The Activity-Based Costing (CO-OM-ABC) application component provides an alternative form of overhead control that is particularly useful when indirect activities account for a large share of the value added to products.

Whereas traditional approaches allocate machine-hour rates or similar overhead to cost objects, CO-OM-ABC lets you allocate overhead activities in a way that better reflects the origin of those costs. It uses "cost drivers" to allocate indirect activities to "business processes", which can then be transferred periodically to Profitability Analysis.

For example, you could transfer the costs of processing orders to CO-PA based on the cost driver "Number of sales orders processed" in order to identify those customers and business divisions that generate the highest sales costs.

These costs can be transferred periodically to CO-PA using the process assessment function, for example. In this way, the overhead allocated to the processes is transferred to CO-PA. Reference values for the transfer can be quantities and values posted in CO-PA or additional cost driver information, such as the number of sales orders processed.

This method charges the process costs to the profitability segments, which you can then analyze in detail in terms of their contribution margins. You can transfer both actual and planned process costs to Profitability Analysis.