Cost Budget – An overview

Introduction

Cost Budgets are a way of documenting the itemized summary of estimated or intended costs for a given period. These Budgets help in comparing the actual and budgeted values. Cost Budget component supports the definition of budgets for a combination of Cost Centers, Cost Elements and Products (Items) for a MAC Period or range of MAC Periods. Both quantities and cost can be specified in these budgets and they are purely operational in nature.

Cost Budgets can be specified at either the Business Unit level or the Organization Unit level. All the versions of the budget, created during its evolution are maintained. This helps trace the history of the Budget and further helps in fine-tuning it. One type of budget called Flexible Budget is supported, which are used in situations where the activity level varies.

Another entity that is supported in Cost Budget Component is the Activity Absorption Plan. This is used to arrive at the Activity Element Rate. The Activity Absorption Plan defines the various Cost Elements that are directly / indirectly consumed for executing the Activity Element along with usage factor. User level security is provided for budgets by assigning Responsibility and Super Users. Control totaling concept at Cost Center level is supported for budget creation.

Feature Highlights

• Cost Budgets can be defined as a) Cost Center budget, b) Cost Center – Cost Element Budget, c) Cost Center – Product budget and d) Cost Element – Product budget.

• Budget can be created either through the Generation Option, Distribution Option or by specifying the individual period details.

• The Distribution Option distributes the values defined in an Aggregate Budget over its constituent periods using a Seasonal Adaptation pattern.

• The Seasonal Adaptation Pattern defines the distribution criteria in the form of weightages assigned to the individual periods.

• When Control Totaling is set the system ensures the existence of a Cost Center Budget for creation of a Cost Center – Cost element Budget. Further the Aggregate Budget forms a prerequisite to the creation of a Period budget. Moreover the sum of the values defined for Period Budgets cannot exceed the values defined for Aggregate budgets. Similarly the sum of the values defined for a Cost Center – Cost Element Budget cannot exceed the value defined for a Cost Center budget.

• Flexible Budgeting is supported to cater to situations where a constant level of activity is not prevalent. In these, the Budgets for other levels of activity are derived from the initial budget based on the actual level of activity and flexing the original values to the actual level.

• The Activity Absorption Plan specifies the relationship between the Normal Cost Elements and the Activity Cost Element. In conjunction with a Cost budget this is used to arrive at the Activity Rates.

List of Activities