16 Replies Latest reply: Aug 7, 2012 12:04 AM by A SAP RSS

Product Costing-Overhead inclusion in Inventory standard cost without PPV

Currently Being Moderated

Dear Friends,


I have a requirement to include overhead cost in standard price of the material where only component is material cost which is purchased from oustide and sold without any operation so there is no routing or production order. It would be possible to load ovrehead cost along with material cost to include it in standard price of the material. But when overehead is included in standard price, when ever material is purchased, the difference between standard price and PO price will be posted as Purchase price variance. The overhead portion included in the standard price will distort value of Purchase price variance (PPV). Is there any option available in SAP which can allow loading overhead cost in standard cost of the material without affecting PPV value?


Thanks and regards,



  • Re: Product Costing-Overhead inclusion in Inventory standard cost without PPV
    Ajay Maheshwari SAP Trainer
    Currently Being Moderated

    Hi Pinky


    That would not be possible. ONce you calculate std cost, you tell the system that inventory is to be valuated at this price.. Any PO price different than this will call for PPV.... You cant avoid this


    In your case, since you are saying, you simply buy and sell the materials, why are you valuating them at Std cost.. Your price control should be V, so that inventory is valuated at actuals


    And whatever overhead you incur to sell the product, should ideally be allocated as an overhead in COPA using assessment cycle KEU5.. Or else, you can use a costing sheet in COPA, do step-up your COGS by a certain % to account for the overheads... HOwever, I would personally not recommend this.... Reason being, Absorbing overheads in this way, will always lead to over or under absorption


    I would prefer Price control V and then KEU5 as said above


    Ajay M

  • Re: Product Costing-Overhead inclusion in Inventory standard cost without PPV
    Althea Madigan
    Currently Being Moderated

    We have this situation at our plant.  To correctly post the overhead, our SAP consultants used a Condition (RUE1) on the purchase order pricing.  RUE1 value is maintained through Purchasing conditions > other. Via a user exit, when the PO is created, it goes to the Standard cost, calculates the value of the OH condition (%  * Standard price) and saves that value in the PO pricing.   there are entrie OBYC to specify the OH offset account.  When a GR is posted, STandard cost is posted as inventory; PO price is posted as unvouchered; RUE1 value is posted as OH Offset;  PPV only will post if the PO price has changed since standards were set.


    We are now calculating the overhead on the material through Raw Material costing and have the two values split as Cost Components.



  • Re: Product Costing-Overhead inclusion in Inventory standard cost without PPV
    Currently Being Moderated

    This is a very interesting approach.  I noticed that a fundamental decision was made early on that is somewhat different than what we made.  In your approach you wish to bump up the value upon receipt of the purchased parts to absorb the overhead.  In our approach we want inventory to stay at cost for purchased items, but when consumed to orders, add overhead to the order in the period consumed.  So, there seems to be 3 points (maybe more) in which to add the increased overhead. 

    1-Upon receipt of purchased items.

    2-Upon consumption of purchased item

    3-Upon sale of delivered parent part


    We opted for the middle ground of option 2.  Our thinking is that when consumed, it must be pulled from stock and moved around.  Also, this seems like the middl-ground view.  Option 1 applies all the overhead and resulting absorption credit (income) upon receipt.  Option 3 records the OH absorption after there are no more movements to occur.


    I also liked option 2 because it seemed easier to implement for me.  It is entirely the responsibility of Accounting to set up the costing sheet as well as to run the actual costing sheet transaction each month or more often if desired.  We automated the costing sheet transaction so the orders get hit with the OH debit and material planning cost center group gets the OH credit.


    I am not saying any method is right or wrong mind you.  Just choices to be made.



    • Re: Product Costing-Overhead inclusion in Inventory standard cost without PPV
      Althea Madigan
      Currently Being Moderated

      Nice list of the options.


      I don't know why option 1 was chosen here; that was made 6 months before I arrived,  but I can guess.


      The first plant up in this company, in legacy, had been a make to order/moving average environment.  Cost of Sales was determine, by Inventory at begining of month + receipts - consumption =COS

      There was no Raw material, WIP or FG accounts. Major inventory accounts were Equipment, Software, etc

      Valuation classes were set toidentify EQ, Soft Etc.


      therefore all goods issues (purchased material or in house assemblies) debit the same consumption account. 

      The costing sheet has nothing to work with to allow OH only on purchased materials at time of consumption.


      So we addit at time of GR.


      Each company to their own, I suppose



  • Re: Product Costing-Overhead inclusion in Inventory standard cost without PPV
    SR VE
    Currently Being Moderated

    Hello Pinky,


    I have read through the entire thread but finally which solution did you implement. I need to implement the same scenario for my client. Any ideas is highly appreciated.