For Cost Center A, you do Cost Element Planning in KP06 (Ex. Rs.1,00,000).

In KP26, you do the planned

Activity Quantity (100 Hrs) - you will not update any price in KP26 screen usually . Now, to calculate the
Planned Activity Price, you use the transaction code KSPI. The gives the result of Planned Activity Price of
Rs.1000 per Hr.

Now, when you confirm the activities in Production Order in CO11n, the activity cost on the Production
Order is updated with the Planned Price of Rs.1000. So, by the end of the period, if total actual hrs
confirmed is 60 Hrs. ie., total cost loaded onto Production Orders is Rs.60,000.

Now, think of the actual cost that is booked to the Cost Center A (either through FI postings or
distribution / assessment from other cost centers). If the actual cost that was posted to that cost center
is only Rs.84,000. (Where as Planned Cost was Rs.1,00,000).

Now, when you run KSII transaction code for actual activity price calculation, the system will calculate
the actual activity price by 84,000 / 60 Hrs =1,333.33.

This is the way how the system clearly shows and takes care of Under-Absorption / Over-Absorption in
cost centers.

Then you run the transaction code MFN1 / CON2 to revaluate your Production Orders with the Actual
Price of Activity.