Welcome to the tutorial about SAP Work Center and Cost Center Integration. This tutorial is part of the SAP PP training course. You will learn about the relationship between work centers and cost centers in SAP, how to use activity types and define activity prices. Also, we will discuss a complete example of calculating activity cost in product costing.
What is a Cost center in SAP?
SAP cost center can be created for each organization function or department to record the cost incurred which contribute to a company’s profitability indirectly. Here some of the cost center categories generally used in SAP
- Service Cost center
In SAP production planning, each work center will be assigned to one cost center. For every activity type defined in a work center, an activity rate will be maintained in the cost center. SAP system uses this information to calculate activity cost for an operation.
We can assign a work center to only one cost center. But we can assign several work centers to one cost center.
Consider a steel making industry where steel billets are manufactured from DRI steels, steel scrap, etc. A furnace operates on 120 T per day and the following activities are performed in furnace to make the molten steel metal:
- Furnace operation (charging, melting, slagging and tapping)
- Labor hours
In this case, we can define two activity types in the work center EAF01 (electric arc furnace) and assign them to work center EAF01. The work center is assigned to the cost center F1000.
Activity rate for each activity (furnace hours and labor hours) are maintained against the cost center. Planned furnace hours and labor hours are maintained for the base quantity of 120 T (furnace capacity) in a routing. Formula for each activity (furnace hours and labor hours) are maintained in a work center.
When a production order is created in the SAP system, it uses the above information to calculate the activity cost.
Activity Types in Costing
Activities produced in a cost center are created as activity types. In the above example, two activities are produced in a furnace which are machine hours and labor hours. We can create these two activity types and assign them to the cost center of furnace. The same two activity types can also be assigned to cost centers of ladle and casting.
Activity Price of Activity type
Activity price will be defined for each activity type and cost center manually. In this example, even though we have similar activity types for all three cost centers, activity price will be different for each cost center. The activity price is defined in the transaction KP26.
Activity Cost in Product Costing
In general, product cost in SAP comprise of three primary components:
- Raw material or component cost
- Activity cost
- Overhead cost
Here, activity cost is calculated based on work centers, cost centers and activity prices. The SAP system calculates the activity cost by multiplying the activity price to quantity of operations.
Example of Activity Cost in Product Costing
Let’s consider an example. A work center furnace produces molten metal for casting formation. This work center has the following activities:
The work center is assigned to the cost center (4230) and each activity (setup, machine and labor) is assigned with an activity type (1422, 1420 and 1421).
Now, let’s look at activity price calculation. Activity prices are maintained for the cost center (4230) and activity types (1422, 1420 and 1421) in the transaction KP26 by a controlling person.
Next, let’s check routing details of the material. It will specify how many units of each activity are required for manufacturing a base quantity of this material.
We perform a costing run for the material CAST01 in transaction CK11N to see how the SAP system calculates product cost for this material.
On the picture above, the highlighted area is the activity cost calculated by the system based on the information maintained in the work center (transaction CR01), activity price (transaction KP26) and routing (transaction CA01).
The calculation is performed according to the following formula:
Machine hour activity cost = Machine activity price / Unit * Quantity from Formula
Quantity = ((120/100) *10)/60 = 0.200 Hour
Activity Price = 2246.88/100 = 22.47
Activity Cost = 22.47 * 0.200 = 4.49 EUR
For other activity types calculation is performed in a similar manner.
Did you like this tutorial? Have any questions or comments? We would love to hear your feedback in the comments section below. It’d be a big help for us, and hopefully it’s something we can address for you in improvement of our free SAP PP tutorials.
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16 thoughts on “SAP Work Center and Cost Center Integration”
Very good and easy to understand tutorial, so far has been understood, I hope next lesson. Thank you
Nice,able to understand . Can your team guide in preparing for certification.
Hi, where is the “10” in quantity coming from? and how do you calculate the 2246.88 in Activity Price?
10 is costing lot size which the cost based on
2246.88 is average price of activity type 1420
I have a question. For the activity price calculation why you divided the average price of activity by 100?
Thanks for the comment ! The answer is 100 is base quantity from routing and to obtain unit price it was divided by 100
I am not receiving SAP PP training emails for i kindly request you to send me the mails. I have completed training till 1.5 – SAP Work Center and Cost Center Integration. Hope you will send me the rest and will help me in completing the course.
Sir,able to understand and easy to follow.
Thank you for sending PP notes. Please send the next lesson. Thank you
I’m not receiving the lessons from PP training anymore! I’ve completed the training till 1.5 lesson after that no more lessons received.
I am from FICO side, I just I spent more than 11 hours trying to find why in CK11N one work center was not costed.
Thanks to your tutorial, in less than 10 minutes I found that one data was missed in CA01, so I fix it and now the material is fully costed. Why I didn’t found it earlier?
Thank you so much!
Thanks for the Comment !
Well descriptive !!
But I have a query. Beginning of the blog there is a formula mentioned for the “Furnance activity cost”, is the same applied anywhere down in the calculation you’ve shown?
If I change the Work Centre Capacity Tab, Processing Formula from SAP006 to SAP009 (FLAT and not scaled with changes in quantity of parts run), will that affect the calculation of per unit costing ?
Good One…! Well Explained
We want to use Work Centers for planning simulation.
In KP26 you can assign a DIFFERENT rate to the SAME cost center activity type by using different planning versions.
However when you link the Cost Center to the Work Center it appears to always use the version zero rate. I want to do planning simulation using rates from version 000, 001, and ABC. Is there a way to point a work center to a different planning version rate.
Example: Cost Center Activity type Version Rate
test00 xyz 000 20.00
test01 xyz 001 24.00
test02 xyz ABC 25.00