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Basics of variance calculation-Understanding Period End

activities, WIP and Variances

created byHrusikesh Dalaion Apr 9, 2014 5:17 PM, last modified

byHrusikesh Dalaion Nov 11, 2014 9:56 PM

Version 1

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Hello friends,

This is my 6th document in costing and this one is intended to explain

variance calculation and related activities at period end.

I will walk you through the period end activities and variance calculation.In this document I have try to limit myself period end activities in relation

with WIP & Variance calculation. See below screenshot it is a background

job (SM36) scheduled to run period end activities. We calculate Actual

Overhead (T-Code CO43), Work in Process (KKAO), Variance calculation

(KKS1) and Settlement (CO88). Along with this I have also included CO

summarization KKRC for various KKBC reports.

Figure 6.1- Background Job of period end activities

Let's understand each of the transactions and its usage in detail

OverheadDuring a month actual primary cost such as wages, utility, are debited to

cost center. Some of the costs may be included in planned activity rate and

allocated to products from cost centers during activity confirmation.

Overhead calculation offers most flexible way of allocating cost to different

products during period end overhead calculation. When you run the
http://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalai


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transaction code CO43 (CO42 for individually) system will go to the cost

sheet where the overhead key, calculation base and credit key define. In

overhead key the rates are define plan as well as actual (to view cost sheet

transaction code is KZS2) at the time of running the overhead system

calculate the overhead amount and post the same to respective production

order. Please refer my scan document on the same overhead cost in costing

sheethttp://scn.sap.com/docs/DOC-49880

WIP-Work in Process

Production costs associated with manufacturing orders are temporarily

tracked on the profit and loss financial statement. Work in Process

represents production cost of incomplete assemblies at period end. In order

to balance sheet items accurately reflect company assets WIP costs are

temporarily moved to WIP Balance and profit and loss account. There are

two types in WIP process valuation

-WIP atTargetvalued based on Cost Estimate (Mainly used in Product

Cost By period)

-WIP atactualvalued based on actual debits to a manufacturing orders.

(Mainly used in Product Cost by Order)

The advantage of WIP at target calculation is that variances and WIP can be

posted at same time. If production orders remain open for multiple periods

variances reconciliation is easier using WIP at target inProduct Cost By

period.

WIP is calculated each period until the status of an order status set to fully

delivered or TECO, and then the entire WIP is cancelled and variance iscalculated inProduct Cost BY order.

Variance Calculation

As we know it helps us to provide the difference between 0rder debits and

credits.
http://scn.sap.com/docs/DOC-49880http://scn.sap.com/docs/DOC-49880


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Target cost are determined during variance calculation therefore few

check points before we calculate Variances inProduct Cost By period.

There must be Goods receipt for FG for at least one of the

manufacturing orders

There must be variance key in the product cost collector

Standard cost estimate should be valid the day of posting for product

cost Collector

The material origin indicator should be selected for all cost related

components

Variance configuration must be carried out (see below variance

configuration)

The product Cost Collector must have settlement type (PER)

Variance calculation using (KKS1/KKS5)

To calculate variances inProduct Cost by Orderwhich the manufacturing

order must meet the following conditions

Settlement Type FUL (Full settlement type) in settlement rule

Status DLV (delivered) or technical Complete (TECO)

Note-You can use Settlement type PER ( Period ) in Product Cost By

Order where companies does not wanted to calculate WIP and each order

should be settled in the period. In that case you will have to manually set

the order status to TECO in order to calculate variances. This is not a SAP

standard practice but some companies do this.

Total variance-This is the only variance which is relevant to settlements, the

difference between debit and credits are settled to financial accounting,

PCA and COPA. Target cost version 0 is used to calculate the total variance.

Other variances like Production variances and Planning variances are for

information purpose only.

Settlement


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Settlement is the last step in period end closing for product cost collector

and Production orders.

Summarization

I have added one more step to get those KKBC reports for different purpose

you can configure the same in KKR0

Now lets see some basic configuration required for variance calculation

SAP

Variance Configuration

Step-1 OKV1

By checking scrap indicator the value of scrap is calculated during variance

calculation and deducted from total variance.

Step-2 OKVW

When a material Master is created a default variance key is proposed for

the costing 1


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Step-3 T-code OKVG

If you don't select a particular category, the variances of that category will

be added to the category of remaining variances. An exception is the scrap

variances. Scrap variances that are not shown as such can go into any other

variance category on the input side selection in this screen as we alreadydefined it in Variance Key.

Step-4

Defining Valuation variant for Scrap and WIP (Only Product cost By

Period) - Configure it in IMG node


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At period end Target cost are temporarily moved from Product cost

collector to WIP Account. Variance is also calculated and posted at the

same time.

Note-In Product cost by Order this does not apply as WIP and Scrap is

valuated at actual.

Step-5-T-code OKV6

Define Target Cost version

Target cost are based on current standard cost estimate which is actual

credits and control cost which is actual cost is actual debits. Valuation

variant is to control which cost estimate is used to valuate scrap. You can

use different target versions for different variance like production variance

and planning variances with other parameters.


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This is a basic document for Variance calculation and various steps

involved with it. This is intended for beginners who is starting to learnabout Controlling. Please refer my previous documents posted in SCN

for fair idea about costing Basic of costing.

Basics of SAP Standard Cost estimate- Understanding the

flow of cost settings-Part 1

There is a lot of forum question answers and content available in SCNabout Standard Costing

Note-This is a beginner's and basic guide to understand cost estimate

and various settings behind it.

This document is intended to explain the cost flows to a standard cost

estimate. Explaining various settings in background. I will try to explain

this from backward from Cost estimate to configuration. This will answersome basic questions like Material Cost, Overhead Cost, Labor etc. in a

standard cost.

When you take a look at a material cost estimate what you will understand

the Quantity Structure, Valuation, Costing Dates etc.

o Standard cost of a material looks like in T-Code- CK13n (you can

view this from costing-2 view in material master too T-Code-MM03.)

o I will try to walk through these 6 tabs below explaining basicconfigurations and data flows from different configuration to Standard Cost

estimate.


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Screenshot-1o For our analysis purpose I have selected standard layout1SAP02-

Costing items (overview)

o there are several layout available in standard SAP and user can

define their own too.

Screenshot-2


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Screenshot-3

1-Costing Data-

It contains data like Costing variant, Costing Version, Lot Size and Transfer

Control. Lets talk about Costing Messages and Costing status later on.

Screenshot -4

o Costing variant-Configuration Costing Variant inT-code

OKKN-(Will cover in more detailed way in part 2.)

-Assign various Control parameters like Costing Type,Valuation

variant,Date Control QTY structure Control, Transfer Control etc.

-Maintain parameters different Tabs like Control, Qty Structure, AddictiveCost, Assignment and Misc.


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Screenshot 5

o Costing Version configuration using T CODE- OKYD

-Number that serves to differentiate between cost estimates for the same

material.

Screenshot 6

o Lot Size- The costing lot size in the material master record is usually used as a basis

for costing all materials, however one can manually change the lot size

during cost estimate.


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o Transfer Control-Configure in T-code OKKM usually used the

standard.

Screenshot 7

- This controls howcosting with quantity structuresearches for existing

cost estimates when existing costing data are transferred to another cost

estimate. In this example we assigned PC02 in TCODE OKKN.

2-Costing Dates-we will learn more about date control in Costing variant

Screenshot 8

-Costing Date from -Date from which the cost estimate is valid.

-Costing Date to- This date determines the date up to which the cost

estimate is valid-Qty Structure Date-Date with which the quantity structure is selected for

the cost estimate with quantity structure.

-Valuation Date-Date on which the materials and activities in a cost

estimate are valuated.
http://scn.sap.com/SAPEVENT:DOCU_LINK/DS:GLOS.costing_with_quantity_structurehttp://scn.sap.com/SAPEVENT:DOCU_LINK/DS:GLOS.costing_with_quantity_structure


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3-Qty Structure-It contains BOM and Routing data. ( Usually PP

functionality)

Screenshot 9

o Bill Of Material (BOM)- T CODE- SET up CS01 , To view T-code

-CS03

Screenshot 10

If you go back and refer my screenshot 3 the detailed cost (M) comes from

this settings.

Note- we will have to do cost component settings too will cover the point in

net part.

o Routings- Create Routings T-Cod-CA01 ( PP functionality) to view

CA03

- A routing shows operations in a sequence. This form the basis for


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Lead time scheduling. Product costing, capacity planning, Refer

screenshot 3 Cost Internal Activity (E) comes from this settings. We

will understand more detail in my next part about assigning work

center, activity and activity planning.

Screenshot 11

4- Valuation- It contains the currency, Costing sheet and Overhead key.

T CODE-KZS2-Creating and maintaining Costing Sheet,

T CODE-KOOK-Defining and changing Overhead key

Screenshot 12

if you refer to screenshot 3 Overhead cost (G) flows from this settings from

costing sheet and overhead key.

o Costing Sheet-It controls the calculation of Overhead basically we

use one costing sheet for each object for which system is to determineoverhead costs. ( will see more detail in my next part)

o The Overhead Key-The overhead key is used to determine order-

specific or material-related overhead rates. The overhead amounts depend

on the plant and the overhead key. The overhead depends primarily on the


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overhead key. If an overhead key is not maintained for the material or the

order, overhead is to be determined in relation to the plant.

After defining a costing sheet that points to two condition tables. In

the first table, the overhead amount depends on the overhead key. In

the second table, the overhead amount depends on the plant. An

access sequence determines which conditions have priority.

5- HISTORY- It contains the user and costing run date data.

Screenshot 13

Cost By/Marked By/released By- The user names who performed

respective costing run task.

Some large companies have different person to mark the cost and differentperson to release the cost as it rectifies the human errors if any. But in my

experience i have seen mostly it is performed by the same person.

Costing run - usually this data updated when we use T-code CK40n to do

standard costing in case of individual material costing using CK11n this

field will not populate. So we can always go and check that costing run

data to verify the settings at that point of time.

6-Costs-Baiscally it is summarization and cost component view


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TCODE-OKTZ setting up cost component Structure (we will see in detail in

part 2 of this document)

o If you refer back screenshot 8 breaking out cost like overhead, labor

and material based on these settings here.In Product Cost Controlling, the

cost component structure determines how the results of material costing

are updated. The cost component structure groups the costs for each

material according to cost component (such as material costs, internal

activities, external activities, and overhead). If the material is used in the

production of another material, the cost component split (which breaks

down the costs according to material costs, internal activities, externalactivities, overhead, and so forth) remains in the system when the costs are

rolled up

Screenshot 14

Error Log- Identifies the messages if costed with error or without error.

Intention of creating this document is to reach out to the beginners and

those who wanted to know and understand the flow of Standard Costing. i

will update the document as n when some more points needs to be

included .


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This is my first document and I should thankAjay ,Forum members,and

SCN SAP ERP Financials - Controlling

I was nervous to put together the basics in a document and publish it in

SCN. I will continue edit it for improvement.

The next part of document will update the more detailed configuration and

steps to understand Basics of Standard costing

Refer to next part herehttp://scn.sap.com/docs/DOC-49167

Best Regards

Hrusikesh Dalai

Basics of SAP Standard Cost estimate- understanding costing

variant-Part 2

created byHrusikesh Dalaion Nov 19, 2013 7:43 PM, last modified

byHrusikesh Dalaion Sep 30, 2014 8:02 PM

Version 3

inShare18

This document is in continuation of my first document Basics of SAP

Standard Cost estimate- Understanding the flow of cost settings-Part

1http://scn.sap.com/docs/DOC-48908. This is basic and structural way

of documenting the steps involved in defining Costing Variant.

This document explains the costing Variant configuration and componentsassigned to costing variant like Valuation variant, Qty structure Control,

Transfer Control and Assignments. originally i thought of writing only 2

parts to complete it but it seems it will need few more parts to

complete.This document is intended to explain the cost flows to a standard

cost estimate. Explaining various settings in background as previous part.
http://scn.sap.com/people/ajay.maheshwarihttp://scn.sap.com/community/erp/financials/controllinghttp://scn.sap.com/docs/DOC-49167http://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/docs/DOC-48908http://scn.sap.com/people/ajay.maheshwarihttp://scn.sap.com/community/erp/financials/controllinghttp://scn.sap.com/docs/DOC-49167http://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/docs/DOC-48908


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Costing Variant

T CODE OKKN- Define Costing variant and name it. For analysis purpose

we are taking PPC1.

Screenshot 1

Then double click on PPC1 and configure other parameters.

Screenshot 2

Now let's understand each of these parameters and its assignment.. Control

1-Costing type- The costing type enables you to specify the purpose of a

cost estimate.

Click on create Costing type n existing or create a new one, or define it

using T-code OKKI


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In Save parameter tab selec Start with Period ( Most commonly used),

Screenshot 3

In Price Update tab select Standard price. The reason we select standard

price because we want to calculate standard cost.

Screenshot 4

2-Valuation variant- T CODE OKK4

This is most important part of configuration, We will understand the

importance of Different tabs.


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For Material valuation,Internal Activity,Sub-Contracting, Overhead and

Misc.

Screenshot 5

If you want to use different valuation strategies or different overhead ratesin plants that belong to the same company code, you can define plant-

specific valuation variants by assigning a valuation variant to a plant.

Choose the push button Valuation variant/plant. If you don't do this, the

valuation variants apply to all your plants.

Here I have created a Valuation variant in a plant then most important part

comes is Material valuation

Here we define how do we wanted our Material to be valuated Strategy

Sequence. The one above used is most commonly used however it can bemodified according to Business requirement.

For material valuation, you can choose up to five (5) strategies for each

valuation variant.


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-Planned price-According Planned price in Costing 2 tab of Material master

(MM03 view)

During cost run or standard costing if this has maintained the system will

consider this value first.

-In case the system did not find price in priority 1 , It goes to priority 2

Valuation Price accordingly to Price control in Material master, Costing 2

tab (MM03 view)

-L Price from Purchasing Info Record-This one used in case of outside buy

or sub contract materials. And for this we also maintain a sub sequence that

too in Sequence wise.

Explore more options in TCODE OKK4 and understand each options and

its usage.

Internal ActivityHere you define the sequence in which the system

searches for prices in activity type planning or actual activity price

calculation in Cost Center Accounting or Activity-Based Costing to valuate

the utilized activity types and business processes. You also specify whichplan/actual version is used.


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Screenshot 6

For activity types/processes, you can choose up to three (3) activity prices

for each valuation variant.

In the above example I have selected 1 planned price for the period option

as per planning data in Cost center planning/ activity planning (TCODE-

KP26/KP06 We will see more in next document Part 3)

SubcontractingHere you define the sequence in which the system searches

for prices in the purchasing info record. In purchasing, the quota

arrangements are used to create a mixed price for materials that are

manufactured with external vendors with parts provided by the customer.

You can specify whether the quota of the individual vendors that are

entered in the list for the material to be processed should be determined

through the planned quota arrangement or the actual quota arrangement.

For subcontracting, you can choose up to three (3) strategies for each

valuation variant


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Screenshot 7

I have selected 3 Net Quotation price from Info record where as there is 8

other options out there which you can select according to your business

need. Quotation in Purchasing i have selected Actual Quota Arrangement

you have an option of Planning Quota Arrangement as well to select as per

business need.

External Processing-Here you define the sequence in which the systemsearches for prices in the purchasing info record or routing operation for

valuation of the external activities


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Screenshot 8

I have selected Net purchase order price here however for external

processing, you can choose up to three (3) strategies for each valuation

variant. Based on Business requirement you can select priorities amongst 9

Strategies available in standard SAP.

Overhead Costs

You can link the valuation variant for definition of overhead to a costing

sheet. You can also enter a costing sheet for the allocation of overhead to

raw materials, if you want to use specific overhead conditions for raw

materials.

If you want to differentiate overhead application according to material

groups, you must have defined overhead groups (T CODE OKZ2) and

made the necessary settings for the costing sheet in the step Define costing

sheet (T CODE KZA1- I will explain that in My Next Document). Here in

the example I liked a Costing sheet for our analysis purpose.

You can also specify whether overhead is calculated for subcontracted

materials in material costing.

Miscellaneous-Price Factors

Screenshot 9


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If you want to use the valuation variant for inventory costing, you can link

it with price factors.

Specify whether the factors of the relevancy to costing indicator should be

valid for all valuation variants or only for particular valuation variants.

If you enter three plus signs (+++) as the valuation variant, the factors are

valid for all valuation variants that do not have specific entries. I have

selected this option for our analysis purpose

If you specify a particular valuation variant, the system uses the associated

relevancy to costing indicator and the associated factors. Enter a relevancy

to costing indicator for each line. Enter a factor for the fixed costs and a

factor for the variable costs.

3-Date Control

Key that controls the dates for material cost estimates.

For example you can use date control to define the day for selecting the

quantity structure when costing with a quantity structure

Screenshot 10

When you checked manual entry that means during cost estimate you can

manually change the date according to your requirement.


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4-Qty Structure Control-

You can use the quantity structure control to specify how the system selects

a bill of material and a routing for the material to be costed.

You define the quantity structure control in Customizing for Product Cost

Planning. The quantity structure control can apply to either a specific plant

or to all plants. You enter the quantity structure control in the costing

variant. When the cost estimate is created, the system selects the quantity

structure control ID through the costing variant.

When you create a cost estimate for a material, you always use a costing

variant. This variant is the link between the cost estimate and the quantity

structure control.

Screenshot 11

I have selected BOM application PC01 and selection ID 05 (TCODE OS30

define BOM Application, A PP Functionality)


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Screenshot 12

The BOM application controls the following:

The order of priority of the BOM usages (selection ID), When a BOM is

required to embrace various enterprise areas (in other words, it has severalBOM usages), you can determine which usage will be selected by the

system first by using a selection ID.

The priority of an alternative BOM for a specific multiple BOM, You can

control which alternative BOM the system selects as of a certain date for a

specific material, taking into account the plant and the BOM usage. You can

use the application to determine whether the system takes this specification

into account or ignores it.

Whether the system includes only those BOMs with a status containingparticular status indicators

An alternative BOM is only exploded if the BOM status contains the

indicator required in the application.

You can check the BOM application and the parameters that are linked to it

in Customizing for Product Cost Planning.


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I have selected Routing 01 ( TCODE OPEB can be used to define automatic

selection, A PP functionality)

Screenshot 13

The routing selection ID determines how the system selects a routing. You

can define several priorities. You assign selection criteria (task list type, task

list usage, and task list status) to each of these priorities.

The routing that corresponds to the selection criteria with the highest

selection priority is selected. If, however, no alternative routing can be

found, the system continues searching using the selection criteria of the

next selection priority.

When determining the BOM and routing, the system also checks, Whether

the BOM and the routing are valid on the quantity structure date (refer

date Control screenshot 10). Whether the lot size in the BOM and in the

routing are the same as the costing lot size.

4-Transfer Control-

In this step you define parameters for partial costing. You use partial

costing to prevent the system from creating a new cost estimate for amaterial when costing data already exist. Instead, the existing costing data

is simply transferred into the new cost estimate. This improves

performance.


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Screenshot 14

Single-Plant Transfer -If cost estimates for certain materials already exist in

the individual levels of the BOM, they are not recosted. Rather, the existing

costing data is transferred into the cost estimate in accordance with the

transfer control.

If you always want to recost, choose the transfer control No transfer.

Cross-Plant Transfer-The special procurement types are used for material

cost estimates:Transfer from other plant, Withdrawal in other plant, Production in other

plant

Strategy Sequences for Single-Plant and Cross-Plant Transfer-You can

define up to three strategies for single-plant transfer and three strategies for

cross-plant transfer. The strategy sequence determines the order in which

the system searches for costing data. If the system cannot select a cost

estimate even after reaching the end of the strategy sequence, it explodesthe BOM of the material and creates a new cost estimate.

Qty Struct.-


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Pass on Lot Size- Controls whether the system determines the costing lot

size using the lot size of the highest material in the BOM and the input

quantities of the components.

1) Do not pass on lot size

If this indicator is not selected, the materials further down in the structure

are costed in accordance with the lot size in the costing view of the material

master record. When the materials in the next-highest costing level are

costed, the costing results of the semifinished materials are converted to the

lot size of the finished material to calculate the material costs for the

finished product.

2) Pass on lot size only with individual requirement

In the MRP view of the material master record, you can specify that a

material is planned as an individual requirement. If such a material is

added to another material, costing uses the lot size of the highest material.

3) Always pass on lot size

Here, the costs for all the materials in a multi-level BOM are calculated

using the costing lot size of the highest material. This function is used

principally in sales order costing.

Screenshot 15

Ignore Product Cost Estimate without Quantity Structure-


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Determines whether a cost estimate with quantity structure can access data

that was produced by a cost estimate without quantity structure

You set this indicator if you do not want to work with a cost estimate

without quantity structure.

If this indicator is set, the system will ignore data produced by a cost

estimate without quantity structure when selecting the BOM as well as

when costing. Instead, the system will attempt to calculate the costs of

manufacturing the material using an existing BOM or an existing

operation.

In the costing view of the material master record, you can use the With

quantity structure indicator to specify that the material should be costed

either with or without a quantity structure. If the Ignore cost estimate w/o

qty structure indicator in the costing variant is set, the system will ignore

the entry in the material master record.

Addictive Cost

You use additive costing to add costs manually to a material cost estimate

when they cannot be calculated by the system. Examples of such costs are

freight charges, insurance costs, stock transfer costs, incomplete or changed

BOMs, and routings.As a rule, costing calculates the costs of a material on the basis of the

quantity structure. This type of cost estimate is performed automatically by

the system. However, you can also manually enter estimated values for

costs that cannot be calculated by the system. This allows you to add costs

to a cost estimate that was calculated automatically.


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Screenshot 16

When you cost materials, the system determines the BOM for the material,

and selects a price for the valuation of the material components through

the valuation variant. If you set theIncl. additive costsindicator in the

valuation variant, the system looks for any existing additive cost estimates

for the material. The system adds the costs entered manually to the costs

calculated by the system. The costs in the automatic cost estimate and the

additive cost estimate are added together for each cost component.

Update

Screenshot 17

Update Allowed- Indicator that determines whether a cost estimate can be

saved.Dependencies

Since the cost estimate must be saved if the costing results are to be used

further, you must set this indicator.

Examples of further use of the costing results


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1. Update in the price fields of the material master:

As the standard price: the results of the standard cost estimate

As the tax or commercial law price: the results of the inventory cost

estimate

As special planned prices 1,2,3: the results of all cost estimates

1. Use of the costing results in Cost Object Controlling for:

Variance calculation

WIP calculation

Results analysis

Assignments-We will know more about Cost Component Structure

in my next part, I have already explained in my first part about costingversion.

Screenshot 18

Cost component Structure Specifies which costs are contained in the cost

component split. You can use the cost component structure to specify that

certain costs

Remain visible in the cost estimate are passed on to Profitability Analysis.

MISC.-Parameters for Error Management


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Controls how messages (information messages, warning messages, and

error messages) are collected within an application.

Screenshot 19

Online Messages-The messages are issued individually from the status bar.The log function is inactive in the cost estimate.

Messages logged and saved, mail inactive ,The messages are collected in a

log, which can be saved. The messages cannot be sent.

Messages logged and saved, mail active, The messages are collected in a

log, which can be saved. The messages can be sent to the person

responsible for correcting the error.Messages logged, saving not possible,

mail inactive, The messages are collected in a log, which can be processed

online, but not saved.

Note

To be able to use a costing variant for the costing run, you must save the

log.

This is a long Document i tried to capture each and every aspects of

Costing variant. We will see some more configuration and explanation

about it in my Next Part. I will try to close this document series in my nextpart if its too lengthy then i will try to put together a separate document.

Intention of creating this document is to reach out to the newbies and

beginners and those who wanted to know and understand the flow of


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Standard Costing. i will update the document as n when some more points

needs to be included or any suggestion from Experts.

Refer to next Document here-http://scn.sap.com/docs/DOC-49425-Basics

of Standard Costing - Understanding the Cost Component Structure-Part 3

Refer to previous document here-http://scn.sap.com/docs/DOC-48908-

Basics of SAP Standard Cost estimate- Understanding the flow of cost

settings-Part 1

Best Regards

Hrusikesh Dalai

Basics of Standard Costing - Understanding the Cost

Component Structure-Part 3

created byHrusikesh Dalaion Nov 25, 2013 7:15 PM, last modified


Version 3

inShare5

This document is in continuation of my second

documenthttp://scn.sap.com/docs/DOC-49167-Basics of SAP Standard

Cost estimate- understanding costing variant-Part 2 and 3rd in the series

This document explains the Cost Component Structure (CCS) and

components assigned to CCS. Explaining various settings in background

as previous part.

Cost Component Structure (CCS)

The cost component structure determines how the results of material

costing are updated. The cost component structure groups the costs for

each material according to cost component (such as material costs, internal
http://scn.sap.com/docs/DOC-49425http://scn.sap.com/docs/DOC-48908http://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/docs/DOC-49167http://scn.sap.com/docs/DOC-49425http://scn.sap.com/docs/DOC-48908http://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/people/hrusikesh.dalaihttp://scn.sap.com/docs/DOC-49167


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activities, external activities, and overhead). If the material is used in the

production of another material, the cost component split (which breaks

down the costs according to material costs, internal activities, external

activities, overhead, and so forth) remains in the system when the costs are

rolled up.

Inthe cost component split, you also define the following for material

costing:

Which part of the costs are fixed costs

Which costs are costs of goods manufactured and what are sales and

administration costs

Which costs are relevant for stock valuation, commercial inventoryvaluation and tax inventory valuation

When the cost component structure is assigned to the organizational

units, you can specify that two cost component splits are created:

Main cost component split

This is the principal cost component split, meaning that it is used in the

standard cost estimate, which can be used to update the material master.

The main cost component split can be a cost component split for cost of

goods manufactured or a primary cost component split.

Auxiliary cost component split

this can exist in addition to the main cost component split, and is not used

in the standard cost estimate. It can be used for analysis purposes, in that it

can be displayed with the cost estimate and passed on to Profitability

Analysis.

.

Step 1 - T Code OKTZ


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Screenshot 1

I have created Z1 and Z2 CCS for our analysis purpose. You can use two

cost comp structure for reporting purpose and different reporting need.

Material cost estimates are created in the Product Cost Planning

component. Sales order cost estimates and order BOM cost estimates arecreated in Product Cost by Sales Order component. The cost components

separate the results of a cost estimate into raw materials, material overhead,

external activities, setup costs, machine costs, labor costs, production costs,

and other costs.

Display the cost components in the cost estimate

T code ck13- view of Cost estimate Cost element and cost component like

Mat, Labor, OH etc.


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Screenshot 2

The above screen shows the distribution of cost as per the Cost component

structure

T-code OKTZInCost Center Accounting, the cost component structure determines how

the results of the activity price calculation are updated. The cost component

structure groups the costs for each activity type of the cost center according

to cost components (such as material costs and labor costs). If an internal

activity allocation is carried out, the cost component split (which breaks

down the costs according to material, labor costs, and so forth) is retained

at cost rollup.

If the cost component split is not to be retained, you can create a switchingstructure for the cost component structure for Cost Center Accounting. In

the switching structure, you specify which sender cost component goes into

which receiver cost component


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See below

Screenshot 3

From screenshot 2 you will notice there is a Column called cost element.

We get those from settings in Cost component structure setting by

assigning cost elements for respective cost component.

Screenshot 4

Different Settings in Cost component Structure in see below.

Control

Cost Share- which includes Variable, Fixed and variable Cost

Indicator for Roll up Cost Component

This indicator determines whether the costing results of a cost component

are rolled up into the next-highest costing level (cost roll up).

You can specify which cost components are rolled up into the next-highest

costing level according to the criteria specific to your organization.

Example


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If the sales and administration costs and the cost of goods manufactured

are to be costed simultaneously in a costing level, you can proceed as

follows:

You set this indicator for the cost components identified as the cost of

goods manufactured. These costs are rolled up into the next-highest costing

level.

You do not set this indicator for the cost components identified as

sales and administration costs. These costs remain on the costing level on

which they were originally calculated.

Screenshot 5

Also the filter criteria for itemization are important for example anythingwhich we wanted for statistically analysis purpose we can check not

relevant for inventory valuation.Some examples below shows based on the

settings how the result will affect. Below screen you will see the cost


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element separated by the Material, Labor and Overhead as we defined in

CCS.

Cost estimate itemization view (T CODE-CK13n)

Screenshot 6

Target/Actual Comparison: Cumulative report (T CODE- KKO0), there is

additional configuration required in OKKN. You can build your own report

using report painter too.The cost components we defined in CCS will flow

into these reports based on our section in Report painter.


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Screenshot 7

In this document i tried to explain in a simple manner the use of cost

component structure. This is a basic and beginners understanding of cost

component structure. In my Next series of documents i will try explaining

Costing Sheet,Activity Planning,and Summary of Standard Costing and its

integration with production Planning.

Refer next document here-

http://scn.sap.com/docs/DOC-49880-Basics of Standard Costing-

Understanding Overhead cost Flow.

Refer to previous Document here-

http://scn.sap.com/docs/DOC-49167-Basics of SAP Standard Cost

estimate- understanding costing variant-Part 2http://scn.sap.com/docs/DOC-48908- Basics of SAP Standard Cost

estimate- Understanding the flow of cost settings-Part 1

Best Regards

Hrusikesh Dalai
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Basics of Standard Costing - Understanding overhead cost flow-

Part 4

created byHrusikesh Dalaion Dec 6, 2013 5:57 PM, last modified


Version 1

inShare13

This is in continuous of my other document of understanding Standard

Costing and its flows.

Basics of Standard Costing - Understanding the Cost Component Structure-

Part 3

Overhead costs are costs which can only indirectly be attributed to the

product, such as electricity or general storage costs. We can allocate these

overhead costs in various ways: Here I have discussed about overhead

calculation through costing sheet. This is a beginner's guide to understandthe costing Sheet.

Overhead application

In the conventional method, overhead is applied to the reference object as a

percentage rate or a quantity-based rate. The overhead is applied by means

of costing sheets. The very purpose of using a cost sheet is that we want to

apply indirect costs to the final cost of the product or process. Costs that

cannot be assigned to the product cost collector directly can be allocated by

determining the overhead expenses and applying them to the cost collector.
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Overhead costing is the means by which we allocate indirect costs to the

appropriate objects.

The costing sheet links all the functions of overhead calculation. The direct

costs to which overhead is applied (calculation base),The conditions under

which overhead is applied (dependency),Whether overhead is allocated on

a percentage basis or on a quantity basis, The amount of the overhead

percentage, or the amount of overhead for each unit of measure (overhead),

The validity period for the overhead, Which object (cost center, process, or

order) is credited, and under which cost element in the case of actual

postings (credit key)

Define Costing Sheet- T CODE KZS2


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Screenshot 1- AAAAA costing sheet has been created for Example

Costing Sheet has 3 important components within it.

-Base

-Overhead rate

-Credit

Defining Base- T CODE KZB2

The calculation base consists of a group of cost elements to which overhead

is to be applied according to the same conditions. This process involves

assigning individual cost elements or cost element intervals for each

controlling area to a calculation base.We can apply different overhead amounts to the fixed and variable portions

of the same base cost element. We can also make the amount of the

overhead dependent on not only the direct costs, but also on the material

itself. We can define material-specific calculation bases by entering the

origin groups in the material master record and by specifying them in the

calculation bases.


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Screenshot 2 Example ZV01 base

The calculation base determines to which cost elements overhead is appliedtogether.

For each controlling area, we assign individual cost elements or cost

element intervals, or origins or origin intervals, to the calculation bases.

For production overhead costs, we can differentiate between fixed and

variable costs for the calculation base. In this way, we can charge the fixed

and variable portions of the activity price differently for activity types.

For material overhead costs, we can differentiate the materials used. If we

want to define different material overhead costs for particular raw

materials, we can define origin groups and define where own calculation

bases for particular origin groups. (Origin group need to be defined)

If we do not specify any origins for a cost element interval, the SAP System

considers all the origins in the relevant interval.


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-Overhead rate here we can define Quantity or percent base overhead rate

Percent based Overhead rate T CODE KZZ2

Screenshot 3 Percent based overhead rate

Quantity based Overhead rate- T CODE KZM2


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Screenshot 4 Quantity based overhead rate.

-Define Credit T CODE-KZE2

Cost allocation is part of the process of determining overhead rates. If this

leads to an object being debited with actual costs, another object in Cost

Accounting must be credited at the same time. This can be either a cost

center, order or a business process. This type of posting is recorded under a

secondary cost element of cost element category 41 (overhead rates) in the

SAP System.

When you define credits, you also specify which credit object is to be

credited under which cost element when overhead is to be applied to an

object in the actual.

You can also define what percentage of the overhead is to be allocated as

fixed costs.


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Screenshot 5 Defining credit (Cost center being credited in the example)

DefineOrigin GroupsT CODE OKZ1

Here you can create origin groups. These groups serve to subdivide the

material costs further. For controlling purposes, materials assigned to the

same cost element by automatic account determination can be separated

into origin groups. You enter the origin group in the costing view of the

material master record. Account determination assigns each material to a

G/L account and thus also to a primary cost element.


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Screenshot 6

Screenshot 7


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If an origin group is entered in the costing view of the material master

record, the combination of origin group and cost element is updated in the

Controlling module.

If the Material origin indicator in the costing view of the material master

record is specified in addition to the origin group, the costs are updated

under the combination of material number and cost element in the

Controlling component.

You can do the following for each cost element and origin group:

Calculate overhead

If you have maintained origin groups for the raw materials, you can define

a calculation base in the costing sheet for each group of raw materials. This

enables you to define different overhead surcharges for each group of raw

materials.


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Screenshot 8

Make assignments to cost components

If you have maintained origin groups for the raw materials, you can create

separate cost components for important materials or groups of materials.

Screenshot 9

Calculate variances

Variances are calculated for each cost element. If you have maintained

origin groups for the materials used, the variances (such as input price

variances and input quantity variances) will be calculated not only for the

relevant material cost element but also for each origin group assigned to

that cost element.

Calculate work in process or results analysis data

For each cost element, you can specify whether the work in process for

those costs can be capitalized in the balance sheet. If you have maintained


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origin groups for the materials used, you can specify this separately for

each origin group.

There is other way around to calculate and overhead cost which is not part

of this explaination

Template allocation

Here, cost drivers are used to assign overhead to the reference object on a

source-related basis according to usage. The overhead is applied by means

of templates. Sender objects can be business processes or costcenters/activity types.

Integration of business processes into the routing

Assigning process costs to routing operations is particularly suitable for

direct production processes. On the other hand, indirect processes should

be assigned using templates.

I will continue to edit this document for enhancing the quality of

document.In my Next document i will explain about Costing Run and

different other aspect of material setting that affect costing.

Document Level- Beginners


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Refer to previous Document here-

Basics of Standard Costing - Understanding the Cost Component Structure-

Part 3

Basics of SAP Standard Cost estimate- understanding costing variant-Part 2

Basics of SAP Standard Cost estimate- Understanding the flow of cost

settings-Part 1

Thank You

Hrusikesh Dalai

Basics of Costing - Understanding Actual Cost

I try to put together a common document for Actual Cost, the information

is available in SCN forums and i try to put it together in a document form

so it is available at one place,In my earlier Documents I have explained about standard costing and

various settings required for executing Standard Cost estimate. In this

document we will talk about more on Actual Costs.

T-code KKBC_ORD - Looking at below screenshot it shows the actual cost

postings at different time of transactions and its origin. I will try to explain

where does these things flow from.
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Figure 5.1

Note- KKBC_PKO can be used to see the above transactions as well.

There are several business transactions where we got actual costs; based on

posting origin we can divide the transactions External Postings ( Any other

module origin such as FI, PP, SD, MM) to Controlling called Primary Cost.

Business transactions within controlling module called Secondary costs we

will see in detail about these in this document. I must say there is various

documents and discussion in Forum about these things. However i would

like to elaborate more on what is the financial impact during different

stages of transactions

Primary Costs

We will take example of production order here, During Goods are issued

from Inventory P/L account is debited and B/S account is credited


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automatically. For this we generally create identically primary cost element

of consumption account. Posting to these consumption accounts (primary

cost elements) also generate parallel postings to a controlling cost object. In

this case

At GI:

A. (BSX) Raw Mat a/c (or Semi-finished a/c or others depending on

the val. class)

B. (GBB - VBR) Prod. Order Consumption a/c or material

consumption a/c (also called offsetting entry)

At GR:

A. (BSX) Semi-finished a/c or others depending on the val. class)

B. (GBB - AUF) Prod. Order output a/c or Prod. Output a/c

Figure 5.2

Outside buys, sub-contracting scenarios where we purchase services or

goods are recorded as credit to GR/IR account and debit to external

expenses account.

Secondary Costs

When the production activities confirmed, the cost center is credited and

product cost collector is debited. A production cost center receives debit

due to primary costs such as payroll, Electricity etc. Confirmation of these

activities allocates these activities across many products.


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Figure 5.3

Credits

Finished goods are derived from the production order. The credit value is

calculated by multiplying standard price by finished goods quantity

delivered to inventory .Total variance is the order balance

Figure 5.4


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This balance post after the variance calculation, this is basically the

difference between standard cost and actual cost. Now let's talk about

actual cost

Post Actual Cost Let's create and release a production order CO01.

Figure 5.5

Confirm Activities CO11n, while confirming you can see there are different

this is when the actual Secondary cost get posted to Controlling.

There is no accounting entry for activity confirmation only CO postings

happens

Dr Production order

Cost center Cr


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Fig 5.6

and during Activity confirmation posts accounting with below entry

Dr. Activity cost GL(P/L)

Activity cost GL(P/L) Cr

During closing activities we execute several other transactions to settle the

costs, Overhead calculation and the variances. I will try to cover these in

my next postings.

Note-This is basics document and intended for basic understanding of

Actual Cost.I will continue to edit the document after the suggestion.

Best Regards

Hrusikesh Dalai


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Variance Calculation

Use

Variances in the Controlling component (CO) at period-end closing can be

due to several causes:

Planning was overshot/undershot

The

actual costson the cost center or business process differ from thetarget

costs

Over-/under-absorption occurs on the cost center or the business

process

Variance calculationlets you analyze the causes of these variations.

Variance calculation is based on the reconciled planning of internal activity

between cost centers and business processes and the costs thereby incurred.

Variances are the differences between actual costs and

plan costsor target costs. They are displayed separately for a cost center, for

an activity type of a cost center or business process, divided into fixed and

variable portions. Where possible, they are classified by cost element.

Variance calculation distinguishes between cost centers with activity types

(such as production cost centers) and those without (such as administrative

cost centers). Actual costs are always posted as activity-independent. To

determine the activity input, you therefore need to split the actual costs and

the activity-independent plan or target costs of cost centers with activity

types on the activity types (see:

Actual Cost Splitting). In this way, you can analyze the reasons for

thevariancesfor a given cost center activity. Variance calculations compare
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detailed planning on the activity type level with the corresponding actual

costs.

In order to compare plan with actual costs, you must determine the actual

activity produced by the cost center or business process in contrast withplanning. Variance calculation is therefore carried out on the basis of target

costs.

Variance calculation allows you to analyze the actual balance. The system

determines the variances of the target costs from the actual costs split on

the activity types, as well as from the allocated actual costs in the different

variance categories by cost element for each cost center/activity type or

business process.

Cost center or business process variances can result from the following

situations:

Too few or too many costs were debited (see:

Input-Side Variances)

Too few/too many costs were allocated (see: Output-Side Variances)

Input and Output Side

These causes can occur separately or together, meaning that variances can

originate on both the input and output side of a cost center or business

process (see:

Variance Categories).
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Variance Causes


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Features

Variance calculation is one of the functions performed at period-end

closing. Variance calculation uses all the values resulting from all

transactions in the Cost Center Accounting (CO-OM-CCA) and Activity-

Based Costing components (CO-OM-ABC).

The SAP R/3 System

Calculates the target costs first

Splits the actual costs on the

activity types

Calculates variances by cost center, activity type, or business process

based on the data

In special periods, variances are calculated on the basis of the

target or plan costs of the prior periods. This means that in

special periods variance calculation can only be carried out
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cumulatively. To do this, the system imports, the plan and

targets costs of the special period in addition to the actual costs,

as well as the actual costs of the prior periods. These costs are

used to recalculate the overall variances of the analysis period.

You cannot allocate variances further within the Cost Center

Accounting or Activity-Based Costing components. You can

only credit a cost center or business process completely by

using actual price calculation or through settlement to

Profitability Analysis (CO-PA).

You can use reporting tools to further analyze the variance calculation

results. These means that you can display relevant data divided into fixedand variable portions, or as totals:

Plan costs and quantities

Operating rate

Target costs and quantities

Actual costs and quantities

Variance categories

In addition, the R/3 System also displays:

The calculation basis for the individual values (for instance, the

distribution base for actual cost splitting)

How the individual values are made up (for example, individual

variance categories)

You can also use the functionsSplitting explained, Target costs

explained and Variance explained to call up the results in different formats.
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As well as changing the list formats, you can also use the totaling and

sorting functions. There is also a detail display by cost element for

individual objects.

The individual processing steps can be followed successively and you can

choose F1 to call up information for the given values.

You can display an overview of the different variance categories in a

hierarchical structure. To do so, chooseVariance explanation and

then Variance categories. You can branch move from this tree structure to

the individual variance categories or to the online help. The list for a

variance category displays the variances and the relevant formula used forcalculating the variance.

Actions

To start variance calculation:

1. Choose Actual postings Period-end closing Variances2. Select Cost center, Cost center group, or All cost centers (in Cost

Center Accounting) or Business process, Business process group, or All

business processes (in Activity-Based Costing), and enter the appropriate

object.

3. Enter the period and fiscal year.

4. Select one or more of the following processing indicators.

-


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Transferring Production Variances

Use

To run closed profitability analysis for periods, you need to transfer to CO-

PA at the end of the period all the variances that have occurred in that

period. Variances typically occur if you valuate your materials with

standard prices. At the end of the period, these standard costs are then

compared with the actual costs incurred, and this comparison forms the

basis for a detailed variance analysis. The variances are finally transferred

to CO-PA at the end of the period to produce a factually correct

representation of the results.

While the variances for production cost centers flow into CO-PA during

cost center assessment, the variances for cost objects are transferred to CO-

PA when production orders, for example, are settled. For a description of

how variances arise and what causes them, see the documentation on Cost

Object Controlling.

The functions described below are relevant mainly for manufacturing

enterprises.

Features

Three ways for transferring production variances are set out below. How

you use them depends on your information requirements in CO-PA.

You might wish, for example, to display the individual variance

categories for Cost Object Controlling (CO-PC-OBJ) in CO-PA. In that

case, you wouldsettle the variance categories to CO-PA.

You only need to display the production variances as a total in CO-

PA, which is how they are posted to FI. You might not need to calculate

cost object variances and only wish to assign the relevant FI posting to


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CO-PA. In that case, you wouldpost the production variances in FI to

CO-PA.

You implement the Material Ledger (CO-PC-ACT). For the closing

operations in Material Ledger, you might not wish to replace just the

posted standard prices with the actual costs incurred. At the same time,

you might want to subsequently allocate (across multiple levels)

production variances to finished products at the end of the period and

then display the revised variances in CO-PA. In that case, you

wouldallocate the production variances subsequently using the

Material Ledger.

Settling Variance Categories to Profitability Analysis

For the settlement of production orders, you can transfer to CO-PA the

variance categories calculated in Cost Object Controlling. The requirements

for this are as follows:

You are working with standard prices for processed materials.

You have already performed variance calculation in Cost Object

Controlling.

You have entered in the settlement profile for your production orderthat you wish to settle variances.

You have set up and assigned a PA transfer structure in Customizing

for CO-PA to be used to direct the calculated variance categories into the

desired value fields.

The variance categories are settled in a much the same way as that for

Settling Orders and Projects. For more information on these requirements,

choose Flows of Actual Values Settling Production Variancesin CO-PA

Customizing.

When your cost object is settled, the information will be transferred to

costing-based CO-PA if these requirements have been fulfilled. In this way,

the production variances are shown at the level of the particular product
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currently being produced. It is only possible to allocate production

variances subsequently as a total when the Material Ledger is involved (see

below).

The variance categories can only be displayed in value fields. This function

is therefore not available in account-based Profitability Analysis.

Assigning Production Variances from FI to CO-PA

If you only need to display production variances as a total as described

above, you can alternatively assign the production variances from FI to CO-

PA using account assignment.

Since the production variances are posted as a total in FI during settlement

of the production order, you can also choose to assign this posting to CO-

PA. The requirements for this are as follows:

You are working with standard prices for processed materials.


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You have specified in CO-PA Customizing for the relevant production

variance account (PRD account) that that account is automatically

assigned to CO-PA. For more information, see the section Flow of Actual

Values Direct Posting from FI/MM

Automatic Account Assignmentin Customizing.

You have specified in the appropriate PA transfer structure in FI which

value field is the one to which the information is to be transferred.

Production variances are transferred in this case in much the same way as

Direct Postings from FIto CO-PA.

When your production order is settled, the variance posting created in FIwill be posted to CO-PA if these requirements have been fulfilled. In this

way, the production variances are shown at the level of the particular

product currently being produced.
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This function is available in both costing-based and account-based

Profitability Analysis.

Subsequent Allocation of Production Variances Using the Material

Ledger

When you use the Material Ledger, you can allocate production variances

subsequently across several levels. This means that you can use the

quantity flows recorded in the Material Ledger to charge the production

variances arising for semi-finished products proportionally to the finished

products. During period-end closing in the Material Ledger, the production

variances posted temporarily are corrected accordingly in FI and then

reposted to the next manufacturing level upwards. Subsequent allocationcan only occur for summaries. For more information, see

Material Ledger.

To transfer this information to CO-PA, you need to assign the relevant FI

postings as described above. It is also possible to transfer the variance

categories in parallel. However, the transfer would not be affected by the

subsequent allocation due to the summary correction postings.

The requirements for this parallel transfer are the same as those described

in the above section entitled "Assigning Production Variances from FI to

CO-PA".

This function can be used in both costing-based and account-based

Profitability Analysis.
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Transferring Cost Center Costs

Use

This function makes it possible for you to transfer to Profitability Analysis

overhead costs, such as the variances for production cost centers (as a

single whole, not according to variance categories) and the costs for sales

and administrative cost centers.

Cost center costs are always transferred to one profitability segment:

Production cost centers

These cost centers are first credited during production as the activities they

perform (such as machine hours and assembly hours) are required. The

amount of the credit is based on the quantities confirmed by production

and on the activity prices (such as machine hour rates) usually calculated in

cost center planning. The balances that are thus achieved - or the

overabsorption/underabsorption remaining for the production cost centers

due to the difference between credits and actual costs - are transferred en

bloc in periodic profit analysis to those profitability segments in CO-PAthat caused those costs.

Sales and administration cost centers

Many companies transfer the costs from administrative cost centers to CO-

PA en bloc instead of allocating them to cost objects. This reduces the

period results of the individual divisions, product groups, or business

areas.

It is also possible to transfer postings that are made in Financial Accounting

to cost centers and profitability segments at the same time. In this case, the

postings are statistical in Cost Center Accounting, while the true costs are


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stored in Profitability Analysis. The system ignores these statistical costs in

Cost Center Accounting when assessing costs to Profitability Analysis.

Procedure for Overhead Allocation

Use

You can choose between several different methods for the periodic transfer

of process costs and cost center costs to CO-PA:

( )

Features

Assessment

From an accounting viewpoint, assessment cycles allocate your planned or

actual costs for cost centers or business processes to profitability segments

in CO-PA on the basis of reference values, percentages, or fixed amounts.


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For detailed information about assessment, see the sectionAssessmentin

the online documentation for Cost Center Accounting (CO-OM-CCA).

Indirect activity allocation

Whereas assessment lets you split cost elements or cost element groups on

the basis of reference values, activity allocation lets you allocate on the

basis of the activities performed.

This function is especially useful for cost centers whose activities cannot be

measured directly, because you can create a quantity structure based on

certain assumptions and then valuate and allocate this just as you would

allocate activities directly. An example of such a cost center whose activitycannot easily be measured would be an "Order Processing" cost center. To

allocate the costs for this cost center according to their cause, you can create

a quantity structure based on the quantity "Number of orders processed"

and then valuate this with an activity price.

Processes can also be allocated using indirect activity allocation. This

function is especially useful for instances where the process quantities

cannot easily be measured directly, because you can create a quantity

structure based on certain assumptions and then valuate and allocate this

just as you would allocate activities directly. An example of such a process

for which the activity cannot easily be measured would be the process

"Creating Quotations". To allocate the costs for this process according to

their cause, you can create a quantity structure based on the quantity

"Number of quotations" and then valuate this with an activity price.

For detailed information about the indirect allocation of activities, see the

sectionAllocating Activities Indirectlyin the online documentation for

Cost Center Accounting (CO-OM-CCA).

Template allocation
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In Template Allocation , you can determine in detail which profitability

segments used the processes (as well as cost centers/services) and then use

this information for allocating the costs. Here you can use atemplateto

define formulas and functions that select cost drivers from Profitability

Analysis or other sources in order to assign the costs most accurately to

their cause.

In Customizing, you assign this template to "characteristics", which are

used to select the cost drivers. Then you need to assign "update

characteristics", which ultimately determine the profitability segments to

which the overhead costs are allocated.

Example

Your company uses a process "Customer Service" to differing degrees for

different customer groups. You therefore define a template for the customer

group "Wholesale" that is used to determine cost drivers. When you

allocate these process costs to CO-PA, you can add further characteristics,

such as "Key customer". These characteristics are ultimately the ones to

receive the process costs that you allocate.

You can use template allocation for both actual and planned data.

For detailed information about template allocation, see the

sectionTemplate Allocation for Actual Datain the online documentation

for Activity-Based Costing.

Activities

To assess overhead to CO-PA or to allocate activities indirectly, you need todefinecycles, which let you allocate overhead to profitability segments in

connection with your period-end closing activities. For more information,

see the sectionUse of Cycles in Profitability Analysis.
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When usingtemplate allocationfor overhead, you need to define

aTemplate for Profitability Segments. For more information, see the

sectionTemplate Allocation to Profitability Segmentsin Activity-Based

Costing (CO-OM-ABC).

%FUNC% Performing Period-Based Allocation

Use

To transfer cost center costs or process costs at the end of the period to

Profitability Analysis, execute assessment, indirect activity allocation or

template allocation.

Prerequisites

Before you can allocate plan or actual costs from cost centers or processes to

Profitability Analysis, the controlling area you are working in must beactivated. If you want to allocate process costs, you must have Activity-

Based Costing implemented as an operational component in your system.

You need to have completed Customizing for each procedure you wish to

use for the allocation. For information about the procedures, see the

sectionMethods of Allocating Overhead.

Features

Performing Assessment and Indirect Activity Allocation

Given thatCyclesare allocated in assessment and in indirect activity

allocation, the same procedure is executed for both.
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You can allocate cycles online or in the background.

Recommendation

Assessment cycles that process large amounts of data should always beexecuted in the background in order to avoid bottlenecks. It is

recommended that you do not execute more than one large cycle in the

same job step.

You can perform cycles sequentially or in parallel. If you want to prevent

specific cycles from being performed in parallel (such as ones that are

dependent on other ones), you must assign these particular cycles to the

same cycle run group (see alsoProcessing the Cycle Run Group).

If your controlling area and your operating concern use different

currencies, the system translates the values during the transfer.

For actual costs, the system uses the mean exchange rate (exchange

rate typeM). The default setting translates the values using the rate

valid on the last day of the period. By choosing Extras Value date in

assessment, you can also enter a date on which the currency translation

should take place.

In planning, the exchange rate type is taken from the definition of the

plan version. The system always uses the rate valid for the first day of the

period.

Line itemsare written, being credited to the cost centers/processes and

debited from the profitability segments. To display these line items, use the

information system or choose Assessment Overview orIndirectActivity Allocation Overview.

In costing-based CO-PA, the receiver data is transferred to value fields in

CO-PA. Records are also are created in CO-PA with record typeD.
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The receiver data in account-based CO-PA is stored using the allocation

cost element for the sender (or the assessment cost element).

For the allocation of actual data, the posting date is the last day of the

period. For the allocation of planning data, the posting date is the first dayof the period.

If yourepeata cycle during a period, data already posted is canceled

automatically before the cycle is run a second time.

Note

Along with the cycle name and the initial data, the sender version is also

part of the unique key of a plan cycle. This means that you can carry out

the same cycle repeatedly with different sender versions. Hence nothing is

canceled if you change the sender version in the cycle definition.

If you want to manuallycancela cycle, choose Indirect Activity

Allocation CancelorAssessment Cancel.

Note

Cancellation is always carried out at the line item level. Once you have

archived your data or have deleted the line items in either Profitability

Analysis or Cost Center Accounting, you can no longer reverse the cycles.

You can check theallocation results(such as the sender and receiver

information) by creating detailed lists (sender and receiver lists as well as

journal lists) in which to record the results.

To specify which detail lists should be created, select the detail

lists indicator and choose List selection. If you perform allocation in the

background, the system generates the following spool files:


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A spool file is generated for the basic list, the segment list, and for the

receiver and sender lists if appropriate.

If applicable, a separate spool file is generated for the journal list.

If applicable, a separate spool file is generated for the expert trace.

Moreover, you can display a runtime analysis (expert trace) or any

messages while allocation is being executed. See alsoResults of Periodic

Allocations or of Periodic Repostings. The message section of the lists also

contains information about which summarization levels were read (see

alsoDefining Summarization Levels). You can improve performance

significantly by defining suitable summarization levels. You can find moredetailed explanations by double-clicking the individual messages.

You can make the followingsettingsby choosing Edit Settings :

Enter the display variant for detail lists

Specify the strategy for database selection

Enter the name under which the detail lists are to be stored with theallocation results

Record the run log and the runtime analysis

Determine system behavior when an error has occurred during the

collective execution of cycles.

One main difference with allocating planned overhead is that a cycle cannot

be defined by the name and initial date alone. Instead, the sender version isalso an essential part of the key for the cycle to run. This allows you to

reuse the same cycle for different planned versions. All you need to do is

simply change the sender version, without having to define a completely

new cycle for each version.
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Performing Template Allocation

For information on performing template allocation, see the section

onActivating Template Allocationin the online documentation for

Activity-Based Costing (CO-OM-ABC).

Activities

You carry out periodic allocation in the CO-PA menu.

You perform allocations ofactualdata by choosing Actual

postings Period-end closing / process costs .

You perform allocations ofplanningdata by choosing Planning

Integrated planning Transfer cost center planning / process planning .

Cost Element - Overview and Purpose

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Purpose

)&e purpose of t&is *++ %ontribution is to provide a full and %lear understanding of w&at a Cost Element is, w&at its purpose

in Controlling is and &ow it &elps in t&e integration between + and CO

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