Transfer Prices

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Transfer Prices in Release 4.0


Target Audience

Course participants

Project members implementing SAP R/3 in a group

SAP consultants and partners who work with groups

Requirements

Thorough understanding of the integrated value flows in MM, PP, FI, CO and EC-PCA

Hands-on experience of the SAP R/3 System

Length of course: 1 day


Overview

1.1.

2.2.

3.3.

4.4.

Transfer Prices in Profit Center Accounting

5.5.

Introduction

Basic Principles of the SAP Transfer Price Solution

Implementation of Transfer Prices in R/3Components

Posting Examples using Parallel Values


Overview

1.1. Introduction

2.2. Basic Principles of the SAP Transfer Price Solution

4.4.

5.5.

Implementation of Transfer Prices in R/3Components


3.3. Transfer Prices in Profit Center Accounting


Characteristics of Group Structures Stronger division of tasks among companies in group

Complex value-added chains

International cooperation

Decentralization of responsibilities

=> Analysis of transfers from different points of view is crucial to success.


Parallel Valuation Views in SAP R/3 Release 4.0A

Profit Center 1

Profit Center 2

Group Legal Profit Center

Comp1 Comp2 Comp3 Comp4

Group


Definitions

A transfer price is an agreed value for the purpose

of valuating transfers of goods and services between

organizational units.


Purposes of Transfer Prices

optimize tax payments and distribution of profits

calculate the profit or loss of organizational units

coordinate and guide unit managers

enable cost estimates to be used as basis for decisions affecting the entire group


Group

Valuation Views

Legal

Profit Center

Transfers of goods and services between independent legal units in accordance with their legal obligation to provide individual financial statements.

From Release 4.0 transfers of goods and services can also be valuated using group production costs, i.e. from the point of view of the group as an entity. In this method internal profits are eliminated.

In addition, internal transfers of goods and services between profit centers in EC-PCA can be valuated with a price for management purposes. This enables management to calculate internal profits and better control business operations.


Definition: Transfer Prices in SAP R/3

Group

EC-EC-PCAPCA

FIFI

COCO

Profit center

Legal units(Company

codes)

Controllingarea

Organizationalunits

1

2

3

4

(1) Transfer price from group point of view = group prod. costs(2) Transfer price from profit center view = management price(3) Internal price for activities exchanged between cost centers(4) Transfer price from legal point of view = sales and purchase price


Illustration of Need for Parallel Approaches

Prod.order

Distributioncenter Sales

order

Finishedproducts

Rawmaterials

Prod.order

Cost center

Semifinishedproduct


Illustration of Need for Parallel Approaches

Semi-finishedproduct

Prod.order

Distributioncenter Sales

order

Finishedproduct

Raw materials

Prod.order

Company Code 1

PrCtr1 PrCtr2 PrCtr3 PrCtr4

Cost center

L 70.-

G 70.-

P 70.-

75.--L 70.-G 70.-P 75.-

L 70.-G 70.-

P 75.-

L 120.-G 90.-P 140.-

L 120.-

G 90.-

P 140.-

100.-

120.-

CCtr 20.-CCtr 20.-

L 220.-G 90.-

P 240.-

- +

Assumption: Plan = Act => No variance

220.-

240.-

Company Code 2 Company Code 3


Overview


3.3.


4.4. Implementation of Transfer Prices in R/3Components


5.5.

1.1. Introduction


Business Business process +process +

datadata

EC-EC-PCAPCA

Profit Center 1 Profit Center 2

Quantity and Value Flows

FIFI

CO-CO-PCPC

CO-CO-OMOM CO-CO-

PAPA

ProduceTransfer

Sell,BillPurchase

Cost Object Controlling

Profit. AnalysisOverhead Cost Controlling

Order

ProcessProcess

Co

st e

lem

ent

acco

un

tin

g

Dir

ec

t c

os

tsO

ve

rhe

ad

co

sts

VVAALLU U E E F F LLOOWW


EC-EC-PCAPCA


Parallel Value Flows in Accounting

FIFICO-CO-OMOM CO-CO-

PAPA

Profitability AnalysisOverhead Cost Controlling

Order

ProcessProcess

Co

st E

lem

ent

Acc

ou

nti

ng

Dir

ec

t c

os

tsO

ve

rhe

ad

co

sts

Consumption

L 100.- G (80.-) P (150.-)

Stock

L 100.- G 80.- P 120.-

Material Ledger

CO-CO-PCPC

Cost Object Controlling

or or

Business Business processprocess+ data+ data

VVAALLUUEE FFLLOOWW Stock

L 100.- G 80.- P 120.-


Additional Dimension: Valuation View

Currencytypes

Valuationview

Group

Legal 0

1

2

Company code currencyControlling area currencyGroup currency ...

10 20 30

The currency and valuation profile determines which valuationviews are to be stored with which currencies in the system.

X

X

XPrCtr

10

Leg.

30

PrCtr.

30

Grp


Rule I: Parallel Value Flows in Accounting

The valuation approaches defined inthe currency and valuation profile are stored in parallel in the system.

A maximum of 3 parallel valuation views in 2 currencies can be stored in the system!


Rule II: The valuation of stock occurs in parallel!

The Material Ledger is the sub- ledger for materials and storesparallel stock values.

Stock valuation is carriedout in the SAP system at plantor company code level.

Stocks of a material in thesame plant belong to the sameprofit center.


Rule III: No change to posting rules!

Parallel values are posted to the same accounts in additional datafields.

Additional accounts are only necessary in exceptional cases: - To balance accounts payable and accounts receivable - For internal revenue und costs In 4.0A, parallel values can onlybe stored for the transfer of goodsbut not for services!


Scenarios: Parallel Valuation Approaches in R/3

as in 3.0or or Curr.

Leg.

Curr.

GrpGrpPrCtr

Curr.EC-EC-PCAPCA

Profit Center Accounting

Curr.

Leg.

Curr.

GrpGrp

PrCtr

Curr.

FIFI

Financial Accounting

Oblig.

Opt.

Opt.

Curr.

Leg.

Curr.

GrpGrp

PrCtr

Curr.

CO-CO-OMOM

Controlling

see versionconcept

CO-CO-PCPC

Curr.

Leg.

Curr.

GrpGrp

CO-CO-PAPA

Opt.Oblig. Opt.Curr.

Leg.

Curr.

GrpGrpPrCtr

Curr.Material Ledger


Scenario: US Model

Curr.

GrpGrp

EC-EC-PCAPCA


Curr.

Leg.

Curr.

GrpGrp

FIFI


Curr.

Leg.

Curr.

GrpGrp

CO-CO-OMOM

Controlling

CO-CO-PCPC

Curr.

Leg.

Curr.

GrpGrp

CO-CO-PAPA

Curr.

Leg.

Curr.

GrpGrp

Material Ledger

Operativeversion


Scenario: Profit Center Model

EC-EC-PCAPCA


Curr.

Leg.

PrCtr

Curr.

FIFI


Curr.

Leg.

PrCtr

Curr.CO-CO-OMOM

Controlling

CO-CO-PCPC

Curr.

Leg.CO-CO-PAPA

Curr.

Leg.PrCtr

Curr.Material Ledger

Curr.PrCtr

Operativeversion


Restrictions I

... General

Services can only be allocated in one valuation.

In Release 4.0A transfer prices can only be implemented by new customers. Productive customers should contact SAP directly.

... In Financial Accounting

Parallel valuations must be posted in MM and the Material Ledger. In Release 4.0A the transfer price concept does not allow manual entries or corrections to parallel valuations.


Restrictions II

... In Cost Object Controlling

In Release 4.0A group costing can only be implemented within a single controlling area.

Parallel valuations cannot be stored for the purposes of make-to-order production. This affects

valuated sales order stock

nonvaluated sales order and project stock.

To calculate WIP at target costs during periodic settlement, the operative version must contain the legal valuation.


Restrictions III ... In Profitability Analysis

In Profitability Analysis only sales between company codes are documented.

The profit center valuation view will be fully supported as of Release 4.0C.

... In Materials Management/Purchasing

The transfer of parallel values during invoice verification is only possible in logistics invoice verification.

Goods-receipt-based invoice verification is not supported in Release 4.0A.

Parallel values can only be transferred between company codes via ALE and EDI interfaces, even if the company codes are in the same system.


Overview


3.3.




5.5.

1.1. Introduction


In Customizing for Profit Center Accounting you decide which valuation approach (legal, group or profit center) you want to store. If you choose...

the legal view, all goods movements will be posted between profit centers using the legal valuation approach with no transfer price surcharge (as in Release 3.0).

the group view, all goods movements will be depicted in EC-PCA using the group production costs (new in Release 4.0).

the profit center view, each profit center will be treated as an independent company for the purposes of payment. That means that all goods movements are valuated with an internally set value (transfer price) if the movement crosses profit center boundaries.

Valuation Approaches in Profit Center Accounting


Quantity flow

Parallel value flow

Logistics

FI/CO

Possible Valuations in EC-PCA

ProfitCenterAccounting


Internal revenues Internal costs


Quantity flow

Parallel value flow

Logistics

FI/CO

Transfer Prices from the Profit Center View

ProfitCenterAccounting


150.-

Calculation of transfer

price

150.-

120.-

Raw materialsProductionorder

Example: Profit Center Valuation


Quantity flow

Parallel value flow

Logistics

FI/CO

Posting Example: Material Consumption



150.-

150.-

120.-

Raw materialsProductionorder

Internal revenue -150.-

Internal changein stock + 120.-Stock - 120.-

ConsumptionRaw materials 150.-


Calculating Transfer Prices (Using Conditions)

Pricing Procedure

describes the logic used in calc.Ex. market prices percentage increase on costs quantity-dependent increase on costs

Conditiontypes

Ex. percentage increase

Transferprice

calculated

Access sequence: Plant Material Plant Receiver ....


Examples for Calculation of Transfer Prices

Transfer price calculation

Sender plant, Material, PrCtr, Receiver PrCtr Transfer price

Plant Material S-PrCtr R-PrCtr Transfer price (fixed price)

0001 M4711 P1 P2 1200 USD0001 M4712 PA PB 1500 USD...

Plant Product group S-PrCtr R-PrCtr TP surcharge

0001 A P1 P2 5%0002 B PA PB 6.25%...

Plant Product group TP surcharge

0001 C 5.5%...


Important: Goods movements can be valuatedin Profit Center Accounting witha special transfer price

=> Profit centers calculate their profit like individual companies (using internal revenues and costs)

=> Internal accounts payable and accounts receivable will not be balanced by payments and are therefore not posted.

=> The posting lines generated in Profit Center Accounting can also be posted in Financial Accounting if necessary.


Overview


3.3.




5.5.

1.1. Introduction


PrCtr

Curr.

Material Ledger

Curr.

Leg. Curr.

Grp

Parallel Valuation Approaches for Material Stock

Cost estimate for material

Inventory management

Invoice verification

Delivery and settlement of production orders

Cost estimate for material

Inventory management

Invoice verification

Delivery and settlement of production orders

MaterialP-100

Material MasterPlant 1000Quantity: 1200 unitsValue : 24,000

FinancialAccounting

Informationsystems in

Logistics andControlling

FinancialAccounting

Informationsystems in

Logistics andControlling


Parallel Values in Product Cost Planning

Material (Prod.)Material (Prod.)

Legal

Profit center

Group

Material Activity Overhead Profit St.price

DEM 1000.00 100.00 100.00 1200.00

USD 170.00 50.00 50.00 207.50 270.00

USD 400.00 50.00 50.00 500.00

Controlling areaCO-CO-PCPC

Legal costing

Group costing

Profit center costing


Background to Group CostingMember of grp:

Company AMember of grp:

Company BMember of grp:

Company C

Key:DC = Direct costsPOH = Prop. overhead costsFOH = Fixed overhead costsP = Profit (Revenue ./. Full costs)Index A, B, C = Company A, B, C

Grp costing St. costing Grp costing St. costing

DCA

POHA FOHA

PA

DCA

POHA FOHA

DCB

POHB FOHB

DCB

POHB FOHB

DCA

POHA FOHA

DCB

POHB FOHB

PB

DCC

Broken down Total

DCC

POHC FOHC POHC FOHC

PC

DCA

DCB

DCC

POHA FOHA

POHB FOHB

POHC FOHC

PB

PC

DC

P

POH FOH

Groupcosting

Group = St. costing

PAPA

PB PB

PA

PC


GroupGroup

Semi-Fin.Prod.

Raw Material

Profit Center2Profit Center2 Profit Center3Profit Center3Profit Center1Profit Center1

Finished Product

Raw Material

Group Costing in Release 4.0

Company A Company B


Reporting - Group View

+

-+

+

-+

081230812347-12354858547-1235485855967-0956/434 5967-0956/434

Company code 0001 Company code 0001 Company code 0002 Company code 0002 Company code 0003 Company code 0003

Profit center PC - 1Profit center PC - 1Profit center PC - 3Profit center PC - 3Profit center PC - 5Profit center PC - 5Profit center PC - 9Profit center PC - 9

30,00030,000 34,40034,400 4,4004,40045,00045,000 47,00047,000 2,0002,00054,00054,000 63,90063,900 9,9009,90012,50012,500 13,50013,500 1,0001,00020,00020,000 22,50022,500 2,5002,50021,50021,500 27,90027,900 6,4006,40010,00010,000 11,00011,000 1,0001,000

9,0009,000 15,00015,000 3,0003,000 500500 900900 400400

2,0002,000 1,0001,000 2,0002,000

Material numberMaterial number Material Material Production Production Profit ...Profit ...

. . .


Parallel Value Flows in Procurement and Sales

PrCtr1 PrCtr2 PrCtr3

L 70.-

G 70.-

P 75.-

L 100.-

G 70.-

P 120.-

100.-

120.-- +

Company A Company B

Stock transport order

Goods receipt andinvoice receipt

Goods issue and invoice issue

IDOC

Sale withingroup


Using Transfer Prices in FI

FIFI

Company code

Currency andvaluation profile

Group

PrCtr

Legal

CurrencyValuation

Localcurrency

Group

currency

10 30

X

In FI, the different valuation approaches are stored in the “old” currency fields and updated in the general ledger.

FI doc.- curr1- curr2- curr3

..

X

X

Generalledger


FIFI

Sample posting: Sale of products between company codes

KeyL - LegalG - GroupP - PrCtr

Cost of sales

L 50.-G 40.-

Acc. Receiv.

L 150.-G 150.-

Revenues

L 130.-G 40.-

Sales tax

L 20.-G 20.-

Billing document

Goods issue

Stock

L 50.-G 40.-

Stock

L 80.- G 40.-

GR / IR

L 80.- G 40.-

I/ C Profit

L G 90.-

I/C Profit

L G 90.-

Price diff.

L 50.-G

Sales tax

L 20.- K 20.-

Supplier

L 150.-K 150.-

Goods receipt

Invoice receiptGR / IR

L 80.- G 40.-

Posting Logic in FI


Account Categories from the Point of View of Parallel Valuation

FIFI

I/C Profit

L G 90.-

Accounts with parallel valuation

Accounts without parallel valuation

Accounts for balancing accounts

GR/IR

L 80.- 80.-G 75.- 75.-

Revenues

L 130.-G 40.-

Internal W IP

L 50.-G 40.-

Stock

L 50.-G 40.-

C onsumption

L 50.-G 40.-

Price difference

L 50.- G

Cost of Sales

L 50.-G 40.-

Receivables

L 165.- G 165.-

Sales tax

L 20.-G 20.-

Accounts payable

L 150.-G 150.-


Transfer Prices in AA: Settling an Order to an Asset

AAAAIMIM

Cap. invest. order

L 50.- G(40.-) P(60.-)

Depreciation areas

Curr. type Area

50.- 01 0150.- 11 3150.- 21 32

Settlementto asset


Parallel Versions in Controlling

-300 USD

MaterialMaterial

Legal 500 USD

PrCtr 600 USD

Group 400 USD

Transfer price

700 USDMaterial Mat. overhead

700 USD 70 USD

Production orderProduction order

400 USD

70 USD

500 USD

70 USD

70 USD

Profit Center 1

Profit Center 2

opera-tive


Using Transfer Prices in CO/Version ConceptIn CO the different valuation approaches are stored in up to three different versions.Two currencies can be stored in the system at the same time.

Currency and valuation profile

Group

PrCtr

Legal

CurrencyValuation

Localcurrency

Group

currency

X

COCO Controlling area

Operationalversion

(000)

Version 001

Version 002

Choice ofvaluation view

Legal

Group

PrCtr

10 30

CO dataCurr1 Curr2

X

X

..

3010

3010

10 ..30

P P

L

G G

L


Parallel Values in Controlling

MaterialMaterial

Legal 500 USD

PrCtr 600 USD

Group 400 USD

Production order

Transfer price

700 USD

700 USD

400 USD

Material Mat. overhead

70 USD

70 USD

70 USD

Base for overhead

500 USD

CO-OMCO-OM

PrCtr 1

PrCtr 2

70 USD-70 USD

Cost center

Internal orderOperational version

(Additional) Legal view

(Additional) Group view

10 %

opera-tional


Revenue

Sales ded. Prod. costs

Variance

Overhead

Using Transfer Prices in CO-PA (Release 4.0A)

Sales are documented from the pointof view of the company codecompany code in CO-PA.

Internal sales between profit centerswill be supported from Release 4.0C.

Legal values and group values canbe stored in parallel value fieldsparallel value fields.

Legal

Group

Legal

Legal

Example: Value fields

Group

Legal

Group

Legal

Group

Depending on the operative version in Controlling, the legal OR the group view is used.


Overview


3.3.




5.5.

1.1. Introduction


Introduction to the Posting Examples

Currencyand

valuationprofile

Group

Legal

CurrencyValuation

Localcurrency

Group

currency

X

X

X

PrCtr

The following valuation approaches are shown in the example:


CO-CO-OMOM

CO-CO-PAPA

ControllingFIFI

Material Ledger

.L

G

P

CO-CO-PCPC

.L K P

.L

G

P

.L

G

opera-tional

Maximum solution in posting example EC-EC-PCAPCA

P


Businessprocess +

data

EC-EC-PCAPCA

Internal WIP

P 120.-

Conventions for the Examples

Flow

of

values

FIFI

Account

L 100.- G (80.-) P (150.-)

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Processes +data

Postings inCO

Postings in FIL = LegalG = GroupP = Profit center

Posting lines in Profit Center Accounting


Businessprocess +

data

Materialwithdrawal

EC-EC-PCAPCA

PrCtr1

Example: Values Posted in Release 3.0

Flow

of

values

FIFI

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

PrCtr2Production order

Stock

L 60.-Consumption

L 60.-

Stock

L 60.-

Consumption

L 60.- Production order

Consumption

L 60.-

Consumption

L 60.-

PrCtr 2


Businessprocess +

data

EC-EC-PCAPCA

Int. change in stock

P 120.-

PrCtr 1

Stock

P 120.-

Internal revenues

P 150.-

Material stock

L 100.-G 80.-P 120.-

Material Withdrawal for Production Order

Flow

of

values

FIFI

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Price => 150.00 USD

Withdrawal forproduction

order

Production orderUsage raw mat.

L 100.- G 80.- P 150.-

Production order

Usage raw mat.

P 150.-

PrCtr 2

PrCtr 1 PrCtr 2

Usage rawmaterial

L 100.- G (80.-) P (150.-)

Stock

L 100.-G (80.-)P (120.-)

Transfer price = 150.00

Usage raw mat.

L 100.- G 80.- P 150.-

Int. change in stock

L G P 120.-

Internal revenues

L G P 150.-

EC-PCA


Businessprocess +

data

EC-EC-PCAPCAPrCtr 1

Activity Allocation to a Production Order

Flow

of

values

FIFI

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Activity allocation(10 PC * 60.00 USD)

Cost center

Cost center Production orderActivity allocation

L 600.- G 600.- P 600.-

Activity allocation

L 600.-G 600.-P 600.-

Productionorder

Activity allocation

P 600.-

PrCtr 2

PrCtr 1 PrCtr 2

Activity allocation

L 600.- G 600.- P 600.-

Activity allocation

L 600.-G 600.-P 600.-

Activity allocation

P 600.-


Businessprocess +

data

EC-EC-PCAPCA

Work in Process

Flow

of

values

FIFI

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Calculation andsettlement of

work in process

Production order

FI document

PrCtr 1

Stock W IP

L 700.- G (680.-) P (750.-)

Changes W IP

L 700.-G (680.-)P (750.-)

Production costs

L 700.- G 680.- P 750.-

Changes WIP

P 750.-Stock WIP

P 750.-

Production costs

L 700.- G 680.- P 750.-


Businessprocess +

data

EC-EC-PCAPCA

Delivery to Stock (within one plant)

Flow

of

values

FIFI

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Deliveryto

stock

Production order

Production order

PrCtr 1

Plant activity acc.

L 500.-G ( 400.-)P (600.-)

Stock finished goods

L 500.- G (400.-) P (600.-)

PrCtr 1

PrCtr2

Plant activity acc.

P 600.-

Production costs

Delivery at standard

prices

Production costs

L 700.- G 680.- P 750.-

Plant activity acc.

L 500.-G 400.-P 600.-

Stock finished gds

L 500.- G 400.- P 600.-

Production costs

L 700.- G 680.- P 750.-


Businessprocess +

dataStock transfer

EC-EC-PCAPCA

Int. change stock

P 60.-

PrCtr 1

Deliv. from other PC

P 100.-

Stock

P 60.-

Internal revenues

P 100.-

Material stock

L 50.-G 40.-P 60.-

Plant1/ PrCtr 1

Stock Transfer Between Profit Centers

Flow

of

values

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Plant2/ PrCtr 2

Price = > 100 USD

Price difference

P 10.-

Stock

P 90.-

PrCtr 2

FIFI

Stock Plant 1

L 50.-G (40.-)P (60.-)

Stock Plant 2tock Plant 2

L 80.- G (40.-)P (90.-)

Price difference

L 30.-GP (10.-)

Internal revenues

L G P 100.-

Deliv. from other PC

L G P 100.-

EC-PCA

Int. changes stock

P 100.-

Int. Changes Stock

L G P ( 60.-) (100.-)

Material stock

L 80.- G (40.-) P (90.-)

Price = 100 USD

opt.


Businessprocess +

data

EC-EC-PCAPCA

Consultant's bill

P 200.-

PrCtr 2

Consultant's bill

L 200.- G P

Primary Posting to Cost Center

Flow

of

values

FIFI

CO-CO-PCPC

CO-CO-OMOM

CO-CO-PAPA

Primary postingto cost center

Cost center

Cost center

PrCtr 1

PrCtr 1 PrCtr 2

Consultant's bill

L 200.- G 200.-

Supplier

L 200.-G 200.-P 200.-

Consultant's bill

L 200.- G 200.- P 200.-

Consultant's bill

L 200.-

Transfer Prices

Documents

sap ag d40tp

introduction

cost element

production

overhead cost

prctr p1 pa

cost object

prctr p2 pb