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Product Costing and PA/links to CO PC

Please explain is a nutshell the concept of:
1. Product Costing
2. PA and links to CO PC

In its simplest form, Product Costing is how SAP computes finished goods inventory values by adding together the direct materials, labor, and overhead that go into producing one unit of finished product. Direct material costs are calculated based on the bill of materials, and labor and overhead are allocated using rate routings. This is Product Costing in a nutshell, but in real life it tends to become much more complex as BOM's and allocation rates and bases are adjusted and fine-tuned. There is a certain sequence of events for a costing run in SAP, and if that sequence is not followed precisely your results will look strange, adding another dimension of complexity.

PA is short for Profitability Analysis, and allows measurement of profitability by product, or by customer, or by salesperson, or various combinations of these dimensions. PC feeds information to PA for calculating the Cost Of Goods Sold. Usually the values sent from PC to PA are standard values, not actual costs. If your standards are "good" (i.e. close to actual) your PA reports will be valuable. If the standards are not good, the costs and therefore the margins in PA will not be useful.

This was last published in December 2002

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