Unit 4 - Managerial Accounting

7/27/2019 Unit 4 - Managerial Accounting

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Unit 4: CO

Management Accounting

Contains all the functions necessary for effective cost and revenue controlling Includes many tools for company management Uses financial reports from FI

Architecture

Costs from CO-OM and CO-PC can flow into CO-PA together with revenue data, can be used to calculate operating results

FI, HCM, Logistics (MM, SD, PP) are integrated with CO FI is the primary data source for CO

most expense postings in G/L result in a cost posting in CO can be journal postings, vendor invoices, depreciation postings from Asset Management

SD is a primary source for revenue postings from billing documents to revenue postings in CO-PA, and CO-PCA

HCM can generate cost postings in CO, by allocating labour costs to various controlling objects Planned personnel costs can be transferred and used for CO

MM a goods issue transaction can create a cost posting in CO to whichever Cost Object is specified Manufacturing BOM, routings, can be used in CO-PCA

CO-PA (Profitability Analysis)

CO-PCA (Profit Center Accounting)

CO-OM (Overhead Cost Controlling)

Primary CostElement

Secondary CostElement

CO-PC (ProductCost Controlling)


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Organizational Levels

Controlling Area the basic org. Unit in CO

A closed entity used for costaccounting

Can allocate costs ONLY within acontrolling area

Can assign more than 1 CC to acontrolling area, enables controlling

across CCs

Must use same COA andFiscal Year Variant

Operating Concern used with CO-PA

Represents the structure of externalmarketing segments for the

enterprise

Can assign multiple Controlling Areas to each operating concern, so you can analyze them togetherCompany Code independent accounting unit

Business Areas (BA) used to group strategic business units for reporting P/L and financial Statements

Can also be cross-company code Not suitable for auditing, suitable for reporting purposes only)

Plant represents a production unit and is the central organizational unit in MM and PP

Purchasing Organization org. Unit used in MM

Sales Organization org. Unit used in SD

Multiple Assignment

By assigning more than 1 CC to a controlling area, you can perform cross-CC cost accounting Must use same operating COA and Fiscal Year Variant

Can allocate values in CO that affects more than 1 CC Controlling Area and CCs can use different currencies

Three options: Controlling Area Currency CC Currency (default display as the Object Currency, cannot change)

If 1 CC in CA, object currency can be assigned for each CO Object Transaction Currency (used for posting a document to CO)

Cost Center Accounting (for overhead)

G/L Accounts and Cost Elements

Primary Cost Elements

All Expense accounts grouped in Class 4 Expense Accounts to which costs are posted for Cost Accounting must also be created as Cost

Elements in CO (ensures that all postings always arrive in CO @ same time)

All Revenue accounts grouped in Class 8


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Secondary Cost Elements

Defined ONLY in CO Used for internal CO allocations (such as assessments or settlements)

Do NOT have corresponding G/L accounts in FICost Centers Standard Hierarchy (Only 1 per Controlling Area)

An organizational unit in a controlling area representing a clearly delimited location where costs occur Can make organizational divisions on the basis of Functional, Allocation Criteria, Settlement-

related, Activity or Service-related, Spatial/Geographic Location, and/or Area of Responsibility

standpoints

Typical approach would be to define a Cost Center for each low-level Org. Unit that hasresponsibility for managing costs

As costs are incurred, they are assigned or posted to the appropriate Cost Center Ex. Payroll, rent and utility

Use for differentiated assignment of Overhead Costs Organizational Activities based on the utilizationof the relevant areas (Cost Determination Function) & for differentiated controlling of costs arising in an

organization (Cost Controlling Function)

Cost Center Accounting Component (CO-OM-CCA) tracks where costs occur in organizationCost Center Data (Master?)

Basic Data

fields for the Name and Description of the Cost Center, Name of the Responsible Person or Cost CenterManager, Department to which Cost Center is assigned, and Profit Center

Cost Center Hierarchy

displays the Standard Hierarchy Node to which the Cost Center is assigned filed MUST be filled so it can be used as a control feature in Cost Center Accounting Each Controlling Area must have a unique Standard Hierarchy that includes EVERY Cost Center

created in that Controlling Area

Profit Center Identifies the purpose of the Cost Center

Ex. Production, Service, Sales, AdministrationCompany Code & Business Area

Represent the close ties between FI and CO IF Controlling Area has more than 1 CC, must specify the CC linked to each Cost Center IF Business Areas are used for that CC (as defined in FI), this must also be specified in Cost Center Master

Record

Activity Types (Master Data?)

Classifies the activities that are to be performed within a company by one or several Cost Centers

If a Cost Center provides activities for other Cost Centers, Orders, Processes, etc, this means itsresources are being used

Costs of these resources NEED to be allocated to the receivers of the activity Activity Types serve as Tracing Factors (How you quantify something) for this

cost allocation


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Internal Activity Allocations

To enable, need to specify which Cost Centers provide which Activity Types at What Price Do this by planning the activity output/prices for a Cost Center

In an Internal activity allocation, quantity of the activity is entered into SAP, either manually orautomatically

System calculates associated cost based on activity price, debits receiver and credits sender forboth quantity and costs

Allocated using Secondary Cost Elements, which are stored in the Master Data of the ActivityTypes as default values

Can restrict use of Activity Type to certain types of Cost centers by entering the allowed CostCenter categories, or leave assignments unrestricted by entering an *

For a Direct Activity Allocation, enter the quantity of activity manually Plan price for the combination cost center/activity type is used for valuating the allocated activity

amount using the senders price for the activity type

Can enter this Planned Price manually or have it calculated by the system automatically withinPlanning

Statistical Key Figures

A measurable quantity that can be assigned to: Cost Centers Activity Types Overhead Orders Business Processes Profit Centers

Used as an allocation base (Tracing Factor) in Overhead Cost allocations and for Analysis Two Categories:

Type 1 Fixed Carried over from period which its posted to all subsequent periods of the same fiscal

year

Useful for figures that remain constant Only need a new posting when value changes

Type 2 Totals Not transferred to following period Must be entered for each individual period Preferable for SKF whose values tend to change each period (ex. Kilowatt hours)

Can be linked to Logistics Information System (LIS) by linking a key figure from LIS to a SKF in CO Define some measurable value applicable to Cost Centers, Internal Orders or Processes

Ex. # of employees Can post both Plan and Actual values for SKF

Cost Center Planning Process

Can be done manually OR with automatic procedures such as Formula Planning Planned Values (ex. Planned personnel costs & planned depreciation) can also be transferred

automatically to Cost Centers from HR and FI-AA Both fixed and variable costs can be planned for each area of responsibility (ex. Cost

center)

Concerning Distributions and Assessments, costs planned on 1 Cost Center can be allocated according toKeys (ex. Percentages, amounts, SKF)

Makes things easier to manage as the Keys, along with the sender and receiver relationships aredefined only once

Aim is to calculate planning costs to Define Deviations later AND to prepare the Allocation to Cost Bearers


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Planning is based on absorption costing (when you try to allocate all costs in the Overheads areato the Cost Bearers in a company)

Activity Type Planning is an important step, as Planned Activity Amounts can influence Planned Costs Amount of Activities can be determined manually or transferred from other modules

Closing of Cost Center Planning also shapes price determination for the activities of the Cost Centers Price Per Cost Center/Activity Type is entered manually OR on basis of Planned Costs (with automatic

price calculation) As activity amount is evaluated with this price, a combined quantity and value flow is the result

of the allocation of an activity

Posting Logic

When a FI document is created that posts to an expense or revenue account using a corresponding costelement, a CO document is also created:

Has a unique #, and contains the following details: CO Object posted to Cost Element used Posted Amount

When a Primary Cost is initially posted to CO, treated as a one-sided journal entry

*Any transactions that create Cost Movements within CO are balanced entries When a cost is moved from one CO Object to another, the sending object is Credited

and receiving object is Debited

True and Statistical Objects in CO

Posting costs and revenues to CO results in True (or real) and Statistical Postings Can settle True Postings w/ other CO Objects Statistical Postings are for info purposes ONLY True Objects:

Can act as sending or receiving objects during cost allocation Cost Centers Real Internal Orders Real Projects Networks Make-to-Order Production Orders Cost Objects Profitability Segments

Statistical Objects: CANNOT allocate costs to other objects Can make a Statistical Account Assignment to any # of CO Objects

Profit Centers Statistical Orders Statistical Projects

Posting from FI to a Cost Center

When a journal entry is created in FI that includes an Expense Line Item, can be posted to CO as a cost if: Primary Cost Element has be created in CO that corresponds to the Expense Account used in

entry

Valid Cost Center is referenced in FI Line Item Two separate documents are created: FI/CO

Each document has a unique Document # Possible to drill down either document to link to other


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When an FI document is created that posts to an expense/revenue account having acorresponding Cost Element, & valid Controlling Object (ex. Cost Center) is IDd for the Expense

Line Item, CO doc is ALSO created

This CO doc has own unique # and contains: Controlling Object Posted to Cost Element Used The Amount

Posting from MM to a Cost Center

Goods Issue transactions posted in MM can be assigned to a Cost Center From the aspect of the Cost Center, this type of transaction is called Material Consumption

When you enter a Goods Issue in the system, must enter a Movement Type Movement Type is an ID Key which has important control function in IM, such as

updating stock and consumption accounts

Goods Issue to a Cost Center creates an FI transaction (Debit Material Consumption Expense AccountCredit Material Stock (Inventory) Account)

Cost Center is Debited with the value of goods issued using a Primary Cost ElementPosting from HRM to a Cost Center

Payroll Accounting in HRM calculated salary and wage amounts System then generates FI postings and posts costs to the Cost Centers to which employees are

assigned

Employee Master Data in HRM can be assigned to Infotypes Determines:

CC Personnel Area Personnel Subarea Ex. Org. Ass. Infotype (Infotype 0001) enables you to determine the

Cost Center to which personnel costs are Debited & to assign your

employee to a Business Area

Direct Activity Allocation Deals with the measurement, posting and allocation of an organizational activity

Need to create corresponding (measurable) Tracing Factors in SAP Known as Activity Types in CO

If you want to enter a Direct Activity Allocation: Enter the Cost Center that provides the Activity (Sender Cost Center) The Object that receives the activity (Receiver)

Can be any Real CO Object such as a Cost Center, Order, Project, etc The type (Activity Type) Quantity of the Activity

*ONLY 1 Cost Center from the Sender can be allocated to an Internal Activity Allocation To allocate activities directly, need to define which Cost Centers are to provide which Activity Types, by

planning Activity Output During activity allocation:

Sender Cost Center is Credited Receivers are Debited Debiting and Crediting are executed using a Secondary Cost Element, Category 43

Amount calculated by Activity Provided, multiplied by Activity Price The Cost Element used for Direct Allocation of an Internal Activity is derived from the Master Data for the

Activity Type

The Cost Element cannot be changed in the Allocation transaction


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Direct Activity Allocation is recorded by line items on the Sender and Receiver sidesPeriodic Allocations with Sender/Receiver Relationships

Periodic Reposting use Original Cost Element Distribution Use Original Cost Element Assessment Use Secondary Cost Element Indirect Activity Allocation Template Allocation

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Internal Orders

An extremely flexible CO tool that can be used for a wide variety of purposes to track costs, in some casesrevenues, within a Controlling Area

Provide capabilities for planning, monitoring and allocation of costs 4 General Categories

Overhead Orders Used to monitor Overhead Costs incurred for a particular purpose (ex. Conducting a

trade fair, tracking costs of maintenance and repair work)

Investment Orders Used to monitor costs incurred in the production of a fixed asset (ex. Building, storage

facility)

Accrual Orders Used to offset postings of accrued costs (costs calculated in CO) to Cost Centers Orders with Revenue

Used to replace the Cost Accounting parts of SD Customer Orders if SD is NOT beingused, so that both costs + revenues can be tracked, or to monitor revenues NOT

affecting the Org.s core business


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Planning Internal Orders

Normally only planned for orders that have a long life cycle Three different Cost Planning Levels available for Planning Internal Orders:

Overall Planning simplest level for planning order costs Can plan overall values and annual values irrespective of the cost elements

Primary/Secondary Cost and Revenue Planning Can be used if you have detailed info about an Internal Order

For manual planning purposes, primary/secondary cost and revenue planningcomprises the planning of Primary Costs, Activity Inputs and Revenues

Unit Costing Can be used to carry out more detailed planning than is possible on Cost Elements

Posting to an Internal Order

An IO is a bucket that allows a better view of costs that could not be itemized in detail in a Cost Center Can be Real or Statistical

If it is a Statistical Posting, the Cost Object that the IO is attached to would receive thereal posting

Commitments

IDs costs which will be incurred in the future for materials and services requested or ordered By recording both Commitments and Actual Costs, can compare the funds you have allocated to

your planned or budgeted costs to determine Funds Availability

Commitments for future costs created in Purchasing function of MM Recorded automatically when you assign an Overhead Order to a Purchase Requisition or

Purchase Order line item

Reduce the commitment by posting a Goods Receipt against a Purchase Order Actual costs are posted to IO Process continues until PO is closed and Commitment reduced to zero Must activate commitment management in CO for each Controlling Area


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Order Settlement

IOs are usually used as an interim collector of costs and an aid to the planning, monitoring and reportingprocesses

When the task is complete, costs need to be passed on to their final destination: Cost Center Fixed Asset Profitability Segment Etc.

This process is called Settlement Another form of Periodic Cost Allocation

Settlement may occur at the end of each period, or at the end of the orders life Can be made to numerous different types of receivers, as long as receivers are defined as valid in

customizing and no system restrictions prevent settlement

Possible Settlement Receivers: Cost Centers Other Orders Projects Profitability Segments Fixed Assets G/L Accounts

A settlement Rule must be defined for each order Defined in Order Master Record

May specify all of the costs of the order are settled to a single receiver, or split tomultiple receivers

Can be structured quite flexibly with the use of many available settlement options

Product Cost Accounting

Concerned with all aspects of planning the cost of products or services, as well as tracking and analyzingthe actual costs

Consists of the following components: Product Cost Planning

Used to estimate the costs to produce goods or services Cost Object Controlling

Collects costs incurred during production of a product or service using cost objects suchas Production Orders

Actual Costing and Material Ledger Provides actual costs for each material at the end of the period

Overview Product Cost Accounting

Product Cost Planning is used to estimate the costs to produce goods or services

The system can automatically create a Cost Estimate IF a Quantity Structure (BOM + Routing) is availablein PP

If Quantity Structure isnt available, then can enter manually with the Unit Costing Tool ortransfer them using Batch input

In Cost Object Controlling, costs incurred during production of a product or service are collected on CostObjects, such as production orders

Several different types of Cost Objects are available, including: Sales Orders Production Orders


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Process Orders Production Cost Collectors

Focuses on simultaneous costing and period-end closing Actual production costs are gathered alongside Raw Material Consumption when completing the

work

This info allows you to compare Planned and Actual costs for any phase of Productionprocess

Period-end closing calculates the value of goods still in production (work in process) andthe variances between the Cost Estimate and Actual Costs

Then settles them to other components such as CO-PA and FI Actual Costing with the Material Ledger is used to provide Actual Costs for each material at the

end of each period

Materials and their movements are valuated with a standard price during the period Any variances from this standard are collected in the Material Ledger when

invoices are received or orders settled

During Period-end closing, these variances are used to calculate an Actual Pricefor the material in the closed period

Overview

Product Cost Planning When you create a cost estimate with a quantity structure, must enter:

Costing Variant Dates proposed from the Costing Variant specify:

Period of validity of the Cost Estimate (from/to) Selection date for the BOM and Routing (Quantity Structure Dates) Pricing Data for Material Components and Activities (Valuation Date)

Material Plant Lot Size

Results can be saved and displayed as Itemizations, Cost Element itemizations or Component Splits Itemization shows detailed info about the origin of costs (ex. Prices of materials and internal

activities used

Cost Element Itemization groups individual costing items into Cost Elements, in order ofappearance

Cost Elements are determined via: Determination for materials Activity type master record Activity type planning for activities Process master record for processes

Cost Component Split groups Cost Elements into Cost Components When a multilevel structure is costed, the Cost Component Split is rolled up so

that the original identity of the costs is retained for analysis

Price Update

Making and releasing a standard cost estimate updates the standard price for the material in the MaterialMaster Record

This results in inventory being revaluated Following prerequisites must be met before a standard cost estimate can be marked or released:

Must be free of errors (Status KA, costed without errors) Marketing and release must be allowed

CC and period in which the standard cost estimate can be marked with a setCosting Variant are entered in the authorization for a marking


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Authorization should be set up once per period by the employeeresponsible

Once a standard cost estimate is marked, results are updated in theMaterial Master Records as the Future Standard Price

Can release a standard cost estimate only ONCE per period, unless you delete the previouslyreleased standard cost estimate

Should always check the standard cost estimate to ensure that its correct before you release itfor a product

Special reports in Info Systems allow thisIntegration Standard Price and Standard Cost Estimate

Price control plays a crucial role in Material Valuation When price control indicator set to S, inventory is valuated at standard price

Goods movements are valuated directly in the system using a price selected inaccordance with the Price Control Indicator

If standard price was updated by a Standard Cost Estimate, it can be used in Cost Object Controlling The system can use the itemization of standard cost estimates to determine the target costs for

manufacturing orders

The difference between target cost and actual cost can be analyzed at the level of VarianceCategories, such as quantity or price variances

The saved itemization provides the basis for the variance calculation In Profitability Analysis, you can use Standard Cost Estimates (or other material cost estimates) to

compare the revenues of the billed quantity with the cost component split of the product

A standard price is also required in the Material Ledger to determine the actual price


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Profit Analysis

Profit Center Accounting An Internal View

Goal is to measure the profitability of area of responsibility within the organization Dividing your company up into Profit Centers allows you to analyze area of responsibility and delegate

responsibility to decentralized units, treating them as companies within the company

EC-PCA lets you set up your Profit Centers according to: Product (product lines, divisions Geographical Factors (regions, sales offices, production sites) Function (production, sales)

Allows you to calculate internal measurements of profitability This internal view reflects the success of a given Profit Center at meeting the profitability goal for

which it was given responsibility

Account Assignment Logic in CO: Each posting to a revenue or expense account that has been set up as a Cost Element requires an

Account Assignment Object

This specifies where the revenue or cost will reside in CO Examples of Real Account Assignment Objects (*Profit Centers are NOT):

Cost Centers Internal Orders Production Orders Profitability Segments

Master Records of CO Objects contain a Profit Center Field Various controlling objects are linked or assigned to the profit center identified in that

field

Causes the system to generate a Statistical Posting (additional posting) in EC-PCA to thatProfit Center whenever there is a debit or credit posting to the object

Typical Questions in PCA


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Unit 4 - Managerial Accounting

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