- SAP Managed Tags
Continuing the blog series on Universal Parallel Accounting and specifically the topic of Overhead Accounting, I’ll now explain the changes introduced with SAP S/4HANA 2025.
If you read my original blog, you will recall that with Universal Parallel Accounting we extend the ledger approach to all financial applications, to ensure that the ledger settings are used consistently in Asset Accounting, Controlling and Actual Costing in addition to General Ledger Accounting. All value flows then take place with reference to this ledger, so allocations are ledger-specific to reflect the different inputs coming from Asset Accounting, General Ledger Accounting, and so on. If you build an activity-based model to charge costs to production or services, then the cost rates can also be ledger-specific, but the quantities themselves are captured only once.
Overhead Accounting with Universal Parallel Accounting
With the initial delivery of Universal Parallel Accounting, SAP S/4HANA did not support indirect activity allocation (transactions KSC1-5) or template allocation (transactions CPT1-3, CPTA and CPTD) and if you tried to run these transactions, the system issued a message saying that the function was not supported because the business function for Universal Parallel Accounting was active. This changes with SAP S/4HANA 2025, where SAP supports indirect activity allocation and template allocation for environments 001 (Cost Estimate/Production Orders) and 009 (Process Orders).
Activity-Based Allocations
The simplest activity allocation is the direct activity allocation that is typically used to allocate costs between cost centers or from cost centers to orders and projects. Direct activity allocations were supported with the initial delivery of Universal Parallel Accounting to ensure the correct reporting of production and service costs. The amount of work performed is captured either using time recording, confirmations on the shop floor, or manually using transaction KB21N. Before you can record a direct activity allocation, you must define a cost rate for each unit of work and with the advent of Universal Parallel Accounting, this rate can be ledger-specific.
Indirect activity allocations, by contrast, are used when it is not possible to use confirmations or time recording to determine the amount of work performed, but instead you wish to allocate the total activity hours worked by a call center to the markets served or the total number of kilowatt hours supplied to your production cost centers. There is no change to the way you set up an indirect activity allocation to calculate the quantities to be used as a basis for the allocation. You can either manually enter the number of hours worked by the call center or have the system calculate the number of kilowatt hours supplied by looking at the machine hours on the receiving cost centers. The difference is that there can potentially be as many cost rates for these activities as you have set up ledgers. While the amount-based allocations became part of universal allocation in SAP S/4HANA 2025, indirect activity allocation continues to use the legacy transactions KSC1-5 to manage and run the allocation cycles.
Template allocation is used instead of routings and recipes to calculate the amount of production activity expected. A template allocation might be as simple as determining that a setup or quality check is needed once for every production order or use its own function to calculate activity usage, so you might determine that shopfloor movements are dependent on the number of components in the bill of material (BOM) or the number of work center changes in the routing. Again, template allocation in SAP S/4HANA 2025 reuses the legacy transactions CPT1-3 to define the templates, and CPTA and CPTD to run the template allocation for production and process orders. This means that you can reuse any functions you may have created to determine whether an activity should be charged or to calculate the quantity of activity used. As we saw for indirect activity allocation, you can potentially apply different cost rates for this quantity depending on the ledger.
With Universal Parallel Accounting the COST table becomes obsolete and is replaced by the ACCOSTRATE table with its link to the ledger. This means that you cannot use the legacy transaction KP26 to define the cost rates, but must use the Manage Cost Rates - Plan app or load the cost rates from SAP Analytics Cloud for Planning. Since the ACCOSTRATE table does not yet contain a field for the business process, the sender object for an indirect activity allocation or a template allocation can only be the cost center/activity type combination and business processes (transactions CP01-03) are not yet supported.
Indirect Activity Allocation
At first glance, an indirect activity allocation looks like a distribution or assessment cycle, but the sender is not a cost center, but rather the combination of cost center and activity type and the sender rules are based on quantities (hence the link to the activity type) rather than amounts (where the cost center alone would be sufficient). In Universal Parallel Accounting, amount-based allocations are now executed using universal allocation, but quantity-based allocations continue to use the legacy transactions to determine the quantities used.
Figure 1 shows the segment header of an indirect activity allocation cycle to allocate kilowatt hours from an energy cost center to a group of production cost centers. You can access this screen using transaction KSC1. Notice that the segment uses the sender rule Quantities Calculated Inversely because we are going to use the total machine time recorded on the production cost centers to determine the number of kilowatt hours to be charged to each cost center. The receiver tracing factor is then Actual Activity, which in our case is the amount of machine time worked by the production cost centers.
Indirect activity allocations build their charge model using different activity types from those used for direct activity allocations. Figure 2 shows the activity type for the allocation of kilowatt hours from the energy cost center. To perform the inverse calculation specified in the sender rule shown in Figure 1, you will need an activity type with Activity Type Category 2 (Indirect calculation, indirect allocation). Alternatively, if you don’t want to derive the quantity used from the receiver quantities but rather to spread an activity quantity that you have entered manually for your sender cost center, you’ll need to create an activity type with Activity Type Category 3 (Manual Entry, Indirect Allocation) and switch the sender rule to Posted Quantities. You can then use transaction KB51N to capture the total quantity for the cost center/activity type combination to be allocated for the period.
Once you have defined the master data, you can enter the energy cost center in combination with the activity type for the kilowatt hours as the Sender and the production cost centers as the Receiver in the Senders/Receivers tab of the Indirect Activity Allocation Cycle as shown in Figure 3, thus establishing the relationship needed to run the allocation.
Before you can run the allocation, you’ll need to maintain an activity rate for the cost center/activity type combination using the Manage Cost Rates – Plan app to calculate the initial rate as shown in Figure 4. You can choose whether you create different cost rates per ledger if the differences between the rates are significant or you can work with ledger-independent cost rates to simplify the planning process. Note that the ledger is not a default field, so to maintain ledger-specific cost rates in the Manage Cost Rates - Plan app, you will have to add the field to the layout using the View Settings button.
Figure 5 shows the result of running the indirect activity allocation for the sender (the energy cost center). The machine hours on the production cost centers have been used to derive the total kilowatt hours of energy used in the period and this is shown in the Actual Activity column.
These quantities are valuated with the cost rates defined in Figure 4 and the Energy Cost Center debited and the Production Cost Centers credited under the G/L account associated with the activity type. You can identify such postings by searching for the Business Transaction Type RKIL in the Display Line Items app. Figure 6 shows the postings from the energy cost center in ledger 0L. You can view the other documents by changing the ledger selection.
Template Allocation
Template allocation is a more sophisticated way of including overhead costs in your product costs and assigning them to your production orders and process orders at period close. As I described in my previous blog, SAP has been moving various tasks out of the period close and making them event-based, but template allocation will continue to run at period close to allow customers to continue to use their existing functions to calculate the quantities used.
The Differences between Traditional and Event-based WIP and Variance Calculation
Overhead calculation and template allocation are related and the system uses the costing sheet and overhead keys for overhead calculation to determine the template to be applied. Template allocation is particularly useful if you need to make sure that the outstanding balance on your cost centers is zero at the end of the period and all costs have been charged to production (a legal requirement in some parts of the world), when the use of percentage overhead rates almost always leaves a balance on the cost center at period close.
Templates are defined using transactions CPT1-3 and comprise a list of sender cost centers/activity types together with planned and actual quantities. The functions that can be called are grouped as environments, and the initial delivery will only support environments 001 (Cost Estimate/Production Orders) and 009 (Process Orders), with environments for WBS elements, networks and service orders planned for later.
You can either enter activity quantities to the template manually, such as one quality check per order, or have the system calculate them using formulas that read related driver quantities. SAP delivers a library of standard functions for each environment, and these can be extended as required. Additionally, you can set conditions that determine whether the activity is to be charged at all, so you might only charge a configuration activity if the material to be manufactured is configurable. This part of template allocation does not change with the move to Universal Parallel Accounting.
Template allocation is just a more dynamic form of direct activity allocation, so the activity types included in the template must have Activity Type Category 1 (Manual Entry, Manual Allocation), as shown for a Quality Check in Figure 7. This is the same setting as for the activity types you might use for order confirmation (setup, machine time, labor, and so on) or time recording (consulting hours, and so on).
As we saw for indirect activity allocation, you’ll need to use the Manage Cost Rates - Plan app to enter a cost rate for the quality checks to be calculated by the template, as shown in Figure 8.
Figure 9 shows a sample template to perform one quality check for each production order. The object in each case is the combination of cost center and activity type shown in the Object column. In this simple example the Plan quantity and Actual quantity we've entered a quantity of one manually, but you can also use functions to derive these quantities by clicking on the Plan Quantity or Actual Quantity column and choosing a function from the list. Here the charge will be applied in every period as the Plan activation and Actual activation columns are ACTIVE but you can also use functions to determine the conditions under which a quality check should take place.
This template is linked to the cost estimate or the production order/process order via the combination of the costing sheet and overhead key as shown in Figure 10.
The link to the template is established in configuration (transaction KTPF) by linking the costing sheet and the overhead key with a template as shown in Figure 11.
The cost center/activity type combinations entered in the template are automatically included in the standard cost estimate when you create a costing run using transaction CK40N or cost materials separately using transaction CK11N. Figure 12 shows a standard cost estimate (CK11N) with the template on the Valuation tab and the additional line for quality control in the itemization (Item No 22).
For production orders and process orders you will need to run template allocation at period-close to collect the quantities relevant for allocation. Template allocation is started using transaction CPTA for a single production order and CPTD for all orders in a plant. Figure 13 shows the result of running template allocation for a single production order with the template JS001 and cost rates in multiple ledgers.
As the template allocation will result in additional costs on the production orders and process orders, you’ll need to use the Postprocess Event-Based Posting - Product Costing app (F3369) to make sure that these additional costs are reflected in the work in process and production variances posted for your open production orders. Figure 14 shows the journal entries from template allocation as Items to Post in the Postprocess Event-Based Postings - Product Costing app. You can trigger additional postings for work in process and/or production variances by selecting the Post button.
Closing Words
This approach radically simplifies organizations’ abilities to handle the requirements of different accounting principles in the area of overhead management and removes the need for significant manual work to reflect the different approaches on the true cost of goods sold.
Universal Parallel Accounting is still only delivered to pilot customers so it is important to compare the delivered scope with that required for your project, since functions that aren’t supported are not available in the SAP Easy Menu if the business function for universal parallel accounting is active.
If you are working with these types of allocation for the first time, please consider reading my detailed guide published by Rheinwerk Verlag.
Cost Flows in SAP S/4HANA Finance: Allocations and Settlements
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