Activity Reconciliation and Price Calculation
- During the calculation of the Activity price, there are three variables and three equations:
Fixed Activity price = Total fixed cost / Fixed Activity hours
Variable Activity price = Total variable cost / Variable Activity hours
Total Activity price = Fixed activity price + Variable activity price
In the ECC system those variables are initially populated as follows:
Total Cost = from tcode KP06
Activity hours = from tcode KPSI, via KSPP, which reads the LTP created in MS01.
Activity price = calculated using tcode KSPI using the formula Activity price = Total cost / Activity hours
- Once the activity price has been calculated, any subsequent changes in the volumes, are handled as follows in the variable part of the activity price:
Variable Activity hours = from tcode KPSI, via KSPP, which reads the LTP created in MS01.
Total variable cost = from tcode KPSI, using the formula
Variable Activity price = from tcode KSPI using the formula Variable Activity price = Total variable cost / Variable Activity hours. (There are various situations which arises, which might make the recalculation necessary, depending on the change in the activity hours.)
- This behaviour can be overriden by setting the switch below, on the KPSI “settings” screen:
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If this switch is active, then the system will follow the behaviour in step 1.
- Alternatively, after the the execution of KPSI, the amounts on KP06 can be reset to their original values by retracting again from BPS, or the spreadsheet if Interactive Excel was used.
- Various exceptions/ modifications also exist:
- In the case of a plan that is not reconciled, the plan price is calculated on the basis of the scheduled activity. A plan is reconciled if the scheduled activity for each activity type is the same as the plan activity. You receive a scheduled plan with the plan reconciliation (Transaction KPSI). In this case, the prices are calculated based on the price indicator of the activity type:
- Price indicator 01: Planned price, automatically based on activity.
Fixed price : Fixed planned costs / planned activity
Variable price: Variable planned costs / planned activity
Total price: Fixed price + variable price
- Price indicator 02: Plan price, automatically based on capacity
Fixed price: Fixed planned costs / capacity
Variable price: Variable planned costs / planned activity (Variable always on planned activty)
Total price: Fixed price + variable price
- Three different methods can be used, each with its own advantages and disadvantages
- Average for the year
The total activity hours for the year, is divided into the total cost for the year.
The disadvantage of this is that on a monthly basis, there will be over/under recoveries on the production cost centres. However, these variances are a good indicator of seasonal fluctuations. Some companies move these variances to the balance sheet, to smooth their gross profit line.
- Periodic
The activity hours for each period, is divided into the cost for the period, to get to a rate per period.
This means that each month is fully recovered to production. This would be a good method to use, if there was seasonal fluctuations in the costs, as opposed to seasonal fluctuations in activity levels.
- Cumulative
The year to date activities are divided into the year-to date costs to get a year to date activity price.
- Generally, changes in resource capacity utilisation, would not have an influence on activity prices. However, changes could result in activity levels changing between periods, even if they remain the same for the year. It is also possible that the production schedule moves across a year-end boundary.
- Take care when compiling a Long Term Plan, especially when the fiscal periods do not equal calendar periods e.g. 4-4-5 basis. The planned simulation orders are scheduled for the first day of the period. For example:
- The first month after a 5 week month usually starts on a date after the 1st. If the simulated planned order is scheduled for the first, it will then fall into the previous month
- This is made worse if the first month is also the beginning of the fiscal year, then the demand moves to the previous calendar year. Also if the first month is January, and the country celebrates New Year, and the factory calendar shows that as a non-working day.
- If there are manufacturing lot sizes in place, this will also lead to differences between what the demand is, and what actually gets scheduled.
- The effect of this is reduced when the factory is working fairly close to capacity. The effect can also be reduced by planning weekly, rather than monthly. But it is good to bear these effects in mind, and to also remember that the sales volume and the production volume plans are two completely different things.
