Costing Cockpit after the Mark Prices Step

As you can see in Figure 6.28, all the steps of the actual costing run have been completed successfully.

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6.2.7 Additional Options You’ll also see that there are three buttons at the bottom of the actual costing cockpit screen. Let’s address each one individually: 쐍 Job Overview

This button takes you to the Job Overview screen (Transaction SM37), which you can use to monitor any jobs that you scheduled to be run in the background for any of the steps of the costing run. 쐍 Schedule Manager

This button takes you to a screen where you can monitor the steps that have been processed and the status of these steps, as shown in Figure 6.29.

Figure 6.29 Schedule Manager for the Actual Costing Run

As you can see in Figure 6.29, the schedule manager shows all the steps that were executed, their start and end times, statuses, and programs that were executed with these steps. Double-clicking any of the lines brings up a screen on the right that details the Processing message of that step, as shown in Figure 6.30. Figure 6.30 shows the message that was triggered from processing the mark prices step. This is a useful historical record of any warnings or errors that occurred during the actual costing run.

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Figure 6.30 Processing Message of the Schedule Manager 쐍 Results

This button takes you to a selection screen where you can enter the necessary parameters to see the results of the actual costing run (see Figure 6.31). Let’s discuss each section of the Results selection screen shown in Figure 6.31: – Costing run: These fields default the name, period, year, and application of the costing run that you’re querying. – Filter: These fields allow you to filter the Plant, Costing Level, and Cycle No. in Run (allows you to reprocess from a particular cycle number onward). For this example, leave these fields blank so you can review all the data from the current costing run. – Objects: This allows you to select all objects, only materials, or only activities. – Flow step: This allows you to review all the steps of the costing run or a specific step. The bottom part of the selection screen (not shown in Figure 6.32) allows you to view the results according to statuses. Figure 6.32 shows the options that are available on this part of the screen.

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Figure 6.31 Selection Screen for the Actual Costing Cockpit Results

Figure 6.32 Selection Screen for Actual Costing Run Statuses

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As you can see in Figure 6.32, you can review the results for all statuses or select the statuses that you want to see. Leave the status selection on All, so that you can see all statuses. When you execute the Results screen, you’ll see the display shown in Figure 6.33.

Figure 6.33 Results Screen of the Actual Costing Run

The results screen shows a list of materials, cost centers, and activity types that have been processed in the actual costing cockpit. The last three columns of the screen show an X where the actual costing step has been completed. You can see that the preparation step (Prep.), settlement step (Settle.), and post closing step (Clos. Entry) have been completed. If you double-click any of the lines, you’ll be taken to the Material Price Analysis screen, as shown in Figure 6.34.

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Figure 6.34 Material Price Analysis Screen from the Results Screen

This is the screen that appears when you double-click Material FG226. We’ll discuss material price analysis in Section 6.4. Now that we’ve completed the actual costing run process, let’s look at the AVR.

6.3 Alternative Valuation Run There are two types of actual costing that can be done with the Material Ledger. The first is known as the main costing run (just discussed in Section 6.2), and the other is the AVR, which we’ve mentioned briefly before and will discuss in detail in this section. The major uses of this AVR in SAP S/4HANA are as follows: 쐍 Calculating the PUP over several periods

With this approach, you can calculate a cumulative actual cost on a year-to-date basis using a cumulation of the quantity structures over several periods. 쐍 Calculating the PUP with a different plan activity price

With this approach, you can use a separate CO version to calculate a planned activity price that is utilized by the AVR (as opposed to the actual activity price).

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쐍 Calculating the PUP using the parallel cost of goods manufactured (parallel

COGM) functionality With this approach, you can calculate a different actual cost that uses a parallel activity price (perhaps one that is based on a different accounting principle). We’ll discuss this approach further in Chapter 8. In the SAP ERP system, the name AVR wasn’t really an apt description for how it was used because the AVR was an additional run to the main costing run. The delta postings that were made by the AVR in SAP ERP used the main costing run postings as a basis to determine the postings that should be made to the AVR accounts (configured under transaction keys BSD and UMD, which are no longer needed in SAP S/4HANA). In SAP S/4HANA, the AVR is true to its name because it allows you to calculate an alternative actual cost to the main costing run and make a complete (not delta) posting to a separate accounting principle. Let’s now look at how to create an AVR by using the same transaction that was used to create the main costing run earlier in this chapter: Transaction CKMLCP. Then click the Create Costing Run button, and enter the details as shown in Figure 6.35.

Figure 6.35 Creating the AVR

Enter the AVR name, description, month, and year, and then select the Classic AVR (No Parallel COGM) option. This means you’re not using this AVR for parallel COGM

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(discussed in Chapter 8). Instead, you’re using the classic AVR, which allows you to change certain parameters to calculate a different PUP. Click Continue in Figure 6.35 to go to the screen shown in Figure 6.36.

Figure 6.36 Period Data for the AVR

The following fields are shown in Figure 6.36: 쐍 Run Reference

This field is valid if you’re using a reference template—called a run reference—to create the AVR. This is needed to simplify the creation of AVRs because it saves the settings that will be copied into the new AVR. A run reference is created by changing the toggle button Costing Run Run Reference at the top of the costing run, which changes the Application field to Run Reference, as shown in Figure 6.37.

Figure 6.37 Creating a Run Reference for the AVR

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Because we’re creating a classic AVR, you won’t use this option, but if you were, you would select a Run Reference name, as shown in Figure 6.38.

Figure 6.38 AVR with Run Reference 쐍 Reference Type

If you were using a run reference to create the AVR, you could choose the type of reference template, such as Single Period Run, Year-to-Date Run, or Run for Parallel COGM run (see Figure 6.39).

Figure 6.39 Reference Type for the AVR 쐍 Initial period

Because you’re creating an AVR for several periods, you need to enter the initial period for the AVR (“6”/“2018” for this example). 쐍 Predecessor Run

This is needed if you’re creating a follow-on AVR to a previous run, which isn’t applicable in this example.

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Next, click the Plant Assignment tab, and select the relevant plants (see Figure 6.40).

Figure 6.40 Plant Assignment Tab of the AVR

As you can see, plants 1710 and 1711 have been selected to be used in the AVR. Next, click the Settings tab, and take note of the settings shown in Figure 6.41.

Figure 6.41 Settings Tab of the AVR

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The following settings and fields are shown in Figure 6.41: 쐍 Posting Run This setting controls whether a posting will be made with the AVR. In our example, we don’t want to create any postings with the AVR, so don’t check this box. 쐍 Accounting Principle This field is used if you want the AVR to make postings to a different ledger group than the main costing run. 쐍 With Successor Run This setting controls whether a successor run needs to follow the one that is being created. 쐍 Run for Parallel COGM This setting indicates whether the AVR is for the parallel COGM run (which is explained in Chapter 8). 쐍 Price for Act. Val. This field is used if you want to use a different plan or actual activity price (from the main costing run) with the AVR. 쐍 Credit Cost Center This setting controls whether the AVR will credit the production cost center when calculating the actual cost. 쐍 Price for cumulat.: legal This field is where you enter the plan version that is used for the plan activity price that was selected for legal valuation. Leave this field blank. 쐍 Price in group valuation This field is where you enter the plan version that is used for the plan activity price that was selected for group valuation. Leave this field blank. 쐍 Price in PC Valuation This field is where you enter the plan version that is used for the plan activity price that was selected for profit center valuation. Leave this field blank. 쐍 Valuation Alternative This dropdown field controls whether the AVR will be updated for alternative balance sheet valuation methods such as first in, first out (FIFO) and last in, first out (LIFO) (see Chapter 9). 쐍 Exch.rate diff. This gives you the option to use exchange rate differences as part of the AVR calculation, to only use noninventory exchange rate differences, or not to use any exchange rate differences.

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쐍 Relevant for Costing

This setting controls whether you want to use the cost calculated by AVR to become the future standard cost. Click the Save button, open the Processing section, and execute the steps of the AVR. These steps are similar to those in the main costing run, so we’ll show the AVR cockpit after the relevant steps have been executed (Figure 6.42).

Figure 6.42 AVR Cockpit after the Relevant Steps Have Been Executed

As you can see in Figure 6.42, the first three steps of the AVR cockpit have been executed successfully. There is no Post Closing step because you did not select the Posting Run indicator in Figure 6.41. In addition, you didn’t execute the Mark Prices step with the AVR because you’ve already marked the prices with the main costing run. You can now look at the results from the AVR of one material, in this case, the same material (FG226) that was shown earlier in Figure 6.34. To do this, click the Results button of the AVR cockpit, click the Execute button to execute the report, and doubleclick Material 226 to get to the screen shown in Figure 6.43. You can see in Figure 6.43 that the PUP calculated by the AVR for material FG226 is $30.37 (the last column in Figure 6.43). This is higher than the PUP that was calculated by the main costing run, which was $27.37 (refer to Figure 6.34) because the AVR is calculating a cumulative price as opposed to a periodic price. Now that you’ve seen how the actual costing run and AVR are executed, let’s analyze the results of the PUP, as this value could feed into several downstream reports, such as inventory on the balance sheet and cost of goods sold (COGS) in the P&L. Several reports show the results of the price determination that was calculated during the

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Settlement step of the actual costing run. We’ll begin by looking at the most important and frequently used of the Material Ledger reports: the material price analysis.

Figure 6.43 Material Price Analysis after AVR

6.4 Material Price Analysis The material price analysis shows all the goods movements and price and exchange rate variances that were collected for a material in a given period. These transactions are tracked according to the categories of beginning inventory, receipts, consumption, and ending inventory. A revamped material price analysis was introduced with SAP S/4HANA to read the new table structure from tables MLDOC and MLDOCCS. We’ll look at some basic features of the material price analysis and then discuss how it can be used to analyze several scenarios that are calculated by the actual costing run. You’ll see that the material price analysis is an all-encompassing transaction in regard to the Material Ledger, which allows you to branch into numerous other transactions from a single screen.

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6.4.1 Navigating the Material Price Analysis Access the material price analysis by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Information System • Detailed Reports • Material Price Analysis or using Transaction CKM3 (or CKM3N). Let’s look at the different sections of the screen to understand what the fields and selection buttons are used for.

Header Fields The header fields of the Material Price Analysis screen are entered so that you can see the data you want to analyze (see Figure 6.44).

Figure 6.44 Header Fields of the Material Price Analysis Screen

The buttons shown at the top of the header screen in Figure 6.44 are described as follows: 쐍 Refresh

This button allows you to refresh the screen when there has been an update to the material. 쐍 Show/Hide Header

This button allows you to show or hide the header fields and buttons and to view only the detail section of the Material Price Analysis screen. 쐍 Show/Hide Valuated Quantity Structure

This button allows you to view the valuated quantity structure (Transaction CKMLQS) for the material. When you click this button, it opens a panel on the left part

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of the screen, which we’ll detail later when discussing the valuated quantity structure in Section 6.4.6. 쐍 Material Master

This button allows you to go directly to the master data for the material/plant (Transaction MM03). 쐍 Cost Components for Price

This button allows you to go to the cost components for that material/plant (Transaction MLCCSPD). 쐍 More

This button allows you to perform further functions such as manually changing the cost component split (Transaction CKMCCC), directly going to the actual costing cockpit (Transaction CKMLCP) for that period, selecting the actual costing run that you want to display, and so on. The following fields are shown on the header screen: 쐍 Material

Enter the material number you want to analyze. 쐍 Plant

Enter the plant for the material you want to analyze. 쐍 Valuation Type

If you use split valuation (discussed in Chapter 10), enter the valuation type in this field. 쐍 Sales Order Stock/Project Stock

If you have either sales order stock (discussed in Chapter 10, Section 10.1) or project stock, enter the sales order/item or work breakdown structure (WBS) element, respectively. 쐍 Period/Year

Enter the period/year that you want to analyze. You also have the ability to scroll (back or forth) through the periods to analyze the data in different periods. 쐍 Period Status

View the period status for the material. The period status indicates what stage of the actual costing process the material is in. As you can see in Figure 6.44, the period status is Closing Entries Completed because you’ve completed the post closing step for this material in the period. Figure 6.45 shows the possible period statuses for a material.

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Figure 6.45 Period Statuses for a Material 쐍 Curr./Valuation

Select from the different currency/valuation views (Company Code Currency/ Legal Valuation, Group Currency/Group Valuation, Group Currency/Profit Center Valuation) that can be analyzed for the material. Each currency/valuation view shows its own separate material price analysis data. 쐍 Value

Select from the values for the cost components that are displayed. For each Value view, you can see the information on the Level, Lower Level, or Level + Lower Level, and Fixed, Variable, or Fixed + Variable. The options for the Value field are as follows: – Actual Value: This view shows the actual value of the cost components. – Price Difference: This view shows the prices differences of the cost components. – Exchange Rate Differences: This view shows the exchange rate differences of the cost components. – Preliminary Valuation: This view shows the standard cost components. 쐍 View

Choose the Price Determination Structure view or Price History view. 쐍 Prices

Expand this button to see the standard cost, PUP, price control, price determination, and price unit for the material.

Display Buttons The display buttons of the Material Price Analysis screen can be clicked to take you to related information for a specific transaction on the material or the material as a whole. The main buttons are shown in Figure 6.46.

Figure 6.46 Display Buttons in the Material Price Analysis Screen

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The buttons shown in Figure 6.46 from left to right are described as follows: 쐍 Choose Detail

This button allows you to see the detail of a specific document that was posted for the material. To use this button, you need to expand the relevant category (e.g., Receipts or Consumption) to its lowest level, click the document number, and then click the button. 쐍 Display Actual BOM

This button allows you to display the actual bill of materials (BOM). The actual BOM shows the multilevel procurement of a produced material or the multilevel consumption of input materials and activities. Figure 6.47 shows how the actual BOM is displayed.

Figure 6.47 Actual BOM for a Material 쐍 Messages for Material

This button shows the log of messages for the material for each step of the actual costing run. An example of this is shown in Figure 6.48.

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Figure 6.48 Actual Costing Run Messages for a Material 쐍 Display Business Object

If there is a manufacturing order associated with a document posted for the material, clicking this button will take you directly to that order. 쐍 Display Closing Document

This button will take you to the Material Ledger settlement document that was posted during the post closing step. You’ll also be able to navigate to the accounting document from the Material Ledger settlement document. 쐍 Display Closing History

This button allows you to display the closing history for the material, as shown in Figure 6.49.

Figure 6.49 Closing History for a Material 쐍 Show Source Document

For any document that is shown in the Material Price Analysis screen (after you’ve expanded the relevant category to the lowest level and clicked on the document number), you can click this button to go to the source document. 쐍 Show WIP Reduction

This button shows any WIP reduction for a material. WIP reduction happens when a manufacturing order that was previously in WIP status has been delivered (either fully or partially), and the proportional WIP variances have been reduced (and subsequently consumed to the produced material).

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Now that we’ve looked at the different selection fields and buttons in the Material Price Analysis screen, let’s take a look at the main view of the material price analysis, which is the price determination structure.

6.4.2 Price Determination Structure The price determination structure is a view of the material price analysis that explains how the actual cost is calculated in the single-level and multilevel price determination and how the cumulative variances are allocated to the consumption and ending inventory of a material. Choose the Price Determination Structure view from the View dropdown shown earlier in Figure 6.44 to open the screen shown in Figure 6.50.

Figure 6.50 Price Determination Structure View

If you’re familiar with material price analysis in SAP ERP, you’ll notice from Figure 6.50 that in SAP S/4HANA, the material price analysis combines the price determination structure view with the cost component view. In this section, we’ll only discuss the price determination structure part of the screen, which is highlighted in Figure 6.50. First, let’s understand the categories of the price determination structure: 쐍 Beginning Inventory

This category shows the quantity of inventory at the time that the materials management (MM) period was opened (with Transaction MMPV). It also includes any variances that were brought forward from the previous period. 쐍 Receipts

This category shows any process categories that increase inventory (e.g., purchase orders and production orders), as well as any variances for the period. 쐍 Other Receipts/Consumption

This category shows any debit/credit variances to a material or consumption movement types that have been recategorized as receipts (as explained in Chapter 5, Section 5.2.3).

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쐍 Cumulative Inventory

This category represents the combination of the Beginning Inventory and Receipts categories and contains the cumulative variances that are used to calculate actual cost. 쐍 Consumption

This category shows any process categories that reduce inventory (e.g., issues to production orders and cost objects) and consume the cumulative variance in proportion to the quantity consumed. 쐍 Ending Inventory

This category shows the quantity left in inventory as well as the cumulative variances that weren’t transferred to the consumption level. Everything above the Cumulative Inventory row goes into calculating the actual cost, whereas everything below the Cumulative Inventory row shows how the actual cost is applied to the Consumption transactions and Ending Inventory. Next, the following list describes the columns in the price determination structure: 쐍 Quantity

Shows the quantity of inventory for the respective categories. 쐍 ValQtyUnit (valuation quantity unit)

Shows the base unit of measure for the material. 쐍 PrelimVal (preliminary valuation)

Shows the standard cost of the material for the quantity of inventory in that category. 쐍 PriceDiff (price difference)

Shows the price variance for the relevant category. 쐍 ExRateDiff (exchange rate difference)

Shows the exchange rate difference for the relevant category. 쐍 ActualVal (actual value)

Shows the standard cost, plus price and exchange rate difference for that category. 쐍 Price

Shows the actual cost (PUP) per price unit. This is calculated by dividing the actual value by the quantity for that category. The PUP for the material in Figure 6.50 is calculated as the preliminary value of the cumulative inventory ($600) plus the price difference ($50) divided by the quantity (600 EA), which gives the price of $1.08.

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Now let’s look at the how the price determination shows the outcome of the different calculations that are made during the settlement step of the actual costing run.

Single-Level Price Determination When the single-level price determination is carried out, any variances that belong directly to a material (shown under the Purchase order folder in the Receipts category) are allocated proportionally to the Consumption and Ending Inventory categories, as shown in Figure 6.51.

Figure 6.51 Material Showing Single-Level Price Determination

You can see in Figure 6.51, that a price difference of $40 (shown in the PriceDiff column) was posted from a goods receipt (meaning it’s from a variance for the material itself). This $40 variance is allocated to Consumption (200/900 × $40 = $8.89) and Ending Inventory (700/900 × $40 = $31.11) based on their respective quantities relative to the Cumulative Inventory quantity (200 PC for Consumption, 700 PC for Ending Inventory).

Multilevel Price Determination When the multilevel price determination is carried out, any variances that came from a lower-level material or activity are allocated to Receipts of a higher level material, as shown in Figure 6.52.

Figure 6.52 Material Showing Multilevel Price Determination

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This material (whose name isn’t shown in the screenshot) has multilevel variances from lower-level material RAW-XYZ of $6 and cost center/activity variance of $150, which were issued in production. The total of these variances, $156, will be proportionally allocated to Consumption and Ending Inventory.

Note: Multilevel Variance Multilevel variance lines are normally depicted in the Material Price Analysis screen by an arrow symbol in front of the material or activity type name.

Revaluation of Consumption When revaluation of consumption is carried out, any Cumulative Inventory variances are proportionally allocated to a nonmaterial receiver that the material issued to, as shown in Figure 6.53.

Figure 6.53 Revaluation of Consumption to a Cost Center

Here, the Cumulative Inventory price difference of –$25, has been proportionally assigned to a cost center based on the quantity that was issued to the cost center of 120 PC relative to the Cumulative Inventory of 900 PC, which gives a revaluation of consumption price difference of $3.33 (120/900 × $25).

Work in Process Consumption When WIP revaluation is carried out, any Cumulative Inventory variances are proportionally allocated to any incomplete manufacturing orders that the material issued to. The WIP consumption for a raw material is shown in Figure 6.54.

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Figure 6.54 WIP Revaluation in Material Price Analysis

As you can see in Figure 6.54, the Cumulative Inventory price difference of $100 has been proportionally assigned to WIP Production based on the quantity that was issued to an incomplete production order of 100 EA relative to the Cumulative Inventory of 1,000 EA, which gives a WIP consumption of $10 (100/1000 × $100).

Work in Process Reduction When the incomplete production order has been fully delivered, the WIP consumption is canceled. The Material Price Analysis screen doesn’t show the cancellation of WIP (also known as WIP reduction) unless you click the Show WIP Reduction button (refer to Section 6.4.1). The WIP reduction for the raw material is displayed in Figure 6.55.

Figure 6.55 WIP Reduction in Material Price Analysis

As you can see in Figure 6.55, both the WIP consumption ($10) and the WIP reduction (–$10) are shown in opposite signs in the Production and WIP Production folders, respectively.

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Multilevel Work in Process Variance When WIP has been canceled, the variance that was originally consumed to WIP will now become a multilevel variance on the produced material. The multilevel WIP variance for the produced material is shown in Figure 6.56.

Figure 6.56 Multilevel WIP in Material Price Analysis

As you can see in Figure 6.56, the variances of the material (the raw material from the WIP consumption and WIP reduction is RAW-ABC, with $10 variance), and activities that were originally consumed in an incomplete production order are now part of the Receipts variances of the produced material.

6.4.3 Price History The price history view is an alternative view that you can display in the material price analysis. It’s also the view that all materials that aren’t relevant for actual costing (i.e., materials with a Price determination of 2) will have when you display them in Transaction CKM3. In fact, if you go to the Material Price Analysis screen and the first view that shows up is the price history view (as opposed to the price determination structure view), that’s a good indicator that the material you’re viewing isn’t set up for actual costing. This is okay if the material in question has a Price Control of V (which always has a Price determination of 2). However, if a material with Price Control S shows only a price history view, then you’ll need to change the Price determination of this material from 2 to 3 (using Transaction CKMM). Materials with a Price determination of 3S should allow you to view both the Price Determination Structure and the Price History screens by changing the dropdown of the View button in the Material Price Analysis screen. You can see an example of the Price History view in Figure 6.57.

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Figure 6.57 Price History View for a Material

As you can see in Figure 6.57, the price history view for Material RM16 shows the business transactions that have been performed for the material in the period. The header section and the View buttons are exactly the same as the ones in the price determination structure view. The following columns appear in the price history view: 쐍 Business Transaction ML

These are the Material Ledger transactions that have been performed for the material. 쐍 Trns Qty (transaction quantity)

This is the quantity that relates to the transactions that were performed for the material. 쐍 ValQtyUnit (valuation quantity unit)

This is the unit of measure for the quantity transacted. 쐍 Trs InvVal

This is the inventory value that corresponds to the transaction quantity by multiplying the transaction quantity by the material’s price.

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쐍 MovementPr (movement price)

This is the price (standard cost or moving average price, depending on the price control of the material) that was used to value the material transaction. 쐍 PrUnit (price unit)

This is the price unit for the material price. 쐍 Total Stock

This is a running list of the cumulative inventory for the material after the transaction has been performed. 쐍 Total Value

This is the value of the cumulative inventory, based on the material price at the time of the transaction. The columns that have been explained are the main columns that show up when you go to the Price History screen. You can add other columns (e.g., Currency Type/Valuation View and Document Number) to the screen by clicking on the Change Layout button and dragging in the extra fields that you want to see.

6.4.4 Material Price Analysis for Old SAP ERP Data If you migrated your Material Ledger data from SAP ERP to SAP S/4HANA, any data from the last period of the previous fiscal year will be available in tables MLDOC and MLDOCCS (along with their respective extract tables) and hence viewable in Transaction CKM3. However, any data that is older than the last period of the previous fiscal year is only accessible via Transaction CKM3OLD, as shown in Figure 6.58. You can see in Figure 6.58 that the material price analysis for Material RAW-100 is shown for the period before the last period of the previous fiscal year by using Transaction CKM3OLD. This transaction is also used to display any individual Material Ledger documents that were posted before the migration to SAP S/4HANA. For documents that are created in the current year but before the SAP S/4HANA migration, Transaction CKM3 aggregates the quantities, amounts and variances per category, process category, and procurement alternative, but doesn’t show the individual Material Ledger documents.

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Figure 6.58 Material Price Analysis Using Transaction CKM3OLD

6.4.5 Actual Cost Components We discussed how to configure actual cost components in Chapter 5, Section 5.3. For any plants that have the actual cost component setting activated (as explained in Chapter 5, Section 5.3.4), the cost component split will show up on the right side of the Material Price Analysis screen, as shown in Figure 6.59.

Figure 6.59 Actual Cost Components in Material Price Analysis

As you can see in Figure 6.59, the cost components for the material are in the same view as the price determination structure. The values of the cost components ($1,367.27 + $0.63 + $0.17 + $0.18) should add up to the actual value of $1,368.25. The breakdown of the cost components will show the main drivers that influenced the actual cost. You can break down these values even further by using some of the buttons at the top of the screen shown in Figure 6.59. For example, if you change the Value field

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dropdown to Preliminary Valuation, you see the cost components according to the standard cost as shown in Figure 6.60.

Figure 6.60 Cost Components with Preliminary Valuation

The Cost Components view can be switched to Preliminary Valuation (the standard cost of the material) to allow you to see the differences between the cost components at standard and actual values. We’ll now do the same for the Level + Lower Level and the Fixed + Variable dropdown fields. If you want to see the actual values that relate to the variable costs from the lower-level materials or activities (this means the materials/activities that went into the production of the main material), you would select the Lower Level and Variable dropdown options and view the results as shown in Figure 6.61.

Figure 6.61 Cost Components for Lower-Level Variable Costs

As you can see in Figure 6.61, the view is now Lower Level and Variable, which shows the cost components for the variable costs of the lower-level materials and activities. In addition, if you want to see only the rows that the cost components are available on (i.e., the rows containing values that can be broken out by cost components), you can select the Display All Cost Components checkbox, and this will take you to the screen shown in Figure 6.62.

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Figure 6.62 Display All Cost Components Checkbox

If you compare Figure 6.61 and Figure 6.62, you’ll see that the Beginning Inventory row is missing in Figure 6.62. This is because when you click the Display All Cost Components checkbox, you’ll only see the rows that contain cost component values. The Beginning Inventory row has no values, which is why it’s not displayed. Another way you can display the cost components from the Materials Price Analysis screen is by clicking the Cost Components for Price button shown previously in Figure 6.44 (or by going to Transaction MLCCSPD). This will show you the cost components based on the Costing Lot Size (this is the typical quantity that is used for costing the material), as shown in Figure 6.63.

Figure 6.63 Cost Components for Price

As you can see in Figure 6.63, the cost components are shown for the Costing Lot Size and are broken out into Total, Fixed, and Variable cost. By dropping down the Base Quantity field, you can also view the cost components by Price Unit, Current Stock, or User Entry, which allows you to enter any quantity you want.

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6.4.6 Valuated Quantity Structure The valuated quantity structure displays the actual quantity structure of the multilevel processes for a material that is procured from other materials and activities. The values are based on the preliminary valuation and differences from a production order settlement, subcontracting receipt, or stock transfer order. It’s a good way of seeing how the actual value of a product was arrived at, based on the lower-level materials and activities in the quantity structure of that product. You can access the valuated quantity structure by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Information System • Detailed Reports • Valuate Multilevel Quantity Structure or by using Transaction CKMLQS. You can also click the Show/Hide Valuated Quantity Structure button in the Material Price Analysis screen shown in Figure 6.44. When you enter the relevant Material and Plant and click the Execute button, you’ll see the screen shown in Figure 6.64.

Figure 6.64 Valuated Quantity Structure

You can see from Figure 6.64 that the Valuated Quantity Structure for material FG126 (the first row shown in the Object column) shows the lower-level objects (raw materials, semifinished materials, and activities) that were used to produce this product.

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Most of the columns shown are self-explanatory, so we’ll explain the buttons (from left to right) that are highlighted in Figure 6.64: 쐍 Show/Hide Activity

Clicking this button will allow you to show or hide the activity types (e.g., setup production, machine hours, and personnel hours). 쐍 Show/Hide Procurement Alternative

Clicking this button will allow you to show or hide the procurement alternatives (e.g., production) of the input materials. 쐍 Show/Hide WIP

Clicking this button will allow you to show or hide any multilevel WIP variances from the input materials and activities. Figure 6.65 shows the Valuated Quantity Structure with multilevel WIP from the input material and activities. By clicking on the Hide WIP button, these WIP materials/activities won’t show up on the screen; only the Rest(Production) row will show up.

Figure 6.65 Valuated Quantity Structure with Multilevel WIP 쐍 Change Base Quantity

Clicking this button will allow you to change the base quantity to whatever you want. After you do so, the quantities and values will be rescaled to reflect the changed base quantity. If you change the base quantity of the material shown in Figure 6.65 from 100 PC to 1 PC, the screen will look like Figure 6.66.

Figure 6.66 Valuated Quantity Structure with Changed Base Quantity

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쐍 Reset Base Quantity

Clicking this button will allow you to reset the base quantity back to the Actual Input Quantity. 쐍 Switch Currency

Clicking this button allows you to change the Currency Type/Valuation View to, for example, Group Currency/Group Valuation or Group Currency/Profit Center Valuation. 쐍 Display Legend

Clicking this button allows you to see what the icons of the Valuated Quantity Structure (shown on the left of the input materials/activities) mean. Figure 6.67 shows the legends of the valuated quantity structure.

Figure 6.67 Icon Descriptions of the Valuated Quantity Structure

We’ve now described all the relevant buttons that can be used to view the valuated quantity structure in different ways.

Note: Drill Down to Material Price Analysis If you double-click any of the rows in the Valuated Quantity Structure, this will take you to the Material Price Analysis screen. The valuated quantity structure and material price analysis are based on the same data, and it’s therefore easy to go back and forth between the two reports to analyze the quantity structure and price analysis of the material.

6.5 Activity Consumption Analysis Now that we’ve looked at the material price analysis and its related reports, let’s look at the equivalent of the material price analysis for activities, known as activity consumption analysis. You might have noticed by now that in SAP S/4HANA, materials

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and activities are treated as (almost) equivalent objects. This was evident when we looked at the actual costing cockpit in Section 6.1, which showed separate status columns for materials and activities. In SAP ERP, the analysis of activities was, for the most part, subsumed into the material price analysis; however, in SAP S/4HANA, activity analysis has its own Transaction CKM3A. This transaction allows you to display the activity type/business process consumption, as it’s done in Transaction CKM3 for materials. Let’s now look at the header section of the activity consumption analysis by going to Transaction CKM3A. You’ll arrive at the screen shown in Figure 6.68.

Figure 6.68 Header Fields for Activity Consumption Analysis

As you can see in Figure 6.68, most of the header fields and buttons in the activity consumption analysis report are similar to those of the material price analysis (discussed earlier in Section 6.4.1). We’ll therefore only discuss the highlighted fields in Figure 6.68 that are exclusive to the activity consumption analysis: 쐍 Cost Cent./Act. Type

In this field, you enter the cost center and activity type that you want to analyze. 쐍 Business Process

If you use activity-based costing, you can enter the Business Process (instead of the cost center/activity type) that you want to analyze. 쐍 Controlling Area

This will default from the plant that you entered (because the plant is assigned to the company code which is assigned to the controlling area).

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쐍 Price Report

Clicking this button takes you to the activity type price report (also accessible via Transaction KSBT) shown in Figure 6.69.

Figure 6.69 Activity Type Price Report

As you can see in Figure 6.69, the Total Price, Price (Variable), and Price (Fixed) of Acty Type 1 in Cost Center 1710301 is shown in two rows. The first row is the plan activity price, which is indicated by a 1 in the Prl column (last column of the screen), while the second row is the actual activity price, which is indicated by a 7 in the Prl column. Let’s now look at the price determination structure view of the activity consumption analysis, which is shown in Figure 6.70.

Figure 6.70 Price Determination View of Activity Consumption Analysis

As you can see in Figure 6.70, the columns of the Price Determination Structure of the activity consumption analysis are similar to the material price analysis, being a combination of the price determination (quantity, preliminary value, price difference, actual value, and price) and the cost components (in which the machine time

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is populated). The rows that are shown in the price determination structure are described here: 쐍 Total Allocation

This is the total activity quantity that has been allocated during the period. In our example, 10 hours of activity type 1 are available for allocation. These hours had a preliminary valuation of $300 (or $30 per hour), which represents the plan activity price, and there is a price difference of $300, due to a revaluation of the activity price. This means that when the actual activity price was calculated (either automatically with Transaction KSII or manually with Transaction KBK6), an extra $300 (or $30 per hour) was the difference between the plan and actual activity price. This is shown in the Revaluation at Actual Price row. 쐍 Consumption

This shows how the allocated activity quantities were consumed. You can see that the 10 hours allocated were consumed to three materials (FG226, FG126, and SG29) in the Production category, which means that the activities were consumed to manufacturing orders used in production. You can also see that the total allocation price difference of $300 has been allocated to these materials in proportion to the hours that were consumed to them. For example, the price difference allocation to material FG226 is calculated as the hours consumed (7.273 H) divided by the total allocation hours (10 H) multiplied by the total allocation price difference $300, which gives you $218.19. Just as with the material price analysis, the activity consumption analysis allows you to navigate to various other transactions. For example, if you expand one of the material folders in Figure 6.70 to its lowest level and double-click the document number, this will take you to the CO document (Transaction KSB5) as shown in Figure 6.71.

Figure 6.71 CO Document from Activity Consumption Analysis

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Figure 6.71 shows the activity type (Machine hours 1) being allocated to various production orders by crediting the cost center/activity type (ATY) and debiting the respective production orders (ORD). Another screen that you can also navigate to from the activity consumption analysis is the Cost Components screen. You can do so by clicking on the Cost Component Split button at the top of Figure 6.69, and you’ll be taken to the screen shown in Figure 6.72.

Figure 6.72 Cost Components from Activity Consumption Analysis

As you can see in Figure 6.72, the Cost Component screen shows the Actual Price (based on a Costing Lot Size of 10,000 H) split into the Fixed and Variable costs for the Machine time cost component.

6.6 Value Flow Monitor As discussed previously, the settlement step of the actual costing cockpit performs several functions that use the variances for the period to calculate the actual cost (Section 6.2.4). These variances are then fully allocated either to consumption or

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ending inventory when the post closing step is performed. There are circumstances, however, where the variances for the month aren’t fully allocated. In these cases, the variances remain on the price difference accounts, and there isn’t always an easy explanation of why this happened. In the SAP ERP system, there are three reports can use to analyze these variances. These reports allow you to analyze (and in some cases, fix) the issues with the variances before running the post closing step of the actual costing cockpit. In SAP S/4HANA, due to the changes with the data model in the Material Ledger, there is a new Transaction ML4HVFM that reads the data from table MLDOC. This transaction combines all three transactions that were used in SAP ERP and can therefore be used to analyze the variances for materials, activities, and WIP reduction. Before we look at how to use the value flow monitor, let’s discuss the main types of issues that can occur with the variances: not distributed and not allocated (or not included) differences.

6.6.1 Not Distributed Differences Not distributed differences are variances that aren’t used to calculate the actual cost of a material. They are categorized in a separate line in the material price analysis and don’t roll up into the cumulative inventory variances. An example of a material that has a Not Distributed difference is shown in Figure 6.73.

Figure 6.73 Material Price Analysis Showing Not Distributed Difference

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As you can see in Figure 6.73, Material R-401 has a price difference from the Other Receipts/Consumption category of $1,000. However, $500 of that amount can’t be distributed, and therefore only $500 is part of the cumulative inventory variance that is used to calculate the actual cost of $6 (in the Price column). A couple of causes of Not Distributed differences are explained here: 쐍 The No Stock Coverage Check checkbox in the settlement step parameters (shown

in Figure 6.19) of the actual costing cockpit wasn’t checked, and the quantity of a price limiter variance is larger than the cumulative quantity. Let’s use the example in Figure 6.73 to explain this further. Material R-401 has a cumulative quantity of 100 PC. It also has a variance from Other Receipts/Consumption of $1,000. This variance arose from a Transaction MR22 posting that was made for $1,000. A Transaction MR22 posting is a price limiter transaction, which means that it creates a variance but has no goods movement associated with it. You can see the accounting document from the Transaction MR22 posting in Figure 6.74.

Figure 6.74 Quantity Posted with the Price Limiter Variance

As you can see in Figure 6.74, the Quantity that was entered in Transaction MR22 was 200 PC. However, as mentioned earlier, the cumulative inventory for material R-401 is 100 PC. Therefore, the system can only distribute half (100/200) of the variance of $1,000, and the other half ($500) is Not Distributed. This issue can be fixed either by checking the No Stock Coverage checkbox in the settlement step of the actual costing cockpit or deleting the price limiter variance in Transaction CKMVFM as shown Figure 6.75. As shown in Figure 6.75, by clicking on the PL Qty button in Transaction CKMVFM, you can delete the price limiter quantity and rerun the settlement step to distribute the Not Distributed difference.

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Figure 6.75 Deleting the Price Limiter Quantity 쐍 The system applied a fallback strategy to avoid a negative PUP. If you check the

Negative Price: Alternative Price Strategy box in the settlement step parameters (refer to Figure 6.19), the system will use a different strategy (e.g., Beginning Inventory or Standard Cost from the Previous Period) to calculate the PUP and hence leave some (or all) of the variances of the current period as Not Distributed. Because you wouldn’t want to have a negative price, it’s best to let the system choose the fallback strategy and leave the amount as Not Distributed.

6.6.2 Not Allocated Differences Not allocated differences (also known as not included differences) are variances that are distributed to cumulative inventory but are not further allocated to receiving materials (as part of multilevel price determination), WIP (as part of WIP creation or WIP consumption), or nonmaterial objects (as part of revaluation of consumption). Not allocated differences are shown as Not Allocated in the material price analysis, as shown in Figure 6.76. As you can see in Figure 6.76, Material RM122 has a Cumulative Inventory price difference (PriceDiff) of $41.07. However, $1.91 of this variance is Not Allocated. Here are a couple of reasons why a not allocated difference could occur: 쐍 The material RM122 was consumed on a manufacturing order whose finished

product wasn’t delivered, and WIP wasn’t calculated. This is the case with the material in Figure 6.76. Of this material, 100 PC was consumed on production Order 1000160 for finished good FG226. However, this production order hasn’t been delivered, as shown in Figure 6.77.

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Figure 6.76 Material Price Analysis Showing Not Allocated Difference

Figure 6.77 Production Order with Zero Delivery

As you can see in Figure 6.77, the production order that the raw material was consumed on has zero delivery, and therefore the finished good FG226 has no quantity for the multilevel price determination to allocate to. Therefore, a portion of the variance of material RM122 won’t be allocated based on the ratio of the quantity consumed (100 PC) to the cumulative quantity 2,150 PC multiplied by the

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cumulative inventory variance ($41.02), which gives $1.91. This issue can be fixed by calculating WIP (using Transaction KKAO) and letting the settlement step of the actual costing cockpit post the not allocated variance to the WIP variance account (discussed in Chapter 5, Section 5.4). 쐍 The material is consumed on a manufacturing order whose receiving material has

a price determination of 2. If a material has a price determination of 2, it means that it’s not valid for actual costing. Therefore, any variances from materials that are consumed on the manufacturing order of the material with price determination 2 won’t be considered for multilevel price determination and therefore lead to not allocated differences on the input materials. This issue can be fixed by executing Transaction CKMM for the receiving material and rerunning the settlement step of the actual costing cockpit.

6.6.3 Using the Value Flow Monitor To use the value flow monitor, go to Transaction ML4HVFM, and enter the data as shown in Figure 6.78.

Figure 6.78 Selection Screen of the Value Flow Monitor

Fill out the fields for your Company Code, Period, and Year. For the Crcy type/val.view field, enter “10”. Click the Execute button to display the results shown in Figure 6.79.

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Figure 6.79 Value Flow Monitor Results

Following are descriptions of some of the columns shown in Figure 6.79 that may not be immediately recognizable: 쐍 Cost EstimateNo

This is a unique key that identifies a material and plant in Material Ledger tables. 쐍 Crcy type

This is the currency type of the valuation view that is being displayed (10 = Company Code Currency, Legal Valuation). 쐍 P.rel.diff

This is the cumulative variance that is relevant for distribution. 쐍 Not distr.

This is the amount that isn’t distributed. 쐍 P.lim.diff

These are the price limiter differences, meaning the difference created by a trans-action that doesn’t involve a goods movement. 쐍 End.inv.

This is the ending inventory variance. 쐍 Not.alloc.

This is the amount that isn’t allocated to further receivers. To ensure that all variances have been properly distributed and allocated, the value flow monitor should be executed after the settlement step of the actual costing cockpit (Section 6.2.4). Only when all not distributed and not allocated differences have been cleared (or at least understood) should you proceed with the post closing step.

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General Ledger Postings Made by the Material Ledger

6.7 General Ledger Postings Made by the Material Ledger We mentioned in Section 6.2.5 that the post closing step of the actuals costing cockpit uses the calculation that was created in the settlement step to create posting to the G/L and relevant cost objects. The G/L accounts that are posted to are the ones that you configured in Chapter 5, Section 5.2.1. When the postings are made, you’ll then be able to analyze the documents in the G/L reports (e.g., Transaction FAGLL03) for any documents posted with document type ML (also shown in Chapter 5). In this section, we’ll look at the G/L postings by navigating from the material price analysis. This way, we’ll see the postings that are relevant to specific materials.

6.7.1 Closing Document of the Material Ledger The first thing to note about the post closing step is that it creates a closing document in the Material Ledger. This document is stored in the old Material Ledger document tables (e.g., tables MLHD and MLIT) and can be accessed from the Material Price Analysis screen by clicking the Closing Document button. This will take you to the screen shown in Figure 6.80.

Figure 6.80 Closing Document of the Material Ledger

As you can see in Figure 6.80, closing document number 2000000012 was created for period 11 and lists the relevant materials that are included in this closing document. Click the Accounting Documents button highlighted in Figure 6.80, which will take you to the popup screen that is shown in Figure 6.81.

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Figure 6.81 Accounting Documents in a Material Ledger Closing Document

As you can see in Figure 6.81, there are two accounting documents and two controlling documents contained in a closing document. There are two documents in each category because the postings that are made to the inventory (transaction key BSX) or the Material Ledger reserve (transaction key LKW) accounts in the closed period are reversed at the beginning of the next period. This is done so that any variances transferred to inventory at the end of the closed period are posted back to the variance account at the beginning of the next period as a beginning inventory variance.

6.7.2 Analyzing General Ledger Postings Made by the Material Ledger Double-click the first Accounting document shown in Figure 6.81, which will take you to the screen shown in Figure 6.82.

Figure 6.82 G/L Posting from the Material Ledger Closing Document

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In Figure 6.82, we’ve highlighted the amounts that have been posted in each line of the accounting document shown. A few key columns shown in the screen are described here: 쐍 Trs

This is the transaction key that the G/L account is configured under. We discussed this in detail in Chapter 5, Section 5.4. The transaction key provides a clue to what type of posting is being made. For example, the key BSX means that this is a posting to the inventory account. 쐍 Material

This is the material that the posting relates to. You can see that Material RM16 is shown in several of the lines in the screen. This is because the amounts that are shown represent how the variances of this Material RM16 have been allocated to other materials or cost objects. 쐍 Text

This indicates the type of Material Ledger posting that was made. The information in the text field is determined internally by SAP and stored as text elements in program SAPLCKMC. We provide an explanation for all the Material Ledger item texts in Appendix B.

Note: Push Logic A difference between the closing document in SAP S/4HANA and in SAP ERP is that the post closing step uses a “push logic,” which means that the variances transferred from an input material to an output material are included in the closing document of the input material.

Let’s use the Material Price Analysis screen (see Figure 6.83) for Material RM16 to understand each line of the accounting posting.

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Figure 6.83 Material Price Analysis: Accounting Postings

As you can see in Figure 6.83, we’ve highlighted the price difference amounts that represent the allocation of the Cumulative Inventory price difference (–$25) to Consumption and Ending Inventory categories. As mentioned earlier in this chapter, every line below the Cumulative Inventory line shows how the cumulative inventory price difference has been allocated (based on the proportional quantity consumed) to the relevant materials and cost objects in the Consumption category. Anything left over goes into the Ending Inventory category. Let’s now take each of the postings shown in Figure 6.82, and use Figure 6.83 to explain them: 쐍 Ending inventory

You can see in the first and second lines in Figure 6.82 that there is a credit to the inventory account 13100000 (for RM16) and a debit to the price difference account 52043000 (for RM16) of $16.11. This is the price difference amount that has been proportionally assigned to the Ending Inventory category shown in Figure 6.83, based on the ending inventory quantity of 580 PC.

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쐍 Consumption to material FG226

You can see in the third and fourth lines in Figure 6.82 that there is a debit to the price difference account 52043000 (for RM16) and a credit to the price difference account 52543000 (for FG126) of $2.78. This is the price difference amount that has been proportionally assigned to material FG126 shown in Figure 6.83, based on the quantity consumed to material FG126 of 100 PC. 쐍 Consumption to material FG126

You can see in the fifth and sixth lines in Figure 6.82 that there is a debit to the price difference account 52043000 (for RM16) and a credit to the price difference account 52543000 (for FG226) of $2.78. This is the price difference amount that has been proportionally assigned to material FG226 shown in Figure 6.83, based on the quantity consumed to material FG226 of 100 PC. 쐍 Consumption to cost center

You can see in the seventh and eighth lines in Figure 6.82 that there is a credit to the consumption valuation account 52546000 (for RM16) and a credit to the price difference account 52043000 (for RM16) of $3.33. This price difference amount has been proportionally assigned to the cost center shown in Figure 6.83, based on the quantity consumed to the cost center of 120 PC. In this scenario, instead of posting back to the original cost center, the system was configured (explained in Chapter 5, Section 5.4.3) to allocate the proportional price difference to the revaluation of consumption account set up in transaction key COC. Now let’s look at the accounting document that reverses the variance posting to inventory in the subsequent month. This is the document number 4700000009 shown in Figure 6.81. Double-click the document number line to get to the screen shown in Figure 6.84.

Figure 6.84 Material Ledger Reversal Posting in a Subsequent Period

As you can see in Figure 6.84, a posting of $16.11 has been made to debit inventory account 13100000 and credit price variance account 52543000 for material RM16. This is the reverse of the first two lines of the posting in Figure 6.82, and it means that the variance that was posted in inventory in the closed month has now been transferred back to the variance account as a beginning inventory price difference in the

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subsequent month. Any new variances in the subsequent month will be added to this variance, and this will be apportioned to the Consumption and Ending Inventory categories when the actual costing run is done at the end of that month.

6.8 Summary In this chapter, we walked through the steps that need to be executed for the actual costing run. We noted that there are significant changes between the actual costing cockpit in SAP ERP and SAP S/4HANA. For each step of the cockpit, we defined the purpose of the step, looked at the parameter settings for the step, and showed the output log of the step. We then looked at the results screen for the actual costing run and showed how you can drill down from a material/activity line to the Material Price Analysis screen. We then looked at the AVR and how that had changed from SAP ERP to SAP S/4HANA. We discussed the purpose and usage of the AVR and the settings that distinguished it from the main actual costing run. We then looked at how to use the material price analysis, activity consumption analysis, and value flow monitor to analyze the actual costing results, such as G/L postings created from the Material Ledger closing document. In the next chapter, we’ll walk through some of the peripheral transactions that can be used to influence the actual costing calculation.

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Chapter 7 Actual Costing and Peripheral Transactions Several transactions can be used to influence the calculation of actual cost and change the allocation of variances to the consumption and ending inventory categories, which we’ll discuss in this chapter.

In Chapter 6, we covered the steps needed to execute the actual costing run as well as analyze the results. In this chapter, we’ll look at some other transactions that are impacted by or that can impact the actual cost calculation. In SAP ERP, for an accurate actual cost to be calculated at the end of the month, the Material Ledger imposes some restrictions on changing certain data during the month, such as the standard cost and plan activity prices. However, because of the simplified calculation logic in SAP S/4HANA, some of the restrictions from SAP ERP have been lessened, allowing for more flexibility with changing the data when needed, as we’ll discuss in Section 7.1. In addition, some of the peripheral actual costing transactions, such as debiting/crediting a material (Section 7.2), distributing consumption variances (Section 7.3), and manually changing the actual cost component split (Section 7.4), are available in SAP S/4HANA and thereby provide various options to adjust the actual cost when it’s too late to do so from the source transactions. A final peripheral transaction that we’ll discuss in Section 7.5 is the deactivation of the statistical moving average cost to help speed up your goods movement.

7.1 Changing Standard Cost Mid-Month There are times when a company would need to change the standard cost of materials during the period. There are several reasons for this, such as fixing the incorrect standard cost that was originally calculated or adjusting the standard cost when there has been a huge swing in the market prices. The recommended approach has been to wait until the beginning of the next month to change the standard cost, either

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directly using transactions or allowing the dynamic price release functionality to release the marked standard cost upon the first goods movement in the month. This is because in the SAP ERP system, when you have the Material Ledger and actual costing activated, any materials with a price determination of 3 require a constant standard price throughout the period, so that all goods movements can be valued at the same preliminary cost. However, for companies that rely on standard cost of sales for their mid-month reporting, waiting until the subsequent month would mean that any goods issues that are posted during the current month would be done at an incorrect (or outdated) standard cost. Let’s look at the restrictions of changing the standard cost mid-month and the implications in the SAP ERP system, before we take a look at this process in SAP S/4HANA.

7.1.1 Restriction on Changing the Standard Cost Mid-Month in SAP ERP When you try to change the standard cost during the month in SAP ERP, you’ll get the error message C+811: Price changes for material XXXXX is not possible, and you won’t be able to make the change. This is usually because the Period Status of the material is higher than 10 (period opened), and this blocks any changes to the material for the month. There are a few workarounds as explained here: 쐍 Postpone the price change to the subsequent month. As mentioned earlier, this

may not be practical for some companies. 쐍 Reverse any transactions during the month, and reset the Period Status of the

material to 10 (period opened) by implementing SAP Note 574930. This workaround will only work if the actual costing run of the previous period hasn’t been performed. 쐍 Use the late price change functionality (usually abbreviated in the system as LTPC).

With this functionality, when you go to Transaction MR21, you enter the letters “LTPC” in the transaction code field, and press the (Enter) key. Then the system will let you make the change. When you use LTPC, the Material Price Analysis screen shows a separate line called Late Price Change, as shown in Figure 7.1.

Figure 7.1 Late Price Change Posting Displayed in SAP ERP

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Note that SAP warns this approach should only be used in exceptional circumstances, mainly because any consumptions that are done before the late price change won’t be revalued at actual cost.

7.1.2 Changing the Standard Cost Mid-Month in SAP S/4HANA Let’s now see how you can change the standard cost mid-month in SAP S/4HANA. To do this, use Transaction MR21 or go to application menu path Logistics • Materials Management • Valuation • Change Material Prices.

Warning: Deleting the Standard Cost Even in SAP S/4HANA, if a standard cost has been released for the month, you’ll need to delete the standard cost using Transaction CKR1; otherwise, you’ll get an error message when you try to change the cost.

You’ll then get to the screen shown in Figure 7.2, where you can enter the Posting Date, Company Code, Plant, and any relevant text.

Figure 7.2 Selection Screen for Transaction MR21

After you press the (Enter) key, you’ll be taken to the screen shown in Figure 7.3, where you can enter the Material and the New price.

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Figure 7.3 Entering the New Standard Cost in Transaction MR21

Figure 7.3 shows a new standard cost of $2 in the New price column for Material RM120. You’ll also see that the current standard cost of $1.25 is shown in the Current valuation price field. The difference between this cost and the new cost will be multiplied by the existing inventory to post a revaluation amount to the inventory account when you click the Save button. You should note that if a material is valued in multiple currencies/valuations, you should also make the relevant standard cost changes in those views as well. In Figure 7.3, this would involve clicking on the USD Group (G) and USD Group (P) tabs and entering the new standard cost in the corresponding fields. Now that you’ve changed the standard cost mid-month, let’s see what the Material Price Analysis screen looks like for Material RM120 (see Figure 7.4). As you can see in Figure 7.4, the standard cost change shows up in the Price Change row of the Material Price Analysis screen. The amount of $862.50 is calculated as the difference between the old standard cost ($1.25) and new standard cost ($2), multiplied by the ending inventory (1,150 PC) when the standard cost was changed. You’ll also see that this value of $862.50 in the preliminary valuation (PrelimVal) column of the Price Change row is offset in the price difference (PriceDiff) column. This is done so that the standard cost revaluation amount doesn’t impact the actual cost that was brought forward from the previous month and will be used to calculate (in addition to any receipts) the actual cost of the current month.

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Debiting/Crediting Material

Figure 7.4 Material Price Analysis after the Mid-Month Price Change

7.2 Debiting/Crediting Material We mentioned earlier in this chapter that the adjustment of any variances needs to take place before actual costing is run. This is the only way that the actual cost calculation will take the adjusted variances into account. We also said that any manually posted variances (e.g., using Transaction FB50) will be ignored by the actual costing calculation. Typically, you would not want to influence the actual cost that is calculated by the system. As long as the relevant master data and transactions have been processed correctly, the calculation that is done when the actual costing cockpit is run should represent a true reflection of the actual cost that should be used to revalue the inventory and cost of goods sold (COGS) accounts. That being said, there are certainly times when things don’t get processed correctly during the month, which could lead to a skewed actual cost. In addition, by the time you’re running the actual cost calculation, it may be too late to fix the original transaction to resolve the issue. In those scenarios, just as you would post a journal entry to adjust a financial accounting issue, you’ll use the Transaction MR22 (Debit/Credit Material) to adjust an actual costing issue. In this section, we’ll walk through how to use the debit/credit transaction for various purposes.

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7.2.1 Debiting/Crediting a Material Directly To use Transaction MR22 (Debit/Credit Material), go to application menu path Logistics • Materials Management • Valuation • Debit/Credit Material or use Transaction MR22, and this will take you to the screen shown in Figure 7.5.

Figure 7.5 Selection Screen for Transaction MR22

Enter your Posting Date, Company Code, Plant, and Doc.Header Text (“Debit/Credit Material”). Press the (Enter) key and continue to the fields shown in Figure 7.6.

Figure 7.6 Entering a Value in Transaction MR22

Select Stock Material from the Variant dropdown, and enter your Material (“RM15”) and Amount (“100.00”). You don’t need to enter a quantity because it’s not needed for this purpose. Note that if you do enter a quantity, it doesn’t mean that you’re increasing the quantity for that material. Instead, the system compares that quantity

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to the cumulative quantity for the material to determine how much of the value posted should be used in the actual cost calculation. Click the Save button to post this document. Let’s see what this posting looks like in the Material Price Analysis screen as well as the general ledger (G/L). Go to the Material Price Analysis screen (Transaction CKM3) to see that the amount of $100 you posted shows up in the Other Receipts/Consumption folder, as shown in Figure 7.7.

Figure 7.7 Material Price Analysis after Transaction MR22

Double-click the document number 1000000164, and click the Accounting Documents button in the subsequent screen, which will take you to the accounting document shown in Figure 7.8. You can see from Figure 7.8 that the posting was debited to Account 52041000 (this is the price variance account that is used in the actual cost calculation) and credited to an offsetting Account 52531000 (this is the revaluation account, which is the same account posted to when you change the standard cost for a material). You’ll also notice that the Trs (transaction) column shows the transaction keys that these accounts are assigned to (configured in Transaction OBYC). The transaction key PRD relates to price variances while the transaction key UMB relates to revaluation variances.

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Figure 7.8 Accounting Document for Direct Transaction MR22 Posting

7.2.2 Defining Reasons for the Price Change Although the preceding posting went to the appropriate accounts, sometimes a company may want the revaluation amount to be posted to a different account. A typical example is the following: You incur freight costs that relate to several materials. These costs are posted using an accounts payable transaction (Transaction FB60 or Transaction MIRO) to the freight account. Now you want to post that freight amount to the respective materials and thereby include the freight cost as part of their actual cost. In that case, you would want the offsetting account (to the price variance account) to be the freight account. This way, not only will you post the value to the price variance account (thereby influencing the actual cost), but you’ll also be reducing the freight balance that was posted when the vendor invoice was created. To accomplish this, you need to define the reasons for price change by going to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Reasons for Price Change. In the ensuing screen, double-click Assign Reasons for Price Change, and then click New Entries. You’ll arrive at the screen shown in Figure 7.9.

Figure 7.9 Assigning Reasons for Price Change for a G/L Account

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You’ll need to enter two lines in the configuration table. The top line is the default text that you’ll see in the Revaluation Reason dropdown in Transaction MR22. Enter the transaction number (“MR22”), label it as Select Reason, and select the Default checkbox. In the second row, enter the transaction number (“MR22”) and enter a Reason “01” for Freight Adjustment. This is assigned to an Account Modification key (FRT). You’ll now specify this Account Modification in the account determination table where you’ll configure the freight account. To do this, go to Transaction OBYC, scroll down, and double-click on transaction key UMB as shown in Figure 7.10.

Figure 7.10 Assigning the FRT General Modification to Transaction UMB

Assign the FRT account modification (also called General modification) to Valuation class 3000 (for raw materials) and to the freight account 65400000.

Note: General Modification Column Note that if you don’t have the General modification column when you go to transaction key UMB, you need to click on the Rules button and select the General Modification checkbox.

You’ll also assign the FRT account modification to transaction key PRD, however, you’ll use the normal price variance account for raw materials (52041000 for debit entries and 52541000 for credit entries, as shown in Figure 7.11) because you don’t want to change the price variance account during the freight posting.

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Figure 7.11 Assigning the FRT Account Modification to Transaction Key PRD

7.2.3 Debiting/Crediting a Material with an Alternative General Ledger Account Now that you’ve configured the reason for the price change and configured the relevant G/L account, let’s look at how to post a document with Transaction MR22 for that specific account 65400000. To do so, go to Transaction MR22, and select the Revaluation Reasn, as shown in Figure 7.12.

Figure 7.12 Selection of Revaluation Reason for a Specific G/L Posting

As you can see in Figure 7.12, there is now a dropdown option in Transaction MR22 that allows you to select the Freight Adjustment Revaluation Reasn that you configured in earlier Figure 7.9. Press the (Enter) key to arrive at the screen shown in Figure 7.13. Enter an Amount (“200”, in this example) for Material RM15, which you want to be posted from the freight account. Click the Post button to post your document. Let’s now take a look at the accounting document that was created, which is shown in Figure 7.14.

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Figure 7.13 Entering a Value in Transaction MR22 for a Specific G/L Account

Figure 7.14 Accounting Document for the Transaction MR22 Posting to a Specific Account

As you can see, the $200 entered for Material RM15 was debited to the price variance Account 52041000 and credited to the freight Account 65400000. You can therefore call off the amount that was posted to the freight account (from a vendor invoice) and transfer it to the price variance account, which will be used in the calculation of the actual cost of the material.

7.2.4 Debiting/Crediting a Material to a Specific Cost Component Now that you’ve seen how to post a debit/credit to a material and a specific G/L account, let’s see how to make the posting to a specific cost component. First, you can see in Figure 7.15 that the previous posting you made went to the direct material (Direct Mat) cost component.

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Figure 7.15 Transaction MR22 Posting to the Direct Materials Cost Component

Any MR22 posting will go to the cost component that uses the cost element assigned to the valuation class of the material in transaction key VBR, unless you specify which cost component that you want the posting to go to. If you want an MR22 adjustment to go to a specific cost component, such as the Miscellaneous cost component, you’ll need to proceed with the following settings. First, define an Origin Group by going to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Define Origin Group. Click the New Entries button to access the screen shown in Figure 7.16.

Figure 7.16 Defining the Origin Group

Enter “Miscellaneous Adjustment” in the Name field, and enter “MISC” in the Origin group. Now you need to assign the MISC origin group to a reason for the price change. Go to the reason for price change configuration shown previously in Figure 7.9, and click New Entries to arrive at the screen shown in Figure 7.17.

Figure 7.17 Assigning the Origin Group to the Reason for Price Change

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Assign MISC in the OrGp (origin group) column that you created to the Reason 02 for Transaction MR22. Now, assign this origin group to a cost component cost element. To do so, go to configuration menu path Controlling • Product Cost Controlling • Product Cost Planning • Basic Settings for Material Costing • Define Cost Component Structure. Highlight the Cost Comp. Str. (cost component structure) Y1, and then double-click the Cost Components with Attributes folder. Highlight the Miscellaneous Cost Component (301), double-click the Assignment: Cost Component – Cost Component Interval folder, and finally click New Entries to arrive at the screen shown in Figure 7.18.

Figure 7.18 Assigning an Origin Group to the Cost Component Cost Element

Assign MISC to the Origin group column, 51100000 to the To cost elem. column (the cost element assigned to the valuation class for raw materials), and Cost Co (cost component) 301 (Miscellaneous). Then click the Save button to save your settings. Now go to Transaction MR22, and select the Revaluation Reasn shown in Figure 7.19.

Figure 7.19 Revaluation Reason for Miscellaneous Adjustment

As you can see in Figure 7.19, you now have a revaluation reason called Miscellaneous Adjustment in Transaction MR22. Select this Revaluation Reasn and continue to the fields shown in Figure 7.20. Enter “150” in the Amount field to post a miscellaneous adjustment of $150 to Material RM124. Figure 7.21 shows this posting in the Material Price Analysis screen (Transaction CKM3).

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Figure 7.20 Transaction MR22 Posting for Miscellaneous Adjustment

Figure 7.21 Material Price Analysis Screen Showing Transaction MR22 to the Cost Component

As you can see in Figure 7.21, the $150 that you posted is shown in the Miscellaneous cost component because of the settings you made with the origin group (MISC) and its assignment to the reason for price change and cost component structure.

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7.3 Distributing Consumption Variances When you consume materials on a manufacturing order, you have the option to either enter the exact amount of input materials that were physically used to create the produced product or to use the backflushing option, which allows you to post the standard consumed quantities as actual quantities. Although the backflushing option is more convenient because you don’t need to record and confirm the actual quantities that were consumed, it doesn’t accurately reflect the inventory that was used in production and what is remaining in stock. One function that is useful to adjust the inventory quantities and have them reflected on the relevant manufacturing orders is the distribution of usage variances functionality (DUV). This allows the material and activity quantity adjustment difference to be proportionally allocated to the manufacturing orders that they were consumed in. This functionality can be used with or without actual costing. However, when used with actual costing, the cumulative variances of the input material/activities can then be distributed to the respective manufacturing orders using the adjusted consumption quantities from the DUV posting. In this section, we’ll walk through using the DUV functionality for materials and activities.

7.3.1 Activating Distribution of Consumption Variances Before we go through the process of posting DUV for materials/activities, let’s proceed with activating and configuring the functionality.

Activating Distribution of Usage Variances To activate DUV, go to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Actual Costing • Activate Distribution of Consumption Difference. Click the New Entries button to arrive at the screen shown in Figure 7.22. Activate DUV for Plant 1710 for the storage location by checking the Distribution Active checkbox. Enter “1” in the Default Dist. Ind. column, which means that the activation of the DUV value will be the default value of a physical inventory document is created. If you check the Binding Distr.Indic. checkbox, it would mean this setting is binding (not changeable) when creating a physical inventory document. However, we don’t want this setting to be binding, so we won’t check this box.

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Figure 7.22 Activating Distribution of Consumption Differences

Specifying Relevant Movement Types for Distribution of Usage Variances With this step, you’ll specify the movement types on a manufacturing order that will be relevant for DUV. To do this, go to Transaction SM30, enter table “TDUVN156”, and click on Maintain. Enter the relevant movement types, as shown in Figure 7.23.

Figure 7.23 Movement Types Relevant for DUV

Enter movement types “261” and “262” in the Trans.Type column, which are the movement types used for consumption of materials to a production order, and select the Active checkboxes. Click the Save button to save your settings.

Movement Types for the Reversal and Reposting of the Goods Movement With this step, you’ll set up the movement types that will be used to reverse the goods movements from the inventory adjustments as well as those that will be reposted on the manufacturing orders. To do so, go to Transaction OMJJ, check the Movement Type box, and press the (Enter) key. Then highlight the standard Movement Types 711 and 712, and click on the Copy button to create movement types Z11 and Z12. The settings of these movement types will look as shown in Figure 7.24.

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Figure 7.24 Movement Type Settings for Reversal of Inventory Adjustment

Two settings to note in Figure 7.24 are the Generate ph.inv.doc (generate physical inventory document) checkbox, which is unchecked because this moving type isn’t used for inventory adjustments, and the Rev. mvmnt type ind (reversal of movement type indicator) checkbox, which is checked because this movement type is used as a reversal of the inventory adjustment movement types. This means that when a physical inventory adjustment is made (and relevant for DUV), it will be reversed with movement types Z11 and Z12 to be reapplied to the specific manufacturing orders. You can also set up the movement types Z61 and Z62 as an exact copy of standard movement types 261 and 262 by highlighting the Movement Types 261 and 262 and clicking on the Copy button. These movement types (Z61 and Z62) will be used to post the inventory adjustment proportionally to the respective production orders.

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Assigning the Reversal Movement Types With this step, you’ll assign the movement types that you set up as the reversals to the original movement types. First, you’ll assign the reversal movement types for all inventory adjustment movements. To do this, click the Movement Types 701 to 717, and double-click the Reversal/follow-on movement types folder. Assign Movement Types Z11 and Z12 to the MvT column, as shown in Figure 7.25.

Figure 7.25 Assigning Reversal Movement Types for Inventory Adjustment

As you can see in Figure 7.25, movement types Z11 and Z12 have been assigned as reversal movement types for all the inventory adjustment goods movements. This is done so that when the DUV is run, all inventory adjustment movement types (701 to 711) will be reversed with movement types Z11 or Z12 (and then they will be reposted to the respective manufacturing orders with movement types Z61 and Z62). Note that if you use custom movement types for inventory adjustments, you’ll need to assign movement types Z11 and Z12 to those movement types as well. Next, scroll down, click on movement types Z11 and Z12, and assign movement types Z62 and Z61 as reversal movement types of Z11 and Z12, as shown in Figure 7.26.

Figure 7.26 Movement Types Z62 and Z61 as Reversal for Z11 and Z12

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As you can see in Figure 7.26, movement types Z62 and Z61 have been assigned as reversal movement types for Z11 and Z12. This means that when you’ve reversed the inventory adjustment with movement types Z11 or Z12, you can then reverse these movements with movement types Z61 or Z62 and apply the movements to the respective production orders.

Set Update Control and Allowed Transactions With this setting, you’ll define the Update control and Allowed Transactions for movement types Z11 and Z12. Start with the update control, which determines whether the movement type is relevant to warehouse management (WM). To do this, click on the movement types Z11 and Z12, and double-click on the Update control/WM movement types folder, as shown in Figure 7.27.

Figure 7.27 Update Control for Movement Types Z11 and Z12

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If you don’t want the movement types Z11 and Z12 to be relevant for WM, enter a reference movement type of “999” in the Ref column. Double-click the Allowed Transactions folder, and enter the transaction code “CKMDUVMAT” (the DUV transaction for materials) in the TCode column, as shown in Figure 7.28.

Figure 7.28 Assigning Transaction CKMDUVMAT to Z11 and Z12

You’ve now enabled Transaction CKMDUVMAT to be used with movement types Z11 and Z12. Finally, make the same settings for movement types Z61 and Z62.

Add Reversal Option for Transaction CKMDUVMAT This step allows for the reversal of Transaction CKMDUVMAT, just in case there is an error with the DUV posting and it needs to be reversed. To do so, go to Transaction SM30, enter the table “V_CKMLMVADMIN”, and click the Maintain button to arrive at the screen shown in Figure 7.29.

Figure 7.29 Add Reversal Option for Transaction CKMDUVMAT

Enter the value “DUV_REV” in the Key column, and enter “X” in the Data column. Click the Save button to save your settings.

7.3.2 Distributing Differences for Materials Let’s now look at a scenario where a material that has been consumed will have its inventory adjusted, and DUV will be used to distribute the variances. First, let’s take a look at the material in question, which is shown in Figure 7.30.

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Figure 7.30 Material Consumption before Inventory Count

As you can see in Figure 7.30, raw Material RM12, which has a cumulative inventory (Quantity) of 400 PC (and a cumulative price difference [PriceDiff] of $200), has been consumed on two production orders of semifinished materials SG21 (300 PC) and SG29 (30 PC), leaving an Ending Inventory of 70 PC. Subsequent to this consumption, say you perform an inventory count, and find out that the material RM12 only has 35 PC left in inventory. You can use the inventory adjustment Transactions MI01, MI04, and MI07 to make this adjustment. We won’t go through these transactions in detail but will show the adjustment that was made with Transaction MI07 in Figure 7.31. As you can see in Figure 7.31, the inventory for Material RM12 has been reduced by 35 PC. Let’s see how this looks in the Material Price Analysis screen (Transaction CKM3) shown in Figure 7.32.

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Figure 7.31 Posting the Inventory Adjustment Difference

Figure 7.32 Material Price Analysis Screen after Inventory Adjustment

You can see in Figure 7.32 that the Ending Inventory for material RM12 is now 35 PC because there is an extra consumption line (Cost center) of 35 PC, which represents the inventory adjustment posting. Now let’s process the DUV for this inventory adjustment by going to application menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Actual Costing Distribution of Usage Variances • Distribution of Inventory Differences or by going to Transaction CKMDUVMAT to arrive at the screen shown in Figure 7.33. Enter the Company Code, Plant, Material, and Storage location, as well as the Fiscal Year and Phys. Inventory Doc. Note that you don’t have to enter a specific document if you want all documents within the parameters you entered to be selected. Check the Include Posted Docs in Display checkbox, and enter the Posting Date. Press the (Enter) key to get the line shown below the screen, which lists the physical inventory document you created with the status New.

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Figure 7.33 Selection Screen for DUV

Click the Distribute button, and select Execute Online • Distribute -> Production Order. The Status will change to Distribution Created, as shown in Figure 7.34.

Figure 7.34 DUV Status after Creating Distribution

Now that the distribution has been created, you can post the DUV by selecting Post • Execute Online, which will take you to the screen shown in Figure 7.35.

Figure 7.35 DUV Status after Posting

You can see in Figure 7.35 that the status of the DUV now shows up as Posted. Now that you’ve posted the DUV, let’s see how it shows up in the Material Price Analysis screen (Transaction CKM3), as shown in Figure 7.36.

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Figure 7.36 Material Price Analysis after DUV

As you can see in Figure 7.36, the quantity consumed to the Cost center (from the inventory adjustment) is now 0, and the inventory adjustment of 35 PC has now been distributed to the materials SG21 (332 PC) and SG29 (33 PC) in proportion to the original consumption that was made on those materials’ production orders from material RM12. Let’s now see how the cumulative variance of material RM12 of $200 (refer to Figure 7.30) is distributed to the materials after the settlement step of the actual costing cockpit is executed (see Figure 7.37).

Figure 7.37 Material Price Analysis after DUV and Settlement

As you can see in Figure 7.37 the variance (PriceDiff) of $200 is allocated to the Consumption and Ending Inventory lines based on the quantity that was consumed (365/ 400 × $200 = $182.50) versus the quantity that was left in inventory (35/400 × $200 = $17.50). The proportional variance that went to the Consumption line ($182.5) has been allocated to the materials SG21 ($166) and SG29 ($16.5) based on the original consumed quantities and the inventory adjustment that went to the production orders of those materials.

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7.3.3 Distributing Differences for Activities We’ll now look at how DUV works with activity types. First, let’s take a look at an activity that has been consumed on several materials. To do this, go to the activity consumption analysis screen (Transaction CKM3A) as shown in Figure 7.38.

Figure 7.38 Activity Consumption Analysis before Activity Adjustment

As you can see in Figure 7.38, the Act. Type 1 (Machine hours 1) in cost center manufacturing (Cost Cent.) 1 has been consumed (with a Quantity of 4.583 H) on the production orders of three materials: FG226, SG21, and SG29. This activity also has a price difference (PriceDiff) of $137.49. Let’s now assume that the actual activity that was consumed for Act. Type 1 was 10 H (instead of 4.583 H). To make this adjustment, go to application menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Actual Costing • Distribution of Usage Variances • Enter Actual Activity Quantities or go to Transaction CKMDUVREC. You’ll arrive at the screen shown in Figure 7.39.

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Figure 7.39 Selection Screen for Entering Activity Quantities

Enter the Cost Center “17101301” and Activity Type “1” in the selection screen. In addition, add a Start Date of “12/01/2018” and End Date of “12/31/2018”. This is because you want the distribution to include all the orders that were posted in the month of December. Click the Execute button, and enter the Total Quantity and Unit, as shown in Figure 7.40.

Figure 7.40 Entering Actual Activity Quantity

As you can see in Figure 7.40, the actual activity quantity of 10 H has been entered for Cost Center 17101301 and ActTyp 1. Let’s now distribute the difference between this quantity (10 H) and the current quantity consumed (4.583 H) by going to application menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Actual Costing • Distribution of Usage Variances • Distribution of Activity Differences or go to Transaction CKMDUVACT. You’ll arrive at the screen shown in Figure 7.41.

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Figure 7.41 Selection Screen for Distributing Activity Quantity

Enter the Cost Center and Activity Type, click on the Display All Documents checkbox, enter Fiscal Year “2018”, enter Posting Date “12/16/2018”, and press the (Enter) key. The activity adjustment that you performed in the previous step appears below the selection screen. Click the Distribute button, and select the Execute Online option. The Status will change to Distribution Created, as shown in Figure 7.42.

Figure 7.42 Actual Activity Quantity after Distribution

You can also see that in the Total Difference Qty column, the amount of 5.417 is shown. This amount is the difference between the current quantity consumed 4.583 H and the actual quantity entered of 10 H.

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Click the Details button and see how this difference has been allocated to each production order and material, as shown in Figure 7.43.

Figure 7.43 Details of Activity Distribution

You can see in Figure 7.43 that the difference quantity (Diff Qty) of 5.417 has been distributed to the relevant orders (and hence materials) in the same proportion as the withdrawn quantity (WithdrwnQty) of 4.583. Now that the distribution has been created, you can post the activity quantity distribution by selecting Post • Execute Online, which will take you to the screen shown in Figure 7.44.

Figure 7.44 Actual Activity Quantity after Posting

You can see from Figure 7.44 that the Status now shows as Posted. Now that you’ve posted the actual activity quantity, let’s see how the actual consumption analysis looks for this material after the settlement step of the actual costing cockpit is run, as shown in Figure 7.45.

Figure 7.45 Activity Consumption Analysis after Actual Quantity Posting

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As you can see in Figure 7.45, the variance (PriceDiff) of $300, which has been increased because of the increase in activity Quantity to 10 H, has been distributed to the produced material in the proportion to the consumption quantities that were made to the production orders of those materials.

7.4 Manually Changing Cost Components We mentioned earlier in Section 7.2 that you can post directly to a cost component of a material by using a Revaluation Reasn with Transaction MR22. This is normally done when there is a posting that you want to direct to a specific cost component. There are also circumstances where you may want to change the cost component on a total basis and not just for one posting. To do this, you can manually change the cost components of a material for any category that is part of cumulative inventory (i.e. Beginning Inventory, Receipts, or Other Receipts/Consumption). When you do, you have the option of changing the values in the cost component without changing the total actual cost or changing the values in the cost components and changing the actual cost. If you plan to do the latter, you’ll need to configure the account where the variance (i.e., the difference between the old actual cost and the new actual cost) will be posted. We’ll walk through this process in the following sections.

7.4.1 Price Difference Account for Cost Component Change To configure the accounts where the variance for a manual cost component change will be posted, go to Transaction OBYC, and scroll down to transaction key PRD to arrive at the screen shown in Figure 7.46.

Figure 7.46 Configuring the Account for a Manual Cost Component Change

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For the transaction key PRD, enter “0001” in the Valuation modif. column, and enter “MAC” in the General modification column. Assign accounts for each Valuation class. These accounts will receive any variances that are posted when a change is made to the actual cost components, which also changes the total actual cost.

7.4.2 Changing the Cost Component You can now change the cost component split manually by going to application menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Ledger • Set Prices • Manual Change of Actual Cost Component Splits or using Transaction CKMCCC. You’ll arrive at the screen shown in Figure 7.47.

Figure 7.47 Initial Screen for Manual Change of the Cost Component Split

Enter the Material as “RAW-102”, the Plant as “1710”, and the Period/Year as “12/2018”. The initial screen for changing the cost component split has rows that show the different categories for the material, (e.g., Beginning Inventory, Receipts, and Ending Inventory) just like the material price analysis. It also shows three different columns of actual values. These columns represent each currency type/valuation view (company code/legal valuation, group currency/group valuation, and group currency/profit center valuation) that exists for the material. You’ll notice that there is a folder called Procurement under which a pencil symbol appears next to the Rest(Procurement) category. The pencil symbol indicates that you can change the cost components at that

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level. Double-click Rest/(Procurement) to open up a section to the right part of the screen, as shown in Figure 7.48.

Figure 7.48 Detail Screen for Manual Change of Cost Components

As you can see in Figure 7.48, the cost components for that material are shown in the rows, and the columns show three categories each for Fixed and Variable amounts. These three categories correspond with the currency types/valuation views that we discussed in Chapter 2, Section 2.3.

Note: Change Base Quantity You can change the base quantity by clicking on the Base Quantity dropdown button (in the top section of Figure 7.47), selecting User Entry, and entering the quantity you want to use as a basis.

Let’s add an extra $20 as a fixed cost in the Miscellaneous cost component. To do this, enter the amount as shown in Figure 7.49.

Figure 7.49 Manually Changing a Cost Component Value

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Notice that $20 has been added as a fixed cost in the Miscellaneous cost component to all three editable columns of each type (Fixed 1, Fixed 2, and Fixed 3). In reality, you may have different values to be entered in each of these columns to reflect a different currency or valuation. However, to keep things simple and consistent here, the same value is placed in all three columns. You’ll also notice that underneath the Miscellaneous cost component row, there is a line call Difference. This shows up because you’re changing the total cost component value by a difference of $20. It also means that this difference will get posted as a revaluation amount to the account that you set up earlier in Figure 7.46. Click the Save button to post the document. This will take you back to the initial screen shown in Figure 7.50.

Figure 7.50 Transaction CKMCCC after Changing a Cost Component Value

You can see in Figure 7.50 that the actual value for the material is now $120 in the three valuation views because you added $20 to the Miscellaneous cost component. Let’s now look at the Material Price Analysis screen to see how the change looks on a cost component level (Figure 7.51).

Figure 7.51 Material Price Analysis after Cost Component Change

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Here, the miscellaneous column (Miscellena) shows the $20 that you added to this cost component. If you double-click the document number 3000000051 and then click Accounting Documents in the subsequent screen, this will take you to the accounting document that was posted with the change that was made (Figure 7.52).

Figure 7.52 Accounting Document from Transaction CKMCCC Change

Here, the $20 that you posted has been debited to the Account 52041000 (this is the account that you set up under transaction key PRD-MAC) and credited to the revaluation account (the account posted to for any revaluation of price changes). This variance will then be used to revalue the material when the actual costing run is executed.

7.5 Deactivating Statistical Moving Average Price With the speed of the SAP HANA database, there is a significant increase in the processing of goods movements (as well as other transactions). However, one area that could slow down the processing of goods movements is the calculation of the moving average price. This is the case because the moving average price is calculated in real time after the goods movement is made, and the system places an exclusive lock on the database to do this calculation. This lock tends to slow down the goods movement and hence the overall processing of the transaction. If materials are valued at the moving average price, then you have no choice but to accept this situation. However, if you’re using actual costing, your materials will be valued at standard cost during the month and revalued to actual cost at the end of the month. When materials are valued at standard cost, this doesn’t create a lock situation when there are goods movements. However, even when materials are valued at standard cost, the moving average price is still calculated as a statistical value. You have the option to

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switch off this calculation of statistical moving average price, which is a recommendation for SAP S/4HANA. To do so, go to Transaction SE38, and execute the Program SAPRCKM_NO_EXCLUSIVELY_LOCKING as shown in Figure 7.53.

Figure 7.53 Executing the Program to Deactivate Statistical Moving Average Price

After you click the Execute button shown in Figure 7.53, the statistical moving average price will be deactivated. There is no financial impact of doing this because if you’re valuing your inventory at standard cost, the moving average price is just for informational purposes. However, the following “old” tables will be impacted: 쐍 Material valuation tables

Tables MBEW(H), EBEW(H), OBEW(H), and QBEW(H), as well as their corresponding history tables, will have the moving average price field (VERPR) and moving average price value field (SALKV) equal 0.00, as highlighted in Figure 7.54.

Figure 7.54 Table MBEW with Statistical MAP Deactivated

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쐍 Material Ledger period totals table

In table CKMLCR, the fields for moving average price (PVPRS) and moving average price value (SALKV) don’t show up during the month (at month-end when the actual costing run is done, these fields will be populated with the periodic unit price [PUP]). You can see an example of table CKMLCR during the month, containing only the standard price control (S), in Figure 7.55.

Figure 7.55 Table CKMLCR with no Moving Average Price 쐍 Material Ledger document table

In table MLCR, the fields for moving average price (V) values, such as SALKV, SALKV_ OLD, and PVPRS_OLD, don’t show up. Only standard cost (S) values are shown, as you can see in Figure 7.56.

Figure 7.56 Table MLCR with No Moving Average Price

Note that if you used the statistical moving average price in any custom reports or variants, you’ll need to update them accordingly to remove the field for statistical moving average and replace them with either the standard cost or PUP.

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7.6 Summary In this chapter, we walked through some peripheral functionalities used with actual costing. You saw that in SAP S/4HANA, you can now change the standard cost during the month without any negative impact to the actual cost calculation. We then looked at how you can debit or credit a material and direct the posting to a specific G/L account and cost component by using the reasons for price change functionality. We then walked through the configuration and processing of the DUV, which allows you to adjust the quantities of materials and activities consumed and allocate the variances proportionally to the respective manufacturing orders. After that, we showed how you can manually change the actual cost component split for a material. Finally, we rounded out the chapter by looking at how you can deactivate the statistical moving average price and hence improve the throughput of goods movements. In the next chapter, we’ll look at how to calculate parallel cost of goods manufactured using an alternative activity price.

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Chapter 8 Parallel Cost of Goods Manufactured Parallel cost of goods manufactured enables the calculation of an alternative activity price for a different accounting principle, which can be used in the main actual costing run or alternative valuation run.

So far in the book, we’ve discussed the two main objectives of the Material Ledger, which are parallel valuation and actual costing. You saw that parallel valuation allows an organization to value goods and services according to multiple valuation approaches, such as group valuation and profit center valuation, whereas actual costing allows an organization to calculate the actual cost of a material, and use this cost to revalue inventory, cost of goods sold (COGS), and work in process (WIP). In this chapter, we’ll discuss an option that combines both of those functionalities and allows you to calculate a parallel cost of goods manufactured (parallel COGM). First, we’ll give an overview of parallel COGM (Section 8.1) and show how to activate the relevant business function (Section 8.2). We’ll then walk through the configuration of the valuation view that is created for parallel COGM (Section 8.3) and demonstrate how the ledgers and accounting principles are defined (Section 8.4). We’ll then show how to configure the parallel valuation (Section 8.5) and parallel activity rate (Section 8.6) and finally describe a scenario that shows how the parallel COGM is calculated (Section 8.7).

8.1 What Is Parallel Cost of Goods Manufactured? Companies that are part of multinational organizations may be required to report their inventory costs according to different accounting principles, mainly because their parent company operates in a different country with different Generally Accepted Accounting Principles (GAAP) requirements. A typical example is between how the US GAAP and the International Financial Reporting Standards (IFRS) treat certain valuation methods, such as depreciation. If a company that is based in the

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United States depreciates all assets on a straight-line basis, but its parent company needs certain assets to be depreciated differently (e.g., using the declining balance method), the depreciation methods reported on a local and group basis will be different. Furthermore, if the depreciation is for equipment that is used in the production process and will form part of the calculated actual cost, then the actual cost for local and group reporting will also be different. In the SAP ERP system, from Enhancement Package (EHP) 5, a functionality known as parallel COGM was introduced to calculate multiple actual costs based on different accounting principles. This functionality was available for both the classic general ledger (G/L) and the new G/L, and it could be implemented using the following approaches: 쐍 Ledger approach

With this approach, the ledger is the distinguishing characteristic between the accounting principles. This approach is typically used with the new G/L, where parallel ledger functionality is activated. 쐍 Accounts approach

With this approach, different accounts are used to distinguish between the different accounting principles. This approach is commonly used with the classic G/L, where (with the absence of the parallel ledger functionality), the only way to record GAAP differences is by using separate accounts for the alternative accounting adjustments. With the advent of SAP S/4HANA, the ledger approach is the preferred way to use this functionality going forward because the new G/L is now automatically activated, so the parallel ledger functionality can be implemented and used for this purpose. However, the accounts approach is also possible, except that some of the configuration steps, such as mapping cost elements to different G/L accounts, are no longer supported. This is because the unification of financial accounting (FI) and controlling (CO) in the Universal Journal ensures that the G/L account of a posting is always identical in both functionalities. In our scenario, we’ll be demonstrating the parallel COGM functionality using the ledger approach. You’ve already seen in Chapter 2, Section 2.4, that a leading ledger and parallel ledgers can be set up and assigned to company codes in SAP S/4HANA. We’ll therefore use this functionality to calculate multiple actual costs. To get started, Figure 8.1 shows how the parallel COGM function spans across four different functionalities in SAP.

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Activating the Business Function

Asset Accounting Depreciation Area 01 (US GAAP)

Depreciation Area 32 (IFRS)

Financial Accounting Ledger 0L (Leading)

Ledger 2L (Non-Leading)

Cost Center Accounting Valuation 0 (Legal)

Valuation 5 (Parallel COGM)

Activity Type Version 0 (Plan/Act)

Version ML (Parallel COGM)

Material Ledger Main Costing Run

Alternative Valuation Run

Figure 8.1 Value Flow for Parallel COGM

As you can see in Figure 8.1, the parallel COGM functionality spans four functionalities. In the first, asset accounting (AA), depreciation areas need to be set up to record the different accounting principles that are assigned to ledgers in FI. The depreciation amount will be posted to different actual valuation views in the cost center, which are assigned to different CO versions in CO. The activity price of these CO versions will then be calculated from the cost center and will feed into the actual cost in the Material Ledger using the main costing run and the alternative valuation run (AVR).

8.2 Activating the Business Function For parallel COGM to be used, you first have to activate the business function for this functionality. To do that, go to Transaction SFW5, and open the Enterprise Business Functions folder.

Note: Activation by Basis In most companies, the activation of business functions (Transaction SFW5) is only carried out by the Basis or technical team because, for some functions, it’s impossible to deactivate them after activation.

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Scroll down to business function FIN_CO_COGM in the Name column, as shown in Figure 8.2.

Figure 8.2 Activating Business Function FIN_CO_COGM

Select the checkbox for the FIN_CO_COGM, and activate it by clicking the Activation button (not shown). After business function FIN_CO_COGM is activated, a new configuration menu related to parallel accounting will open for this functionality, as shown in Figure 8.3. You’ll use some of these configuration steps in the following sections to set up parallel COGM.

Figure 8.3 Configuration Menu for Parallel COGM

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Maintaining the Valuation View

8.3 Maintaining the Valuation View In Chapter 2, we showed how you can create an extra valuation view, which provides a separate valuation of financial data according to specific organizational needs. In that example, you activated the group and profit center valuation views. We’ll use the same logic to create a separate view for parallel COGM. To create a valuation view for parallel COGM, go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Valuation Approaches • Multiple Valuation Approaches/Transfer Prices • Maintain Currency and Valuation Profile or use Transaction 8KEM. In the subsequent screen, select your currency and valuation profile and then double-click the Details folder to get to the screen shown in Figure 8.4.

Figure 8.4 Currency and Valuation Profile for Parallel COGM

Enter a valuation number “1” in the No. column and a currency type “10” in the C. column (company code currency), and then select Parallel Cost of Goods Manufactured 1 in the Valuation View column. Click the Save button to save your settings. Next, assign the currency and valuation profile to the respective controlling area by going to configuration path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Valuation Approaches • Multiple Valuation Approaches/ Transfer Prices • Assign Currency and Valuation Profile to Controlling Area. You’ll arrive at the screen shown in Figure 8.5.

Figure 8.5 Assigning the C+V Profile to the Controlling Area

Assign the currency and valuation profile (C+V Prof.) ML01 to controlling area (COAr) CUS1. Click the Save button to save your settings.

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Next, create a version for the parallel COGM by going to configuration menu path Accounting • Financial Accounting Global Settings • Ledgers • Parallel Valuation Approaches • Multiple Valuation Approaches/Transfer Prices • Assign Currency and Valuation Profile to Controlling Area. Double-click the Controlling Area Settings folder (not shown), and then click New Entries to arrive at the screen shown in Figure 8.6.

Figure 8.6 Creating the ML Version for Parallel COGM

Enter “ML” in the Version column with a Version Description of “Parallel COGM”, select the Plan and Actual checkboxes, and assign it to the Parallel Cost of Goods Manufactured 1 option in the Valuation View dropdown. Notice that there are two other valuation views for parallel COGM because you have the option of configuring up to three parallel COGM valuation views. These views are defined as valuation views 5, 6, and 7 (just as legal valuation is valuation view 1, group valuation is valuation view 2, and profit center valuation is valuation view 3), and they will be available in the selection screen of most CO reports. We’ve selected the first parallel COGM valuation view (which corresponds with valuation 5) to assign to our version ML. The next step is to make the fiscal year settings for the version. To do this, doubleclick the Settings for Fiscal Year folder (not shown) in the left panel of the screen to open the screen shown in Figure 8.7. In the Plan section, enter “Periodic price” in the Method field. In the Actual section, enter “Periodic price” in the Methods field, and enter “Do not revalue” in the Revaluation field (if you don’t want to revalue the cost object with the actual activity price). These settings will need to be made for every future fiscal year as well.

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Defining Ledgers and Accounting Principles

Figure 8.7 Fiscal Year Settings for the Version

8.4 Defining Ledgers and Accounting Principles Now let’s define the accounting principles that represent the different valuation methods we want to use. Accounting principles allow you to define different rules that are used to record financial data. To define the accounting principles, go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Define Accounting Principles. In the subsequent screen, click New Entries to access the screen shown in Figure 8.8.

Figure 8.8 Defining Accounting Principles

Define two accounting principles: GAAP (for US GAAP) and IFRS (for International Financial Reporting Standards). Click the Save button to save your entries.

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Next, you’ll assign these accounting principles to ledger groups. This ensures that any variations between accounting principles are contained in their own ledgers. To make this assignment, go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Assign Accounting Principle to Ledger Groups. In the subsequent screen, click New Entries to access the screen shown in Figure 8.9.

Figure 8.9 Assigning Accounting Principles to Ledger Groups

Assign the two accounting principles that you’ve created, GAAP and IFRS, to the Target Ledger Group 0L and 2L, respectively. Click the Save button to save your entries. Next, you need to make sure the relevant depreciation areas are assigned to the ledger groups you’re using. Go to Transaction OAE1, and double-click Define Depreciation Areas in the subsequent screen. This will take you to the Define Depreciation Areas screen shown in Figure 8.10.

Figure 8.10 Depreciation Areas Assigned to Accounting Principles

You can see in Figure 8.10 that depreciation areas 1 and 31 are assigned to ledger group 0L and accounting principle LG, while depreciation areas 32 and 33 are assigned to ledger group 2L and accounting principle IFRS. This means that the postings in depreciation areas 1 and 32 (the areas posted in real time) will be updated in their corresponding ledger groups and accounting principles. Click the Save button to save your entries.

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Configuring Parallel Valuation

8.5 Configuring Parallel Valuation Now that you’ve maintained the valuation view and version for parallel COGM and defined the accounting principles and ledger groups, you can configure the Material Ledger settings that need to be made to determine which version should flow into the main actual costing run versus the AVR. To do this, go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Parallel Financial Reporting in Controlling (Cost of Goods Manufactured) • Set up Parallel Valuation of Cost of Goods manufactured for Company Codes. Click New Entries in the subsequent screen, and arrive at the screen shown in Figure 8.11.

Figure 8.11 Assigning Accounting Principles to Costing Runs

For company code (CoCd) US10, assign the accounting principle (AccP) GAAP to Exclusively to Leading Version, Valuation 0 in the Excl. Updt dropdown and to the actual costing run by selecting Actual Costing from the ML Application dropdown. Then, assign the AccP IFRS to Exclusively to Valuation 5 in the Excl. Updt dropdown and to the Alternative Valuation run in the ML Application dropdown. Next, you’ll assign the depreciation areas to the relevant versions by going to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Parallel Financial Reporting in Controlling (Cost of Goods Manufactured) • Transfer Depreciation from Asset Accounting to Controlling. In the subsequent screen, click New Entries to arrive at the screen shown in Figure 8.12.

Figure 8.12 Assigning Depreciation Areas to Versions

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For chart of depreciation (ChDep) 1710, assign depreciation area (Ar.) 1 to Exclusively to Leading Version, Valuation 0, which is linked to valuation 0, from the Excl. Updt dropdown. Then, assign Ar. 32 to Exclusively to Valuation 5, which is linked to version ML. Click the Save button to save your entries. The next setting to make is to specify whether the actual activities are revalued at the actual price by company code and accounting principle. This setting overrides the Revaluation setting made on the CO version level (set in Transaction OKEQ). To do this, go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Parallel Financial Reporting in Controlling (Cost of Goods Manufactured) • Activate Revaluations per Company Code to arrive at the screen shown in Figure 8.13.

Figure 8.13 CO Revaluation per Company Code

Set the Revaluation Active indicator to false so that you won’t override the Revaluation setting in the CO version. Click the Save button to save your settings. Next, to address the setting that can be used to specify the cost component structure for the cost component split by company code and accounting principle, go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Parallel Financial Reporting in Controlling (Cost of Goods Manufactured) • Specify Cost Component Structure per Company Code. The screen shown in Figure 8.14 appears.

Figure 8.14 Cost Component Structure per Company Code

In the Cost Comp Struct. (Main Cost Comp Split) column, assign Y1 Cost Component Layout to the company code and accounting principles. This is the cost component structure that will be used to break out the actual price into the various cost components. Click the Save button to save your settings.

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Next, you’ll define the ledgers that the parallel COGM data is to be transferred to in the G/L. Go to configuration menu path Financial Accounting • Financial Accounting Global Settings • Ledgers • Parallel Accounting • Parallel Financial Reporting in Controlling (Cost of Goods Manufactured) • Set up Integration with G/L for Parallel Cost of Goods Manufactured. You’ll arrive at the screen shown in Figure 8.15.

Figure 8.15 Update of CO Postings in the G/L

The three columns to make settings for are as follows: 쐍 Ledgergroup Determination

This field determines how the ledgers in the G/L are to be updated. Because we’re using parallel ledgers, select Accounting Principle FI, which means that the ledgers of the G/L will be updated from the accounting principle that is assigned to the ledger group (as you did earlier in Figure 8.9). 쐍 Ledger Grp Stlmt(FI)

This field determines the ledger group that is used for any settlements from CO to G/L accounts or assets, as well as the post closing that is made by the actual costing run and AVR. Assign the ledger group 0L for the GAAP Accounting Principle and the ledger group 2L for the IFRS Accounting Principle. 쐍 Ledger (Compat.)

This field determines the ledger that is read by the CO compatibility views to produce the data in the old CO tables such as table COEP and table COSP. Assign the ledger group 0L for the GAAP Accounting Principle and the ledger group 2L for the IFRS Accounting Principle. Now click the Save button to save your settings.

8.6 Calculating a Parallel Activity Rate The activity rate is calculated based on the expenses that are incurred in the production process, such as labor, overhead, and depreciation. The parallel activity rate is an alternative activity rate that is based on a different way of valuing the expenses in the production process. For example, if the depreciation rules are different because of

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the accounting principles in different countries, then a parallel activity rate can be calculated using different depreciation rules. Let’s walk through a scenario that shows how the actual activity price is calculated for main and parallel COGM versions.

8.6.1 Calculating the Depreciation in Different Accounting Principles First, let’s look at an asset that has depreciation areas already assigned to the different valuations (see Figure 8.16).

Figure 8.16 Depreciation Areas on an Asset

As you can see in Figure 8.16, Asset 10002 has the depreciation areas 01 (book depreciation) and 32 (IFRS local currency). These depreciation areas are assigned to different depreciation keys (DKey column), so we expect the depreciation to be calculated differently in each area. Now, you can capitalize this asset by going to Transaction ABZON to open the screen shown in Figure 8.17. Enter the asset number “10002” in the Existing asset field, enter a Document Date and Posting Date of “01/10/2019”, and enter an Amount Posted of “24,000”. This amount will be the assets acquisition and production cost that will be depreciated over its useful life. Click the Post button to post this transaction and open the popup box shown in Figure 8.18.

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Figure 8.17 Entry Screen for Transaction ABZON

Figure 8.18 Asset Posting in Different Ledgers

Figure 8.18 shows the capitalization posted for asset 10002, which created posting documents in accounting principles LG and IFRS. You can now depreciate the asset for the first month by going to Transaction AFAB, which opens the screen shown in Figure 8.19.

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Figure 8.19 Entry Screen for the Depreciation Run

Select your criteria for the depreciation run by entering your Company Code (“US10”), Fiscal Year (“2019”), and Posting Period (“1”). In the menu bar, select Program • Execute in Background to execute the depreciation run. The results of the depreciation run for the asset (10002) in this scenario are shown in Figure 8.20.

Figure 8.20 Depreciation in Parallel Ledgers

The depreciation run shows an amount of $100.84 in accounting principle (Acc) LG and $201.68 in IFRS. This difference in depreciation amounts is due to the different accounting methods of depreciation that are used in US GAAP and IFRS. In this

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scenario, you used different depreciation keys to calculate different depreciation amounts in the depreciation areas 01 and 32.

8.6.2 Posting Activity Consumption to a Production Order Next, you’ll create a production order and issue some inventory and activity quantity to it. For this example, we’ve created a CO production order 1000197 in Transaction KKF1 (not shown). You’ll use Transaction MIGO to issue 1000 EA of raw material (RAW-100) inventory, as shown in Figure 8.21.

Figure 8.21 Goods Issue to Production Order

To post some activity quantity to the production order, go to Transaction KB21N, which will take you to the screen shown in Figure 8.22.

Figure 8.22 Activity Consumption to Production Order

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Enter the Doc. Date and Postg Date as “01/10/2019”. This will default the relevant Period (1). Enter the following: sending cost center as “US101301” in the Send. CCtr column, the sending activity type (“1”) in the SAtyTyp column, the receiving order as “1000197”, the total quantity as “300”, the unit of measure as “H”, and the text as “Activity Consumption”. As you can see in Figure 8.22, 300 H of activity type 1 has been issued to production order 1000197 for a value of $45, which means that the plan activity price for activity type 1 is $0.15 (45/300). Now that you’ve posted inventory and activity quantity to the order, you’ll receive the semifinished product (SG21) that is being produced using Transaction MIGO (not shown). After the material has been received, the cost analysis of the order (accessed by going to Transaction KKF3, entering the order number, and selecting Extras • Cost Analysis) will look like Figure 8.23.

Figure 8.23 Cost Analysis of the Production Order

You can see in Figure 8.23 that the order 1000197 for material SG21 has a goods receipt of $1,000, which will go into inventory with consumption of raw material (RAW-XYZ) of $1,000 and machine hours (activity type 1) of $45 issued to it. You can see that activity type 1 was issued from cost center US101301 (shown in the third row of the Origin column). Let’s now take a look at a report for this cost center in the legal and parallel valuation views. To do that, go to Transaction S_ALR_87013611, which opens the screen shown in Figure 8.24.

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Figure 8.24 Cost Center Report Selection Screen for Valuation 0

Enter the details in the Selection values area of the cost center report, and enter “0” in the Actual Valuation field. This field is only enabled if the parallel COGM business function is active. Actual valuation 0 relates to the valuation 0 that is associated with accounting principle LG. Enter the cost center “US101301” in the Or value(s) field. You can see the results of this valuation view by clicking the Execute button, which will take you to the screen shown in Figure 8.25.

Figure 8.25 Cost Center Report for Valuation 0

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You can see in Figure 8.25, that the depreciation expense in cost center US101301 is $100.84, which reflects the depreciation in the LG accounting principle shown earlier in Figure 8.20. The machine hours absorption of $45 represents the value of the 300 H that was consumed in the production order in Figure 8.22. The under-absorption of $55.84 reflects the difference between the actual cost center cost (in valuation view 0) and the activity consumption of the planned rate of $0.15. Now let’s see what this cost center looks like in valuation 5. Go back to the selection screen of the report, as shown in Figure 8.26.

Figure 8.26 Cost Center Report Selection Screen for Valuation 5

This time, enter an Actual Valuation of “5”, which represents the version ML that is associated with the accounting principle IFRS. You can see the results of this valuation view by clicking the Execute button to go to the screen shown in Figure 8.27. Here, the depreciation expense in cost center US101301 is $201.68, which reflects the depreciation in the IFRS accounting principle shown earlier in Figure 8.20. The machine hours absorption of $45 represents the value of the 300 H that was consumed in the production order in Figure 8.22. The under-absorption of $156.68 reflects the difference between the actual cost center cost (in valuation view 5) and the activity consumption at the planned rate of $0.15. Now let’s calculate the actual activity price in both versions. Go to Transaction KSII to arrive at the screen shown in Figure 8.28.

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Figure 8.27 Cost Center Report for Valuation 5

Figure 8.28 Selection Screen for the Activity Price Calculation

Enter your Cost center group (“US101301”), the Period (“1”), and Fiscal Year (“2019”), and then select the Detail Lists checkbox. Click the Execute button to see the results of the calculation, as shown in Figure 8.29.

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Figure 8.29 Activity Price Calculation Output

Here, the activity price calculation for cost center/activity type US101301/1 is $3,361.31 per 10,000, or $0.34 per unit. This represents the calculation in version 0. Note that even though you can only see one version in the output, both versions 0 and ML have been calculated. You can see this by gong to the activity price report in Transaction KSBT, as shown in Figure 8.30.

Figure 8.30 Activity Price Report Selection Screen for Version 0

Enter your Cost Center (“US101301”) and the Selection Parameters as Version “0” for From Period/to “1”in Fiscal Year “2019”. Click the Execute button, which will take you to the screen shown in Figure 8.31. The actual activity price calculated in version 0 is $0.34. This is calculated by dividing the depreciation expense in valuation 0 ($100.84) by the activity quantity consumed in the production order (300 H). Now go back to the selection screen, and enter the data for version 5, as shown in Figure 8.32.

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Figure 8.31 Activity Price Report for Version 0

Figure 8.32 Activity Price Report Selection Screen for Version ML

Enter your Cost Center (“US101301”) for Version “ML” for From Period/to “1” in Fiscal Year “2019”. Click the Execute button, which will take you to the screen shown in Figure 8.33.

Figure 8.33 Activity Price Report for Version ML

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The actual activity price calculated in version ML is $0.67. This is calculated by dividing the depreciation expense in valuation 5 ($201.68) by the activity quantity consumed in the production order (300 H). Now that you’ve calculated the actual activity prices for both versions, let’s see how you can calculate multiple actual costs that reflect the different activity prices.

8.7 Calculating with Multiple Costing Runs Before we begin the actual costing runs, let’s first calculate the variance for production order 1000197 that we analyzed earlier in Figure 8.23. Go to Transaction KKS2, enter the Order number as “1000197”, and execute the transaction. This will take you to the screen shown in Figure 8.34.

Figure 8.34 Variance Calculated for the Production Order

As you can see in Figure 8.34, the variance calculated for production order 1000197 is $45. This represents the difference between the actual costs on the order (i.e., the consumed raw material and activity) of $1,045 and the allocated cost of $1,000 (i.e., the received semifinished good) of $1,000. This variance of $45 along with the raw material and cost center variance will be used to calculate the actual cost for semifinished material SG21 in the different accounting principles. First, let’s calculate and execute the main actual costing run, before moving on to the AVR for parallel COGM.

8.7.1 Actual Costing Run We already walked through the process for creating the actual costing run in Chapter 6, Section 6.2, so we won’t go through all the steps in this section. Instead, we’ll show the material price analysis for material SG21 after the main actual costing run has been executed (see Figure 8.35). You can see in Figure 8.35 that the Material Price Analysis screen shows that the actual cost for material SG21 is $1.11 (in the Price column of the Cumulative Inventory line). One of the multilevel variances that contributes to this amount comes from the

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activity price variance from cost center/activity US101301/1 of $55.84. This is the amount from valuation 0, which you calculated from depreciation area 01 in Section 8.6.2. The other variances shown in the PriceDiff column are from the raw material (RAW-XYZ) of $10 and the single-level variance that you calculated for production order 1000197 of $45.

Figure 8.35 Material Price Analysis for Actual Costing Run

Now let’s calculate the parallel COGM using the AVR.

8.7.2 Alternative Valuation Run We discussed the AVR in Chapter 6, Section 6.3. In that chapter we mentioned AVR allows you to calculate an additional actual cost for a material with certain criteria that are different from the main actual costing run. In our current example, we’ll use the AVR to calculate the parallel COGM, meaning we’ll calculate an additional actual cost using the IFRS accounting principle.

Creating a Run Reference When calculating an AVR for parallel COGM, it’s mandatory to use a run reference as a template because it contains all the settings necessary for an AVR. Basing the parallel COGM run on a run reference ensures that important settings aren’t omitted. To create a run reference, go to Transaction CKMLCP, and click the Create Costing Run button. You’ll arrive at the screen shown in Figure 8.36. Enter a Costing run of “RRCOGM” (“Run Reference for Parallel COGM”). You don’t need to enter a period/year because this run reference serves as a template that can be used indefinitely. Select the Run Reference for Parallel COGM option, and click the Continue button to go to the screen shown in Figure 8.37.

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Figure 8.36 Selection Screen for Creating the Parallel COGM Run Reference

Figure 8.37 Settings for the Run Reference of Parallel COGM

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Most of the settings for the run reference are grayed out to ensure that these settings are fixed and can’t be changed because they are necessary for calculating parallel COGM. The field that is changeable—Accounting Principle—is where you enter “IFRS”. The Exch. rate diff dropdown gives you the option to use exchange rate differences as part of the AVR calculation, to only use noninventory exchange rate differences, or not to use any exchange rate differences at all, as we discussed in Chapter 6. Click the Save button to save the run reference.

Creating a Parallel COGM Alternative Valuation Run Now you can create the AVR for parallel COGM by clicking the Create Costing Run button (not shown) to access the screen shown in Figure 8.38.

Figure 8.38 Selection Screen for Creating the Parallel COGM AVR

Enter a Costing run of “COGM119” (“Parallel COGM January 2019”) for Period “1”/ “2019”, and select the AVR with Run Reference option. Click the Continue button, which will take you to the screen shown in Figure 8.39.

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Figure 8.39 Creating the Parallel COGM AVR from a Run Reference

Costing run COGM119 has been created with the Run Reference RRCOGM, which you created earlier, so this costing run will adopt the settings of the run reference. Now, assign Plant 171O to this costing run in the Plant Assignment tab, shown in Figure 8.40.

Figure 8.40 Assigning a Plant to the Parallel COGM AVR

Click the Settings tab to see what settings have been made for this costing run, as shown in Figure 8.41. As you can see in Figure 8.41, the settings of the parallel COGM AVR show both the Accounting Principle IFRS and the version ML for calculating actual activity prices. Click the Save button to save this costing run. Open the Process section (not shown), and click the Execute button to execute the steps of the costing run, as shown in Figure 8.42.

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Figure 8.41 Settings for the Parallel COGM AVR

Figure 8.42 Costing Cockpit for the Parallel COGM AVR

As you can see in Figure 8.42, the steps of the costing run have been executed up to the Settlement step. Now, navigate to the material (SG21) in this scenario to look at the material price analysis. Click the Results button shown in Figure 8.42, execute the report in the subsequent screen, and double-click Material SG21. This will take you to the Material Price Analysis screen shown in Figure 8.43.

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Figure 8.43 Material Price Analysis for the Parallel COGM AVR

This screen shows that the parallel COGM actual cost for material SG21 is $1.22 (shown in the Price column of the Cumulative Inventory line). You can see that one of the multilevel variances that contributes to this amount comes from the activity price variance from cost center/activity US101301/1 of $156.68. This is the amount from valuation 5 that you calculated from depreciation area 32. When compared with the cost of the material in Figure 8.35 shown earlier, you can see the difference in actual cost between the US GAAP and IFRS accounting principles.

8.8 Summary In this chapter, we looked at the parallel COGM functionality. First, we defined the term itself and then discussed a use case for the functionality. We then provided an overview of the different functionalities involved in the parallel COGM process. After that, we took a deep dive into the configuration of parallel COGM, including creating a valuation view for parallel COGM and assigning it to a version. We then defined separate ledgers and accounting principles and assigned them to different depreciation areas in AA. After that, we configured the Material Ledger settings for parallel COGM, such as assigning the accounting principles to actual costing runs, cost component structures, and compatibility ledgers. We then walked through a parallel COGM scenario by creating a production order for a semifinished good and consuming a raw material and activity on it. We calculated the activity prices based on different accounting principles and used these activity prices to calculate an actual cost for the produced semifinished good using the main actual costing run and AVR. Finally, we showed the material price analysis for the semifinished good and compared the results from the costing runs. In the next chapter, we’ll look at the different procedures for balance sheet valuation in the Material Ledger.

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Chapter 9 Balance Sheet Valuation Balance sheet valuation enables the recalculation of material prices for subsequent purposes, such as the valuation of ending inventory according to the first in, first out; last in, first out; or lowest value determination methods.

In the previous chapter, you saw how to calculate parallel cost of goods manufactured (parallel COGM), which can provide an alternative actual cost that is used to value inventory and cost of goods sold (COGS). In this chapter, we’ll explain another feature that allows you to calculate an alternative cost, which, in this case, is usually for the valuation of ending inventory. In SAP, this functionality is called balance sheet valuation, and it encompasses the materials management (MM) functionality and the Material Ledger. We discussed balance sheet valuation briefly in Chapter 1 when we discussed different inventory valuation methods, such as first in, first out (FIFO); last in, first out (LIFO); and lowest value determination. Now we’ll delve deeper into these concepts and show how they are set up and used in SAP. First we’ll define what balance sheet valuation is (Section 1.1), and then we’ll walk through the configuration of its commonly used methods (Section 9.2). We’ll then look at the scenarios where the main balance sheet valuation methods such as FIFO (Section 9.3), LIFO (Section 9.4), and lowest value determination (Section 9.5) are used. Finally, we’ll describe how balance sheet valuation is used with actual costing (Section 9.6).

9.1 What Is Balance Sheet Valuation? Companies report their inventory values in different ways to satisfy different parties. Sometimes they produce their balance sheet for tax and legal requirements, sometimes to satisfy corporate policy rules, and other times to satisfy internal management objectives. The different ways to value inventory is based on how the policy for inventory valuation treats the inflationary factors in the market. For example, if you

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purchased 100 units of a material last month at $1, your inventory value in the balance sheet will be $100. However, what happens if the market price for that material is currently $1.20 and you bought another 100 units? You would now have 200 units of the material in inventory with a total inventory value of $220 in the balance sheet. If you then sold 150 units of the material, you’ll have 50 units left in inventory, leading to the following question: How do you value the 50 units of inventory? It may seem simple to say that it would depend specifically on which units of inventory were sold (i.e., the batches of inventory would indicate how much they cost). However, in reality, the inventory that is stored in the warehouse isn’t necessarily done with the original price of each piece of inventory recorded. Therefore, you would need to come up with a set of assumptions to determine how to value the inventory. There are three main approaches for doing this in SAP: 쐍 First in, first out (FIFO)

With this approach, it’s assumed that for any inventory consumed, the early units of inventory are consumed before the latest units. Therefore, the 50 units of ending inventory will be valued at $1.20, and the inventory in the balance sheet will be $60. The consequence of the FIFO method is that if costs are increasing, COGS will be cheaper (because earlier cheaper units are sold first) and thereby gross profit will be increased. However, increased gross profit also means increased taxes. The reverse is true if costs are decreasing. 쐍 Last in, first out (LIFO)

With this approach, it’s assumed that for any inventory consumed, the latest units of inventory are consumed before the earlier units. Therefore, the 50 units of ending inventory will be valued at $1, and the inventory in the balance sheet will be $50. The consequence of the LIFO method is that if costs are increasing, COGS will be more expensive because expensive units are sold first, and thereby gross profit will be decreased. However, decreased gross profit also means decreased taxes. The reverse is true if costs are decreasing. 쐍 Lowest value determination

With this approach, which is also referred to as the lowest value principle, it’s assumed that you take the lower of the inventory cost and the cost of the material in the market. Therefore, the 50 units of ending inventory will be valued at $1, which is lower than the market price of $1.20, and the inventory in the balance sheet will be $50. Note that although SAP typically has these methods as the standard methods of valuing inventory, a company can vary these methods according to the legal or corporate

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stipulations that apply to them. The basic idea is that you can calculate a different cost from the one that is used to values inventory, and you can post the difference between this newly determined cost and the inventory cost to the balance sheet.

Note: Materials Management Balance Sheet Valuation In the MM functionality, valuing inventory according to FIFO and LIFO methods is much more intricate and can be done according to batches (by using a batch search strategy). However, in our case, we’ll be discussing the approach that is integrated with the Material Ledger, which is the balance sheet valuation method.

9.2 Configuring Balance Sheet Valuation Let’s now configure the settings for balance sheet valuation. We’ll show the step-bystep instructions for setting up the FIFO, LIFO, and lowest value determination approaches, and we’ll show how they are linked to the relevant valuation areas, movement types, and document types.

9.2.1 Activating FIFO/LIFO Valuation First, you’ll activate FIFO/LIFO valuation to determine whether FIFO and/or LIFO valuation will be used in the system. To do this, go to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/FIFO Methods • General Information • Activate/Deactivate LIFO/FIFO Valuation or use Transaction OMWE. You’ll arrive at the screen shown in Figure 9.1.

Figure 9.1 Activate FIFO/LIFO Valuation Screen

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Select the LIFO valuation active and FIFO valuation active options. It’s recommended to select both options even if you only want to use one of them. Click the Save button to save your settings.

9.2.2 Defining Valuation Level Next, you’ll define the valuation level for the activation of FIFO/LIFO valuation. The two options are to activate it either at the company code level or the valuation area (plant) level. To do this, go to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/FIFO Methods • General Information • Define Valuation Level or use Transaction OMWL. The screen shown in Figure 9.2 will open.

Figure 9.2 Defining the Valuation Level for FIFO/LIFO Valuation

Select the Mean receipt price at valuation area level option to base the FIFO/LIFO calculation on the average price of the receipts in each plant. After this setting is made, it can’t be changed using this configuration step. Instead, you would need to go to Transaction MRLH to execute the changes.

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9.2.3 Defining FIFO/LIFO-Relevant Movement Types Next, you’ll define the movement types that are relevant for FIFO/LIFO valuation. This means that any movement types that are selected will be considered for FIFO/ LIFO calculation. To make this setting, go to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/ FIFO Methods • General Information • Define LIFO/FIFO relevant Movement Types or use Transaction OMW4. The screen shown in Figure 9.3 will open.

Figure 9.3 Defining LIFO/FIFO-Relevant Movement Types

In the LIFO column, check the boxes to define several transactions of movement type (Mvmt Type) 101 as relevant for LIFO (and FIFO, although this doesn’t appear in the column heading). Click the Save button to save your settings.

9.2.4 Defining FIFO/LIFO Methods You’ll now define the LIFO/FIFO methods, which contain the parameters for carrying out LIFO/FIFO valuation. This ensures that the same parameters are used to perform the LIFO/FIFO valuation. First, create a method for FIFO valuation by going to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/FIFO Methods • General Information • Define LIFO/FIFO Methods or using Transaction OMWP. Click New Entries to access the screen shown in Figure 9.4.

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Figure 9.4 Defining a FIFO Valuation Method

In the Method field, enter “FIFOML”, and enter “01” in the Sample field. This indicates that the procedure for performing FIFO valuation will be done on an individual material basis. Select the Single receipts checkbox if you want the system to create a separate record for each receipt. Finally, enter the value “CUR” in the Qty. comparison field, which means that the FIFO valuation uses the inventory quantity from the current month. Click the Save button to save your settings. To create a method for LIFO valuation, click New Entries to arrive at the screen shown in Figure 9.5.

Figure 9.5 Defining a LIFO Valuation Method

This time, enter “LIFOML” in the Method field, and enter a “03” in the Sample field. This indicates that the procedure for performing LIFO valuation will be done by individual materials with monthly layers. Select the Single receipts checkbox, and enter the value “CUR” in the Qty. comparison field. Click the Save button to save your settings.

9.2.5 Configuring FIFO/LIFO Valuation Areas Next, you’ll configure the valuation areas that will be relevant for FIFO valuation. Because you set the valuation level as the valuation area (plant) as opposed to the company code (refer to Figure 9.2), this setting will be based on the valuation area. Go to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/FIFO Methods •

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FIFO • Configure FIFO Valuation Areas or use Transaction OMWT. Click New Entries to see the screen shown in Figure 9.6.

Figure 9.6 Configuring FIFO Valuation Areas

Here, you’ll define two plants (1010 and 1710) as relevant for FIFO valuation. Enter a Base Year of “2018”, which means that this is the fiscal year that FIFO valuation will be done for the first time. Click the Save button to save your settings. You’ll also define valuation areas for LIFO valuation by going to the configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/FIFO Methods • LIFO • Configure LIFO Valuation Areas or using Transaction OMW3. Click New Entries to arrive at the screen shown in Figure 9.7.

Figure 9.7 Configuring LIFO Valuation Areas

Again, you’ll define two plants (1010 and 1710) as relevant for LIFO valuation with a Base Year of “2018”. Click the Save button to save your settings.

9.2.6 Defining LIFO Layer Versions Let’s now define the LIFO layer versions. LIFO layers represent the cost additional to inventory to the year-end inventory. LIFO layer versions allow you to examine LIFO valuations for test purposes or without canceling out existing layers or creating new ones for balance sheet valuation. Create a LIFO layer version by going to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure LIFO/FIFO Methods • LIFO • Define Layer Versions. In the subsequent screen, click New Entries to access the screen shown in Figure 9.8.

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Figure 9.8 Defining a LIFO Layer Version

Define a LIFO layer version of 0 (in the V. column) and assign it to the Method LIFOML that we created. In addition, select the valuation principle (Val.princ.) that values newly selected LIFO layers with the price that is valid during the settlement period. Click the Save button to save your settings.

9.2.7 Defining Document Types for the Lowest Value Method Next, you’ll set up the document types to be used for the lowest value method. This will determine the types of documents that will be considered when calculating receipt prices in the lowest value determination method based on market prices. To do this, go to configuration menu path Materials Management • Valuation and Account Assignment • Balance Sheet Valuation Procedures • Configure Lowest Value Methods • Market Prices • Define Document Types. This will take you to the screen shown in Figure 9.9.

Figure 9.9 Document Types for the Lowest Value Method

Figure 9.9 shows the standard setup of the document types for the lowest value method, which are mainly for invoice receipts, goods receipts, and goods issues. Because these are sufficient for this example, don’t change anything here.

9.2.8 Defining Movement Types for the Lowest Value Method You’ll now define the movement types for the lowest value method by going to configuration menu path Materials Management • Valuation and Account Assignment •

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Balance Sheet Valuation Procedures • Configure Lowest Value Methods • Market Prices • Define Movement Types. This will take you to the screen shown in Figure 9.10.

Figure 9.10 Movement Types for the Lowest Value Method

Here, the movement types for goods receipt (Receipt) and goods receipt reversal (Rcpt Reversal) are set up for the lowest value method. Because these are sufficient for our purposes, there’s no need to change anything here.

9.2.9 Defining Key Figure Scheme Now let’s configure the FIFO/LIFO settings that are integrated with the Material Ledger. First, you’ll define a key figure scheme that determines which receipts will be included in the calculation of periodic receipt values. To do this, go to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet Valuation Procedure with Material Ledger • Define Key Figure Scheme. In the subsequent screen, click New Entries, enter the ML Scheme name and description, and double-click the Define Categories folder. You’ll arrive at the screen shown in Figure 9.11.

Figure 9.11 Define Key Figure Scheme

Define a key figure scheme ML. Specify that, for the Receipts category, you want All types of receipts to be included. Click the Save button to save your settings.

9.2.10 Setting Up Valuation Alternatives Now you’ll set up valuation alternatives to allow you to use an alternative price (e.g., the price calculated by the FIFO, LIFO, or lowest value methods) to calculate the actual

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cost of the material. This price can be used in either the main actual costing run or the alternative valuation run (AVR). To do this, go to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet Valuation Procedure with Material Ledger • Set up Valuation Alternatives. In the subsequent screen, click New Entries to access the screen shown in Figure 9.12.

Figure 9.12 Setting Up Valuation Alternatives

Set up valuation alternatives (the VA column) FIF, LIF, and LMP, which correspond to the FIFO, LIFO, and lowest value methods, respectively. Enter an “X” in the Fin. result column for valuation alternatives FIF and LIF, which means that they are relevant for external ending inventory in Material Ledger actual costing. When this happens, the ending inventory will be valued at a FIFO/LIFO price, and any difference between the (external) ending inventory and the cumulative inventory will be allocated to consumption. Enter a “C” in the Fin. result column for valuation alternative LMP, which means that it’s relevant for cumulative inventory in Material Ledger actual costing. When this happens, the cumulative inventory, consumption, and ending inventory will be valued according to the lowest value determination method. Now click the Save button to save your settings.

9.2.11 Defining the FIFO Variant Next, you’ll define the FIFO variant, which contains the parameters for the calculation of periodic receipt values and the calculation of FIFO prices. The FIFO variant determines the following: 쐍 Which key figure scheme is used for aggregating periodic receipt values 쐍 Whether exchange rate differences or multilevel differences are included in the

calculation of periodic receipt values 쐍 Which currencies the periodic receipts are calculated in 쐍 Which threshold values are used in the calculation of periodic receipt prices

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쐍 Which alternative prices are used when there are errors 쐍 Under which valuation alternative FIFO prices are stored

You can set this up by going to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet Valuation Procedure with Material Ledger • Define FIFO Variant. Click New Entries to arrive at the screen shown in Figure 9.13.

Figure 9.13 Define FIFO Variant Screen

Define the FIFO variant (FIFO Var.) ML, and assign it to key figure Scheme ML. Specify that exchange rate differences (ExRt Diff.) and multilevel differences (Multi Diff) are included in the calculation by checking the boxes, and enter a threshold of “100” for the FIFOpr.frm column. This means that if the FIFO price is less than 100% of the ending inventory, then the FIFO price won’t be calculated; instead, an alternative price, which could either be the material price (as selected here), the base value of the receipt, or the last FIFO price will be used. Finally, check the All Curr. checkbox so that the calculation is made in all Material Ledger currencies, and enter “FIF” in the Valuation Alt. column so that the FIFO prices are stored under valuation alternative FIF. Click the Save button to save your settings.

9.3 FIFO Valuation Let’s look at an example of how balance sheet valuation is carried out using the FIFO method. In this scenario, you’ll use a material that has a price determination of 2 (transaction based), which means that it’s not valid for actual costing and is valued at a moving average price. However, the FIFO method can be used for a material that is valued either using standard cost (with or without actual costing) or moving average price.

9.3.1 Creating a Purchase Order and Goods Receipt Let’s start with our sample material, which is shown in Figure 9.14.

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Figure 9.14 Master Data of Material TG0001

As you can see in Figure 9.14, the material that you’ll use in this scenario is TG0001, which has a Price Determ. of 2 (Transaction-Based) and is valued with a Per. unit price (the moving average price) of $1. Now you can purchase some inventory for this material by creating a purchase order using Transaction ME21N for 100 PC of material TG0001 at a price of $1.20. The purchase order is shown in Figure 9.15.

Figure 9.15 First Purchase Order for Material TG0001

After you’ve created the purchase order, you can create a goods receipt using Transaction MIGO to receive the material into inventory. The goods receipt document is shown in Figure 9.16.

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Figure 9.16 First Goods Receipt of Material TG0001

As you can see in Figure 9.16, 100 PC of this material was received in December 2018. This is indicated by checking the box in the OK column. The total inventory for this material is therefore 100 PC, and the total value is $120 (100 × $1.2). Now create another purchase order for this material using Transaction ME21N for material TG0001, for 50 PC at a price of $2, as shown in Figure 9.17.

Figure 9.17 Second Purchase Order for Material TG0001

Now let’s post a goods receipt for this purchase order to receive the quantity into inventory using Transaction MIGO. The goods receipt document is shown in Figure 9.18. As you can see in Figure 9.18, 50 PC of this material was received in January 2019, as indicated by checking the box in the OK column. The total inventory for this material is therefore 150 PC (100 + 50) and the total value is $220 ((100 × $1.2) + (50 × $2)). Now, let’s consume some of the inventory for this material via Transaction MIGO (the same transaction as the goods receipt, but differentiated when you select Goods Issue at the top of the transaction screen). The consumption document is shown in Figure 9.19.

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Figure 9.18 Second Goods Receipt for Material TG0001

Figure 9.19 Goods Issue for Material TG0001

Enter the Material number “TG0001”, select the OK checkbox, enter the quantity (Qty in UnE) of “80” PC, enter the Cost Center “17101601”, and enter the G/L Account “51100000”. The total inventory for this material is therefore 70 PC (100 + (50 – 80)). Let’s now take a look at the material master for material TG0001 by going to Transaction MM03, as shown in Figure 9.20. As you can see in Figure 9.20, material TG0001 now has a periodic unit price (PUP) of $1.47. This is the moving average price of the material, which is calculated as the total value ($220) divided by the total quantity (150 PC) before it was consumed.

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Figure 9.20 Material Master after Goods Issue

9.3.2 Activating a FIFO Material Next, let’s calculate a FIFO price for this material. First, activate the material for FIFO valuation by going to application menu path Logistics • Materials Management • Valuation • Balance Sheet Valuation • FIFO Valuation • Prepare • Select Materials or using Transaction MRF4. This will take you to the selection screen shown in Figure 9.21.

Figure 9.21 Selection Screen for FIFO Activation

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Enter “TG0001” in the Material field, and enter “1710” for Company Code and Plant (in reality, you’ll run this transaction for multiple materials or leave it wide open to select all materials in the plant). Select Set under LIFO/FIFO Indicator, and select the Material Master and FIFO Index Table checkbox, which means that you want the database to be updated when you execute your settings. Click the Execute button, which will take you to the screen shown in Figure 9.22.

Figure 9.22 Output Screen for Flagging Materials for FIFO Valuation

You can see in Figure 9.22 that the Material TG0001 has been updated with FIFO index entries. Let’s take a look at the Accounting 2 view of the material master to show the FIFO indicator for this material, as shown in Figure 9.23. You can see that the LIFO/FIFO-relevant box is checked.

Figure 9.23 FIFO Indicator in the Material Master

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9.3.3 Calculating Periodic Receipt Values Next, you’ll calculate the periodic receipt values, which will read the data in the Material Ledger tables for the goods receipts that have been made for FIFO-relevant materials in order to calculate the receipt quantities and values for each period. Go to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet Valuation Procedures • Calculate Periodic Receipt Values or use Transaction CKMLBB_AGGREGATE. You’ll arrive at the screen shown in Figure 9.24.

Figure 9.24 Selection Screen for Calculating Periodic Receipt Values

For company code 1710, enter “ML” for the FIFO Variant, which contains the key figure scheme. This controls the following settings in the calculation of the FIFO amount: 쐍 The Material Ledger currencies to be aggregated 쐍 Whether exchange rate differences are included in the calculation 쐍 Whether multilevel differences (price and exchange rate differences) are included

in the calculation in the periodic receipt values 쐍 Whether valuated sales order stocks are also processed 쐍 Whether valuated project stocks are also processed

Enter “1” for the Posting Period (for January) and “2019” for Year (and we would also have run this transaction for December 2018), and click the Execute button, which will take you to the screen shown in Figure 9.25.

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Figure 9.25 Output Screen for Calculating Periodic Receipt Values

As you can see in Figure 9.25, the output display shows the plants that have been processed for the calculation of periodic receipt values. In this scenario, only receipts in plant 1710 have been aggregated. The result of this data is stored in table CKMLMYMP, as shown in Figure 9.26.

Figure 9.26 Table CKMLMYMP after FIFO Aggregation

As you can see in Figure 9.26, table CKMLMYMP shows the periodic receipt values (for Period 1, in this example) in each currency type (Crcy type) 10, 31, and 32, with a Program ID of M1, which represents a cumulation of periodic receipt values from the Material Ledger. The data in this table is then used to calculate the FIFO price by using the prices of the latest receipts based on the quantities that are still in the inventory in order to calculate a new price from them.

9.3.4 Calculating the FIFO Price You can calculate the FIFO price by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet

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Valuation Procedures • Calculate FIFO Prices or using Transaction CKMLBB_FIFO_ CALCULAT. This will take you to the selection screen shown in Figure 9.27.

Figure 9.27 Selection Screen for Calculating the FIFO Price

Enter the Company Code (“1710”), FIFO Variant (“ML”), Posting Period (“1”), and Year (“2019”), and then select the Database update checkbox so that the calculated values are updated in the database. Click the Execute button to get to the screen shown in Figure 9.28.

Figure 9.28 Output Screen for Calculating FIFO Prices

The columns shown in the FIFO price calculation are described here: 쐍 ValA

This is the valuation area (plant) of the material. 쐍 G/L Account

This is the G/L account that is assigned to the valuation class of this material. 쐍 Material

This is the material whose FIFO price is being calculated. 쐍 TotalStock

This is the ending inventory of the material before the FIFO calculation. 쐍 Unit

This is the unit of measure for the material.

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쐍 Book value

This is the current price ($1.47) in the material master (shown earlier in Figure 9.20) before the FIFO calculation, multiplied by the total stock (70 PC). 쐍 FIFO Value

This is the value of the material according to the FIFO valuation method. To explain how this was calculated, we’ll summarize the transactions that we carried out for material TG0001 in Table 9.1. Transaction

Quantity

Price

Value

First goods receipt

100 PC

$1.20

$120.00

Second goods receipt

+50 PC

$2.00

$100.00

Total receipts

150 PC

$1.47

$220.00

Goods issue

–80 PC

$1.47

$117.33

Ending inventory

70 PC

$1.47

$102.67

Table 9.1 Transactions for Material TG0001

As you can see in Table 9.1, the total stock is valued at the moving average price that was calculated after the latest goods receipt. However, when valued on a FIFO basis, the 80 PC that was issued is assumed to be part of the 100 PC that was valued at $1.20. This means that the 20 PC remaining from the first receipt is valued at $1.20, while the second receipt of 50 PC, which is assumed to wholly be part of the ending inventory, is valued at its purchase price of $2.00. Therefore, the ending inventory on a FIFO basis is $124 (20 × $1.20) + (50 × $2.00). 쐍 Variance

This is the difference between the book value ($102.67) and the FIFO value ($124). 쐍 Price

This is the FIFO value ($124) divided by the ending inventory (70 PC). The result of this calculation is stored in table CKMLPR_EB (Prices for Ending Inventory/ Balance Sheet Valuation), as shown in Figure 9.29. You can see in Figure 9.29 that material TG0001, which is represented by cost estimate number (CENo) 100000020, has a FIFO price of $124 for 70 PC with a unit price of $1.77 that is stored in table CKMLPR_EB. This price can be used as an alternative price for valuing the ending inventory for this material. You can also see this alternative

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price by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet Valuation Procedures • Display Alternative Prices or using Transaction CKMLBB_PRICES_LIST. This will take you to the selection screen shown in Figure 9.30.

Figure 9.29 FIFO Price in CKMLPR_EB

Figure 9.30 Selection Screen for Displaying Alternative Prices

Enter the Company Code “1710” and the FIFO Variant “ML”, as well as Posting Period “1” and Year “2019” (for January, 2019). Click the Execute button, which will take you to the screen shown in Figure 9.31.

Figure 9.31 Displaying the Alternative Price

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9.3.5 Updating the Material Price Now you’ll use this alternative price of $1.77 to update the material price. To do this, go to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Balance Sheet Valuation Procedures • Change of Material Prices to Alternative Prices or use Transaction CKMLBB_PRICES_CHANGE. This will take you to the selection screen shown in Figure 9.32.

Figure 9.32 Selection Screen for Price Change with Alternative Prices

Enter the plant in the Company Code field (“1710”), the Posting Period (“1”), and Year (“2019”). Then enter the FIFO Variant “ML” and the Posting Date of the document (“01/01/2019”). Note that this transaction can only be done for materials with a price determination of 2 (meaning that the materials aren’t valid for actual costing). Click the Execute button to go to the screen shown in Figure 9.33. As you can see in Figure 9.33, the Price for Material TG0001 has changed from the old price of $1.47 to a new price of $1.77. This change is done in all the currency types for that material.

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Figure 9.33 Output Screen for Price Change with Alternative Prices

Let’s now look at how this price has been updated in the material master by going to the Accounting 1 view of this material in Transaction MM03. This is shown in Figure 9.34.

Figure 9.34 Material TG0001 after FIFO Price Update

You can see that the PUP (moving average price) for the material has now been updated to the FIFO price. This is the price that will now be used to value this material.

9.4 LIFO Valuation Now, let’s look at an example of how balance sheet valuation is carried out using the LIFO method. In this scenario, you’ll use a material that has a price determination of 2 (transaction based), which means that it’s not valid for actual costing and is valued at standard cost. However, the LIFO method can be used for a material that is valued either using standard cost (with or without actual costing) or moving average price.

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9.4.1 Creating Purchase Orders and Goods Receipts Our sample material is shown in Figure 9.35.

Figure 9.35 Master Data of Material RM-101

As you can see in Figure 9.35, the material that you’ll use in this scenario is RM-101, which has a Price Determ. of 3 (Single-/Multilevel) and is valued with a Standard Price of 1.00 (USD). Now you can purchase some inventory by creating a purchase order using Transaction ME21N for 100 EA of material RM-101 at a price of $1.20. The purchase order is shown in Figure 9.36.

Figure 9.36 First Purchase Order for Material RM-101

After you’ve created the purchase order, you can create a goods receipt using Transaction MIGO to receive the material into inventory. The goods receipt document is shown in Figure 9.37.

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Figure 9.37 First Goods Receipt of Material RM-101

As you can see in Figure 9.37, 100 EA of this material was received in December 2018. Check the box in the OK column (not shown) to confirm the goods receipt quantity. The total inventory for this material is therefore 100 EA, and the total value is $120 (100 × $1.2). Now, create another purchase order using Transaction ME21N for this material, as shown in Figure 9.38.

Figure 9.38 Second Purchase Order for Material RM-101

Enter the Material (“RM-101”), PO Quantity/OUn (“50 EA”), Deliv. Date (“01/18/2019”), and Net Price (“2.00” in “USD”). Now you’ll post a goods receipt for this purchase order using Transaction MIGO to receive the quantity into inventory. The goods receipt document is shown in Figure 9.39.

Figure 9.39 Second Goods Receipt for Material RM-101

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As you can see in Figure 9.39, 50 EA of this material was received in January 2019. The total inventory for this material is therefore 150 EA (100 + 50) and the total value is $150 (150 × $1). Now, let’s consume some of the inventory for this material via Transaction MIGO by selecting the Goods Issue option at the top of the transaction screen (not shown). The consumption document is shown in Figure 9.40.

Figure 9.40 Goods Issue for Material RM-101

Enter the Material “RM-101”, a Qty in UnE of “80” EA, the Cost Center “17101601”, and the G/L Account “51100000”. The total inventory for this material is therefore 70 EA (100 + (50 – 80)).

9.4.2 Activating a LIFO Material Now you can flag this material for LIFO valuation by going to application menu path Logistics • Materials Management • Valuation • Balance Sheet Valuation • LIFO Valuation • Prepare • Select Materials or using Transaction MRL6. This will take you to the selection screen shown in Figure 9.41. Enter Material “RM-101” for Company Code and Plant “1710” (in reality, you’ll run this transaction for multiple materials or leave it wide open to select all materials in the plant). Select Set under LIFO/FIFO Indicator, and select the Material Master and LIFO Index Table checkbox, which means that you want the database to be updated when you execute your settings. Click the Execute button, which will take you to the screen shown in Figure 9.42.

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Figure 9.41 Selection Screen for LIFO Activation

Figure 9.42 Output Screen for Flagging Materials for LIFO Valuation

You can see in Figure 9.42 that the Material RM-101 has been updated with LIFO index entries. Let’s take a look at the Accounting 2 view of the material master (in Transaction MM03) to show the LIFO indicator for this material (see Figure 9.43). Next, you’ll create the document extract for LIFO in order to update the database with receipts data for LIFO valuation. Go to application menu path Logistics • Materials Management • Valuation • Balance Sheet Valuation • LIFO Valuation • Prepare • Create Document Extract or use Transaction MRL9. You’ll arrive at the screen shown in Figure 9.44.

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Figure 9.43 LIFO Indicator in the Material Master

Figure 9.44 Selection Screen for LIFO Document Extract

Enter the Company Code “1710”, enter Valuation area “1710”, enter Material number “RM-101”, enter a Posting Date range from “12/31/2018” to “01/18/2019”, and check the

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Receipt Data checkbox. Leave the other checkboxes with the default settings. Click the Execute button, which will lead to the screen shown in Figure 9.45.

Figure 9.45 Output Screen for the LIFO Document Extract

As you can see in Figure 9.45, the output display shows the two purchase order receipts in December and January that you made for this material, valued at standard cost.

9.4.3 Calculating the LIFO Price Now you can calculate the LIFO value for this material by going to application menu path Logistics • Materials Management • Valuation • Balance Sheet Valuation • LIFO Valuation • Perform Check • On Individual Level or using Transaction MRL1. You’ll arrive at the screen shown in Figure 9.46.

Figure 9.46 Selection Screen for LIFO Valuation

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Enter Layer Vers. “0”, LIFO Method “LFOML”, Fiscal Year “2019”, and Posting Period “1”. Then, enter Company Code “1710”, Plant “1710”, and Material “RM-101”. Finally, select the Layer checkbox. Click the Execute button, which will show you the results of the LIFO valuation (see Figure 9.47).

Figure 9.47 Output Screen of the LIFO Valuation

You can see from Figure 9.47 that the LIFO valuation for the remaining quantity of 70 EA of the material is $84. This is because it’s assumed that the quantity that was consumed (in Figure 9.40) of 80 EA was made up of all of the latest receipt (in Figure 9.39) of 50 EA and 30 EA of the earlier receipt (in Figure 9.37). This means that the latest receipt (valued at $2) was fully consumed, while 70 EA of the earlier receipt (valued at $1.20) still remains in inventory. Therefore, the total ending inventory is $84 (70 × $1.2). This value is stored in the LIFO material layer table MYMLM, as shown in Figure 9.48.

Figure 9.48 LIFO Table MYMLM

9.5 Lowest Value Determination The third method that we’ll look at is the lowest value determination method. In our scenario, we’ll use the procedure of lowest value determination that is based on market prices. With this approach, the system searches for the lowest price that is stored for the material. The prices that are used for determining the lowest value are as follows:

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쐍 Purchase orders

All purchase orders for the material in the specific period are considered for lowest value determination, even if they have neither been goods received or invoiced. 쐍 Contracts

All contracts for the material with a validity date that ends during or after the specified period are considered for lowest value determination. 쐍 Purchase info records

The purchasing info record is a fixed price that is set up for a vendor (in Transaction ME11), which can be used to default the purchase order price. A purchase info record price has been set up for material RM-101 of $0.80 in Figure 9.49.

Figure 9.49 Purchase Info Record Price for Material RM-101 쐍 Comparison price

This is used if the system can’t determine the lowest value price from any other source. The comparison price can be the following: – The material price, standard cost, or moving average price from the current period, previous period, or previous year – The price in the Tax price 1, 2, or 3 fields of the Accounting 2 view of the material master – The Commercial price 1, 2, or 3 fields of the Accounting 2 view of the material master

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You’ll now value the material that you used in the LIFO scenario earlier (material RM101) for lowest value determination by going to application menu path Logistics • Materials Management • Valuation • Balance Sheet Valuation • Determination of Lowest Value • Market Prices or using Transaction MRN0. You’ll arrive at the screen shown in Figure 9.50.

Figure 9.50 Selection Screen for Lowest Value Determination

Enter your Company Code “1710”, Key Date “12/31/2018”, raw Material “RM-101”, and Plant “1710” in the selection screen of the lowest value determination method. Click the Market Price button, which will take you to the screen shown in Figure 9.51. You can see in Figure 9.51 that the overview of selected prices shows the different prices that can be considered for the lowest value determination. The Ranking field can be used to control the sequence in which the system accesses the prices. This example case doesn’t need any of the prices to be prioritized over the other, so give the same ranking to all price sources. You can accept the default settings by pressing the (Enter) key, which will take you back to the selection screen. Click the Update Prices button shown in Figure 9.50, and go to the Valuation Alternatives tab shown in Figure 9.52.

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Figure 9.51 Price Sources for Lowest Value Determination

Figure 9.52 Update Prices for Valuation Alternatives

Select the LMP (LVMP Matl Ledger) checkbox, which means that the value that is determined will be able to be used in the Material Ledger as a valuation alternative (i.e., a price that is different from the price calculated by actual costing). Next, click the Execute button, which will take you to the screen shown in Figure 9.53.

Figure 9.53 Output Screen for the Lowest Value Determination

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You can see in Figure 9.53 that there are two lines displayed for the lowest value determination. The first line is the price the system has chosen, which is the purchasing info record price of $.80 (shown earlier in Figure 9.49). This price is lower than the comparison price (i.e., the material master standard price) of $1. The second line is the purchase order price of the period, which is $1.20. This price hasn’t been chosen because of its higher value. Now that the lowest value has been determined, it will be available in table CKMLPR_EB (Prices for Ending Inventory/Balance Sheet Valuation), as shown in Figure 9.54.

Figure 9.54 Lowest Value Determination Price in Table CKMLPR_EB

You can see in Figure 9.54 that material RM-101, which is represented by cost estimate number (CENo) 100002226, has a value of $80 for 70 PC with a unit price of $0.80 that is stored in table CKMLPR_EB. This price can be used as an alternative price for valuing the cumulative or ending inventory for this material.

9.6 Using Balance Sheet Valuation in Actual Costing The prices calculated from the balance sheet valuation can be used to calculate a different actual cost from the one that is calculated during the actual costing process. You can do this using the actual costing run or the AVR. If you want to keep the calculated actual cost from the actual costing run intact, which could be used for inventory cost reporting and profitability analysis, then you would use the AVR for the different actual costs from the balance sheet valuation. However, if, for example, a few materials were to be valued according to a valuation alternative while other materials were to be valued according to the normal actual costing run, then you could use the actual costing with the valuation alternative setting; this will only change the cost of any materials with an alternative price in table CKMLPR_EB.

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In the example scenario, you’ll use the actual costing run for this purpose by going to Transaction CKMLCP and creating it as explained in Chapter 6, Section 6.2. The only difference is that you’ll select the relevant Valuation Alternative in the Actual Costing tab of the General Data section, as shown in Figure 9.55.

Figure 9.55 Valuation Alternative in the Actual Costing Run

Select the Lowest value determined by market price in the Valuation Alternative dropdown field. This is one of the valuation alternatives that you set up in Transaction OMWEB (shown earlier in Figure 9.12).

Note: Missing Valuation Alternative Field If you don’t see the Valuation Alternative field in the Actual Costing tab of the General Data section, you’ll need to implement SAP Note 2613656 – External Valuation in New Actual Costing.

Save your settings and execute the steps of the actual costing run. Because we’ve already shown how to do this in Chapter 6, we won’t do so here. Instead, go straight to the material price analysis (Transaction CKM3) for material RM-101, which you used in the lowest value determination scenario, and display the results shown in Figure 9.56.

Figure 9.56 Material Price Analysis from the Valuation Alternative Cost

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The values shown in each row of Figure 9.56 are described here: 쐍 Beginning Inventory

There was no beginning inventory for this material, so this is zero. 쐍 Receipts

A purchase of 100 EA of this material was made in December for $1.20 (shown in the Price column), which gives a value of $120 (shown in the ActualVal. column). The standard cost is $1, so the value based on standard cost for that quantity is $100 (shown in the PrelimVal column). The difference between the actual value and standard value is $20 (shown in the PriceDiff column). 쐍 Not Distributed

Because the cumulative inventory price has been forced to be $0.80, the variance from standard is –$20; therefore, the amount of the calculated variance that can’t be distributed is $40 ($20 minus –$20). 쐍 Cumulative Inventory

The cumulative inventory price has been forced to be $0.80 (shown in the Price column), which is based on the lowest value determination method. Therefore, the actual value for 100 EA is $80 (shown in the ActualVal column), and the variance from the standard cost is –$20 ($80 – $100). 쐍 Ending Inventory

Because there is no consumption for this material in the period, the Ending Inventory values are the same as the Cumulative Inventory values.

9.7 Summary In this chapter, we looked at the balance sheet valuation procedure. First, we defined balance sheet valuation and described the typical methods (FIFO, LIFO, and lowest value determination) that are used with this procedure. We then walked through the MM configuration steps for balance sheet valuation, such as the activation of FIFO and LIFO valuation and the setup of document types and movement types for the lowest value method. We then looked at the Material Ledger configuration steps for balance sheet valuation, such as defining key figure schemes, valuation alternatives, and FIFO variants. We then walked through a scenario for each valuation method and rounded out the chapter by showing how the valuation alternative can be used to calculate an alternative actual cost. In the next chapter, we’ll look at some peripheral applications that can be used with the Material Ledger.

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Chapter 10 The Material Ledger and Peripheral Applications The Material Ledger can be used in several ways for specialized scenarios that meet specific business requirements, such as split valuation, make-to-order production, and daily actual costing.

In this chapter, we’ll discuss several ways that the Material Ledger can be used with other SAP applications and functionalities. Due to the range and scope of SAP, companies that exist in different countries, different industries, and with different requirements don’t always use the system in the same way. The Material Ledger may therefore be used differently from one company to another, depending on the nature of the business and the reporting requirements. We’ve looked at the traditional ways the Material Ledger can be used in the previous chapters, so now we’ll look at some of the less conventional adoption methods. First, we’ll look at the split valuation functionality (Section 10.1), followed by the process of actual costing for make-to-order (MTO) products (Section 10.2). We’ll then show how you can calculate a daily actual cost (Section 10.3), the impact of exchange rate differences in the Material Ledger (Section 10.4), and how to calculate actual cost across company codes (Section 10.5). Finally, we’ll consider the intersection of profitability analysis (CO-PA) with the Material Ledger (Section 10.6).

10.1 Split Valuation In some cases, certain materials may need to have different types of inventory valued separately due to the source of the inventory coming from different regions, different owners (e.g., company owned or customer/vendor owned), or different types of procurement (e.g., external vs. internal). In these cases, a company normally has two options:

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쐍 Create different materials to represent the different types of valuation. 쐍 Use split valuation.

The first option could lead to confusion because the same material (in the same plant) will have two different numbers, which could also be cumbersome with master data maintenance and reporting. The second option allows the flexibility of reporting different values for the same material, even though the same material number is used. Let’s walk through the setup of split valuation and how it’s shown in the Material Ledger.

10.1.1 Configuring Split Valuation First, you need to activate split valuation by going to configuration menu path Materials Management • Valuation and Account Assignment • Split Valuation • Activate Split Valuation. Select the Split material valuation active option, as shown in Figure 10.1.

Figure 10.1 Activating Split Valuation

Next, configure split valuation by going to configuration menu path Materials Management • Valuation and Account Assignment • Split Valuation • Configure Split Valuation. This will take you to the screen shown in Figure 10.2.

Figure 10.2 Split Valuation Configuration: Initial Screen

You can see in Figure 10.2 that the initial screen of the split valuation configuration shows the buttons for Global Types, Global Categories, and Local Definitions. In our

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example scenario, certain materials need to be valued separately depending on whether they are procured externally or internally. Click the Global Types button, then click the Create button in the subsequent screen, and you’ll arrive at the screen shown in Figure 10.3.

Figure 10.3 Creating Global Types for External Procurement

Enter a Valuation Type of “EXT”, and enter the option “2” for Ext. Purchase Orders, which means that purchase orders can be created for materials with this valuation type. In addition, enter the account category reference (Acct cat. reference) of “0008” (Ref. for semifinished products), which means materials created with this valuation type will need to have a valuation class assigned to this account category reference. Now go back to the initial screen, and click the Create button again to go to the screen shown in Figure 10.4.

Figure 10.4 Creating Global Types for Internal Procurement

Here, create a Valuation Type of “INT”, and enter the option “2” for Int. purchase orders, which means that internal procurement orders (i.e., manufacturing orders) can be created for materials with this valuation type. Once again, enter the Acct cat.

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reference of “0008” (Ref. for semifinished products), which means materials created with this valuation type will need to have a valuation class assigned to this account category reference. Click the Save button to save your settings, and go back to the main configuration screen shown in Figure 10.2. Now click the Global Categories button, then click the Create button, and arrive at the screen shown in Figure 10.5.

Figure 10.5 Create a Global Category

Create a Valuation cat of “B” (Int/Ext Procure) and assign the valuation types (“EXT” and “INT”) that you created to the Default: val.type ext.procure and Default: val.type in-house prod fields, respectively. Click the Save button, and you’ll now see the valuation types activated and assigned to the valuation category, as shown in Figure 10.6.

Figure 10.6 Activation of Valuation Types in the Valuation Category

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To activate the valuation category for the relevant plants, click the Cat. -> OUs button highlighted in Figure 10.6. In the subsequent screen, click the relevant plants, and click the Activate button, which will activate the plants as shown in Figure 10.7.

Figure 10.7 Activating the Valuation Category for Plants

As you can see in Figure 10.7, the plants 1710 and 1711 are activated for your valuation category. Click the Save button to save your settings.

10.1.2 Creating a Material Master with Multiple Valuation Types Now you can create a material with split valuation by going to Transaction MM01 and creating the material in the usual way. The main difference when creating a material with split valuation is to enter the Valuation Category in the Accounting 1 tab, as shown in Figure 10.8.

Figure 10.8 Header Material for Split Valuation

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You can see in Figure 10.8 that the material SPLIT-123 has been created with the Valuation Category B that you created. You can also see that the Price control of this material is V because with split valuation, the header material (i.e., material that has the valuation category assigned to it) has to have a price control of V (for moving average). Now extend this material to the different valuation types by going to Transaction MM01, entering the material to be created as “SPLIT-123”, and copying the details from material SPLIT-123. Then, select the Accounting 1 view to open the popup screen shown in Figure 10.9. Enter the plant you’re copying from (“1710”), and the Plant (“1710”) and Valuation type (“EXT”) you’re copying to.

Figure 10.9 Extending Material to the Valuation Type

Press the (Enter) key to select the Accounting 1 view, as shown in Figure 10.10. The valuation type (Val. typ) for this extended material is EXT, the material has a price control (Prc. Ctrl) of S (the extended materials in split valuation can be either V or S), and the Standard Price is $1. Click the Save button to save the material. You can also extend this material to the INT valuation type that you created using the same procedure. The Accounting 1 view of this extended material is shown in Figure 10.11.

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Figure 10.10 Material Master Extended to Valuation Type EXT

Figure 10.11 Material Master Extended to Valuation Type INT

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Here, you’ll mainly enter the same values, except this time, your Val. type is INT and your Standard Price is $1.25. You’ve now maintained different prices for the same material in the same plant.

10.1.3 Procuring Split Valuated Materials Now you’ll procure the material both externally and internally. For the external procurement, let’s create a purchase order for 100 PC at a price of $1.20. The goods receipt for the purchase order is shown in Figure 10.12.

Figure 10.12 Goods Receipt for Material with EXT Valuation TYPE

Here we have a goods receipt of 100 PC for Material SPLIT-123 with Valuation Type EXT. Now you can internally procure this material by creating a production order and issuing 100 PC of a raw material (valued at $1) to it. Figure 10.13 shows that you’ve made a goods receipt of 100 PC for Material SPLIT-123 with Valuation Type INT.

Figure 10.13 Goods Receipt for Material with the INT Valuation Type

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Next, calculate the variance for this order by going to Transaction KKS2, entering the production order number, and clicking the Execute button. This will take you to the screen shown in Figure 10.14.

Figure 10.14 Variance Calculated for Production Order 1000198

As you can see in Figure 10.14, the Variance for the production order is –$25, which is the difference between the consumed raw material price $1 and the standard cost of the material in valuation type INT of $1.25, multiplied by the received quantity of $100.

10.1.4 Calculating Actual Cost for Split Valuated Material To calculate the actual cost for material SPLIT-123, go to the actual costing Transaction CKMLCP, and execute the relevant steps (as explained in Chapter 6, Section 6.2). After the steps have been completed, the Material Price Analysis screen (Transaction CKM3) for Material SPLIT-123 in Valuation Type EXT will look like Figure 10.15.

Figure 10.15 Material Price Analysis for Material with an EXT Valuation Type

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As you can see in Figure 10.15, the Material Price Analysis screen for Material SPLIT-123 shows a separate view for the Valuation Type EXT. In fact, if you display a material with split valuation activated, you’ll be forced to enter a valuation type. You can see that the standard cost for 100 PC is $100 (shown in the PrelimVal column) and the price difference (PriceDiff) is $20, which is the difference between the purchase order price of $1.20 and the standard cost of $1, multiplied by the received quantity of 100 PC. Therefore, the actual value is $120 (shown in the ActualVal column) and the actual cost is $1.20 (shown in the Price column). Now let’s look at the Material Price Analysis screen for Material SPLIT-123 in Valuation Type INT, as shown in Figure 10.16.

Figure 10.16 Material Price Analysis for Material with the INT Valuation Type

As you can see in Figure 10.16, the Material Price Analysis screen for material SPLIT123 shows a separate view for Valuation Type INT. You can see that the standard cost for 100 PC is $125 (shown in the PrelimVal column) and the price difference (PriceDiff) is $475, which is made up of the variance that was calculated on the production order in Figure 10.14 (–$25) and the raw materials variance (making it a multilevel price difference) of $500. Therefore, the actual value is $600, which is the standard cost of $125 plus the variance of $475 (shown in the ActualVal column), and the actual cost is $6 (shown in the Price column).

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10.2 Actual Costing for Make-to-Order Products When companies use SAP for production purposes, it’s typically based on a make-tostock (MTS) model. This means that when a product is procured, it’s stored in inventory and available for any customer that needs that product. Most of the production planning (PP) (and costing) settings assume that product is produced with an MTS process, which makes for a more predictable and manageable production scheduling process based on anticipated sales. However, the MTS process can lead to excess inventory that isn’t sold because the sales forecast wasn’t accurate or because there has been a significant change in the market. For this reason, a number of companies use the MTO model, which is a lean manufacturing process where the product is manufactured to meet a particular customer’s demand. It’s used in industries where products have different characteristics that are required by different customers, or when a product has to be manufactured according to a customer’s specification (e.g., configurable products, which are categorized with material type KMAT in SAP). The MTO process reduces the likelihood of unsold or obsolete inventory, but, at the same time, it requires a streamlined and efficient production process to meet customers’ demands when they need the product. Up to this point, most of the examples we’ve shown relating to production have been done on a MTS basis. We’ll now walk through a MTO scenario and show how it flows into the Material Ledger.

10.2.1 Make-to-Order Production Process Let’s produce a product for two different customers on two sales orders. First, we’ll look at the material master of the product that you’ll be producing. To make the material relevant for MTO production, enter a Strategy Group of “20” in the MRP 3 tab of the material master, as shown in Figure 10.17. Now, go to the Accounting 1 view of this material to see its settings and standard cost, as shown in Figure 10.18.

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Figure 10.17 Strategy Group in the MRP 3 View of the Material Master

Figure 10.18 Material Master of the MTO Product

As you can see in Figure 10.18, the Material FG129 has a Price Determ. of 3 (meaning it’s valid for actual costing) and a Standard Price of $9.98. Now let’s produce inventory for this material based on one customer’s sales order. For this, we won’t show the creation of the sales order, but we’ll show the production order that is generated from the sales order, as shown in Figure 10.19. This production order 1000203 for material FG129 is linked to sales order 196 and line item 20. After issuing the relevant raw materials and activities to this order (not shown here), you can view the cost analysis for the order by going to Transaction CO03 and selecting Goto • Costs • Analysis from the menu bar. This will take you to the screen shown in Figure 10.20.

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Figure 10.19 First MTO Production Order for Material FG129

Figure 10.20 Cost Analysis for Production Order 1000203

Now, perform a goods receipt for this production order using Transaction MIGO. The goods receipt document is shown in Figure 10.21.

Figure 10.21 Goods Receipt for Prodcution Order 1000203

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You can see in Figure 10.21 that 300 PC of the material was received on order 1000203, which is linked to sales order 196 and line item 20. The document has a Special Stock of E, which means the inventory is going to be stored in sales order stock and can only be issued to that sales order. Next, you can perform a variance calculation (using Transaction KKS1) for this production order, which will calculate the difference between the cost of the materials and activities issued to the order and the cost of the material produced by the order. The variance calculation result is shown in Figure 10.22.

Figure 10.22 Variance Calculation for Order 1000203

As you can see in Figure 10.22, the calculated variance, which is the difference between the Actual Costs column (representing the cost of the raw materials and activities issued) and the Allocated Actl column (representing the cost of the finished product produced) is –$1,362.51. This variance will then be posted to the general ledger (G/L) and the Material Ledger upon the settlement of this order (not shown).

10.2.2 Calculating the Actual Cost At this point, you’ll calculate the actual cost of this material as part of the actual costing run (Transaction CKMLCP) and go to the Material Price Analysis screen (Transaction CKM3) to see the results. First, look at the Material Price Analysis header screen for the Material FG129 with sales order 196 and line item 20, as shown in Figure 10.23.

Figure 10.23 Material Price Analysis Header Screen for Sales Order 196

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One difference between the Material Price Analysis screen shown here and the ones we looked at in the preceding chapters is that there is a sales (SD) document number (196) and line item (20) in the header screen. In addition, there is an Orders on hand indicator in the Special Stock field that shows the Material FG129 is being valuated for actual costing for this sales order alone. Let’s now look at the Material Price Analysis detail screen for this sales order, as shown in Figure 10.24.

Figure 10.24 Material Price Analysis Detail Screen for Sales Order 196

You can see in Figure 10.24 that the 300 PC quantity that was produced is shown in the Receipts folder. When multiplied by the standard cost (of $9.98 as shown earlier in Figure 10.18), this gives a Prelim Val of $2,994. The production variance that was calculated (refer to Figure 10.22) gives a Price Diff of –$1,362.51. This amount is deducted from the Prelim Val to give an ActualVal. of $1,631.49, and therefore an actual cost per unit (Price) of $5.44. This amount ($5.44) is the actual cost for material FG129 for sales order 196, and line item 20 is applied to the consumption quantity of 300 PC for this specific sales order stock. You can see that the Ending Inventory is 0.00. This is typical for a MTO process because it’s most likely that the production was only done for the quantity that the customer ordered, so everything that was produced was sold in the same month. We’ll also consider the cost component split for this material and sales order. To do so, you can either click the Cost Components button as demonstrated in Chapter 6, Section 6.4.5, or you can go to Transaction MLCCSPD. Once there, enter the material, sales order, and item number, along with the relevant period and year. Either method will take you to the screen shown in Figure 10.25. You can see in Figure 10.25 that the calculated actual cost of $5.44 (or $544 per costing lot size of 100) is broken out into the cost components for that material and sales order. This cost component breakout will provide more granular information of the cost for this sales order’s inventory.

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Figure 10.25 Cost Component Split for Sales Order 196

Now that you’ve seen the actual cost of a specific sales order for material FG129, let’s discuss the actual cost of the material itself (i.e., without a sales order). Sometimes a material can switch between being MTO and MTS. This is typically not the case if the material is a configurable material (material type KMAT) because that type of material is strictly used for MTO purposes. However, in this example scenario, material FG129 is a finished good that can be produced specifically for a customer order or generally to unrestricted stock. You can see the Material Price Analysis header screen for Material FG129 in Figure 10.26.

Figure 10.26 Material Price Analysis Header Screen for Material FG129

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This header screen for Material FG129 doesn’t include a sales order and line item, which means you want to look at the material price analysis for this material on a MTS basis. The Material Price Analysis detail screen is shown in Figure 10.27.

Figure 10.27 Material Price Analysis Detail for Material FG129

As you can see in Figure 10.27, the Material Price Analysis screen for this material on an MTS basis is totally different from what was shown for the respective sales orders. For example, there is an Ending Inventory balance for this material (while there was none on either of the sales orders), and the actual cost (in the Price column) is $9.98, which is different from either of the actual cost values on the sales order level (it’s this actual cost that will be shown in the Periodic Unit Price field of the Accounting 1 view of the material master). This is because, from the Material Ledger standpoint, the material/plant/sales order/line item combination represents its own record in the Material Ledger tables. This can be proven by looking at the Material Ledger header data table CKMLHD, as shown in Figure 10.28.

Figure 10.28 Material Ledger Header Data Table

Note that for the same Material (FG129) and plant (1710), there are two records with different cost estimate numbers (CENo) in table CKMLHD (Material Ledger: Header Record). The first cost estimate number 100000116 relates to the material itself (on an MTS basis) in plant 1710; the second cost estimate number 100002258 relates to the material and plant with sales order 196 and line item 20.

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Note: Sales Order Lines In the MTO process with the Material Ledger, even if the same material occurs on different lines of a sales order, each line will be a separate record for actual costing calculation.

10.3 Daily Actual Costs Calculating actual costs daily can be useful to companies that want to have a frequent update of their actual cost for daily production or profitability reporting. This is sometimes necessary for companies in commodity-based industries where the raw material prices fluctuate frequently and widely and could affect their daily margins. In this case, waiting until the end of the month for the actual costing program may not be ideal because companies couldn’t make the necessary decisions in time to adjust the sales price accordingly. Even though actual costing is to be run monthly, you’re allowed to run the first three steps as many times as you want, as long as you don’t run the post closing step (which updates the G/L, cost objects, and inventory). If you’re executing the costing run daily, it should be for statistical purposes (i.e., not updating the G/L and associated objects). However, it will update the relevant Material Ledger tables and reports that can be used for analyzing actual costs at a point in time. Now let’s walk through an example of how you can calculate actual costs on a daily basis.

Warning: Post Closing Don’t execute the post closing step in a daily costing run because it will update the G/L and cost objects and will need to be reversed in order for a subsequent costing run in that period to be made!

10.3.1 Creating Actual Costing Runs for Future Periods First, you need to create the actual costing runs for the future periods. The reason for doing this is that you’ll be scheduling the actual costing run on a daily basis and won’t want to keep remembering to create a new costing run every time a new month arrives. Instead by creating the future costing runs as a shell (i.e., without executing

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any of the steps), they will be available when the steps need to be run for the new months. Costing runs can be created in several way, some of which are described in the following list: 쐍 Manually

This involves creating the costing run as we described in Chapter 6, Section 6.2. Depending on how many future months you’re creating the costing run for, this could be a cumbersome process. 쐍 Using the Legacy System Migration Workbench (LSMW)

With this approach, you can create an upload file with the costing run name, period, and year, and then use a batch recording or Business Application Programming Interface (BAPI) to create the costing runs. 쐍 Using an ABAP program

With the help of the ABAP team, you can create and use a program to create the future costing runs. In this example case, you’ll create the costing run manually to see the settings that need to be created for the daily run. Note that this process can be used for either the main actual costing run or the alternative valuation run (AVR). Some companies may prefer to use the AVR for the daily run (won’t be posted to the G/L) and use the main actual costing run for the monthly run. To create the actual costing run, go to Transaction CKMLCP, click the Create button, and enter the name, description, period, and year of the costing run. Then go to the Plant Assignment tab, and assign the relevant plants to the costing run, as shown in Figure 10.29.

Figure 10.29 Assigning Plants to the Daily Costing Run

Next, open the Processing section of the costing run, and click the padlock icon to enable the Preparation and Settlement steps, as shown in Figure 10.30.

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Figure 10.30 Allowing Price Determination in the Costing Run

By unlocking these steps, they are allowed to be executed in the future months, and you don’t have to remember in each new month to allow these steps. We won’t execute any of the steps in this costing run because this will be done (as a background job) in the specific period that it’s created for. You can also see that we have not opened the Post Closing step because we don’t want this step to be executed daily. The post closing step will only be executed during the period-end process. Now, perform the same steps for all the relevant future periods. The created costing runs are shown in Figure 10.31.

Figure 10.31 Costing Runs of Future Periods

Note: Future Costing Runs You may want to create the future costing runs one year at a time so you can review it each year, avoiding the risk of someone accidentally executing the costing run for a period that is far into the future.

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Now that the future costing runs have been created, let’s create the program variants that will be used to execute the relevant steps.

10.3.2 Creating Variants for Actual Costing Steps To create the variants for the relevant steps of the costing run, go to Transaction SE38, and enter the program name for each step. We’ll walk through each step in the following sections.

Selection First, start with the selection step, as shown in Figure 10.32.

Figure 10.32 Entering the Program for the Selection Step

Enter the Program “FCML4H_SELECTION”, which is the program for the selection step of the actual costing run. Click the Execute button to open the screen shown in Figure 10.33.

Figure 10.33 Selection Screen for the Selection Step of the Actual Costing Run

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Enter the Costing run name, Posting period, and Fiscal Year, and check the Background Processing checkbox because you want to execute the job in the background. Click the Save as Variant button at the top, and this will take you to the screen shown in Figure 10.34.

Figure 10.34 Variant of Selection Step of the Actual Costing Run

Enter a Variant Name and Description. Then, assign Selection variable (T) to the Posting period (SAP_SCMA_PERIOD) and Fiscal Year (SAP_SCMA_FISC_YEAR) fields. These variables allow the dynamic selection of the period and year so that you don’t have to keep changing the period in a new month and changing the year in a new year. These variables are stored in table TVARVC, as shown in Figure 10.35.

Figure 10.35 Table TVARVC for Fiscal Year and Period

With these variables stored in table TVARVC, you can then have a program written that will dynamically shift the period and year in accordance with the system date (or some other variable). You can use a version of the standard program RVSETDAT to create this program for the relevant variables. Now click the Save button to save your variant for the selection step.

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Preparation Next, go back to the entry screen of Transaction SE38, and enter the Program “FCML4H_PREPROCESSOR” for the preparation step of the actual costing run, as shown in Figure 10.36.

Figure 10.36 Entering the Program for the Preparation Step

Click the Execute button to arrive at the screen shown in Figure 10.37.

Figure 10.37 Selection Screen for the Preparation Step of the Actual Costing Run

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Enter the Costing run name, Posting period, and Fiscal Year, and select the Process Again option because you want this step to be reprocessed daily. Check the Background Processing checkbox, and select the Allow Open Status for Previous Period (Exceptional Processing -> F1) checkbox because, at the beginning of a new month, the old month won’t have been closed for actual costing as this is normally done a few days into the new month. Therefore, you need to indicate that you want to calculate the cost for the new month even though the last month hasn’t been closed. Save this variant by clicking the Save as Variant button, and the screen shown in Figure 10.38 appears.

Figure 10.38 Variant of the Preparation Step of the Actual Costing Run

Enter the Variant Name and Description, and make the Selection variable settings for the posting period and fiscal year. Click the Save button to save this variant.

Settlement Next, go back to the entry screen of Transaction SE38, and enter the Program “FCML4H_SETTLEMENT” for the settlement step of the actual costing run, as shown in Figure 10.39.

Figure 10.39 Entering the Program for the Settlement Step

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Click the Execute button to go to the screen shown in Figure 10.40.

Figure 10.40 Selection Screen for the Settlement Step of the Actual Costing Run

Enter the Costing run name, Posting period, and Fiscal Year, and select the Process Again option because you want this step to be reprocessed daily. Check the Background Processing box as well. Save this variant by clicking the Save as Variant button, which will take you to the screen shown in Figure 10.41. Enter the Variant Name and Description, and make the Selection variable settings for the posting period and fiscal year. Click the Save button to save this variant.

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Figure 10.41 Variant of the Settlement Step of the Actual Costing Run

10.3.3 Creating and Sequencing Background Jobs Now you’ll schedule the background job that is to be run daily for these steps. To do this, go to Transaction SM36, click the Create button, and enter the Job Name, as shown in Figure 10.42.

Figure 10.42 Background Job for Daily Actual Costing

Click the Start condition button, and enter the Date (“02/01/2019”) and Time (“00:30:00”, i.e., 30 minutes after midnight) that the job will start, as shown in Figure 10.43. In addition, check the Periodic Job checkbox, which specifies that this job will occur periodically. Click the Period Values button, and then select the Daily button shown in Figure 10.44.

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Figure 10.43 Start Condition for the Background Job

Figure 10.44 Period Values of the Daily Job

Click the Check and Save buttons to save the period values as a daily job. Then, click the Save button again to save your start conditions for the job.

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Next, click the Step button highlighted in Figure 10.42 previously, and enter the program Name “FCML4H_SELECTION” and the Variant “SELECTION” (created earlier in Figure 10.34) for the selection step of the actual costing cockpit, as shown in Figure 10.45.

Figure 10.45 Selection Step of the Actual Costing Cockpit

Press the (Enter) key, and enter the Program “FCML4H_PREPROCESSOR” and the Variant “PREPARATION” (created earlier in Figure 10.38) for the preparation step of the actual costing cockpit, as shown in Figure 10.46.

Figure 10.46 Preparation Step of the Actual Costing Cockpit

Press the (Enter) key and enter the Program “FCML4H_SETTLEMENT” and the Variant “SETTLEMENT” (created earlier in Figure 10.41) for the settlement step of the actual costing cockpit, as shown in Figure 10.47.

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Figure 10.47 Settlement Step of the Actual Costing Cockpit

Press the (Enter) key, and click the Save button to save the background job. You’ve now created the background job that will execute the first three steps of the actual costing run on a daily basis. This means that when the job is executed daily, you’ll see that the first three steps of the costing run are executed, as shown in Figure 10.48.

Figure 10.48 Daily Actual Costing Run of the First Three Steps

As you can see in Figure 10.48, the first three steps of the actual costing run have been executed, but not the Post Closing step. This means that the actual cost has been calculated, and the material master, material price analysis (with a status of Settlement Completed), and the Material Ledger tables (MLDOC and MLDOCCS) will be updated. However, the G/L cost objects and inventory valuation won’t be updated here; instead, they will be updated when the period-end actual costing run in done at the beginning of the next period.

10.4 Exchange Rate Differences In Chapter 5, we mentioned that the Material Ledger variances used to revalued inventory and cost of goods sold (COGS) could be price and exchange rate differences. However, until this point, we’ve only shown the variances that relate to price

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differences because this is the more common occurrence of the Material Ledger variances. However, exchange rate differences can occur due to the following occurrences: 쐍 The standard cost of a material that is purchased in a foreign currency is based on

an exchange rate type that is different from the exchange rate type used for the goods receipt. 쐍 The goods receipt and invoice receipts in foreign currency are done at different

points in time when the exchange rate between the document and local currency has changed. 쐍 The standard cost of a material that is purchased in the local currency is translated

to group currency at a different exchange rate than when the goods receipt was made. 쐍 The goods receipt and invoice receipts in local currency are translated to group

currency at different exchange rates. We’ll now walk through an example of how Material Ledger variances are based on exchange rate differences.

10.4.1 Configuring the Treatment of Exchange Rate Differences First, we’ll configure how exchange rates are treated during logistics invoice verification. To do so, go to configuration menu path Materials Management • Logistics Invoice Verification • Incoming Invoice • Configure How Exchange Rate Differences Are Treated. You’ll arrive at the screen shown in Figure 10.49.

Figure 10.49 Treatment of Exchange Rate Differences

Let’s walk through the settings to make for company codes 1010, 1040, and 1710, as highlighted in Figure 10.49.

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For company code 1710, the exchange rate difference (ERD Setting) and exchange rate type (RType) should be left blank. This means that the system will calculate the exchange rate differences from the difference between the exchange rate at the time of the goods receipt and the exchange rate at the time of the invoice receipt. Enter currency types (CurrType) “10”, “31”, and “32” and do not check the boxes beside them in the CCCur column. If these checkboxes get checked, then the exchange rate difference settings won’t be relevant; instead, the exchange rate differences will be calculated at the time of goods receipt. In addition, by not checking these boxes, the exchange rates won’t be used to revalue the inventory and COGS with the Material Ledger. For company code 1040 enter “N” in the ERD Setting column. This means that no exchange rate differences will be calculated. Instead any differences that are based on exchange rates will be posted to the price difference account. For company code 1010, enter “X” in the ERD Setting column, which means that for invoices in foreign currencies, you want to calculate any differences between the exchange rate at the time when the invoice was posted and the exchange rate of a specified exchange rate type. This specified exchange rate type is entered in the exchange rate type (RType) column, which is “P” in the case of company code 1010. The exchange rate type P is normally used as a planning rate when the standard cost is calculated. For example, the standard cost of a product that is normally calculated at the beginning of the year is usually done at a fixed rate. The exchange rate type (P, in our example) that is used for the translation of standard cost is set up with the fiscal year version of the controlling area, as shown in Figure 10.50.

Figure 10.50 Exchange Rate Type for the CO Version

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You can see that the Exchange Rate Type P has been assigned to the CO Version 0, which will be used to translate the standard cost in any company codes assigned to the CO Area A000. We’ll now walk through an example of purchasing a material in a foreign currency and see the impact on the G/L and the Material Ledger.

10.4.2 Purchasing a Material with Exchange Rate Differences Let’s first take a look at the material master of the material that you’ll be purchasing in a foreign currency, as shown in Figure 10.51.

Figure 10.51 Material to Be Purchased in a Foreign Currency

You can see in Figure 10.51 that Material RM09 has a price control (Prc. Ctrl) of S (standard price) and has a cost of $1.25 in the company code currency. For this example, plan to purchase this material in euros. You can view the exchange rate that exists between EUR and USD by going to the exchange rate type (Transaction OB08) and revealing the data shown in Figure 10.52.

Figure 10.52 Exchange Rate between EUR and USD

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There are two exchange rates between EUR and USD in the month. The first one, which is at 12/01/2018, shows a rate of 1 EUR to 1.25 USD. The second one, which is at 12/31/2018, shows a rate of 1 EUR to 1.30 USD. Now, purchase 1,000 KG of material RM09 for €1.00 by going to Transaction ME21N to open the screen shown in Figure 10.53.

Figure 10.53 Purchase Order for Material RM09

Perform a goods receipt for this purchase order on 12/01/2018 by going to Transaction MIGO, which opens the screen shown in Figure 10.54.

Figure 10.54 Goods Receipt for Purchase Order RM09

You can see the accounting document that was posted from the goods receipt by clicking on the Doc. Info tab (not shown), clicking on the FI Documents button (not shown), and double-clicking the accounting documents line. This will take you to the screen shown in Figure 10.55. You can see in Figure 10.55 that the accounting document in the document currency shows a posting of €1,000 to the Inventory Raw Mat. and GR/IR accounts. This is calculated as the purchase order price of €1.00 multiplied by the purchase quantity of 1,000 KG. Navigate to the local currency (or company code currency) document by clicking the Display Currency button (not shown), which opens the popup box where you select the Local Currency option, as shown in Figure 10.56.

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Figure 10.55 Accounting Document for Goods Receipt in Document Currency

Figure 10.56 Local Currency Selection for Document Display

Press the (Enter) key to display the document in the company code currency (USD), as shown in Figure 10.57.

Figure 10.57 Accounting Document for Goods Receipt in the Local Currency

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You can see in Figure 10.57 that the accounting document in local currency shows an amount of $1,250, which is posted to the Inventory Raw Mat. and GR/IR accounts. The amount that went to the Inventory Raw Mat. account is the standard cost of the material ($1.25) multiplied by the quantity purchased (1,000 KG), while the amount that went to the GR/IR account is the purchase price (€1.00) translated to USD at the exchange rate on 12/01/2018 (1 EUR:1.25 USD) multiplied by the quantity purchased (1,000 KG). As you can see in the example, there is no price difference from the goods receipt because the purchase order price when translated to USD is exactly equal to the standard cost of $1.25. Now you can post the invoice receipt for this document by clicking the Post button. You can assume that the invoice was posted on 12/31/2018, when the exchange rate was changed. The invoice posting is shown in Figure 10.58.

Figure 10.58 Invoice Receipt in the Document Currency

You can see in Figure 10.58 that the invoice receipt on 12/31/2018 shows a posting of €1,000, which is posted to the General Merchandise vendor account and the GR/IR account. This represents the purchase order price, which is also the price that the vendor invoiced. There is also a third line for the exchange rate difference (Loss exch.rate diff) that shows an amount of 0.00. Anytime you see a line like this, it normally means that the line contains an amount in a different currency or valuation. Now, navigate to the local currency view of the document by clicking the Display Currency button and selecting the Local Currency option, as you did previously in Figure 10.56. This will display the document shown in Figure 10.59.

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Figure 10.59 Invoice Receipt in Local Currency

You can see that the invoice receipt in local currency shows a posting of $1,300 that went to the General Merchandise vendor account. This represents the purchase order price €1.00 translated to USD at the 12/31/2018 exchange rate (1 EUR:1.3 USD). It shows an amount $1,250 that went to the GR/IR account, which represents the offset of the amount that was posted during the goods receipt (the GR/IR account always has to be offset exactly during the invoice receipt, unless there is a change in quantity). The difference between the two amounts goes to the exchange rate difference account in the third line of the document.

10.4.3 Exchange Rate Differences in the Material Price Analysis Let’s see how this exchange rate difference looks after running the actual cost calculation for the material RM09, as shown in Figure 10.60.

Figure 10.60 Exchange Rate Difference in Material Price Analysis

The exchange rate difference of $50 shows up in the Receipts folder of the exchange rate difference (ExRateDiff) column in the Material Price Analysis screen. This difference will be used to calculate the actual cost of the material as a single-level difference.

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Let’s see what happens if you consume this material in the production order of another material by performing a goods issue of Material RM09, as shown in Figure 10.61.

Figure 10.61 Goods Issue of Material RM09 to a Production Order

The 1,000 KG of material RM09 has been issued to production order 1000208. The Material Price Analysis screen after the consumption has been carried out is shown in Figure 10.62.

Figure 10.62 Material Price Analysis after Consumption of Material RM09

The 1,000 KG of material RM09 that was purchased has been fully consumed, and, as a result of this consumption, the $50 variance has also been fully allocated. Now let’s view the material that was produced from production order 1000208, as shown in Figure 10.63.

Figure 10.63 Material Price Analysis Showing a Multilevel Exchange Rate Difference

You can see in Figure 10.63 that the produced material (whose number FG29 isn’t shown in the screen) shows the multilevel exchange rate difference (of $50) that came from material RM09 in its receipt folder. This difference is used in the calculation of the actual cost for this product (of $1.05).

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Finally, let’s see how the postings in the G/L look for the exchange rate difference after the post closing step of the actual costing cockpit has been executed. The configuration of the exchange rate difference account for the Material Ledger (which is set up in Transaction OBYC under transaction key KDM) was shown in Chapter 5, Section 5.4.2, so here we’ll show how the configured account is posted (see Figure 10.64).

Figure 10.64 Exchange Difference Posting after the Material Ledger Post Closing Step

The postings shown in Figure 10.64 by Item number are described here: 쐍 Item 11

The exchange rate difference that is posted to the inventory account of material FG29 and hence revalues the inventory for this material. 쐍 Item 12

The exchange rate difference written off from the exchange rate difference account as an offset to the inventory account of material FG29. 쐍 Item 13

The exchange rate difference being allocated from material RM09 because it was consumed in the production order of material FG29. 쐍 Item 14

The multilevel exchange rate difference that is received in material FG29 from material RM09. You can always get a clue to what the account lines relate to by looking at the transaction keys (Trs) column, which shows the transaction keys where the account was configured (explained in detail in Chapter 5, Section 5.4), and by looking at the Text field (explained further in Appendix B), which provides a description of the line in the posting.

10.5 Actual Costing across Company Codes SAP provides functionality that allows for actual costing across company codes. When two affiliated companies transact with each other, it’s assumed that although

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they belong to the same group, they should be treated as standalone entities for legal purposes. This means that when a transfer of inventory is made from one company to another, this should constitute a sale and a purchase, and the transaction will have the same characteristics as a normal vendor purchase such as the following: 쐍 If there is a difference between the purchase price and the standard cost in the

buying company, this should be treated as a price variance. 쐍 Any variances in the selling company won’t be transferred to the buying company

(the same way that an external vendor’s own variances won’t be transferred to the inventory of the buying company). 쐍 The cost of the purchased material will show up in the material cost component

and not be broken out into the cost components from the selling company. However, when group valuation is activated, it’s possible to treat the affiliated companies as one entity, and hence the intercompany sale/purchase will be handles similarly to a stock transfer. Therefore, there should be no price variances when the purchase price is different from the buying company’s standard cost (unless the standard cost includes other charges, e.g., freight); any variances from the selling company will be transferred to the buying company; and the cost components from the selling company will be visible in the buying company. In addition, any difference between the selling company’s standard cost and the purchase price (i.e., the intercompany markup) is captured in a delta cost component split. Let’s walk through an example scenario, before we break down the steps and take a look at the material price analysis.

10.5.1 Cross-Company Scenario The diagram in Figure 10.65 shows a transfer between the selling and buying companies and the difference in treatment between legal and group valuation. In this case, the selling company sells a material that costs $1,000 to the buying company and includes a 10% markup. In the Legal view, the buying company shows the purchase cost in the Materials cost component and shows the markup in a separate cost component split (Delta CCS). You’ll notice that the delta cost component split doesn’t factor into the total cost in the legal view. It’s simply a statistical cost (because, as shown in Chapter 3, Section 3.2.2, it’s set up as Not Relevant for inventory valuation) that shows what part of the total material cost is related to the profit between the companies. You can see that in the Group view, the cost components of

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the buying company are exactly the same as the ones in the selling company, and there is no Delta CCS because any intercompany profit is eliminated in the Group view.

Selling Company Materials Labor Overhead

250

Freight

10% Markup

50

Delta CCS

0

Total Cost

1000

Group Buying Company

Materials

400 300

Legal Buying Company 1100

Materials

400

Labor

Labor

300

Overhead

Overhead

250

Freight

Freight Delta CCS Total Cost

100 1100

50

Delta CCS Total Cost

0 1000

Figure 10.65 Actual Costing across Company Codes

Now let’s see what happens if the cost of the Labor and Overhead in the selling company is revalued upwards (this will take place after the actual costing calculation is performed) by $10 each. The impact on the cost components in the buying company is shown in Figure 10.66.

Group

Legal Buying Company

Selling Company Materials

400

Labor

310

Overhead

260

Freight

50

Delta CCS

0

Total Cost

1020

Materials 10% Markup

Buying Company

1100

Materials

400

Labor

Labor

310

Overhead

Overhead

260

Freight

Freight Delta CCS Total Cost

80 1100

Delta CCS Total Cost

50 0 1020

Figure 10.66 Actual Costing across Company Codes after Revaluation

The Labor and Overhead cost components in the selling company have been increased by $10 each after actual cost calculation has been performed. Note that this increase in cost has no impact on the Total Cost (of $1,100) in the Legal view because, from a legal perspective, the revaluation of a vendor’s cost should not impact a purchase that has already been made by the buying company. However, also note that the Delta CCS has been lowered by $20 because with the higher cost in the selling company, the intercompany profit is now reduced. In the Group view of the buying

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company, you can see that the cost components and total cost reflect the increase in cost that was made in the selling company. Now we’ll look at the data that is needed to make this functionality work in the system.

10.5.2 Setting Up Actual Costing across Company Codes The first setting to consider is the activation of the business function LOG_MM_SIT. You should note that in SAP S/4HANA, this business function is automatically switched on. You can see this by going to Transaction SFW5, opening the S/4H_ALWAYS_ON_ FUNCTIONS folder, and viewing the data shown in Figure 10.67.

Figure 10.67 Business Function LOG_MM_SIT Activated

As you can see in Figure 10.67, the business function LOG_MM_SIT is already activated, so you don’t need to do anything else here.

Note: Business Function LOG_MM_SIT The business function LOG_MM_SIT is also used for capturing valuated stock-in-transit for intercompany and intracompany stock transfers and returns.

Most of the other configuration for actual costing across company codes was already done in Chapter 3 when we discussed group costing and group valuation, so we won’t go through the steps again. Instead, the following summarizes the main configuration and master data activities required: 쐍 Create the delta cost component (Chapter 3, Section 3.2.2) 쐍 Assign the trading partner to intercompany customers and vendors (Chapter 3,

Section 3.3.1) 쐍 Assign group valuation condition KW00 to the intercompany pricing procedure

(Chapter 3, Section 3.3.1) We’ll use the same transactional data from the scenario that we went through in Chapter 3, Section 3.3, but this time, we’ll look at it from an actual costing perspective.

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We’ll refer to the same data table that was used for the scenario in Chapter 3 (see Table 10.1). Field

Selling

Buying

Company Code

1710

1010

Country

US

Germany

Material

FG-100

FG-100

Plant

1710

1010

Exchange Rate

1.25 USD

1 EUR

Standard Cost – Legal

20 USD

16 EUR

Standard Cost – Group

20 USD

20 USD

Intercompany Vendor/Customer

100071

100070

Sales/Purchase Price

30 USD

24 EUR

Table 10.1 Data for Materials in an Intercompany Scenario

The data in Table 10.1 will be used in the analysis of the intercompany scenario, which we’ll walk through next.

10.5.3 Material Price Analysis before the Actual Costing Run We’ll now look at how the intercompany transactions are displayed in the material price analysis for the selling and buying companies before the actual costing program is run. First, look at the Material Price Analysis screen for the selling company (Plant 1710) in the legal view (Company code currency), as shown in Figure 10.68. You can see in Figure 10.68 that the Material FG-100 has a Cumulative Inventory of 10,500 EA, and PrelimVal of $210,000 (which is the standard cost of $20 multiplied by the Cumulative Inventory quantity of 10,500 EA). The ActualVal. is the same as the PrelimVal because there are no variances. Therefore, when divided by the inventory quantity, the actual cost (in the Price column) is currently $20, which is the same as the standard cost. You can also see that 6 EA of the material is consumed in a purchase order. You’ll notice that the Purchase order process category has a suffix of (grp). Anytime you see this suffix in a process category, it means that it involves a transaction between companies in the same group. You can see that the PrelimVal is

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$120, which is the standard cost in plant 1710 ($20) multiplied by the quantity consumed of 6 EA.

Figure 10.68 Consumption in the Selling Company in the Legal View

If you double-click one of the consumption transactions that make up the consumption quantity, you’ll see the Material Ledger document that links the selling company to the buying company, as shown in Figure 10.69.

Figure 10.69 The Material Ledger Document in Company Code Currency

As you can see in Figure 10.69, the consumption of 1 EA from Material FG-100 in Plant 1710 was delivered to the same material in Plant 1010. The standard cost of $20 in the sending company is translated to €16 in the receiving company (based on the exchange rate of 1 EUR:1.25 USD). This transaction shows one of six similar sales that

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was made between the two companies, making up the 6 EA in the Consumption folder. Now let’s look at the Material Price Analysis screen in the legal view (Company code currency) for the buying company (Plant 1010), as shown in Figure 10.70.

Figure 10.70 Receipt in the Buying Company in the Company Code Currency

The Material FG-100 in Plant 1010 has a Purchase order receipt for 6 EA. The (grp) suffix indicates that it’s a transaction with an affiliated company. The PrelimVal of €96 is based on the standard cost in plant 1010 of €16 multiplied by the received quantity of 6 EA. The variance (PriceDiff) of €40 is the difference between the PrelimVal of €96 and the ActualVal of €136 (which is the purchase price of €24 multiplied by the received quantity of 6 EA). The actual cost (Price column) is €22.67, which is the actual value of €136 divided by the quantity of 6 EA. Now let’s look at the cost components in the legal view for the material FG-100 in plant 1010, as shown in Figure 10.71. You can see in Figure 10.71 that the cost component view, which begins from the Direct Mat column, shows a direct material cost of €136. This amount is exactly equal to the ActualVal. column because there are no other cost component costs in this example. There is also a Delta Prof of €40. This is the difference between the sales

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price ($30) and the standard cost in the selling company ($20), which comes to $10. This amount is multiplied by the quantity sold (6 EA), which gives an intercompany profit of $60. When the intercompany profit is translated from USD to EUR (at 1 EUR:1.25 USD), it gives a value of €40. This cost component isn’t added to the other cost components to give a total value. Instead, it’s a statistical value that shows how much intercompany profit is contained in the actual value of €136.

Figure 10.71 Cost Components in the Buying Company in the Legal View

Now that we’ve seen the receipt values in the legal view, let’s take a look at the value in the buying company (1010) in the Group currency, group valuation view, as shown in Figure 10.72.

Figure 10.72 Receipt in the Buying Company in the Group Currency

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Unlike the legal view (shown previously in Figure 10.70), the values are shown in the group currency (USD). In addition, there is no variance in the group view because the group standard cost in both plants is exactly the same ($20). There is an exchange rate difference in the group view of $10 because of the difference in the exchange rate that existed between the time of the goods receipt and the invoice receipt. (We explained exchange rate differences in Section 10.4.) Now, take a look at the cost components in the group view, as shown in Figure 10.73.

Figure 10.73 Cost Components in the Buying Company in the Group View

You can see in Figure 10.73 that in the group view, there is no delta profit because the delta profit is only shown in the legal view. The intercompany profit that was made by the selling company is eliminated in the group view.

10.5.4 Material Price Analysis after the Actual Costing Run We’ll now look at the material price analysis for both plants after the actual costing run has been calculated. Before we do this, we’ll post a variance in the selling company, and see how it affects the cost components in the legal and group views of the receiving company. Assuming that there are freight charges to be applied to material FG-100 in the selling company, use Transaction MR22 (Debit/Credit Material) to post a freight value in the selling company’s plant. We discussed how to use Transaction MR22 in Chapter 7, Section 7.2. The posting entry is shown in Figure 10.74. As you can see in Figure 10.74, $21,000 has been posted as a freight adjustment for a Quantity of 10,500. Transaction MR22 was used for this because we want this cost to be used in the actual cost calculation of material FG-100 in plant 1710 as well. Let’s now look at the Material Price Analysis screen after the freight adjustment posting, as shown in Figure 10.75.

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Figure 10.74 Freight Variance Posting in the Selling Company

Figure 10.75 Material Price Analysis after the Freight Variance Posting

The freight posting of $21,000 is shown in the Other Receipts/Consumption folder and will be used as a Cumulative Inventory variance in the calculation of the actual cost for the Material FG-100.

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Now, let’s calculate the actual cost with Transaction CKMLCP (see Chapter 6, Section 6.2). After this is done, the Material Price Analysis screen for Material FG-100 in Plant 1710 (of the selling company) will look like Figure 10.76.

Figure 10.76 Consumption in the Selling Company after Actual Costing

Here, the Cumulative Inventory line shows the PrelimVal of $210,000 (which is the standard cost of $20 multiplied by the cumulative quantity of 10,500 EA) added to the freight adjustment variance of $21,000. This gives an ActualVal. of $231,000, and, when divided by the cumulative quantity of 10,500, gives an actual cost of $22. You can also see that $12 of the Cumulative Inventory variance of $21,000 has been allocated to the Consumption line. This $12 is the proportion of inventory that has been consumed (6 EA) divided by the Cumulative Inventory quantity (10,500 EA) multiplied by the cumulative variance ($21,000). Another way to derive this consumption variance is by multiplying the actual cost of $22 by the consumed quantity of $6, and this gives you an ActualVal. consumed of $132. You can then deduct the PrelimVal of $120 from this ActualVal. to get the PriceDiff of $12. Now let’s look at the material price analysis in the legal view of the buying company (Plant 1010), after the actual cost has been calculated, as shown in Figure 10.77.

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Figure 10.77 Receipt in the Buying Company in the Legal View after Actual Costing

The Receipts line in the legal view for the buying company is exactly the same as it was before the actual cost calculation (refer to Figure 10.70) because, even though the actual cost in the selling company was revalued (due to freight variance), this should not affect the actual cost of the buying company in the legal view. Now we’ll look at the cost components of the buying company, as shown in Figure 10.78.

Figure 10.78 Cost Components for the Buying Company in the Legal View after Actual Costing

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Here, the Direct Mat cost component cost in the legal view (€136), which is equal to the ActualVal., hasn’t changed from before the actual costing calculation (i.e., it’s the same value as shown earlier in Figure 10.71). However, the delta cost component (Delta Prof) has changed from €40 to €30.40 (i.e., by €9.60). Let’s consider why it has changed by this amount. We explained (refer to Figure 10.66) that when the cost in the selling company is revalued upward, the delta profit is reduced by the same amount. In this case, the consumption value that was transferred from plant 1710 to plant 1010 was revalued upward from $120 to $132, with a variance of $12 (shown in Figure 10.76). When this variance of $12 is translated to EUR (at 1 EUR:1.25 USD), it comes to a value of €9.60. This is the amount that the delta profit of €40 (shown in Figure 10.71) is reduced by to give a revalued delta profit of €30.40. Now we’ll look at the material price analysis in the group view for the buying company, as shown in Figure 10.79.

Figure 10.79 Receipt in the Buying Company in the Group View after Actual Costing

As you can see in Figure 10.79, there is a variance (PriceDiff) of $12 in the Purchase order (grp) line. This is the proportional variance from the freight adjustment in the selling company ($12) that was allocated to the receiving company. Because the group valuation view treats both companies like one entity, any variances from the selling

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company will be proportionally transferred to the receiving company, just like any other multilevel price difference. The actual cost in the group view in the receiving company is now $23.67, which is $2 higher than the cost before the actual cost calculation (refer to Figure 10.72) because of the proportional variance ($12) that was transferred from the selling company divided by the receipt price of 6 EA. We’ll end with a look at the cost components in the group view of the buying company to see how it differs from before the actual cost calculation, as shown in Figure 10.80.

Figure 10.80 Cost Components in the Buying Company in the Group View after Actual Costing

As you can see in Figure 10.80, the Direct Mat. cost component in the group view of the buying company is $12 more than the value before the actual cost calculation (refer to Figure 10.73). This $12 represents the proportional variance that was transferred from the selling company. You can also see that, just as with the cost components before the actual cost calculation, there is no delta profit in the group view because all intercompany profits are eliminated.

10.6 Profitability Analysis CO-PA is a tool in the CO functionality that allows you to analyze the profitability of an entity according to various dimensions, such as customer, product, profit center, sale group, and so on. It provides a more granular view of the P&L than you would get in a typical income statement and therefore allows you to pinpoint specific market segments that are more profitable than others. The following two types of CO-PA are available in SAP S/4HANA: 쐍 Costing-based CO-PA

This was the original version of CO-PA, which is based on the use of characteristics, which are the fields that are reported on (e.g., customer, product, profit center, etc.)

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and value fields, which are the key figures in the report (e.g., revenue, discounts, cost of sales, etc.). Costing-based CO-PA allows you to get a more detailed view of costs for management decision-making, such as splitting COGS into cost components (e.g., material, labor, and fixed and variable overhead) and splitting variances into variance categories (e.g., input price variance, input quantity variance, resource usage variance, etc.). Costing-based CO-PA is the more widely used version in SAP ERP; in fact, when people use the term CO-PA, they are normally referring to costing-based CO-PA. 쐍 Account-based CO-PA

This version of CO-PA was introduced subsequently to make the reconciliation of CO-PA to the G/L easier because it’s based on accounts (cost elements) and not value fields. Therefore, any discrepancy between the G/L and CO-PA can be analyzed by comparing the account in the G/L to the cost element, which should be the same as the G/L account number, in CO-PA. However, in the SAP ERP system, the accounts for COGS and production variances could not be broken into their respective cost components and variance categories. This made it difficult to perform any further analysis on the results beyond what was in the G/L accounts. In SAP S/4HANA, although both types of CO-PA are available, account-based CO-PA is integrated with the Universal Journal, so all values that are posted to account-based CO-PA are immediately available in table ACDOCA along with their respective CO-PA characteristics. This design conforms with SAP’s objective to have a single source of truth in the financial accounting (FI) functionality. Because account-based CO-PA is now positioned as the version that will be predominantly used in SAP S/4HANA, SAP needed to overcome the following two main challenges that were met with costingbased CO-PA but not with account-based CO-PA functionality: 쐍 Breaking out COGS into cost components 쐍 Breaking out production variances into variance categories

In this section, we’ll explain these two functionalities and discuss how they impact the Material Ledger.

10.6.1 COGS Account Split by Cost Components The COGS account is usually posted to when a material is issued for a sales order as part of the post goods issue (PGI) process. COGS accounts are configured in the account determination table under transaction key GBB and general modification VAX (when the sales order isn’t a cost object) and VAY (when the sales order is a cost

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object). The configuration of COGS accounts, which is done using Transaction OBYC, is shown in Figure 10.81.

Figure 10.81 Account Determination for COGS Account

You can see in Figure 10.81, that the COGS accounts are configured in Transaction GBB and General modification VAX and VAY by Valuation class. During a PGI process, these accounts will be debited, while the inventory account will be credited, with the cost of the material that is being sold. In costing-based CO-PA, this account is updated when the billing document is posted, whereas in account-based CO-PA, the account is updated when the PGI is posted. Because of this timing discrepancy, there could be differences between the COGS in the G/L and the COGS in costing-based CO-PA, particularly if the billing document isn’t posted in the same month as the goods issue. In account-based CO-PA in SAP ERP, the COGS account in the G/L and CO-PA are updated at the same time. However, because account-based CO-PA doesn’t break out COGS into the respective cost components, it doesn’t provide the granularity that is available in costing-based CO-PA. In SAP S/4HANA, this limitation is resolved by defining accounts for the splitting of COGS. This functionality can be used for the following two options:

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쐍 Splitting COGS for PGI transactions. 쐍 Splitting COGS for other transactions. Examples of when the COGS account is split

for non-PGI transactions are as follows: – Stock transfers – Intercompany sales – Third-party sales – Point-of-sale transactions – Sales processes posted to internal orders – Sales processes posted to projects To use this functionality, there needs to be a released standard cost estimate or sales order cost estimate for the material that is being issued. In addition, the G/L accounts that represent the respective cost components should be created. The system will then determine the cost component split from the cost estimate and use this to break out the COGS amount into the different cost components and post them to the G/L accounts that were created. Let’s walk through the steps for this process, before we explore both options.

Configuring COGS Splitting To set up the configuration for the COGS splitting functionality, go to configuration menu path Accounting • General Ledger Accounting • Periodic Processing • Integration • Materials Management • Define Accounts • Define Accounts for Splitting the Cost of Goods Sold. In the subsequent screen, click New Entries to arrive at the screen shown in Figure 10.82.

Figure 10.82 Configuring the Cost Splitting Profile

Create a Cost Splitting Profile of 0YA000, and assign it to controlling area (CO Area) A000 and chart of accounts (Chrt/Accts) YCOA. In addition, check the Acc Based Split

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checkbox so that the COGS account will always be split when the source account is posted to.

Note: Using BAdIs You can use the FCO_COGS_SPLIT_RELEVANCE business add-in (BAdI) to either split COGS accounts that aren’t PGI-relevant or exclude certain transactions in an account from being split. You can also use the FCO_COGS_SPLIT_BASIS BAdI to use a different cost estimates (apart from standard cost and sales order cost) as a basis for the split.

You can specify the accounts and valuation views for which split is to be performed by clicking the Cost Splitting Profile 0YA000 and then double-clicking the Source Accounts and Valuation Views folder. You’ll arrive at the screen shown in Figure 10.83.

Figure 10.83 Source Accounts and Valuatiom Views for the COGS Split

Enter your Source Accounts (“54083000” and “54300000” in our example) as the COGS accounts that you want to split. Don’t enter a Valuation View because you want all target accounts to be split regardless of which valuation view is posted to. Next, define the Strategy Sequence that will be used as a basis for the COGS account split by highlighting the COGS account that you defined and double-clicking the Strategy Sequence folder to arrive at the screen shown in Figure 10.84. Enter Sequence Number “1” and Strategy “_SAP”, and choose Released Cost Estimates from the Strategy Type column. Then, enter Sequence Number “2” and Strategy “_SA2” and choose Upcoming Released Cost Estimates from the Strategy Type. This means that the COGS split can be based on a cost estimate that is released in the material master, or, if none yet exists, it can be based on a future cost estimate that exists in the COGS posting period.

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Figure 10.84 Strategy Sequence for Splitting the COGS Account

If you double-click the first Sequence Number, this will take you to the screen shown in Figure 10.85.

Figure 10.85 Split Revaluation of Consumption with the Actual Cost Component Split

Check the Split Revalued Consumption with Actual Cost Component Split checkbox. This means that the costs related to the revaluation of consumption of the actual costing cockpit are split on the basis of the actual cost component split. You can now define the accounts for each cost component in the cost component structure by double-clicking the Target Accounts folder. You’ll arrive at the screen shown in Figure 10.86.

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Figure 10.86 Target Accounts for the COGS Split

Assign a Target Account to each of the Cost Components in the cost component structure (Cost Comp. Str.). Then, check the Default checkbox for the Direct Material cost component. This means that if any cost components don’t have an account assigned to them, the amounts for these cost components will be posted to the direct material account. If you don’t want the original COGS account to be the contra account for the COGS split, you can define an offsetting account by double-clicking the Offsetting Accounts folder, which will bring you to the screen shown in Figure 10.87.

Figure 10.87 Offsetting Accounts for the COGS Split

As you can see in Figure 10.87, you can define the offsetting account by entering the Source Account (the COGS account) and the Offsetting Account number that you want to use. Because you want the COGS contra entry to go to the same COGS account, don’t define anything here. Next, define the company codes that the COGS split is valid for by double-clicking the Company Code Settings folder to open the screen shown in Figure 10.88.

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Figure 10.88 Company Code Settings for COGS the Split

Assign Company Code 1710 to the Cost Splitting Profile (0YA000), with a Valid From date of 01/01/2014. If you want to use a different document type from that of the original COGS posting, you can double-click the Document Type Mapping folder, which will bring you to the screen shown in Figure 10.89.

Figure 10.89 Document Type Mapping for the COGS Split

You can map the original document type from the COGS posting to a different document type for the COGS split on a company code basis. Because you want to use the same document type from the original COGS posting, you won’t configure anything here. Click the Save button to save your settings.

COGS Account Split from the PGI Posting Now let’s walk through an example of a material that has been issued to a sales order and see the original COGS document as well as the COGS split posting. We’ll use the same material that was used in the MTO processing scenario in Section 10.2 in which 300 PC of material FG129 was issued on sales order 196 and line item 20. The PGI document is shown in Figure 10.90.

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Figure 10.90 Goods Issue for Material FG129 in Sales Order 196, Item 20

Let’s now take a look at the accounting document that was created from the PGI document. You can do this by clicking the Doc. Info tab and then clicking the FI Documents button (not shown), which will take you to the screen shown in Figure 10.91.

Figure 10.91 Accounting Documents from the PGI Posting

There are two accounting documents and two controlling documents for the PGI posting because one of the accounting documents is for the original posting and the second one is for the COGS splitting posting. Double-click the first Accounting document to go to the screen shown in Figure 10.92. You can see in Figure 10.92 that the original COGS document shows an amount of $2,994 that is posted to the inventory account 13400000 and the COGS account 54083000. This document looks just like a normal PGI accounting document.

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Figure 10.92 Original COGS Accounting Document

Go back to the List of Documents in Accounting screen, and double-click the second Accounting document. This will take you to the screen shown in Figure 10.93.

Figure 10.93 COGS Splitting Accounting Document for PGI

Here, the amount of $2,994 that was debited to the COGS account in the original COGS posting has now been split into the different COGS cost component accounts that you set up previously in Figure 10.86. This split is based on the component split from the standard cost estimate.

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COGS Account Split for Revaluation of Consumption Now let’s see what happens when the actual costing run has been carried, out and a revaluation of consumption variance has been posted to the original COGS account. First, let’s look at the Revaluation of Consumption amount in the Material Price Analysis screen (Figure 10.94).

Figure 10.94 Revaluation of Consumption for Material FG129

You can see in Figure 10.94 that there is a Revaluation of Consumption variance of $1,119.24, which is the Cumulative Inventory variance for a Quantity (300 PC) that has been fully consumed. Navigate to the accounting document of the revaluation of consumption posting by clicking the Closing Document button highlighted in Figure 10.94 and clicking the Accounting documents button (not shown). This will take you to the screen shown in Figure 10.95.

Figure 10.95 Accounting Documents from the Revaluation of Consumption Posting

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You can see in Figure 10.95 that (just as with the PGI posting shown earlier) there are two accounting and two controlling documents for the Revaluation of Consumption posting because one of the accounting documents is for the original posting, and the second one is for the COGS splitting posting. Double-click the first Accounting document to access the screen shown in Figure 10.96.

Figure 10.96 Original Revaluation of Consumption Accounting Document

You can see in Figure 10.96 that the original COGS document shows an amount of –$1,119.24, which is posted to the Inv Chg COGS w/CE account 54083000 and the Material Ledger price difference (Loss Prc diff (PRY)) account. Go back to the List of Documents in Accounting screen, and double-click the second Accounting document. This will take you to the screen shown in Figure 10.97. You can see in Figure 10.97 that the amount of $1,119.24 that was credited to the COGS account in the original Revaluation of Consumption posting has now been split into the different COGS cost component accounts that you set up earlier in Figure 10.86. This split is based on the actual cost component split that was created from the actual costing run. We’ll now take a look at the Universal Journal (table ACDOCA) to see the relevant CO-PA characteristics that are inherited for the document (see Figure 10.98). As you can see in Figure 10.98, the CO-PA characteristics (e.g., Customer, Material, Plant, Sales Order, etc.) that are associated with the COGS splitting document can be viewed in table ACDOCA. This is because of the integration of account-based CO-PA in the Universal Journal.

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Figure 10.97 COGS Splitting Accounting Document for Revaluation of Consumption

Figure 10.98 CO-PA Characteristics for COGS Splitting Posting

10.6.2 Production Variance Account Split by Variance Categories Production variances are calculated when there is a difference between the target cost of and control cost of a manufacturing order. It determines the differences between the actual cost of input materials, activities, and expenses debited to the order and the credit from the goods receipt of the produced product. When this variance is calculated, it assigns the variances to different categories that explain the cause of the variance. A depiction of the production variances categories is shown in Figure 10.99.

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Input Side

Output Side

Input Price Variance

Output Price Variance

Input Quantity Variance

Mixed Price Variance

Resource Usage Variance

Lot Size Variance

Remaining Input Variance

Remaining Variance

Scrap

Scrap Variance

Figure 10.99 Production Variance Categories

These variance categories are available in variance analysis reports in the cost object controlling functionality and in costing-based CO-PA. They can be assigned to separate value fields and hence be reported on separately. However, in SAP ERP, these variances are represented by a single G/L account, which is assigned in Transaction OBYC (Materials Management Account Determination), under the transaction key PRD and General modification PRF, as shown in Figure 10.100.

Figure 10.100 Production Variance Account Configuration

The Valuation classes 7900 and 7920 to which they are assigned relate to semifinished and finished products, respectively because most likely the only products being produced in the system are semifinished and finished products. Therefore, any production variances that are posted will only update either of these accounts and won’t be broken into the variance categories.

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In SAP S/4HANA, a new functionality was introduced to split the G/L accounts into their respective categories and therefore perform detailed variance analysis in the income statement. Because account-based CO-PA is now part of the Universal Journal, these variance categories will now also be available in account-based CO-PA. For this functionality to be used, the following requirements must be met: 쐍 The produced materials are valued at standard cost. 쐍 Variances are calculated at least monthly. 쐍 The order type of the manufacturing order contains a settlement profile that

allows for the settlement of orders. 쐍 G/L accounts need to be created that will reflect the different variance categories.

You can configure the accounts for splitting the production variances by going to configuration menu path Financial Accounting • General Ledger Accounting • Periodic Processing • Integration • Materials Management • Define Accounts for Splitting price Differences. Double-click the Price Differences Splitting Profile folder, click the New Entries button, and arrive at the screen shown in Figure 10.101.

Figure 10.101 Price Differences Splitting Profile

Create a splitting profile (Price Diff. Profile) Z001 (S/4 Price Variances) for the relevant CO Area and Chart of Accts. Then select the line with the splitting profile, and doubleclick the Detailed Price Difference Accounts folder to access the screen shown in Figure 10.102. For each variance category (VCat), assign a different G/L account. The Cost Elem. From, Cost Elem. To, and CElem Group columns can be used if you want to break the variance categories out further into their originating cost elements (e.g., if you wanted material variances to be separated from labor or overhead variances). In that case, you’ll enter the respective cost elements that relate to those objects. In this example, you leave these columns blank because you don’t want to break the variance categories out any further. In addition, check the Default checkbox for the Input Price Variance category so that if any variances can’t be categorized, they will be posted to the input price variance account.

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Figure 10.102 Assigning Accounts to Variance Categories

Next, assign the relevant company codes to the splitting profile by double-clicking the Company Code Settings folder to arrive at the screen shown in Figure 10.103.

Figure 10.103 Assigning the Splitting Profile to the Company Code

Assign the Price Diff. Profile Z001 to Company Code 1710, and enter a Valid From date of “01/01/2019”. Click the Save button to save your settings. Now you can create a production order that will have a production variance. After issuing the materials and activities and receiving the finished product, the cost analysis of the production order looks as shown in Figure 10.104. You can see that the order has a balance (in the Total Actual Costs column) of $268.86, which represents the variance of the order because the finished good has been fully delivered. Now calculate the variance on the production order by going to Transaction KKS2; entering the Order number, Period, and Year; and clicking the Execute button. This will take you to the screen shown in Figure 10.105. You can see that the Variance of the order has been calculated as -$268.86, which is the difference of the input materials and activities (Actual Costs column) of $729.14 and the standard cost of the produced material (Allocated Actl) of $998.

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Figure 10.104 Cost Analysis on Producton Order 1000212

Figure 10.105 Variance Calculation for Production Order 1000212

Now let’s take a look at how this variance is broken out into the variance categories. Click the Choose Layout button highlighted in Figure 10.105, and select the Variance Categories layout shown in Figure 10.106.

Figure 10.106 Choosing the Variance Categories Layout

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Double-click the Variance Categories line to go to the screen shown in Figure 10.107.

Figure 10.107 Variance Calculation by Variance Categories

As you can see in Figure 10.107, the Variance of $268.86 has been broken out into its variance categories of input price variance (Input Price Var), resource usage variance (Res-Usage Var.), input quantity variance (Input Qty Var.), and output price variance (Output Prc Var.). These are the variance categories that should be posted to the G/L accounts that you set up earlier in Figure 10.102. Now you can settle the production order that will post the variance to the respective G/L accounts and cost objects. Go to Transaction KO88; enter the Order number, Period, and Year; and click the Execute button. This will take you to the screen shown in Figure 10.108.

Figure 10.108 Production Variance Settlement

As you can see in Figure 10.108, you’ve settled the calculated variance of –$268.86. Let’s now navigate to the accounting document by clicking the Accounting documents button highlighted in Figure 10.108, which will take you to the screen shown in Figure 10.109. As you can see in Figure 10.109, the production variance of $268.86 has been split into the accounts of the variance categories, with the respective amounts that were calculated when the variance calculation transaction was executed (refer to Figure 10.107).

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Figure 10.109 Production Variance Account Splitting Document

We’ll now take a look at the Universal Journal (table ACDOCA) to see the relevant CO-PA characteristics that are inherited for the document, as shown in Figure 10.110.

Figure 10.110 CO-PA Characteristics for Production Variance Posting

The CO-PA characteristics (e.g., Customer, Material, Plant, Sales Order, etc.) associated with the production variance posting can be viewed in table ACDOCA because of the integration of account-based CO-PA in the Universal Journal.

10.7 Summary In this chapter, we looked at several specialized scenarios in which the Material Ledger can be used. First, we discussed split valuation and its configuration, including how postings to a split valuated material are shown in the material price analysis. Next, we delved into an MTO process. We showed the settings in the material master that make the material relevant for MTO processing and then posted different sales

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orders for the material to determine how each material/plant/sales order/item combination is valued separately for actual costing. We then looked at how you can calculate a daily actual cost by creating the first three steps of the actual costing run as sequenced background jobs and scheduling them to run on a daily basis. We then discussed how the exchange rate differences can be used in the single-level and multilevel determination process to revalue inventory. Next, we calculated actual costs across company codes by using business function LOG_MM_SIT. Finally, we discussed the integration of the Material Ledger with CO-PA and showed how the functionality in SAP S/4HANA has been designed to overcome the issues with account-based CO-PA. In the next chapter, we’ll look at some reporting and analytics options that can be used with the Material Ledger.

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Chapter 11 Reporting Various types of reports can be used to view and analyze Material Ledger data, such as ABAP List Viewer reports, drilldown reports, SAP Fiori reports, and core data services views.

Over the course of this book, we’ve walked through the functionality of the Material Ledger and the various transactions that are used for processing its data. We’ll now discuss the options for reporting the data that is created by the Material Ledger. Due to the robustness of the SAP application, the reporting options aren’t a “one size fits all” model, and different reports are provided that meet different needs. In addition, when enhancing its reporting options, SAP doesn’t normally get rid of the options that existed previously. For this reason, you’ll find that the reporting methods discussed in this section are a mix of classic reports (from SAP ERP) and new reports (introduced with SAP S/4HANA). We’ll first take a look at some ABAP List Viewer (ALV) reports (Section 11.1), and then we’ll discuss the Material Ledger drilldown reports (Section 11.2). We’ll conclude with a look at SAP Fiori apps that can be used for Material Ledger reporting (Section 11.3) and the use of core data services (CDS) views (Section 11.4).

11.1 ABAP List Viewer Reports ALV reports are typically two-dimensional table-like reports that show the output of data in a list format of rows and columns. When this type of reporting was introduced in SAP R/3, it was a vast improvement from the previous reports that existed, which were unstructured and allowed for minimal navigational options. The interface of ALV reports is very user-friendly and contains built-in functionalities, such as filter, sort, total, and subtotal, as well as the ability to change the layout and download to Excel. In addition, the ability to drill into the reports for further information is normally available with ALV reports.

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Let’s look at some of the ALV reports available with the Material Ledger.

11.1.1 Prices and Inventory Values The prices and inventory values report displays the standard and actual cost of the materials in a period. You can access this report by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Ledger • Information System • Information System • Object List • Prices and Inventory Values or using Transaction S_P99_41000062. This will take you to the screen shown in Figure 11.1.

Figure 11.1 Selection Screen for Prices and Inventory Values

You can enter the Material number(s), Plant, Valuation Type, Period, and Fiscal Year, as well as choose the Currency/Valuation view that you want to report in the selection screen. If you click the Extended Selection On button highlighted in Figure 11.1, this will take you to the screen shown in Figure 11.2. Here, many more fields are available for you to enter in the selection screen, such as Material type, Valuation Class, and Price Determ. Enter the Plant as “1710”, Valuation Class as “7900” to “7920” for semifinished and finished goods, and Price Determ. as “3” (for single-level/multilevel determination), and then click the Execute button. This will take you to the screen shown in Figure 11.3.

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Figure 11.2 Extended Screen for Prices and Inventory Values

Figure 11.3 Display Screen for Prices and Inventory Values

As you can see in Figure 11.3, the display screen shows the materials categorized by Material type and valuation class (ValCl). You can see that where relevant, the sales

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document (SD Doc) and Item number (e.g., SD Doc 197 and Item 10 for Material FG129) will show up for the material. As we mentioned in Chapter 10, Section 10.2, for maketo-order (MTO) materials, there is a separate record for the material on a sales order/ item level that can have a separate cost from the material itself. You can also see that in cases where the material is split valuated, the valuation type shows up in a separate column (Val. Type). You can therefore have (as explained in Chapter 10, Section 10.1) a different cost for the same material with different valuation types (e.g., Val. Type EXT and INT for Material SPLIT-123). The other columns of the report are as follows: 쐍 Total Stock

This is the total inventory on hand for the material in the period. 쐍 Unit

This is the base unit for the material. 쐍 Total Value

This is the valuated cost of the material (based on the price control) multiplied by the total stock. 쐍 Pr.

This is the price control of the material, which can either be standard price (S) or moving average/periodic unit price (PUP) (V). 쐍 Std Price

This is the standard price of the material. 쐍 PerUnitPr.

This is the PUP of the material. 쐍 Per

This is the price unit of the material. 쐍 Crcy

This is the currency of the inventory value that is displayed. If you click the Set Currency button highlighted in Figure 11.3, you can change the currency type that is being displayed, as shown in Figure 11.4. You can select a different currency type (Crcy type), which will display the report according to a different valuation approach. For this example scenario, leave the Crcy type as 10, or Company code currency. You can change the layout of the report by clicking the Change Layout button (the third button from the right highlighted in Figure 11.3). This will take you to the screen shown in Figure 11.5.

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Figure 11.4 Set Currency for Prices and Inventory Values

Figure 11.5 Change Layout for Prices and Inventory Values

You have the option of adding several fields (in the Column Set section on the right part of the screen) to the display screen, such as Division, Material Group, and Material description. These fields can be added and displayed in the report according to individual requirements. For this example, add the Percentage Price Variance column to the report by clicking it, clicking the left-pointing arrow button, and then pressing the (Enter) key. This will take you to the screen shown in Figure 11.6.

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Figure 11.6 Adding the % Variance Column to Prices and Inventory Values

As you can see in Figure 11.6, you’ve added the % Variance column to the report. This shows the percentage difference between the standard price and the PUP. By sorting this column in ascending or descending order, you can quickly see which large variances need your attention. For any items that you want to explore further, you can double-click the line with the material to go to the Material Price Analysis screen shown in Figure 11.7.

Figure 11.7 Material Price Analysis of Prices and Inventory Values

As you can see in Figure 11.7, you can get to the Material Price Analysis screen (Transaction CKM3) for the relevant material that requires further investigation. You can then navigate from the Material Price Analysis screen to branch off into more details, as explained in Chapter 6, Section 6.4.

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11.1.2 Materials with Largest Moving Price Differences Next, we’ll show a report that displays the materials with the largest moving average price differences in the current or previous period. This will compare the moving average price or PUP of the materials in the current versus the previous period and display the absolute and percentage difference between the two values. You can access this report by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Ledger • Information System • Object List • Materials with Largest Moving Price Difference or using Transaction CKMTOPPRICEDIF. This will take you to the selection screen shown in Figure 11.8.

Figure 11.8 Selection Screen for Materials with Largest Moving Price Difference

As you can see in Figure 11.8, the selection screen of the report shows the various material master and valuation attributes that can be used to filter the report’s output. Enter a range of Plants, and click the Execute button to display the results shown in Figure 11.9.

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Figure 11.9 Display Screen for Materials with Largest Moving Price Difference

You can see in Figure 11.9 that the report shows the PUP of the current period (PerUnitPr.), compared with the PUP of the prior period (PUP PriorP) and the absolute difference (MvPr Chnge) and the percentage difference (Percentage) between the two prices. In cases where the prior period’s price was 0.00, the Percentage difference shows a 9,999,999,999.99 value. Note that this report only shows the prices in company code currency and in the legal view.

11.1.3 Materials with Highest Inventory Value We’ll now look at a report that shows the materials with the highest inventory value in a period. To do this, go to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Ledger • Information System • Object List • Materials with Highest Inventory Value or use Transaction CKMTOPSTOCKVAL. This will take you to the selection screen shown in Figure 11.10. As you can see in Figure 11.10, the selection screen of the report shows the various material master and valuation attributes that can be used to filter the report’s output, as well as the period and year that you want to report. Enter Plant “1010” for Period “12” and Year “2018”, and click the Execute button to display the results shown in Figure 11.11. The report’s output shows the materials with the highest inventory value sorted in descending order. The inventory value is based on the material’s price (which could be standard, moving average, or PUP) multiplied by the inventory on hand. Note that this report only shows the values in company code currency and in the legal view.

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Figure 11.10 Selection Screen for Materials with Highest Inventory Value

Figure 11.11 Selection Screen for Materials with Highest Inventory Value

11.1.4 Display of Work in Process for Actual Costs Next, we’ll show a report that displays the work in process (WIP) values for actual cost. This report shows the WIP for a manufacturing order of a product as well as any price differences from the components of the order.

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You can access this report by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Ledger • Information System • Detailed Reports • Display of WIP for Actual Costs or using Transaction COMLWIPDISP. This will take you to the selection screen shown in Figure 11.12.

Figure 11.12 Selection Screen for Display of WIP at Actual Costs

As you can see in Figure 11.12, the selection screen of the report shows the Company Code, Plant, and material Valuation Type attributes, as well as the Period and Fiscal Year that you want to report. In the Output Options area, the following options are provided: 쐍 Hide Orders for Which WIP = 0

Select this option if you don’t want to display any orders where the WIP is zero. 쐍 Company Code Currenc or Controlling Area Cur

Select whether you want to display the results in company code or group currency.

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쐍 Layout

Choose a layout to display the data. 쐍 Read ML Legacy Data

Choose to also report on Material Ledger data prior to the SAP S/4HANA conversion. Click the Execute button to display the results shown in Figure 11.13.

Figure 11.13 Display Screen for WIP at Actual Costs

The report lists the orders with WIP values and differences. The following WIP columns are shown in the report: 쐍 WIP Standard (Total)

This is the WIP amount at standard cost. 쐍 WIP Standard (Percentage Change)

This is the difference between the WIP amount at standard cost of the current and previous WIP. 쐍 WIP Price Differences (Current)

These are the price differences of the components of the production order that has WIP values. 쐍 WIP Price Differences Percentage Change

This is the difference between the WIP price differences of the current and previous WIP. 쐍 WIP Cumulation

This is the addition of the WIP standard amounts and the WIP price differences. 쐍 WIP Percentage

This is the difference between the WIP cumulation of the current and previous WIP.

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Next, click order 1000182 in the report, and then click the Detailed Report: WIP button, which we’ve highlighted in Figure 11.13 to go to the options shown in Figure 11.14.

Figure 11.14 Detailed Report: WIP Selection Options

Here, you can select the WIP Standard or WIP Price Diff. option. First, click the WIP Standard option, which opens up a section at the bottom of the report, as shown in Figure 11.15.

Figure 11.15 Detailed Report for WIP at Standard

In Figure 11.15, you can see the detailed results of the WIP Standard for Ord 1000182 Plant 1710 screen. This breaks down the different costs on the production order (for raw materials and activities) that make up the WIP amount at standard for the period as well as the change from the prior WIP calculation. Next, click the Detailed Report: WIP button again, but this time choose WIP Price Diff. (refer to Figure 11.14) to get to the screen shown in Figure 11.16.

Figure 11.16 Detailed Report for WIP Price Differences

In Figure 11.16, you can see the detailed results of the WIP Price Differences for RAWABC. This breaks down the different price differences (for raw materials and activities) based on the quantities consumed in the production order.

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To drill down into the material variance of $10, highlight the line with material RAWABC, and click the Details: ML Price Differences button that is highlighted in Figure 11.16. This will take you to the screen shown in Figure 11.17.

Figure 11.17 Details of the ML Price Difference

In Figure 11.17, you can see the Total Price Diff of $0.10 of the material component (RAW-ABC) of the production order 1000182. This total price difference is the addition of the single-level price difference (1Lvl PrDif), the single level exchange rate difference (1Lvl ERDif), the multilevel price difference (MLvl PrDif), and the multilevel exchange rate difference (M-lvl ERD). This difference, which is on a per unit basis, when multiplied by the consumption quantity of material RAW-ABC to the production order 1000182, gives the total WIP price difference of $10.

11.2 Drilldown Reports The term “drilldown reporting” doesn’t quite reflect what this functionality actually does because to drill down into a report normally means to double-click a line of the report to get more detail. In SAP, drilldown reporting means something a little different, even though it does relate to getting more detail out of a report. Drilldown reports normally contain two major attributes: 쐍 Characteristics

Dimensions that the report can be viewed by. 쐍 Key figures

The values or quantities that are used to measure these characteristics. The difference between drilldown reports and the ALV reports is that drilldown reports provide more flexibility for analyzing data by different dimensions. You can think of ALV reports as two-dimensional and drilldown reports as three-dimensional. Drilldown reports have been available in other functionalities, such as controlling (CO), profitability analysis (CO-PA), general ledger (G/L) financial statements, and SAP Business Warehouse (SAP BW) reporting. In the Material Ledger, drilldown reporting

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can be used to create material views that are similar to the material price analysis (discussed in Chapter 6, Section 6.4), but for multiple materials. These reports are available due to a combination of reporting tables (FCML*) and SAP HANA technology, thereby enabling quick extraction of huge volumes of data that can be reported in a flexible way. You can access drilldown reporting by going to application menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Material Ledger • Information System • Drilldown Reporting • Run Drilldown Report or using Transaction KKML0. This will take you to the screen shown in Figure 11.18.

Figure 11.18 Drilldown Reporting with Transaction KKML0

Figure 11.18 lists Report 01MLREPORT, which is the SAP standard drilldown report for the Material Ledger that was created from the Form 01ML_FORM. It’s possible to create your own Material Ledger drilldown report using Transactions KKML5 (to create the form) and KKML1 (to create the report from the form). However, as the standard SAP report is suitable, you can use this report without changing it. Select the report, and click the Execute button that is highlighted in Figure 11.18. This will take you to the screen shown in Figure 11.19. As you can see in Figure 11.19, there are several fields that can be used to filter the output of the drilldown report. For this example, enter the relevant Posting Date YYYY “2018”, currency type (Crcy Type/Valuation), “10”, Base Unit of Measure “EA”, and Posting Period “12”. Scroll to the bottom of the report, and choose Classic drilldown report as the output format that you want to display the report with, as shown in Figure 11.20.

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Figure 11.19 Selection Screen of the Material Ledger Drilldown Report

Figure 11.20 Output Type for Drilldown Report

Click the Execute button to display the results shown in Figure 11.21. You can see in Figure 11.21 that the values shown are reflective of the fields in the Material Price Analysis screen (discussed in Chapter 6, Section 6.4), such as Beginning Inventory, Receipts, Consumption, and Ending Inventory. However, with the drilldown report, these values relate to multiple materials. You can pull in extra characteristics by clicking the relevant characteristics in the Navigation area at the top-left part of the screen, which will pull them into the top-right part of the screen. You can then filter the values of these characteristics to display the report, as shown in Figure 11.22.

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Figure 11.21 Drilldown Reporting by Currency

Figure 11.22 Drilldown Report with Multiple Characteristics

You can also view the report by the material characteristic by clicking the Material field in the Navigation area and then clicking the Back button to display the results shown in Figure 11.23. You can see the report broken down by material in Figure 11.23, with the quantity (Object Set) and values, such as preliminary valuation (PrelimVal), single-level price difference (1LvL PrDif), multilevel price difference (MLvl PrDif), and Actual Value,

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shown for the Beginning Inventory category. You can also see these values for the other categories by scrolling to the right part of the screen. You can show these views for any of the dimensions in the report, such as Material Type, Valuation Class, Profit Center, Division, etc., simply by clicking the relevant dimension at the top of the screen and clicking the lead reporting column to switch the view.

Figure 11.23 Drilldown Reporting with Material Breakdown

11.3 SAP Fiori Applications SAP Fiori was introduced by SAP in 2013 as the new user experience (UX) for SAP software using the latest UX design software. It represents a harmonized reporting environment for SAP ERP and both SAP S/4HANA and SAP S/4HANA Cloud solutions. It uses a role-based approach to simplify the UX and allows users to run the standard or custom apps according to specific needs. It’s constantly being expanded and is set to replace SAP’s traditional graphical user interface (GUI) that has been around for a few decades. SAP has introduced several SAP Fiori apps for financial information that are based on the Universal Journal. For example, the Trial Balance app (discussed in Section 11.3.1) can provide information for several functionalities, including the Material Ledger, because several Material Ledger tables are now part of the Universal Journal. There are also SAP Fiori apps for material inventory values such as the Material Inventory Values – Line Items app and Material Inventory Values – Balance Summary app (discussed in Section 11.3.2).

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11.3.1 Trial Balance App The Trial Balance app is one of the main reports that can be used to gain the benefit of the Universal Journal because it displays the results of the various attributes and account assignment objects from the five major functionalities of the Universal Journal: financial accounting (FI), controlling (CO), asset accounting (AA), profitability analysis (CO-PA), and the Material Ledger. The key figures (also called measures) that can be viewed are the beginning balance, debit and credit balance, and ending balances for one or more periods. These balances can be selected by one or many attributes (also called dimensions), such as cost center, profit center, material, customer, plant, asset, and so on. These dimensions are the fields from the functionalities just mentioned, which include every characteristic that has been defined in CO-PA.

Adding Parameters and Filters You can take a look at this report by logging in to the SAP Fiori system, selecting the Reporting tab, and clicking on the Trial Balance tile, as shown in Figure 11.24.

Figure 11.24 Trial Balance App in SAP Fiori

Next, enter the parameters that you want the report to be displayed by, as shown in Figure 11.25. For this example, enter the Ledger, Company Code, Posting Date From, and Posting Date To. In these fields, you have the ability to enter either one value or several values by simply entering one value after another. Click the OK button to display the results shown in Figure 11.26.

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Figure 11.25 Trial Balance Selection Parameters

Figure 11.26 Inventory Accounts in the Trial Balance App

As you can see in Figure 11.26, the report shows the inventory account balances for the company code and ledger that you selected. Now you can add a profit center filter to this report. To do so, click the Filters button shown in Figure 11.26. In the subsequent screen, search for the Profit Center field by entering “prof” in the search field and checking the box Show on Filter Bar checkbox, as highlighted in Figure 11.27.

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Figure 11.27 Selecting the Profit Center Filter Bar

Click the Go button, and this will show the Profit Center as a filter bar in the report, as shown in Figure 11.28.

Figure 11.28 Profit Center Filter Bar in the Report

Now that there is a Profit Center filter bar, use the drop down in this field to select the profit centers that you want to display in the report, as shown in Figure 11.29.

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Figure 11.29 Selecting Profit Centers for the Report

In this example, select the checkboxes next to the two profit centers YB110 and YB111 to filter the report by, and the selected items will be shown in the lower part of the screen. Click the OK button at the bottom of the screen to go back to the report. Click the Filter button again, and search for the Material field, as shown in Figure 11.30.

Figure 11.30 Selecting the Material Filter Bar

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Select the Material field to be shown in the filter bar by clicking the Show on Filter Bar checkbox. Use the dropdown in this field to select the specific materials that you want the report to be displayed by, as shown in Figure 11.31.

Figure 11.31 Selecting Materials for the Report

Select the materials that you want to display by selecting the checkbox to the left of the materials. Click the OK button to go back to the report. You can now see that the report is filtered by Material and Profit Center, as highlighted in Figure 11.32.

Figure 11.32 Report Filtered by Material and Profit Center

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You can also see that the values of the inventory; cost of goods sold (COGS), including the COGS cost component split accounts discussed in Chapter 10, Section 10.6.1; and variance accounts are displayed for Company Code 1710. The values that are displayed are shown under the Debit Balance in Company Code Currency column. This is known as a measure.

Adding Measures Let’s now see how to view and add additional measures to the report. Click the Measures field highlighted in Figure 11.32, shown previously. This will take you to the screen shown in Figure 11.33.

Figure 11.33 Available Measures in the Report

As you can see in Figure 11.33, there are several measures that are available for the report. The measures with a checkmark beside them are already in the report. Add an extra measure (Debit Balance in Global Currency) to the report by right-clicking the measure and selecting the Add Measure to Display option, as shown in Figure 11.34.

Figure 11.34 Selecting Measures to Add to the Report

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The measure will then be displayed as a column in the report, as shown in Figure 11.35

Figure 11.35 Adding Measures to the Report

Adding Dimensions Now that you’ve seen how to add measures, let’s look at the other major component of the report: dimensions. As mentioned earlier, dimensions are the reporting attributes. We’ve already filtered the report by two dimensions—profit center and material. Now, add the Customer field to the report by searching for the Customer field by entering “Cust” in the search bar in the left panel of the report. After you’ve found the Customer field, drag and drop it in the Rows section of the report, as shown in Figure 11.36.

Figure 11.36 Adding the Customer Dimension to the Rows Section

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Drag the Customer dimension to the Rows section of the report, just after the Company Code field and before the G/L Account field. This means that the report will first be categorized by company code, then profit center, and then customer. Now that you’ve added the Customer field, the values in the report will be shown by customer, as shown in Figure 11.37.

Figure 11.37 Report Displayed by Customer

Now, perform the same steps as you did for the Customer dimension, to add the Material dimension to the report. The result of this is shown in Figure 11.38.

Figure 11.38 Adding the Material Dimension to the Report

As you can see in Figure 11.38, you’ve added the Material dimension to the report and hence can report the COGS split by actual cost components according to the Material and Customer dimensions. This makes customer/product profitability (when the revenue and other accounts are added) an easily attainable goal with this report. All

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available dimensions of the report can be viewed this way as long as they have corresponding values (Measures) that they are assigned to.

Navigating to Other Activities Let’s now look at a feature of the report that allows you to navigate to other activities that are related to the object in a column. To do this, right-click the Material column, and click Jump To. This will take you to the screen shown in Figure 11.39.

Figure 11.39 “Jump To” Options from the Material Column

You can navigate to numerous transactions that relate to the material dimension, such as the Actual Cost Estimates, Change Material Costs, Change Price Determination, and so on.

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11.3.2 Material Inventory Values Apps There are three SAP Fiori apps that allow you to analyze inventory values, as follows: 쐍 Material Inventory Values – Balance Summary 쐍 Material Inventory Values – Rounding Differences 쐍 Material Inventory Values – Line Items

Shared navigation functions of these material inventory values reports include the following: 쐍 Using the Filters button to filter the report by additional fields 쐍 Saving the selection options to a variant 쐍 Performing sorting, totaling, and suppressing zero rows in the report 쐍 Selecting a hierarchy to display the report based on one of the columns, such as

Financial Statement Version, Cost Center Hierarchy, Profit Center Hierarchy, and so on 쐍 Jumping to related transactions of the column being selected, such as G/L Line

Items, G/L Master, Profit Center Master, Purchase Order for Product Group, and so on 쐍 Defining conditions for the amounts displayed, such as Less Than, Equal To,

Greater Than, and so on These apps can be accessed from the Analytics tab of the SAP Fiori launchpad, as shown in Figure 11.40.

Figure 11.40 Material Inventory Values SAP Fiori Apps

Now, let’s take a look at each of these apps in the following sections.

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Material Inventory Values – Balance Summary App This app allows you to analyze the quantities and values of inventory on a key date by dimensions such as company code, G/L account, material group, profit center, and segment. By double-clicking the app, you’re taken to the selection screen shown in Figure 11.41.

Figure 11.41 Selecton Screen for the Material Inventory Values – Balance Summary App

Enter the Company Code, Ledger, and Reporting key date that you want to view the results by. Click the OK button at the bottom of the screen (not shown) to display the results shown in Figure 11.42.

Figure 11.42 Display Screen for Material Inventory Values – Balance Summary App

The report shows the inventory quantity and amount in the company code currency (Amount in CC Crcy) and the freely defined currencies 1 (Amt (Add Crcy 1)) and 2 (Amt (Add Crcy 2)). In Chapter 2, Section 2.4, you defined the freely defined currencies 1 and

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2 as the currency types for group currency/group valuation and group currency/ profit center valuation, respectively. You can see that the report is being displayed by the dimensions of Company Code, Ledger, G/L Account, Product Group, Profit Center, and Segment. These are the standard dimensions of the report. Let’s take a look at the additional dimensions in the report, which are shown in Figure 11.43.

Figure 11.43 Additional Dimensions of the Balance Summary Report

In Figure 11.43, you can see the additional dimensions of the report. As mentioned in Section 11.3.1, the fields with checkmarks are the ones that are currently available in the report. You’ll also see them in the ROWS section. You can also see that the Measures (or key figures) are defined in the COLUMNS section. Let’s see the available measures in the report by clicking the arrow beside the Measures field (in Figure 11.43) to get to the screen shown in Figure 11.44.

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Figure 11.44 Measures in the Balance Summary Report

You can see in Figure 11.44 that the Measures in the report are the Inventory Quantity and the Amounts in the additional currencies. Because the Measures that are shown in the report are sufficient, don’t change anything here. Now go to the DIMENSIONS section of the report, and add the Material and Valuation area dimensions, as shown in Figure 11.45.

Figure 11.45 Adding Material and Valuation Area Dimensions to the Report

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Add the Material and Valuation Area dimensions by dragging and dropping them from the DIMENSIONS section to the ROWS section. The report will now looks as shown in Figure 11.46.

Figure 11.46 Displaying the Balances Report with Material and Valuation Area Dimensions Added

To include the description of the material in the report, right-click the Material column, and select the Key and Text option, as shown in Figure 11.47.

Figure 11.47 Selecting “Key and Text” to Display in the Report

With the Key and Text option selected, the report will now look as shown in Figure 11.48. Now display the report as a chart by clicking the Chart icon in the top-right part of the screen, as shown in Figure 11.49.

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Figure 11.48 Material Display with Description

Figure 11.49 Clicking on the Chart Icon

Now that you’ve clicked the Chart icon, the report will be displayed as a chart, as shown in Figure 11.50.

Figure 11.50 Displaying the Report as a Chart

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The legend of the chart is displayed on the right part of the screen (shown in Figure 11.51).

Figure 11.51 Chart Legend and Chart Settings

The chart legend depicts the representation of the colors of the bars in the chart. You can change the chart settings by clicking the gear icon.

Material Inventory Values – Rounding Differences App This app enables you to understand the rounding differences between the current inventory postings of the actual inventory and the calculated inventory (quantity × price) during a ledger fiscal period. These rounding differences can occur when the prices and price units produce values that can’t be represented in the minimum currency units, for example, in USD with two decimal places. Click the tile in the Analytics section of the SAP Fiori launchpad, which will take you to the selection screen shown in Figure 11.52.

Figure 11.52 Selection Screen for the Material Inventory Values – Rounding Differences App

Enter the company code “1710” in the Company Code field, and click the dropdown icon in the Select Period field to show the options in Figure 11.53.

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Figure 11.53 Selecting the Previous Period

Double-click the Key P, which is for the Previous Period, and this will show up in the selection screen as shown in Figure 11.54.

Figure 11.54 Selection Screen after Selecting the Previous Period

Now, click the OK button at the bottom of the screen (not shown), and this will display the report as shown in Figure 11.55.

Figure 11.55 Material Inventory Value Rounding Differences Display

After analyzing these differences, you can arrange for new materials to be posted in the future with higher or lower prices.

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Material Inventory Values – Line Items App This app allows you to analyze the quantities and values of inventory on a line item basis in a given period by dimensions such as G/L account, material group, material, business transaction type, posting date, and document number. Click this tile in the Analytics section of the SAP Fiori launchpad, which will take you to the selection screen shown in Figure 11.56.

Figure 11.56 Selecton Screen for the Material Inventory Values – Line Items App

Enter the Company Code, Plant, Ledger, and Reporting key date. Click the OK button (not shown) to display the report shown in Figure 11.57. You can see in Figure 11.57 that the display screen for the report shows the dimensions of Company Code, Plant, Ledger, G/L Account, Product Group, Material, and Bus. Transac. The measures in the report are exactly the same as the ones shown in the Balance Summary app.

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Figure 11.57 Selecton Screen for the Material Inventory Values – Line Items App

The Line Items app (as well as the other SAP Fiori apps we’ve shown in this chapter) can be downloaded to Microsoft Excel by clicking the Download button at the bottom-right part of the screen and selecting the Export to MS Excel option, as shown in Figure 11.58.

Figure 11.58 Downloading the Report to Microsoft Excel

11.4 CDS Views The Material Ledger accelerators allow reporting tables FCML* (used for drilldown reporting, as described in Section 11.2) to run faster. Previously, Transaction FCML_ FILL was used to populate the Material Ledger tables such as the following:

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쐍 Table FCML_MAT

Information on material data. 쐍 Table FCML_REP

Values and quantities by material and procurement/consumption alternative. 쐍 Table FCML_CCS_REP

Values of cost component split by material and procurement alternative. 쐍 Table FCML_PROC

Information for production process. However, since SAP S/4HANA 1610, Transaction FCML_FILL is no longer necessary because of CDS views, which make up a data modeling infrastructure that allows access and the ability to model data directly from the database server, as opposed to the application server. CDS views such as FCML_MAT_V, FCML_REP_V, FCML_CCS_ REP_V, and FCML_PROC_V have replaced the old reporting tables and now read dynamically from the tables MLDOC, MLDOCCCS, MLDOC_EXTRACT, and MLDOCCCS_EXTRACT. Out of the box, CDS views are available for immediate use in SAP S/4HANA. Figure 11.59 shows the CDS view C_MLLINEITEM, which was used to generate a report showing different dimensions and currency values for a material.

Figure 11.59 CDS View Showing Dimensions and Values for a Material

As you can see, the CDS view report looks similar to the SAP Fiori reports that we discussed, so we won’t go into extra detail on how to navigate these reports. The CDS views have a better user interface than the drilldown reporting that was discussed in Section 11.2 and can be modeled according to specific customer requirements.

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11.5 Summary In this chapter, we discussed the various options that can be used to analyze Material Ledger data. First of all, we looked at ALV reports such as prices and inventory values, materials with the largest moving price, materials with highest inventory value, and WIP for actual costs. We then looked at drilldown reports, which allows for the flexibility to analyze large amounts of data by different dimensions. We saw that the main drilldown report for the Material Ledger is accessed using Transaction KKML0 and provides material views that are similar to the material price analysis but for multiple materials. We then looked at the Trial Balance app in SAP Fiori, which is based on the Universal Journal and allows you to report various measures (e.g., balances in company and global currency) with different dimensions (e.g., profit center, material, customer, etc.). Finally, we looked at a couple of Material Inventory Values apps in SAP Fiori that allow you to analyze quantities and values of inventory on a key date, according to various dimensions. In the final portion of the book, we’ll provide a summary of the book and offer suggestions for potential innovations with the Material Ledger.

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Chapter 12 Conclusion Let’s revisit the main areas of the Material Ledger that have been covered in this book.

In this book, we’ve taken you on an in-depth journey into the wonderful (and sometimes strange) world of the Material Ledger. As you can see from reading the previous chapters, the Material Ledger is a very significant module within SAP, which provides very robust functionality that can enhance inventory management and reporting. We’ll now summarize the previous chapters and offer some perspective on potential areas of improvement with the Material Ledger.

12.1 What You’ve Learned Before we look toward the potential future of the Material Ledger, let’s first take a look back at what we’ve discussed in this book. To recap, we covered a range of key topics, from parallel valuation to actual costing to reporting, within the following chapters: 쐍 Chapter 1: Introduction to the Material Ledger in SAP S/4HANA

In Chapter 1, we showed how the Material Ledger serves as a subledger for the inventory value that is shown in the balance sheet. We also saw where the Material Ledger fits into the traditional SAP accounting modules and how it’s connected to the Logistics modules. We discussed the before and after of the Material Ledger, first with a high-level walkthrough of key processes in SAP ERP, and then with a look at how the Material Ledger fits into the SAP S/4HANA digital core. We rounded out the chapter by looking at how the numerous inventory valuation and Material ledger tables in SAP ERP have been supplanted by the Universal Journal and new inventory valuation tables. 쐍 Chapter 2: Configuring Currency Types, Ledgers, and Valuation Views

In Chapter 2, we went through the basic configuration settings for the Universal

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Journal in terms of ledgers, currency types, and valuation views. We looked at the standard currency types in the general ledger (G/L) and how the currency keys are assigned to them. We then walked through the configuration steps for assigning currency types to company codes and creating a custom currency type. After that, we explained what a currency and valuation profile is, showed how it’s configured for legal views, group views, and profit center valuation views, and walked through activation. We then explained the different ledgers that exist in the Universal Journal and how they are defined, particularly the single valuation and multi-valuation ledgers. We rounded out the chapter by discussing the baseline Material Ledger settings. 쐍 Chapter 3: Group Currency and Valuation

In Chapter 3, we looked at a key valuation approach, which is group currency and group valuation. We looked at how group currency is defined and assigned to a company code and the Material Ledger. We also showed how the group currency can be changed when updating a material’s cost. We explained how to define a costing variant for group costing and how to track the delta profit made between companies, when calculating the group standard cost. We then walked through a detailed example of an intercompany scenario. 쐍 Chapter 4: Profit Center Valuation

In Chapter 4, we discussed the profit center valuation view and showed the different ways to set up transfer prices between profit centers. We covered the configuration of the accounts for internal goods movements and production variances in the profit center view. After that, we proceeded to show how costing variants were set up to calculate a standard cost for profit center valuation, and how to assign the controlling (CO) version for profit center valuation to the results analysis version. We then rounded out the chapter by looking at a couple of scenarios where transfer pricing can be used in the manufacturing process. 쐍 Chapter 5: Configuring Actual Costing

In Chapter 5, we walked through the detailed configuration for actual costing. We looked at the steps needed to activate the Material Ledger for actual costing before discussing the standard setup of the Material Ledger number ranges and the accounting number range and document type used for the Material Ledger. We then looked at the settings needed to define the material update structure. We walked through the steps for activating actual costing and activating the actual cost component split. Finally, we looked at the different account determination settings that are needed for actual costing and showed how they are typically posted in the G/L.

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쐍 Chapter 6: Actual Costing Run and Analysis

In Chapter 6, we walked through the steps that need to be executed for the actual costing run. For each step of the cockpit, we defined the purpose of the step, looked at the parameter settings for the step, and showed the output log of the step. We then viewed the results screen for the actual costing run and showed how you can drill down from a material/activity line to the Material Price Analysis screen. We then looked at the alternative valuation run (AVR) and discussed the purpose, usage, and the settings that distinguished it from the main actual costing run. We then looked at some of the main transactions that can be used to analyze the actual costing results. 쐍 Chapter 7: Actual Costing and Peripheral Transactions

In Chapter 7, we covered some peripheral functionalities that are used with actual costing. We saw that in SAP S/4HANA, you can now change the standard cost during the month without any negative impact to the actual cost calculation. We looked at how you can debit or credit a material using the reasons for price change functionality. We then walked through the distributing usage variances, which allow you to adjust the quantities of materials and activities consumed and allocate the variances proportionally to the respective manufacturing orders. After that, we showed how you can manually change the actual cost component split for a material. Finally, we rounded out the chapter by looking at how you can deactivate the statistical moving average price and hence improve the throughput of goods movements. 쐍 Chapter 8: Parallel Cost of Goods Manufactured

In this chapter, we looked at the parallel cost of goods manufactured (parallel COGM) functionality. We took a deep-dive into the configuration of parallel COGM, defined separate ledgers and accounting principles, and assigned them to different depreciation areas in asset accounting (AA), and walked through a parallel COGM scenario. We then calculated the activity prices based on different accounting principles and used these activity prices to calculate an actual cost for the produced semifinished good using the main actual costing run and AVR. Finally, we showed the material price analysis for the semifinished good and compared the results from the costing runs. 쐍 Chapter 9: Balance Sheet Valuation

In Chapter 9, we looked at the balance sheet valuation procedure. We defined balance sheet valuation and described the typical methods (first in, first out (FIFO), last in, last out (LIFO), and lowest value determination) that are used with this procedure. We then walked through the materials management (MM) configuration

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steps for balance sheet valuation and looked at the Material Ledger configuration steps for balance sheet valuation. We then walked through a scenario for each valuation method and then rounded out the chapter by showing how the valuation alternative can be used to calculate an alternative actual cost. 쐍 Chapter 10: The Material Ledger and Peripheral Applications

In Chapter 10, we looked at several specialized scenarios in which the Material Ledger can be used. We showed how split valuation is configured and how postings to a split valuated material are shown in the material price analysis. We then looked at a make-to-order (MTO) process, including the relevant settings and actual costing result. Next, we looked at how you can calculate a daily actual cost by creating the first three steps of the actual costing run as sequenced background jobs and scheduling them to run on a daily basis. We then showed how the exchange rate differences can be used in the single-level and multilevel determination process to revalue inventory. We discussed how to calculate actual costs across company codes by using the business function LOG_MM_SIT. Finally, we discussed the integration of the Material Ledger with profitability analysis (CO-PA) and showed how the CO-PA functionality in SAP S/4HANA has been strategically designed. 쐍 Chapter 11: Reporting

In Chapter 11, we discussed the various options that can be used to analyze the Material Ledger data. We looked at the ABAP List Viewer (ALV) reports, which show the data in a tabular form, and provide options for you to filter, sort, subtotal, total, and download to Excel. We then covered the drilldown reports, which allow for the flexibility to analyze large amounts of data by different dimensions. The main drilldown report for the Material Ledger provides material views that are similar to the material price analysis but for multiple materials. We then discussed the Trial Balance app in SAP Fiori, which allows you to report various measures with different dimensions. Finally, we looked at a couple of Material Inventory Values apps that allow you to analyze quantities and values of inventory on a key date, according to various dimensions.

12.2 Potential Areas for Innovation In spite of the impressive functionality that is available with the Material Ledger, there are some areas that could use some improvement. Based on personal experience, as well as discussions with several companies that use the Material Ledger, the

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following is a wish list for functionality that isn’t currently delivered in the standard system: 쐍 Value flow monitor as part of the actual costing cockpit

Because the value flow monitor is a tool that is used to analyze and correct entries that are calculated during the settlement step of the actual costing run, it would be great for this functionality to be integrated in the actual costing cockpit, and not as separate transaction. 쐍 Cost component split for moving average

Some moving average materials contain components separate from the material cost, such as freight, duty, subcontracting fees, and so on. It would be great to be able to break these into cost components, just as is done with materials valued at standard cost. 쐍 Break out cost components by material

Although cost components provide a detailed breakdown of the components of a cost estimate, it would be great to further drill down into components, for example, the material cost component, to see the material numbers that make up the cost. 쐍 Revalue costing sheet overhead rate

There is a revaluation transaction for the plan activity rate in a cost center (Transaction KSII) that can be used by the Material Ledger. It would be great to have a similar transaction for overhead rates (via a costing sheet) based on the actual cost in the overhead cost center. 쐍 Revenue recognition to impact actual cost of sales in the Material Ledger

With the new revenue recognition program in SAP, it would be great if the corresponding actual (or standard) cost of sales calculated by the Material Ledger could also be considered in the deferral of revenue because revenue and cost of goods sold (COGS) are to be realized at the same time. 쐍 Group and profit center valuation conversion as part of SAP S/4HANA migra-

tion For companies that don’t have group or profit center valuation in SAP ERP, it would be great to have a conversion program during the SAP S/4HANA migration that enables group and profit center valuation in the relevant controlling areas. 쐍 Allow price determination to be enabled depending on material type

When the price determination is set to 3 (single-level/multilevel) in Transaction OMX1, this is valid for all new materials that are created. However, for companies

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that value raw materials at moving average, it would be great for this setting to be automatically defaulted to 2 (transaction-based). 쐍 AVR delta functionality

It would be great to bring back the delta functionality for the AVR, which was available in SAP ERP. This allows the flexibility of recording valuation differences in a separate balance sheet account. 쐍 Actual costing run results to show a list of standard cost versus periodic unit

price (PUP) It would be great to have a list of standard versus actual cost prices in the results report of the actual costing run (just as was the case in SAP ERP). This will provide a quick analysis of any issues with the actual cost before the post closing step is done. 쐍 Integration with group reporting

Group reporting is a consolidation functionality that is embedded within SAP S/4HANA (from release 1809) and provides planning and consolidation functionality for multiple entities. It would be great for this functionality to be integrated in the group and profit center valuation views of the Material Ledger. The Material Ledger in SAP S/4HANA is continuously evolving, and each SAP S/4HANA release comes with new functionality that improves its capabilities in terms of inventory valuation, actual costing, and integration with other SAP applications. You can use the functionality we’ve described in this book to plan a path for the adoption of this great tool and how it can help your business with inventory management and profitability reporting.

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Transitioning to the Material Ledger in SAP S/4HANA ..........................

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General Ledger Line Item Texts from Material Ledger Postings .........

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Material Ledger Comparison: SAP ERP versus SAP S/4HANA ..............

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Bibliography ..........................................................................................................

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The Author .............................................................................................................

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Appendix A Transitioning to the Material Ledger in SAP S/4HANA

Because the Material Ledger is mandatory in SAP S/4HANA, all SAP customers that use the materials management (MM) functionality will need to have the Material Ledger activated in their system. We’ll take a look at how to migrate to SAP S/4HANA for existing customers in Section A.1 and new SAP customers in Section A.2. We’ll also walk through how to change the price determination in Section A.3. Finally, in Section A.4, we’ll show some supplemental programs that can be used for managing the Material Ledger.

A.1 Existing SAP Customers For customers that are on SAP ERP, the Material Ledger conversion is part of the overall conversion of the accounting modules to SAP S/4HANA Finance. The first step in this process is to prepare the migration of Customizing data by going to configuration menu path Conversion of Accounting to SAP S/4HANA • Preparations and Migration of Customizing • Preparations and Migration of Customizing for General Ledger. This configuration node will show a series of steps that need to be executed in sequence for the financial accounting (FI) and controlling (CO) functionalities to ensure that the Customizing and migration settings for SAP S/4HANA Finance are set up correctly.

Note: Prerequisites Before proceeding with the Material Ledger migration, the notes listed in SAP Note 2345739 (S4TWL – Conversion to SAP S/4HANA Material Ledger and Actual Costing) will need to be implemented in the system.

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Figure A.1 shows the activities for migrating the general ledger (G/L) Customizing data.

Figure A.1 Preparing Customizing Migration for the G/L

After these steps are completed, the migration of Material Ledger Customizing steps can be carried out by going to configuration menu path Conversion of Accounting to SAP S/4HANA • Preparations and Migration of Customizing • Preparations and Migration of Customizing for Material Ledger • Migrate Material Ledger Customizing. In the subsequent screen, uncheck the Test mode checkbox, as shown in Figure A.2.

Figure A.2 Selection Screen for Migrating Material Ledger Customizing

Then click the Execute button to get to the screen shown in Figure A.3.

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Figure A.3 Output Messages from Migrating Material Ledger Customizing

As you can see in Figure A.3 the messages show that the ML active flag has been set for the relevant material update structure and valuation areas. If any errors occurred in this step, they would need to be resolved before Material Ledger data is migrated. After the Customizing settings for the Material Ledger have been migrated, the assignment of Material Ledger types to valuation areas will need to be checked by going to configuration menu path Conversion of Accounting to SAP S/4HANA • Preparations and Migration of Customizing • Preparations and Migration of Customizing for Material Ledger • Check Assignment of Material Ledger Types to Valuation Areas. This will lead to the screen shown in Figure A.4.

Figure A.4 Checking the Assignment of Material Ledger Types to Valuation Areas

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As shown in Figure A.4, the Valuation areas in their respective Company Codes are assigned to material ledger types (Mat. ledger type). It’s important to ensure that the valuation areas that exist in the same company code are assigned to the same Material Ledger type. Before beginning the data migration, the following steps can be taken to reduce the amount of data being converted and hence reduce the runtime of the conversion program: 쐍 Delete or archive redundant data in Material Ledger inventory tables (if the Mate-

rial Ledger was active before conversion), such as tables CKMLPP and CKMLCR. 쐍 Delete or archive redundant data in material inventory valuation tables, such as

tables MBEW, EBEW, OBEW, and QBEW. 쐍 Delete or archive redundant data in purchase order history tables, such as tables EKBE and EKBZ. 쐍 Delete or archive redundant data in production order history tables, such as table MLAUFCR. 쐍 Run the Transaction MR11 (GR/IR Account Maintenance) to clear old purchase

orders automatically. The Material Ledger data migration consists of four steps in the overall SAP S/4HANA accounting migration. The individual steps are combined into a data migration run. The data migration can be accessed via configuration menu path Conversion of Accounting to SAP S/4HANA • Data Migration • Start and Monitor Data Migration or via Transaction FINS_MIG_STATUS, as shown in Figure A.5.

Figure A.5 Start and Monitor Data Migration

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When completed, the Material Ledger steps of the data migration should look like Figure A.6.

Figure A.6 Data Migration Cockpit

The different Material Ledger data migration activities shown in Figure A.6 are described as follows: 쐍 M10: Migrate Material Ledger Master Data

This activity populates data in the Material Ledger tables CKMLHD, CKMLPR, CKMLPP, and CKMLCR in all Material Ledger currencies, from the last period of the previous year to the current period, and activates the Material Ledger in all valuation areas (plants). In addition, all the data in the inventory valuation tables xBEW(H) and Material Ledger tables CKMLPP and CKMLCR (for companies that use the Material Ledger) are migrated into the universal journal entry tables ACDOCA and ACDOCA_M_ EXTRACT from the last period of the previous year to the current period. For companies that use actual costing, the data in the existing tables will be replaced with the new tables, as shown in Table A.1.

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Old Table

New Table

Explanation

MLHD, MLIT, MLPP, MLPPF, MLCR, MLCRF, CKMLPP, CKMLCR, MLCD, CKMLMV003, CKMLMV004, CKMLPPWIP, and so on

MLDOC and MLDOC_ EXTRACT

These tables will be populated from Material Ledger transactional data updates and settlement.

MLKEPH, CKMLKEPH, (CKMLPRKEKO)

MLDOCCCS and MLDOCCCS_EXTRACT

These tables will update the cost component split in actual costing.

CKMLMV011

MLRUNLIST

This table will contain the material and activity type status from a costing run.

Table A.1 Replacement Tables for the Material Ledger in SAP S/4HANA 쐍 M20: Check Material Ledger Master Data

This activity checks and verifies the migrated data by comparing values from the inventory tables and Material Ledger tables with the Universal Journal table ACDOCA. 쐍 M11: Migrate Material Ledger Order History

This activity converts all existing purchase order history tables (EKBE, EKBEH, EKBZ, EKBZH) and production order history tables (MLAUFCR and MLAUFCRH) into the Material

Ledger currencies. 쐍 M21: Check ML Production Order and Purchase Order History

This activity verifies that all production and purchase order history records have been converted into the Material Ledger currencies. After the M10: Migrate Material Ledger Master Data step has been executed, an error log will be created. After all the errors have been fixed, and the process is restarted using Transaction FINS_MIG_STATUS, the M20: Check Material Ledger Master Data step will check the consistency of table ACDOCA and compare tables MLDOC_EXTRACT and ACDOCA_M_EXTRACT for any inventory in a current period. After all steps have been completed, the status of the migration can be set to Completed by going to the configuration menu path shown in Figure A.7. After the Migration Status is set to Completed, goods movements will be allowed in the system.

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Figure A.7 Setting Migration to Complete

For customers that use actual costing, the following activities need to be checked and carried out if necessary: 쐍 The post closing step of all Material Ledger costing runs (Transactions CKMLCP

and CKMLCPAVR) will need to be completed before the migration to SAP S/4HANA because it isn’t possible to process earlier costing runs after the migration is complete. 쐍 If the activity consumption update is activated, then the transaction key PRL

(introduced with SAP S/4HANA) will need to be set up (in Transaction OBYC) as an offset to the cost center credit. 쐍 If the activity consumption update is activated, then the transaction key GBB-AUI

will need to be configured (in Transaction OBYC) with a blank valuation class to accommodate postings to an activity type. 쐍 Because the multilevel price and exchange rate determination accounts now use

the same transaction keys that are used for single-level determination, the configuration of transaction keys PRV and KDV can be removed. For customers that are on SAP S/4HANA 1511 and want to activate actual costing retroactively, Transaction FCML4H_STARTUP should be used to create entries in the Material Ledger tables MLDOC and MLDOCCCS.

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A.2 New SAP Customers For new customers, the Material Ledger will be part of the configuration settings that need to be made, just like setting up a company code or plant. New customers should ask the following important question: “What functionality of the Material Ledger can we leverage to benefit our business?” At a fundamental level, activating the Material Ledger means that inventory valuation data will be available in Material Ledger tables (and the Universal Journal table ACDOCA) as opposed to the old inventory valuation tables. Here are some questions that a new SAP customer can ask, to determine what extra functionality is needed from the Material Ledger: 쐍 What currencies do we want to value inventory with at a historical rate? 쐍 Do we need to use transfer pricing and parallel valuation? 쐍 Do we want our products to be valued at actual cost? 쐍 Should we revalue our inventory at a first in, first out (FIFO); last in, first out (LIFO);

or some other basis? 쐍 Should we value our inventory according to multiple Generally Accepted Account-

ing Principles (GAAP) approaches? 쐍 Do we want our cost of sales to be valued at standard or actual cost? 쐍 Can we reduce the impact of foreign exchange differences on our inventory

values? After these questions (and several more) have been answered, then the relevant configuration steps for the Material Ledger can be set up. We’ll show the three main steps for activating the Material Ledger in a new plant. Other steps can be found in the relevant chapters of this book, depending on the specific Material Ledger functionality that is being implemented. First, create a Material Ledger type by going to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Assign Currency Types and Define Material Ledger Type. Click the New Entries button to arrive at the screen shown in Figure A.8.

Figure A.8 Defining Material Ledger Type

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Define a Material Ledger type (ML Type) as “9000”. The Manual checkbox is automatically checked because in SAP S/4HANA, you always have to assign the currency types manually. Double-click the Define individual characteristics folder to arrive at the screen shown in Figure A.9.

Figure A.9 Assigning Currency Types to Material Ledger Types

In Figure A.9, you can see that currency type (Crcy type) 10 is assigned to Mat. Ledger Type 9000. This is because the company code currency is always the default currency type in the Material Ledger. This assignment can’t be changed. You can choose to add extra currency types (e.g., group currency/group valuation and group currency/ profit center valuation) as we explained in Chapter 2; however, in this, we don’t need to assign parallel currency types. Click the Save button to save the settings. Next, activate the relevant valuation areas for the Material Ledger by going to configuration menu path Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Activation Valuation Areas for Material Ledger. In the subsequent screen, double-click Activate Material Ledger to open the screen shown in Figure A.10.

Figure A.10 Activating the Material Ledger in Valuation Areas

Select the ML Act. checkbox for your valuation area (NEW2, in this example). This means that the Material Ledger has been made active for this plant. Click the Save button, and you’ll see the following information message (shown in Figure A.11). The information message shown in Figure A.11 is a reminder that the production startup transaction should be run after the Material Ledger is active for a plant. This ensures the consistency of the valuation data and that the Material Ledger is flagged internally as being in production in a live system. Click the Continue button to save the settings.

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Figure A.11 Information Message after Activating the Material Ledger

After the Material Ledger has been activated for a new company (or new plant), the Material Ledger production startup will need to be run by going to the application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/ Material Ledger • Environment • Production Startup • Set Valuation Areas as Productive or using Transaction CKMSTART. This will lead to the screen shown in Figure A.12.

Figure A.12 Selection Screen for Material Ledger Production Startup

Enter the new plant that is to be converted to the Material Ledger.

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Note: Transactions Between the activation of the valuation area for the Material Ledger and running the production startup program, no material master or inventory transactions should be made; otherwise, the system will produce an error.

Click the Execute button to get to the results screen shown in Figure A.13.

Figure A.13 Output Log of Production Startup

As you can see in Figure A.13, the production startup program goes through all the conversion steps that are necessary to make the plant productive for the Material Ledger. Note that in SAP S/4HANA, there is no conversion of data (from inventory valuation and purchase order history tables) to be replicated in Material Ledger tables. This is because (as mentioned in Chapter 1) the inventory valuation tables are

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now part of table ACDOCA, and although the purchase order history data still exists in a separate table, a new plant won’t have existing data in purchase order history tables to be converted into Material Ledger tables. However, the production startup program is still relevant for preparing the plant for the Material Ledger use and should be run for all new plants. If the plant has been converted successfully, a message at the bottom of the output log (highlighted in Figure A.13) will indicate that the plant has been made productive. You can check whether the plant is productive and whether the relevant Material Ledger Customizing has been carried out for a plant by going to application menu path Accounting • Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Environment • Check Customizing Settings or using Transaction CKM9. This will lead to the selection screen shown in Figure A.14.

Figure A.14 Selection Screen for Checking Material Ledger Customizing Settings

Enter the new plant “NEW2” in the Plant field, and select the Display Accounts checkbox so that any inventory-related configured accounts for that plant are displayed. Click the Execute button to display the results shown in Figure A.15. In Figure A.15, the Customizing settings show that the Material Ledger is active for plant NEW2 and also show the date when it was made productive. If you scroll down to the end of the screen, you’ll be able to see the inventory-related G/L accounts that can be posted to for this plant (see Figure A.16). The green checkmark and the 0 indicator show that the accounts can be posted to for the plant and are configured in the MM account determination table (Transaction OBYC).

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A.2

New SAP Customers

Figure A.15 Display Screen for Checking Material Ledger Customizing Settings

Figure A.16 G/L Accounts That Can Be Posted to for the Plant

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A.3 Changing the Price Determination This step is needed for existing SAP customers that are transitioning to the Material Ledger and want to use actual costing. As mentioned in Chapter 2, the Price Determ. field determines whether a material will be valid for actual costing or not. The default price determination for all types of materials is 2. However, if you want a material to be revalued at actual cost, then the price determination will need to be changed to 3, which is valid only for materials that are valued at standard cost.

Note: Prerequisites Before changing the Price Determ. field from 2 to 3 for a plant, you need to make sure that the plant has been configured with a default price determination of 3 (in Transaction OMX1), and it has been activated for actual costing. This was discussed in Chapter 5.

To change the price determination, you need to go to application menu path Accounting Controlling • Product Cost Controlling • Actual Costing/Material Ledger • Environment • Change Material Price Determination or use Transaction CKMM. This will lead to the screen shown in Figure A.17. Enter the Plant “1710” whose price determination you want to change. You can also enter any other parameters to restrict the selection of materials that are to be changed in the plant. Entering Price control “S” specifies that you only want to change the price determination for materials that are valued at standard price (S). As we mentioned in Chapter 2, only standard price materials should have a price determination of 3 because moving average price materials are already valued at a real-time actual cost. If there are any materials that are valued, in the Restrict Material Stock area, leave the default value of Stock Material. However, if there are materials that are valued with special stock, such as sales order or project stock, then you would run this transaction again and select the Special Stock option. In the Program Definitions area, enter an Old Price Determination of “2” and a New Price Determination of “3” because you want to change the Price Determ. field value from 2 (transaction-based) to 3 (single-level/multilevel). Entering the New Price Control of “S” indicates that for the materials that you want to change, the price control should remain at standard cost. If there were any materials whose price control you

504

A.3

Changing the Price Determination

wanted to change from V to S, this indicator will change the price control of these materials as long as you leave the Price Control field as blank.

Figure A.17 Selection Screen for Changing the Price Determination

Click the Execute button to display the results shown in Figure A.18. The display screen shown in Figure A.18, shows the list of materials in the plant whose price determination value has been changed from 2 to 3. This also means that the materials will be part of the period-end actual costing run.

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Figure A.18 Display Screen for Changing the Price Determination

A.4 Material Ledger HelpDesk The Material Ledger HelpDesk is a collection of programs categorized according to different functions and used for correcting inconsistencies in converting to (as well as using) the Material Ledger. In the SAP ERP system, the Material Ledger HelpDesk is made available by downloading SAP Note 364368 and is accessed via Transaction CKMHELP. In SAP S/4HANA (as of release 1610), a new Material Ledger HelpDesk is installed in the standard system. You can access it by going to Transaction FCMLHELP; this will take you to the screen shown in Figure A.19. The Material Ledger HelpDesk selection screen shows various categories for the different functions in the Material Ledger. Let’s walk through each one.

506

A.4

Material Ledger HelpDesk

Figure A.19 Material Ledger HelpDesk Selection Screen

A.4.1 Material Ledger Overview We’ll take a look each of the categories shown in Figure A.19, starting with the Material Ledger Overview. Because this option is the default selection, click the Execute button, which will lead to the screen shown in Figure A.20.

Figure A.20 Material Ledger Overview Selection Screen

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As you can see in Figure A.20, the Selection screen shows the plants that you want to query, and the Processing options allow you to select the Material Master, ML-Period Data, and ML-Documents. The Material Master setting displays statistics that exist in the Material Ledger, such as the number of materials in the master data tables (tables MBEW, QBEW, and OBEW), the number of materials in the Material Ledger header table (CKMLHD), the number of materials with price determination 2 and price determination 3, and whether actual costing, activity consumption update, and actual cost component split are active. The ML-Period Data setting displays the numbers of records in the tables CKMLPP, CLMLCR, and CKMLKEPH for the different plants in the range of periods that they exist. The ML-Documents setting displays the number of records in tables MLHD and MLIT.

A.4.2 HelpDesk for Transaction Data Now, go back to the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for transaction data, and click the Execute button. This will take you to the screen shown in Figure A.21.

Figure A.21 HelpDesk for Transactional Data

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A.4

Material Ledger HelpDesk

As you can see in Figure A.21, the checks between period totals area allows you to reconcile various period totals such as the material inventory values against FI accounts, consistencies between the Material Ledger and MM, and consistency check for quantities. In the checks between line items and period totals area, the program compares the line items and period totals for Material Ledger documents. In the checks for verifying line items area, the Material Ledger documents are compared with FI documents and corrected if they don’t reconcile. Now scroll to the lower part of the screen to display the screen shown in Figure A.22.

Figure A.22 Display of Functions for Transactional Data

As you can see in Figure A.22, the display functions for transaction data area allows you to display the index for one material and the technical views of Material Ledger documents, master data, and period totals. The list of data base views area allows you to display views of the database that join several Material Ledger document tables.

A.4.3 HelpDesk for Master Data Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for master data, and click the Execute button. This will take you to the screen shown in Figure A.23.

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Figure A.23 HelpDesk for Master Data

As you can see in Figure A.23, the checks and correction of master data database area allows you to create the Material Ledger header and period data as well as check the consistency of Material Ledger Customizing. It also allows you to repair the Material Ledger tables and shift the Material Ledger period and period status. Scroll to the bottom of the screen to display the screen shown in Figure A.24.

Figure A.24 Display of Functions for Master Data Database

510

A.4

Material Ledger HelpDesk

As you can see in Figure A.24, the display of master data database area allows you to display the technical details of the Material Ledger, material master, and activity type/business process master and period data. The list of data base views area allows you to display views of the database that join several Material Ledger and material master tables.

A.4.4 HelpDesk for Actual Cost Component Split Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for actual cost component split, and click the Execute button. This will take you to the screen shown in Figure A.25.

Figure A.25 HelpDesk for Actual Cost Component Split

As you can see in Figure A.25, the cost component split of materials area allows you to check and re-create or delete the cost component split for standard and periodic unit price (PUP). The cost component split for activities area allows you to create and delete the cost component split for activity prices. It also allows you to compare activity price tables in the Material Ledger and cost center accounting.

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A.4.5 HelpDesk for Miscellaneous Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for miscellaneous, and click the Execute button. This will take you to the screen shown in Figure A.26.

Figure A.26 HelpDesk for Miscellaneous

As you can see in Figure A.26, the selection screen provides options that allow you to check the costing data, display Material Ledger closing document, set exception handling for actual cost component split, and find any inconsistencies with the late activation of split valuation.

A.4.6 HelpDesk for Production Orders Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for Production Orders, and click the Execute button. This will take you to the screen shown in Figure A.27.

Figure A.27 HelpDesk for Production Orders

As you can see in Figure A.27, the selection screen provides options that allow you to check the consistency check between production orders and the Material Ledger and to initialize the production order history.

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A.4

Material Ledger HelpDesk

A.4.7 HelpDesk for Purchase Order History Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for purchase order history, and click the Execute button. This will take you to the screen shown in Figure A.28.

Figure A.28 HelpDesk for Purchase Order History

As you can see in Figure A.28, the checks of purchase order history database area allows you to check and correct any inconsistencies between the purchase order history and the Material Ledger. The list of data base views area allows you to display views of the database that join several purchase order tables.

A.4.8 HelpDesk for Balance Sheet Valuation Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for balance sheet valuation, and click the Execute button. This will take you to the screen shown in Figure A.29.

Figure A.29 HelpDesk for Balance Sheet Valuation

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As you can see in Figure A.29, the reset devaluation indicators area allows you to reset or decrease the value of the devaluation indicator, which determines the percentage by which the value of a material is reduced, in the material master.

A.4.9 HelpDesk for Alternative Valuation Run Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for Alternative Valuation Run, and click the Execute button. This will take you to the screen shown in Figure A.30.

Figure A.30 HelpDesk for Alternative Valuation Run

As you can see in Figure A.30, the check cumulation data area allows you to compare two alternative valuation runs (AVRs), show the progress of a simulation, analyze the cycle of a cumulation run, and monitor the parallel process of an AVR cumulation run.

A.4.10 HelpDesk for Distribution of Usage Variances Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for Distribution Of Usage Variances (DUV), and click the Execute button. This will take you to the screen shown in Figure A.31.

Figure A.31 HelpDesk for Distribution of Usage Variances

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A.4

Material Ledger HelpDesk

As you can see in Figure A.31, the Tools for DUV area allows you to compare two AVRs, show the progress of a simulation, analyze the cycle of a cumulation run, and monitor the parallel process of an AVR cumulation run.

A.4.11 HelpDesk for WIP Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for WIP, and click the Execute button. This will take you to the screen shown in Figure A.32.

Figure A.32 HelpDesk for WIP

As you can see in Figure A.32, the Checks for WIP Quantity Structure area allows you to check and compare the WIP quantity structure for two or more periods. The Compare WIP Quantity Structure and WIP Layer area provides a consistency check between the tables CKMLMV004WIP (the process model for WIP deductions) and CKMLPPWIP (contains the period records for WIP quantities in the Material Ledger). The Checks for WIP Quantity Documents and WIP Quantity Structure area allows you to

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compare WIP quantity documents with the WIP structure; find orders with WIP documents for different production processes and duplicate WIP documents in the same period; remove materials without the Material Ledger header from WIP documents and quantity structure; and find and remove quantities with invalid WIP documents from the WIP quantity structure.

A.4.12 HelpDesk for the Material Ledger Next Architecture Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select HelpDesk for Material Ledger Next Architecture, and click the Execute button. This will take you to the screen shown in Figure A.33.

Figure A.33 HelpDesk for the Material Ledger Next Architecture

As you can see in Figure A.33, the Check and adjust Tables of Material Ledger Next Architecture (MaLeNa) allows you to correct the table MLRUNLIST (for the Material Ledger costing run); compare table ACDOCA_M_EXTRACT (the Universal Journal extract for the Material Ledger) with table MLDOC_EXTRACT (the extract of Material Ledger documents); and run various consistency checks for tables MLDOC (table for Material Ledger documents), MLDOC_EXTRACT (the extract of Material Ledger documents), MLDOCCCS (the Material Ledger document table for cost component split), MLDOCCCS_EXTRACT (the extract of the Material Ledger document table for cost component split), and ACDOCA (Universal Journal).

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A.5

Summary

A.4.13 Administration Back in the selection screen of the Material Ledger HelpDesk shown earlier in Figure A.19, select Administration, and click the Execute button. This will take you to the screen shown in Figure A.34.

Figure A.34 HelpDesk Administration

As you can see in Figure A.34, the selection screen allows you to show and generate to-do lists and corrections from the Material Ledger HelpDesk. It also allows you to display the Material Ledger overview (as shown earlier in Figure A.20) and count the database entries for a plant in a particular period and year. Lastly, it allows you to display all the Material Ledger-relevant Customizing settings for a plant.

A.5 Summary In this appendix, we discussed how to transition to the Material Ledger in SAP S/4HANA. First, we looked at the transition process for customers currently on SAP ERP. We showed how to migrate the Material Ledger Customizing data and how to check that the assignment of Material Ledger types to valuation areas has been made. We then discussed the four steps of the Material Ledger data migration, which are part of the overall conversion of accounting data to SAP S/4HANA. We then showed the steps that need to be carried out for existing customers using actual costing in SAP ERP as well as customers on SAP S/4HANA 1511 that want to activate actual costing retroactively. Next, we discussed the questions that a new SAP customer would need to ask to determine what functionality they need from the Material Ledger. Then we walked

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through the Material Ledger configuration and activation steps needed for a new customer or a new plant and showed how the price determination can be changed for a plant that wants to use actual costing. We rounded out the section by showing the Material Ledger HelpDesk and displayed the selection of programs that can be used within it. In the next appendix, we list general ledger (G/L) line item texts from Material Ledger postings.

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Appendix B General Ledger Line Item Texts from Material Ledger Postings

The post closing step creates accounting documents depending on how the variances for the material have been distributed. Sometimes it’s easy to be overwhelmed by the volume of postings created by the Material Ledger’s closing entry and what they mean. Some companies choose to label the general ledger (G/L) accounts appropriately to indicate what the posting is for, but if you don’t understand the posting, it’s easy to incorrectly label the G/L account. In addition, you may not need a separate G/L account for each scenario as that may lead to more G/L accounts than you need and may create even more confusion. In Table B.1, we explain the texts that are shown in the financial accounting (FI) line items created by the Material Ledger. Line Item Text

Meaning

BESTD: Debit/credit material

This is the posting to ending inventory from any remaining variances.

EBPRD: Write off single-level price differences

This is the transfer of single-level price difference to ending inventory.

EBPRV: Write off multilevel price differences

This is the transfer of multilevel price difference to ending inventory.

EBKDM: Write off single-level exchange rate differences

This is the transfer of single-level exchange rate difference to ending inventory.

EBKDV: Write off multilevel exchange rate differences

This is the transfer of multilevel exchange rate difference to ending inventory.

VERBR: Debit/credit consumption

This is the posting to the consumption account (cost of sales/scrap, etc.) of any variances that have been proportionally consumed.

Table B.1 General Ledger Line Item Texts

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General Ledger Line Item Texts from Material Ledger Postings

Line Item Text

Meaning

VNPRD: Write off Single-level price differences

This is the transfer of single-level price difference to the consumption account.

VNPRV: Write off multilevel price differences

This is the transfer of multilevel price difference to the consumption account.

VNKDM: Write off single-level price differences

This is the transfer of single-level exchange rate difference to the consumption account.

VNKDV: Write off multilevel price differences

This is the transfer of multilevel exchange rate difference to the consumption account.

ZUPRV: Price differences from previous levels

This is the receipt of multilevel price difference from a lower-level material.

ZUKDV: Exchange rate differences from previous levels

This is the receipt of multilevel exchange rate differences from a lower-level material.

VNPRD: Offset against single-level price differences

This is the transfer of single-level price differences to a higher-level material.

VNPRV: Offset against multilevel price differences

This is the transfer of multilevel price differences to a higher-level material.

VNKDM: Offset against single-level exchange rate differences

This is the transfer of single-level exchange rate differences to a higher-level material.

VNKDV: Offset against multilevel exchange rate differences

This is the transfer of multilevel exchange rate differences to a higher-level material.

GBBAUI: Credit cost center with actual price

This is the cost center variance from the difference between plan and actual activity price.

ATPRD: Offset price differences internal activity

This is the offset of the cost center variance, which is transferred to the inventory or WIP buildup account.

EBPRD: Single-level price differences beginning inventory

This is the reversal of single-level price difference to the beginning inventory of the next month.

Table B.1 General Ledger Line Item Texts (Cont.)

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General Ledger Line Item Texts from Material Ledger Postings

Line Item Text

Meaning

EBPRV: Multilevel price differences beginning inventory

This is the reversal of multilevel price difference to the beginning inventory of the next month.

EBKDM: Single-level exchange rate differences beginning inventory

This is the reversal of single-level exchange rate difference to the beginning inventory of the next month.

EBKDV: Multilevel exchange rate differences beginning inventory

This is the reversal of multilevel exchange rate difference to the beginning inventory of the next month.

AUFUM: Write off of revaluation amounts

This is the reversal of any standard cost revaluation variance that was created at the beginning of the month.

LKWAB: Accrual/deferral posting at status closing

This is the posting to inventory accrual account (if inventory is not revalued) from any ending inventory variances.

LKWAB: Accrual/deferral posting at status closing

This is the posting to inventory accrual account (if inventory is not revalued) from any ending inventory variances.

ZUWIP: Create WIP material

This is the material variance that is transferred to the WIP buildup account.

ZUWIP: Create WIP internal activities

This is the cost center variance that is transferred to the WIP buildup account for internal activities.

ABWIP: Reduct WIP internal activities

This is the posting to the WIP reduction account from the WIP buildup account for internal activities.

GBWIP: Offsetting entry reduce WIP internal activities

This is the posting to the WIP buildup account from the WIP reduction account for internal activities.

Table B.1 General Ledger Line Item Texts (Cont.)

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Appendix C Material Ledger Comparison: SAP ERP versus SAP S/4HANA

A summary of the main differences between the Material Ledger functionality and settings in SAP ERP and SAP S/4HANA is provided in Table C.1. Function

SAP ERP

SAP S/4HANA

ML activation

Optional

Mandatory

Default ML type 0000

Available

Not available

ML currency type derivation

Derived from FI, derived from CO, or derived manually

Derived manually

Ledger for valuation views

Multi-valuation ledgers only

Single-valuation and multi-valuation ledgers

Inventory valuation tables

Separate from Material Ledger tables

Combined with Material Ledger tables

Material Ledger tables

Numerous

Two main Material Ledger tables

Reporting from aggregate tables

Necessary

Not necessary

Actual costing cockpit steps

Eight

Five

Single-level and multilevel determination accounts for actual costing

Separate

Combined

Blank valuation class setting for transaction key GBB-AUI

Not necessary

Necessary

Transaction key for offsetting cost center credit (PRL)

Not available

Available

Table C.1 SAP ERP versus SAP S/4HANA

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Material Ledger Comparison: SAP ERP versus SAP S/4HANA

Function

SAP ERP

SAP S/4HANA

Ability to prevent locking conflicts during actual costing run

Not possible

Possible

Ability to see analysis variances in actual costing run results

Available

Not available

Deactivation of statistical moving average price with price determination 3

Not necessary

Recommended

Revaluation of consumption to COGS cost component new G/L accounts

Not available

Available

ML helpdesk transaction

CKMHELP

FCMLHELP

Material price analysis for activity types

Not available

Available

Cost component in material price analysis

Separate display

Combined display

Releasing standard cost mid-month with actual costing active

Not possible (unless using late price change functionality)

Possible

Consumption price differences

Not considered for actual costing

Considered for actual costing

Actual costing run for prior periods

Not possible (unless using MUST_XXX functionality

Possible, by activating the Allow Open Status for Previous Period checkbox in the Preparation step of the actual costing cockpit

Delta postings with the alternative valuation run

Available

Not available

Transaction codes for main actual costing run and alternative valuation run

Separate

Combined

Table C.1 SAP ERP versus SAP S/4HANA (Cont.)

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Appendix D Bibliography

Ajeet Agarwal, “SAP S/4HANA 1610 Material Ledger Actual Costing: Understand the Fundamental Changes and the Impact on Conversion.” Financials Expert, November 2017. Paul Ovigele, “SAP Material Ledger Line Items Explained.” MichaelManagement.com, February 2018. http://s-prs.co/v486303. Paul Ovigele, “Streamline Parallel Valuation and Actual Costing with Expert Guidelines to Exploit Key Material Ledger Functionality.” Financials Expert, April 2013. Paul Ovigele, “What You Should Know about Converting to Material Ledger.” ERPfixers.com, November 2018. http://s-prs.co/v486300. Paul Ovigele and Rogerio Faleiros, “So, What’s the Deal with Material Ledger?” ERPfixers.com, November 2016. http://s-prs.co/v486301. Paul Ovigele and Rogerio Faleiros, “What You Should Know about Material Ledger in SAP S/4HANA.” ERPfixers.com, February 2018. http://s-prs.co/v486302. John Jordan, Product Cost Controlling with SAP (Boston, MA: SAP PRESS, 2009). http:// www.sap-press.com/1610 Rogerio Faleiros and Paul Ovigele, Introducing the Material Ledger in SAP S/4HANA (SAP PRESS, 2018). http://www.sap-press.com/4648

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Appendix E The Author

Paul Ovigele has worked as an SAP financials consultant since 1997 in both North America and Europe, specializing in implementing the financial accounting and controlling modules along with their integrated areas for companies in the consumer goods, chemicals, logistics, pharmaceuticals, apparel, and entertainment industries. Paul has delivered numerous training sessions to finance professionals at both the functional and managerial levels and has presented at various SAP financials conferences around the world. Paul is the founder of the consulting platform ERPfixers, which provides on-demand SAP consulting expertise in various modules.

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Index A ABAP List Viewer reports ................................... 445 highest inventory value ................................. 452 largest moving price differences ................ 451 prices and inventory values ......................... 446 WIP for actual costs ........................................ 453 Account determination ..................................... 188 table ....................................................................... 188 Account modification ......................................... 283 Account-based CO-PA ............................... 426, 439 Accounting principle ........................................... 311 assigning ............................................................. 319 defining ................................................................ 317 Accounts approach .............................................. 312 Accounts payable ..................................................... 23 Accounts receivable ................................................ 23 Accruals .................................................................... 194 Activity consumption analysis ....................... 258 activity adjustment ......................................... 299 CO document ..................................................... 261 cost components .............................................. 262 header fields ....................................................... 259 price determination view .............................. 260 Activity consumption update ......................... 182 Activity price differences ................................... 196 Activity price report .................................. 260, 330 Activity quantity distribution ......................... 302 Activity rate ............................................................. 321 Actual activity price ................................... 207, 328 Actual cost components .................................... 253 Actual costing ............................................................ 24 across company codes ................ 412, 413, 415 activating ............................................................ 181 activating WIP ................................................... 187 activities .............................................................. 497 analysis ................................................................ 205 assigning user-defined names .................... 184 balance sheet valuation ................................ 372 calculation .......................................................... 205 configuring ............................................... 171, 181 cost component split ...................................... 186

Actual costing (Cont.) creating user-defined names ....................... 183 daily ....................................................................... 392 group valuation ............................................... 413 material transactions .................................... 176 moving average price .................................... 307 MTO ....................................................................... 385 new ........................................................................ 207 peripheral transactions ................................. 275 SAP ERP ............................................................ 40, 42 split valuation ................................................... 383 steps ...................................................................... 207 Actual costing cockpit ........................................ 206 accessing ............................................................. 208 buttons ................................................................. 228 mark prices ......................................................... 225 post closing ........................................................ 222 preparation ........................................................ 212 prerequisites ...................................................... 206 SAP ERP ................................................................... 42 settlement ........................................................... 219 Actual costing run ....................................... 205, 207 additional options ........................................... 228 creating variants .............................................. 395 daily ....................................................................... 403 future periods ........................................... 392, 394 mark prices ......................................................... 225 MTO ....................................................................... 388 parallel COGM ................................................... 332 post closing ........................................................ 222 preparation ........................................................ 212 results .......................................................... 229, 231 selection ............................................................... 210 settlement ........................................................... 218 setup ...................................................................... 208 timing ................................................................... 225 valuation alternative ..................................... 373 Actual transfer price ............................................ 136 Additive costs ................................................ 101, 106 creating ................................................................ 107 Aggregate tables ....................................................... 55 Alternative price ................................................... 220

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Index

Alternative valuation run (AVR) ............ 209, 232 classic ................................................................... 233 cockpit .................................................................. 238 creating ................................................................ 233 parallel COGM ......................................... 333, 335 results ................................................................... 238 SAP ERP ................................................................... 44 settings ................................................................. 236 uses ........................................................................ 232 Assets ............................................................................ 23

B Backflushing ........................................................... 289 Background job ..................................................... 400 daily ...................................................................... 400 Background processing ...................................... 224 Balance sheet ............................................................. 23 Balance sheet valuation .............................. 30, 339 actual costing .................................................... 372 configuring ......................................................... 341 FIFO ....................................................................... 349 LIFO ....................................................................... 361 Bill of materials (BOM) actual .................................................................... 243 Business add-ins (BAdIs) .................................... 429 Business function activating ............................................................ 313 LOG_MM_SIT .................................................... 415 Business partner ...................................................... 50

C Calculation base ....................................................... 98 CDS views ................................................................ 480 Characteristics ....................................................... 457 Chart .......................................................................... 475 Closing document ................................................ 269 Closing history ...................................................... 244 COGS account ........................................................ 426 COGS configuring splitting .......................... 428 revaluation of consumption ....................... 435 split by cost components .............................. 426 split from PGI .................................................... 432 Company .................................................................... 65 Company code .......................................................... 65

530

Company code currency ...................................... 62 Comparison price .................................................. 369 Compatibility view ................................................. 58 Condition record ................................................... 133 Condition type ....................................................... 132 creating ...................................................... 132, 135 fixed ....................................................................... 136 linking ......................................................... 134, 135 percentage ........................................................... 132 Consolidation ........................................................... 95 Consumption variance ....................................... 289 distributing ......................................................... 289 Contracts .................................................................. 369 Controlling (CO) functionality ......................... 425 Controlling (CO) module ............................... 24, 27 Controlling area ....................................................... 73 Controlling area currency .................................... 63 Controlling level .................................................... 183 Controlling object currency ................................ 66 Convergence cycle ................................................ 220 Cost center absorption ........................................ 197 Cost center report ................................................. 326 Cost component activity consumption analysis .................... 262 costing lot size ................................................... 255 direct material ................................................... 285 manually changing ............................... 303, 304 MTO ....................................................................... 389 structure ..................................................... 186, 320 view .............................................................. 254, 418 Cost component split ...................... 110, 154, 186 activating ............................................................ 186 changing .............................................................. 304 material price analysis ................................... 253 MTO ....................................................................... 390 Cost element ........................................................... 186 Cost estimate ................................................ 109, 152 Cost of goods sold (COGS) ........................ 427, 431 Cost splitting profile ............................................ 429 Costing levels .......................................................... 216 Costing type .............................................................. 98 group valuation .................................................. 98 profit center valuation ................................... 144 Costing variant group valuation ......................................... 97, 101 profit center valuation ......................... 143, 146

Index

Costing-based CO-PA ................................. 425, 427 Credit of cost centers ........................................... 183 Crediting ................................................................... 279 Cross-company costing ...................................... 102 activating ............................................................ 102 Cross-company purchasing .............................. 111 scenario ................................................................ 117 setup ...................................................................... 112 Cross-profit center purchasing ....................... 157 Cumulate data ........................................................... 44 Currency and valuation profile ................ 71, 315 activating ............................................................... 74 assigning to controlling area ......................... 73 maintaining .......................................................... 72 Currency conversion company code ...................................................... 69 currency type ........................................................ 70 global ....................................................................... 69 Currency key .............................................................. 62 Currency type assigning ................................................................ 81 configuring ............................................................ 61 defining for the G/L ............................................ 62 naming .................................................................... 69 profit center accounting ............................... 130 reporting .............................................................. 448 single valuation ledger ..................................... 79 standard .................................................. 62, 66, 67 user-defined .................................................... 67, 68

Delta cost component group valuation ............................................... 103 profit center valuation .................................. 148 settings ........................................................ 104, 149 split ........................................................................ 413 Delta posting .......................................................... 233 Depreciation area .......................................... 70, 322 assigning ............................................................. 319 Depreciation run .................................................. 324 Determine delta postings .................................... 44 Determine sequence .............................................. 43 Distribution of usage variances (DUV) ........ 289 activating ............................................................ 289 activities .............................................................. 299 material price analysis .................................. 298 materials ............................................................. 294 specifying movement types ......................... 290 Document currency ............................................... 62 Document table .................................................... 309 Document type lowest value method ...................................... 346 mapping .............................................................. 432 Drilldown report ................................................... 457 classic ................................................................... 459 material breakdown ....................................... 461 multiple characteristics ................................. 460 Dynamic price release ..................... 175, 226, 276

D

Exchange rate differences ........................ 191, 403 AVR ........................................................................ 237 causes ................................................................... 404 configuring treatment ................................... 404 material price analysis .................................. 410 purchasing material ....................................... 406 settings ................................................................. 404 Exchange rate type .............................................. 405 Exchange rate variance ...................................... 206 Extension ledger ...................................................... 75 External procurement ............................... 377, 382

Daily actual costs .................................................. 392 Data migration ....................................................... 494 activities .............................................................. 495 run .......................................................................... 494 Date control ............................................................... 98 Debit/credit material ................................ 279, 420 alternative G/L account ................................ 284 directly .................................................................. 280 reasons for price change ............................... 282 specific cost component ................................ 285 Debiting .................................................................... 279 Deferred accounts ................................................ 194 Definition level ......................................................... 69 Delivery document .............................................. 118

E

F Financial Accounting (FI) module ............. 24, 27 Finished goods .......................................................... 22

531

Index

First in, first out (FIFO) ......................... 31, 32, 340 activating ............................................................ 341 activating material ......................................... 353 alternative price ............................................... 359 calculating price ............................................... 356 configuring valuation areas ....................... 344 defining method ............................................... 343 defining movement types ............................ 343 periodic receipt values ................................... 355 updating material price ................................ 360 value ..................................................................... 358 variant ................................................................. 348 Fixed assets ................................................................ 23 Future cost estimate ........................................... 429 Future price ............................................................. 226

Group currency ................................................. 64, 87 changing material cost .................................... 91 making a purchase ............................................ 93 setting up for company code ......................... 88 settings ................................................................... 89 Group valuation .............. 38, 71, 87, 95, 413, 424 AVR ......................................................................... 237 costing variant .................................................... 97 delta cost component ..................................... 103 standard cost ....................................................... 97 Group valuation view ............................................ 97 Group view .............................................................. 109 buying company ..................................... 419, 424 cost components .................................... 420, 425 delta cost component split ........................... 413

G

H

G/L account splitting .......................................... 439 General Ledger ...................... 23, 27, 284, 269, 519 classic ...................................................................... 27 currency types ...................................................... 62 exchange rate difference .............................. 412 line items ............................................................. 519 new .......................................................... 27, 51, 312 posting ........................................................ 269, 270 General modification .......................................... 283 Generally Accepted Accounting Principles (GAAP) ............................................ 311 Global category ..................................................... 378 Global company currency ................................... 64 Global types ............................................................ 376 creating ................................................................ 377 Goods issue .............. 119, 325, 351, 353, 364, 411 group view .......................................................... 122 legal view ............................................................ 121 Goods receipt ........... 93, 350, 351, 362, 363, 382, 387, 407 accounting document ................................... 166 different profit center ..................................... 165 group view .......................................................... 121 profit center view ............................................. 167 Group costing ........................................................... 97

Hard currency ........................................................... 64 HelpDesk .................................................................. 506 administration .................................................. 517 AVR ......................................................................... 514 balance sheet valuation ................................ 513 cost component split ....................................... 511 master data ........................................................ 509 miscellaneous .................................................... 512 next architecture tables ................................. 516 overview ............................................................... 507 production orders ............................................ 512 purchase order history ................................... 513 transaction data ............................................... 508 WIP ......................................................................... 515

532

I IDoc ............................................................................. 112 Index-based currency ............................................ 64 Intercompany billing document .................... 122 group view ........................................................... 124 Intercompany customer .................................... 115 Intercompany markup ....................................... 101 additive costs ..................................................... 106 Intercompany payable document ................. 124 group view ........................................................... 126 legal view ............................................................. 126 Intercompany pricing procedure ................... 115

Index

Intercompany purchase order ........................ 117 delivering ............................................................. 118 Intercompany transactions .............................. 416 Intercompany vendor ......................................... 113 Internal goods movement ................................ 139 settings ................................................................. 140 Inventory adjustment ........................................ 294 DUV ....................................................................... 296 Inventory Management (IM) module ............. 54 Inventory valuation ................................................ 28 attributes ................................................................ 32 SAP Fiori apps ....................................................... 55 SAP S/4HANA ........................................................ 54 scenarios ................................................................. 31 subledger ................................................................ 53 tables ................................................................. 34, 55 Inventory value ........................................................ 23 Invoice receipt ....................................................... 409 Invoice verification .............................................. 404

J Job overview ........................................................... 228

K Key figure ................................................................. 457 Key figure scheme ................................................ 347 defining ................................................................ 347

L Last in, first out (LIFO) ........................... 31, 32, 340 activating ............................................................ 341 activating material ......................................... 364 calculating price ............................................... 367 configuring valuation areas ........................ 344 defining method ............................................... 343 defining movement types ............................. 343 layer versions ..................................................... 345 valuation ............................................................. 361 Late price change .................................................. 276 Leading ledger .................................................... 51, 75 Lean manufacturing ............................................ 385 Ledger .................................................................... 23, 51 CO versions ............................................................ 79

Ledger (Cont.) configuring ............................................................ 61 defining ......................................................... 75, 321 Ledger approach ................................................... 312 Ledger group .......................................................... 318 Legacy System Migration Workbench (LSMW) ........................................ 393 Legal valuation .................................................. 38, 71 Legal valuation view ..................................... 97, 102 Legal view ............................................. 108, 146, 159 buying company ..................................... 418, 422 cost components ..................................... 418, 423 delta cost component split .......................... 413 selling company ............................................... 416 Liabilities ..................................................................... 23 LIFO layer ................................................................. 345 Line Items report .................................................. 480 Local currency ............................................... 407, 409 Lower of cost and market (LCM) ........................ 31 Lowest value determination ............ 31, 340, 368 output ................................................................... 371 update prices ..................................................... 370 Lowest value method .......................................... 346 Lowest value principle ................................. 32, 340

M Main costing run .................................................. 232 Make-to-order (MTO) .......................................... 448 actual costing .................................................... 385 production process .......................................... 385 Make-to-stock (MTS) ........................................... 385 actual costing .................................................... 390 Manual checkbox .................................................... 81 Manufacturing order .......................................... 161 Mark material prices .............................................. 43 Mark prices .............................................................. 225 AVR ........................................................................ 238 parameters ......................................................... 226 Material ....................................................................... 21 Material consumption ....................................... 162 accounting document .................................... 164 cost ........................................................................ 163 profit center view ............................................. 165 Material cost .............................................................. 91

533

Index

Material Inventory Values apps ..................... 471 balance summary ............................................ 472 line items ............................................................. 479 rounding differences ...................................... 477 Material Ledger activating actual costing ............................. 172 activating currencies and valuations ......... 80 benefits ................................................................... 26 conversion tables ................................................ 45 definition ................................................................ 21 HelpDesk ............................................................. 506 limitations ............................................................. 26 mandatory ............................................................ 53 misconceptions ................................................... 24 periodic tables ...................................................... 56 SAP ERP ............................................................ 26, 46 SAP S/4HANA ....................................................... 47 Material Ledger conversion ............................. 491 data migration ................................................. 494 existing customers .......................................... 491 new customers .................................................. 498 Material Ledger type ........................................... 498 assigning ................................................................ 82 defining ................................................................... 81 Material master ........................................................ 22 actual costing ....................................................... 40 company code and group currency ............ 90 FIFO ....................................................................... 354 LIFO ....................................................................... 366 MTO ....................................................................... 386 price change .......................................................... 93 split valuation ................................................... 381 standard cost ............................................ 110, 155 Material movement tables .................................. 56 Material period ...................................................... 207 Material price analysis .............................. 231, 239 accounting postings ....................................... 272 actual cost components ................................ 253 after actual costing run ................................ 420 AVR ........................................................................ 239 before actual costing ...................................... 416 changed standard cost .................................. 278 consumption ..................................................... 185 cost component change ................................ 306 debit/credit material ...................................... 281 display buttons ................................................. 242

534

Material price analysis (Cont.) drilldown .............................................................. 258 DUV ........................................................................ 297 exchange rate difference ..................... 410, 411 FIFO ........................................................................ 360 header buttons .................................................. 240 header fields ............................................. 240, 241 inventory adjustment ..................................... 295 MTO ....................................................................... 389 MTS ........................................................................ 391 not allocated ...................................................... 266 not distributed ................................................... 263 parallel COGM AVR ......................................... 338 period status ....................................................... 241 price determination structure ..................... 245 price history ........................................................ 250 prices and inventory values ......................... 450 revaluation of consumption ........................ 435 SAP ERP ................................................................... 44 SAP ERP data ...................................................... 252 split valuation .................................................... 384 valuated quantity structure ......................... 256 valuation alternatives .................................... 373 Material update ...................................................... 175 assigning movement type groups ... 177, 180 defining movement type groups ................ 176 defining structure ............................................. 178 Material valuation .................................................. 32 Material valuation table .............................. 56, 308 Materials management (MM) .......................... 341 Measures ................................................................... 467 Movement type defining ................................................................ 142 FIFO/LIFO ............................................................. 343 lowest value method ....................................... 346 reversal ................................................................. 292 Movement type group ........................................ 176 options .................................................................. 177 Moving average costing ................................ 29, 31 statistical ............................................................... 42 Moving average price ............................................ 91 deactivating ....................................................... 307 Multilevel price determination ......................... 43 Multiple valuation approaches ......................... 35 Multiple valuations ......................................... 71, 73

Index

Multi-valuation ledger ........................................... 76 currency types ...................................................... 77 setting up ............................................................... 77

N Negative price .............................................. 220, 265 Nonleading ledger ............................................ 51, 75 Not allocated differences ................................... 265 Not distributed differences .............................. 263 causes ................................................................... 264 Number range ........................................................ 172 accounting document .................................... 174 Material Ledger documents ......................... 173

O Offsetting account ................................................ 431 Origin group ........................................................... 286

P Parallel activity rate ............................................. 321 calculating deprecation ................................ 322 posting activity consumption ..................... 325 Parallel cost of goods manufactured ... 233, 311 accounting principles ..................................... 317 creating a version ............................................ 316 creating an AVR ................................................ 335 ledgers .................................................................. 317 multiple costing runs ..................................... 332 valuation view .................................................. 315 value flow ............................................................ 312 Parallel currencies ................................................... 36 derive in SAP ERP ................................................ 36 Parallel ledger approach ....................................... 51 Parallel valuation .................................... 24, 38, 311 configuring ......................................................... 319 Partner version ......................................................... 98 group valuation ................................................... 99 profit center valuation ................................... 144 Period status ........................................................... 276 Period totals table ................................................. 309 Period-end ............................................................... 206 Periodic receipt values ........................................ 355 Periodic unit price (PUP) ................... 40, 205, 246

Peripheral application ........................................ 375 Planned transfer price ........................................ 132 Plants .................................................................. 80, 502 Post closing ............... 43, 188, 189, 192–194, 196, 198–200, 206, 222, 269, 392 AVR ........................................................................ 238 future periods .................................................... 394 output ................................................................... 225 parameters ......................................................... 223 processing options .......................................... 224 Post goods issue (PGI) ......................................... 426 document ............................................................ 433 Preliminary valuation ........................................ 254 Preparation ............................................................. 212 background jobs ............................................... 402 creating variants .............................................. 397 errors ..................................................................... 217 output .......................................................... 216, 218 parameters ......................................................... 214 previous period ................................................. 215 Price change defining reasons ............................................... 282 Price control .......................... 30, 40, 250, 380, 504 Price determination ........................................ 40, 84 changing ............................................................. 504 mutlilevel ................................................... 219, 247 single/multilevel .............................................. 189 single-level ................................................. 219, 247 Price determination structure ........................ 245 activity consumption analysis ................... 260 columns ............................................................... 246 rows ....................................................................... 245 Price difference account .................................... 303 Price history ............................................................ 250 columns ............................................................... 251 Price variance ......................................................... 206 Pricing procedure .............................. 134, 135, 138 Processing type ..................................................... 223 Product Cost Controlling module .................... 24 Production order ............................... 163, 165, 325 calculating variances ..................................... 167 cost analysis ................................... 165, 326, 387 production variance ....................................... 440 settlement ........................................................... 168 zero delivery ....................................................... 265

535

Index

Production startup .............................................. 500 output log ........................................................... 501 Production variance ................................... 141, 437 account configuration ................................... 438 configuring accounts ..................................... 439 settlement ........................................................... 442 Profit center ............................................................ 129 Profit center currency ........................................ 130 Profit center valuation ......................... 38, 71, 129 AVR ........................................................................ 237 currency types ................................................... 130 delta cost component .................................... 149 manufacturing order ..................................... 161 standard cost ..................................................... 143 transfer pricing ................................................. 131 Profit center view ........... 139, 159, 164, 167, 169 cost ........................................................................ 116 revenue ................................................................ 116 standard cost ..................................................... 155 Profitability analysis (CO-PA) .......................... 425 Purchase info records ......................................... 369 Purchase orders .................................................... 369 Push logic ................................................................ 271

Q Quantity structure control .................................. 98

R Raw materials ............................................................ 22 Relationship browser .......................................... 125 Reporting .......................................................... 49, 445 ALV ........................................................................ 445 CDS views ............................................................ 480 drilldown ............................................................. 457 SAP ERP ................................................................... 52 SAP Fiori apps ................................................... 461 SAP S/4HANA ....................................................... 52 Retroactive enablement ....................................... 73 Revaluation .................................................... 193, 194 WIP ........................................................................ 198 Revaluation of consumption ................... 43, 219, 224, 248 COGS split ........................................................... 435 Revaluation reason ..................................... 287, 303

536

Reversal posting .................................................... 273 Reverse goods movements ............................... 290 Run reference ......................................................... 234 creating ................................................................ 333 parallel COGM ................................................... 333

S Sales cost estimate ................................................ 428 SAP ERP ....................................................................... 26 accounting structure ........................................ 24 inventory valuation .......................................... 28 old data ................................................................ 252 parallel cost of goods manufactured ....... 312 reporting ................................................................ 52 restrictions ................................................ 275, 276 versus SAP S/4HANA ....................................... 523 SAP Fiori ............................................................. 52, 461 SAP Fiori apps ........................................... 50, 52, 461 inventory valuation .......................................... 55 SAP HANA ........................................................... 49, 55 SAP S/4HANA ............................................................ 47 actual costing .................................................... 207 AVR ......................................................................... 232 conversion ........................................................... 491 CO-PA .................................................................... 425 evolution ................................................................ 47 financial reporting ............................................. 52 flexibility .............................................................. 275 inventory valuation .......................................... 54 ledger approach ................................................ 312 material price analysis ................................... 239 variances .............................................................. 263 versus SAP ERP .................................................. 523 SAP S/4HANA Finance .......................................... 47 core areas .............................................................. 48 SAP Simple Finance ................................................ 47 Schedule Manager ................................................ 228 Scrapping .................................................................. 142 Selection ............................................................ 42, 210 background jobs ............................................... 402 creating variants .............................................. 395 Semifinished goods ................................................ 22 Server group ............................................................ 214 Settlement ...................................................... 208, 218 background jobs ............................................... 402

Index

Settlement (Cont.) creating variants .............................................. 398 legal view ............................................................. 168 output ................................................................... 222 parameters ......................................................... 219 profit center view ............................................. 169 Settlement document ......................................... 244 Simulation ledger .................................................... 76 Single source of truth ................................... 50, 426 Single valuation ledger .......................................... 78 setting up ............................................................... 78 Single-level price determination ....................... 43 Source document ................................................. 244 Special procurement key group valuation ................................................ 105 profit center valuation ................................... 150 Special purpose ledger .................................... 51, 66 Special stock .................................................. 388, 504 Split valuation ........................................................ 375 calculating actual cost .................................. 383 configuring ......................................................... 376 creating a material .......................................... 379 procuring materials ........................................ 382 Splitting profile ............................................ 439, 440 Standard cost .......................................................... 205 changing mid-month ........................... 275, 277 group valuation ................................................ 108 group view .......................................................... 109 profit center valuation ................................... 152 SAP ERP ................................................................ 276 SAP S/4HANA ..................................................... 277 Standard cost estimate group valuation ................................................... 97 profit center valuation ................................... 143 Standard costing ............................................... 28, 31 Standard ledger ........................................................ 75 Stock coverage check ........................................... 220 Stock value ................................................................. 23 Strategy sequence ................................................. 429 Subledger .................................................................... 23 Supply chain .............................................................. 97

T Table ACDOCA ......................... 50, 56, 67, 94, 436, 502

Table (Cont.) ACDOCA_M_EXTRACT ..................................... 56 CKMLCR ............................................................... 309 CKMLKEPH ............................................................ 57 CKMLMYMP ....................................................... 356 CKMLPR_EB .............................................. 358, 372 EBEW(H) ............................................................... 308 FCML ..................................................................... 480 MATDOC ................................................... 48, 56, 58 MBEW ........................................................ 34, 56, 94 MBEW(H) ............................................................. 308 MKPF ................................................................. 56, 58 MLCR ..................................................................... 309 MLDOC .......................................... 56, 57, 239, 263 MLDOCCCS ..................................................... 56, 57 MLDOCCS ............................................................ 239 MLKEPH .................................................................. 57 MSEG ................................................................. 56, 58 MYMLM ............................................................... 368 OBEW ....................................................................... 56 OBEW(H) .............................................................. 308 QBEW ....................................................................... 56 QBEW(H) .............................................................. 308 TDUVN156 ........................................................... 290 TVARVC ................................................................ 396 Trading goods ........................................................... 22 Trading partner ..................................................... 112 assigning to customer ................................... 115 assigning to vendor ........................................ 113 Transaction 0KE5 ...................................................................... 130 8KEM .............................................................. 39, 315 8KEN ...................................................................... 112 8KEP ......................................................................... 74 8KEZ ............................................................. 131, 162 ABZON .................................................................. 322 AFAB ...................................................................... 323 BP .................................................................. 113, 115 BSD ........................................................................ 233 BSX ......................................................................... 270 CK11N ................................................. 108, 152, 155 CK40N .................................................................. 152 CK74N ................................................................... 107 CKM3 ........... 180, 185, 240, 252, 281, 295, 297, 373, 383, 450 CKM3A ......................................................... 259, 299

537

Index

Transaction (Cont.) CKM3N ................................................................. 240 CKM3OLD ............................................................ 252 CKMCCC ..................................................... 241, 304 CKMDUVACT ..................................................... 300 CKMDUVMAT .......................................... 294, 296 CKMDUVREC ..................................................... 299 CKME .................................................................... 226 CKMHELP ............................................................ 506 CKMLBB_AGGREGATE .................................. 355 CKMLBB_FIFO_CALCULAT .......................... 357 CKMLBB_PRICES_CHANGE ......................... 360 CKMLBB_PRICES_LIST ................................... 359 CKMLCP ............... 208, 233, 333, 373, 383, 388, 393, 422 CKMLCPAVR ......................................................... 44 CKMLQS ...................................................... 182, 256 CKMM ............................................................ 85, 504 CKMSTART ................................................... 45, 500 CKMTOPPRICEDIF ........................................... 451 CKMTOPSTOCKVAL ........................................ 452 CKMVFM ............................................................. 264 CKR1 ...................................................................... 277 CO03 .................................................. 163, 165, 386 COMLWIPDISP .................................................. 454 CON2 ..................................................................... 182 FAGL_FCV ....................................................... 70, 76 FAGLL03 .............................................................. 269 FB50 .............................................................. 207, 279 FB60 ...................................................................... 282 FCML_FILL .......................................................... 480 FCML4H_STARTUP ......................................... 497 FCMLHELP .......................................................... 506 FINS_MIG_STATUS ................................ 494, 496 FINSC_LEDGER ........................ 67, 75, 77, 78, 88 FS00 ...................................................................... 140 KALC ......................................................................... 27 KB21N .................................................................... 325 KBK6 ..................................................................... 261 KDM ...................................................................... 412 KKF1 ....................................................................... 325 KKF3 ...................................................................... 326 KKML0 ................................................................. 458 KKML1 .................................................................. 458 KKML5 .................................................................. 458 KKS1 ....................................................................... 388

538

Transaction (Cont.) KKS2 .......................................... 167, 332, 383, 440 KO88 ............................................................ 168, 442 KSB5 ....................................................................... 261 KSBT ............................................................. 260, 330 KSII ............................................................... 261, 328 LKW ........................................................................ 270 M107 ...................................................................... 295 ME11 ....................................................................... 369 ME21N ............................. 117, 350, 351, 362, 407 MIGO .......... 119, 157, 325, 350, 351, 362, 364, 387, 407 MIRO ...................................................................... 282 ML4HVFM ................................................. 263, 267 MLCCSPD ......................................... 241, 255, 389 MM01 .................................................................... 379 MM02 .................................................................... 151 MM03 ... 90, 110, 155, 226, 241, 352, 361, 365 MMPV ......................................................... 207, 245 MR21 ............................................................... 91, 276 MR22 ...................... 207, 279, 284, 287, 303, 420 MRF4 ...................................................................... 353 MRL1 ...................................................................... 367 MRL6 ...................................................................... 364 MRL9 ...................................................................... 365 MRN0 .................................................................... 370 OABT ........................................................................ 70 OB08 ............................................................... 89, 406 OB52 ....................................................................... 207 OBYC ..... 88, 188, 281, 303, 412, 427, 438, 497 OKEQ ..................................................................... 320 OKG8 ..................................................................... 199 OKK4 ............................................................ 100, 146 OKKI ................................................................ 98, 144 OKKN ................................................. 101, 106, 146 OKKP ....................................................................... 63 OKTZ .................................................. 103, 148, 186 OKYV ..................................................................... 102 OMJJ ....................................................................... 290 OMW3 .................................................................... 345 OMW4 ................................................................... 343 OMWE ................................................................... 341 OMWEB ................................................................. 373 OMWL ................................................................... 342 OMWP ................................................................... 343 OMWT ................................................................... 345

Index

Transaction (Cont.) OMX1 ..................................................................... 504 OMX2 ....................................................................... 90 OMX3 ....................................................................... 89 OX02 ........................................................................ 62 OX15 .......................................................................... 64 OY01 ......................................................................... 64 PRD-MAC ............................................................. 307 PRM ....................................................................... 201 PRY ......................................................................... 191 S_ALR_87013611 ................................................ 326 S_P99_41000062 ............................................. 446 SCC4 .......................................................................... 64 SE16N ..................................................................... 161 SE38 ........................................... 308, 395, 397, 398 SFW5 ............................................................ 313, 415 SM30 ........................................................... 290, 294 SM36 ...................................................................... 400 SM37 ...................................................................... 228 TRS ......................................................................... 271 UMD ...................................................................... 233 V/06 ...................................................................... 116 V/08 ....................................................................... 115 VF01 ....................................................................... 122 VF31 ........................................................................ 124 VK11 ........................................................................ 116 VL10B .................................................................... 118 XK01/FK01/MK01 ............................................. 114 XK02/FK02/MK02 ........................................... 114 Transaction key COC ........................................................................ 273 GBB ........................................................................ 426 GBB-AUI ..................................................... 196, 497 KDV ........................................................................ 497 LKW ........................................................................ 194 PRA ......................................................................... 202 PRD ..................................................... 281, 303, 438 PRL ............................................................... 196, 497 PRV ......................................................................... 497 UMB ....................................................................... 281 WPM ............................................................ 198, 200 Transfer control and reference variant ........... 98 Transfer price variant .......................................... 148 Transfer pricing ................................................. 73, 96 company codes ................................................. 102 defining ................................................................ 131

Transfer pricing (Cont.) markup ................................................................ 134 profit center valuation .................................. 130 simulation ....................................... 153, 155, 157 Trial Balance app ................................................... 462 dimensions ......................................................... 468 filters ..................................................................... 463 materials ............................................................. 466 measures ............................................................. 467 navigating to activities ................................. 470 parameters ......................................................... 462

U Universal Journal ............. 49, 53, 79, 94, 312, 498 CO-PA ................................................. 426, 436, 443 currency types ...................................................... 67 key features ........................................................... 50 ledgers ..................................................................... 75 profit center document ................................. 161 settings .................................................................... 61 Update control ....................................................... 293 User-defined name .............................................. 183 assigning ............................................................. 184

V Valuated quantity structure ............................ 256 Valuation alternatives ........................................ 347 Valuation approach ................................................ 72 Valuation area .......................................... 32, 82, 180 activating ..................................................... 83, 499 currency type statuses ...................................... 83 FIFO/LIFO ............................................................ 344 Valuation category .................................................. 33 Valuation class .......................................................... 33 Valuation clearing account .............................. 112 Valuation level ....................................................... 342 Valuation methods ................................................. 55 creating versions ................................................. 73 Valuation type ....................................... 33, 377, 380 Valuation variant ..................................................... 98 group valuation ............................................... 100 profit center valuation .................................. 145 Valuation view configuring ............................................................ 61

539

Index

Valuation view (Cont.) maintaining ....................................................... 315 multi-valuation ledger ..................................... 77 parallel COGM .................................................. 316 setting up ............................................................... 71 single valuation ledger ..................................... 78 Value flow monitor .............................................. 262 using ..................................................................... 267 Variance categories .......................... 438, 439, 441

W Work in process (WIP) ......................................... 187 actual cost .......................................................... 187 actual cost values ............................................ 453

540

Work in process (WIP) (Cont.) canceled materials ........................................... 200 cancelled activities ........................................... 202 consumption ...................................................... 248 detailed report ................................................... 456 multilevel variance .......................................... 250 reduction .................................................... 244, 249 revaluation ........................................ 43, 212, 219 revaluation from activities ........................... 199 revaluation from material ............................ 198 standard report ................................................. 456

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