Previously, we discovered how to automate activity type postings using the indirect activity allocation cycle and category 2 activity types. The example chosen was to use a statistical key figure which was posted to the receiver cost centers as the means for calculating the sender activity type quantities. This still required some manual postings for the statistical key figure, but the calculation of the activity type quantity and the actual postings were handled automatically when running the cycle.
Let’s take the example of a manufacturing company. This company uses the MACHHR activity type (category 1) to allocate overhead conversion costs from manufacturing cost centers to production orders. The quantity of activity to be posted is calculated using formulas assigned to work centers assigned in the manufacturing route. The activities are posted based on production confirmations performed using transaction CO11N. The postings of MACHHR are therefore “automatically” generated based on the production reporting being done in the plant.
In our example, MACHHR is planned in three cost centers (RCV2D, RCV2E, and RCV2F), and the price of the activity type in each of those cost centers is made up of both costs that are directly assigned in the manufacturing cost center as well as indirect support costs that must be allocated from other support cost centers. The indirect support costs are allocated in planning from cost center SND2, activity type CATEG2. The example below shows the planning for cost center RCV2D.
Using KP26, the quantity of planned MACHHR hours for the cost center is 8,000.
In KP06 using planning layout 1-101, the direct costs are planned using the MACHHR activity type.
KP06 layout 1-102 is used for the manual activity allocation plan.
The planned MACHHR activity and the CATEG2 activity allocated for the three cost centers are as follows:
RCV2D: MACHHR – 8,000 HR and 50,000 units of CATEG2 allocated
RCV2E: MACHHR – 16,000 HR and 30,000 units of CATEG2 allocated
RCV2F: MACHHR – 24,000 HR and 40,000 units of CATEG2 allocated
This means that 120,000 units of CATEG2 have been allocated from cost center SND2 to these three cost centers. This matches up with the activity plan for CATEG2 in cost center SND2, which would mean that the CATEG2 activity is fully absorbed.
Now that the above planning is complete, we will turn to the creation of the indirect activity allocation cycle using transaction KSC5. This cycle has one segment which is defined to indirectly calculate the actual sender activity based on MACHHR activity posted in the receiver cost centers.
The sender/receiver relationship is defined in the Senders/Receivers tab.
Next, the activity type being used in the inverse calculation is defined on the Receiving Tracing Factor page.
The calculation of the weighting factors being used is crucial for this allocation to work correctly. The factors will represent the quantity of CATEG2 activity for each HR of MACHHR activity for each cost center. This will make sure that the proper proportion of CATEG2 will be allocated to each cost center based on its own MACHHR postings. The way this is calculated is to take the allocated quantity of CATEG2 and divide that by the planned quantity of MACHHR for each cost center. That will generate the planned rate of consumption of CATEG2. For the three receiver cost centers, the values are
RCV2D: 50,000 CATEG2 / 8,000 MACHHR = 6.25
RCV2E: 30,000 CATEG2 / 16,000 MACHHR = 1.875
RCV2F: 40,000 CATEG2 / 24,000 MACHHR = 1.666667
These are the weighting factors that should be used in the cycle. Note that the weighting factors need to be whole numbers when creating the cycle. Because of that, you need to use a divisor (Factor per) that is large enough to avoid any rounding errors in the calculation. In this case 1,000,000 is used as the divisor.
During period 4 (April), 500 hours of MACHHR was posted in RCV2D, 700 in RCV2E, and 1,200 in RCV2F. The Cost Center Actual/Target/Variance report looks like this for each of the four cost centers (including SND2). SND2 shows no activity and no targets.
RCV2D shows targets for both direct costs and the allocated planned costs for CATEG2 using its assigned cost element of 943902. This shows expected behavior for posting the category 1 activity MACHHR.
We see similar results for RCV2E
Now we will run the indirect activity allocation cycle ACT1, selecting period 4 to process the postings.
The report that is generated shows that a total of 6,437.5 units of CATEG2 has been allocated to the three receiving cost centers.
Let’s look at the results in the Actual/Target/Variance report.
Remember that for cost centers RCV2D, RCV2E, and RCV2F, target costs were generated for cost element 943902. 943902 is the allocation cost element for activity type CATEG2. Based on running our cycle you can see that the actual postings match the targets in each of the three cost centers. This is because we engineered the weighting factors to reflect the planned allocation quantity of CATEG2 in each cost center. First look at RCV2D.
And finally, RCV2F.
After running the cycle, we have been able to push the planned costs from the support cost center to various other cost centers. You might be saying “So what? The variances from actual postings will still be showing in the SND2 cost center.” You would be right, except that when CATEG2 was defined, the Actual Price Indicator was set to 5. This means that the actual price can be recalculated using transaction KSII.
A posting is made in cost center SND1 of $56,123 for cost element 550000.
After running KSII, the activity type CATEG2 is revalued at actual cost posted.
The new rate is reflected in the receiver cost centers. RCV2F is shown as an example.
This allows the variance associated with CATEG2 in cost center SND2 to be reflected in the receiver cost centers.
As you can probably tell by now, there is a lot going on with indirect activity allocation cycles and category 2 activity types. This can be a powerful tool for automating activity type postings and there is a lot of flexibility in using this tool. We aren’t done with this type of activity posting yet, as there are two more methods of indirect activity allocation coming up using different activity type categories (3 and 5), and we will be revisiting this specific example later.