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Issue of under absorption and over absorption

Dear All,

Audit is going on in our client and auditor found that there is and over absorption of cost in cost center, which mean we are valuating our product at higher price and thus showing less profit in system.

They are referring the cost center report S_ALR_87013611 - Cost Centers: Actual/Plan/Variance.

Example

Labour cost in primary cost element against cost center 1210 is Rs 5000

Power cost in primary cost element against cost center 1210 is Rs 25000

And activity cost corresponding to that cost element is

Labour 7000 Rs

Power 35000 Rs

So system is showing over absorption of 12000 (5000+25000-7000-35000)

So please suggest as how to correct this as auditor saying that absorption should be equal to Zero Always, and hence want to correct the price of material also.

Kindly suggest the solution for that.

Bittu

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  • Posted on Dec 06, 2011 at 09:11 AM

    To absorb total cost, on the cost center, execute below tcodes, in order.

    1) KSS2 - Actual Cost splitting

    2) KSII - Actual Price calculation

    3) MFN1 / CON2 - Order Revaluation at actual price.

    bu executing tcodes 1 & 2 above, system calculates Actual activity Rate ( i.e Total actual cost / Total actual activity hours = Actual activity Rate ), and updates in KP26.

    then, when you execute 3rd tcode, MFN1 or CON2 - system debit / credit the order with actual activity rate.

    with this, the balance on cost center becomes ZERO.

    then priceed with other period end transactions ( overhead / wip / variance / settlement)

    before executing these tcodes, please check whether necessary configuration is in place.

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    • Former Member Former Member

      Dear Ashok,

      Thanks for your efforts in explaining the process.

      I feel it is difficult to understand this process like this. so what i have done is that i created one scenerio in test server on plan activities and on actuals.

      In activity master i changed Act. price indicator to 5(Actual price, automatically based on activity) from 6. and plan in kp26 and ko06

      and maintain the splitting structure accordingly in OKES and when i execute KSS4 - Splitting and then KSPI - Price Calculation system is calculating values properly and updates that value in KP26 in Price(fixed).

      Things are working properly in case of Plan data.

      But when i do for actual i dont understand as how system calculating the values in KSS2 - Splitting and what system will do in KSII - Price Calculation.

      It would be help ful if you give some example so that i can understand the process.

      Thanks in advance for the coopration.

      Regards

      Bittu

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