SAP Controlling Question & Answer Session (11th April 2020)

1. What is the difference between standard cost and actual cost? How is the
actual cost calculated?
Excerpt from First Steps in SAP Controlling (CO) and blog Improve Performance of SAP Material Ledger Closing
Cockpit

Knowing how much a product costs is essential to determining the actual profitability of a product. Yet most
decisions are based on the standard cost of the product, given that it is not always easy to get an accurate picture of
the actual cost. Actual costing functionality provided by the material ledger component of SAP Controlling bridges
this gap. It provides the ability to capture actual costs by tracking variances at the material (product) level. This
section provides an overview of actual costing in SAP Material Ledger.
Actual Costing with Material Ledger
SAP Material Ledger inventory valuation includes the following:
 Collecting actual data during the month.
 Determining price: single-level and multi-level prices are determined based on the type of transactions
performed.
 Calculating periodic unit prices at the end of the month.

SAP Material Ledger collects material movement data throughout the month and keeps track of which materials
were used for the production of specific goods in production/process orders.
The SAP Materials Management module (in combination with the FI module) tracks goods movements and their
values at standard cost, while the SAP Material Ledger tracks goods movement values at standard and actual costs.
In other words, SAP Material Ledger can be considered a second set of books where each material has a record of all
goods movements for actual valuation.

2. What is actualization and what are the steps involved in that?

Material Ledger closing cockpit
The SAP Material Ledger closing cockpit is run every month to perform actual costing using transaction code
CKMLCP. The menu path is as follows: ACCOUNTING • CONTROLLING • PRODUCT COST CONTROLLING • ACTUAL
COSTING/MATERIAL LEDGER • ACTUAL COSTING • CKMLCP—EDIT COSTING RUN.
The first step is to create a costing run and assign relevant plants. After selecting plant(s), the Material Ledger
closing cockpit requires several steps as shown below

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CKMLCP — SAP Material Ledger closing cockpit process steps
1. SELECTION: all materials for the given plants are selected.
2. SEQUENCE DETERMINATION: the sequence of costing is established, starting with the lowest level material and going
all the way up to the highest-level material and goods movements.
3. SINGLE-LEVEL PRICE DETERMINATION: prices are calculated for each material.
4. MULTI-LEVEL PRICE DETERMINATION: prices are calculated for the entire production stream.
5. REVALUATION OF CONSUMPTION: adjustment posting of actual costs at month end, where all variances are
transferred to the receiving object (which can be a material, cost center, internal order, GL Account, etc.,
depending on where the original consumption occurred).
6. POST-CLOSING: all calculations performed in prior steps are posted during this step.

 Multi-level price differences are transferred to the next level.

 Revaluation of consumption is posted to cost objects.
 Inventory is revalued in FI for the period being closed.

7. MARK MATERIAL PRICES: this step is optional. An organization may decide not to use the periodic unit price as a
standard for the upcoming month. If so, this step is skipped, and the system uses the standard price for goods
movements and revalues at the periodic unit price only at month-end.

3. What reports are available in Material Ledger/Actual Costing?

Excerpt from First Steps in SAP Controlling (CO)

CKM3N (material price analysis)

The columns in transaction CKM3N include:

 QUANTITY—quantity in the displayed unit of measure

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  UNIT—base unit of measure
 PRELIMVAL—standard value (quantity multiplied by standard cost)
 S-L DIFF—single-level variance amount
 MULTL DIFF—multi-level variance amount
 EXRT DIFF—exchange rate difference
 PRICE DIFF—total variance amount
 PRICE—actual material cost per price unit (actual value / quantity)
 ACTUALVAL—prelimVal +/- price diff = actual value of the activity (quantity multiplied by periodic unit price)
 PER: price unit
 CURR—currency (local / group)

Apart from CKM3N – material price analysis – there are a couple of other reports in SAP Material Ledger that are
useful for analyzing data for several materials at a time. They include:
 S_P99_41000062—Prices and inventory values
 S_ALR_87013181—Material prices and inventory values over several periods

4. Material ledger actual costing- is it possible to override the actual costing if

the business finds that results are not accurate?
Using transaction code MR22, we can Debit/Credit material for any adjustment that is needed. Such adjustment can
include:
- Correction of an error (e.g. incorrect price unit was used for purchase of a raw material)
- True-up of freight charges, that were included in the standard cost, but the actual cost in purchase order did not
reflect the freight cost
- Any timing issue where there is not enough inventory in current month to absorb large variances
Addition (Debit) of costs in MR22 posts Dr Inventory, Cr. Revaluation

5. Is there any solution to Fixed cost when transfer happens from one cost
object to another?
Typical process steps for planning and actual data flow are given in table below.
- Fixed costs are typically planned as Activity Independent Costs
- Cost Splitting is used to distribute this fixed cost on activity types associated with the cost center
- Assessment considers costs as fixed
- Template allocation considers costs as variable
Process step Planning Actual
Activity Quantity KP26 KB21N / CORK / COR6N
Activity Dependent Cost KP06 FI postings
Activity Independent Cost KP06 FI postings
Template Allocation KPPS KPAS
Plan Reconciliation KPSI N/A
Distribution KSVB KSV5
Assessment KSUB KSU5
Splitting KSS4 KSS2
Activity Price calculation KSPI KSII
Activity Price Report KSBT KSBT
Revaluation of Orders (delta Activity Price) N/A CON2
Assessment to CO-PA N/A KEU5

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 6. What is the relevance of cost splitting? What will happen if I will skip
splitting & run KSII directly?
- Cost Splitting is used to distribute this fixed cost on activity types associated with the cost center
- Cost splitting distributes costs to activities based on rules defined in OKES and OKEW
- Plan cost splitting (KSS4) is run before plan price calculation (KSPI) to arrive at plan activity price
- Similarly, actual cost splitting (KSS2) is run before actual price calculation (KSII) to arrive at actual activity price
- KSII automatically runs KSS2 splitting behind the scene

Excerpt from First Steps in SAP Controlling (CO)

Plant cost splitting (KSS4), the activity independent plan amount of $48,000.00 was split evenly between the activity
types LABOR and MCHRS. As no splitting rules were maintained, the system divided the costs equally. However, it is
possible to split this cost in the ratio of quantities between the two activity types if desired.

Cost center planning example snapshot from spreadsheet

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Actual cost splitting (KSS2) results screen. Cost element group and activity price combinations are maintained in
splitting rules (OKES) and cost element groups (KAH3) are used during splitting.

7. What are various settlements available in controlling?

Excerpt from Expert tips to Unleash the Full Potential of SAP Controlling and blog Explore Various Cost Objects in SAP
Controlling.

Figure 1: Pre-requisite configuration (order types) and master data for various cost objects

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Figure 2: Transaction codes for cost object master data and period-end closing steps

This is an overview of various cost objects (Production Order, Process Order, CO Production Order, Product Cost
Collector, Internal Order, Plant Maintenance Order, Sales Order and Cost Center) and what steps are necessary to
setup configuration, master data, transaction data and period-end closing steps – including settlement

8. How does Revaluation of COGS work?

- KE4R setup – transfer of cost components to value fields
o Point of valuation 01 - Realtime valuation of actual data (used at billing)
o Point of valuation 02 - Periodic revaluation of actual data (used at KE27 periodic revaluation)

- At billing: Standard cost of sales is updated with planned cost component split
- Once CKMLCP Material Ledger close is complete, KE27 Periodic Valuation is run
- KE27 updates CO-PA with break-down of actual cost components

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- Example of impact of KE27 can be found in table below:
o Without KE27: one gets gross margin based on standard cost (70 in below example)
o With KE27: one gets gross margin based on actual cost (67 in below example)

9. What are the benefits of using combined COPA?

Except from “First Steps in SAP Controlling (CO)”
Profitability analysis (CO-PA) is a sub-module of SAP Controlling that enables an organization to evaluate market
segments that can be classified according to product, customers, geographies, or any combination of these factors
with respect to the organization’s profit or contribution margin (often referred to as gross margin).
CO-PA provides management with information to support internal accounting and decision making from a market-
oriented point of view.
Costing-based CO-PA uses characteristics and value fields to collect data. Account-based CO-PA creates reports using
cost elements and characteristics, value fields are not used (essentially, cost elements are used to report the
amount buckets).
In ECC, it was recommended to use costing-based CO-PA rather than account-based CO-PA. The main reasons for
this were:
 to generate the contribution margin report with the cost-of-sales broken down into the cost component
levels for each cost bucket,
 to get a production variance report by variance categories, and
 to obtain a breakdown of the individual cost buckets beyond the total value that was posted to the general
ledger.
Combined CO-PA (cPA) combines features of both Costing-based CO-PA (CB-COPA) as well as Account-based CO-PA
(AB-COPA).
Excerpt from blog What is Combined Profitability Analysis? By Roushan Kumar Jha
Advantages over cost-based CO-PA approach –
cPA has several advantages over the traditional cost-based CO-PA, few of them are
• Carrying multiple currency types
• Integrated with the GL
• Multiple quantity View
• Pivot browser from the reporting aspect is much more useful than tradition Ke24 reports
• Record type L at the instant of PGI for the reconciliation

10. What apps are available for COPA reporting?

Excerpt from S/4 HANA FINANCE – Account based CO-PA(Profitability Analysis) addressing issues in traditional
costing based CO-PA and Gross margin reporting by Rajendra Nyati
There are 3 main apps in the area of Profitability reporting:
- Net Margin Analysis
- Margin Analysis
- Profit Margin

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 11. Is there any benefit of using summarization in S/4HANA?
- ACDOCA has all the information and in-memory speed for retrieving line item data
- Several summary/totals/index tables (e.g. GLT0, BSIS, BSAS) are eliminated
- CO Summarization (KKBC_HOE, KKBC_ORD) are still available and can be used in S/4HANA
- FI document summarization can continue to be used to address 999 line item restriction in BSEG (refer SAP note
2344521 - F5 727 "Maximum number of items in FI reached"- after migration Simple Finance or S/4 HANA)

12. How to explain “Not distributed”, “Not Allocated” variances in ML?

Primary reason for “Not distributed” variances is not enough stock to cover the variances. This can typically occur
due to timing issue of receipts/production in one month and variance posting in another month.
CKMVFM value flow monitor helps analyze/correct such variances.
Additional information can be found in article Understanding the 'Not Distributed" and "Not Included" lines in the
Material Ledger

13. How does parallel valuation work by accounting principle in S4 Hana?

Material ledger allows Legal/Profit Center/Group valuation. Parallel valuation feature is available even in ECC, but
S/4HANA integrates it well with parallel ledgers

14. How is KEDR derivation logic used in S/4HANA?

Characteristic derivation is the attempt to determine the characteristic values for all CO-PA characteristics in a given
profitability relevant business transaction. The characteristic values that are transferred automatically are used to
determine other logically dependent characteristics. To do so, the system can access information contained in the
source document, as well as information existing outside of it.
Characteristic derivation (KEDR) treatment is same in S/4HANA and ECC.

An attributed profitability segment is determined based on the fixed logic at the same time a G/L line item is
generated. To enable future detailed analysis, users need to fill as many characteristics in the item as possible.
An example of the use of attributed profitability segment is where costs are pooled from various sources into an
order throughout the period and settled at period-end. When costs are settled from an order to a profitability
segment, the granularity of the amounts and the details can be lost. Additionally, from a timing perspective, details
are reflected in CO-PA only when the order is settled.
With the attributed profitability segment feature, order attribute data flows to CO-PA with each transaction, as well
as at settlement.

15. Is there any report for actual cost component split in material ledger
for multiple materials?
- CKMCCS allows one material at a time.
- Mass display options are:
o KKML0 (Drilldown Report) or
o Custom reports (function module CKM8N_DOCUMENT_REPORT_CCS)

16. What are the new features in product costing S/4HANA?

- In ECC, the steps involved in costing runs are: Selection, Structure Explosion, Costing, Analysis, Marking and
Release. With S/4HANA, the structure explosion step has been removed
- Another change in the costing run steps in S/4HANA is that the parameters of the Selection step now include a
new checkbox: Explode Multilevel Structure. Selecting this checkbox means that the semi-finished products and
raw materials are costed along with the materials selected for costing
- S/4HANA now offers a repeat costing run feature, which enables a costing run to be executed on a monthly,
quarterly, or yearly basis, without having to manually create the run each time

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 17. How to treat unsettled amount in production order after CKMLCP
Run in a specific period?
General sequence of month-end close transactions:
- KSU5, KSV5 Cost center allocations
- KSII Activity price calculation
- CON2 Revaluation of Orders
- KKAO, KSS1, CO88 WIP, Variance, Settlement of Orders
- CKMLCP Material Ledger Close
- KE27 Periodic Revaluation
Once ML close is completed, unsettled amounts on closed orders can only be settled in the next period
CKMLCP is completed, then CKMLCPAVR is setup

18. How is the Delta between COGM & COGS treated in COPA Report?
Are you referring to the difference between Costing-based and Account-based CO-PA? Please review chart below:

19. What is the process of Alternative Valuation Run (AVR) in Material

Ledger? How does Alternative Valuation work in CKMLCP Run?
CKMLCP is always period-specific. However, if there is a need to value materials with a different basis (say longer
time duration, or different depreciation method), then AVR is recommended.
Separate transaction code CKMLCPAVR is run for Alternative Valuation Run (AVR)

About the author:

Ashish Sampat is an SAP FI/CO Consultant who has provided solutions in SAP Controlling including product costing,
material ledger, and cost center accounting to global clients in consumer packed goods, life sciences, and industrial
sectors. Ashish is based in Chicago region, where he works as an independent SAP FI/CO consultant. A recipient of
Controlling Community Award for 2017, Ashish is the author of First Steps in SAP Controlling (CO) and Expert tips to
Unleash the Full Potential of SAP Controlling.
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