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✅ Standard Settlement Process & Activity-Based Costing Absorption in SAP

Module: SAP CO / PM / PP
Use Case: Understand how costs incurred on orders (like maintenance or production) are absorbed using activity-based costing (ABC) and settled to final cost objects.

🎯 Objective

To explain how Activity-Based Costs (e.g., labor hours, machine hours) are:

1. Collected on cost objects (like internal orders or production orders)
2. Absorbed using activity types and cost centers
3. Settled to final receivers (e.g., cost centers, WBS, assets)

🔁 Standard Cost Flow in SAP with ABC & Settlement

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CopyEdit
Work Performed → Confirmed Activities → Cost Posted to Order → 
Costs Grouped via Allocation Structure → Settled to Receiver

🛠️ Step-by-Step Process

✅ 1. Activity-Based Costing: Activity Confirmation

• Tcode: IW41, CO11N, CAT2, or time ticket confirmation
• User enters:
  • Activity type (e.g., LABOR01, MACH01)
  • Quantity (e.g., hours worked)

SAP calculates:

• Activity cost = Quantity × activity rate (from KP26 or KSPI)
• Cost is posted to the order

📌 Cost element = Category 43 (internal activity allocation)

✅ 2. Order Collects All Costs

• Direct activity costs (e.g., labor)
• Indirect costs (materials, external services, overheads)
• Stored in COEP, visible in the Cost tab of the order

✅ 3. Settlement Rule Configuration

• Tcode: KO02 / IW32 → Settlement Rule Tab
• Define:
  • Receiver: Cost Center / WBS / AUC
  • Settlement type: PER (Periodic) or FUL (Full)
  • Distribution: 100%
  • Settlement Profile: Controls how the order settles

✅ 4. Allocation Structure

• Tcode: OKO6
• Groups cost elements into cost segments
• Used during settlement to determine how and where costs go

Example:

AssignmentCost Element RangeMeaningACT400000–400999Internal LaborMAT300000–300999MaterialREM*Remainder

✅ 5. Run Settlement

Tcode: KO88 (Internal Order) or CJ88 (WBS)

• SAP settles the collected activity and other costs to the defined receiver
• Creates accounting entries for debit/credit
• Updates Profit Center Accounting and CO actuals

📂 Key Tables

TableDescriptionCOEPCost line itemsCOSSSummarized costsAUFKOrder masterCOBRBSettlement rulesSETLESettlement document

✅ Example Flow

1. Activity Confirmation (10 hours × ₹100/hr) → ₹1,000 posted to Maintenance Order
2. Materials + Services = ₹500
3. Total cost = ₹1,500
4. Settlement rule: 100% to Cost Center 4100
5. Run KO88 → ₹1,500 transferred from the order to Cost Center

🧠 Best Practices

• Always maintain correct activity rates (KP26)
• Use value categories for clean cost analysis
• Validate settlement profile and allocation structure before period close
• Use KOB1 / S_ALR_87013019 for actual cost tracking

✅ Conclusion

In Standard SAP Settlement Process, activity-based costs are first absorbed on the order, then grouped via allocation structure, and finally settled to receivers like cost centers, assets, or WBS elements. This ensures accurate cost accountability, reporting, and profitability analysis.

For optimal viewing of the slides,please press CTRL+SHIFT+F

✅ Standard Settlement Process & Activity-Based Costing Absorption in SAP

Module: SAP CO / PM / PP
Use Case: Understand how costs incurred on orders (like maintenance or production) are absorbed using activity-based costing (ABC) and settled to final cost objects.

🎯 Objective

To explain how Activity-Based Costs (e.g., labor hours, machine hours) are:

1. Collected on cost objects (like internal orders or production orders)
2. Absorbed using activity types and cost centers
3. Settled to final receivers (e.g., cost centers, WBS, assets)

🔁 Standard Cost Flow in SAP with ABC & Settlement

plaintext
CopyEdit
Work Performed → Confirmed Activities → Cost Posted to Order → 
Costs Grouped via Allocation Structure → Settled to Receiver

🛠️ Step-by-Step Process

✅ 1. Activity-Based Costing: Activity Confirmation

• Tcode: IW41, CO11N, CAT2, or time ticket confirmation
• User enters:
  • Activity type (e.g., LABOR01, MACH01)
  • Quantity (e.g., hours worked)

SAP calculates:

• Activity cost = Quantity × activity rate (from KP26 or KSPI)
• Cost is posted to the order

📌 Cost element = Category 43 (internal activity allocation)

✅ 2. Order Collects All Costs

• Direct activity costs (e.g., labor)
• Indirect costs (materials, external services, overheads)
• Stored in COEP, visible in the Cost tab of the order

✅ 3. Settlement Rule Configuration

• Tcode: KO02 / IW32 → Settlement Rule Tab
• Define:
  • Receiver: Cost Center / WBS / AUC
  • Settlement type: PER (Periodic) or FUL (Full)
  • Distribution: 100%
  • Settlement Profile: Controls how the order settles

✅ 4. Allocation Structure

• Tcode: OKO6
• Groups cost elements into cost segments
• Used during settlement to determine how and where costs go

Example:

AssignmentCost Element RangeMeaningACT400000–400999Internal LaborMAT300000–300999MaterialREM*Remainder

✅ 5. Run Settlement

Tcode: KO88 (Internal Order) or CJ88 (WBS)

• SAP settles the collected activity and other costs to the defined receiver
• Creates accounting entries for debit/credit
• Updates Profit Center Accounting and CO actuals

📂 Key Tables

TableDescriptionCOEPCost line itemsCOSSSummarized costsAUFKOrder masterCOBRBSettlement rulesSETLESettlement document

✅ Example Flow

1. Activity Confirmation (10 hours × ₹100/hr) → ₹1,000 posted to Maintenance Order
2. Materials + Services = ₹500
3. Total cost = ₹1,500
4. Settlement rule: 100% to Cost Center 4100
5. Run KO88 → ₹1,500 transferred from the order to Cost Center

🧠 Best Practices

• Always maintain correct activity rates (KP26)
• Use value categories for clean cost analysis
• Validate settlement profile and allocation structure before period close
• Use KOB1 / S_ALR_87013019 for actual cost tracking

✅ Conclusion

In Standard SAP Settlement Process, activity-based costs are first absorbed on the order, then grouped via allocation structure, and finally settled to receivers like cost centers, assets, or WBS elements. This ensures accurate cost accountability, reporting, and profitability analysis.