In the world of manufacturing, efficient cost management is crucial to the success of any organization. One important aspect of cost management is product costing, which involves calculating the costs associated with the production of goods. In the SAP S/4HANA Finance system, the Material Ledger module plays a significant role in capturing and analyzing production variances.

In this blog, we will explore the product costing process, sap production order calculation, and the role of the Material Ledger in SAP S/4HANA Finance. 

Understanding SAP Production Order and Preliminary Costing 

When a production order is created in SAP, the system automatically generates a planned cost estimate known as preliminary costing. This cost estimate is based on the customizing settings for the order types.

The preliminary cost includes

➔ Planned debits for materials

Internal activity allocations

Planned credits for goods receipt and delivery 

The goods receipt value is calculated by multiplying the planned output quantity by the output material’s standard price. It’s important to note that the preliminary costing represents the planned costs for the sap production order and serves as a baseline for cost comparison. 

Material Ledger in SAP S/4HANA Finance

Simultaneous Costing: Capturing Actual Costs 

Simultaneous costing is the process of capturing actual costs for cost objects, such as manufacturing orders. In this process, actual costs represent the actual quantity consumption but are evaluated at the standard price. This differs from the Material Ledger’s concept of actual costs, which involves periodic calculations and allocates variances to stock and consumption. 

To illustrate the concept of actual costs in the production order, let’s consider a scenario where the production order is confirmed. 

Production Order Confirmation: Allocating Costs 

To allocate costs to a production order, the first step is confirmation. Confirmation records the processing status of production operations and includes information about the work center, the operator, yield and scrap quantities, and activity type quantities. 

During the confirmation process, material components are consumed, and their values are updated as actual costs in the production order. The system determines the actual costs based on the price control of the material master data.

For example, if the material has price control “S” (standard price), the system will update the actual cost based on the standard price. 

Goods Issue to the Production Order: Material Consumption 

The next step in the product costing process is the goods issue to the production order. This step involves entering the consumption of material components into the system. When material components are consumed to produce another material, the system updates the values of those components as actual costs in the production order. 

The system proposes the movement type “261” for goods issue for the order, along with the material components based on the production order information. The suggested consumption quantity can be adjusted based on the actual consumption quantities. 

Material Ledger in SAP S/4HANA Finance: Tracking Costs 

The Material Ledger module in SAP S/4HANA Finance plays a crucial role in tracking and analyzing production costs. It captures variances related to raw material prices, manufacturing processes, and overhead cost allocations. These variances are allocated to stock and consumption, providing a comprehensive view of the actual quantity consumption value at actual prices. 

The analysis in the Material Ledger helps identify and analyze the reasons behind production variances, allowing organizations to take corrective actions and improve cost management. 

Goods Receipt from Production Order: Updating Cost

After the production process is completed, the material produced is received through a goods receipt. When a goods receipt is posted from the production order, the value of the received material is updated as a credit in the production order’s actual costs. The credit value is based on the material’s price control, which can be “S” or “V”. 

The system proposes the movement type “101” for goods receipt into the warehouse, along with the material in the order header. The goods receipt value is calculated by multiplying the confirmed quantity by the standard price. 

Settlement of Production Variance: Analyzing and Resolving Variances 

During the production process, variances may occur due to factors such as revaluation of activity prices and overhead costs. These variances can be settled using various methods, including

Profitability Analysis (CO-PA)

➔  Material Ledger

➔ General Ledger (GL) 

Settlement of production variances involves analyzing the variances and making necessary adjustments to ensure accurate cost allocation and reporting. By settling production variances, organizations can gain insights into their cost structures and make informed decisions to improve profitability. 


In conclusion, the product costing process in SAP S/4HANA Finance involves various steps, from preliminary costing to simultaneous costing and production order confirmation. The Material Ledger module plays a critical role in capturing and analyzing production variances, providing organizations with valuable insights into their cost structures. 

To effectively execute the product costing process, SAP HANA Finance consultants must have a good understanding of SAP Controlling, Product Costing, and Material Ledger. By strategically implementing this process, organizations can optimize their cost management practices and enhance their overall profitability.

Do you need guidance or wish to implement SAP S/4HANA Finance within your organization, KaarTech stands ready as your exclusive partner. Our expertise and collaborative approach ensure a seamless journey toward maximizing financial efficiency and success.

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What’s the purpose of preliminary costing in SAP Production Orders? 

It serves as a planned cost estimate, outlining material debits, activities, and goods receipt for cost comparison. 

How does Material Ledger differ from simultaneous costing in SAP Production Orders? 

Material Ledger allocates variances to stock based on periodic calculations, while simultaneous costing tracks actual consumption at standard prices.

Why is Material Ledger vital in SAP S/4HANA Finance for tracking production costs? 

It captures variances in raw materials, processes, and overheads, providing insights into actual consumption at real prices.

How does KaarTech support SAP S/4HANA Finance for cost optimization? 

KaarTech, as an exclusive partner, offers expertise in SAP modules, ensuring effective implementations for enhanced profitability. 


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