1. Overview of Product Costing at Eli Lilly and Company Ross Christoph

2. Overview of Product Costing at Eli Lilly and Company Ross Christoph

3. Agenda Eli Lilly and Company Fast Facts
SAP Project: Global Business Integration Project
Product Costing Functionality
Product Cost Planning
Process Order Costing
Custom Reporting
Campaign Costing

4. Eli Lilly and Company – Fast Facts
Pharmaceutical Industry
Headquarters in Indianapolis, Indiana
Founded in 1876
Products marketed in 158 countries
41,000 employees
2003 Sales - $11,077.5 Million

5. Products Zyprexa (Schizophrenia and Bipolar)
Humulin / Humalog (Insulin)
Gemzar (Cancer)
Evista (Osteoporosis)
Xigris (Sepsis)
Strattera (ADHD)
Cialis (Erectile Dysfunction)

6. Manufacturing Locations
United States - Indiana
Brazil
France
Germany
Ireland
Italy
Mexico
Puerto Rico
Spain

7. Global Business Integration Project
Common Solutions
One Instance
Phased Implementations
Extensive Functionality

8. Functionality Accounting / Financial Financial Accounting (FI)
Cost Accounting (CO)
Material Ledger
Financial Reporting (SPL)
Consolidations
Asset Management
Project Systems

9. Functionality, Cont’d Manufacturing Production Planning (APO)
Production Execution (PP-PI)
Quality Management
Warehouse Management System (Catalyst)
Order to Cash
Purchase to Pay HR

10. Product Costing Approach at Eli Lilly
Practical Capacity Standard Costing
Standard Costs generally updated once per year
Legal Transfer Prices between Affiliates
Variances recorded:
Manufacturing Order Variances
Spending Variance
Utilization Variances
Other Product Related Variances
Brazil – Actual Costing for Legal Requirements

11. Product Costing Topics
Product Cost Planning
Cost Center Planning
Purchased Material Prices
Quantity Structure Data
Creating Cost Estimates
Reporting
Process Order Costing
Material and Activity Charges
Closing Process – WIP, Variances, Settlement

12. Cost Center Planning Master Data – Cost Centers / Activity Types
Activity Types – Capacity and Planned Usage
Primary Cost Planning
Cost Center Activity Allocations
Activity Independent Cost Splitting
Activity Rate Calculation

13. Plant Cost Flow Cost Center Planning – Direct Expenses
Manager
Engineering QC
Formulation
Packaging
Material/
Process Order
Expense plan by cost center, by cost element, by month. Expenses can be planned dependent or independent of activities. If dependent, variable expenses can be planned.

14. Plant Cost Flow Cost Center Allocation – Direct Activity
Manager
Engineering QC
S00014
Formulation
Packaging
Material/
Process Order
Actual is recorded based on actual usage at plan rate

15. Direct Activity
Method to allocate cost center expenses to other cost centers, (support cost centers > production cost centers)
Plan demand
Capacity should equal demands
Record actual: KB21N (Enter Activity Allocation) .

16. Plant Cost Flow Cost Center Allocation–Indirect Activity
Manager
Engineering QC
I00000
Formulation
Packaging
Material/
Process Order
Actual is recorded at plan (Target)

17. Indirect Activities Target = Actual
Method to allocate cost center expenses to other cost centers (support cost centers > production cost centers)
Special activity type category = 5 (target = actual allocation)
Plan available capacity
Plan demand
Capacity must equal demands
Record actual based on plan - KNMA
Spending variance will remain in the original cost center

18. Activity Price Calculation
Transactions
Splitting – KSS4
Price Calculation – KSPI
Splitting – Assign Activity-Independent Costs to Activity Types for the Price Calculation
Splitting Structure: Labor Related Cost Based on Headcount; All others based on Capacity
Price Calculation
Fixed Cost – Denominator is Capacity
Variable Cost – Denominator is Plan Activity

19. Activity Price Calculation
Manufacturing Cost Center
Activity Independent Expenses Fixed Variable
Primary x
Secondary x x
Activity Dependent Expenses
Equipment x x
Direct Labor x x
Indirect Labor x x
T T
Support
Cost
Centers

20. Activity Price Calculation
Manufacturing Cost Center
Direct
Activity Independent Expenses Fixed Variable
Primary x Split Activity Independent
Expenses to Activities
Secondary x
Activity Dependent Expenses
Equipment x + x = x / Capacity x / Plan Usage = Total Activity Rate
Direct Labor x + x = x / Capacity x / Plan Usage = Total Activity Rate
Indirect Labor x + x = x / Capacity x / Plan Usage = Total Activity Rate
T T T
Support cost Center

21. Plant Cost Flow Charges to Material/Process Order
Manager
Engineering QC
Formulation
Packaging
WIP
Equipment E00001
Material/
Process Order
Direct Labor L00010
QC S00004
Indirect Labor L00007
Secondary
Inventory
Variance
Direct charges: Actual Use, Plan Rate
Secondary charges: Plan Use, Plan Rate

22. Cost Center Planning Tool Set
Copy Plan
Copy plan to plan (KP97)
Copy actual to plan (KP98)
Revaluate (KSPU)
Transfer
Primary cost planning: Depreciation/Interest
(S_ALR_ )
1) Depreciation on current assets
2) Anticipated depreciation on open capital projects
3) Planned from Investment Management

23. Cost Center Planning Tool Set
Transfer
Schedule Activity SOP/LTP (MSBT/KSPP/KPSI) (Sales & Operations Planning/Long-term Planning)
Calculates and loads the plan activity into cost centers by activity type based on the production plan
Usage defined in master recipes
Excel Integration (KP06 / KP26)
Manual Planning (KP06 / KP26)

24. Purchased Material Price Determination1
Intercompany?
Yes
Find Supplying
Company
Find Transfer
Price From
Purchasing Files
Raw Material
Read Additive
Cost Estimate
Transportation (Domestic)
Freight (Intl)
Custom/Duties 2
Additive
Cost
Estimate
Raw Material
Pkg Material
Transportation
Freight (Intl)
Custom/Duties 3
Future
Price From
Accounting View
Of Material
Master
(Raw Material/
Pkg Material) 4
Current
Standard
Cost
(Raw Material/
Pkg Material)

25. Purchased Material Standard Costs
Raw materials to be costed are downloaded from R/3, along with current cost data.
Data is entered in an Excel spreadsheet and uploaded back to R/3.
Data is entered as additive cost components. (CK74N)

26. Purchased Material Standard Costs
Download Process
Program identifies all third-party purchased materials
Program identifies all intercompany purchased materials
Program also provides current cost information:
current standard cost
current year cost components
prior year standard cost
data on most recent purchases

27. Purchased Material Standard Costs
Upload Process
Using a PC file, the program executes transaction CK74N
In addition to the material and plant, the UOM and currency also needs to be provided
Program makes adjustments necessary for UOM conversion, currency translation, and the costing lot size
- Manual vendor price is not automatically loaded for intercompany materials, these are determined from purchasing condition records

28. Cost Estimate Determination (Standard Costs)
Quantity Structure
(Master Recipe)
BOM (Materials)
Routing (Resources
Activity Types)
Valuation
Purchased Material Prices
Activity Rates
Material
Conversion Cost
Lot Size
Independent
Costs +
Lot Size
Dependent
Costs
Total Cost / Costing Lot Size
= Unit Standard Cost

29. Costing Run Steps (CK40N)
Material Selection
BOM Explosion
Costing
Reporting
Marking - update standard price as future price in material master
Releasing - set future standard price as current (CKME)

30. Standard Cost Reporting
Costing Run Reporting
Estimated Revaluation Report
Views
Itemization
Cost Component
BOM Structure

31. Cost Component Structure
01 - Primary Cost View 10 Raw & Intrmdt Mtrls 20 Packaging Materials 30 Freight (Intl) 40 Transport (Domestic) 50 Customs / Duties 65 Comp & Benefits 75 Depreciation 85 Maint & Repairs 95 Purchased Utilities 105 Materials & Supplies 115 Purchased Services 120 Subcontracting Fees 130 Other Unassigned
Cost Component Groups
Materials
Landing
30 Conversion

32. Cost Component Structure
02 - Direct View
10 Raw & Intrmdt Mtrls 20 Packaging Materials 30 Freight (Intl) 40 Transport (Domstic) 50 Customs / Duties 60 Direct labor 70 Indirect Labor 80 Equipment 90 Material Handling 100 Quality Control 110 Utilities Environmental Serv
120 Subcontracting Fees 130 Other Unassigned
Cost Component Groups
Materials
Landing
30 Conversion

33. Process Order Costing Charges to process orders
Production execution confirmations via PI sheet (Activity charges)
Materials used (261 movement type)
Credit for Production
Material produced (101 movement type)

34. Process Order Costing Period End Costing
WIP Determination, for orders not final delivered (KKAO)
Variance Calculation, for orders final delivered (KKS1)
Financial Settlement (CO88)
If not final delivered – WIP (G/L )
If final delivered – Production Variance (G/L / )

35. Process Order Cost Reporting
Individual Order Reporting (KKBC_ORD)
Target vs. Actual, quantity & value by cost element, material/activity
Variance Category Analysis Summarization Reporting (KKBC_HOE)
Absorption Reporting (Cost Element View)
Variance Category Reporting (Hierarchical View)

36. Variance Versions 0 - Standard Cost / Actual Cost
1 - Plan Cost / Actual Cost
2 - Plan Cost / Standard Cost
Standard (Target) - Based on released cost estimate
Plan - Based on current quantity structure

37. Variance Category Reporting
Input Price
Input Quantity
Resource-Usage
Remaining Input
Mixed-price
Output Price
Lot Size
Remaining

38. Custom Reporting Process Order Balance Report
Process Order Variance Summary
Absorption Reporting
Utilization/Spending Variance
Subcontracting Variance Report

39. Process Order Balance Report
Ensure net postings to all process orders are zero (All postings to process orders are recorded as WIP in SPL)
List net charges, credits, and net WIP postings for a month for a specified plant
Data sources
COSP & COSS (Process Order Charges)
COSB – WIP Value

40. Process Order Variance Summary
Report Variance Categories by Order for month for selected plant and variance version
Data source – COSB
Variance Category Change: Regroup Quantity and Resource Usage into
Primary Material
Other Materials
Activities
Excel Format

41. Absorption Analysis Report
Report Actual, Target, and Plan Absorption for month for selected plant
Report data by Process Order, Cost Center, Activity Type
Data source – COSS
Excel Format

42. Utilization / Spending Variance
All postings to Manufacturing Cost Centers are charged to spending variance in the SPL
At the end of the month the utilization variance is calculated
Financial document is posted to record Utilization Variance; offset is to Spending Variance
Spending Variance = Actual Expenses – Plan Expenses
Utilization Var = Plan Expenses – Actual Absorption
Calculation and posting is performed by cost center
Definition of Expense versus Absorption is determined by Cost Element and D/C Indicator from COSP and COSS

43. Subcontracting Variance Report
All variances on Subcontracting Purchases are recorded to PRD (price variance)
Total variance is a result of material usage and service fees
This program calculates and reports variance for each material and service fee.
Report can be generated for a material and time period, or for a purchase order.

44. Campaign Costing
Production Campaigns – Production of many process orders for the same material in succession
Costing Objective – Allocate Set-up and Clean-up costs to process orders manufactured within a campaign

45. Campaign Costing - Planning
Create separate production versions for normal production, set-up, and clean-up
Create Production Alternatives for each Production Version (CK91N)
Create Mixing Ratios for Production Alternatives (CK94)
Quantity for normal production versions is the total quantity to be produced during a typical campaign; quantity for set-up and clean-up is one

46. Campaign Costing – Order Costing
Each month a CO posting is recorded to charge the plan set-up and clean-up costs to the production process orders.
Total credit is from the set-up order, as the clean-up order is not yet released.
At the end of the campaign, the set-up process order is charged and the clean-up process order is credited for the total plan value of the clean-up order.
During the campaign, the balance of the set-up order is charged to WIP.

47. Campaign Costing – Order Costing
Transaction - Enter Manual Cost Allocation (KB15N)
At the end of the campaign set the set-up and clean-up orders to technically complete (TECO) so that remaining balances will be charged to production variance

48. Questions??

49. Thank you for attending!
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Session Code: 1704