Lesson 1 of 5
Plan, target and actual costs on orders
11 min
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A production order is a cost object. From the moment it is released, it collects the cost of making a batch of product: components issued from stock, labor and machine time confirmed on operations, overhead, external processing. At the end of each period controlling has to answer three questions about every order: what is still in progress (work in process), what was finished and why did it cost more or less than standard (variances), and where do those values belong in the books (settlement). This course works through all three with one Contoso order.
The running example: production order 1001200 for 500 alternators CMC-ALT-100 at plant 1710 Detroit. The released standard cost is USD 150 per unit, built in the product costing course: material 80, material overhead 8, labor 26, machine 24, production overhead 12.
Product cost by order or by period
SAP S/4HANA supports two main ways of controlling manufacturing costs. SAP's learning material contrasts them clearly. Product cost by order treats each order as the cost object, with full settlement; WIP is valued at actual cost and the order status decides whether WIP or variances are calculated, so variances appear only when the order is finished. Product cost by period uses a product cost collector for repetitive production; WIP and variances are calculated every period at target cost. Contoso uses product cost by order for alternators, so this course follows that path.
| Product cost by order | Product cost by period | |
|---|---|---|
| Cost object | Each production or process order | Product cost collector per material and plant |
| Settlement type | Full settlement (FUL) | Periodic settlement (PER) |
| WIP valued at | Actual costs | Target costs |
| Variances | When the order is delivered or technically completed | Every period |
| Typical use | Discrete batches, such as Contoso's alternator orders | Repetitive, continuous production |
Three kinds of cost
- Plan costs: calculated when the order is created or released (preliminary costing), from the order's own BOM and routing for the planned quantity. For order 1001200 that is 500 × 150 = USD 75,000 if the order matches the standard exactly.
- Target costs: what the delivered quantity should have cost, usually from the standard cost estimate. If 480 units are delivered, target costs are 480 × 150 = USD 72,000.
- Actual costs: what was really posted: goods issues of components, confirmed activities, overhead calculated at period-end, external invoices.
Statuses that drive period-end
The order status decides what period-end does. While an order is released and not yet finished, its balance is work in process. Once it is delivered (status DLV, after final goods receipt) or technically completed (TECO), the balance is no longer WIP but a variance. SAP's material on WIP states that WIP is calculated until the order is delivered or technically completed. A partially delivered order (PDLV) still counts as in process.
- Day 1Released (REL)Components can be issued and operations confirmed; costs accumulate
- During productionPartially delivered (PDLV)Some finished units received into stock; balance is still WIP
- Final receiptDelivered (DLV)Variance calculation and full settlement become possible
- Or by decisionTechnically completed (TECO)Order finished without full delivery; balance becomes variance
- After settlementClosedBalance zero; no further postings
Reading the order cost report
Every analysis starts with the order's cost report, which shows plan, actual and target by cost element or cost component, with goods receipt credits as a separate line. In SAP GUI it is reached from the order display or with an order analysis transaction such as KKBC_ORD; in SAP Fiori, production cost analysis apps show the same comparison. Check your role's catalog for the app names in your release. Read it top to bottom: are the material lines close to plan? Are the activity hours as expected? Has overhead been calculated yet this period?
What would you do?
On June 30, order 1001200 shows actual costs of USD 61,200 and goods receipt credits of USD 30,000 for 200 units. The order is partially delivered. Grace asks whether the USD 31,200 balance is a variance. What is the right answer?
- Production orders collect actual costs; goods receipts credit them at standard price.
- Plan = preliminary costing; target = standard × delivered quantity; actual = what posted.
- In product cost by order, open orders carry WIP; finished orders (DLV or TECO) carry variances.
- Calculate overhead before WIP and variances.
Check your understanding · not graded
Lesson check
1. What are target costs on a production order?
2. In product cost by order, what is the balance of a released, partially delivered order at period-end?
3. Which settlement type does product cost by order use?
4. Why calculate overhead before WIP and variances?