What is Activity-Based Costing in SAP?

  • Activity Based Costing is more accurate method of costing
  • Focus on indirect cost (Overheads)
  • Traces rather than allocate each expenses category to particular cost object
  • Makes “Indirect expenses” “direct”

Steps in Activity-Based Costing Process in SAP

  • Identify the activities
  • Determine cost for each activities
  • Determine cost drivers
  • Collect activity data
  • Calculate product cost

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  • SAP provides standard solutions for Activity-Based Costing
  • Activities in ABC is same as business process in SAP, within the business process we have the process of cost allocation i.e. cost driver,
  • Cost for each activities can be collected in business process just like a cost object
  • Quantities for each activities i.e. quantity for cost driver is the basis for rate calculation of activities,
  • Depending on the quantity required for manufacturing of a product the product cost will be computed,
  • The booking of Indirect cost i.e. overhead or cost other than direct in nature would be routed through Business Processes
  • There are two options available for collection of indirect cost on Business Processes:
    • Booking in cost centre and then allocation to Business processes
    • Direct booking on the business processes
  • Allocation of indirect cost from business process to product takes place for following purpose
    • Standard cost estimation at product level
    • Actual cost booking through template allocation process
  • The business process planning is same as cost centre planning, the only difference between them is a cost centre may have multiple activity types and the business process can have only one cost driver for allocation of cost,
  • At cost element level the planning of input cost and planning of output quantity can be entered in business process based on that plan price of cost driver can be calculated,
  • At product level we need to plan and fix the activity quantity for each business process, based on that system will compute the standard cost and also post the actual allocation,
  • In business process the concept of revaluation of actual price at production order level is same as we know for cost centres.

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