Overhead Cost Controlling component enables you to plan, allocate, control, and monitor overhead costs. It is an important preparation for a strong profitability analysis, as well as for a precise product costing.

By planning in the overhead area, you can specify standards that enable you to control costs and evaluate internal activities.

All overhead costs are assigned to the cost centers where they were incurred, or to the jobs that triggered them. The SAP system provides numerous methods for overhead allocation. Using these methods you can allocate the overhead costs true to their origins. Some of the overhead can be assigned to cost objects with minimum effort, and converted to direct costs.

At the end of a posting period, when all allocations have been made, the plan (target) costs are compared with the corresponding actual costs, based on the operating rate. You can make a source-based analysis of the resulting target/actual variances, and use the analyses for further managerial accounting measures within Controlling.

Along with timesaving automatic allocations, the integration of Overhead Cost Controlling in the SAP system environment minimizes entry of actual data and reduces the work involved in planning.

Overhead Cost Controlling is divided into the following areas.

Cost and Revenue Element Accounting details which costs and revenues have been incurred. Accrual is calculated here for valuation differences and additional costs. Cost Accounting and Financial Accounting are also reconciled in Cost Element Accounting. This means that the tasks of Cost and Revenue Element Accounting stretch beyond the bounds of Overhead Cost Controlling.

Cost Center Accounting determines where costs are incurred in the organization. To achieve this aim, costs are assigned to the subareas of the organization where they have the most influence.

By creating and assigning cost elements to cost centers, you not only make cost controlling possible, but also provide data for other application components in Controlling, such as Cost Object Controlling. You can also use a variety of allocation methods for allocating the collected costs of the given cost center/s to other controlling objects.

Overhead Orders are internal orders used either to monitor overhead costs for a limited period, or overhead incurred by executing a job, or for the long-term monitoring of specific parts of the overhead. Independently of the cost center structure, internal orders collect the plan and actual costs incurred, enabling you to control the costs continuously. You can also use internal orders to control a cost center in more detail. You can assign budgets to jobs. These budgets are then monitored automatically by the SAP system to ensure that they are kept to.

In contrast to the responsibility and function-oriented basis of Cost Center Accounting, Activity-Based Costing provides a transaction-based and cross-functional approach for activity output in which several cost centers are involved. The emphasis is not on cost optimization in individual departments, but the entire organization.

By allocating process quantities based on cost drivers, rather than using overhead calculation, cost allocation along the value chain is more source-based. Activity-Based Costing enables you to cost products more accurately in the overhead areas.