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Former Member

Costing of In-house produced Utilities like Power, Steam, DEMN Water.

Hi gurus,

My client is a chemical manufacturing company. As the production of chemical requires huge quantities of utilities (Power, Steam, Gas etc.), the client has his own production facilities for the production of utilities. For example:

1. The client has its own power plant for electricity generation.

2. A plant for the production of Steam (Steam Generation Plant). For production of steam natural air, water and power are considered as raw materials.

3. Another plant for the production of DEMIN (De-mineralized) water. Raw water and some chemicals are considered as raw materials for the production of DEMIN Water.

The production cost of these utilities is ultimately charged to the finished goods (chemicals). Now for the costing of these utilities we have two options:

*Option No. 1. *To treat these utilities as Activity Types and allocate their cost to the Process order of Chemicals (FERT).

This option eliminates the process of QM (Quality Management), as QM users can not perform their tests on Activity Types.

Option No. 2. To treat these utilities as Semi-Finished Material and create process order for each one.

In this case huge number of accounting documents will be generated as a result of goods issuance and goods receipts in PP / MM. Gas, Power, steam will become Materials (Stock items) and their inventory value may arise in the balance sheet, which is not logical.

In light of above scenario you are requested to offer your comments for best possible solution, As should we treat these utilities as Activity Types or Materials?

Regards,

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3 Answers

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    Former Member
    Jul 10, 2009 at 10:50 AM

    Hi,

    We have come across the same scenario in one of our projects. We have treated them as activities only.

    for Ex: Power in house production - One cost center is created for Power. Salaries, mat, others overheads have been posted to the cost center from FI. (material issues from MM to cost center Power) In the month end Total Power costs allocated to other utilities cost centers, admin, Production cost centers on the basis of Power consumption Units. In production cost centers we have assigned power activity type , and calculated power activity prices(Total cost of power / total productin units). Same as for Boiler also.

    Regards,

    Rajeswari

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    Former Member
    Jul 10, 2009 at 07:28 AM

    Hi,

    If Quality aspects are not predominant, you can use them as activity types. This will be the simplest process. If other way, then u have to have them as sfgs and include them in the Main materail bom components. Plz check with u r mm and pp guys about the possibility of creating power and other items as pipeline stock without requirement of stock maintainance which will solve ur problem.

    Regards

    Sudhakar Reddy

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    • Former Member

      Thanks Reddy,

      MM or PP consultants don't have any issue with treating the utilities as Materials, but from the financial point of view, I don't think it's the right solution. As the utilities (Power, Gas, Instrument Air etc.) don't carry inventories / stock at any point of time. These are produced and consumed immediately. Secondly at which price control they'll be maintained, MAP or Standard? In both cases the process orders of these materials will carry huge amount of variances. So the reflection of Stock amount in Balance Sheet, or the consumption in COS will lead to inappropriate financial results. How can we avoid these values? like in Activity Type allocation NO financial document is created. It's only a CO transaction.

      Can any one share his / her experience of similar kind of scenarios? As many companies around the globe have their own utilities production system, I am sure there may be many SAP implementations, which have same kind of scenario. what they treat these utilities, Materials or Activity Type.

      I'll be grateful if people / experts may share their experience.

      Regards,

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    Former Member
    Jul 10, 2009 at 08:24 AM

    Hi Dear,

    As per as my experiaence better to go as a Activities then only u will get smoth results on Process Order. If it is daily basis or monthsly basis u can able to calculate these activities.

    Regards

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