Automate Overhead Allocation through Purchasing Info Records

  • by Surajit Mohanty, Independent Consultant
  • July 20, 2012
SAPexperts Financials
Find out how to use standard SAP functionalities to allocate procurement-related overhead in both regular purchasing and subcontracting scenarios.
Key Concept

Using configuration settings, you can maintain the material overhead condition in purchase info records, use it in the standard cost-estimate process, and absorb the overhead during a goods receipt transaction. You can extend this method to allocate or absorb any other types of overheads, using the purchase info records in both regular, as well as subcontracting, purchase scenarios.

Businesses have long required the allocation of overhead costs to inbound logistic transactions, such as goods receipts for regular and subcontracting purchases. I show you how to use the purchase info records in product costing and inventory transactions to meet this requirement, without any enhancement or custom coding.

This functionality has a constraint in the subcontracting process, which means the conditions method does not link to product costing in a straightforward way to make the allocation work in actual postings. I explain how to configure a standard functionality to make the actual posting, as well as the cost estimate, work automatically. They then can absorb overhead cost during both regular and subcontracting of a goods receipt. I do not cover accounts payable invoicing, because some overheads, such as inbound freight, are invoiced against the purchase order, and other overhead costs can be tracked only in a cost center.

For most of the organization, actual or budget variance is then calculated through a cost center allocation process. I outline all the various configuration steps in the materials management (MM) and managerial accounting (CO) areas to achieve the objective of applying purchasing-related overhead in the case of regular and subcontracting purchases, both in logistics transactions and cost estimates. I also describe how to use purchase accounting to make the subcontracting overhead allocation work.

To develop a strategy for overhead allocation, you first need to make purchase info records drive the costing process for purchased (or subcontracting) materials. This can be a major change for some organizations. Usually, many organizations still use purchase info records for purchasing and for product costing; they may rely on loading planned prices (into costing view 2 in the material masters), so there are two sources of the same data that feeds a goods receipt logistics transaction.

Surajit Mohanty

Surajit Mohanty is an independent consultant with more than 14 years of SAP Financials consulting experience. In the past he has worked with various consulting firms such as IBM, Deloitte, and BearingPoint. He has vast experience in SAP CO (Controlling/Management Accounting) and FI areas spanning across nine end-to-end implementations. He has delivered solutions to a broad range of clients with various roles in the areas of product costing, material ledger average costing, transfer pricing, profitability analysis, revenue recognition, accounts receivable and payable, sales and use taxation, SAP General Ledger, and integration of the SAP General Ledger with materials management, production execution, and sales and distribution areas. He lives in Schaumburg, IL, with his wife and son.

 

 

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