Direct internal activity allocation is a method of internal cost allocation, by which valuated activities from cost centers can be assigned by cause to cost receivers.
Activities represent the output of a cost center (such as production hours or machine hours). These outputs are defined in the R/3 System with activity types. The activity types are valued with prices which are either fixed by the user (political prices) or calculated automatically. To calculate the iterative prices, the R/3 System divides the cost center planned costs assigned to the activity types by the planned activity (or capacity depending on how the System is set up).
On allocation the activity produced by the cost center is multiplied by the activity price. These are the costs to be allocated. The sender cost center is credited with this amount and the receiver object is debited accordingly.