Controlling Overview

Purpose of Controlling
The information that comes out of FI cannot serve as
management information, the reporting level is too high.
In CO we focus on management reporting.
It records both the consumption of production factors and the
services provided
Facilitates comparison of actual data with plan data
Variance Calculation
Help in make or buy decisions (Marginal Costing)
control and report on the efficiency of
a unit of responsibility for costs (cost center)
one single task/project, or specific part there off (order or WBS)

Controlling can and should consider all cost, whether the

expenditure already happened or not, therefore Controlling only uses cost of consumed material, not inventory
Controlling includes depreciation of fixed assets

Controlling always should take into account amounts and

quantities
Report the results to an internal user community

Flow of Data From FI to CO

Each Profit & loss posting in Financial Accounting can
come into Controlling. An account in FI will be a
primary cost element in CO. In CO there is additional
information needed on each cost element in order to
gather management information. That additional
information is a cost object. Cost Element is posted
on the cost object.
In CO we can further allocate between cost objects.
This is done with secondary cost elements which are
invisible in FI.

Components of Controlling
Cost Element Accounting
Primary Cost Elements
Secondary Cost Elements
Cost Element Groups

Cost Center Accounting

Master Data
Cost Center
Standard Hierarchy

Planning

Primary Cost Planning

Secondary Cost Planning
Activity Type Planning
Plan Assessment
Plan Distribution

Actual Posting
Reposting of Costs
Direct Activity Allocation

Period-End Closing
Assessment
Distribution

Reporting

Components of Controlling
Internal Orders
Master Data
Internal Order
Order Groups

Planning
Primary & Secondary Cost Element Planning
Unit Costing
Budget Management & Availability Control

Commitment Management
Actual Posting
Reposting of Costs
Time Sheet
Direct Activity Allocation

Period-End Closing
Revaluation at actual prices
Overheads
Settlement

Reporting

Components of Controlling
Activity Based Costing

Basic data and structures

Planning
Actual postings
Process template and environment
Reporting

Profit Center Accounting

Account based period accounting method

Basic settings
Object assignment to profit center
Profit center planning
Transfer prices
Actual data flow
Reporting

Components of Controlling
Product Cost Controlling
Product Cost Planning

Master data
Material costs
Production costs
Overhead costs
Product cost estimate using quantity structure (bill of material and
routing)
Product cost estimate without quantity structure
Reference and simulation costing
Costing variants

Cost Object Controlling

Product Cost by Period

Product Cost by Order
Product Cost by Sales Order
Cost of Intangible Goods & Services

Actual Costing / Material Ledger

Components of Controlling
Profitability Analysis (CO-PA)
Costing-based and account based methods
Master data
Currency of Operating Concern
Characteristics
Value fields

Valuation and derivation

Flow of actual values
Flow from the Sales and Distribution (SD) Module
Flow from Billing Document

Flow from the FI/MM direct postings

General Ledger Posting
MM Postings

Flow from the Product Costing

Settlement of Production Variances to PA

Plan integration and planning tools

Multi dimensional Drill-Down Reporting

Cost Element Accounting

A cost element classifies the organization's valuated
consumption of production factors within a controlling
area
Primary Element - costs that originate outside the company;
relate directly to the income statement in FI and must be
included in the FI Chart of Accounts
Secondary Element - costs that result from internal allocation
activities; NO relation to G/L accounts in FI. These accounts are
exclusively for cost accounting and are only maintained in CO

Cost Element Groups It is a group of cost elements of

same characteristics.

Cost Element Vs. G/L Account

Financial
Accounting

Cost Centre Accounting

Internal Orders
Product Costing
Profitability Analysis

Adjustment
Accounts
Income
Statement
Accounts

General Ledger
Accounts Payable
Accounts Receivable
Fixed Assets
Treasury

Primary
Cost
Elements
Secondary
Cost
Elements

Cost Elements

Chart of Accounts

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Ac ntro
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Balance
Sheet
Accounts

Controlling

All
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Inc lin elem ary
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Ac
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Cost Center Accounting

Organizational unit within a controlling area that represents a

defined location of cost incurrence. The definition can be based on:

Functional requirements
Allocation criteria
Physical location
Responsibility for costs

Defines the smallest area of responsibility within the company that

causes and influences costs; the lowest level to which you can
meaningfully assign direct and indirect costs
Cost centres gather primarily overhead costs
As direct production costs are post on a production order and direct
sales costs are post on a profitability segment, just the remaining
overhead is gathered on cost centres.
Also some direct costs are first collected on cost centres and then
allocated to the PO or PSG

Cost Center Standard Hierarchy

Enterprise
A group
Standard
Hierarchy

Company
A Ltd
9100

Functional Area

Cost Center

xx01 - Production

9101000 Production Common

xx02 - Maintenance

9101011 EG- 1 Plant

xx03 - Utilities
xx04 Engineering & Projects

A1 Ltd
9200

xx05 Quality Assurance

xx06 Production Planning
xx07 Production Handling
xx08 Warehousing & Storage

A11 Ltd
9300

s
de
o
N

A111 Ltd
9400

xx09 Executive Office

xx10 - Finance

9110000 Finance

xx11 Human Resources

9111000 Human Resources

xx12 Information Technology

9111001 Housing Services

xx13 - Purchasing

9111002 Training Centre

xx14 General Services

xx15 Safety & Security
xx16 Sales & Marketing
xx17 Research & Technology
xx18 Company General

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Cost Center Planning

Cost Element Planning
Cost center

Senior
consulting

Cost center

Planned costs on the cost

center

FI/CO
consulting

Junior
consulting

Cost Element Planning

Year
Periods
Cost center

2001
1 to 12
30100 FI/CO consulting
Cost element

430000
474100

Name

Salaries
Travel costs

Inpu
t

Planned costs

900000
500000

Version

1
1

Cost Center Plan Distribution

Administration

Company General

Materials

60

Staff Salaries

120

Rent & Rates

Light & Heating

Materials

100

Vehicles

Staff Salaries

200

Repairs

Production Support

Rent & Rates

Travelling

12

Light & Heating

Hotels

18

Materials

40

Staff Salaries

80

Vehicles

Rent & Rates

Repairs

Light & Heating

Travelling

20

Hotels

30

Total

Total

210

Vehicles
Repairs
Travelling

Hotels

12

Total

140

Allocation
Allocation through
through original
original cost
cost element
element

Cost Center Plan Assessment

Administration
Materials
Staff Salaries

Company General

Rent & Rates

Light & Heating

Materials

100

Vehicles

Staff Salaries

200

Repairs

Production Support
Materials

Rent & Rates

Travelling

Light & Heating

Hotels

Vehicles

Company General Costs 210

Rent & Rates

Total

Vehicles

Staff Salaries

Repairs
Travelling

20

Hotels

30

Company General Costs -350

210

Light & Heating

Repairs
Travelling
Hotels

Total

Company General Costs 140

Total

Allocation
Allocation through
through secondary
secondary cost
cost element
element

140

Reposting of costs

Reposting of Line Items

Direct Activity Allocation

Reporting

Reporting Interactive Information

Internal Orders

Used to plan, collect and settle the costs of internal jobs and tasks.
Internal orders are categorized as either:
Orders used purely to monitor objects within Cost Accounting (such as
advertising, training, or trade fair orders) and
Productive orders that are value-added, that is, orders that can be
capitalized (such as in-house construction of an assembly line).

An internal order is a cost object with a life cycle:

it is created, released, post, completed and deleted

An internal order can be real or statistical

A real internal order gathers the cost elements. There is no other cost
object. At period end the costs are settled (allocated) to another cost
object (cost centre or profitability segment).
A statistical order is detail of a cost centre: you post on the order AND on
the linked cost centre. The real posting is on the cost centre, but the
orders give statistical details.

Order Groups It is a group of internal orders to display a certain

structure. It is used in for:

Planning
Overhead calculation
Settlement
Evaluation in reporting

Planning & Budgeting

Planning on Internal Orders

Budget Management

Availability Control

Commitments

Actual Posting from FI

Actual Posting from CO

Settlement of Internal Orders

Activity Based Costing Goals

Business Process

Product / Job Costing with Templates

Materials

Cost Object (Order, Project etc.)

LIS

Order Header
Material Lot-size
Routing

Functions

BOM

CO - Values
Material
Operations
Overhead

Template

ss
Proce es
iti
Quant

Processes

Processes
External Sources

Other
SAP Sources

Business Process Reporting

Profit Center
Organizational unit in Accounting that reflects a
management-oriented structure of the
organization for the purpose of internal control.
You can analyze operating results for profit centers
using the period accounting approach
By calculating the fixed capital as well, you can use
your profit centers as investment centers.

Profit Center groups are collections of Profit

centers with similar characteristics.

Accounts in PCA
A Group Chart of Accounts
Financial Accounting

1
Assets

1
Current
financial
assets
and
shortterm
capital

2
Liabilities

3
Equity

Expense Revenue
accounts

NonMaterial
Revenue
operainventory Primary
cost
elements
ting
elements
costs,
revenue

9
Secondary
cost
elements

Controlling
Profit Center Accounting

Object Assignment to Profit Center

Profitability
Segment
Sales order

Cost center
Profit
Center

Asset

Internal order
Production order

Material

Planning Methods In PCA

Plan data transfer

Excel-Upload
Copy existing data

New Plan

Plan
Allocations
Final Plan

Manual entry

Transfer Price
A transfer price is a price used to valuate the
transfer of goods and services between
independent organizational units.
Views in Enterprise Controlling
Legal View that of independent legal companies
Group View that of the organization as a whole
Profit center view - that of the decentralized responsibility areas
Transfer price from the group viewpoint
=
Transfer price from the profit center viewpoint =
Transfer price from the legal viewpoint
=

group production costs

management price
sales and purchase price

Actual Data Flow

Flow of Actual values in Profit Center Accounting
Flow from Profit and Loss accounts
Flow from materials management
Flow from sales and distribution

Flow from Balance Sheet items Period end closing

Flow from Asset Management

Transfer of Material Stock
Transfer of Work In Process
Flow from Accounts payable and receivable

Flow from controlling Period end closing

Flow from Overhead Cost Management
Profit Center Document Entry
Assessment & Distribution

Overview of Value Flow in PCA

ECECPCA

Profit Center Accounting

V
A
L
U
E
E

FI

Primary Costs

COOM

F
L
O
W

COPA

COPC

Procurement

MM

Production

PP

Goods
Movement

MM

Sales/Billing

SD

Reporting in PCA
Profit
Center
Report

Variable output
areas
Navigation tree /
drag & drop
Cumulative
display functionality

Listoriented
Reports

Interactive
Reporting

Line Item
Reports

Interface
Report-to-Report
Printing
options
Integration
with MS Office

Product Costing
Provides details of cost of Product and Services
with Cost break down into various components
such as material, Labor ,Overhead etc.
Helps in analysis of Cost of product and vital
Decision making related to Make or Buy.
Helps in Identifying the Value added in particular
step of Production thereby identifying and
controlling the variances with Planned costs
which in turn increases profitability.
Help in calculation of Cost of Goods
Manufactured and cost of Goods Sold

Product Cost Planning

Reference & Simulation Costing

Costing variant
Costing items
Base planning objects

Product Costing with Qty. Structure

Its Components:
BOM ( Bill of Material )
Routing
Costing Variant
Cost Component Structure
Costing Sheet
Overhead Key
Additive Costs

Types of Cost Estimate

Planned price/standard price
Price control/actual prices
Commercial/tax price

Current qty structure

Planned qty structure

Inventory
cost estimate
Current
cost estimate
Modified standard
cost estimate
Standard
cost estimate

Quantities

Prices

Costing Variant Qty. Structure

Cost Object Controlling

It helps in reporting and analysis of costs incurred in production activities

Simultaneous Costing
Material

Internal
Activitie
s
Nonstock

Invoices

Process Industry

Repetitive
Manufacturing
Order-related Man.

Period Closing
Work in process
Scrap
Actual cost split
Variances
Settlement

Make-to-Order

Project-relat. Man.

Cost Object Controlling

Components :
Product Cost by Period

Product Cost by Order

High-volume production
Stable manufacturing environment
Individual lot-based cost measurement is not required
Periodic analysis of costs at the level of products
Example: Repetitive Manufacturing
Highly flexible production environment
High setup costs
Full traceability of costs to orders required
Cost measurement by production lot required
Example: Discreet Manufacturing

Product Cost by Sales Order

Customer specific products are manufactured

Collecting special sales costs on sales orders
Tracking Funds committed for sales order
In-house manufacturing / purchase of products / services with reference to a sales
order
Example: Complex Make-to-Order Production

Cost Of Intangible Goods & Services

Preliminary Costing

Simultaneous Costing

Period-End Closing Activities

Overhead Cost
allocated
Calculate
Work in process

Input
Varianc
es

Output
Varianc
es

Work in process
calculated
Calculate
Variances

Scrap
calculated

Price variance
calculated

Quantity var.
calculated

Res.usage var.
calculated

Lot-size var.
calculated

Remain. var.
calculated

Settlement

WIP posted
to FI

WIP posted
to profit center

Variances/scrap settled
to profit. analysis

Variances/scrap settled
to material/price diff.acct.

Material Ledger / Actual Costing

The Material Ledger (ML) is a tool within the CO Module
that collects all transactional data for materials whose
master data is stored in the material master. It acts as a
sub-ledger for selected materials that captures all goods
movements, invoice values, transfers and price changes.
On the basis of this data, the material ledger calculates
and maintains the actual cost for these materials. This
actual cost can then be utilized to valuate the material
stock accounts.
Functions of Material Ledger:
Cost accounting using actual prices
Storing values of stock in three different valuations (legal
valuation, group valuation for reporting purposes, and profit center
valuation) in multiple currencies

Actual Data Flow

Actual data -> Actual Costing
Preliminary valuation price
When Actual costing is used all materials are valuated with a preliminary periodic
unit price. This price remains constant within a period.
This price can be the result of a standard cost estimate, a manual price or an actual
price calculated in the previous period.
The advantage of this price is (as with the standard price) that standard costs can
be calculated independently without price fluctuations hindering the controlling of
the production processes.

Actual Costing
Price differences

Updating single-level variances

During a period, variances are incurred for this preliminary valuation price (or
standard price).
These variances are posted from the material ledger to a price difference account
and updated for each material. Single-level variances are the variances incurred for
a material during its direct procurement.

Single-level price determination

At the end of the period, you can use the functions for single-level price
determination to assign the variances for each material. In this way, cumulated price
differences can be proportionally assigned to the ending inventory and material
consumption of the period at the end of the period.

Multilevel price determination

Multilevel material price determination can also calculate the variances that have
flowed into higher levels of the production process using a multilevel actual quantity
structure

Profitability Analysis

Profitability Analysis enables to analyze the profitability of market

segments according to the following characteristics:
Products
Customers
Sales Districts (i.e. USA West,
USA East, Saudi Arabia etc.)
Others

Master data in CO-PA

Fixed Characteristics
Characteristics
delivered
by SAP

Predefined Characteristics

Characteristics are the analysis dimensions for CO-PA. They

define what items or objects the user will be able to analyze.
Several characteristics (like "sales organization"," customer",
"product", etc.) are predefined automatically for every operating
concern; these are known as fixed characteristics.

Master data in CO-PA

Value Fields
delivered
by SAP

Value Fields
created
by Customer

Predefined Value Fields

Custom Value Fields

The value fields contain values and quantities that were updated or
planned for particular objects.

Plan Integration
Profit planning - V1

Sales

Profit planning V2

Planning
planning
SOP

Sales

Cost of goods

volume

manufactured

Product

Production
LTP

costing

Activity price
Activity quantities

Cost centers

Actual Value Flow in CO-PA

Flow of Actual in Profitability Analysis
Flow from the Sales and Distribution (SD)
Module
Flow from Billing Document

Flow from the FI/MM direct postings

General Ledger Posting
MM Postings

Flow from the Product Costing

Settlement of Production Variances to PA