Work Center Formula and Overhead Calculation _ SAP Blogs

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Work Center Formula and Overhead Calculation | SAP Blogs

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Work Center Formula and Overhead Calculation May 12, 2015

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Jeewana Premarathne more by this author

MAN MA N Production Production Planning (PP) (PP) Manufacturing Manu facturing | cost | formula | production order | work center

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This post will mainly describe how activity based overhead calculation is done in SAP from PP point of view very briefly briefly.. This is a very broad area in SAP. SAP. https://blogs.sap.com/2015/05/12/work-center-formula-and-overhead-calculation/

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To produce some product you need resources such as Labor, Electricity and Machine etc. Each of this has a cost which should be taken into product cost calculation. This is called Activity Based Costing (ABC). Let’s take a simple example of knitting a fabric. For this we are using a knitting machine. Let’s assume the only cost relevant here is machine cost other than RM cost. Therefore machine overhead should be absorbed into the product cost. Firstly knitting machine should be created in SAP as a work center. In the work center we have to maintain some important data relevant to activity based costing. Knowledge in some concepts used in SAP would be important when creating work center master data.

Defining formulas and Standard Value Key

You will find below three configuration under SPRO –>Production ->Shop Floor Control -> Operations-> Scheduling

Define Formula Parameters

Formula parameters are needed to define formula. SAP has a standard list of parameters. I. I.e.: SAP_08 – This parameter refers to the base quantity of routing.

https://blogs.sap.com/2015/05/12/work-center-formula-and-overhead-calculation/

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You may note the field name BMSCH which refers to the base quantity. Similarly SAP_09 has the reference to operation quantity. Note the origin of the parameter ‘General Operation Value’. Formula

In this menu option, you can set up formula definitions which can be used in the following areas: Capacity planning Scheduling Costing In this post we are considering costing formulas. Here you can create a formula using parameters defined above. We can then link the formula parameters mathematically by using, for example, the following operators: SAP has a standard set of formulas. We can create new formulas also. IE: Standard formula for Production Set Up is SAP002. It has below calculation.


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This means, SAP_02- Machine Time SAP_09- Operation Quantity SAP_08- Base Quantity SAP_11- Number of Splits (this applies when an operation is carried out in different machines at the same time) Read More. Standard Value Key

What is the use of Standard Value Key? We can say below resources are nee ded to produce 1000M of a fabric F. Labor – 2Hours Machine- 10 hours We have to maintaining above standard values in routings. 1000M is the base quantity of routing. Only after you set the relevant SVK in work center you will be able to maintain standard values for those activities in routing. Standard values for the activities are maintained in routing as below.

Standard Value key consists the cost parameters (i.e.: labor, machine etc.) relevant to the work center. IE: SAP1 is a standard value key defined in standard SAP. Below parameters are assigned to this standard value key (SVK). SAP_01 -Setup SAP_02 – Machine SAP_03 – production time


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SVK is assigned to work center in Basic Data tab. Then we can maintain standard values for above parameters (i.e.: Set up Time) in routing. Work Center Formula: In costing tab we can maintain a work center formula for each activity. For example if we are maintaining formula SAP002 for the activity Machine Time and routing information as below. Activities Overview in Costing Tab

Example:

Activity types are created from FICO side. Cost for each activity is maintained in KP26 transaction. Routing Data

Base Quantity -1000M Machine Time – 2H Let’s assume for MACHINE activity USD30 /H is the standard cost. How Target Cost calculation done for a production order of 5000M

SAP02 * SAP09 / SAP08 / SAP11 Parameter Values SAP_02

Machine Time

2H

SAP_09

Operation Quantity

5000M

SAP_08

Base Quantity

1000M

SAP_11

Number of Splits

1

2H* 5000M/1000M/1= 10H 10 hours needed for do the production of 10000M. Cost:


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10H*30USD/H = USD300 This is how target cost is calculated for a production order. This may not be the actual cost. Actual cost is calculated using same formula using actual values submitted by user in production order confirmation.

One can analyze the target cost vs. actual cost in the production order cost analysis. Actual cost is based on the values entered by the user during production order confirmation. Production Order Display > Go to > Cost Analysis Variance analysis generally done by the management accountant of the company. See below example.


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8 Comments

Sharvari Joshi May 13, 2015 at 9:27 am

Hello Jeewana, Nice document and easy well explanation. You have explained one of the important part of product costing in well manner. Regards, Sharvari.

Jeewana Premarathne

Post author

May 13, 2015 at 9:46 am

Thanks Joshi.


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AMIT DAS May 13, 2015 at 4:44 pm

Nice document.

pravin patel August 6, 2015 at 4:09 pm

Hi Jeevan, I’m looking to understand the relationship between the Setup hours, Machine hours and Labor hours. How do i evaluate each one of this to input in my master recipe under STD value 1, STD value 2, STD value 3 respectively? I think I understand the Machine time, which is once a mixture is turned on to mix solution for 2 hours. i would call this as 2H machine time. Please correct me if I’m wrong. I need more understanding around what value’s are critical to input in Master Recipe. Thank You in advance, hope to hear from you soon.

Abu Nilu Mostofa Jamal July 19, 2016 at 5:47 am

nice document to understand thnx

Sumit Sinha July 22, 2016 at 7:23 am

nice document.


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Mr Ahmed August 11, 2016 at 6:22 am

Dear Jeewana, Awesome Explanation. Keep it up Regards Qazi Raheel Ahmed

B.Rajasekhara Reddy August 15, 2016 at 2:37 pm

Dear Jeewana Its Nice Document. Thanks, for sharing your Good Work Regards Raja Sekhara Reddy

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