Product Costing scenario in NUT SHELL :

1. Let us assume that the company is manufacturing finished product ZZZ for which we need raw materials XXX and semi finished materials YYY.
2. The Production Order consist of BOM consisting of the above three components and the routing which has the operations to be performed.
3. The production is carried out through a Machine what we say as a Work Center.
4. The production order has to be carried out in the work center.
5. The operations are going to be processed through various activities like power, water, labour etc.
6. The prices of these activities are being defined for a cost center through KP26.
7. The planned and actual quantities of the raw materials and other activities are done in the production orders.
8. The work centers carries the activities and the actual activity performed will be confirmed during production process.
9. We have a costing sheet to calculate the raw material, packing material consumed along with other overheads.
10. This costing sheet is assigned in the Valuation Variant of a Plant.
11. The Valuation Variant also carries the cost component structure defined in OKTZ.
12. The planned and actual valuation variant for the plant is assigned to the costing variant.
13. During creation of Production order CO01, we assign these costing variants.
14. We also assign the settlement rule to the order type.
15. Whenever the Production Order is created, the costing variant planned captures the values through the cost component structure the materials consumed and the planned activity prices and the costing analysis of the production order shows the planned values of all the costs.
16. After settlement of Production Order, it shows the actual values.
17. If you run cost estimate through CK11N or CK40N for the finished product ZZZ, it will capture all the cost through cost component structure and gives you the cost of the material as per the lot size defined by you.
18. The example referred holds for manufacturing orders and the actual costs are captured based on the settlement of production orders at any point of time.
19. Whereas in product costing by period, the costs are captured in Product cost collectors and settled based on period settings in settlement rule.
20. On activation of the material ledger, the material price analysis can be done for the actual cost postings.