Price Calculation Methods 

Use

You can use the following price calculation methods in the plan and in the actual:

Price calculation can be based on:

Features

Period-Based Prices

The system divides the costs arising in each period by the activity. This can result in different prices in each period. If your fixed costs remain constant throughout the fiscal year but the activity quantities fluctuate, the activity input valuation uses a relatively high price in those periods with lower activity quantities (see period 2 in the example). An activity input in a period with a higher activity quantity is valuated with a relatively low price, because the fixed costs draw on the higher activity quantity (see period 1 in the example).

 

Fixed costs

Variable Costs

Activity

Period-Based Price

Period 1

$1,000

$1,000

1,000 hrs

$2.00/hr

Period 2

$1,000

$100

100 hrs

$11.00/hour

The activity receivers in period 2 are disadvantaged compared with the activity receivers of period 1. The period-based price is higher in period 2 than in period 1, due to the lower activity quantity. The price in period 2 contains a higher proportion of fixed costs than the price in period 1. This is because the fixed costs in period 2 are related to a lower activity quantity. The variable unit cost, that is, the variable portion of the period-based price, is the same in both periods ($1/hour).

Average Prices

The average price is based on the total costs from all periods divided by the total activity quantity of an activity type from those periods. This ensures that the activity inputs of all receivers are valuated with the same price, regardless of the period in which the activity input occurs.

 

Fixed costs

Variable Costs

Activity

Prices

Period 1, period

$1,200

$1,000

1,000 hrs

$2.20/hr

Period 2, period

$1,000

$100

100 hrs

$11.00/hr

Average

$2,200

$1,100

1,100 hrs

$3,300 ¸ 1100 hours =

$3.00/hr

 

This method does not result in a complete crediting (clearing) of costs in the individual periods. This means:

You can clear a cost center or business process completely only by totaling across all periods.

Cumulative Prices

In cumulative price calculation the price for a period is based on the accumulated total costs and activity of all previous periods (the period entered in the To period field). In this way, price calculation allows for cost fluctuations in the periods.

When revaluation is carried out under the cumulative procedure, all the sender objects are fully credited in those periods that you specified for actual price calculation. In this process, the activity inputs are valuated with the new price in each selected period. Clearing entries are made in these periods to ensure that this equal valuation.

The cumulative price calculation method requires that all activity receivers can be posted to in all periods in the interval specified, i.e. the period cutoff indicator must not be active for these objects. This is to ensure that receivers in the first period can still receive clearing entries in the last period.

Example 1: Differences between cumulative price and price per period

Periodically differentiated prices: The costs per period are divided by the activities; prices can vary widely.

Period

Cost per period

Activity per period

Price per period

1

1,000 USD

100 hours

10 USD/hour

2

2,000 USD

50 hours

40 USD/hour

3

1,000 USD

250 hours

4 USD/hour

Cumulative price: The price is calculated from the total of the current and previous periods. For example, the price for period 2 is calculated from the costs of periods 1 and 2 (1,000 USD + 2,000 USD) divided by the activities for these periods (100 + 50). The price variances are not so marked.

Period

Cumulative costs

Cumulative activity

Cumulative price

1

1,000 USD

100 hours

10 USD/hour

2

3,000 USD

150 hours

20 USD/hour

3

4,000 USD

400 hours

10 USD/hour

 

Example 2: Revaluation at actual prices

Under revaluation, activity allocations are valuated at actual prices and the difference as against the values already posted is then subsequently allocated.

If, for actual price calculation, you enter a number of periods, the system revaluates for each period; the sender objects are fully credited in each period.

If you enter one period only, subsequent allocation is carried out for this period only and this is then the only period that is fully credited.

Entry: Periods 1 to 3

Per

Actual costs

Activity

Cum.actual price

Plan costs

Plan price

1

1,000 USD

100 hours

10 USD/hour

500 USD

5 USD/hour

2

3,000 USD

150 hours

20 USD/hour

750 USD

5 USD/hour

3

4,000 USD

400 hours

10 USD/hour

2,000 USD

5 USD/hour

Period

Difference between plan/actual costs

Revaluation

1

500 USD

+ 500 USD

2

2,250 USD

+ 1,250 USD

3

2,000 USD

- 1,000 USD

The difference between actual and plan costs is 500 USD; the amount by which the receivers are debited. The sender objects are fully credited in period 1.

The difference between plan and actual costs is 2,250 USD. As calculation takes place using cumulative values here, the receiver objects are only debited with 1,250 USD. The sender objects are still credited in full, because 1,000 USD were already allocated to the receivers from the first period.

Revaluation results in the receivers being debited by 1,000 USD too much. This amount is credited to the receivers, so that the sender objects are credited in full (and correctly). Where does this figure come from? The difference between plan costs and actual costs is 2,000 USD. In periods 1 and 2 the receivers were debited with 1,250 USD plan costs and 1,750 USD revaluation, a total of 3,000 USD. The difference between plan and actual is however only 2,000 USD, meaning that the receivers were debited by 1,000 USD too much.

Entry: Periods 3 to 3

If, for actual price calculation you enter period 3 only, allocation is correct, but the senders are fully credited in this period only. This is because the price calculation program posts only in the period(s) that were entered under From period/To period. Here, 750 USD is revaluated because although the plan costs for periods 1 to 3 are included in the calculation (3,250 USD) no revaluation took place in periods 1 and 2.

Per

Actual costs

Activity

Cum.actual price

Plan costs

Plan price

3

4,000 USD

400 hours

10 USD/hour

2,000 USD

5 USD/hour

Period

Difference between plan and actual costs

Revaluation

3

2,000 USD

+ 750 USD

 

 

Unlike the average price, which you can also define for individual cost centers/activity types or business processes, cumulative calculation can be selected for all sender objects. You can make this setting in the version settings (see Maintaining Versions).

The cumulative method is only useful if the costs and/or the activity quantities are subject to wide-ranging fluctuations. In particular, this would apply if the time of activity output is not identical to the time of the cost occurrence. Compared to average price calculation (which also ensure a proportionate debiting of receivers) the advantage of cumulative prices is that the cost center or business process is fully credited at any given time. For average prices, this is true only for the entire period.