This document provides an overview of the process for purchase costing in M3. The process consists of two workflows:
The company's accounting policies determine when to calculate the standard cost. New items are usually costed when they are introduced. The standard cost used as the financial standard is then often updated once a year only.
You can use this process to:
Depending on which type of cost calculated, the costing values are stored either in the local currency of the division that the facility belongs to or in the currency of the order.
Review and simulate cost
There are two ways of simulating a standard cost and checking the impact of changed parameters in different business scenarios:
There is a separate information view for distribution costing in (PPS295), available only when the program is called from (PCS300) or (PCS260).
Calculate standard cost
You calculate a standard cost for purchased items, distributed items, and subcontracting operations in 'Purchase/Distribution Costing. Calculate' (PCS280). As mentioned above, the result of the calculation is displayed in 'Product Costing. Display' (PCS300).
For purchased items and distributed items, another alternative is available: You can run a product costing program such as 'Product Costing. Calculate Selected Item' (PCS200) and select to include those two categories of items. However, you then lack some flexibility in changing the priority order for retrieving the costing base, for example.
A company usually costs each new standard-costed item that is introduced. Then, on a periodic basis, the company calculates the official standard cost for the item using a separate costing type in (PCS280) reserved for this purpose. This standard cost represents the inventory value of the item and is displayed in (PCS300) and in 'Item. Connect Facility' (MMS003/E). This procedure is necessary for standard-costed purchased and distributed items; otherwise no inventory value is created when goods receipt is done for the item.
For purchased items with average costing or actual costing as the inventory accounting method, running (PCS280) is not required. However, you can create a standard cost for all items, regardless of their inventory accounting method. The result is a "frozen" snapshot of the current cost at the time of the costing that you can use for simulations.
To review the actual cost of a purchased item, you access (PPS295) from 'Product Costing. Update Manually' (PCS260) and select the sorting order reserved for actual costing.
Calculate cost for item/supplier prices
As a basis for negotiating prices with the supplier, you can calculate the item cost for supplier agreements in 'Purchase Costing. Calculate' (PPS290). The result is displayed as the "current full cost" (the net result of the costing model) in the local currency in 'Item/Supplier. Open' (PPS040/F).
Calculate cost for quotation
To facilitate the quotation process, you can calculate the item cost in 'Purchase Inquiry Costing. Calculate' (PPS292). The result is displayed in 'Request for Quotation. Open' (PPS130) and 'Supplier Quotation. Analyze' (PPS140).
Manually update standard cost or average cost
If you discover that an item has an incorrect standard cost or average cost, you can change the cost manually in 'Product Costing. Update Manually' (PCS260). A requirement is that the cost to change is calculated on the current date or at a future date. Note, however, that if you change the cost, all detail values in the purchase costing model and the product costing model will be deleted.
Average costs can be manually changed in 'Average Cost. Enter per Item/Facility' (CAS370).
Update costing model for Purchase Order (PO)
As part of your PO entry, the costing elements for the PO header and the PO lines, respectively, are displayed. Basically, each costing element represents a type of cost or a total.
When entering PO lines in 'Purchase Order. Open' (PPS200), you can display the line-specific costing elements in the costing model 'Purchase Order. Connect Charges' (PPS215). There you can change the amount and other values for the costing element as well as add new costing elements. Once you are back in (PPS200/A), you can display the costing elements specific to the PO header instead by selecting the Charges option. The option displays (PPS215) but this time with header-specific costing elements only. An internal check prevents you from adding costing elements that are not configured for use in PO headers or PO lines, respectively.
While processing the purchase order you can also create, calculate, copy or delete the order-related cost in 'Purchase Order. Open Lines' (PPS201).
The procedure is similar when you work with planned purchase orders in 'Planned Purchase Order. Open' (PPS170).
When printing the purchase order in 'Purchase Order. Print Document' (PPS600), any costing elements that represent external charges are printed on the purchase order.
Update purchase order with changes
If any costing elements have separate rates for the shipment method, for example, it is important to update the purchase order in (PPS200) if the supplier advises any changes in order to obtain a correct purchase cost at calculation.
When the goods are reported as received in 'Purchase Order. Receive Goods' (PPS300), a cost is calculated automatically for purchased items with average costing or actual costing as their respective inventory accounting method. The cost is based on the costing model displayed in connection with the purchase order line in (PPS215). The confirmed purchase price is used.
Record additional external charges during invoice matching
Often the total landed cost is not known at the time the goods are received since invoices are sent by the vendor at a later time. Such invoices are entered in Accounts Payable and can be allocated across multiple purchase orders.
Once invoices are received from suppliers and third-party agencies, you match the charges in the purchase order with the actual charges during invoice matching in 'Supplier Invoice. Match GR Line' (APS360). You can also add new charges not included in the purchase order. For each new charge, you select a costing element. (However, the new costing element is not added automatically to the costing model of the purchase order.)
For third-party invoices you can select another supplier than the one stated in the purchase order during invoice matching.
Follow up cost
Account entries are created either at goods receipt or triggered in 'Internal Account Entry. Create' (CAS950). You can compare the calculated purchase cost with the true cost for each purchase order in 'Internal Account Entry. Open' (CAS300). You would probably do this as part of the company's periodic routines.