sap pc manish sharma important

8/12/2019 Sap Pc Manish Sharma Important

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1) Lets we have 1 machine cost center direct cost.

Activity used in cost center Machine A is as under.Machine activityLabour ActivitySetup activity

2) Lets have three cost center as under.a) Power Cost centerb) Repair & Maintenance cost center

Which as assessed to the production cost center on hourly basis.3) Then lets we have 3 overhead cost centers as under.

a) Factory Overheads Cost centerb) Administrative Overheads Cost centerc) Sales & Distribution Overheads Cost Center

4) We are having one product say LCD TV and manufacturing scenario is Product cost As per Order.5) We require profitability of the product and variance analysis in relation to the above product.

Hi Rajneesha and Srinivas

Thank you for your reply

I follow what you say, can we be more clear on how we approach this issue.Now we have three price costs and two quantities: (1) Price and quantity of the materials in BOM (2) Activity typeprice and quantity from the routing. and (3) overhead costall the above three costs: Materials, Activities and Overheads are planned at the beginning of the month and they willbe known only on the 8th of the following month. How can i demonstrate this scenario in SAP CO PC.

Below is my proposal for the demo, and this proposal based on the month of Aug:

(1) Enter the material planned standard price in MM as Material Price (MM03)(2) Enter the material quantities for all the BOM items based on the quantity of the material Master quantity (CS02)(3) Enter the planned price for cost center/ activity type (KP26)(4) Enter the quantity for activities in the routing (CA02)(5) Enter the overhead cost using additive cost (CK74)(6) Run the planned cost estimate on Aug 1st (CK11N)(7) Create & release a manufacturing order during the month of Aug (CO01)(8) Confirming activities on Sep 8th once actuals are there (CO15)(9) Perform Goods issues,Goods Receipts, and Transfer (MIGO,MIRO) on Sep 8th(10) Enter the actual price for activity types (KBK6), which will be used in Actual costing (On Sep 8th?)(11) Calculating WIP on (Sep 8th?) (KKAO)(12) Calculating Variance (KKS1) on (Sep 8th?)(13) Settlement to Material and COPA (CO88) (On Sep 8th?)(14) Run Actual Costing (CKMLCP) (on Sep8th?)

Would the above scenario work ??


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Expense Analysis and Splitting in ManufacturingCost Centerscreated by Manish Sharma on Sep 4, 2013 5:04 PM, last modified by Manish Sharma on Sep 4, 2013 5:39 PMVersion 1inShare3

Introduction In SAP Cost center work as a cost responsibility center, where all the expenses and cost are stored and analyzed for the purposeof management decision making. The cost could be fixed or variable in nature. The difference between variable and fixed costscan be made in various ways in product costing in CO module. Fixed costs represent the static costs incurred by the organization,which doesnt change on the basis on manufacturing activities, which remain constant irrespective of production activities likerent for the premises, salaries of office staff etc. On the other hand, variable cost varies based on the level of productionactivities; if production activities increase then variable cost also increased like electricity consumes raw material charges etc.However all the variable cost doesnt vary in direct proportion by quantity of goods produced. In this document will try to define; how the Expenses analysis and splitting of cost done in manufacturing cost centers. From controlling prospective, fixed cost remain constant regardless of operating activities, but if these factor changes, variablecost will fluctuate. Basically raw material costs represent variable cost, but in this document main focused will be given todistinguish fixed and variable activity cost. The segregation between fixed and variable cost is optional and is derived from the configuration and master data configured incost center accounting and overhead accounting. Activity Pri ce: There are different methods that could be used in cost center accounting to determine the activity price. The simple way is themanually enter Fixed and Variable Activity cost (KP26). However there are other methods used in Cost center Planning andBudgeting that automatically calculate the fixed and variable activity price. Here the focused will be given on Planning andBudgeting activity and automatic calculation of plan activity rate in cost center. This method aggregate planned costs by costelement and capacity by plan unit to calculate the activity price. Activity independent costs are segregated among differentactivities based on Splitting Structure, while activity dependent cost directly used for the purpose of variable activity ratecalculation.F ixed Activity Cost: In product costing all those cost, which doesnt vary based on the activities in manufacturing cost will represent fixed cost. In amanufacturing cost centers there may be two or more activities performed. To calculate the activities rate, the fixed costs aredistributed to various activities on the basis of Splitting Structure defined for cost center.Vari able Activity Cost:Variable activity cost, which directly depend upon the activity type and fluctuate based on increase or decrease in manufacturingactivities. In SAP variable activity cost are directly linked to the respective activity. Activity Pri ces: F ixed and Variable Split In Cost Center Accounting dividing the cost between Fixed and Variable requires appropriate split to be made in the cost enteredfor the activity. The process is described below:

i. Variable cost would be planned at activity level and expenses should be maintained at cost element in the manufacturing costcenter by assigning activity and cost element combination. In other word, the expenses should be planned on Activity type at thetime of primary cost planning (KP06). Then the variable activity rates are calculated on Total cost planned at Activity divided byTotal number of activity planned at that cost center (i.e. capacity in KP26)

ii. Fixed cost would be planned at independent of activity type. These costs are maintained in KP06 at cost element level onmanufacturing cost center. Then the fixed costs are distributed on various activity types on the basis of Splitting structure definedat OKEW. In Splitting Structure we define the rules, how the fixed cost will be distributed to Activities. For the purpose of thisdocument, considering split of fixed cost on the basis of Capacity maintained in KP26. To i ll ustrate the scenar io i n mor e details, I have taken a hypothetical example. Supposed there is a manufacturing cost center Engine Plant, in an Automobile industry, having twoactivities Cutting and Maintenance for the purpose of creating engine parts. Before starting any batch of material to

process, the machine need to be Maintain to be ready for the process, for which it required to use cleaning oil to clean themachine and then the next process start i.e. cutting the iron piece into the desired engine part. Assuming Cleaning oil cost as variable cost for the purpose of Maintenance activity, which is a manual process,and Electricity cost as variable cost for the purpose of Cutting activity, which is automatic process. Other costs are assumedto be fixed for the purpose of activity price calculation. Details of data use for the purpose of testing, there are three Plan fixed expenses in Engine plant, Depreciation on Machine &Equipment, Depreciation on Building and Salary. The variable cost for activity Cutting activity (let RRRR in SAP) isElectricity charges and for Maintenance activity (let SSSS in SAP) is Oil cost.Cost center: Engine Plant

Activity Expenses GL Account Fixed Variable Cost
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Cost (USD) (USD)

Depreciation on Machine 600001 10000

Depreciation on Building 600002 20000

Salary 600003 15000

Cutting (RRRR) Electricity charges 600004 14000

Maintenance (SSSS) Oil cost 600005 15000 Maintain the Plan Activity and Capacity for the different activity on cost center Engine Plant

Configuration of Splitti ng Stru cture For the purpose of splitting of fixed cost to the different activities assigned to cost center, need to define Splitting structure. Itincludes the rules which should be followed to distribute the fixed cost to different activities. For the purpose of Planning andBudgeting this is an important configuration. Transaction: OKEW (Assign the new cost center to the splitting structure)

Specify Cost center and Fiscal year
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Click

Double click on splitting structure for Manufacturing cost center (FF).

Here the splitting is defined that all the cost elements on manufacturing cost center will be distributed to activities on the basis onPlan Capacity.

M ater data requi rement Activity type ( Transaction KL01) Here we can define the manufacturing activity cutting and maintenance in SAP.


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Here activity type RRRR represents Cutting activity. The activity unit is defining as Hour. For the purpose of assigning anactivity to a manufacturing center so that that can be used in recipe, the cost center categories should be F i.e. manufacturingand production cost center. Price indicator 2 indicate that to calculate Activity Plan price, system will use capacity.

Define Plan Activity (transaction KP26): Assumed the total Capacity of Cutting (RRRR) & Maintenance (SSSS) are 700 and 300 hours respectively. For the purpose ofSplitting Fixed cost on different activity, maintained the rules as Capacity, so the splitting rule will follow plan capacity ratio of(7:3) to d istribute fixed costs to Cutting and Maintenance activity.

In KP26 maintained the capacity as 700 Hours and 300 Hours for Cutting (RRRR) and Maintenance (SSSS) activity.

Define Plan Expenses in K P06 as f ixed and vari able depending u pon activity. KP06 is used for the purpose of Primary expenses planning in cost center accounting. Here we can define both activity dependentand activity independent cost. For the purpose of Activity dependent (i.e. activity variable cost), need to define expenses onActivity at cost element level. In the below screen variable cost are:


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Expenses on Activity (RRRR i.e. Cutting) at Cost element (600004 i.e. Electricity charges) Expense on Activity (SSSS i.e. Maintenance) at Cost element (600005 i.e. Oil Cost)

Plan Cost Spli t KSS4 For the purpose of Splitting Fixed cost to different activities on manufacturing cost center, need to run Plan Cost Split, which willdistribute the fixed cost to different activities assigned to the same cost center as KP26 transaction based on the rule defined insplitting structure. Here for the purpose of simplicity defined the splitting run based on capacity to distribute all fixed cost. Thesplitting rule is defined in OKEW transaction. Run transaction KSS4, then the below screen will appear, select the below details:

Cost center/ Cost center group (for which we want to use Plan cost splitting) Version Period/ Financial Year (generally full Budget year is selected)

First execute the Plan Cost splitting on test run, if No errors comes then execute on Without test run.
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Total Plan fixed cost of 45000 has been distributed to two activities Cutting (RRRR) and Maintenance (SSSS) based on 7:3ratio, i.e. on the basis of Capacity maintained in KP26. Plan cost split only distribute Fixed Cost to activities. Plan Activity Price calculation KSPI After Plan cost split, the next step if Plan price calculation. Plan price calculation basically helps to calculate Plan ActivityRate. The activity rate could be in two parts, i.e. Fixed Activity rate and Variable Activity rate.

Fixed Activity rates are calculated based on Plan Cost (Fixed) Split, during KSS4, divided by Capacity. Variable Activity rate are calculated based on Variable Cost, assigned to activity at the time of Primary cost planning (KP06),

divided by Capacity. Total Activity rate include both Fixed and Variable activity rate. Its calculated by dividing total cost by capacity.

Run transaction KSPI, then select the below details: Cost center/ Cost center group (for which we want to calculate Plan activity rate) Version Period/ Financial Year (generally full Budget year is selected)

First execute the Plan Price calculation on test run, if No errors comes then execute on Without test run
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Report for Activity rate (KSBT): Through transaction KSBT, we can see the Plan and Actual Activity rate for the cost center. Inthe below screen variable, fixed and total activity rate have been displayed for activity Cutting and Maintenance for costcenter Engine Plant.


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How the system is calculating the cost is explained in details in the below table. Activity rate can be cross reconciled with theActivity type Price Report in the above screen. Plan Cost Analysis Total Activity Cutting Maintenance Unit

A:- Capacity 1000 700 300 Hours

B:- Variable Cost 29000 USD

i. Electricity charges 14000 USD

ii. Oil cost 15000 USD

C:- Fixed Cost 45000 USD

D:- Fixed cost Split (Split based onCapacity) (7:3) 31500 13500 USD

E:- Total Cost (B+D) 74000 45500 28500 USD

F:- Variable Activity rate (B/A) 20 50 USD/H

G:- Fixed Activity rate (D/A) 45 45 USD/H

H:- Plan Activity rate (F+G) 65 95 USD/H

Cost Center Report

There are different cost center reports that can be used for the purpose of analyzing the plan and actual expense in SAP. In the below Cost center report, we can see the entire Plan cost details. Here details of expense can be analyzed at cost element (GLaccount) level.


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At cost center Engine Plant total debit is amount 74,000 /-, which include both Fixed and variable cost. Total cost transferred toactivities Cutting and Maintenance is 45,500 USD and 28,500 USD respectively.

Actual expenses spli tting f or manuf acturi ng cost centers Till now this document explain, the process of difference between Plan Fixed Cost and Plan Variable cost. How the SAP can beused to differentiate Plan fixed and Plan variable cost in any manufacturing activities.

Now will look the Actual expenses splitting between Fixed and variable cost. For actual expense analysis, need to understand two different concepts, first the posting of documents at GL accounts to representactual expense, and second transfer of actual cost from cost center to production or process order.

1. Posting of Actual Expenses at GL accounts: Accounting documents are posted only when there are events happened withfinancial impact. So to record the financial impact of event, need to create journal entries in accounting. These documents in SAPcould be stored through FB50 or FB01 etc. In the same way, the actual expenses in manufacturing cost centers are also recorderthrough accounting documents. Actual expenses are recorded at GL account level, at actual expenses we dont define, whetherthe expenses are activity dependent or activity independent in nature. At the time of actual cost split to differentiate betweenactual fixed and actual variable cost, system check the same rule defined at the time of Plan splitting. It consider the GL accountexpense as variable expense if it has been assigned as variable/ activity dependent expense at Primary cost planning inKP06.

2. Transfer of Actual cost from Cost center to Process order: this process is called as secondary allocation, i.e. movement ofcosts within controlling module only. Here No Finance documents are created. Transfer of Actual cost from Cost center toProcess or production order happened when the plant controllers confirm the completion of Activity at order. The cost which gettransferred from cost center to process order, basically represent Plant cost calculated at Actual Activity (i.e. plan activity ratecalculated at KSPI multiplied by Actual activities at process order) because at this time we dont have actual activities ratescalculated. The Actual activity rates are calculated at the time of monthly period end closing activities, when all the actual

expenses are posted on manufacturing cost center directly or get transferred form support cost centers.For the purposed of this document and to explain actual expense analysis I have passed few FB50 entries and Activityconfirmation at Process order level. For the purpose of testing, I have passed accounting documents for amount of 18,548.75 /-and confirmed 150 Hours of Cutting activities and 100 hours of Maintenance activities at manufacturing cost center Engine Plant. The cost center reports are below:


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After Activity confirmation the Activity cost are calculated at (Actual Activity* Plan Cost) The cost of 150 Hours of RRRR Cutting activity is 9750 CHF (150 Hour *65 CHF/Hour) Same the case for 100 Hours of SSSS Maintenance activity cost is 9500 CHF (100 hours *95 CHF/Hour) So it can be say that at the time of activity confirmation on process order, system calculate the cost of actual activity at Planactivity rate.

Actual Cost Spli tting (KSS2) and Actual A ctivity Price calcul ation (KSI I ) Enter transaction KSS2 and specified the below details before executing the transaction:

Cost center/ Cost center group

Period and Fiscal year (generally the month should be selected for which period end closing activities should be closed) Execute the transaction on test run first, if no error comes then execute without test run.


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Actual pri ce calcul ation KSII


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Now the Actual Activity Price

At the time of actual cost split to differentiate between actual fixed and actual variable cost, system check the same rule definedat the time of Plan splitting. It consider the GL account expense as variable expense if it has been assigned as variable/ activitydependent expense at Primary cost planning in KP06.


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Finding of Actual Expenses Analysis and Splitting:

a. Actual expenses splitting work on the basis on Plane cost splitting. b. Actual expenses are divided into two parts, i.e. Fixed and Variable. c. All those GL accounts, which are planned as variable at the time of Primary cost planning are consider as variable at actual

expenses also. If any accounting documents are posted on these accounts by assigning same manufacturing cost center, thensystem consider this as activity dependent cost and used to calculate actual variable activity rate.

d. Actual activity variable rate are calculated by dividing variable cost by actual activities confirm at process or production orders.e. On the other hand expenses posted on other GL accounts are consider as Fixed in nature. Fixed expenses are distributed to

different activities assigned to cost center on the basis on Plan Capacity, for this case total fixed cost of 18016.25 has beendistributed to Cutting RRRR and Maintenance SSSS activities on the basis of capacity ratio (7:3) maintained in KP26.

f. Actual activity fixed rate are calculated by dividing fixed cost on activity by actual activities confirm at process or productionorders.Conclusion With the help of this document, I have tried to explain how we can manage the plan and actual expenses in fixed and variable

part. Deciding whether expenses will be dependent on activity or independent of activity will depend upon management decisionmaking, which can vary from industry to industry and company to company. Once we decide the nature of expanses then we canuse the above concept to distribute the expense on fixed and variable activity rate. Further on which could be used in Productcosting as part of product cost. Here the example has been given for one manufacturing cost center to illustrate the concept. This can be applied on multiplemanufacturing and support cost center and can be used for the purpose of overhead management.1564 ViewsTags: sap, independent , manufacturing , analysis , controlling , cost , center , co, activity , splitting , dependent , expense Average User Rating(10 ratings)
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sap pc manish sharma important

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