Overhad Absorption

Hello,
I have question regarding how to obsorb under or over obsorbtion of overhead in costing system.
eg in budget we planned total cost for one cost center as 5000$ and  capacity as 500 hourse, hence we derived the rate as 10$ per hourse for that cost center.
Later on the same rate is considered for standard cost calculation and also for actual cost while doing confirmation of production order activity.
like around 400 hourse booked for that cost center, hence system will consider only 400 hourse X 10 % = 4000 $ cost. And in actual case instead of 5000$ business has spend around 6000$. Hence in the given case hourse are considered correctly but the overhead are underobsorbed for 2000 $ (6000$ Actual - 4000$absorbed).
Same amount will flow to COPA by way of variance.
So my question is how to consider this difference in costing system and COPA. Is the revaluation of production order will help to resolve this, if yes then can you please guide me detailed steps for this.
Thanks in advance
Harry

Hi  Harry,
Taking ypur Example :
Plan : 5000$ @ 10$ per Hour .Total : 500 Hours
Actual : 400 Hours , Actual Cost : 5000$
First , actual debit to cost center will be ( 400 * 10 ) = 4000$  when you do direct activity allocations .
Then you have to run KSII( Actual Price Calculation) = Actual Rate will be = 5000/400 = 12.5$ per hour . At that time delate factor ( 2.5$) * 400 = 1000$ will again be debited . Hence after KSII .. debit = credit and balanced matched .
Here i am considering no activity is being booked in process orders
Now , comming to process orders . In process orders we confirm activities at plan rate . The debit is at plan rate and KSII given you actual rate .
The difference ( delta between plan and actual rate ) in process order is booked thru process order revaluation CON2 .
This will ensure that all overhead costs are absorbed to the product and cost center balance is nill , if you design is to load 100% cost to product.
Please revert back for any further clarifications.
Regards
Sarada

Similar Messages

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    Dears,
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    Hi Divraj,
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  • Issue of under absorption  and over absorption

    Dear All,
    Audit is going on in our client and auditor found that there is  and over absorption  of cost in cost center, which mean we are valuating our product at higher price and thus showing less profit in system.
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    Thanks a lot Santosh for your reply
    from that many days  i am working on your solution but not able to understand how system is calculating the Total Price it the time of KSII
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    Cost Elements                    Act. Costs
    801000  Labour Charges  794,541.34
    Debit                                 794,541.34
    43001   SETUP                         1.02-
    43002   MACHINE               1,535,432.85-
    43003   LABOUR                1,023,218.50-
    43004   ELECTRICITY             235,888.97-
    Credit                              2,794,541.34-
    Over/Underabsorption          2,000,000.00-
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    43002  Machine                      10,236,219  S
    43003  Labour                       20,464,370  S
    43004  power                            62,076  KWH
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    43001              200.0            20.0            HR          4.00
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    43003                500            40               S          8.00
    43004                600            50                  KWH     8.00
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    ATyp categor     1
    Price indicato     2
    Act. price indicator     6
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    1101100        43002     198,635.34
    1101100           43003     198,635.34
    1101100           43004     198,635.32
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    ATY 1101100/43001            HR               93.747         9,931.77         9,931.77
    ATY 1101100/43002            S            10,236,219         6,621.18         6,621.18
    ATY 1101100/43003            S            20,464,370         4,965.88         4,965.88
    ATY 1101100/43004            KWH          62,076.029         3,972.71         3,972.71
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  • Can Absorption costing transfer in COPA?

    Hi All
    I would appreciate your help. Please provide me details explanation over.
    1) Can we transfer Absorption Costing in COPA?
    2) What is the procedure?
    ( It is my request please use full form rather than short words).

    Hi Shobhi,
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    You get Revenue as well as cost (standard cost) of goods sold through billing documents. The sales which cannot be effected through billing documents can be accounted through Financial entries having real cost object as "PSG" i.e. profitability segments.
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