Creating Building Blocks for a Product Costing Model

Outcome

The company's decisions as to how to cost its products are implemented in the form of building blocks in M3 Product Costing. The decisions include:

• Types of product costing you want to apply, for example, product costing using standard costs and simulated product costing
• Costs you want to include and the rates to use for calculations
• Presentation of totals and subtotals resulting from the product costing

Once the building blocks are created, you can start setting the costing rates for the costing components.

See the subordinate settings document for details.

Before you start

If you want to use resource drivers to retrieve rates for operation costs (B costing components), the resource drivers must be defined in 'Resource Driver. Open' (CAS040).

Follow These Steps

1. Create Costing Types

   Define how to distinguish different types of product costing, such as current product costing, simulated product costing, and product costing using standard costs in the form of costing types.

   You can define eighteen costing types (1–9 and A–I). For example, costing type 1 can indicate current product costing (regularly recalculated), costing type 2 simulated product costing, and costing type 3 product costing using standard costs.

   You define the costing types in 'Costing Type. Open' (PCS005).

2. Create Costing Components and Select Cost Drivers

   Based on the company's analysis, create the matching costing components and select a cost driver for each of them. Costing components indicate different categories of costs, such as operation costs or tool costs. You have 33 costing components that you can use to build a costing model. M3 also provides the flexibility of using other elements as costing components in case you run out of costing components.

   For most costing components, you select a cost driver. A general definition of a cost driver is that it is a factor that determines the workload and effort required to perform an activity. It can also be an event or activity that results in costs being incurred. In M3, each cost driver basically consists of a formula that determines where in M3 values are retrieved and how they are calculated. Examples of cost drivers are cost per operation and internal time required to set up machines used in production.

   You define costing components in 'Costing Component. Open' (PCS010).

3. Create Costing Elements

   Apart from having costing components in your product costing model, you might want to:

   • Show totals and subtotals in the product costing model
   • Add user-defined calculation bases for percentage markups
   • Increase the number of costing components used

   For these purposes, you create various types of costing elements in 'Costing Element. Open' (PCS015).