What is Actual Costing?

The shortcomings of standard costing approach can be covered by actual costing approach. The important shortcoming of standard costing is treatment of production variance, i.e. such variance remains in profit and loss account and not absorbed in inventory and consumption. This allocation of production variance between inventory and consumption can be achieved by using actual costing material ledger.

Actual Costing system combines the benefits of standard price valuation with the advantages of a valuation with the moving average price: a stable price for controlling & inventory valuation purposes for each material for each period.

  • Hybrid of Standard Cost and Moving Average cost (Periodic Unit Price)
  • Tracking of value and quantity movements.
  • Derive actual cost of the product for a period.
  • Option of revaluation of on-hand inventory and COGS.
    • With “calculated” actual cost.
    • Option of using calculated prices as new Standard prices in the future.
  • Actual Costing function takes periodic values collected and independently creates new Valuation prices and inventory valuations.
  • This procedure supplements Standard costing system in parallel, Revaluations does not impact Standard costing system.

What is Material Ledger?

This is advance feature of SAP FICO, used primarily for actual costing purpose. After activating this feature for all the inventory documents one more additional document start getting posted i.e. material ledger document. This feature can be activated in existing production system. It also requires additional space in system, before activation we have to consider the technical side of system and database.

For further details and an in-depth guide, please download the PDF given below.

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  • Valuation of inventory & cost of goods sold at actual cost.
  • Actual cost component split and as actual contribution margin report.
  • Alternative valuation run for; quarterly / half yearly / annually weighted average actual cost to compute and even out the monthly fluctuation of actual cost.
  • Distribution of usage variance; with this the over and excess consumption of input material as compared to standard BOM can be allocated to the respective production orders.
  1. Preliminary study of the existing business process in terms of functional and technical aspects is required for preparation of “Preliminary Study Report”(PSR)
  2. Depending on the PSR following factors would be derived and documented as a part of “Final Study Report” (FSR).
    • Feasibility of solution.
    • Key performance indicators.
    • Effort estimations & timelines.
    • Broad solution approach document
  3. Depending on the broad solution approach document the agreed solution will be implemented by following the regular process of implementation ( i.e. blueprinting of requirement, realization & testing of solution in test system, final preparation for production system and GO Live in production system)
  4. Measurement of performance w.r.t. agreed KPIs as a part of “Business Value Realization Report” (BVRR)

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