What Is SAP Mixed Costing?
By Ross Christoph
SAP mixed costing allows organizations to calculate a material cost estimate using multiple procurement or production alternatives. It is useful when the same material can be manufactured using different production versions, master recipes, or procurement methods.
Instead of calculating a standard cost based on only one alternative, mixed costing calculates the costs of the selected alternatives and combines them using weighting factors.
The resulting mixed cost estimate represents a weighted average cost that can be used to establish a material's standard price and support inventory valuation.
For example, a manufacturer may produce the same material using two production versions with different production costs. Mixed costing allows both alternatives to contribute to the material's standard cost according to their expected production quantities.
How SAP Mixed Costing Works
SAP mixed costing uses procurement alternatives and weighting factors to calculate a mixed cost estimate.
You maintain two key types of master data:
- Procurement alternatives: Transaction CK91 defines the alternatives used to procure or produce a material. For internally produced materials, these alternatives can represent different production versions.
- Weighting factors: Transaction CK94 defines how much each procurement alternative contributes to the mixed cost estimate. For example, weighting factors can represent the expected production quantities for two production versions.
SAP calculates the cost of the individual procurement alternatives and combines them according to their weighting factors. The resulting mixed cost estimate represents the weighted cost of the selected alternatives.
SAP Mixed Costing Calculation Example:
How to Calculate a Mixed Cost Estimate
The following SAP mixed costing example demonstrates how mixing ratios and procurement alternatives are used to calculate a weighted average material cost in SAP S/4HANA.
Assume a manufacturer produces the same finished material using two production versions. Each production version has a different cost because of differences in production processes, labor requirements, or machine utilization.
|
Production alternative |
Unit cost |
Mixing ratio |
|---|---|---|
|
Production Version 01 |
$100 |
60% |
|
Production Version 02 |
$120 |
40% |
|
Mixed standard cost |
$108 |
100% |
The mixed cost is calculated as:
Mixed Cost = ($100 × 60%) + ($120 × 40%) = $108 per unit
The resulting mixed cost estimate is $108 per unit. SAP S/4HANA applies the configured mixing ratios to calculate the weighted cost of the procurement alternatives. When the relevant standard cost estimate is marked and released, the mixed cost can become the material's standard price.
SAP Mixed Price Variance
The actual costs of a process order reflect the resources consumed during production. Target costs are determined using the relevant cost estimate for the production alternative, while the goods receipt is valued at the material's mixed standard price.
A mixed price variance arises when the production alternative's target credit differs from the goods receipt credit calculated using the material's mixed standard price. This variance reflects the difference between the production alternative's cost and the weighted average standard cost. Whether the variance is favorable or unfavorable depends on the direction of that difference.
Learn More About SAP Product Costing
John Jordan and Janet Salmon discuss SAP mixed costing and other product costing concepts in their book, Product Cost Controlling with SAP S/4HANA.
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Glossary
Activity Type
Activity Type represents an activity performed by a cost center, such as machine hours or labor hours. Activity types can be used to allocate production costs from cost centers to manufacturing orders and can contribute to the costs calculated for different production alternatives.
Additive Cost Estimate
Additive Cost Estimate allows manually entered costs to be added to a material cost estimate. It can be used for costs that are not calculated automatically through the quantity structure or other costing data.
Allocation Structure
Allocation Structure groups source costs for settlement and determines how those costs are assigned to settlement cost elements or accounts.
Bill of Material
Bill of Material (BOM) defines the components and quantities required to produce a material. BOM information can be used in a material cost estimate to calculate the material costs associated with a production alternative.
Cost Component
Cost Component groups similar types of costs, such as material, labor, and overhead, within a cost component structure. Cost components help show how the total cost of a material is composed.
Costing Run
Costing Run supports the collective processing of material cost estimates for multiple materials. Costing runs can be used to calculate, analyze, mark, and release standard cost estimates for a defined selection of materials.
Costing Sheet
Costing Sheet defines how overhead is calculated and applied in SAP Product Cost Controlling. It contains settings such as the calculation base, overhead rate, and credit key used to calculate and allocate overhead costs.
Costing Type
Costing Type controls the purpose and behavior of a cost estimate, including whether the cost estimate can be used to update the material's standard price. The costing type is a component of the costing variant.
Costing Variant
Costing Variant controls how a material cost estimate is calculated. It combines settings such as the costing type, valuation variant, date control, and quantity structure control to determine how materials, activities, and other costs are valued.
Currency Type
Currency Type identifies the role of a currency in SAP, such as company code currency, controlling area currency, or group currency. Currency settings determine how financial and Controlling values are stored and reported.
Date Control
Date Control defines the dates used in a cost estimate, including the costing date, valuation date, and quantity structure date. It is a component of the costing variant.
Goods Issue
Goods Issue records the withdrawal of material from inventory. In manufacturing, goods issues can post material consumption to production or process orders and contribute to the actual costs collected on those orders.
Reference Variant
Reference Variant is a component of the costing variant that allows material cost estimates or costing runs to use an existing quantity structure. This can improve costing performance and support comparisons between cost estimates.
Mark Standard Cost Estimate
Mark Standard Cost Estimate transfers the results of an eligible standard cost estimate to the future standard price. The marked cost estimate can subsequently be released to update the material's current standard price.
Master Data
Master Data is relatively stable information used to support SAP business processes. In mixed costing, relevant master data includes procurement alternatives, production versions, and weighting factors used to calculate the mixed cost estimate.
Mixed Cost Estimate
Mixed Cost Estimate combines the costs of multiple procurement or production alternatives using defined weighting factors. The resulting weighted average cost can be used to establish a material's standard price and support inventory valuation.
Mixed Price Variance
Mixed Price Variance is the difference that can arise when the cost associated with a specific production version differs from the weighted average standard cost calculated through mixed costing. The variance may be favorable or unfavorable depending on the difference between these costs.
Movement Type
Movement Type identifies the type of material movement in SAP, such as a goods receipt, goods issue, or stock transfer. Movement types control how material movements update inventory quantities, values, and related accounting information.
Overhead Group
Overhead Group groups materials for the application of overhead during product costing. It can be used with costing sheet configuration to determine the appropriate overhead rates for a material.
Preliminary Cost Estimate
Preliminary Cost Estimate calculates planned costs for a manufacturing order or product cost collector. It can be used to calculate target costs and support variance analysis during production.
Procurement Alternative
Procurement Alternative represents a specific way a material can be procured or produced for mixed costing. For internally produced materials, procurement alternatives can represent different production versions used to calculate individual cost estimates.
Process Order
Process Order is a manufacturing order used in process industries to plan, execute, and collect costs for production. Actual costs collected on a process order can be compared with target costs to analyze production variances.
Product Cost Collector
Product Cost Collector collects planned, actual, and target costs for repetitive manufacturing or other supported production scenarios. It can also support work in process and variance calculation at period-end.
Production Order
Production Order is used to plan, execute, and collect costs for discrete manufacturing. It typically references master data such as a bill of material and routing and can be used to analyze planned, actual, and target production costs.
Production Version
Production Version defines a method of producing a material by linking relevant production master data, such as the bill of material and routing or master recipe. In mixed costing, different production versions can be represented by separate procurement alternatives.
Profitability Analysis
Profitability Analysis in SAP Controlling supports analysis of profitability by market segments such as customers, products, sales organizations, and other characteristics.
Purchasing Info Record
Purchasing Info Record stores procurement information for a material and vendor combination, including pricing and purchasing conditions. Purchasing info record prices can be used by valuation strategies when calculating material costs.
Quantity Structure
Quantity Structure contains the master data used to calculate material and activity quantities in a cost estimate. It typically includes a bill of material and routing or, depending on the production scenario, a master recipe or rate routing.
Quantity Structure Control
Quantity Structure Control is a component of the costing variant that determines how SAP selects the quantity structure used for a material cost estimate, including how alternative bills of material and routings are selected.
Release Standard Cost Estimate
Release Standard Cost Estimate updates the material's current standard price using an eligible marked standard cost estimate. Releasing the cost estimate can also result in inventory revaluation and corresponding accounting postings.
SAP Fiori
SAP Fiori provides role-based applications for accessing and managing SAP S/4HANA processes. Depending on system configuration and available apps, users can perform Product Cost Controlling activities and analyze financial information through the SAP Fiori launchpad.
SAP Universal Journal
SAP Universal Journal provides a single source of financial and management accounting data in SAP S/4HANA. Actual postings are stored in ACDOCA, enabling integrated reporting across Financial Accounting, Controlling, and related processes.
Standard Cost Estimate
Standard Cost Estimate calculates the planned cost of producing or procuring a material. An eligible standard cost estimate can be marked and released to update the material's standard price.
Transfer Control
Transfer Control is a component of the costing variant that determines whether existing cost estimates for lower-level materials are transferred into a new cost estimate. This can help reuse existing costing results within multilevel material cost estimates.
Unit Costing
Unit Costing allows costs to be estimated manually without using a complete quantity structure such as a bill of material and routing. It can be useful for preliminary costing or when detailed master data is not yet available.
Valuation Variant
Valuation Variant defines the valuation strategies used in a cost estimate for materials, activity types, subcontracting, and external processing. It is a component of the costing variant and determines which prices or values SAP searches for when calculating costs.
Weighting Factor
Weighting Factor determines how much each procurement alternative contributes to a mixed cost estimate. Weighting factors can represent expected production quantities or proportions and are used to calculate the weighted average cost of the selected alternatives.