egn_5622 controlling management spring 2012 (2)

Controlling Management

EGN 5622 Enterprise Systems IntegrationSpring, 2012


Concepts & Theories

EGN 5622 Enterprise Systems Integration

*Controlling Accounting Most companies divide their accounting function into internal and external, and controlling accounting represents 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.

*Controlling (CO)Managerial accounting termed controlling 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 and include:Cost center performanceProfit center performanceBudgets analyses

*Fundamentals of Cost ManagementFinancial (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 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. *Fundamentals of Cost ManagementA 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 simply a way to aggregate costs for some decision purpose at a later time. 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. A cost element can be assigned to multiple cost objects. For example, travel as a cost element may appear in all cost centers.

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

*Target AudienceExecutivesSenior ManagementDepartment ManagersControllersCost Accountants

*Controlling Accounting TerminologyControlling AreaA self-contained, organizational element serves to broadly define a managerial accounting and reporting system for which the management of revenues and expenses can be performedA 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 companiesEach company code can be assigned to one and only one controlling areaA way to identify and track where revenues and costs are incurred for evaluation purposes

*Controlling Accounting TerminologyControlling Area (- continue)A controlling area is also 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. Note:External reporting does not take place for a controlling area. Neither income statements nor balance sheets are created for an entire controlling area.

*Subcomponents of Controlling Accounting - Cost Element Accounting - Cost Center accounting - Internal Orders, and - Profit Center Accounting

*Cost Element AccountingCost Elements Cost and revenue 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, primary revenue elements, and secondary cost elements (there are no secondary revenue elements).

*Cost Element Accounting Cost Elements (- continued)Primary cost and revenue elements created in the FI module and 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).

*Cost Center Accounting (CCA)Created for internal controlling purposes and 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.).

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Cost CentersUnits that are distinguished, for example, by area of responsibility, location, or type of activityCopy centerSecurity departmentMaintenance departmentCan be permanent or temporary (e.g., internal order)Operates as a collector and assignor of responsibility for expendituresA way to identify and track where costs are incurred for evaluation purposesResponsible for cost containment, not responsible for revenue generationOne or more value-added activities are performed within each cost center


*Cost Center (- continued)A cost center is the basic organizational/responsibility component of a controlling area. A controlling area is broken down into cost centers, which are organized in a standard cost center hierarchy.

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

*Cost Center Accounting Cost Drivers A cost driver is a factor, such as machine hours, beds occupied, computer usage time, flight hours, or any other factor that causes overhead 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 driver types: activity types and statistical key figures.

*Cost Center Accounting ActivityAny event, action, or transaction that causes a cost to be incurred in the production of a product or the providing of a service.

*Cost Center Accounting Activity types Activity types are 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.).

*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).

*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.

*Cost Center Accounting 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).

*Cost Center Accounting Activity Based Costing (ABC) 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. 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.

*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.

*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.) Profit 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.)

Organizational Structures-cost center standard hierarchy Cost Center Standard Hierarchy (PENINCxxx)ADMINxxxA005A015A020A010

*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. Generally, a work center is combination of the following resources: Machinery, Equipment, and Vehicles Employees Production Lines Assembly Lines

*Internal OrderA 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.

*Internal Order (- contimued)Temporary 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 projectCompany picnicTrade showRecruiting campaign

*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.

*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.

*Profit Center (- continued)Responsible for revenue generation and cost containmentEvaluated on profit or return on investment Enterprises are commonly divided into profit centers based onRegionFunctionProduct

*Profit Center AccountingProfitability 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.

*Accounting and Control within 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.

*Accounting and Control within 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.

*Estimate Cost For management 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.

*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 120When the units are completed, work in progress must be credited for the 150 units, and the finished goods inventory must be debited the same.

*Example of Cost Accounting Work in ProcessBeginningFinished Goods InventoryBeginning

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. *Example of Cost Accounting Units soldBeginning

*Cost Accounting TerminologyWhen 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 $240,000.00 336.16 156.52Total Cost$233,703.68$240,00.00Production variance -$6,296.32

Debit Credit $0.00 Work is completed$240,000.00Units sold $48,000 Ending $192,000.00

*Example of Cost Accounting Work in ProcessBeginningFinished Goods InventoryBeginning

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?*Example of Cost Accounting Units soldBeginning


SAP Implementation

R/3SAP Module ViewIntegrated SolutionClient / ServerOpen SystemsControllingWorkflowControlling (CO)

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. *ComparisonManagerial AccountingCost Element AccountingCost Center AccountingInternal OrdersProfit Center AccountingProduct CostingProfitability AnalysisABCDifferent ValuationsFlexibility

Financial AccountingExternal AccountingBalance SheetProfit & Loss StatementLegal RequirementsStandards


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. *Comparative ReportingFinancial Accounting (FI)External ReportingManagerial Accounting (CO)ProductCosts ReportsInternal ReportingCost Center ReportsProfitCenterReportsProfit MarginLiquidityCalculationIncome StatementBalance Sheet


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. *Income Statement Bal. Sheet

Financial Accounting(FI) TransactionDocumentAmountG/L Account #Cost Center1900012432

(CO) Transaction DocumentCost Center Cost Element20000657

Controlling100100BankSupplies Exp.Cost Center100Interrelated and Closely Connected


January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*SAP 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)

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

*SAP 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 managementPermit the accurate and organized collection of business informationSupport the development and presentation of relevant information in order to enable and support business decisions

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

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Client 765Credit ControlAreaCompanyCodeFiscal YearVariantChart ofAccountsPen Inc.ControllingAreaOrganizational Structure

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Standard HierarchyAn organizational unit that serves to refine and focus a managerial accounting and reporting sub-systemA mapping of responsibility to individual managersMapping of cost centers facilitates expenseCollectionTrackingReporting


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Standard Hierarchy (- continued)Standard hierarchies are maintained in Cost Center Accounting (CCA) master data maintenance A specific name is assigned to identify a standard hierarchyEach standard hierarchy is attached to the appropriate Controlling AreaAll cost centers of interest must be entered in the Standard Hierarchy


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


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

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


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Cost Element GroupsLogical groupings of primary and secondary cost elementsFacilitates reporting, planning, and allocating costs

Total CostsTotal Primary CostsTotal Secondary CostsWagesUtilitiesMaterialsInternal OrderSettlement

*Cost 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 COPostings in FI that impact cost accounts lead to an posting in CO to a cost elementIn other words, expense account = cost element just different words depending on whether FI object or CO object

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Cost Elements (- continued)Used to categorize costsPrimary 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)


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Primary 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)


*Secondary Cost ElementsUsed exclusively in CO for allocations and settlements between and amongst cost centers

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Cost Elements (continued)FinancialAccountingGeneral Ledger AccountsRevenueAccountsBalanceSheetIncome StatementExpenseAccountsControllingTotal Cost ElementsPrimary CostElementsSecondary CostElements

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.* Primary Cost Element for Rent Expense Income BalanceStatement Sheet Account Account

General LedgerAccount PostingCostCenterAPrimary Cost Elements (cont.)Rent ExpenseAcct. Payable

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Secondary Cost Element Income BalanceStatement Sheet Account Account

General LedgerAccount PostingCostCenterASecondary Cost Elements (cont.)Rent ExpenseAcct. PayableCC 2CC 3

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.* 2,500Supplies Expense1,5002,5002,0001,7502,0002,250Primary Cost ElementPrimary Cost ElementPrimary Cost ElementSec. Cost ElementSec. Cost ElementSec. Cost ElementCost Center ACost Center 2Cost Center 4Cost Center 3Secondary Cost Elements (continued)


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Statistical Key FiguresProvide the foundation for accurate and effective cost allocations between cost objectsUtilized to support internal cost allocations involving allocations, assessments, and distributionsExamples: number of employees, square footage, minutes of computer usage


January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Cost CenterActivity(20 Hours)10 Hours6 Hours4 HoursWork CenterMaintenanceDepartmentInformation ServicesDepartmentStatistical Key Figures


*Revenue 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 COPosting in FI that impact revenue accounts lead to an posting in CO to a revenue elementIn other words, revenue account = revenue element just different words depending on whether FI object or CO object

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.*Cost Center AllocationsDefine Sender and Receiver RulesPercentage, portions, fixedIdentify SenderCost center or internal order (what object has the amounts?)Cost element (which expenditures are we interested in transferring?)Identify ReceiverCost center or internal order (where do the amounts need to go to?)


*Cost Accounting AllocationPosting 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.

*Cost Accounting AllocationPosting Types of Cost Allocation (- continued) 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.

.

*Cost Accounting AllocationPosting Types of Cost Allocation (- continued)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.

January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*Types of Allocations CyclesDistributions primary cost elementsAssessments combination of primary and/or secondary cost elements


January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*Distribution CycleMethod for periodically allocating primary cost elementsPrimary cost elements maintain their identities in both the sending and receiving objectsSender and receiver cost centers are fully documented in a unique Controlling (CO) document


January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC* Sendingcost centerPrimary cost elementmaintains its identity Receivingcost centersDistribution CycleA010 AdministrationRent Expense$1,500Distribution


Chart1

0.15

0.05

0.1

0

0.3

0.1

0.2

0.1

A005 Acct-Finance A010 Administration A015 Purchasing A020 Information Tech. S005 Sales S010 Marketing D005 Warehouse D010 Production

Chart2

400

600

150

100

200

100

900

550


A010 600 sq ft

A005 400 sq ft

D010 550 sq ft

D005 900 sq ft

S010 100 sq ft

S005 200 sq ft

A020 100 sq ft

A015 150 sq ft

Sheet1

50000.251250

0.42000

0.351750

5000

% for Cost centerA0050.150.75A005 Acct-Finance(category = W )

% for Cost centerA0100.050.25A010 Administration(category = W )

% for Cost centerA0150.10.5A015 Purchasing(category = G )

% for Cost centerA02000A020 Information Tech.(category = H )

% for Cost centerD0050.31.5S005 Sales(category = V )

% for Cost centerD0100.10.5S010 Marketing(category = V )

% for Cost centerS0050.21D005 Warehouse(category = F )

% for Cost centerS0100.10.5D010 Production(category = F )

A005 Acct-Finance75

A010 Administration25

A015 Purchasing50DIST_ _ _ (Cost Center Group / Hierarchy Area)

A020 Information Tech.0DISTRIBUTION PRODUCTION Cost Centers

S005 Sales150

S010 Marketing50

D005 Warehouse100

D010 Production50

1500A005 Acct-Finance4000.1333333333

1500A010 Administration6000.2

1500A015 Purchasing1500.05

1500A020 Information Tech.1000.0333333333

1500S005 Sales2000.0666666667

1500S010 Marketing1000.0333333333

1500D005 Warehouse9000.3

1500D010 Production5500.1833333333

3000

January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*A010 AdministrationRent Expense$1,500Distribution Sendingcost centerPrimary cost elementmaintains its identity Receivingcost centersDistribution Cycle


Chart1

0.15

0.05

0.1

0

0.3

0.1

0.2

0.1


Chart2

400

600

150

100

200

100

900

550


A010 Administration 600 sq ft

A005 Acct-Finance 400 sq ft

D010 Production550 sq ft

D005 Warehouse, 900 sq ft

S010 Marketing 100 sq ft

S005 Sales200 sq ft

A020 Information Tech. 100 sq ft

A015 Purchasing 150 sq ft

Chart3

200

300

75

50

100

50

450

275

A015 $75

A020 $50

S005 $100

S010 $50

A010 $300

D005 $450

D010 $275

A005 $200

Sheet1

50000.251250

0.42000

0.351750

5000









A005 Acct-Finance75




S005 Sales150

S010 Marketing50

D005 Warehouse100

D010 Production50

1500A005 Acct-Finance4000.1333333333200


1500A015 Purchasing1500.0575


1500S005 Sales2000.0666666667100

1500S010 Marketing1000.033333333350

1500D005 Warehouse9000.3450

1500D010 Production5500.1833333333275

3000

Sheet2

Sheet3

January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*Assessment CycleA method of allocating both primary and secondary cost elementsPrimary and/or secondary cost elements are grouped together and transferred to receiver cost centers through use of a secondary cost elementSender and receiver cost centers are fully documented in a unique Controlling (CO) document


January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*A020 ITSoftware Expense$4,200

A020 ITSupplies Expense$500Assessment Sendingcost center Primary and secondary cost elements Receiving cost centerAssessment Cycle


Chart1

0.15

0.05

0.1

0

0.3

0.1

0.2

0.1


A020 0%

A005 15%

A010 5%

A015 10%

S005 30%

S010 10%

D005 20%

D010 10%

Chart2

400

600

150

100

200

100

900

550







S005 Sales200 sq ft



Chart3

200

300

75

50

100

50

450

275

Chart4

630

210

420

0

1260

420

840

420

A020 IT , $0

Sheet1

50000.251250

0.42000

0.351750

5000









A005 Acct-Finance75




S005 Sales150

S010 Marketing50

D005 Warehouse100

D010 Production50

1500A005 Acct-Finance4000.1333333333200


1500A015 Purchasing1500.0575


1500S005 Sales2000.0666666667100

1500S010 Marketing1000.033333333350

1500D005 Warehouse9000.3450

1500D010 Production5500.1833333333275

3000

Assessments

4200A005 Acct-Finance4000.15630


4200A015 Purchasing1500.1420

4200A020 Information Tech.10000

4200S005 Sales2000.31260

4200S010 Marketing1000.1420

4200D005 Warehouse9000.2840

4200D010 Production5500.1420

Sheet2

Sheet3

January 2007 (v1.0) 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC*A020 ITSoftware Expense$4,200

A020 ITSupplies Expense$500

Sendingcost center Primary and secondary cost elements Receiving cost centerAssessmentAssessment Cycle


Chart1

0.15

0.05

0.1

0

0.3

0.1

0.2

0.1


Chart2

400

600

150

100

200

100

900

550







S005 Sales200 sq ft



Chart3

200

300

75

50

100

50

450

275

Chart4

705

235

470

0

1410

470

940

470

S010 $470

D010 $470

A005 $705

A010 $235

A015 $470

A020 $0

S005 $1,410

D005 $940

Sheet1

50000.251250

0.42000

0.351750

5000









A005 Acct-Finance75




S005 Sales150

S010 Marketing50

D005 Warehouse100

D010 Production50

1500A005 Acct-Finance4000.1333333333200


1500A015 Purchasing1500.0575


1500S005 Sales2000.0666666667100

1500S010 Marketing1000.033333333350

1500D005 Warehouse9000.3450

1500D010 Production5500.1833333333275

3000

Assessments

4700A005 Acct-Finance4000.15705


4700A015 Purchasing1500.1470

4700A020 Information Tech.10000

4700S005 Sales2000.31410

4700S010 Marketing1000.1470

4700D005 Warehouse9000.2940

4700D010 Production5500.1470

Sheet2

Sheet3

January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.* Exercises:Review cost center standard hierarchyReview cost elementsReview cost element groupsDisplay individual line itemsCreate G/L document entryDisplay individual line itemsRepost expense (cost) between cost centersDisplay individual line itemsPost statistical key figureCreate distribution cycleReview actual line item reportPost supplies expensePost information technology expenseReview actual line item reportCreate assessment cycleReview actual line item report

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

**ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these cost any way you want. Managers bonuses are often based upon their profit centers profitability

Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these cost any way you want. Managers bonuses are often based upon their profit centers profitability

ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these cost any way you want. Managers bonuses are often based upon their profit centers profitability

Version 1.0January 2007The Rushmore Group, LLC*Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these costs any way you want. Managers bonuses are often based upon their profit centers profitability


ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these costs any way you want. Managers bonuses are often based upon their profit centers profitability



ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these cost any way you want. Managers bonuses are often based upon their profit centers profitability
























**ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*

Controlling (CO) PurposeControlling provides you with information for management decision-making. It facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization.As well as documenting actual events, the main task of controlling is planning. You can determine variances by comparing actual data with plan data. These variance calculations enable you to control business flows.Income statements such as, contribution margin accounting, are used to control the cost efficiency of individual areas of an organization, as well as the entire organization.

Cost Element AccountingPurposeCost Element Accounting is the part of accounting where you enter and organize costs incurred during a settlement period. It is thus not an accounting system as such, but rather a detailed recording of data that forms the basis for cost accounting.Cost Center Accounting PurposeYou use Cost Center Accounting for controlling purposes within your organization. The costs incurred by your organization should be transparent. This enables you to check the profitability of individual functional areas and provide decision-making data for management. This requires that all costs be assigned according to their source. However, source-related assignment is especially difficult for overhead costs. Cost Center Accounting lets you analyze the overhead costs according to where they were incurred within the organization.Internal Orders PurposeInternal orders are normally used to plan, collect, and settle the costs of internal jobs and tasks. The SAP system enables you to monitor your internal orders throughout their entire life-cycle; from initial creation, through the planning and posting of all the actual costs, to the final settlement and archiving:Activity-Based Costing PurposeActivity-Based Costing provides a process-oriented, cross-functional view of overhead, in contrast to the traditional location-oriented view provided by Cost Center Accounting. Activity-Based Costing thus complements and enhances Cost Center Accounting.Activity-Based Costing allocates process quantities based on resource and process drivers, allowing you to define cost allocation along the value-added chain more exactly than is possible with overhead rates. Activity-Based Costing also complements and enhances product costing by assigning costs to the business processes where they originated. Cost center resources can allocate to business processes based on their true utilization of activities.Product Cost Controlling Product Cost Planning Cost Object Controlling Actual Costing/Material Ledger Product Cost Controlling Information System Profit Center AccountingPurposeProfit Center Accounting determines the profit of the defined cost centerProfitability AnalysisPurposeProfitability Analysis enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin.


ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*Financial accounting is external and feeds the external reporting requirements

Managerial Accounting is internal only

ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*Transactions can have an effect on both FI and CO. The transaction will create a debit and a credit for FI (FI transaction)If CO is turned on a cost center or cost element bucket will be updated. (CO transactions)ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*In the Business Process Integration class we use the stool as a metaphor for the SAP structure. There are four basic components needed to run execute SAP. Three of these are the legs of the stool: org data, master data, and rules. These hold up the transactions. Transactions cannot be run unless these are setup. The legs are typically configured during the implementation process. During BPI 1 we will setup the stool for Finance, Materials management and Sales and Distribution.

Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*Version 1.0January 2007The Rushmore Group, LLC*Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*Version 1.0January 2007The Rushmore Group, LLC*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*You can capture these cost any way you want. Managers bonuses are often based upon their profit centers profitability



Version 1.0January 2007The Rushmore Group, LLC*In Distribution and Assessment, you further allocate costs (or quantities for Indirect Activity Allocations) collected on a cost center during the accounting period to receivers, according to user-defined keys. These are therefore indirect allocation methods, because the exchange of activity is not the basis for allocating costs/quantities. Instead, user-defined keys such as percentage rates, amounts, statistical key figures, or posted amounts provide the cost/quantity assignment basis. The advantage of these methods is that they are easy to use. You usually define the keys and the sender/receiver relationships only once.Distribution and assessment are used primarily for cost centers. This is because direct cost allocation is not possible here due to the variety of transactions, the lack of clearly defined individual activity types and the fact that the entry of the activity is too time-consuming. For example, the costs of the company cafeteria may be assigned based on the number of employees in each cost center. Telephone costs are seldom allocated directly to the individual cost centers, but are collected on a clearing cost center for each period. They are then reposted or distributed at the end of the period according to the number of telephone units or telephone installations in each cost center.

Assessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers:The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.

Version 1.0January 2007The Rushmore Group, LLC*Distribution UseDistribution is used to allocate the primary costs of a cost center. The following information is passed on to the receivers:The original cost element (that is, the primary cost element) is retained. Sender and receiver information (for example, the identities of the sender and receiver cost center/business process) is documented using line items in the CO document.You can use the information system to analyze the distribution results according to sender and receiver relationships.

Version 1.0January 2007The Rushmore Group, LLC*In this example the distribution of the rent expense is by square footage occupied by each of the cost centers. By the pie chart we see that distribution and administration have the most square footage.Version 1.0January 2007The Rushmore Group, LLC*Distribution and administration having most of the square footage thus have the majority of the distribution costs. Version 1.0January 2007The Rushmore Group, LLC*Assessments are to Secondary CostsDistributions are to Primary CostsAssessment UseAssessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers:The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document. Allocation through assessment is useful when the composition of the costs is unimportant for the receiver. For example, the assessment of cafeteria costs to a cost center need not be broken down further. You can use the information system to analyze the assessment results by assessment cost element according to sender and receiver relationships.

A method of internal cost allocation by which you allocate the costs of a sender cost center to receiver CO objects (such as orders and other cost centers) using an assessment cost element. The system supports the following:Hierarchical method (where the user determines the assessment sequence)Iterative method (where the system determines the sequence of assessment using iteration).Example:The costs from the cafeteria cost center could be assessed based on the statistical key figure "employee", which was set up on the receiver cost center.Receiver cost center I has 10 employees, receiver cost center II has 90. The costs of the cafeteria cost center would be transferred (assessed) to receiver cost center I (10%) and receiver cost center II (90%). The credit on the cafeteria cost center and the debit of the two receiver cost centers are posted using an assessment cost element. Depending on the system setting, the total costs or some of the costs for the cafeteria cost center would be debited.

Version 1.0January 2007The Rushmore Group, LLC*In this example IT expenses are accumulated. Periodically, the costs are reallocated to the primary and secondary cost elements based upon the budgeting and expense policy of the company. Notice how Sales now has a much larger portion than the other departments.Version 1.0January 2007The Rushmore Group, LLC*The reallocation in DollarsECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*ECC 6.0January 2008 SAP AG and The Rushmore Group, LLC 2008*

egn_5622 controlling management spring 2012 (2)

Documents