Enabling M3 Product Costing

Outcome

You have a clear understanding of how different components in M3 Product Costing reflect the company's product costing needs. All the basic components for enabling M3 Product Costing such as costing components, costing types, product costing models, and rates for costing components are defined.

Use the outcome to:

• Calculate cost of different types of costing objects
• Make costing inquiries and analyses
• Simulate product costs
• Carry-out activity-based costing (ABC)
• Manage target costing.

See the documents in the See also section for a detailed specification of how M3 is affected.

Before you start

See the documents in the See also section for a list of starting conditions.

Follow These Steps

1. Analyze Situation

   Analyze the company's processes to identify the critical activities and resources that generate costs: direct and indirect product costs as well as overhead costs. Also, define how the results of the product costing are to be displayed in the company's costing model.

2. Create Building Blocks for Costing Model

   Once the analysis is finished, start defining the basic building blocks of M3 Product Costing:

   • Create costing types in 'Costing Type. Open' (PCS005).
   • Create costing components and drivers in 'Costing Component. Open' (PCS010).
   • Create costing elements in 'Costing Element. Open' (PCS015).

   After you create the costing components and elements, you enter the cost rates. If the company already has production-related data available in M3, you can retrieve these data to set the cost rates automatically. Otherwise, you enter the cost rates manually.

3. Enter Cost Rates for Costing Components

   • Manually Entering Cost Rates for Costing Components

     Based on the company's decision on which costs to include in the product costing, enter the corresponding cost rates for one or several of the following categories:

     • Material overhead (A costing components)
     • Operation costs (B costing components)
     • Tools (C costing components)
     • Subcontract costs (D costing components)
     • Common product costs (E costing components).

     Depending on the company's requirements you can decide for which costing components to define rates. It is possible to use only one costing component in your product costing model and consequently enter the rates for this component only. See Automatically Entering Cost Rates for Costing Components for a specification of programs to use.

   • Automatically Entering Cost Rates for Costing Components

     Instead of manually entering cost rates, you can retrieve cost rates automatically from M3. The cost rates are then based on a combination of a company budget and the number of cost driver units each cost driver retrieves. (Examples of cost driver units are the number of labor hours or the number of punches it takes for a machine to create a product.)

     Another alternative is to use resource drivers from M3 Cost Accounting to calculate cost rates for operations (B costing components).

4. Build Product Costing Model

   Once all the rates are set for each costing component you wish to include, you build a structure in the form of a product costing model consisting of costing components and costing elements. Product costs will then be displayed for each level in the structure of the product costing model.

   You can configure your own costing models in 'Costing Model. Open' (PCS025).

5. Complement with Additional Basic Settings

   Finally, you end the configuration by complementing with some additional settings in 'Settings – PCO' (PCS001). This includes selecting:

   • Which costing model to use
   • Which costing types and subtotals that will be the basis for updating different areas in M3 with the calculated cost.

6. Configure Issue of Costing Warnings

   A costing warning is a message issued to a user after starting a costing, indicating that an error has been detected in the costing model. See Managing M3 Product Costing.

   The basic configuration of costing warnings is done in 'Settings – Product Costing' (PCS001/F).

   Warnings can also be issued for a specific costing component if the resulting cost is zero. Whether such a check is to be carried out and a warning issued for zero cost is defined in 'Costing Component. Open' (PCS010).

   You can also define exceptions for a specific costing component in 'Warning Exception. Open' (PCS150). For example, suppose you wish to issue a warning if the costing component Variable Machine Cost is zero when calculating operation costs. This should apply to all of the company's work centers except one, where the variable machine cost is always zero. You therefore define this combination of work center and costing component as exceptions to the warning.

   Finally, each user selects whether warnings are to be issued in 'Product Costing. Display' (PCS300/P).