overhead calculation in production order activity

[Former Member]

hi,

during month end, for production order or process order, i need to carry out the activity in this order - overhead calculation -> wip -> variance -> settlement.

1) may i know why overhead must be the first step?

2) for plan OH, it is to affect the costing run to get the fnished goods price. may i know for actual OH kgi2/co43, what is the implication after run this actual OH?

thanks

[Former Member · Accepted solution]

Hi Banniya,

At the time of order creation you will get plan price based on plan qty and standard price. After issuing goods to order raw material price will be taken on that day prices aaccording to price control in material master. If you observe the actual column for activity cost before month end activities it will be based on plan price. After you run KSII -actual activity price calculation it will update with actual qty * actual price.

Here the importance of actual OH calculation is it will be based on material and activity costs. E.g. if your OH cost is 2% on conversion cost (activity cost). Before month end activity total activity cost is INR1000. Here OH cost will be INR 20. At the time of month end: after KSII, your total activity cost is INR1200. In this case to update the OH% we run KGl2. So that it will update 2% on 1200.

After that you can carry out with WIP, Variance and settlement.

Regards

Srinivas salpala

[Former Member · Accepted solution]

hi,

thanks but you gave wrong information. it should be $1020 and not $1200.

but you not advise me of the purpose of OH calculation in terms of process or production order.

1) may i know why overhead must be the first step?

2) as it is first step, how can it affect the wip; variance; settlement.

3) for plan OH, it is to affect the costing run to get the fnished goods price. may i know for actual OH kgi2/co43, what is the implication after run this actual OH?

thanks

[Former Member · Accepted solution]

Hi,

You have not understand it clearly. Pls find the below example:

	Plan	Actual
Goods Issue	10000	10000
Confirmations
Running Hours	1000	1200
Machinery	2000	2500
OH (2% on confirmations)	60	74

In the above scenario: before running month end activities: your OH% will be 60. As part of month end activities it will be based on the revaluation of actual activities price i.e. (1200+2500=3700). So your actual OH calculation will be changed from $60 to $74.

Your doubt:

As it is first step, how can it affect the wip; variance; settlement?

If you dont run KGI2, there will not be any change in your actual OH which is entirely a wrong practice. Also, it will impact on the WIP, Variance and settlement values:

At the time of variance calculation: it will consider actual cost - target cost. Here, if you dont run KGI2, your actual activities cost will be missed and will lead to wrong values in variance calculation.

Also, pls follow the below sequence for your CO month end activities(based on your requirement)

Sl.	Period End Activity	Tcode
1	Clearance COGI list	COGI
2	Marking Production Orders as TECO	CO02/COHV
3	MM period end	MMPV
4	FI Closing
5	Distribution Cycle	KSV5
6	Assessment Cycle	KSU5
8	Indirect Activity Allocation Cycle	KSC5
9	Calculate Actual Activity Price	KSII
10	Revaluation of production order	MFN1/CON2
11	Actual OH calculation	KGI2/CO43
12	Change Wip Cut-off Period	KKA0
13	WIP calculation	KKA0
14	Variance Calculation	KKS1/KKS2
15	Settlement	CO88/KO88

Regards

Srinivas Salpala

[Former Member · Accepted solution]

hi,

so what is the implication of OH in terms of production order?

may i know if it is used to calculate variance?

thanks

[Former Member · Accepted solution]

Hi,

As a practice you have to run Actual OH calculation. If not you will not get actual cost in the production order.

As I said if you dont run KGI2 it will definitely impact on values at the time of variance calculation.

Usage of OH calculation is to get actual cost you are incurring in a particular order.

If you do that all the WIP, Variance and Settlement values will get properly.

Regards

Srinivas Salpala

[Former Member · Accepted solution]

hi,

so meaning actual OH calculation is to get actual cost? i thought is to get variance. please clarify.

meaning i can get 1200 and 2500 only if OH calculation done? if not then will be 1000 and 2000?

thanks

[Former Member · Accepted solution]

Hi,

Yes, your actual OH will get only with KGI2 run in the month end activity.

Regards

Srinivas Salpala

[Former Member · Accepted solution]

hi,

i know actual OH is calculated via KGI2.

1 what i mean is 1200 and 2500 for both running hour and machinery :

meaning i can get 1200 and 2500 only if OH calculation done? if not then will be 1000 and 2000?

2 i thought actual OH is to get 74 overhead cost? why u said actual OH is to get actual cost of 1200 and 2500?

3 that is why i am asking if actual OH is used to affect the variance and NOT to calculate actual cost of 1200 / 2500.

.

thanks

[Former Member · Accepted solution]

Hi,

$1200 and $2500 will get after KSII run abduction based on these actual activity cost when you run KGI2 it wil give 74 as your actual OH cost.

Hope you understood.

Regards

Srinivas Salpala