Controlling Management EGN 5622 Enterprise Systems Integration (Professional MSEM) Fall, 2011 Controlling Management EGN 5622 Enterprise Systems Integration

Controlling ManagementControlling Management

EGN 5622 Enterprise Systems Integration EGN 5622 Enterprise Systems Integration (Professional MSEM) (Professional MSEM)

Fall, 2011 Fall, 2011


Concepts &Concepts & Theories Theories


Fall, 2011 Fall, 2011

33

Controlling Accounting Controlling Accounting Most companies divide their accounting function

into internal and external, Controlling accounting is the internal accounting.

Controlling (managerial) accounting is the process of identifying, measuring, analyzing, and communicating information in pursuit of an organizations goals.

The controlling accounting objective is to show how the system adds value by structuring information in a certain way.

44

Controlling (CO)Controlling (CO)Controlling (managerial) accounting

◦is designed to collect the transactional data that provides a foundation for preparing internal reports that support decision-making within the enterprise.

These reports are exclusively for use within the enterprise, including◦Cost center performance◦Profit center performance◦Budget analyses

55

Fundamentals of Cost ManagementFundamentals of Cost Management

Financial (external) accounting system and the cost management (internal accounting) system are fully integrated.

Every cost is linked to an expense booked in the financial accounting system and to a cost element in the managerial accounting system.

Cost elements are in turn assigned to cost objects.

January 2008January 2008

© SAP AG - University Alliances and © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All The Rushmore Group, LLC 2008. All rights reserved. rights reserved. 66

Fundamentals of Cost ManagementFundamentals of Cost Management A cost element is a classification of expenditures according to the

nature of expense such as salaries, supplies and services, etc., which identifies the object of expenditure out of appropriation funds. The government accounting system tracks expenditures according to the following cost element groups: ◦ Salaries (regular and over time earnings, fringe benefits, etc), ◦ Grants and transfer payments (& valuation allowance)◦ Transportation (vehicles, aircraft, travel agency feeds, freight/carrier), ◦ Communication (telephone, postal services, advertisement, promotions), ◦ supplies and services (operating supplies, materials, office supplies,

maintenance), ◦ pubic debt (credit card fees, interest charges, amortization),◦ minor capital (land, buildings, machinery. Etc), ◦ other operating (food & beverage, accommodation, insurances)

A cost element can be assigned to multiple cost objects. For example, travel as a cost element may appear in all cost centers.



Fundamentals of Cost ManagementFundamentals of Cost Management

A cost object is a accounting data item for which the cost information is desired. The accounting data item may include contract, customer, service function, product, project activity, subdivision, etc.

A cost object is a classification of costs that is desired by the user. It could be a cost center (a department where the cost is incurred), a production order (costs to produce unit 10004232), or a special project (installation of an ERP system), etc.

A cost object is a way to aggregate costs for some decision purpose. For instance, sales/marketing, finance/accounting, and general administration could be three cost centers (objects) in the headquarters under the direction of three different VPs.

88

Target AudienceTarget Audience

ExecutivesSenior ManagementDepartment ManagersControllersCost Accountants

99

Controlling Accounting TerminologyControlling Accounting Terminology

Controlling Area A self-contained, organizational element serves to broadly

define a managerial accounting and reporting system for which the management of revenues and expenses can be performed

A controlling area is the highest level organizational entity within the Control module in which cost and profit analysis takes place (except for PA analysis which takes place within an operating concern.

A controlling area may include one or more company codes; therefore, an enterprise can perform management accounting analyses and reports across several companies

Each company code can be assigned to one and only one controlling area

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Controlling Accounting TerminologyControlling Accounting Terminology

Controlling Area (- continue) A controlling area is broken down into two different “standard”

hierarchical structures: ◦ 1) standard cost center hierarchy; and ◦ 2) standard profit center hierarchy

Internal financial (controlling) reporting and analysis focuses on measuring the cost or profit results of components of a controlling area, such as cost centers or profit centers.

A way to identify and track where revenues and costs are incurred for evaluation purposes

Note that external reporting does not take place for a controlling area. Neither income statements nor balance sheets are created for an entire controlling area.

1111

Subcomponents of Controlling Subcomponents of Controlling AccountingAccounting

◦ - Cost Element Accounting◦ - Cost Center accounting◦ - Internal Orders, and ◦ - Profit Center Accounting

1212

Cost Element AccountingCost Element AccountingCost Elements Cost accounts within a chart of accounts that are involved in

cost accounting are referred to as “elements,” which are further divided into primary cost elements, and secondary cost elements.

Revenue accounts within a chart of accounts that are involved in cost accounting are referred to as “elements,” which are called primary revenue elements. Please note that there are no secondary revenue elements.

1313

Cost Element Accounting Cost Element Accounting

Cost Elements (- continued) Primary cost and revenue elements created in the FI

module are used both in the FI and CO modules to account for cost and revenue flows with parties external to the organization. Primary cost and revenue flows are first recorded in FI and then transferred automatically to a cost or revenue object within the CO module (e.g., cost center, internal order, profitability segment, etc.).

Secondary cost elements are created in the CO module and are used exclusively within CO to account for internal cost flows among cost objects within a controlling area (e.g., cost allocations among cost centers).

1414

Cost Center Accounting (CCA)Cost Center Accounting (CCA) CCA is created for internal controlling purposes and it

provides a tool that can collect costs.

The cost center accounting (CCA) module within CO provides the means for assigning planned costs and actual costs incurred to areas of cost responsibility within an organization.

For example, if a manager wants to know how much it costs to run his department for the month of April, this module can be used to provide the answer. The CCA module contains a variety of methods for allocating costs among cost centers and from cost centers to other cost objects (e.g., internal orders, production orders, profitability segments, etc.).


© SAP AG - University Alliances and © SAP AG - University Alliances and The Rushmore Group, LLC 2007. All The Rushmore Group, LLC 2007. All rights reserved.rights reserved. 1515

Cost CentersCost CentersCost centers are units that are distinguished by

area of responsibility, location, or type of activity◦ Copy center◦ Security department◦ Maintenance department

They can be permanent or temporary (e.g., internal order)

They operate as a collector and assignor of responsibility for expenditures

They serve as a means of identifying and tracking where costs are incurred for evaluation purposes

They are responsible for cost containment, not responsible for revenue generation◦Usually one or more value-added activities are

performed within each cost center

1616

Cost Center (- continued)Cost Center (- continued)A cost center is an organizational/responsibility

component of a controlling area.

A controlling area is usually broken down into cost centers, which are organized in a “standard cost center hierarchy.”

A cost center may also be linked to a specific business area, company code, and profit center (thus, business areas, company codes, profit centers and controlling areas may all be viewed as collections of cost centers).

1717

Cost Center Accounting Cost Center Accounting Cost Driver Cost driver is a factor that can causes a change in the cost of an

activity. An activity can have more than one cost driver attached to it. For example, a production activity may have the following associated cost-drivers: a machine, machine operator(s), floor space occupied, power consumed, and the quantity of waste and/or rejected output.

This is important because if the factor (i.e. base) used to compute say, overhead is not what is actually causing the overhead costs, there will be inaccurate overhead rates and distorted product costs.

Most companies use direct labor-hours or direct labor cost as the allocation base for manufacturing overhead, however, major shifts are being made in the way cost is structured. With the increased usage of sophisticated and complex equipment in manufacturing, there is less direct labor relative to overhead as a component of product costs.

Typical cost drivers types: activity types and statistical key figures.

1818

Cost Center Accounting Cost Center Accounting Activity types Activity is an event, action, or transaction that causes a cost

to be incurred in the production of a product or the providing of a service.

Activity types are usually production or service activities rendered to a work center or cost center that are used to allocate costs.

Activity types generally include different types of labor (e.g., setup, production labor, machine labor, etc.) that are performed by personnel within a work center or cost center.

The measure of the activity type quantity (e.g., hours worked), which is essentially a cost driver measure, may be used to allocate all or a portion of the costs of a cost center to other cost objects (e.g., other cost centers, production orders, profitability segments, etc.).

1919

Cost Center Accounting Cost Center Accounting

Activity types (-continued) The cost center in which the activity is performed is

referred to as the “sender,” and the cost objects receiving the allocated costs are called “receivers.”

The allocation is based on an “activity (transfer) price” that is developed for the activity type. The activity price may be set manually by management, or it may be calculated automatically using an iterative routine that explicitly takes into account “cross allocations” (i.e., allocations back and forth among two or more cost centers).

2020

Cost Center Accounting Cost Center Accounting Product Costing (PC) The product costing (PC) is a CO module which provides

the means for developing different types of cost estimates for a particular product or subassembly, such as standard cost, future cost, tax cost, or commercial cost estimate. These estimates may be used for a variety of purposes, including product pricing, production planning and control, inventory valuation, and income measurement (cost of goods sold).

The product cost is developed after the material is defined, a bill of materials is created, and a routing is determined. This product cost reflects the cost structure of the product on a standard costing basis prior to manufacturing. The product cost structure is normally defined for one unit and can be broken out by individual material parts and further defined as variable or fixed.

2121


Value-added activity Any activity that increases the worth of a product or service.

Non-value-added-activity Any activity that adds cost to, or increases the time spent

on, a product or service without increasing its market value.

Product-level activities Activities that are performed for and are identifiable with an

entire product line.

2222


Activity Based Costing (ABC) It is generally used as a tool for understanding product and

customer cost and profitability. ABC has predominantly been used to support strategic decisions such as pricing, outsourcing and identification and measurement of process improvement initiatives.

The activity based costing (ABC) module within CO provides the means for assigning planned costs and actual costs incurred at the cost center level to business processes that cut across areas of responsibility within an organization. The costs assigned to a business process can in turn be allocated to those cost objects (products, services, customers, etc.) that utilize the business process.

2323

Cost Center Accounting Cost Center Accounting Each cost center is assigned to a controlling area,

profit center, company code, and business area. Taken together, all cost centers within a controlling area constitute the “standard cost center hierarchy.” (There is one and only one standard cost center hierarchy for a controlling area.)

The cost center standard hierarchy is a special type of cost center group.

All cost centers in that controlling area must be assigned to a level of the standard hierarchy.

Organizational StructuresOrganizational Structures-cost center standard hierarchy -cost center standard hierarchy

Plant Plant (Pxxx)(Pxxx)

Client (760)Client (760)

Chart of Chart of Accounts (Cxxx)Accounts (Cxxx)

CompanyCompanyCode (Cxxx)Code (Cxxx)

Fiscal YearFiscal YearVariant (2011)Variant (2011)

Credit ControlCredit ControlArea (Cxxx)Area (Cxxx)

PurchasingPurchasingOrganization Organization

(Pxxx)(Pxxx)

Purchasing Purchasing Group (xxx)Group (xxx)

Shipping Shipping Point Point

(Sxxx)(Sxxx)

Controlling Controlling Area (Cxxx)Area (Cxxx)

SL10SL10 SL20SL20

Cost Center Cost Center Standard Standard Hierarchy Hierarchy

(PENINCxxx)(PENINCxxx)

ADMINxxxADMINxxx

A005 A015 A020A010

2525

Cost Center Accounting Cost Center Accounting Work Center Work centers are organizational units that perform operation

functions within a plant. A work center might include a production line, quality checkpoint, packaging line, and warehouse.

All manufacturing processes are routed through work centers. Each work center is connected to a cost center as defined in Work Center Master Records. This way allows costing, scheduling, and capacity planning to be done for each functional production area individually. The amount of work that can take place at a work center is represented as its capacity. When a capacity is used, the operations are evaluated by charge rates.

2626

Cost Center Accounting Cost Center Accounting Work Center Generally, a work center is combination of the following

resources: ◦ • Machinery, Equipment, and Vehicles ◦ • Employees ◦ • Production Lines ◦ • Assembly Lines

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Internal OrderInternal OrderTemporary cost center responsible for

cost containment, not responsible for revenue generation

It is used to plan, collect, and monitor the costs associated with a distinct short-term event, activity, or project◦Company picnic◦Trade show◦Recruiting campaign

2828

Internal OrderInternal Order A method of internal cost allocation by which valuated

activities (allocation bases) from cost centers can be assigned to cost receivers in accordance with the cause of the cost. The activities or allocation bases represent the output of a cost center (such as production hours or machine hours).

In internal activity allocation, the activity produced by the cost center is multiplied by the activity price. The result is the cost to be allocated. The sender cost center is credited with this amount and the receiver object is debited.

Internal orders support task-oriented planning, monitoring, and allocation of costs.

2929

Profit Center AccountingProfit Center AccountingProfit centers generally involve subdivisions of

companies that are set up for internal planning and control purposes. Taken together, all profit centers within a controlling area constitute the “standard profit center hierarchy.”

There is one and only one standard profit center hierarchy for a controlling area.

3030

Profit Center Accounting (PCA)Profit Center Accounting (PCA)Profit center accounting is used to analyze

income and expenditure for profit centers that represent an independent subunit within an organization.

3131

Profit Center Accounting Profit Center Accounting

Profit Center Profit centers are similar to business areas, in the sense

that they are set up for internal reporting purposes. Profit centers, however, are formally defined as components of a controlling area, not as components of one or more company codes. Income statements may be created for profit centers, and selected assets may also be reported for profit centers, but not complete balance sheets (which can be done for business areas).

Profit centers are linked to cost centers with one-to-one or one-to-many relationship.

3232

Profit Center (- continued)Profit Center (- continued)Responsible for revenue generation and

cost containmentEvaluated on profit or return on

investment Enterprises are commonly divided into

profit centers based on◦Region◦Function◦Product

3333

Profit Center AccountingProfit Center Accounting

Profitability Analysis (PA) The profitability analysis (PA) module within CO

provides the means for assigning planned and actual revenues and costs to a variety of profitability segments, including customers, sales territories, sales employee groups, product groups, etc. This provides great flexibility in defining, both the market characteristics that are of interest to managers, and the related performance measures (e.g., gross margin, contribution margin, segment margin) that managers use to evaluate market segments.

3434

Accounting and Control within Accounting and Control within Production Planning (PP)Production Planning (PP) For each operation created in a routing, a work center must

be identified for where the operation is to be performed.

A work center is allocated to one and only one cost center.

Cost centers are organizational units within a controlling area that represent a defined location of cost incurrence.

Organizational divisions can be made on the basis of functionality, settlement-related, activity-related, spatial, and/or responsibility-related business requirements.

3535

Accounting and Control within Accounting and Control within Production Planning (PP)Production Planning (PP)Accounting and Control within PP (- continued) You plan standard activity costs in the corresponding cost

centers using activity types. When an activity type is allocated to a cost center, it is given a value, for example, in dollars per hour. The work center specifies production activity availability for operations at the work center.

One work center can perform up to six different production activities within different charge rates. Examples of activity types are labor, machine, materials, setup costs, quality costs, and resource consumption.

3636

Estimate Cost Estimate Cost To make the best decisions possible, managers must be able

to estimate costs as close to actual costs as possible. When considering product costs, there are several costs that can be traced directly to the product. These will give an estimate that is near the actual costs of making the product.

Examples of these costs are direct material and direct labor. By using material requisition forms and payroll time sheets, these costs can easily be traced to a product.

The costs that are harder to trace are called overhead costs. They are indirect costs because they cannot be specifically traced to a product. Estimates must be used to allocate overhead to products and services.

3737

Estimate Cost Estimate Cost The most difficult part of estimating product costs is calculating

the amount of overhead that must be allocated to each product, service, or job. Many times a predetermined overhead rate is used.

A predetermined overhead rate refers to a single rate that is used to apply overhead to all products produced. When using job order costing systems, direct labor cost is generally the base used to apply overhead to each job. In process costing, machine hours would be an example of an activity base that is used to allocate overhead.

In the following example, 150 units of a motorcycle were produced. Of the finished units, 30 have been sold thus far. This is seen in the figures below.

Debit Credit 150

Work is completed 150 Ending 0

Debit Credit 0

Work is completed 150Units sold 30 Ending 120

When the units are completed, work in progress must be credited for the 150 units, and the finished goods inventory must be debited the same.

3838

Example of Cost Accounting Example of Cost Accounting Work in Process

Beginning

Finished Goods Inventory

Beginning

Debit Credit 0

Work is completed Units sold 30 Ending 30

When the 30 units are sold, the Units Sold must be debited for the units and the finished goods inventory must be credited.

3939

Example of Cost Accounting Example of Cost Accounting Units sold

Beginning

4040

Cost Accounting Cost Accounting TerminologyTerminology

When looking at a financial point of view, there are actual costs of $233,211.00, $336.11, and $156.52. The standard cost of creating the motorcycles is $240,000. This can be found by taking the price of $1600 per motorcycle and multiplying it by the 150 units. When the 30 units are sold, they have a cost of $48,000, and there is $192,000 remaining in the finished goods inventory. This can be seen in the figures below.

Debit Credit $233,211.00 $240,000.00

336.16 156.52

Total Cost $233,703.68 $240,00.00Production variance -$6,296.32

Debit Credit $0.00 Work is completed $240,000.00

Units sold $48,000 Ending $192,000.00

4141

Example of Cost Accounting Example of Cost Accounting Work in Process

Beginning

Finished Goods Inventory

Beginning

Debit Credit $0 Work is completed Units sold $48,000 Ending $48,000

Because of the difference between the standard cost and the actual cost, there is a Production variance of $6,296.32. When broken down by units, this variance is $41.98/pc.

Was the production of these motorcycles efficient?

4242

Example of Cost Accounting Example of Cost Accounting Units sold

Beginning


SAP Implementation SAP Implementation


Fall, 2011 Fall, 2011

R/3

SAP Module ViewSAP Module View

Integrated SolutionClient / Server

Open Systems

FinancialAccounting

Controlling

Fixed AssetsMgmt.

ProjectSystem

Workflow

IndustrySolutions

ProductionPlanning

Sales &Distribution

MaterialsMgmt.

PlantManagement

QualityMaintenance

Human Resources

Controlling (CO)



Components of Managerial Components of Managerial AccountingAccounting

Controlling(CO)

CostElementAcct

CostCenterAcct

ProductCostControlling

InternalOrders

ActivityBasedCosting

ProfitCenterAcct

ProfitabilityAnalysis



ComparisonComparison

Managerial AccountingCost Element AccountingCost Center AccountingInternal OrdersProfit Center AccountingProduct CostingProfitability AnalysisABCDifferent ValuationsFlexibility

Financial AccountingExternal Accounting

◦ Balance Sheet◦ Profit & Loss Statement

Legal RequirementsStandards



Comparative ReportingComparative Reporting

Financial Accounting (FI)

External Reporting

Managerial Accounting (CO)ProductCostsReports

Internal Reporting

CostCenterReports

ProfitCenterReports

ProfitMargin

RetainedEarningsReport

LiquidityCalculation

Income Statement

BalanceSheet



Income Statement Bal. Sheet

Financial Accounting

(FI) TransactionDocumentAmountG/L Account #Cost Center1900012432

(CO) Transaction DocumentCost Center Cost Element20000657 Controlling

100100

BankSupplies Exp.

Cost Center

100

Interrelated and Closely Interrelated and Closely ConnectedConnected



Business Process IntegrationBusiness Process Integration

FI

MM/PP

SD

Org

Dat

a

Rules

FI

MM/PP

SD

Master D

ata

FI

MM/PP

SD

FI SDMMCO PP

COCO

CO

January 2007 (v1.0)January 2007 (v1.0)

© 2007 by SAP AG. All rights © 2007 by SAP AG. All rights reserved. SAP University Alliance. reserved. SAP University Alliance. The Rushmore Group, LLCThe Rushmore Group, LLC 5050

SAP CO ModuleSAP CO ModuleFully integrated with other SAP modules

including, but not limited to:◦Financial Accounting (FI)◦Materials Management (MM)◦Sales and Distribution (SD)◦Production Planning and Execution (PP)




Org

Dat

a

CO

CO

5252

SAP CO Organizational ObjectsSAP CO Organizational ObjectsThese represent the legal and/or organizational

views of an enterpriseThey form a framework that supports the

activities of a business in the manner desired by management

Permit the accurate and organized collection of business information

Support the development and presentation of relevant information in order to enable and support business decisions

5353

SAP CO Organizational ObjectsSAP CO Organizational ObjectsClientCompany Code Chart of AccountsControlling AreaCost CenterInternal OrderProfit Center



Client 765

Credit ControlArea

CompanyCode

Fiscal YearVariant

Chart ofAccounts

Pen Inc.

ControllingArea

Organizational Structure



Standard HierarchyStandard Hierarchy

An organizational unit that serves to refine and focus a managerial accounting and reporting sub-system

A mapping of responsibility to individual managers

Mapping of cost centers facilitates expense◦Collection◦Tracking◦Reporting



Standard Hierarchy (- continued)Standard Hierarchy (- continued)

Standard hierarchies are maintained in Cost Center Accounting (CCA) master data maintenance

A specific name is assigned to identify a standard hierarchy

Each standard hierarchy is attached to the appropriate Controlling Area

All cost centers of interest must be entered in the Standard Hierarchy



Cost Center GroupsCost Center GroupsLogical groupings of cost centers in the standard

hierarchy to establish accountability and responsibility for one or more cost centers

Facilitates reporting, planning, and allocating costs at a more aggregated level




Ma

ste

r Data

CO

CO



Cost Element OverviewCost Element OverviewCost Element GroupsCost ElementsPrimary Cost ElementsSecondary Cost Elements Statistical Key Figures

January 2008January 2008© SAP AG - University Alliances and The Rushmore Group, LLC © SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.2007. All rights reserved. 6060

Cost Element GroupsCost Element Groups

Logical groupings of primary and secondary cost elements

Facilitates reporting, planning, and allocating costs

Total Costs

Total Primary Costs Total Secondary Costs

Wages Utilities MaterialsInternal Order

Settlement

6161

Cost ElementsCost ElementsA one-to-one linkage (mapping) between General

Ledger expense accounts and CO cost elements is established to permit the transfer of FI expense information to CO

Postings in FI that impact cost accounts lead to an posting in CO to a cost element

In other words, expense account = cost element ◦ just different words depending on whether FI object or CO

object



Cost Elements (- continued)Cost Elements (- continued)Used to categorize costs

◦Primary cost elements originate with Financial Accounting (FI) postings and are linked in whole to Controlling (CO) objects (maintain their source and identity)

◦Secondary cost elements are used exclusively in Controlling (CO) for allocations and settlements to and between Controlling (CO) objects (may not maintain their source and identity)



Primary Cost ElementsPrimary Cost ElementsLinked to expenditure accounts in the chart of

accounts (not just expense accounts, may include capital acquisition accounts)

Costs are automatically posted to assigned Controlling (CO) objects (e.g., cost center or internal order) upon posting in Financial Accounting (FI)

The elements source identity - salaries, utilities, selling expenses - is maintained within Controlling (CO)

6464

Secondary Cost ElementsSecondary Cost Elements

Used exclusively in CO for allocations and settlements between and amongst cost centers



Cost Elements (continued)

FinancialAccounting

General Ledger Accounts

RevenueAccounts

BalanceSheet

Income Statement

ExpenseAccounts

Controlling

Total Cost Elements

Primary CostElements

Secondary CostElements



Primary Cost Element for Rent Expense

Income BalanceStatement Sheet

Account AccountGeneral LedgerAccount Posting

Debit Credit

1,500

CostCenter

A

Primary Cost Elements (cont.)

Debit Credit

1,500

Rent Expense Acct. Payable



Secondary Cost Element

Income BalanceStatement Sheet Account Account

General LedgerAccount Posting

Debit Credit

1,500

CostCenter

A

Secondary Cost Elements (cont.)

Debit Credit

1,500

Rent Expense Acct. Payable

CC 2

CC 3



Debit Credit

1,500

Rent Expense

Debit Credit

2,500

Supplies Expense

Debit Credit

2,000

Labor Expense

1,500

2,500

2,000

1,750

2,000

2,250

Primary Cost Element



Sec. Cost

Element

Sec. Cost Element

Sec. Cost Element

Cost Center A

Cost Center 2

Cost Center 4

Cost Center 3

Secondary Cost Elements (continued)



Statistical Key FiguresStatistical Key FiguresProvide the foundation for accurate and

effective cost allocations between cost objects

Utilized to support internal cost allocations involving allocations, assessments, and distributions

Examples: number of employees, square footage, minutes of computer usage



Cost CenterActivity

(20 Hours)

10 Hours

6 Hours

4 Hours

Work Center

MaintenanceDepartment

Information ServicesDepartment

Statistical Key Figures

7171

Revenue ElementsRevenue ElementsA one-to-one linkage (mapping) between

General Ledger revenue accounts and CO revenue elements is established to permit the transfer of FI revenue information to CO

Posting in FI that impact revenue accounts lead to an posting in CO to a revenue element

In other words, revenue account = revenue element ◦just different words depending on whether FI

object or CO object




CO



Cost Center AllocationsCost Center AllocationsDefine Sender and Receiver Rules

◦Percentage, portions, fixedIdentify Sender

◦Cost center or internal order (what object has the amounts?)

◦Cost element (which expenditures are we interested in transferring?)

Identify Receiver◦Cost center or internal order (where do the

amounts need to go to?)

7474

Cost Accounting AllocationCost Accounting Allocation

Posting Types of Cost Allocation In this unit, Costs will be allocated to particular Cost

Centers. There are three different types of cost allocation:

◦ Direct Reposting, ◦ Percentage Allocation, and ◦ Statistical Key Figures.

In Direct Reposting, an amount of money is allocated directly to a specific cost center. For example, $200 is allocated directly to the Production cost center.

7575


Posting Types of Cost Allocation

In Percentage Allocation, the amount that is to be allocated is split up among multiple cost centers based on a predetermined percentage.

For instance, assume that there are two services, and 70% of the cost is to be assigned to one service, while 30% is assigned to the other. In addition, the total costs to be allocated equal $2,500. Because the first service is to be allocated 70% of the cost, it will be allocated $1750. Likewise, the second service which is to be allocated 30% of the cost will be allocated for the remaining $750.

.

7676


Posting Types of Cost Allocation Statistical Key Figures (SKFs) are used in the R/3 system

to allocate costs from a service department to a user department at the closing of a period. These cost drivers, which are often referred to as tracing factors, are used in allocation methods that do not involve the explicit development of activity (transfer) prices. Nevertheless, the allocation approach is quite similar. A lump sum amount associated with the service department is allocated to a user department in proportion to the relative amounts of the SKF associated with each receiver.



Types of Allocations CyclesTypes of Allocations CyclesDistributions – primary cost elementsAssessments – combination of primary

and/or secondary cost elements



Distribution CycleDistribution CycleMethod for periodically allocating primary cost

elements

Primary cost elements maintain their identities in both the sending and receiving objects

Sender and receiver cost centers are fully documented in a unique Controlling (CO) document



A010 – 600 sq ft

A005 – 400 sq ftD010 – 550

sq ft

D005 – 900 sq ft

S010 – 100 sq ft

S005 – 200 sq ft

A020 – 100 sq ft

A015 – 150 sq ft

Sendingcost center

Primary cost elementmaintains its identity

Receivingcost centersDistribution Cycle

A010 – AdministrationRent Expense$1,500 Distribution



A015 $75A020

$50S005 – $100

S010 – $50

A010 – $300

D005 – $450

D010 – $275

A005 – $200

A010 – AdministrationRent Expense$1,500

Distribution

Sendingcost center

Primary cost elementmaintains its identity

Receivingcost centersDistribution CycleDistribution Cycle



Assessment CycleAssessment Cycle

A method of allocating both primary and secondary cost elements

Primary and/or secondary cost elements are grouped together and transferred to receiver cost centers through use of a secondary cost element

Sender and receiver cost centers are fully documented in a unique Controlling (CO) document



A020 – 0%

A005 – 15%

A010 – 5%

A015 – 10%

S005 – 30%S010 – 10%

D005 – 20%

D010 – 10%

A020 – ITSoftware Expense$4,200

A020 – ITSupplies Expense$500

Assessment

Sendingcost center

Primary and secondary cost elements

Receiving cost centerAssessment CycleAssessment Cycle



S010 – $470

D010 – $470A005 – $705

A010 – $235

A015 – $470

A020 –$0

S005 – $1,410

D005 – $940A020 – ITSoftware Expense$4,200

A020 – ITSupplies Expense$500

Sendingcost center

Primary and secondary cost elements

Receiving cost center

Assessment

Assessment CycleAssessment Cycle


Exercises:Exercises:1. Review cost center standard hierarchy2. Review cost elements3. Review cost element groups4. Display individual line items5. Create G/L document entry6. Display individual line items7. Repost expense (cost) between cost centers8. Display individual line items9. Post statistical key figure10. Create distribution cycle11. Review actual line item report12. Post supplies expense13. Post information technology expense14. Review actual line item report15. Create assessment cycle16. Review actual line item report


Exercises:Exercises:PP 17. Convert planned order into production orderPP 18. Issue goods to production orderPP 19. Review production order status and documentsPP 20. Confirm production completionPP 21. Receipt of goods from production orderPP 22. Review costs assigned to production orderPP 23. Settle costs of production order

Documents

Controlling Management EGN 5622 Enterprise Systems Integration (Professional MSEM) Fall, 2011 Controlling Management EGN 5622 Enterprise Systems Integration