What Are Costing Levels and How Are They Used in a Costing Run?

SAP Costing Run

Costing level is a term used in SAP Product Cost Controlling. While costing materials that have multiple levels (example: Finished Goods, Semi-Finished Goods, Raw Materials), system costs the lowest level first (i.e. Raw Materials) and then progresses to the next level up (i.e. Semi-Finished materials will be costed next, Finished materials will be costed in the end).

While costing materials level by level, system rolls up the costs to the next level and allows cost roll-up by cost components. Costing level is essentially the sequence of costing multiple materials. Costing level number 1 would mean this is the lowest level, these materials are costed first. Materials with a higher costing level would mean that those materials are costed only after materials below them are costed.
Costing Run
The costing run enables costing of multiple materials at the same time. A costing run reproduces the entire process of costing a product with a Bill of Material (BoM). Mainly suited to carry our costing for a large set of data, they can be executed in background mode for large volumes of materials.
Several steps are involved in a costing run – Selection, Structure explosion, Costing, Analysis, Marking and Release. System determines costing levels during the structure explosion step. Materials are costed in this derived sequence of costing levels during the costing stage. See Figure 1 for an example of a costing run with costing levels
Drivers for Costing:
Component material quantities are derived from Bill of Material (BoM)
Components are costed as per costing method (standard or moving/weighted average), by reading the values stored in the material masters, or Purchasing Information Records (PIRs), or some other planned price valuation method like trending (historical average) price
The activities are costed by applying activity rates as the product moves through the routing (or recipe in the case of process industry), operations performed in the work centers (resources in case of process industry) in the manufacturing facility
Overheads are absorbed into the product cost via activity types and/or costing sheet.
First Time Costing Run:
There could be a situation in a typical SAP implementation project where master data has been setup for the first time. A wide open costing run of all materials may result into a numerous errors and can make the error analysis and troubleshooting a bit cumbersome. In such a scenario, costing by costing levels is useful in segregating errors by costing level.