Actual Raw Materials Purchase Cost With Sales order costing

[sanjay_ram]

Hi,

We have a requirement to compute the actual purchase costs of the raw materials (using vendor prices and not using the materials standard prices) used in the in house manufacturing of a sales order costing scenario.

For example :-

1) Sales order is raised for 100 units of product A

2) To manufacture the 100 product A, we need to buy raw materials of 20 units of A-1, 30 units of A-2

3) The purchase price of A-1 is $40 and A-2 is $10 from the same vendor.

4) Whereas the standard price maintained in the material master is $30 for A-1 and $7 for A-2

5) When we manufacture the product A in house for the sales order, we withdraw the A-1 and A-2 from inventory and the system uses the standard price of the materials to valuate the goods issue to the production order instead of the vendor purchase prices of the raw materials.

What we want is to valuate the raw materials using the purchase prices of the vendor and assign it to sales order cost estimate, instead of the standard prices maintained in the material master. How can we achieve this?

[kamalkumar_biswas2 · Accepted solution]

Hi

  Valuation/Price of input materials are generally follow the strategy sequence you defined in Valuation variant in costing variant assigned in req class of your SO. So please check the valuation variant and defined sequence as per requirement..in your case it will be Purchase info record in first place and Purchase info record should be maintained properly.

  Kamal

[sanjay_ram · Accepted solution]

Hi Sir,

Thanks for responding. Valuation variant will only assist us in the material level cost estimate creation, which means after the price update of this cost estimate, if the vendor changes his selling prices, then the price used in the cost estimate will become outdated and invalid. Our requirement is to capture the costs of the sales based on the exact vendor selling prices using which we purchased raw materials required to produce the sales order item.

This is also called back to back sales and purchase whereby each cost of sales of a sales is valuated using the exact purchase costs for the sales. We can use third party sales process by linking the sales order to the purchase order but in our case we cannot use this because we buy the raw materials and process it in house before selling it to the customers. So we don't deliver the raw materials as it is to the customers hence we cannot use third party sales processing for this case.

I read more on the valuated sales order stock assignment for the purchased stocks here help.sap.com/saphelp_470/helpdata/en/90/ba6cc7446711d189420000e829fbbd/content.htm, however it is stated here that the system will assign the price of the very first GR to the valuation of the raw materials and invoice receipts contains a price differences from the GR price then this price difference is not assigned to the raw material valuation. So this method is also ruled out because it cannot help to capture the true purchase costs in the event of a price difference in the invoice receipt.

Looks like SAP does not have a clear solution for back to back sales and purchase arrangements.

[kamalkumar_biswas2 · Accepted solution]

Hi Sanjay

  I got your concern..But you should value your input material at price you have procured it either in last procured price or average price. you may procure same material from multiple vendors ..in that case average price is justified..but you may take last procure price from any vendor. Both are possible in SAP...so I could not understand your issue..if give an example of your requirement we may discuss the process solution..

Kamal

[sanjay_ram · Accepted solution]

Hi Kamal,

This is a very interesting scenario where the business wants to valuate the COGS based on the actual purchase costs needed to fulfill the sales order and not using any average costs. This is called back to back sales arrangement, which means each sales will be backed by the respective raw material purchase contracts. It is simple to understand.

1) Sales order is raised for 100 units of product A

2) To manufacture the 100 product A, we need to buy raw materials of 20 units of A-1, 30 units of A-2

3) The purchase price of A-1 is $40 and A-2 is $10 from the same vendor.

4) Whereas the standard price maintained in the material master is $30 for A-1 and $7 for A-2

5) When we manufacture the product A in house for the sales order, we will require A-1 and A-2 so that we can make product A.

6) So the cost of product A should be the cost of A-1 + A-2, which should be $40 + $10 = $50. This is what we want.

7) However the system is using the standard price of A-1 + A-2 to compute the cost of A, in which case it is showing $30 + $7 = $37, hence this cost is lesser than the actual cost of $50.

How can we solve this issue to get the system to show the cost of $50 instead of $37 for the finished product A?

This is only possible if i have a mechanism to track the entire sales, purchase and manufacturing life cycle using the sales order item as the cost collector. So i am thinking of using Product Cost by Sales Order with Valuated Sales Order Stock, because with this method i can do the following :-

1) Settle variances from externally procured materials to the sales order item.

2) Settle variances from production orders to the sales order item.

As this are the 2 places where the variances are happening, this will solve my problem i guess. Please comment if i am in the right track.

[kamalkumar_biswas2 · Accepted solution]

Hi

  Your prob is in COGS because in standard SAP when you do PGI COGS is triggered ..am I correct? so I don't know How will you manage it by Valuated stock concept.

   In my opinion it is a costing issue... so when you manufacturing a product against any SO it costed at Prod Order level and If your components used (A1+A2) have price with 40 & 10 your issue is solved.

   So..you define your valuation variant strategy in KKON so that your components get price from purchase info records of that vendor.. and one thing you maintain Price control of Mat A1 & A2 as V

Do not maintain any other strategy  in valuation variant to avoid confusion. In sub strategy you can have other option to filter the main strategy.

  Then if you use the valuation process in Req class of SO , the value will be same for standard cost and SO cost

   Kamal

[sanjay_ram · Accepted solution]

Hi Kamal,

Very good idea and appreciate it. But if i use the PIR as the valuation strategy then which price will it take if multiple vendors supply that stock at different prices and also if the same vendor has 2 different PIRs for the same material?

[kamalkumar_biswas2 · Accepted solution]

Hi

In info record you can define current price/latest one..take help from MM guy to fulfill your requirement..it is possible to maintain in PIR

kamal

[sanjay_ram · Accepted solution]

Thank you sir, will explore that further.

[former_member198650]

Hi Sanjay,

Use the moving average price for the raw materials.

Regards,

Mukthar

[sanjay_ram]

Hi,

For manufactured products we cannot use MAP price. SAP recommends only standard prices for manufactured products.

[former_member198650]

Hi,

I am talking about raw materials which you procure from outside.

Regards,

Mukthar

[sanjay_ram]

Hi Sir,

Yes you are right, but i forgot to explain one more thing, the purchase prices must be tracked and assigned to the respective sales orders at the time of purchases. This is to lock the purchase prices to that sales order item.

If we average the purchase prices using MAP then we cannot determine and lock the respective purchase prices for the sales order items.

Secondly, the FG settlement will throw variances if it is maintained using standard prices. Hence we need to prevent this variance also so that we capture the true actual cost. For FG, we cannot maintain MAP prices as SAP does not recommend that.

[ankit_agarwal8]

Hi Sanjay,

Pls try to change your valuation variant assigned in your costing variant. In this valuation variant, for material valuation, try to use strategy, "L Price from Purchasing Info Records". If your sales order is linked with your PR/PO.

In MTO scenario, you need to assign your cost variant in requirement class. You can check costing variant config  in OKKN. 

Regards,

Ankit K. Agarwal