Issue of under absorption and over absorption

[Former Member]

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

[santosh_battini3]

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.

[Former Member]

Thanks a lot Santosh for your reply

from that many days i am working on your solution but not able to understand how system is calculating the Total Price it the time of KSII

I give an example kindly have a look at it.

In T-code S_ALR_87013611

Cost Elements Act. Costs

801000 Labour Charges 794,541.34

Debit 794,541.34

43001 SETUP 1.02-

43002 MACHINE 1,535,432.85-

43003 LABOUR 1,023,218.50-

43004 ELECTRICITY 235,888.97-

Credit 2,794,541.34-

Over/Underabsorption 2,000,000.00-

Activity Types Act. Acty

43001 Setup 93.7 HR

43002 Machine 10,236,219 S

43003 Labour 20,464,370 S

43004 power 62,076 KWH

In KP26

Activity Type Plan Capicity UOM Price (Fixed)

43001 200.0 20.0 HR 4.00

43002 400 30 S 10.00

43003 500 40 S 8.00

43004 600 50 KWH 8.00

Activity Type master is created as follows

ATyp categor 1

Price indicato 2

Act. price indicator 6

So when we do KSS2 System split Underabsorption value equally amount the cost element

Cost Center Act Type Control cost

1101100 43001 198,635.34

1101100 43002 198,635.34

1101100 43003 198,635.34

1101100 43004 198,635.32

794,541.34

But when we do KSII

OTy Object AUn Activity Quantity Total price Price (Fixed)

ATY 1101100/43001 HR 93.747 9,931.77 9,931.77

ATY 1101100/43002 S 10,236,219 6,621.18 6,621.18

ATY 1101100/43003 S 20,464,370 4,965.88 4,965.88

ATY 1101100/43004 KWH 62,076.029 3,972.71 3,972.71

25,491.54 25,491.54

How system is calculating total price value here kindly suggest

Regards

Bittu

[Former Member]

Hi, Just let me put my observations which may be useful for you to have necessary insignt to understood what you have did. Actual prices are being calculated on the basis of capacity quanitty. In this case, full actual cost shall not be absorbed since the capacity qty do not match the actual quantity. It seems that you have not got configured splitting structure though you are having multiple activity types in single cost center and this will wrong values in actual price calculation becos the system will divivide the whole actual amount by the sum of multiple activity quantities and all the activities shall have same actual prices. After seeing your response, I shall try to say something which may be useful to you. Trust this helps much! Cheers!  

Edited by: Ashok Singh on Dec 14, 2011 12:59 PM

[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