FICO Cost Center Accounting Part 7: Activity Types, Activity Price Calculation and Confirmations

📌 KEY POINTS
✅ Activity types (KL01) represent services a cost center provides, such as machine hours or labour hours.
✅ Planned prices come from planned costs divided by planned activity quantity (KSPI).
✅ Confirmations of production orders debit the order and credit the cost center at the activity price.
✅ Actual price calculation (KSII) can revalue activities at actual cost, clearing under- or over-absorption.
⚠️ A cost center left with large balances after month end means prices or quantities are wrong.

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▶ WHERE WE ARE
This final part connects cost centers to product costing through activities.

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▶ 1. ACTIVITY TYPES
An activity type is a unit of output of a cost center, such as machine hours on a CNC cost center or labour hours in assembly. Activity types are created in KL01 with category and unit, and linked to cost centers and secondary cost elements used for allocation.

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▶ 2. PLANNED ACTIVITY PRICES
After planning costs and activity quantities, price calculation (KSPI) computes the planned price per activity unit, splitting fixed and variable portions where planned. Product costing uses these prices in routings to calculate standard costs, so wrong plans lead directly to wrong product costs.

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▶ 3. CONFIRMATIONS
When production confirms work on an order, the quantity of activity consumed is posted: the production order is debited with quantity times price and the cost center is credited. This is how cost center costs flow into product costs during the month.

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▶ 4. UNDER- AND OVER-ABSORPTION
At month end, the cost center's actual costs rarely equal what was credited through activities. If actual costs exceed credits, costs are under-absorbed; if lower, over-absorbed. The difference can stay as variance, be allocated, or with actual price calculation (KSII) be used to revalue activities at actual price, passing the difference to orders and ultimately to products.

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▶ 5. REVIEWING BALANCES
After confirmations and allocations, production cost centers should be close to zero. Large balances signal unrealistic planned prices, missing confirmations or wrong activity quantities. Regular review with production keeps costing realistic.

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▶ STEP BY STEP

1. Create an activity type and plan quantity and costs for a cost center.
2. Run KSPI and check the planned price.
3. Confirm a production order and check debit and credit postings.
4. Review the cost center balance and analyse under/over-absorption.

✅ CHECKPOINT: activity prices and confirmations leave production cost centers close to zero or with explained variances.

A plant's machining cost center ended every month with a large under-absorbed balance. Planned machine hours assumed three shifts, but the plant ran two. Prices calculated on inflated hours were too low. Replanning with realistic hours raised prices, product costs reflected reality, and the cost center balance became small.

• Unrealistic planned activity quantities.
• Missing confirmations leaving costs on cost centers.
• Ignoring month-end cost center balances.
• No link between activity price and standard cost review.

• Plan quantities with production.
• Monitor confirmations daily.
• Review cost center balances monthly.
• Decide policy for under/over-absorption.

Interviewers ask how activity prices are calculated and posted through confirmations, what under- or over-absorption means and how actual price calculation with KSII works.