Use the Primary Cost Component Split to Explain the Factors Behind Your Activity Rates

  • by Janet Salmon, Product Manager, SAP AG
  • May 15, 2003
You probably know that manufacturing costs are charged to production orders using an activity rate for the time worked. What you might not realize is that since Release 4.0, it has been possible to set up an alternative cost component split to view primary costs such as energy, wages, and depreciation. Without the split, these costs are subsumed in the activity rate and are simply grouped as manufacturing costs in product costing and Profitability Analysis (PA).

You probably know that manufacturing costs are charged to production orders using an activity rate for the time worked. What you might not realize is that since Release 4.0, it has been possible to set up a primary cost component split to view primary costs1 such as energy, wages, and depreciation. When people ask me why they can assign only six activity types to one operation in the routing within the Production Planning module, I often find myself pointing them to the primary cost component split.

This allows you to see the impact of any changes to your primary costs – increases in energy prices, higher wage costs, or changes in depreciation rules – on the product profitability. You can look not just at how many hours of manufacturing your product has consumed, but at a wide variety of factors that impact your product costs in order to determine whether your product will continue to be profitable.

Without the split, these costs are subsumed in the activity rate and are simply grouped as manufacturing costs in product costing and Profitability Analysis (PA).

This function is relatively unknown for two reasons. The first is that the documentation and Customizing steps are spread across three applications – Cost Center Accounting (CO-CCA), Product Cost Controlling (CO-PC), and Profitability Analysis (CO-PA). Therefore, it’s not easy to see what needs to be set up where.

Janet Salmon

Janet Salmon joined SAP in 1992. After six months of training on R/2, she began work as a translator, becoming a technical writer for the Product Costing area in 1993. As English speakers with a grasp of German costing methodologies were rare in the early 1990s, she began to hold classes and became a product manager for the Product Costing area in 1996, helping numerous international organizations set up Product Costing. More recently, she has worked on CO content for SAP NetWeaver Business Warehouse, Financial Analytics, and role-based portals. She is currently chief product owner for management accounting. She lives in Speyer, Germany, with her husband and two children.

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