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Overhead Cost Controlling

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Objectives

To gain understanding of key business processes of SAP Overhead Cost Management (OCM) Understand the Organizational unit in Controlling Determine the origin of posting in Cost center Accounting Understand in detail the process of capturing Activity Costs on Material in Standard Cost Calculation & during Actual Postings

SAP Overview
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Overhead Cost Management

The Overhead Cost Controlling component (CO-OM) helps to plan, allocate, control, and monitor overhead within the organization By planning in overhead areas, we can develop standards, that allow us to control costs and valuate internal activities. Cost Centre Accounting Cost Center Accounting analyzes where overhead occurs within the organization Costs are assigned to the sub-areas of the organization where they originated. SAP offers a wide variety of methods for allocating posted amounts and quantities. Internal Order Accounting Internal Orders collect and analyze costs based on individual internal jobs. SAP can monitor and automatically check budgets assigned to each job.

OCM Processes
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OCM Process Overview

Controlling

Cost Centre Accounting

Master Data

Planning

Actual Posting

Period End Closing

Reporting

OCM Processes
Master Data Planning Actual Posting Period End Closing Reporting

Cost Element Cost Centre Activity Type Resource Statistical Key Figures Internal order Groups

Planning preparation Cost Centre Planning Internal Order Planning Plan cost distribution Plan cost assessment Plan indirect activity allocation Plan settlement of overhead cost orders

Manual entries SKF entry Direct activity allocation Indirect activity allocation Order budget

Reposting Actual Cost distribution Actual Cost Assessment Cost Splitting Calculate Actual Activity Prices Settlement of Overhead Orders Manual Cost Allocation

Planning
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Planning preparation

Cost center planning


Cost Element Planning
Cost center

Planned costs on the cost cen ter

Cost center FI/ consulti CO ng


Cost Element Planning

Sen ior consulti ng Jun ior consulti ng

Y e Peri a ods Cost r center Cost element

2 0 1 0 to 30100 FI/CO 1 12 consulting

430 474 000 100

N a Salar m Travel ies e

Planned costs

costs

900 500 000 000

1 1

Ver sion

Inpu t

Areas Under Cost Center Planning

Activity Planning Expense Planning Activity Independent Expense Planning Activity Dependent Statistical Key Figure Planning

Activity Planning

Activity types classify the activities produced in the cost centers. E.g. Utilities like Steam, Electricity. Costs based on the activity quantity of an activity type are posted separately in fixed and variable portions. When the activities of a cost center are divided into activity types, then we should consider whether the costs can be allocated effectively to the activity types. The prices of the activity types of a cost center can be either entered manually, or calculated by the system based on the costs allocated to the activities.

Expense Planning Activity Independent

Activity-independent cost planning covers both primary and secondary costs It does not refer to a specific activity type The SAP system updates the activity-independent costs entirely as fixed costs Usually Expense planning is Excel based and is an annual one time activity done before the start of Fiscal Year E.g. of Activity Independent Costs are common costs not related to production like security wages, factory canteen costs, stationary & printing expenses

Expense Planning Activity Dependent

Activity-dependent cost planning covers both primary and secondary costs Activity-dependent planning of primary and secondary costs enables to plan both fixed and variable costs Activity dependent planning for primary cost elements is done against specific activity types generated within the cost center. E.g. Planning can be performed for Energy costs booked against GL accounts in FI based on historical data for energy related activity types defined in SAP like electricity, water, steam etc. Depreciation costs incurred on Depreciation GL Accounts can be planned against Activity Type Depreciation created in the SAP system

Advantages of Detailed Planning

On the basis of detailed planning we can calculate the plan & actual prices of different activity types defined as per the various activities generated within a cost center. Plan prices so calculated by the system can be used in Standard Cost Calculation of FG & SFG materials. The consumption of different activity types are captured in the resources defined for FG & SFG material codes & are thus integrated with the PP-PI Module. Similarly actual prices can be calculated on the basis of actual bookings done in FI/MM module & the same can be used to calculate the actual cost of production This helps in analysis of costs at a more granular level leading to a better cost control of the overall manufacturing process

Advantages of Detailed Planning contd..

Also helps in the variance analysis between plan and actual prices of different activity types defined This helps in better cost management of both direct production related activity types and overhead related activity types.

Plan cost Distribution


Administration Materials 60
Staff Salaries Rent & Rates 120 Light & Heating Vehicles Repairs Travelling Hotels 12 18

Company Materials 100 General Staff Salaries 200


Rent & Rates Light & Heating Vehicles Repairs Travelling Hotels 20 30

Production Materials 40 Support Staff Salaries 80


Rent & Rates Light & Heating Vehicles Repairs Travelling Hotels 8 12

Total

210

Total

0 Total 140

Allocation through original cost element

Plan Cost Assessment


Administration Materials
Staff Salaries Rent & Rates Light & Heating Vehicles Repairs Travelling Hotels Company General Costs 210 20 30 Total 210

Company Materials 100 General Staff Salaries 200


Rent & Rates Light & Heating Vehicles Repairs Travelling Hotels

Production Materials Support Staff Salaries


Rent & Rates Light & Heating Vehicles Repairs Travelling Hotels Company General Costs 140 Total 140

Company General Costs -350 Total 0

Allocation through secondary cost element

Plan Cost Reconciliation

Plan reconciliation is used to check and reconcile the exchange of internal activity Each cost center plans its activity output and the necessary activity inputs. This can result in differences between the plan quantities for the sender and receiver cost center In plan reconciliation, the planned activity output for a cost center is adjusted to the planned activity input for the receiver cost centers. In this way, the SAP System is able to correct the variable activity consumption, as well as the variable costs required to provide the activity. The fixed portions of the activities and costs consumed are not changed by plan reconciliation

Plan Price Splitting

During plan cost splitting, the system splits the activityindependent plan costs of a cost center among the activity types of this cost center. The system determines the plan prices from the ratio of plan costs and plan activity. Splitting activity-independent plan costs on the cost center activity types helps to calculate the fixed price portion of the overall price. Plan cost splitting therefore ensures that all planned costs are considered during price calculation. Plan cost splitting is automatically performed in plan price calculation. Separate plan cost splitting is necessary only if we want to review the splitting process using the explanation feature.

Price Calculation

Plan price calculation determines prices for the plan activity types of each cost center The prices are iteratively calculated by dividing the plan costs by the plan activity quantity. We can decide the method by which both the plan & actual prices are calculated by the system There are 3 methods by which activity prices are calculated

Price per Period Average Price Cumulative Price (Possible only for Actual)

This setting is defined in customizing and is year dependent

Actual Posting
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Manual Entries

Description

Actual cost entry enables you to monitor and trace costs incurred as they arise. This allows to identify variances quickly and take appropriate action to deal with them. Actual cost entry involves transferring the primary costs recorded in Financial Accounting (FI) to the Controlling (CO) application component. In the CO component, this transfer occurs real-time from the components FI, MM, and AM, whereby a cost accounting object is recorded during account assignment Incorporated into other processes, e.g. FI Journal Entry, Goods Issue, etc

Process

Manual Entries

Primary postings include the following transactions


Payroll Material Usage Travel Goods Receipt / Invoice Journal entry Depreciation

Statistical Key Figure Entry

Statistical Key Figures required for reporting and allocations may be entered into the system during the month or at month-end They are recorded with a Controlling document number Statistical Key Figures may also be transferred from Logistics Information System (LIS)

Direct Activity Allocation

Description

Direct activity allocation involves the measuring, recording, and allocating of business services performed Activity types are used as the cost drivers Activity allocation occurs, for example, when business transactions are confirmed or when posting activity quantities to accounts, e.g. Plant Maintenance Hour, Production Hours, Utilities, etc The system multiplies the activity produced by the price of the activity type. Activity types are planned using prices set manually or using SAPs price calculation

Indirect Activity Allocation

Description

Indirect Activity Allocation is a method of allocating actual and plan costs using activity quantities as the basis. It is extremely beneficial when calculating the activity quantities on the sender involves too much time or expense. The value can be calculated inversely based on the activity quantities actually consumed or planned on the receivers

Cost Splitting

Actual cost splitting makes it possible to divide costs into fixed and variable portions The actual costs are split in two stages: In the first splitting step, the system distributes actual costs by cost element to the activity types based on the target costs or target quantities In the second splitting step, the actual costs are distributed on the activity types according to splitting rules. If you have not defined any splitting rules for a cost center , the system splits actual costs based on the equivalence numbers for the activity types. It is only in this way that you can compare the actual costs with the target costs of the activity types and display the variances by activity type.

Calculate Actual Activity Prices

During actual price calculation, the system calculates iterative prices for activity types or business processes based on actual costs and actual activities. The calculation takes into account all activity exchanges between cost centres or business processes. Price calculation, which you can carry out during planning, is based on planned costs and activity. The resulting prices are used to valuate actual activity. After running actual price calculation, we can revalue actual activity at actual prices. This revaluates the activity using the difference between plan and actual prices. By revaluing the actual activity with actual prices, sender cost centres can fully balanced

Settlement of Overhead Cost Orders

Some or all of the plan and actual costs incurred on an object are allocated to one or more receivers. System automatically generates offsetting entries to credit the sender object. The debit postings assigned to a sender object remain in place even after settlement to a receiver Two types:

Periodic Every period Full After completion Individual


Two methods:

By individual sender object Allows to analyze in greater detail Processes a large number of sender objects Used during period-end closing activities

Collective

OCM Reporting

Comprehensive, flexible information system to analyze cost flows Carry out standard recurring evaluations Construct special reports for unique situations Analyze all costs online and trace them right back to the original document Execute all reports available online in background runs as well (helpful for large amounts of data) For hierarchically grouped objects, such as cost centers separate reports can be created for all hierarchy nodes and individual objects, or all the relevant reports in a single selection run through the database can be created The second option allows to navigate within a hierarchy. This enables particularly flexible monitoring of cost center areas

OCM Reporting Menu Path

OCM Sample Report Selection Criteria

Thank You

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