Comprehending Work Centers and Cost Structures

After completing this lesson, you will know when to use cost centers or overhead projects.

A work center is a physical location at which operations are carried out.

Work centers need some type of work planning and management, and they can be used also to plan such things as routings, networks, inspection plans and more. In this learning journey we’ll concentrate on work centers which represent machines or an assembly team. We will look at a work center’s use in production and assembly as well as costing. We will not in these controlling courses be going over its logistical functions for scheduling and capacity planning.

Each work center is referenced to a plant and assigned to a cost center, as well as the activities defined for this cost center.

In the master data of a work center the following fields are relevant for costing.

The routing is used to determine work centers, which are assigned to one specific cost center. For each operation, the routing must specify where the work is to be performed (work center), what production activities will be performed, and the duration of those activities.

Using activity type planning, controlling must provide a price to charge to the cost center when this activity is performed. The activity types that are used for costing must be planned for the cost center, while the actual duration of the activity is defined in the routing. The formula determines how the total execution time for the standard value should be calculated, that is setup (lot size quantity independent) versus machine or labor time (lot size quantity dependent).

You use formulas in the work center to calculate the quantities which are used for costing, scheduling, and capacity planning.

The quantity provided in the routing’s operations refer to the routing’s base quantity. There are two possibilities:

• If the formula indicates that the activity is lot-size-independent, the activity’s quantity does not need to be adjusted to the lot size. This is the case for set-up activities.
• If the activity depends on the lot size, then the quantity needs to be adjusted proportionally to the lot size.

If performance efficiency rates are being used to depict piecework wages for the activity labor, then they need to be considered as well. Setting up a work center is commonly not paid by piecework wages and since machines are not being paid at all, the performance efficiency rate equals 100%.

Regarding costs in production orders, each of up to six standard values in a work center can be assigned an activity type and a formula, with which the costs of the operations conducted in the work center are calculated.

SAP S/4 HANA calculates the costs by multiplying the quantity by the activity’s price. This is discussed more in the next unit.

Production versions are mandatory. They define a unique combination of routing, BOM, and lot size.

A production version determines which alternative BOM is used, together with which routing to produce a material. For one material, you can have several production versions for various validity periods and lot-size ranges. You maintain production versions in MRP view 4 and costing view 1 in the material master.