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Overhead Cost Order

Chapter 7

Overhead Cost Orders


Generally, you use orders in the R/3 System to collect costs and activities for a simple job. For more complex jobs, whose logistical processing is to be supported by the R/3 System, you should use projects. If this is planned for a later time, you can use so-called single-level projects as alternative account assignment objects for orders. You can get more detailed information on projects in the Project System (PS) brochure. In Controlling, internal orders have an important task. They are created for the action-oriented planning, collecting, and settling of costs and revenues for simple jobs. The following types of internal orders exist: u Accrual orders You may want to distribute over several periods in a costing-based approach those expenses that have been posted in one period in Financial Accounting. Accrual orders are used to monitor such a period-related accrual calculation for cost accounting. An example of this could be a holiday bonus, where cost centers are debited across periods and an accrual order is credited (see Chapter 4). u Capital investment orders Capital investment orders are used to monitor investment costs that can be capitalized. These investment costs can then be settled in the fixed assets. u Orders with revenues You can use orders with revenues to perform tasks such as:
r Monitoring activities for partners outside of the business organization r Monitoring organizational activities that do not affect the core business of

Orders in the R/3 System

Internal Orders

the organization u Overhead cost orders Overhead cost orders are used to monitor overhead costs independently of the cost center structure and process view.

Overhead Cost Orders


Overhead cost orders collect overhead costs that occur in planned or actual values. Additionally, commitments are reported. Overhead cost orders can fulfil exclusively statistical purposes or they can be debited in relation to costs. You can settle overhead cost orders that are debited with costs to different receivers using freely definable costing sheets, according to specified overhead keys. Overhead cost orders allow you to analyze costs independently of the cost center structure and processes of the business organization. To support business decisions, this analysis can occur based on time-related criteria, quantities, or values. You can use overhead cost orders to monitor time-restricted jobs for a business organization or for the long-term monitoring of parts of the overhead costs. You can collect and evaluate all costs, such as those arising from participation at a trade fair, across cost elements on a time-restricted overhead cost order.

Objectives of Overhead Cost Orders

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Overhead Cost Order

You could use overhead cost orders for long-term monitoring, for example, to collect the costs of minor repairs for a specified production machine and to distribute them according to their origin. You use the Overhead Orders (CO-OM-PA) component to process overhead cost orders in the SAP R/3 System. Together with Cost Center Accounting (CO-OMCCA) you can perform comprehensive overhead controlling. Figure 7-1 illustrates the integration of two cost centers from the cost center hierarchy. Within Cost Center Accounting, the cost centers exchange activities through the activity network. Additionally, cost center A posts a share of its costs to an overhead cost order, which collects across cost centers all costs for a particular job. The order settles the collected costs to cost center B and other cost centers (at the latest) after the job has been closed.

Fig. 7-1: Interaction Between Orders and Cost Centers in Overhead Controlling

Characteristics of Overhead Cost Orders


Order Type
According to the main emphasis of their tasks, overhead cost orders are split into order types. For some orders, the focal point of the analysis is the up-to-date tracking of the costs incurred. For other orders, this focal point could be the precise monitoring of open purchase order items, the detailed settlement of individual cost items, or the continual monitoring of all transaction-based allocations.

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Overhead Cost Order

One of the functions of order types is to determine attributes for orders: u The order layout determines how the order master data is displayed on the screen. u You can specify which master data fields are to be considered when printing the order. u The integrated planning of orders with cost center planning allows you to update allocations directly on the cost centers. u Commitments management can be activated. u You can specify whether revenue postings are permitted. u For evaluation purposes, orders can be classified according to specified characteristics. u You can use the settlement profile to determine to which Target objects orders can be settled. u Deadlines can be defined for archiving orders.

Life Cycle of Overhead Cost Orders


A job passes through various stages during the planning and execution phases. In accordance with these stages you can use status management in the R/3 System to control which actions and activities (such as the planning of primary costs, calculation of overhead, and so on) can be carried out with an order and when this can take place. In the course of its life cycle, an order passes through various system statuses. The freely definable user status allows you to effectively administrate and monitor the life cycle of an order. The most important sections of an order life cycle are defined with the following fixed preset statuses: u Created u Released u Technically completed u Closed You can set which statuses are defined for each order type. You can assign individual business transactions, such as the planning of primary or secondary costs, in any combination to specified statuses. This means, for example, that you can exclude changes to cost planning fromorders that have already been closed.

Status Management

Statistical Overhead Cost Orders


It can be beneficial to collect all the costs for a business area in one cost center, but to split the costs more precisely (for reporting purposes). For example, you can post undifferentiated vehicle fleet costs to one cost center and at the same time carry them on statistical orders, which display the costs per vehicle (see Figure 72). In this way, the amount appears under the original cost element both on the cost center (affecting costs) as well as on the order (statistical). You can also display revenues on statistical orders.

Statistical Overhead Orders

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Overhead Cost Order

Fig. 7-2: Example - Statistical Overhead Cost Orders for Vehicle Costs

Commitments Management
Purchase orders or purchase requisitions lead to financial obligations with varying degrees of commitment. Such obligations are described as commitments. A commitment ties up funds that are later to become costs. Therefore, commitments must be taken into account during funds monitoring. Commitments management ensures that you can consider expected future costs in Controlling at an early stage. A commitment is always identified with the value, and if necessary, the quantity of the cost element, the fiscal year, and the period when the costs are expected to be incurred. The system records each commitment in the currency of the triggering business transaction, for example, in the purchase order currency. Additionally, a conversion takes place in the house and object currency.

Currencies

Commitments from Procurement Transactions


Purchase requisitions and purchase orders in the Purchasing contain information about expected costs. The R/3 System displays this information as a commitment on the account assignment object (such as an order). The due date, in this case, is the planned delivery date.

Commitments from Purchase Requisitions

Commitments from purchase requisitions are reduced automatically through assigned purchase orders and replaced with the corresponding purchase commitments. For partial purchase orders, the reduction occurs proportionally to the requested/ordered quantity.

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Overhead Cost Order

A commitment from a goods order is reduced through the corresponding goods receipts (=actual costs). For partial deliveries, the commitment is reduced in line with the quantity delivered. If an invoice is posted before the goods receipt, the commitment value is recalculated with the price from the invoice. Figure 7-3 shows how a purchase requisition in Materials Management is automatically identified as a commitment from purchase requisitions on an overhead cost order. When the purchasing department undertakes the corresponding goods order, this commitment is replaced with a purchase commitment. If the goods are delivered, the commitment is reduced by the corresponding actual costs or (for partial deliveries) partially reduced. After the invoice has been received, any price differences are posted. If the invoice is received before the goods, the purchase commitment is capitalized in accordance with the invoice (1a). This capitalized purchase commitment is reduced only after the goods receipt (1b).

Commitments from Goods Orders

Fig. 7-3: Integrated Commitment Processing

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Overhead Cost Order

Commitments from Activity Purchase Orders Procurement Costs

A commitment from the ordering of an external activity is normally reduced through the invoice receipt (= actual costs). For partial invoices, the commitment value is reduced by the invoice value. Along with the purchase value (goods/activity value), the procurement costs are also managed as purchase order commitments. They are displayed separately according to their origin, for example, freight, customs duty, packaging, and, if applicable, currency.

Commitments from Funds Reservation


You can also manually enter expected costs as funds reservations with the amount and due date for a cost center, an order, or a project. This makes sense especially when you do not have more detailed information and therefore have note yet determined subtasks. (An example is when it is not yet specified whether a necessary task is to be executed with internal or external resources). Entering a funds reservation produces a corresponding commitment value on the account assignment object (for example, on the order).

Commitment Reduction and Assignment

The reduction occurs manually by selecting the reservation document in a list or by directly entering the reduction amount (partial reduction). During the reduction of the funds reservation you can enter an assignment in the system for the triggering business transaction (such as an order or a purchase order). This assignment is used later for the audit trail.

Actual Costs of Overhead Cost Orders


As described already in Chapter 4, all cost-accounting relevant business transactions can be transferred from reference systems. This includes transactions such as: u Postings in Financial Accounting u Goods movements in Materials Management u Internal activity allocations and overhead costing in Cost Accounting. To be able to post actual costs to an order, the order status and the order type must permit the required business transaction. An order can carry statistical key figures for additional information purposes. Internal activity allocations and overhead costing are described in more detail in the following sections.

Internal Activity Allocation


To carry out jobs, activities can be claimed from cost centers1 . Internal activity allocation measures and records these activity quantities. It also credits the performing cost center and debits the receiving order. Internal activity allocation can take place directly, as already described, or on the basis of indirectly determined activity quantities. The advantages of internal activity allocation are detailed in Chapter 6.

Orders themselves cannot produce any activities as no resources are assigned to them.

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Overhead Cost Order

Periodic Allocations
If no other activity allocation is carried out, you can allocate costs using simple methods. To achieve this, you can use the functions for periodic allocations, which allow you to allocate costs easily between cost centers and orders. The definition of sender and receiver relationships occurs just as in cost center accounting.

Overhead Costing
You can also allocate overhead costs using overhead rates. Overhead costing can take place in the Overhead Orders component for each order using freely definable costing sheets. You can calculate overhead on planned and actual costs as well as on commitments. For the purposes of overhead calculation, you can assign a costing sheet to each order. The costing sheet determines: u The calculation base contains the cost elements on which overhead is to be calculated. Origin groups can be used to further differentiate within the cost elements. u There are percentage- and quantity- based overhead rates. After overhead calculation, the system displays the amount of overhead u The credit entry determines under which cost element the overhead is allocated, and which controlling object is to be credited. For each cost element or origin group to which you want to apply overhead, you must enter the required overhead and credit keys. You can simulate the overhead costing before final execution. The actual allocation of the overhead determined triggers a credit to the affected cost centers or orders and a debit to the orders receiving the overhead. This is recorded in a document.

Settlement of Overhead Cost Orders


During the settlement of an overhead cost order, you can control which cost elements can be settled on which target objects under which settlement cost element. You can settle orders periodically or after a job is completed. You can settle orders both within internal accounting and external accounting. Settlement of orders within internal accounting can occur in: u Cost centers u Orders u Projects u Processes u Profitability segments u Sales orders u Networks or network activities (within a project) u Cost objects The settlement of an overhead cost order is also possible on controlling account assignment objects across company codes, business areas, and function areas. Settle-

Internal Target Account Assignment

External Target Account Assignment

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Overhead Cost Order

ments are then used to pass on the costs to stock- or results affecting target objects. The reconciliation ledger ensures that the affected Financial Accounting ledgers are reconciled with one another. Controlling therefore triggers the necessary FI postings. Settlement to external accounting can occur to: u Asset Management (FI-AA) u A G/L account in Financial Accounting (FI)

Definition of a Settlement Rule


Settlement Rules
You can control how and to where specified costs are to be settled. To achieve this, you can assign a settlement rule to each order. The settlement rule defines: u The target account assignment that determines which objects are to be settled to. For example, the system allows the Overhead Orders component to settle the part of an order that must be activated to a fixed asset and the parts that cannot be activated to cost centers. u The debiting of all receivers as percentage rate, absolute amount, or equivalence number. If you use equivalence numbers, you settle to the receivers in line with the equivalence numbers entered for each receiver. u The cost element or elements under which the order is credited. Settlement can occur by cost element or using your own settlement cost elements.

Processing a Settlement
The timing of the order settlement depends on the practical requirements of the order or the order type. Usually, orders to be settled to cost centers are settled periodically. However, orders can also be settled after final completion.

Simulating Settlement

Before the actual settlement, settlement can be simulated to check the completeness and accuracy of the orders to be settled. The settled documents and the current order balance are displayed in the information system for orders. This allows continuous control of the open order balance.

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