The 123s of ABC in SAP

7INTEGRATED ACTIVITY-BASED COSTING WITH PRODUCT COSTING AND PRODUCTION CONTROL

Since the inception of Activity-Based Costing, it has been the goal of Corporate America to integrate, not interface, process information into the world of product costing, production monitoring, and control. The assignment of overhead costs via a process, a two-step method, raises the level of accuracy compared to the traditional method of attaching a percentage overhead surcharge to the direct material or labor costs. As stated in an SAP white paper, “along with greater transparency in overhead cost areas, cost origin-appropriate allocations of overhead in Product Costing is the central goal [for integrating] Activity-based Costing.”¹

The power of the SAP product costing (PC) submodule functionality is in its complete integration with the production modules. This functionality provides the ability to support different types of production methods, valuation across multiple periods beginning with plan on to simultaneous and then final costing, and a high level of accuracy for determining the product costs. The integration of Activity-Based Costing further enhances this functionality, removing ABC from the modeling role and integrating it into the operational day-to-day solution.

This chapter focuses on the integration of ABC to the product costing module; it does not provide a detailed explanation of all of the SAP product costing abilities. As mentioned in Chapter 4, the product costing functionality ...