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Wednesday, May 17, 2017

Real time overhead calculation

In this post I would like to talk about the enhancement that's delivered by SAP with regards to the overhead calculation process in SAP. Prior to S4Hana world, finance teams used to run the overhead calculation as a month end process for cost centers, internal orders or production orders. In the manufacturing world, this is a critical process before executing the work in progress, variance and settlement processes during month and year ends. Most finance team members would agree that anything that we take out from the list of items to be done during period end processing is always appreciated.

SAP has introduced the new real time overhead calculation process as part of S4Hana 1610 that calculates and posts the overhead absorption as and when the postings are made to the relevant cost objects. for example if we have a material overhead based on raw material consumption on a production order, as soon the raw materials are issues to the production order, the overhead will also be absorbed and posted to the order and the credit object.

In this post I'm not going to cover the configurations related to costing sheets since there is no changes to this set up because of the real time overhead calculation. Following steps are needed to activate the functionality.

Step 1

As the first step we need to activate the functionality per  controlling area. I'm showing the SPRO menu path under internal orders but the same configuration menu can be found under cost centers and production orders.

Internal Orders  à Actual Postings  à Overhead Rates à Maintain Real-Time Overhead Calculation  à Activate Realtime Overhead Calculation


Step 2

Next step is to activate the business transactions that trigger the real time overhead calculation.

Internal Orders  à Actual Postings  à Overhead Rates  à Maintain Real-Time Overhead Calculation  à Activate Overheads for Controlling Area and Business Transaction
There are five business transactions that can trigger this new functionality and we can selectively activate the required ones. For example if we want an overhead to be calculated based on raw material consumption on the production order then the business transaction COIN should be activated, if we want an overhead to be posted based on activity allocation on the production order or a cost center then business transaction RKL needs to be activated. Following are the available business transactions.
COIN  - CO Through-postings from FI
KAMV  - Manual cost allocation
RKL - Actual activity allocation
RKU1 - Repost costs
RKU2 - Repost revenue

With these settings, the new functionality is turned on for the controlling area. We need to note that the traditional month end process of calculating the overheads is still available if an organization wants to use it instead of real time calculation.
Lets see how this works using a costing sheet assigned to a cost center. An overhead costing sheet was created to absorb 5% overhead based on the expenses posted to the assigned cost center.

A journal entry is posted to the cost center against the expense account that was defined as the base for overhead calculation.

When the above document was posted, a separate document was posted for the calculated overhead amount.