Activity Based Costing

[former_member330651]

Hi

My client is Steel Billet industry. I have configured cost centre activity and product cost planning etc as normally which need to configured. Its working fine.

Client is insisting to configure Activity Based Costing, please explain in detail, in which industry this Activity Based Costing is used. Please reply in detail, I have to satisfy my client that Activity Based Costing is not recommended for Billet industry.

regards

[ajaycwa1981]

Hi Imdad

The Activity Based Costing of SAP is not so popular.. If you use activity types, it very much serves the same purpose of Activity Based Costing, which we read in our books

ABC wants you to trace costs to their drivers.. hence, if you create act types for Labor, Machine, power,etc - it very much serves the same purpose

BR,Ajay M

[former_member330651]

Hi Ajay

Yes i have created these activities as mentioned and production costing by order and by period is working fine.

Because user saw this Activity based costing node in SAP Menu thats why he is insisting that if this node is under controlling module then we should also implement as well.

can'nt understand, how I satisfy my user that this is will be duplication, because we are already using activity types with production cost centres and product costing is working fine.

regards

[Former Member]

Hi Inmad ,

Please have a look into the thread below which describes about ABC including SAP configurations

ABC can be used in any industry.. as it is based on cost driver concept .. Designing ABC is key.. implementating it in SAP is not a issue ..

You and client both have to understand what benefits ABC will give them for cost control and cost reduction .. If ABC is able to give them proper reports for Cost Control and Cost Reduction .. then go ahead ..

ABC cannot be industry specific .. its client specific .. what the client is looking for and how they want to measure performances.

Please revert back for any further clarifications

Regards

Sarada

[former_member330651]

Hi

If Product costing is working fine by using LABOR, MAIN, POWER activity types, then do you think I have to implement Activity Based Costing as well.

Till time I have not seen any industry which is using both (product costing and activity based costing)

regards

[Former Member]

ABC is a domain concept .. nothing to do with SAP . We can use the ABC process in SAP using ABC Module in CO

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One of the best tools for refining a costing system is activity-based costing.( ABC) . Activity based costing (ABC) systems refine costing systems by focusing on individual activities as the fundamental cost objects. ABC systems calculate the costs of individual activities and assign costs to cost objects such as products and services on the basis of the activities of the activities undertaken to produce each product or service . Activity Cost drivers are referred as Business Process in SAP . In SAP , Business Process in the cost object , where the activities and costs are being captured and then allocated to product or services .ABC differs from the traditional system only in respect of allocation of overhead or indirect costs

Implementation of ABC in SAP is not complex, but designing the costing system with Business process

as activity drivers is complex. Once ABC is implemented in SAP , business process is available as cost

object

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ABC is for overhead allocation .. as business process is combination of Cost Center/activity type. You have a rate for the Business Process.. as well as you have hold cost ..

Product Costing is no where related to ABC . ABC is for overhead allocation .. overhead costs can be absorbed using ABC in Product Costing..

Its your system design , business requirement which defines wether you need ABC or not .. If CC, Activity type serves your purpose.. then you donot need ABC .

But , if business are insisting on cost drivers based allocation and recording... then use ABC

I work for a US Pharma client.. and i use CCA.ABC and PC ...

Also.. i would like to Differ with Ajay Sir... If you use cost drivers like departments ( ex .. Supply Chain , Manufacturing ., Quality etc) to capture and allocate cost .. you must need ABC ... ABC is not used in Indian Companies. a lot as they are least bothered about cost controls but more bothered about sales.... but big foreign clients use it .. as my client do.

Regards

Sarada

[former_member330651]

Hi

I have checked OKKP, there is one field where i have already assigned cost centre hierarchy, could you please tell me where business process hierachy will be assigned in controlling area.

[Former Member]

Configuration in SAP to Activate Activity Based Costing

1. OKKP : In Maintain Controlling Area Settings Activate Components tab, we have the functionality to activate Activity Based Costing.We have the functionality to activate Parallel calculation or both parallel and integrated calculation.

2. Sub-Nodes of Activity Based Costing Module : ABC sub-modules are similar to cost centre accounting sub-modules. We have to carry out master data set-up , do the planning and then carry out actual costing for ABC which is similar to Cost Center Accounting . Whatever T Code is in CCA it starts with "K".. whereas in activity based costing it starts with "C"..

Hence , plan activity/output prices will be CP26 in ABC .. whereas its KP26 in CCA .

Go to -> ABC -> Maintain Std Hierarchy for CO area ... maintain the std hierarchy.

3. Master Data Set-up: Business Process is the Mater Data for Activity Based Costing Module. If you closely look into the master data screen, you will find that it is the combination of activity type and cost center master datas.

4. Planning in Activity Based Costing : In ABC planning, we have to input cost for the business process (activity inputs) , define price of BP.(activity output prices ) and then perform allocations if necessary . Activity Based Costing planning process are absolutely similar to Cost Center Accounting with a difference that in ABC we do planning for a business

5. Actual Postings in Activity Based Costing Module : Actual posting to ABC is similar to Cost Center Accounting. We have all the reposting and allocation functionalities which is available in Cost Center Accounting.

6 . Templates in Activity Based Costing : We can also use templates to allocate cost from business process to products, similar to cost center accounting. We use similar templates, with only exception is that we use business process as cost objects.

7. Information System in ABC : All reports similar to cost center accounting are available in Activity Based Costing Module

Regarding your query => how I satisfy my user that this is will be duplication, because we are already using activity types with production cost centres and product costing is working fine ... This will never be duplication .. I request you to go thru domain concepts of Activity Based Costing and convince user accordingly.

Regards

Sarada

[former_member330651]

sarada

Although its new thing for me, but i will try to implement for myself knowledge. if it works fine then i will propose to client after complete testing,

now move forwarded

my product is billet which is a FERT material, i have created cost centre ior Furnice and assigned activity types.

- Production cost centres will be my Bussiness process and same activity types will assign to my production cost centre.

Is am thinking right way?

[Former Member]

Hi Inmad ,

Business Process is a combination of cost center and activity type . We can hold costs and also plan rates .. Hence , we dont assign BP to activity types..

If you are using production CC as BP.. then its a double work ... have departs as cost drivers ( business process )..

Get the design from client .. dont do it on your own .. Ask client whats the business drivers they need and then map it to SAP accordingly..

Hope , i am able to clarify you.

Regards

Sarada