Product Costing in the Material Master in SAP S/4HANA

The material master is a foundational master data object for all of logistics in SAP S/4HANA.


All raw materials, semifinished products, and finished products are created as material masters. Furthermore, services also can be set up as materials.


The material master is a complex structure that consists of numerous views organized into tabs related to sales, purchasing, accounting, product costing, and so on. We’ll focus on the setup required from a costing point of view.


We’ll start with some basic configuration that’s required of materials to enter costing information. Each material is created for a material type, which is used to classify materials with similar functions. For material types relevant for costing, you must activate the costing and accounting views.


To define the settings for material types, follow the menu path Logistics—General > Material Master > Basic Settings > Material Types > Define Attributes of Material Types.


On the screen shown in the figure below, you’ll see the material types already defined in the system.


Material Types


The standard material types provided by SAP are shown on this screen; notice that SAP provides myriad standard material types to represent different kinds of materials. When creating custom material types, they should start with Z or Y in the custom name range.


Let’s create our own material type for raw materials. Locate material type ROH, which is a standard SAP material type for raw materials, select it, and click the (Copy As…) button from the top menu.


The next figure shows the configuration of the material type. Enter “ZRAW” as the name for the new material type and enter “Raw materials” for the long description.


Material Type Definition


In the User departments area, you’ll see all the possible views to be maintained on the material master. Make sure that Accounting and Costing are selected because they provide the required data for financial accounting and product costing. Then, press (Enter) to adopt these settings.


The system issues a message with the number of dependent entries copied for the material type, which you can confirm by clicking the checkmark button, as shown in the following figure. After that step, save the new material type by clicking the Save button.


Copied Dependent Entries


To create a new material, follow the application menu path Logistics > Materials Management > Material Master > Material > Create (General) > Create (General).


The next figure shows the initial screen for material creation. Enter a material number, which can consist of numbers or letters, depending on the number range configuration. You also must select Industry Sector and Material type. For this example, we’ll select D Phama & Drugs and the new material type ZRAW Raw materials. Then, proceed by pressing (Enter).


Creating a Material


On the next screen, shown below, check the views you’re going to maintain in the material master. Make sure the accounting and costing views are selected, then proceed by clicking the button.


Selecting Views


We won’t detail all the material views, which contain logistical information. We’ll concentrate instead on the accounting and costing views. The next figure shows the Accounting 1 view, which contains some important settings from a product costing point of view. Most important is the Prc. Ctrl. (price control) field, for which you have two options:

  • S: Standard price
  • V: Moving average price/periodic unit price

Accounting 1 View


If a material has a standard price (S), the value of the material is calculated at this standard price. If goods movements or invoice receipts (IRs) have a price that is different from the standard price, those differences are posted to the price difference account. The variance isn’t taken into account in inventory valuation. If, however, the material has a moving average price, each goods movement and IR updates its price. When goods movements and IRs are posted with a price that’s different from the current moving average price of the material, the differences are posted to the stock account itself. Therefore, the moving average price and the inventory value change.


We recommend using standard prices for finished and semifinished products. The moving average price can be used for raw materials and external purchases. Especially when the price could vary significantly, the moving average price is recommended. Also, in some countries where prices can fluctuate significantly, especially in an inflationary environment, the moving average price is recommended—and sometimes even legally required.


This choice is a major decision point and important strategy in each SAP S/4HANA implementation that affects how to value inventory. Each type of material should be carefully considered, and your business should make a well-informed decision with the help of its integration partner. Making good decisions for all materials is important because the valuation of the materials provides the backbone for proper product costing. In this process, you must understand what types of materials are used as raw, semifinished, and finished materials. You also must understand the specifics of these materials, how they are affected by market price movements, and how stable their prices are. An important consideration is the economy in which the company operates and whether inflationary forces are in play.


Next, navigate to the Costing 2 view of the material, as shown here.


Costing 2 View


Under this tab, in the Standard Cost Estimate section, you’ll maintain the standard cost estimate, which is used to valuate materials with standard price control. Sections exist for future, current, and previous prices, which currently are empty because we haven’t costed the material yet.


Editor’s note: This post has been adapted from a section of the book Configuring SAP S/4HANA Finance by Stoil Jotev.


Configuring SAP S/4HANA Finance
Configuring SAP S/4HANA Finance

Get your SAP S/4HANA Finance configuration right the first time! Whether you’re running a new implementation or transitioning from SAP ERP, this comprehensive guide walks you through each project task. Start by setting up an organizational structure and defining global master data. Next, follow step-by-step instructions organized by functional area: general ledger, AP, AR, controlling, margin analysis, predictive accounting, and more. Your new system awaits!

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