Activity based Overhead calculation

[#1]

Hello Gurus,

Can you please help me out with a problem on overhead calculation in PM orders? I know that the overheades can be allocated as percentage or quantity basis using valuation variant approach, but the client wants this to define Overhead as an activity and calculate the costs based on the activity rate.

This rate should be applied for the labor hours spent on the order along with the labor activity rate. Example labor activity rate = 100$ per hour and overhead rate = 50$ per hour.  Now if a mechanic spend 10 hours for a work order the labor activity = 100$ * 10 = 1000, this goes to costelement CE1 and then automatically an overhead for 10 hours should be calculated with the pre-defined overhead rate of say 50$ = 50 * 10 = 500, charged to costelement CE2. So totally the costs will be 1000 + 500 = 1500.

I am unable to resolve this issue with the standard overhead config using valuation variant. Can you please help me out?

Thank you,

Victor

[santosh_battini3 · Accepted solution]

try maintaining OH rate 50 Per ( 1)  Unit ( hour) , as Qty based OH.

[Former Member · Accepted solution]

Hi Santosh,

I can take this approach, and plug in my activity rate but if there are different rates for different work centers, how do I maintain the rates? I see that there is overhead type - order type OH key, plant, company code combinations for overhead but not work center.

Should I be using different base rates based on the cost centers (which are referenced in costing tab of work center)? It would be a lot of data to maintain but may be this is the best approach as of now.

Thanks

Victor

[Former Member · Accepted solution]

Hi,

I was going thru' your post, and has a suggestion, if you r maintaining different base/overhead rate based on work centers, then in most probability you should also have to define many costing sheets and costing variants to arrive at correct values. This is not recomended in normal circmstances.

What I suggest is to have a overhead as an activity in the task list. but do not maintain any values for it in the maintenance task list.

You create a z table where you maintain columns such as work center and % overhead rate. ( you can also have the possibility of editing here).

At the time of confirmation, when you maintain the activity such as labor, then let the system calcluate overhead (as activity) considering the combination of work center and % value maintained.

And for the prices, overhead can always refer to activity prices maintained of the respective work center.

Please check and let me know if this works or not.

Reg.

Pavan

[Former Member]

Hi Victor,

Hope this helps.

Maintain Overhead rates

In case overheads have been configured then you need to maintain the

overhead rates as a part of master data.

Overheads can be calculated as a % of Material costs or as a % of wages (Labor Cost).

It can also be calculated based on quantity of raw material.

The overheads configured in our scenario is production overhead which is

4% of wages.

This is maintained by the costing department every year.

A costing sheet must have been configured for this to work. The

configuration of the costing sheet has been covered in detailed in the

Product costing CD of the SAP FICO configuration CD set.

Transaction code: S_ALR_87008275

Or

Path:

1. SAP menu à Accounting à Controlling à Product Cost Controlling à Cost
2. Object Controlling à Product Cost by Order à Period-End Closing à Current
3. Settings à S_ALR_87008275 - Define Percentage Overhead Rate

Ashok

[Former Member]

Hi Victor,

You can follow one alternatively way.

If you are saying that Activity rate is per hour is 100 and OH is 50 =150 then plan Activity rate as 150 instead of 100 you can achieve what you wanted exactly.

Thanks

Kareem

[Former Member]

hi

check your formula calculation for the overhead costing.

[Former Member]

Hi Ananthapadmanaban,

Thanks for your reply. I did not understand the reply, can you please explain?

Where should I have this formula? Client is asking for an activity based overhead, if I maintain overhead formula in the costing sheet it gives me two options either percentage or quantity.

I don't know how to handle this, for every hour of labor, there should be an hour of overhead and the overhead should be automatically applied to the work order using the activity rate.

Thanks,

Victor

[narasimhulu_konnipati]

As per my knowledge, Activity based costing is nothing but creating additional activity types for Overhead costs also without including them in Costing sheet. In this case there won't be any requirement of calculating / creating the cost sheet.

Thanks

[Former Member]

Hi Narasimhulu,

That is correct. So I don't think I can pursue the costing sheet/Valuation variant path.

How can I add this overhead activity automatically to the work order costs? The hours would be the same as the confirmed labor hours, it is just that the overhead activity should be automatically assigned when the labor activity is confirmed.

Thanks

Victor

[narasimhulu_konnipati]

Dear,

Create the Activity types in KL01

EX - Freight, Depreciation, Amortization, Admin exp.......apart from LABOUR, MACHINE, SETUP

You have to assign a Secondary cost element in with Cost element category 43

You need cost center for capturing these costs.

Combination is Activity + Cost center

Place to assign is Work center - T code CR02

You can also go by CA02 - Routing

Assign the secondary cost element created and assigned in KL01 in OKTZ......imp

Have a look into the existing Activity types and their config. u can understand it better........

Hope this helps

Thanks

[Former Member]

Hi

Thanks Narasimhulu.

I maintained all this steps, created activity, assigned work center with activity cost center combination.

As I said I have two rates labor activity rate, overhead activity rate. We confirm labor hours in IW41 and the labor costs get applied.

My question is how will the overhead costs automatically applied to the work order?

Will it be a user exit to apply the cost when labour activity is confirmed, or is there a config that automatically does it?

Or do I handle it by workcenter formula?

Thanks

Victor

[Former Member]

Hi Victor,

You need to run KGI2 to calculate over head on order as part of month end

Regards,

Radha

[Former Member]

Yes Radha, that is correct. If I declared my overhead as a percentage (or quantity) rate in the costing sheet, it just gets applied to the order once I run KGI2

But I did not declare my overhead in my costing sheet as the client has planned it as an activity and it is not applied as a percentage basis, so KGI2 does not work in my case.

I want this overhead to automatically apply to a work order whenever labor activity is confirmed.  When user confirms 10 hours of labor using IW41, 10 hour of overhead should be applied in the background. Is this possible?

So my question is this:

1. Let us say I have two activity types in KL01 Activity A and Activity B. I have assigned them to work center and all the config and master data is maintained.

2.In a work order let us say a user confirmed 1 hour of Activity A

3. Can I automatically confirm 1 hour of Activity B for the same work order in the background?

Is there a setting to say Activity B is dependent on Activity A?

[Former Member]

HI Victory,

I think, You also need to confirm Activity B in the same way as you did for Activity A. You need enter hours for both activity types in the routing. The hours will be charged to order when ever you do confirmation with the rate maintained in the KP26.

I am not sure  any setting for making this activity as dependent on other.

[Former Member]

Victor-

If I understand your requirement correct, when you confirm labor, it should automatically confirm the same quantity with overhead. I think this can be achieved with production order confirmations (co11n) but not sure of PM order confirmations (IW41).

For production order confirmations, you will have confirmation entry screen layout setup where you will select what you want to see on the confirmation (setup, labor and overhead) and the same data will also be provided in work center setup. In the work center costing tab, if you mention activity types for labor and overhead, and during production order confirmation if you confirm labor, it automatically confirms overhead too for the same quantity.

If you notice on the work center costing tab, for the field “Activity type int. processing”, activity type maintained here will default in the PM orders. If this field can accommodate two activity codes, then I would assume it will automatically confirm the other activity along with the first one.  I remember seeing only one field for activity code input for this field, but you can definitely check the screen layout for work center master data.

Hope this helps.

Shail

[Former Member]

Hi Shailender,

Thanks for the reply. Yes, your understanding of my issue is correct.

The activity type int.processing field looks like it can only have a single activity, I searched in SCN regarding the multiple activity but did not get much. The thread below has the same question but has not been answered.

http://scn.sap.com/thread/1557559

Thanks,

Victor