SAP Controlling practitioners who have used activity types for absorption costing, have often asked about the integration of SAP Production Planning and SAP Controlling and how this setup works behind-the-scenes. This blog post is an attempt to explain the mechanics of activity types, their configuration, master data and transactional data setup. I hope this write-up is useful to SAP Controlling practitioners.
Overview:
The goal of a manufacturing unit is to consistently deliver throughput at a consistent quality, while maintaining optimum inventory levels. In doing so, it must accurately determine and control the cost at which it has produced these goods or services.
Drivers for product costing:
Material quantities are derived (or read) from the bill of material (BoM or BOM).
The components are costed as per costing method (standard or moving/weighted average), by reading the values stored in the material masters, purchasing information records (PIRs), or some other planned price valuation method like trending (historical average) price.
The activities are costed by applying activity rates as the product moves through the routing (or recipe in the case of process industry) or operations performed in the work centers (resources in case of process industry) in the manufacturing facility.
Overhead costs are absorbed into the product cost via activity types and/or costing sheet.
Product costs include direct costs, as well as indirect costs. Direct costs are comprised of the cost of raw materials, packaging materials, and all the direct conversion costs of producing the finished material. This would typically include the costs of those personnel who have ‘touched’ the product (those directly involved in manufacturing the product). Indirect costs include the cost of those personnel who may not have directly “touched” the product, but have indirectly contributed in producing the material. For example, maintenance staff, housekeeping staff, warehouse staff, security, finance, human resources, facilities, systems, etc.
Another way to look at the conversion cost is that a product must carry (or absorb) the cost of the departments it passes through. Predetermined absorption rate is used to load the product with the cost of department.
For example, if the total planned budget for a department is $10,000.00 for the month with 200 hours of planned operation, the predetermined absorption rate is $10,000.00 / 200 hours = $ 50.00/hr.
This cost can be further broken down into labor hours, machine hours, and any other additional cost drivers based on the business requirement. These drivers are often defined as an activity type in the SAP system.
Activity types classify the activities produced in the cost centers within a controlling area. The activity type represents the activities performed in a cost center, for example labor hours, or maintenance hours for a maintenance cost center.
Activity types describe the specific activity output provided by a cost center to other cost objects like work orders, internal orders, etc. They are measured in units of time and quantity, and valued using a rate per hour or per unit of activity.
Total planned cost / Planned activity hours = Planned activity rate per hour
Total actual cost / Actual activity hours = Actual activity rate per hour
Topics related to activity types covered in this blog:
This blog is divided into three sections – Configuration, Master Data and Transaction Data.
Configuration:
OP19: Standard Value Key is configured, that uses parameters
OP7B: Parameters are defined
OP54: Formula definition is configured
Master Data:
CRC3 Resource (or CR03 Work Center): formulae keys for each activity types are maintained
C203 Master Recipe: Activity quantities are maintained
Transaction Data:
Standard costs: CK11N / CK40N uses activity quantities from Recipe; prices from Cost Center Planning
Actual costs: Confirmation absorbs activity Type costs on orders
OP19: Standard Value Key
As mentioned earlier, Standard Value Key connects the master data and configuration.
Standard Value Key is configured using transaction code OP19. The menu path is as follows: SPRO Execute Project -> Production -> Basic Data -> Work Center -> General Data -> Standard Value -> Define standard value key
OP7B Parameters: Description, Dimension, Unit
Parameters for Standard Value Key are maintained using transaction code OP19. The menu path is as follows: SPRO Execute Project -> Production -> Basic Data -> Work Center -> General Data -> Standard Value -> Define parameters
Here we configure the description, dimension and unit of measure.
If the activity type will be measured in unit of time, then the Time dimension should be used
this will allow use of Hours or Minutes as the unit of measure.
If the activity type will be measured in unit of weight (or mass), then Mass dimension should be used - this will allow use of Kilograms or Pounds as the unit of measure.
OP54: Formula Definition
Costing formula is defined in configuration transaction OP54. The menu path is as follows: SPRO Execute Project -> Production -> Basic Data -> Work Center -> Costing -> Work Center Formulas -> Define formulas for work centers
CRC3: Resource Master (CR03 Work Center)
Standard Value Key on Basic Data tab connects the master data and configuration, Costing tab has formulae which specify how the activity quantity will be calculated
C203: Master Recipe
Master recipe (used in process industry) and Routing (used in discrete manufacturing) is where operations and their activity consumption is defined. Master recipe can be displayed using transaction CRC3. The menu path is as follows: Logistics -> Production - Process -> Master Data -> Master Recipes -> Recipe and Material List -> Display
CK13N: Display Cost Estimate
Cost estimates are created using transaction code CK11N/CK40N and can be displayed using transaction code CK13N. The menu path is as follows: Controlling à Product Cost Controlling à Product Cost Planning à Material Costing à Cost Estimate With Quantity Structure à Display.
Activity Absorption on Orders
A confirmation is usually performed using transaction COR6N or using CORK or KB21N (without PP). The menu path is as follows: Logistics -> Production - Process -> Process Order -> Confirmation -> Enter for Phase -> Time Ticket
This posting originates in Controlling module, impact of order confirmation:
Debit: Activity Type secondary cost element and Production/Process Order
Credit: Activity Type secondary cost element and Cost Center
Pre-determined Activity Rate is used for posting
One can optionally revalue orders with actual activity rate at month-end
Copyright acknowledgement: This blog was created based on information that was originally published by Espresso Tutorials GmbH in First Steps in SAP Controlling (CO) and Expert tips to Unleash the Full Potential of SAP Controlling, authored by Ashish Sampat