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Chapter 5
ERP system to determine the quantities of direct material and direct labor used in a product.
These production data, combined with material cost information stored in the Financial
Accounting module, provide the basis for a product cost analysis.
In the SAP ERP system, a product cost is based on a product cost variant. In SAP
ERP, the term variant is used to mean a version of a plan or analysis. A product cost
variant is basically the procedure for developing a product cost analysis; many variants
can be created for different planning requirements. Once a product cost variant is
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developed, it only takes seconds for the SAP ERP system to gather the required
information to create a product cost estimate. Figure 5-9 shows the result of a product
costs analysis in the SAP ERP system. This screen not only provides the cost analysis, but
it also allows the user to explore the details about how cost analysis was calculated.

Materials
used in
product cost
calculation

Product cost
results
(COGM and
COGS)

Source Line: SAP AG.

FIGURE 5-9 Product cost analysis result in SAP ERP

The SAP ERP product cost tool greatly reduces the time required to develop cost
estimates, and it increases their accuracy because it gets its data directly from system
modules, where the data are real time.

Activity-Based Costing and ERP
A trend in inventory cost accounting is toward activity-based costing. In activity-based
costing, overhead costs are assigned to products based on the manufacturing activities that
gave rise to the costs. Accountants identify activities associated with overhead cost
generation, and they keep records on the costs and on the activities. The activities
are viewed as causes (drivers) of the overhead costs. This view treats overhead costs as
more direct than traditional cost-accounting methods have treated them. In an attempt to
assign costs more precisely to individual products, activity-based costing tries to avoid

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