Lesson 3 of 5
Actual costing
10 min
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Actual costing answers a question standard costing cannot: what did this material really cost us this period? At period end it takes the standard value of every movement plus the price differences collected by the ledger, calculates a periodic unit price (PUP) for each material, and can revalue the closed period with it. Because a finished product consumes components, the differences of the components are passed up through the bill of materials (multilevel actual costing). That is why actual costing is a significant design decision: it touches purchasing, production, inventory, cost of goods sold and the close calendar at once.
The worked example, continued
In September, Detroit received 1,000 rotors at a $2,000 total price difference and had no opening stock. It used 800 rotors in production orders for CMC-ALT-100 and still held 200. The rotor's periodic unit price is (40,000 + 2,000) ÷ 1,000 = $42. Actual costing therefore assigns $400 of the difference to the 200 rotors in stock (single-level: the material itself) and $1,600 to the 800 rotors consumed. The $1,600 moves up a level to the alternators that were built with those rotors. Of the 800 alternators produced, 600 were sold and 200 are in stock, so $1,200 lands on cost of goods sold and $400 on alternator inventory.
- CollectRotor: standard $40,000 + differences $2,000 for 1,000 pieces received
- PricePeriodic unit price $42; ending stock 200 pieces gets +$400
- Roll upConsumption of 800 rotors carries +$1,600 to CMC-ALT-100 orders
- DistributeAlternators: 600 sold → +$1,200 to COGS; 200 in stock → +$400 to inventory
The actual costing run
Actual costing is processed in a costing run, managed in the actual costing cockpit (transaction CKMLCP). The run covers a plant or a group of plants for one closed period. In S/4HANA the run was simplified: four separate ECC steps (single-level price determination, multilevel price determination, revaluation of consumption and WIP revaluation) were merged into one Settlement step, and the ledger no longer distinguishes single-level from multilevel differences in accounting. The sequence below is the S/4HANA shape; exact step names and options vary by release, so check the cockpit in your system.
- Before the runPeriod closed for movementsMaterials period moved (MMPV); goods movements, invoices and order settlement for the period are complete
- Step 1SelectionSelects the materials (price determination 3) and activity types in scope for the plants of the run
- Step 2PreparationBuilds the value flows the run will settle: ending inventory, consumption, WIP
- Step 3SettlementCalculates periodic unit prices and distributes differences across levels in one step
- Step 4Post closingPosts the revaluation of ending inventory and consumption, if chosen
- OptionalMark pricesProposes the periodic unit price as the next standard price
Two things trip new teams. First, timing: the run needs a closed period, so it cannot run until logistics and production settlement have finished. On the close calendar it sits after order settlement and before final reporting, which can add a day. Second, completeness: if one material in a multilevel structure has an error (for example, a missing price or a negative stock), the materials above it may not be settled. The run log lists such materials, and someone has to own clearing them every month.
- Do you need inventory and COGS at actual cost for legal or tax reporting?Yes → actual costing is a strong candidate · No → next question
- Are purchase prices or production costs volatile enough to distort margins at standard?Yes → consider actual costing, or more frequent standard updates · No → next question
- Do you need inventory in a hard currency at historical cost (for example, the Mexican entity)?Yes → the ledger currencies help; actual costing adds actual values per currency · No → standard costing is usually enough
- Can the close calendar absorb an extra run with error handling every month?Yes → pilot in the test system · No → defer; standard costing with variance analysis
There is also an alternative valuation run (transaction CKMLCPAVR), which applies actual costing logic over a different time span or with different settings, for example to produce a cumulative year view, without changing the regular period results. Treat it as an advanced option and test it separately if you use it.
- Actual costing calculates a periodic unit price per material and can revalue ending inventory and consumption.
- Multilevel actual costing passes component differences up the BOM to finished products, then to stock and COGS.
- In S/4HANA the run is Selection, Preparation, Settlement and Post closing, plus optional price marking.
- The run needs a closed period and an owner for its error list every month; it is a design decision, not a switch.
Check your understanding · not graded
Lesson check
1. Rotors: 1,000 received at standard $40,000 plus $2,000 differences, no opening stock. What is the periodic unit price?
2. In the S/4HANA actual costing run, which step replaced four separate ECC price determination and revaluation steps?
3. Why does the actual costing run sit late on the close calendar?
4. What happens to materials above an erroneous component in a multilevel structure?
5. Which transaction runs an alternative valuation run, for example a cumulative year view, without changing regular period results?