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Basics of Standard Costing – Understanding

overhead cost flow-Part 4
December 6, 2013 | 16,256 Views |

Hrusikesh Dalai
more by this author

FIN Controlling
FIN (Finance) | MAN Production Planning (PP) | SAP ERP | 7.5 | accounting | available | bapi | beginner | bp | budget

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This is in continuous of my other document of understanding Standard

Costing and its ows.

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Basics of Standard Costing – Understanding the Cost Component

Structure-Part 3

Overhead costs are costs which can only indirectly be attributed to the
product, such as electricity or general storage costs. We can allocate these
overhead costs in various ways: Here I have discussed about overhead
calculation through costing sheet. This is a beginner’s guide to understand
the costing Sheet.

Overhead application

In the conventional method, overhead is applied to the reference object as

a percentage rate or a quantity-based rate. The overhead is applied by
means of costing sheets. The very purpose of using a cost sheet is that we
want to apply indirect costs to the nal cost of the product or process.
Costs that cannot be assigned to the product cost collector directly can be
allocated by determining the overhead expenses and applying them to the
cost collector. Overhead costing is the means by which we allocate indirect
costs to the appropriate objects.

The costing sheet links all the functions of overhead calculation. The direct
costs to which overhead is applied (calculation base),The conditions under
which overhead is applied (dependency),Whether overhead is allocated on
a percentage basis or on a quantity basis, The amount of the overhead
percentage, or the amount of overhead for each unit of measure
(overhead), The validity period for the overhead, Which object (cost center,
process, or order) is credited, and under which cost element in the case of
actual postings (credit key)

De ne Costing Sheet- T CODE KZS2

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Screenshot 1- AAAAA costing sheet has been created for Example

Costing Sheet has 3 important components within it.

-Base

-Overhead rate

-Credit

De ning Base- T CODE KZB2

The calculation base consists of a group of cost elements to which overhead is to

be applied according to the same conditions. This process involves assigning
individual cost elements or cost element intervals for each controlling area to a
calculation base.
We can apply different overhead amounts to the fixed and variable portions of the
same base cost element. We can also make the amount of the overhead
dependent on not only the direct costs, but also on the material itself. We can
define material-specific calculation bases by entering the origin groups in the
material master record and by specifying them in the calculation bases.

Screenshot 2 Example ZV01 base

The calculation base determines to which cost elements overhead is

applied together.

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For each controlling area, we assign individual cost elements or cost

element intervals, or origins or origin intervals, to the calculation bases.

For production overhead costs, we can di erentiate between xed and

variable costs for the calculation base. In this way, we can charge the xed
and variable portions of the activity price di erently for activity types.

For material overhead costs, we can di erentiate the materials used. If we

want to de ne di erent material overhead costs for particular raw
materials, we can de ne origin groups and de ne where own calculation
bases for particular origin groups. (Origin group need to be de ned)

If we do not specify any origins for a cost element interval, the SAP System considers all

the origins in the relevant interval.

-Overhead rate here we can de ne Quantity or percent base overhead rate

Percent based Overhead rate T CODE KZZ2

Screenshot 3 Percent based overhead rate

Quantity based Overhead rate- T CODE KZM2

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Screenshot 4 Quantity based overhead rate.

-De ne Credit T CODE-KZE2

Cost allocation is part of the process of determining overhead rates. If this

leads to an object being debited with actual costs, another object in Cost
Accounting must be credited at the same time. This can be either a cost
center, order or a business process. This type of posting is recorded under
a secondary cost element of cost element category 41 (overhead rates) in
the SAP System.

When you de ne credits, you also specify which credit object is to be

credited under which cost element when overhead is to be applied to an
object in the actual.

You can also de ne what percentage of the overhead is to be allocated as

xed costs.

Screenshot 5 De ning credit (Cost center being credited in the example)

De ne Origin Groups T CODE OKZ1

Here you can create origin groups. These groups serve to subdivide the
material costs further. For controlling purposes, materials assigned to the
same cost element by automatic account determination can be separated
into origin groups. You enter the origin group in the costing view of the
material master record. Account determination assigns each material to a
G/L account and thus also to a primary cost element.

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Screenshot 6

Screenshot 7

If an origin group is entered in the costing view of the material master

record, the combination of origin group and cost element is updated in the
Controlling module.

If the Material origin indicator in the costing view of the material master
record is speci ed in addition to the origin group, the costs are updated
under the combination of material number and cost element in the
Controlling component.

You can do the following for each cost element and origin group:

Calculate overhead

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If you have maintained origin groups for the raw materials, you can de ne a
calculation base in the costing sheet for each group of raw materials. This
enables you to de ne di erent overhead surcharges for each group of raw
materials.

Screenshot 8

Make assignments to cost components

If you have maintained origin groups for the raw materials, you can create
separate cost components for important materials or groups of materials.

Screenshot 9

Calculate variances

Variances are calculated for each cost element. If you have maintained
origin groups for the materials used, the variances (such as input price
variances and input quantity variances) will be calculated not only for the
relevant material cost element but also for each origin group assigned to
that cost element.

Calculate work in process or results analysis data

For each cost element, you can specify whether the work in process for
those costs can be capitalized in the balance sheet. If you have maintained
origin groups for the materials used, you can specify this separately for
each origin group.

There is other way around to calculate and overhead cost which is not part
of this explaination

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Template allocation

Here, cost drivers are used to assign overhead to the reference object on a
source-related basis according to usage. The overhead is applied by means
of templates. Sender objects can be business processes or cost
centers/activity types.

Integration of business processes into the routing

Assigning process costs to routing operations is particularly suitable for

direct production processes. On the other hand, indirect processes should
be assigned using templates.

I will continue to edit this document for enhancing the quality of

document.In my Next document i will explain about Costing Run and
di erent other aspect of material setting that a ect costing.

Document Level- Beginners

Refer to previous Document here-

Basics of Standard Costing – Understanding the Cost Component

Structure-Part 3

Basics of SAP Standard Cost estimate- understanding costing variant-Part

2

Basics of SAP Standard Cost estimate- Understanding the ow of cost

settings-Part 1

Thank You

Hrusikesh Dalai

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