ACTIVITY TYPES are used to indicate measurable production quantities for product costing. In other words, activity types are used to determine the quantity-based output of a cost center. The activity type classifies the activities that are to be performed within a company by one or several cost centers.
It is used in this case for controlling specific activities and can be for one or more cost centers. This enables you to measure the operating rate or the rate of capacity utilization of a cost center. They are also used for cost collection of activities on non-production orders like service orders, maintenance orders, and projects.
1. The activity type classifies the specific activities that are provided by one or more cost centers within a company.
2. If a cost center provides activities for other cost centers, orders, processes, and so on, then this means that its resources are being used. The costs of these resources need to be allocated to the receivers of the activity. Activity types serve as tracing factors for this cost allocation.
3. You can restrict the use of the activity type to certain types of cost centers by entering the allowed cost center categories in the activity type master record. You can enter up to eight allowed cost center categories, or leave the assignments “unrestricted” by entering an asterisk (*).
4. The activity type category is used to determine whether, and how and activity type is entered and allocated. For example, you can allow some activities to be allocated directly, but specify for others that they are either not allocated, or allocated indirectly only.
Typical examples of activity types for cost centers are machine hours, administrator hours, CPU minutes or units produced.
Activity types can be created for direct labor and indirect labor to capture the hours of each type of labor in production. A separate rate can be set up by the cost center for direct labor and indirect labor to indicate different costs to the product.
Activity quantities and costs are planned at production cost centers to establish rates for production activities. Activities are assigned on routings with plan activity quantities. Actual activity quantities are indicated during production confirmation. For example, we can plan five hours of machine time as an activity for producing a material. In actual production, production line personnel can enter the actual machine hours it took to produce the given quantity of material.
The plan activity quantities of production and service cost centers must be reconciled with the master production schedule from logistics. This determines the required plan activity quantity, as well as the plan capacity.
Activity types are created in transaction KL01 (see Figure 2.8).
Figure 2.8: Display activity type
The activity unit indicates the unit of measure for the activity. Typical units are time based (hours, minutes, seconds) or specific to a type of utility (gallons, liters, watts). This unit of measure does not need to be the same unit of measure on work centers and routings. It should be a unit that provides an accurate rate for cost estimates.
Cost center categories can be indicated to restrict the cost centers where this activity is performed. For example, you could enter “F” for production to restrict any other type of cost center from using a production-related activity.
Activity type categories determine how an activity type is posted and allocated. There are four activity type categories:
1: Manual entry, manual allocation
2: Indirect determination, indirect allocation
3: Manual entry, indirect allocation
4: Manual entry, no allocation
Category 1 is the most commonly used activity type category. This requires you to plan activity quantities in transaction KP26, discussed in further sections. This assumes you will allocate actual activity quantities using business transactions like manufacturing order confirmations of activities.
In contrast, activity category 2 requires you to perform indirect activity allocation using transaction KSCB which allocates activity quantities and dollars based on defined logic. This category is used when activity quantities cannot be calculated easily. An automatic indirect activity allocation is performed based on a defined sender/receiver relationship, tracing factors, or fixed quantities. This process is similar to setting up cost center assessments or distributions.
An example of an indirect activity is utility consumption that is an overhead cost and not measured by each work center. If utility consumption is easily measured by work center, it can be a direct activity. If utility costs are minimal in the total material cost, they can be treated as overhead costs instead of as a separate activity.
Activity category 3 is similar to category 2, but requires you to enter activity quantities manually instead of the system deriving the quantities.
Activity category 4 requires you to manually plan activity quantities, but you cannot allocate activity quantities to receive cost objects.
You can indicate an allocation cost element, which is a secondary cost element that will post debits and credits related to the activity. The activity quantity, multiplied by the activity rate, will determine the financial posting of cost to a cost center or order. You should set up a unique secondary cost element for each activity type and give it a description that matches the activity.
The price indicator indicates how the system determines the planned price of an activity in a cost center. There are three options for price indicators:
1: Plan price, automatically based on activity
2: Plan price, automatically based on capacity
3: Determined manually
Typically, you use price indicator 1 which will calculate the price based on the cost center planned activity quantity in transaction KP26. You can also enter capacity in transaction KP26 and use indicator 2 to determine the plan price based on capacity. This often leads to under-absorption since capacity may be greater than planned activity quantity. Price indicator 3 requires manual plan activity prices in transaction KP26.
Get Updates on Tech posts, Interview & Certification questions and training schedules