SAP CO: Activity Based Costing (CO-OM-ABC) in S/4 HANA

SAP CO: Activity Based Costing (CO-OM-ABC) in S/4 HANA 2021 - Complete Process

Activity-Based Costing (ABC) in SAP provides a more accurate way of allocating overhead costs based on the actual activities that contribute to overhead. SAP CO-OM-ABC, especially in S/4 HANA, offers a streamlined way of handling this. Let’s break down your steps for understanding:

1. Activate Activity-Based Costing in Controlling Area: Here you activate the ABC functionality for a specific controlling area.

2. Maintain Business Process Standard Hierarchy: Set up a standardized hierarchy for business processes in your controlling area.

3. Cost element creation-43 category: Cost elements of category 43 are created to capture the expenses related to activity types.

4. Activity type-Labour -Master Data: This is the creation of labor activity types that you will use for ABC. Activity types represent the kind of work being performed.

5. Production Cost center -Master data: Cost centers are departments or units where costs accumulate.

6. Cost center with Activity type planning: Here you plan costs for activity types at specific cost centers.

7. Template Allocation-BP Environment Creation: This is the setup of the environment where business processes and their associated costs can be modeled.

8. Business Process creation -Master data: Define individual business processes.

9. Assign Template to all Business Process: Use templates to allocate costs consistently across business processes.

10. Business Process Group Creation: Group related business processes together.

11. Business Process Planning-Cost Element wise: Plan costs for each business process based on specific cost elements.

12. Business Process Planning-Activity type wise: Plan costs for business processes based on activity types.

13. Business Process & Activity type rate calculation: Calculate rates for business processes and activity types based on your planning.

14. Template Allocation-001 Environment: This step might be about initializing the standard allocation environment.

15. Material Master creation: Define the materials that will be used in your processes.

16. Bill of Material (BOM): This lists all the components/materials required for a product.

17. Work Center: This defines where work gets done (machines, labor groups, etc.)

18. Routing: This outlines the path that production takes, including steps and their associated costs.

19. Production Version: Defines the specific combination of BOM and routing for production.

20. Cost estimation & Release: Calculate estimated costs for production and release them for further processing.

21. Production Order creation: Create a specific order to produce a certain amount of material or product.

22. Activity Confirmation: Confirm the actual labor hours and machine hours consumed during production.

23. Template Allocation -Execution of Business Process: Apply the template allocations to the actual business processes.

24. FI Expenses to Direct Cost centers: Post financial accounting expenses directly to cost centers.

25. Creation of Distribution Cycle: Cost spilt to Business Process: Define how costs will be distributed or split across different business processes.

26. Execution of Distribution Cycle: Run the distribution cycle to allocate the costs.

27. Actual Business Process Rate Calculation: Calculate the actual rates based on incurred costs.

28. Revaluation of Production Order: Adjust the values of the production orders based on the actual rates.

29. Variance Calculation: Determine differences between planned and actual costs.

30. Settlement: Distribute any variances to appropriate accounts or objects.

In essence, SAP's ABC model in CO-OM-ABC lets you move from traditional cost center accounting, where costs are often allocated based on simplistic measures, to a more detailed view where costs are allocated based on actual business processes and activities. This gives management a more accurate view of product costs and can highlight areas for potential efficiency gains or cost reductions.