What is Over Under Absorption means?

Hi guyz,
When I'm running Cost Center Actual/Plan/Variance Reporting, there is a field that is called Over/Under Absorption.
What does it mean by Over/Under Absorption?
Thanks guyz

Hi Meila,
It can be a surplus or deficit in actual costs compared to planned costs on the receiver side, but does not have to be.
Imagine your sending cost center is a grinding mill in a cement plant. It is planned to produce 100.000 t cement in the month, for what the mill would run 1000 h. The rate is 100u20AC /h. Therfore the planned absorption would be 100.000u20AC. In the end of the month it turns out that actually the Mill ran 1200 h and 120.000 t Cement were produced. Each of the daily cement production orders would show no unplanned costs, but the mill cost center would have an overabsorption of 20.000u20AC.
best regards, Udo

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Thanky you for your reply Ranjan,
My intention was to show Cost center over/underabsorption broken down by cost componets (activity Labour, Machine, Overhead). Currently it is shown as a balance on cost center. I would like to be able to recognize which part of Direct manufacturing CC balance refers to Labour, which to Machine and which to Overhead. Is it possible to achieve in sandard report or additional settings/development is required.
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I have a problem with over/under absorption on production cost centers after month end closing.
We are using material ledger CKMLCP and actual activity rates from direct cost centers are settled directly to products using GBB AUI account determination.
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Request for your help to resolve my following queries.
We calculate plan activity rates & execute a costing run. Also we calculate the overhead in costing sheet with plan rates. I would like to know, what happens for the actual costs booked? How the under/over absorption is handeled in SAP?How this is settled? How this is charged to production? Is there any accounting entry passed at the time of adjusting under/over absorption?
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Thanks Markand. I am quite a beginner in SAP COPA. I have this question, may be not exactly the one you asked but somewhat related.
I am a bit confused by seeing the difference in total overhead spent as shown to me by cost center (Z3611, Z3612, Z3614) and the gross profit & income statement in COPA (via KE30).
When I ran the cost center transaction, it shows me that my company has spent 900k$ for the month of November for production expenses (pdex) (Not including the line "Under/over absorption). Now, when I see the income statement coming from COPA, it shows me that we had standard overheads of 800k$ + Spending variance of 100k$ and then 150k$ of other overhead variances (volume ovhd variance & Production ovhd variance). (I do understand the significance of volume & production ovhd variance)
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I am worrying that the income statement is taking 150k$ twice as cost. First in standard+spending variance and then as volume/production variance.
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I am told that 150k$ is charged additionally to COPA due to high activity rate. But I did not really understand. For me, the actual money which left the hand was 900k$ (variances or no variances). Then why the income statement shows 1050k$.
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What is Over Under Absorption means?

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