Configure Basic Product Costing Settings

This document explains how you select a general costing model for product costing. It also explains which costing types to use in certain situations as well as the subtotal numbers reserved for values such as inventory valuation and customer order entry.

Outcome

The following values are defined:

The parameter table (CSYTAB) is also updated in this process.

Your settings are applied when you calculate product costs. See Managing M3 Product Costing.

Before you start

A costing model that corresponds to the company's general costing needs must exist in 'Costing Model. Open' (PCS025).

Follow these steps

  1. Start 'Settings – Product Costing' (PCS001/F).

  2. On the E panel, select a costing model (required).

  3. Select whether to split material costs and whether to apply overhead to old purchase prices.

  4. Enter the costing date rule.

  5. Enter the costing types for standard cost, sales statistics, ordering cost, and operation reporting.

  6. Enter the subtotals for standard cost, sales statistics, contribution analysis, profit analysis, and target costing. Press Enter.

  7. On the F panel, select the warnings to be displayed.

  8. Define how to calculate the cost for purchased and distributed items. Press Enter to finish.

Parameters to set

Basic settings for calculation of product costs

Program ID/ Panel Field The field indicates …
(PCS001/E) 01 General product costing model

…the ID of the product costing model to apply be default. (Obligatory value.)

Note that if you have selected a different costing model for an item in 'Item. Connect Facility' (MMS003/F), that model overrules the default costing model. However, you can also select a costing model for a specific costing in programs such as 'Product Costing. Calculate Selected Item' (PCS200). This costing model then overrules all other costing models that may apply.

(PCS001/E) 02 Split material costs per item type

…whether it is possible to split material costs on different item types to differentiate costs for production material from packaging material, for example

If you do not select the check box, all material costs are displayed for costing component A01. If you select the check box, for each item type you must select which of the costing components A01–A03 to use. You do this in 'Item Type. Open' (CRS040/E).

(PCS001/E) 03 Overhead on old purchase prices

…whether it is possible to add an overhead expressed in percent directly to costing components for direct material (A01–A03) instead of regulating it only by using costing components A04 and A05.

Usually the purchase price of the direct material is used in the costing calculation. Any estimated overhead is then added by using costing components A04 and A05. However, if you suspect that the price will increase during the year, you can select this check box. This enables you to add the extra overhead by selecting option 12='Enter costing rates' for any of costing components A01–A03 in 'Costing Component. Open' (PCS001). You can still use costing components A04 and A05 for "regular" overhead.

(PCS001/E) 04 Costing date rule

…how the costing date is set during the calculation. (Obligatory value.) In the examples below, the date is represented as YYMMDD (year, month, and day).

The valid alternatives are:

1 = Use date YY0101. You cannot change the date.

2 = Always propose date YY0101. You can change the date.

3 = Always propose date YYMM01. You can change year and month but not the day.

4 = Always propose date YYMM01. You can change the date.

5 = Always propose the current date. You can change the date.

Settings for costing texts

Program ID/ Panel Field The field indicates …
(PCS001/E) 05 Costing text connection

… from where any costing texts are retrieved.

A costing text is a user-defined comment that can be entered on several different levels. Its purpose is to document prerequisites for the costing calculation. The costing text is displayed in 'Product Costing. Display' (PCS300/E) when pressing F6.

The purpose of selecting the location is to minimize response times by avoiding unnecessary table reads.

Alternatives

0 = No texts are displayed in (PCS300/E).

1 = The text entered for an item group in 'Costing Text. Open' (PCS155)

2 = The text entered for a product group in (PCS155)

3 = The text entered for a combination of costing type, costing date and order number in (PCS155). An example of the type of costing text to use here is documentation of the prerequisites for next year's standard costs. Since the order number is included with the costing type and date, you can make comments that could serve as quotation input, for example.

9 = Texts are entered in (PCS300).

You can also enter an additional text in 'Item. Connect Facility' (MMS003) for a specific item. Then enter the ID of the text block in the 'Costing text – item' field below.

You can always update the texts in (PCS300/E) manually after a costing run.

(PCS001/E) 06 Costing text – item

…the ID of a user-defined text block for a specific item in 'Item. Connect Facility' (MMS003) that you want to use as costing text. (Optional value.)

After a costing run, you can review and update the text by pressing F6 in (PCS300/E) and then select text category 'Item no'.

Definitions of costing types and subtotals

Program ID/ Panel Field The field indicates …
(PCS001/E) 07 Costing type–standard cost and target costing

…the costing type which holds the locked standard cost. (Obligatory value.) The subtotal with the standard cost from this costing type is used in inventory valuation.

Example: You have three costing types: Budget (used to develop standard for the following year), Simulation (for simulations and tests) and Financial Standard. The latter costing type holds the standard cost to apply and is the one to select in this case.

(PCS001/E) 08 Subtotal – standard cost

…the subtotal number of the subtotal in the product costing model that displays the standard cost. (Obligatory value.) The standard cost is synonymous to the inventory value of the item that is costed.

If the subtotal is different to the number selected in the 'Subtotal – sales statistics' field, then sales and administration overhead is created based on cost of sales.

The subtotal number must have been selected for a costing element of type 3 in 'Costing Element. Open' (PCS015).

(PCS001/E) 09 Costing type – sales statistics

…the costing type from where to retrieve the cost price of an item in customer order processing. (Obligatory value.)

The cost price is the cost of an item used to calculate the contribution margin ratio for a customer order line in 'Customer Order. Open Line' (OIS101/E). The cost price updates the sales statistics during invoicing. Compare the field below.

(PCS001/E) 10 Subtotal – sales statistics

…the subtotal number of the subtotal used as cost price in customer order processing and sales statistics. (Obligatory value.)

The reason for not using the standard cost here is that the standard cost usually reflects the lowest production cost. In sales, a company may want to add an overhead to ensure that the product is not sold at a loss.

The cost is displayed as the cost price for the customer order line in 'Customer Order. Open Line' (OIS101/E).

Example: If a product has inventory cost of 100 and total cost of 110, using separate subtotal numbers for inventory accounting and sales statistics means that inventory is reduced by 100 and cost of sales is 110.

(PCS001/E) 11 Costing type – ordering cost

…the costing type from which the ordering cost is retrieved when the order specific cost is moved from the costing to the item/facility. (Obligatory value.)

M3 calculates the ordering cost by multiplying the accumulated cost of certain costing components that have a cost driver equal to or larger than 41 and less than 98 with the order quantity. However, there are two prerequisites for including a costing component in this calculation. 1) It must have a cost driver equal to or larger than 41 and less than 98. 2) The 'Ordering cost' check box is selected in 'Costing Component. Open' (PCS010/E).

(PCS001/E) 12 Subtotal – contribution analysis

…the subtotal number of the subtotal that represents the basis for calculating the effect of contribution margins. (Obligatory value.)

The subtotal is displayed and used in 'Product Costing. Simulate Sls Prices/CM' (PCS306/E). The program is reached by selecting option 23='Sales/cost simulation' for the costing calculation in (PCS300).

(PCS001/E) 13 Subtotal – profit analysis

…the subtotal number of the subtotal that represents the basis for making a profit analysis.

The subtotal is displayed and used in 'Product Costing. Simulate Sls Prices/CM' (PCS306/E).

(PCS001/E) 14 Subtotal – target costing (This field is currently not in use.)
(PCS001/E) 15 Costing type – operation reporting

…the costing type to use for operation costs (B costing components).

Since each costing type is connected to a costing rate in (PCS100), you can use a different costing rate for operation transactions.

Provided that you have defined it possible to display and change the costing type for the work center in 'Work Center. Open' (PDS010/J), you can also enter the costing type manually when reporting operations in 'MO Operation. Report' (PMS070) or 'WO Operation. Report' (MOS070).

This way, you can create a cost variance for the operation without a difference in time or units.

Example: Work performed at night usually costs more. You can get a better estimate of the cost for the order using a different rate for operations completed on the night shift, than by using the standard rate. Consequently, in this example you use a separate costing type called Overtime Premium with a different cost rate for the night shift.

Settings for warnings

(PCS001/F) 16 Warning: Material with cost=0

…whether a costing warning is issued when there is a material line with cost equal to zero in the costing calculation.

While running the costing programs, it is possible to get warnings in case there is some information missing in the cost calculation. There are several settings in M3 Product Costing where you can activate or deactivate warnings. (PCS001) is the highest level where warnings can be selected. You can overrule costing warnings when you run a costing program such as 'Product Costing. Calculate Selected Items' (PCS200) for a specific product or range of products.

Current warnings can be displayed on a separate panel when entering 'Product Costing. Display' (PCS300), provided that you have selected the 'Warning first' check box in (PCS300/P).

You can view warnings in 'Costing Warning. Open' (PCS325), a program reached via option 16 in (PCS300).Please note that warnings are displayed for all costing components, regardless of whether they are used in the costing model of the product. The reason for this is that values are always calculated for all components when the costing is run, and the ones that not are "accurate" will receive a warning.

(PCS001/F) 17 Warning: Operation with cost= 0 …whether a costing warning is issued when an operation line included in the costing calculation has a cost equal to zero.
(PCS001/F) 18 Warning: Operation with order cost but order qty=0 …whether a costing warning is issued when there are order-specific costs on an operation line for a product having an order quantity equal to zero. When the order quantity is zero, there is no distribution base for the order-specific costs.
(PCS001/F) 19 Warning: Item with order cost but order qty=0 …whether a costing warning is issued when there are order-unique costs for a purchase item with order quantity equal to zero. If order quantity is zero, there is no distribution base for the order-unique costs.
(PCS001/F) 20 Warning: Product with order cost but order qty=0 …whether a costing warning is issued when there are order-specific costs common to the product costs (E components) for a product having order quantity equal to zero. If the order quantity is zero, there is no distribution base for the order-specific costs.

Settings for purchase/distribution costing

Program ID/ Panel Field The field indicates …
(PCS001/F) 21 Print purchase price on costing printout … whether to print the purchase price and currency in columns 3 and 4 for material lines for purchased items in the analysis report you can print in the costing programs such as 'Product Costing. Calculate Selected Item' (PCS200). If you select this check box, these values are printed in columns 3 and 4 for the items even if you have made another selection of columns in 'Panel Vsn – Product Costing. Open' (PCS251).
(PCS001/F) 22 Split distribution cost into costing components

... whether to split the total cost into its costing components when calculating the cost of distributed items in 'Purchase/Distribution Costing. Calculate' (PCS280). The values in the product costing model for the item in the delivering facility are then copied per costing component to the receiving facility. If you do not select the check box, only one total cost is saved in the receiving facility.

If Cost Is Split

The structure of the distribution costing model as well as the product costing model in the receiving facility determine how any difference in cost between the two facilities is saved.

The product costing model for the item in the receiving facility must always contain an E costing component with cost driver 98 for the uplift cost (the difference in cost between the two facilities). To store the distribution cost separately, there must also be a costing component with cost driver 97 (valid for costing components E01–E10 and A04–A05). Both costing components must be placed before the subtotal representing the standard cost in the model.

The two scenarios below are based on a distribution costing model that has separate costing elements for internal transfer price and distribution-related costs (such as internal charges and overhead).

– In the first scenario, the product costing model has an E costing component with cost driver 98 that is reserved for the uplift cost. The entire difference in cost is saved separately for this costing component. In this case, this cost is the sum of the difference in cost due to the internal transfer price AND the distribution cost.

– In the second scenario, the product costing model has both an E costing component with cost driver 98 reserved for the uplift cost and a costing component with cost driver 97 reserved specifically for the distribution cost. The internal transfer price is then saved separately for the E costing component with cost driver 98 as the uplift cost, whereas the distribution cost is saved for the costing component with cost driver 97.

Note: The 032 parameter in 'Settings – Cost Accounting' (CAS900/E) determines how the split of the Cost of Goods Sold (COGS) is done for distributed items.
(PCS001/F) 23 Default update rule – purchase/distribution costing

... whether and how to update the cost of a purchased or distributed item if there already is a cost for the item with the same costing type in the receiving facility. You can override your selection here when costing purchased or distributed items in (PCS280).

Alternatives

1 = The cost is not updated if a cost already exists with the exact same value with the same or a previous costing date.

2 = The cost is always updated for the selected costing date, even if a cost already exists with this costing date.

3 = The cost is only updated if there is no cost with the same or a previous costing date.

(PCS001/F) 24 General distribution costing model ... the general costing model to apply at distribution costing if there is no costing model selected for the respective combination of item and facility in (MMS003/F). The costing model can be overruled when calculating the cost in (PCS280).
(PCS001/F) 25 Default priority order – distribution costing

... the priority order for retrieving the costing base (the cost of the goods itself) when a cost is calculated for distributed items in (PCS280). The result of this calculation is displayed in (PCS300). A default priority order is defined in (PCS001). You can override the default values when calculating the cost in (PCS280). The alternative selected in the top field has the highest priority. The alternative selected in the next field below has the second highest priority, and so on.

For costing of purchased items via (PCS280), the costing base is defined in (CRS780) instead.

Alternatives

1 = Purchase price in agreement in 'Purchase Agreement. Open' (PPS100). The agreement is identified based on the supplier entered for the item in 'Item. Connect Warehouse' (MMS002/F).

2 = Purchase price in the item/supplier file, 'Supplier. Connect Item' (PPS040).

3 = Purchase price in the item file, 'Item. Open' (MMS001).

4 = Average cost.

5 = Net price on the latest invoice in the purchasing statistics that is recorded on the date entered in the 'Purchase price date' field in 'Purchase/Distribution Costing. Calculate' (PCS280).

6 = The price that is the lowest of the average cost (alternative 4) and the invoice price (alternative 5). If one of these values is 0, the other one is selected.

7 = Cost in supplying facility.

8 = Internal transfer price.

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