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Basics of Standard Costing - Understanding

overhead cost flow-Part 4
This is in continuous of my other document of understanding Standard Costing and its flows.
Basics of Standard Costing - Understanding the Cost Component Structure-Part 3
Overhead costs are costs which can only indirectly be attributed to the product, such as electricity or general
storage costs. We can allocate these overhead costs in various ways: Here I have discussed about overhead
calculation through costing sheet. This is a beginner's guide to understand the costing Sheet.
Overhead application
In the conventional method, overhead is applied to the reference object as a percentage rate or a quantitybased rate. The overhead is applied by means of costing sheets. The very purpose of using a cost sheet is that
we want to apply indirect costs to the final cost of the product or process. Costs that cannot be assigned to the
product cost collector directly can be allocated by determining the overhead expenses and applying them to the
cost collector. Overhead costing is the means by which we allocate indirect costs to the appropriate objects.
The costing sheet links all the functions of overhead calculation. The direct costs to which overhead is applied
(calculation base),The conditions under which overhead is applied (dependency),Whether overhead is
allocated on a percentage basis or on a quantity basis, The amount of the overhead percentage, or the amount
of overhead for each unit of measure (overhead), The validity period for the overhead, Which object (cost
center, process, or order) is credited, and under which cost element in the case of actual postings (credit key)
Define Costing Sheet- T CODE KZS2

Generated by Jive on 2014-07-30+02:00
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Understanding overhead cost flow-Part 4 Screenshot 1. -Base -Overhead rate -Credit Defining Base. but also on the material itself. We can define material-specific calculation bases by entering the origin groups in the material master record and by specifying them in the calculation bases.Basics of Standard Costing . We can also make the amount of the overhead dependent on not only the direct costs. This process involves assigning individual cost elements or cost element intervals for each controlling area to a calculation base.AAAAA costing sheet has been created for Example Costing Sheet has 3 important components within it. Generated by Jive on 2014-07-30+02:00 2 .T CODE KZB2 The calculation base consists of a group of cost elements to which overhead is to be applied according to the same conditions. We can apply different overhead amounts to the fixed and variable portions of the same base cost element.

to the calculation bases. we can differentiate between fixed and variable costs for the calculation base. we can define origin groups and define where own calculation bases for particular origin groups. For each controlling area. we assign individual cost elements or cost element intervals. For production overhead costs. For material overhead costs. (Origin group need to be defined) If we do not specify any origins for a cost element interval. the SAP System considers all the origins in the relevant interval. or origins or origin intervals. If we want to define different material overhead costs for particular raw materials.Understanding overhead cost flow-Part 4 Screenshot 2 Example ZV01 base The calculation base determines to which cost elements overhead is applied together. we can charge the fixed and variable portions of the activity price differently for activity types. we can differentiate the materials used.Basics of Standard Costing . In this way. -Overhead rate here we can define Quantity or percent base overhead rate Percent based Overhead rate T CODE KZZ2 Generated by Jive on 2014-07-30+02:00 3 .

T CODE KZM2 Screenshot 4 Quantity based overhead rate. -Define Credit T CODE-KZE2 Generated by Jive on 2014-07-30+02:00 4 .Understanding overhead cost flow-Part 4 Screenshot 3 Percent based overhead rate Quantity based Overhead rate.Basics of Standard Costing .

You enter the origin group in the costing view of the material master record. When you define credits. This can be either a cost center. Screenshot 5 Defining credit (Cost center being credited in the example) Define Origin Groups T CODE OKZ1 Here you can create origin groups. These groups serve to subdivide the material costs further. you also specify which credit object is to be credited under which cost element when overhead is to be applied to an object in the actual. For controlling purposes. Generated by Jive on 2014-07-30+02:00 5 .Understanding overhead cost flow-Part 4 Cost allocation is part of the process of determining overhead rates. If this leads to an object being debited with actual costs. This type of posting is recorded under a secondary cost element of cost element category 41 (overhead rates) in the SAP System. materials assigned to the same cost element by automatic account determination can be separated into origin groups. another object in Cost Accounting must be credited at the same time. order or a business process. You can also define what percentage of the overhead is to be allocated as fixed costs.Basics of Standard Costing . Account determination assigns each material to a G/L account and thus also to a primary cost element.

Basics of Standard Costing .Understanding overhead cost flow-Part 4 Screenshot 6 Screenshot 7 Generated by Jive on 2014-07-30+02:00 6 .

Screenshot 8 Make assignments to cost components If you have maintained origin groups for the raw materials. You can do the following for each cost element and origin group: Calculate overhead If you have maintained origin groups for the raw materials. If the Material origin indicator in the costing view of the material master record is specified in addition to the origin group. the combination of origin group and cost element is updated in the Controlling module. you can create separate cost components for important materials or groups of materials. Screenshot 9 Generated by Jive on 2014-07-30+02:00 7 . the costs are updated under the combination of material number and cost element in the Controlling component.Basics of Standard Costing .Understanding overhead cost flow-Part 4 If an origin group is entered in the costing view of the material master record. you can define a calculation base in the costing sheet for each group of raw materials. This enables you to define different overhead surcharges for each group of raw materials.

indirect processes should be assigned using templates. Calculate work in process or results analysis data For each cost element. If you have maintained origin groups for the materials used. Integration of business processes into the routing Assigning process costs to routing operations is particularly suitable for direct production processes. you can specify this separately for each origin group. you can specify whether the work in process for those costs can be capitalized in the balance sheet. The overhead is applied by means of templates. cost drivers are used to assign overhead to the reference object on a source-related basis according to usage. the variances (such as input price variances and input quantity variances) will be calculated not only for the relevant material cost element but also for each origin group assigned to that cost element. Sender objects can be business processes or cost centers/activity types. If you have maintained origin groups for the materials used.understanding costing variant-Part 2 Basics of SAP Standard Cost estimate. I will continue to edit this document for enhancing the quality of document.Basics of Standard Costing .Understanding overhead cost flow-Part 4 Calculate variances Variances are calculated for each cost element. Document Level.In my Next document i will explain about Costing Run and different other aspect of material setting that affect costing. On the other hand.Beginners Refer to previous Document hereBasics of Standard Costing . There is other way around to calculate and overhead cost which is not part of this explaination Template allocation Here.Understanding the Cost Component Structure-Part 3 Basics of SAP Standard Cost estimate.Understanding the flow of cost settings-Part 1 Thank You Hrusikesh Dalai Generated by Jive on 2014-07-30+02:00 8 .