Applying Overhead Costs

Use the overhead costing method to allocate indirect costs to cost estimates. You may want to add these indirect costs to the calculations for Cost of Goods Manufactured (COGM) and Cost of Goods Sold (COGS).

For material overheads, the allocation of indirect costs can depend on the material or the number of activity units used to produce the material or service. SAP S/4HANA links the indirect costs to other direct expenses previously recorded for this item. These costs are then charged to the cost object and credited from the responsible cost center.

For example, these could be the estimated receiving, controlling, or handling costs based on material costs already recorded on the production order. They might also include extra costs for storing and handling goods, calculated from the consumed oil that is already directly posted. The corresponding cost center for these expenses would be the storage cost center.

Figure illustrating the principle of overhead cost calculation, as described in the above text.

Structure for Calculating Overhead Costs

The overhead costing sheet determines the allocation of overhead costs to the appropriate object.

The costing sheet contains rules on:

Which itemization rows to include in the overhead base.
Which overhead rate to apply.
How the object is credited.

This base can include primary costs directly posted to the object, such as material costs, for instance, or secondary costs, such as labor in manufacturing. Then, specify the percentage to apply to a specified cost base. If needed, you can distinguish different cases using an overhead key to apply specific rates. Overhead is calculated automatically.

Figure illustrating the structure of Cost of Goods Sold and various overhead costs.

You can add these costs at different levels of the Cost of Goods Sold for a product or a service.

Figure illustrating the Cost of Goods Sold structure and the different categories of overhead costs.

Overhead Costs in the COGM and COGS Calculations

The overhead costing sheet summarizes the rules for applying overhead.

You can calculate an overhead rate. For instance, to determine the overhead for withdrawing bikes from the warehouse, you can use a percentage of the cost of the withdrawn bikes.

A costing sheet defines:

The calculation base
The overhead
The credit account used (secondary G/L account- category 41) and credit object.

You can then assign the costing sheet to the master data of the objects that receive the overhead postings.

Note

Overheads are now calculated and posted per ledger. If you have only one ledger, specifying it for overhead calculation is optional.

If you don't specify a ledger, the values from the leading ledger are posted to all standard ledgers. Run an overhead calculation for each ledger to calculate overhead values per ledger.

Note

SAP recommends using event-based overhead calculation, the default method in SAP S/4HANA Cloud Public Edition. This method, part of the Event-Based Production Cost Posting (scope item 3F0) solution, posts production costs as they occur rather than at the end of the period. It automatically posts overhead costs alongside each business transaction when producing a service or material, such as issuing goods or confirming production activities. It will be covered in another course.

Applying Overhead Costs

Lesson Overview

Using Overhead Costs

Structure for Calculating Overhead Costs

Overhead Costs in the COGM and COGS Calculations