Assumptions for this blog
I will assume you have already configured SAP Product Costing; I will only demonstrate that part of configuration necessary to explain the scenario in this blog. The demo system I used for this blog is set up for Material Ledger; this setup is not mandatory to execute this scenario. This blog will demonstrate scenario for Legal / Company Code currency valuation; this scenario and result will apply similarly to the other valuations.
What am I demonstrating
In this blog, I will demonstrate how Mixed Costing works in SAP. I will use a simple example of Mixed Costing of a procured material. The concept will work very similarly for a manufactured product.
I will use the example of Product “Bomber Jacket 8” I used in another blog “Valuing Inventories using Purchasing documents”. To keep the two blogs independent, I will repeat some of the data, and master data set up in this blog.
Purchasing Info Record
The retail company in our scenario sources product “Bomber Jacket 8” from 3 vendors. The Purchasing Info Record for the 3 Vendors is shown below.
Xi Chi Dong in China
Deshbandhu Industries in Bangladesh
Southern Cross Clothing in Australia
The summary of Purchase cost is as below
Steps to set up Mixed Costing
- Display / Define the Quantity Structure Type for Mixed Costing
- Define Costing Versions for Mixed Costing
- Define the Procurement Alternatives
- Define the Mixing Ratios
- Execute Product Costing Estimate for the material
Display / Define the Quantity Structure Type available for Mixed Costing
You can display this in configuration menu as below.[IMG] Controlling > Product Cost Controlling > Selected Functions in Material Costing > Mixed Costing > Define Quantity Structure Types
You will not require to make any changes to this table. It defines an entry “MIX” for Mixed Costing; the quantity structure defined for each material is modifiable and valid for the fiscal year only (i.e. you have to create a new Mixed Costing Ratio every year) and it will check whether the total of procurement mixing ratio is 100%. This standard configuration so defined is sufficient.
Define Costing Versions for Mixed Costing[IMG] Controlling > Product Cost Controlling > Selected Functions in Material Costing > Mixed Costing > Define Costing Versions
This configuration would already be set up for Product Costing of all materials. The only change is to add value “MIX” in the Quantity Structure Type 1 field. This field expects a value for quantity structure for Mixed Costing. We have defined the value previously as “MIX”.
Define the Procurement Alternatives[SAP Menu] Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Master Data for Mixed Cost Estimate > Edit Procurement Alternatives
Transaction Code: CK91N
Here we define the various sources of “procurement alternatives” of the material. “Procurement” is defined by the field Process Category. In this field you can define the following procurement/ process categories:
- BB Purchase Order: Procurement alternative for purchase orders using vendor and purchasing organisation. If you do not enter vendor, it will pick price from Material Master
- BBV Procurement (change involving stock): Procurement alternative using opening stock of the material
- BF Production: Procurement alternative for in-house production using Bill of Material (BOM), and Routing
- BL Subcontracting: Procurement alternative for subcontracting using Bill of Material (BOM), and (optionally) vendor and purchasing organisation
- BU Stock Transfer: Procurement alternative if you source most volumes from another plant
For the purpose of this blog, I will use Purchase Order as the process category to perform Mixed Costing. I have used the above 3 vendors as Procurement Alternatives.
Define the Mixing Ratios[SAP Menu] Accounting > Controlling > Product Cost Controlling > Product Cost Planning > Material Costing > Master Data for Mixed Cost Estimate > Mixing Ratios > Create/ Change
Transaction Code: CK94
Define the mixing ratio for the procurement alternatives you defined in the previous step. Mixing Ratio is defined by:
- Fiscal Year – we configured this in step 1
- Quantity Structure Type “MIX”
You define the percentage mixing ratio. The total should be 100% else it will give an error message. The indicator in “MR” column will default if the ratio is not zero. If the ratio is zero, you can select the “MR” indicator. This indicator will define whether the procurement alternative should be included in the cost estimate. Since the ratio is zero, the procurement alternative will appear in the cost estimate as “information” with zero dollars. If you deselect the indicator it will not appear in the cost estimate at all.
Execute Product Costing Estimate for the material
Transaction Code: CK11N or CK40N
When you execute the cost estimate for the material, it will calculate the weighted average cost of the material based on the mixing ratios. The Itemisation and Costing Structure will list the Procurement alternatives against which “MR” indicator was selected in step 4.
You will notice an indicator “Mixed Costing” on the top right corner of the Cost Estimate screen.
Once a product is costed, the subsequent steps to save, review, mark, and release are the same as the Cost Estimate process for any other material.
You can selectively use mixing ratio for specific materials that are procured from multiple sources to estimate a more accurate Product Cost for the material. The functionality allows you to mix production as procurement alternative. Hence, for example, for a material that is partially produced in-house and partially subcontracted and partially procured as a finished product, you could set up the Procurement Alternative to reflect the material cost as a weighting of the mixing ratio from the multiple “procurement alternatives”.
I hope this blog has helped you understand the functionality of Mixed Costing. Please do leave your comments below whether this article was helpful; and whether you have any suggestions/ comments; or if you would like to share your experience.
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Rajesh is an accomplished and successful Finance professional with over 20 years experience in Finance processes and related technologies. He is a qualified accountant; he has worked in Finance departments of multinational companies. With this strong foundation in Finance, he has managed to successfully implement best-in-class Finance processes in IT (primarily SAP). Over the last few years, Rajesh has led Finance teams on large SAP implementations and provided his insights and experience to provide a workable and an improved solution for his customers. Rajesh is a SAP Certified Application Professional.