The variance analysis between the plan hours (costs) and actual hours (cost) for each activity type (such as labor, machine, or setup, for up to six activity types) at each work center is important for cost accounting and plant managers. This analysis helps users to control the performance and to manage the efficiency of a plant or department. In SAP ERP Central Component (SAP ECC), the solution to access this data quickly and efficiently is only available with SAP ERP on HANA. Currently, most organizations design custom ABAP reports to integrate the work center or activity type data with corresponding cost centers. Therefore, this solution helps organizations to limit complex ABAP development. Using multiple repetitive activity types for each type of overhead costs at the work center or cost center level helps information from work centers flow over to cost center accounting in a detail level. Therefore, the standard cost center accounting report can be used to provide the requisite information for each work center at the cost center level. I use two manufactured materials to demonstrate the benefit of using multiple repetitive activity types. I describe this solution using standard SAP functionalities (without using any customization) from the following SAP modules: Cost Center Accounting (CO-CCA), Product Cost Planning (CO-PC), and Production Planning for Process Industries (PP-PI). This solution is not limited to the PP-PI only; it can be used for any type of manufacturing industries.  This method is also a workaround for organizations that are still using SAP ERP without SAP HANA.

Having multiple activity types representing each work center at the cost center level can provide detailed variance analysis control at the cost centers. The main concept of this solution is to define a multiple set of activity types for each kind of activity (such as labor, machine, setup, or anything else that is required in the work centers for cost accounting) and map a unique set to each work center.

The activity types numbering schema is alphanumeric so that at most 999 cloned activity types can be defined for each activity. Examples for labor activity types are LB001, LB002, LB003, and LB020. These activity types are for demonstration purposes only. This total number of activity types for labor can go up to LB999 if required in an organization having 999 work centers per cost centers.

As these activity types are generic, the same set of activity types can be reused in another cost center. Therefore, each cost center number and activity type in combination represents one unique work center. This requires additional master data maintenance, but it is less complex than having many additional cost centers (which then creates complexity in the overall cost center overhead allocation process).

In the manufacturing product costing process, production cost centers are related to manufacturing plants and directly manage assigned work centers. From the SAP master data perspective, each work center is assigned to one cost center and can use a maximum of six activity types that have been planned in the same cost centers. Each activity type usually refers to one of the services the cost center provides. My proposal to solve the business requirement of getting work center level information at a cost center is to create multiple activity type master records for each of the six activity types that your organization is planning to use.

Overall Activity Type Structure

Figures 1 and 2 outline the overall structure that I propose for defining the activity types at each work center or cost center level. Figure 1 shows that one  cost center is assigned to two separate work centers, and each work center can have up to six different activity types attached to it. The cost center is assumed to be at a high level such as a plant or part of the plant. This type of  structure of the cost center usually has one or more work centers assigned to it. Figure 2 shows that one cost center is assigned to multiple work centers with the first work center using the same set of activity types as being used by cost center A from Figure 1. Both Figures 1 and 2 show the standard SAP cost center, work center, and activity type structures. The activity types have been named with an alphaneumeric convention (i.e., LBXXX, MCXXX, STXXX, ATXXX, BTXXX, and CTXXX). In my example you multiply the activity types so that for each kind of activity type, there are several individual activity types (as a thumb rule, the number can based on the maximum number of work centers per cost center). For example, if you need a labor activity type in your work center and if you have two work centers in total for that plant or cost center, then you need to create two separate labor activity types (such as LB001 and LB002 in Figure 1 or LB001 and LB020 in Figure 2). Figure 2 shows that work center XY is using labor activity type as LB020 to explain the concept that you can have many work centers. The number 20 is just an example count for the work center numbers for a cost centers (see the next section for further details on the number of work centers). Using this number 20 count, you can define up to 20 activity types of each kind, and then each one of the work centers ends up with a unique set of activity types. The activity types are named as generic types, such as LB001 or LB002, so that these can be reused in any combination of cost centers or work centers. The activity types for work center 3A on cost center B in Figure 2 is same as the set of activity types used in work center AA in Figure 1.

Master Data

To demonstrate the concepts of multiple activity types, I use a simple business scenario with one cost center and two work centers, with each work center using three activity types instead of the maximum limit of six activity types. I now discuss the various master data that I use in my example.

Activity Types

You need to create generic but detailed activity types to enable easier work center reporting. The activity types are named LB*** for labor, and the number of activity types can range from LB001 to LB999. You can define some generic ones further, such as AT, BT, and CT, based on your manufacturing process. Some organizations also have nonmanufacturing-related outcomes defined as activity types such as depreciation. My design works well for any kind of activity types you are required to use.  Therefore, for each activity type such as labor, machine (MC), or setup (ST), you can have up to 999 activity types in each cost center. The activity types are usually generic, and later during planning, an activity type is assigned to the cost center, which in turn is assigned to a unique work center. Thus, the same set of activity types can be reused across various cost centers and work centers linked to it. In my example I am limited to using 999 numbers of each activity types, but if you have more work centers per cost centers, then you can use a different nomenclature such as L00001 through L99999 for labor activity types, as an example. That nomenclature enables you to use up to 99999 activity types. I have never seen such a high number of work centers in an organization, but in theory, this is the limit. I also assume that all work centers share the same kinds of activties (i.e., of the six kinds), but if you have more than six, you can use this concept to multiply the number of activity types for each kind. The main objective is to have a unique activity type number for each work center attached to a cost center. To manage such high numbers of activity types, you can use the standard SAP legacy migration tool to create or update the activity type master data. The details pertaining to creating the activity types master data are out of the scope of this article. In my example, I use two sets of three activity types: labor (LB001and LB002), machine hours (MC001 and  MC002), and setup (ST001 and ST002).

Cost Centers

Usually cost centers represent the departments and are defined at a high level such as a manufacturing plant. In this article I use just one cost center, which in turn is assigned to two work centers in the same plant.

Work Centers (Resource)

The work center is designed at a lower level such as a machine or group of machines. I use two different work centers (TEST_001 and TEST_002) that are assigned to two different sets of activity types for labor, machine, and set-up services,  such as LB001and LB002 (labor), MC001 and MC002 (machine), and ST001 and ST002 (setup). Use transaction code CR03 and in the screen that appears (Figure 3) click the Costing tab. Note that the work center (resource) TEST_001 is assigned to LB001, MC001, and  ST001. TEST_002 (not shown) is assigned to LB002, MC002, and ST002. Although each work center can have six activities, I choose a smaller set of activity types to explain the concepts that I discuss. However, the same rule of having multiple activity types holds true even if you use six activity types in your work center.

Recipe (Routing)

There are two separate finished materials that are used. Each material has its own recipe (routing) and uses two separate work centers (TEST_001 and TEST_002). The recipe is the element of master data that ties the material, work center, cost center, and activity types together. I do not discuss the details of the recipe or routing because the setup of a recipe does not affect the design of activity types.

Material Master

I use two different materials (TEST_FIN01 and TEST_FIN02) having two separate routings as described above so that you can use the two work centers defined. Thus, the activity types attached to these work centers are used during planning and the actual transaction.

Planning

In my example the activity type prices per cost center and planned hours have been calculated outside the SAP system and have been entered using transaction code KP26, as shown in Figure 4. This figure shows that the planning is done at a detailed activity type level. Alhough this is shown in a simplified way, the activity type planning, activity type output prices, and planned hours can be automatically calculated by the standard SAP system using long-term planning. The details of this activity type rates calculation process is beyond the scope of this article. In Figure 4 you can see six activity types being planned under cost center 1103. There are two work centers in my example, and each uses three kinds of activity types (labor, machine hours, and setup); therefore, six activity types are used. Activity types such as **001 are for work center TEST_001 and **002 activity types are for work center TEST_002.

Transaction Analysis

Now I show you some major transaction steps and how the data is collected at the cost center level through these transactions. Toward the end of this section you see how the work center data is captured at a cost center level.

Standard Costs

Execute transaction code CK13N. The screen that appears (Figure 5) shows the standard cost for the two test materials. Note in the Resource column in the lower section of the screen shown in Figure 5 that material TEST_FIN01 uses activity types ST001, MC001, and LB001. Figure 6 shows the standard cost for the material TEST_FIN02. The bottom of this figure shows the three activity types (ST002, MC002, and LB002) under the Resource column.

Process Order Cost Analysis

Using the two materials TEST_FIN01 and TEST_FIN02, you create two separate process orders (not shown here), and the confirmation step has been completed that posts the hours for the activity types. After the confirmation step, execute transaction code COR3 for material TEST_FIN01. In the process order Display: Header screen follow menu path Goto > Costs > Analysis. The screen that appears (Figure 7) shows that the activity types LB001, MC001, and ST001 have been posted for the process order for the material TEST_FIN01 as shown under the Origin column. This Origin column captures the detailed activity types for each posting. These activity types are coming from the first work center (resource) TEST_001, which the material TEST_FIN01 uses. Again, use  transaction code COR3 to display the process order for material TEST_FIN02 (this screen is not shown here). In the first screen Process order Display: Header, follow menu path Goto > Costs > Analysis. The screen that appears (Figure 8) shows that the process order for material TEST_FIN02 has posted three activity types: LB002, MC002, and ST002. This screen shows the value for the process order after the confirmation posting. In particular, the Origin column can help to identify the detailed activity types for each process order. In my example, the Origin column  shows the second set of activity types that are coming from the second work center (resource) TEST_002.

Cost Center Reporting

Now you analyze a cost center report to tie all these ideas together. In a standard SAP cost center accounting report, use transaction code S_ALR_87013611 and enter cost center 1103. The screen that appears (Figure 9) displays the plan hours and actual hours that have been posted at cost center 1103. The plan and actual hours for work centers 01 and 02 are shown. The actual hours come from the confirmation transactions code from the process orders shown in Figures 7 and 8. The plan hours are a result of the planning function shown in Figure 4.

Note I had one client that implemented this multiple cost center concept. It had numerous cost centers to mimic the work center structure. However, eventually I found that although it solved the variance reporting requirement, it also created some new issues during budgeting and planning for cost centers and during plan or actual overhead allocation (assessments or distribution). Therefore, I prefer the multiple activity type-based solution.

Because the work center information for activity types is available at the cost center, you can use Report Painter to create more user-friendly reports. The same set of activity types can be reused in all cost centers. In that case the link between the work centers and cost centers and activity types can be tracked in this report painter report. For example, for cost center A, if the activity type for labor is LB001, then the work center is AA, whereas if the labor activity type in cost center A is LB002, then the work center is 2A. Also, as shown in the outline structure in Figure 2, if the activity type is LB020 and cost center is B, then you can assume the work center is XY. Therefore, you have essentially captured the detailed work center data at the cost center level. The development of a Report Painter report is not shown in this article.