activity Based costing

[Former Member]

Hi

What is Activity and what is the use of it in CO-ABC in SAP R/3?

Regards

Subir

[Former Member · Accepted solution]

Hi

In Cost Accounting terms, an activity is a process that can be counted and that attracts costs. In Business terms, a production process is achieved by a network of activities. If one needs to find the cost of each activity, one needs to know the acitivities and the quantities of work done by each. The purpose of CO-ABC activity based costing component of SAP CO Module is to plan, monitor and settle activity types in the accounts of cost centers. activity type serve as allocation bases and are thus used as cost drivers to send incurred costs to recievers. The CO-ABC allows to develop costing in a logical fashion;

1. Define the activity types that are of interest to the Business because they add value, attract costs or both.

2. Specify how each activity type will be measured and what units will be used.

3. Create a plan using activity types and their quantities

4. Extend the plan to include the costs that depend on activities and the rates to be applied.

5. Allocate or set up rules to allocate activity costs for both planned and actual data.

6. Predistribute the fixed costs and attach a value to each activity type that cannot be measured.

7. Determine the variances over a period and allocate them to activites or cost centers.

[Former Member]

Activity Based Costing (ABC) is extensively applied in overhead allocation. It uses Processes as the basis for charging instead of activity types. Various activity types may contribute completing a <b>process</b>.

If there is a purchasing department, which employs several clerks to contribute towards three different processes, namely, Quote request, Create PO and recieve goods, an activity type called Clerk hours is created which gets distributed to all the three process. Here the purchasing department's activity type is Clerk Hours. This is for illustrating an activity.

Now, the <b>processes</b> themselves are not complete with just clerk hours activity types. For example, a goods receiting process gets completed only after contirbution from IT department which provide IT services hours and Goods Receiving department's labor hours.

The <b>'Receive Goods Process'</b> is assigned a template which prescribe the composition of various activity types from different cost centers.