co refresher

8/16/2019 CO Refresher

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WELCME

!"# C $efresher

Session



"genda %ntroduction C

Controlling "rea

$elationship &etween C"r and CCd

$ole of !"# C Consultant

$ole of !"# C End User

Cost Center

#ro't Center

CC (ierarchy

#C (ierarchy

Cost Element

Type of Cost Elements ) #rimary * !econdary "cti+ity Type

!tatistical ey -igures

"ssessment * .istri&ution Cycle

C O N

T R O L L I N G



Controlling

Controlling is a logical addition to the -inancial #ostingsin the #ro't and Loss/ Controlling gi+es us an o+er+iewof all 'nancial postings to the di0erent cost o&jects/

These cost o&jects are1

Postings to cost centers

Postings to internal and production orders

Postings to Projects

Postings to Sales orders with items that are cost collectors

Postings to Sales orders with items that are not cost collectors

%n principle all pro't and loss postings are updated in the!"# controlling module/



Controlling

Controlling provides you with information for managementdecision-making. It facilitates coordination, monitoring andoptimization of all processes in an organization. Thisinvolves recording both the consumption of productionfactors and the services provided by an organization.

As well as documenting actual events, the main task ofcontrolling is planning. ou can determine variances by

comparing actual data with plan data. These variancecalculations enable you to control business flows. Income

statements such as, contribution margin accounting, areused to control the cost efficiency of individual areas of anorganization, as well as the entire organization.



Controlling "rea

"n organi3ational unit within acompany, used to represent aclosed system for cost accounting

purposes/ " controlling area mayinclude single or multiplecompany codes that may use

di0erent currencies/ Thesecompany codes must use thesame operati+e chart ofaccounts/ "ll internal allocationsrefer exclusi+ely to o&jects in the



$elation 4 Controlling "rea * CompanyCode



Controlling "rea



"ssigning Company Codes toC"r/!#$



Creating 5um&er $ange for C.ocuments

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Cost Center

In business a cost centre is a division that adds tothe cost of an organisation, but only indirectly addsto its profit. Typical e!amples include research anddevelopment, marketing and customer service.

Companies may choose to classify business units as

cost centres, profit centres or investment centres.There are some significant advantages to classifyingsimple, straightforward divisions as cost centres,since cost is easy to measure. "owever, cost centrescreate incentives for managers to underfund their

units in order to benefit themselves, and thisunderfunding may result in adverse conse#uencesfor the company as a whole $for e!ample, reducedsales because of bad customer service e!periences%.



Cost Center

&ecause the cost centre has a negative impact on profit$at least on the surface% it is a likely target for rollbacksand layoffs when budgets are cut. 'perational decisions ina contact centre, for e!ample, are typically driven by costconsiderations. Investments in new e#uipment,technology and staff are often difficult to (ustify tomanagement because indirect profitability is hard totranslate to bottom-line figures.

&usiness metrics are sometimes employed to #uantify thebenefits of a cost centre and relate costs and benefits to

those of the organization as a whole. In a contact centre,for e!ample, metrics such as average handle time, servicelevel and cost per call are used in con(unction with othercalculations to (ustify current or improved funding.



Cost Center

Cost Center "ccounting is used to identify the costs incurred &yan organi3ation

Costs are tracked &y indi+idual areas of the organi3ation calledcost centers/ Cost centers ha+e responsi&ility for controlling costs

Cost centers can plan future costs to ha+e a &asis for comparisonwith actual costs/ This pro+ides a means of measuring the cost

center6s performance in controlling costs"ll cost centers must appear somewhere in the controlling area6s

7standard hierarchy7

%f &usiness areas are acti+e in -%, each cost center must &eassigned a &usiness area

"ll work centers in ## must &e tied to a cost center, for this iswhere acti+ities and prices are planned

!tatistical key 'gures can &e posted to cost centers8 these areused in reporting and allocations

Cost centers can &e planned and9or &udgeted :plan is pie4in4the4sky8 &udget is &ased on control;



#ro't Center

)rofit Center Accounting $*C )CA% lets you determine<profits and losses by profit center using either periodaccounting or the cost of sales approach. It also lets you< <analyze fi!ed capital and so called +statistical key<figures+ $number of employees, s#uare meters, and so

on% by profit center. Conse#uently, you can calculate allkey figures commonly used in cost accounting $return oninvestment, cash flow, sales per employee, and so on%.

A profit center is a management oriented organizationalunit used for internal controlling purposes. ividing yourcompany up into profit centers allows you to analyzeareas of responsibility and to delegate responsibility todecentralized units, thus treating them as +companieswithin the company+.



Cost Center (ierarchy

Tree structure representing all cost centers&elonging to a controlling area from aControlling perspecti+e/

=ou can com&ine cost centers into cost center

groups/ =ou can then create cost centerhierarchies from these groups &y com&iningthe groups according to decision4making area,

area of responsi&ility, or management area/

" cost center hierarchy comprises all costcenters for a gi+en period and thereforerepresents the whole enterprise/ This hierarchyis known as the standard hierarchy/



#ro't Center (ierarchy

Tree structure representing all #ro't centers&elonging to a controlling area from aControlling perspecti+e/

=ou can com&ine #ro't centers into #ro't

center groups/ =ou can then create #ro't centerhierarchies from these groups &y com&iningthe groups according to decision4making area,

area of responsi&ility, or management area/

" #ro't center hierarchy comprises all #ro'tcenters for a gi+en period and thereforerepresents the whole enterprise/ This hierarchyis known as the standard hierarchy/



#ro't Center

Structure The master data of a pro't center includes the name of the pro't

center, the controlling area it is assigned to, and the pro'tcenter>s period of +alidity, as well as information a&out the personresponsi&le for the pro't center, the pro't center>s assignment toa node of the standard hierarchy, and data re?uired for

communication :address, telephone num&er and so on;/E+ery pro't center is assigned to the organi3ational

unit Controlling area/ This assignment is necessary &ecause#ro't Center "ccounting displays +alues in @9L accounts/

The system transfers all the data to #ro't Center "ccountingtogether with the @9L account to which the data was originally

posted/ =ou can only aggregate data of this structure &y using thesame

A chart of accounts

A 'scal year +ariant

A currency



#ro't Center

#ro't Center "ccounting :EC<#C"; lets you determinepro'ts and losses &y pro't center using either periodaccounting or the cost<of<sales approach/ %t also lets youanaly3e 'xed capital and so<called 7statistical key'gures7 :num&er of employees, s?uare meters, and so

on; &y pro't center/ Conse?uently, you can calculate allkey 'gures commonly used in cost accounting :return onin+estment, cash Bow, sales per employee, and so on;/

" pro't center is a management< oriented organi3ationalunit used for internal controlling purposes/ .i+iding yourcompany up into pro't centers allows you to analy3eareas of responsi&ility and to delegate responsi&ility todecentrali3ed units, thus treating them as 7companieswithin the company7/



#ro't CenterProft center is an organi3ational unit in the "ccounting

component in the $9 !ystem/ %t reBects a management4orientedstructure of the enterprise for the purposes of internal control/

Use

Use proft centers to portray the following1

Units of the enterprise that &ear responsi&ility for their own

results, for example, product areasCorporate strategies, for example1

7Clearing up product line7

Comparing regional9geographic units of the enterprise

7Make or &uy7

Where to manufacture

#ro't center managers should &e a&le to inBuence the costs andre+enue for which they are responsi&le/

=ou do not need to record direct costs, o+erhead costs andre+enue separately/ They are entered automatically/

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#ro't Center (ierarchy

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Cost Element

Cost Elements track the type ofcosts or spend/ They formcategories of costs that are

independent from external or'nancial reporting re?uirements,&ut help management to track

costs according to internalaccounting policies/

Carrier of Cost from -% to C

%ntegration point &etween -% to



#rimary Cost Element

#rimary Cost Elements are thosewhich are created from -% generalLedger "ccounts and impact the

'nancial accounts eg/ Tra+ellingexpenses, consumption accountinfact, any #ro't and Loss @L

account/




When cost element carriers cost&etween -% and C they are called#rimary, the link is esta&lished @L "9c DCost element:#rimary;/ " ?uestion may

arise as to whether all @L accounts arecost element, it again depends uponthe &usiness re?uirement, where C#"is acti+e then re+enue account :@L; arealso cost elements, where C#" is notacti+e then re+enue account :@L;should not &e made as an cost element/




Entry while &ooking expenses Tra+el Expenses "9c 4 with CostCentre .r/ $s/== :will &e a @L "9c

and cost element; 4 entries Bows toC thru -%

To Cash "9c Cr/ $s/==



Categories of #rimary CostElementPrimary cost element This category of cost element can

&e de&ited with all primary postings, for example, in-inancial "ccounting :-%; or Materials Management :MM;/

Accrual cost element / percentage method This costelement category may only &e used in Cost Center"ccounting :C4M4CC"; with the percentage method ofaccrual calculation/ =ou can post directly in -inancial"ccounting to register when actual costs are incurred/ The$9 !ystem uses this cost element category to post accruedcosts in Cost Center "ccounting/ %f you do not want to

consider actual costs :for example, additional costs;, youcan create this category of cost elements exclusi+ely inControlling/ =ou de'ne the account in the chart of accounts,&ut you do not need to create the account as a @9L accountin -inancial "ccounting/



Reenue elements The cost element category is used topost re+enues/

$e+enues are displayed in Controlling with a negati+e sign :4;/"n exception to this is #ro'ta&ility "nalysis :C4#";/ %n C4#"re+enues are displayed with a positi+e sign :;/

Sales deduction Cost elements of this category are used to

post sales deductions/ !ales deductions :reductions,adjustments, corrections; are adjustment or deductionpostings of re+enues, such as discounts and re&ates/ Certainre+enues, such as freight charged separately in the in+oice,surcharges for small ?uantities or special orders, are notclassi'ed as sales deductions/ !uch +alue items are de'ned as

re+enue elements/ The account assignment options for cost elements of this

category are the same as for cost element category FF:re+enue elements;/ Galues on cost centers are displayedstatistically only :as for re+enues;/

Categories of #rimary CostElement



!"ternal settlement Cost elements of this categoryare used to settle order, project, or cost o&ject coststo o&jects outside of Controlling/ C external o&jectscan &e, for example, assets :"M;, materials :MM; or@9L accounts :-%;/ The $9 !ystem always creates an

accounting document when you settle to externalo&jects/ =ou cannot use this cost element categoryfor settlement to o&jects within Controlling :such ascost centers, orders, or projects;/ Use secondary costelement category HF for internal settlement/ %n

contrast to settlement to C4external o&jects, noaccounting documents are generated &y the $9!ystem for settlement to C internal o&jects as the+alue Bow occurs exclusi+ely within C/




Cost element #or $alance sheet accounts in %inancial Accounting Costelements of this category are generated automatically when you create costelements in Controlling that ha+e asset reconciliation accounts, that is, special&alance sheet accounts, as corresponding general ledger accounts in -inancial"ccounting/

=ou cannot change this cost element category in C master data maintenance/

-% does not re?uire C account assignments of category IJ/ (owe+er, if you doenter a C account assignment, this is only updated statistically e+en for trueC o&jects/

Cost elements of category IJ ena&le you to control the costs of an order orproject &udget during the ac?uisition of 'xed assets that can &e directlycapitali3ed/ To achie+e this you enter a capital in+estment order or work&reakdown structure :WK!; element in the appropriate 'eld in the asset masterdata/ The "sset Management :"M; component ensures that when the asset isac?uired, the order or WK! element is automatically entered in the document/

%n Controlling, orders and WK! elements are de&ited statistically/ This statisticalde&it is checked with the &udget during a+aila&ility control/

The $9 !ystem does not support other uses of category IJ cost elements atpresent/ =ou cannot plan using these cost elements/





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uestions

What is Controlling "reaWhat is Cost Center (ierarchy

What is #ro't Center (ierarchy

What is CC @roup

What is #C @roupExplain in detail what is CC and why is it re?uired

What are the features of CC

Explain in detail what is #C and why is it re?uiredWhat are the features of #C

Explain the relationship &etween CC and #C

What is Cost Element Explain with example

What is #rimary Cost element Explain its types



K"9#C9!egment

&hat is the di'erence $et(een )usinessArea* Pro+t center , Pro+ta$ilitySegment-

Kusiness area is an organi3ational unit which

corresponds to the speci'c &usiness segment orarea of responsi&ility/ %denti'cation of &usinessarea helps in segment reporting of a companyin its 'nancial statements/ Kusiness areas can&e identi'ed &ased on the products of the

company or &ased on geographical area/#ro't centers are internal areas of a company

that ha+e the responsi&ility for achie+ing targetpro'ts or producti+ity goals/



K"9#C9!egment

The o&jecti+e of &usiness area is more for reporting purposeswhereas pro't center allows to analy3e areas of responsi&ilityand to delegate responsi&ility to decentrali3ed units :egg/, the

+arious di+isions within a company;/ Thus, pro't center are&asically treated as 7companies within a company7 andensures e0ecti+e control/

#ro'ta&ility !egment corresponds to market segment/ Themarket segments can &e de'ned as products, product groups,customers, customer groups, geographic areas, etc/ -orexample, a company may wish to analy3e pro'ta&ility for aspeci'c group of products that the company sells to aparticular customer :or group of customers;/ When setting up

C4#", the company will ha+e &road Bexi&ility to choosewhiche+er characteristics are rele+ant for de'ning thecompany6s market segments/ Each uni?ue com&ination ofcharacteristic +alues :e/g/ sales of product " to customer N;de'nes a pro'ta&ility segment/



i'erence $et(een Pro+t Center and)usiness Area

Kusiness area will ha+e many pro't centers/ -or example Gehicle is a&usiness area in a company/ Gehicle can &e cars and Kikes etc/ (ereGehicle is &usiness area and Cars and Kike are pro't centers/ %n&road Gehicle is a pro't center/ Kut as it has su& areas those arepro't centers/ !o pro't centers cannot &e replaced with &usinessarea and +ice +ersa/ We can replace &usiness area &y #ro't centre,only condition is that it should &e in same controlling area/ The&usiness area is more like a &usiness unit of a company/ =ou canha+e multiple pro't centers within a &usiness area/

Main distinguish factor is that distri&ution and assessment ispossi&le in pro't center &ut not in &usiness area/

ne more distinction is that Kusiness area need not &e attached toany organi3ation structure/ Kut pro't centres can &e created onlyunder the controlling area/ Kusiness area can &e across controllingarea/

Kusiness area concept is used for making strategic decisions &y themanagement whereas the primary purpose of pro't centreaccounting is responsi&ility accounting/



!econdary Cost Element

!econdary Cost Elements are those which are created onlyin controlling and does not a0ect the 'nancials of thecompany/ %t is used for internal reporting only/ The postingsto these accounts do not a0ect the #ro't or Loss of thecompany/

The following categories exist for secondary cost elements1

%nternal !ettlement1 Cost elements of this category is used tosettle order costs to o&jects in controlling such as cost centers, pasegments etc/

rder9$esults "nalysis1 Used to calculate W%# on the order9project

+erhead1 Used to calculate indirect costs from cost centers toorders

"ssessment1 Used to calculate costs during assessment

%nternal "cti+ity "llocation1 Used to allocate costs during internalacti+ity allocation such as Machine La&our etc



!econdary Cost Element

When cost element carries costwith in C, then they are calledsecondary cost element/



Categories of !econdary CostElements

012 Internal settlement This cost elementcategory is used to settle :further allocate; orderor project costs to Controlling :C; internalo&jects/ C4internal o&jects are, for example,orders, pro'ta&ility segments, cost centers and

projects/ =ou cannot use this cost element category for

settlement to C4external o&jects :such as 'xedassets, materials, or @9L accounts;/ Use primarycost element category HH for external settlement/

312 Order/pro4ect results analysis This costelement category is used to sa+e the order9projectresults analysis data on the rele+ant order9project/



512 Oerhead rates This cost element categoryis used to further allocateo+erhead costs using o+erhead rates from costcenters to orders/ 502 Assessment This costelement category is used to allocate costs using

the assessment method/532 Allocation o# actiities/processes This cost

element category is used duringinternal acti+ity allocation and in "cti+ity4KasedCosting/ 672 Incoming orders2 sales reenues

This cost element category is used for salesre+enues from sales orders with incoming orders inthe current period of the project4related incomingorder/




612 Incoming orders2 other reenues Thiscost element category is used for otherre+enues, such as imputed interest, from salesorders with incoming orders in the currentperiod of the project4related incoming order/

602 Incoming orders2 costs This costelement category is used for costs from salesorders with incoming orders in the currentperiod of the project4related incoming order/

812 !arned alues This cost elementcategory is used for the earned +alues fromthe earned +alue analysis in #roject !ystem/




"cti+ity Types

"cti+ity types classify the acti+ities produced inthe cost centers within a controlling area/

To plan and allocate the acti+ities, the systemrecords ?uantities that are measured in acti+ity

units/ "cti+ity ?uantities are +aluated using aprice :allocation price;/

%n +erhead Cost Controlling, costs &ased on the

acti+ity ?uantity of an acti+ity type are postedseparately in 'xed and +aria&le portions/ When

you di+ide the acti+ities of a cost center intoacti+ity types, you should consider whether thecosts can &e allocated e0ecti+ely to the acti+ity

types/



"cti+ity Types

The prices of the acti+ity types of a cost center can&e either entered manually, or calculated &y thesystem &ased on the costs allocated to theacti+ities/ #rices can &e calculated either usingplan costs or actual costs/

=ou can plan, allocate, and control costs either atthe acti+ity type le+el of a cost center, or at thecost center le+el/ =ou can enter actual costs at thecost center le+el/ Costs entered at the cost centerle+el are assigned using splitting/ =ou can also

assign the acti+ity type of a cost center directly/ This use was designed for certain application areas:such as personnel costs and depreciationpostings;/



"cti+ity Types

Typical examples of acti+ity typesfor cost centers are machinehours, administrator hours, C#U

minutes or units produced/



"cti+ity Type

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Kasis for internal allocations &etween cost centersis re?uired/ These ratios9 allocation &ases are called!tatistical key 'gures/

Example

To allocate the costs for the "dmin Cost center tothe indi+idual cost centers &ased on the num&er of

employees in each cost center/ To do this, need toenter the num&er of employees as a statistical key

'gure/ KW report may &e generated to get cost

center wise, num&er of employees/




The 9Statistical :ey %igure ;S:%<= is used as the &asis :tracingfactor; for making allocations :assessments9distri&utions;/ They arethe statistical data such as num&er of employees, area in s?uaremeters, etc/ =ou will make use of a !- when you are faced with asituation where it is not possi&le to use any other con+entionalmethod or measure to arri+e at the share of costs to &e allocated tocost centers/

!uppose that you are incurring a monthly expense of U!. O,JJJ inthe cost center cafeteria, the cost of which needs to &e allocated toother cost centers/ =ou can achie+e this &y the !-/ %magine that youwant this to &e allocated &ased on the Pnum&er of employees>

working in each of the other cost centers such as administrati+eoQce :OJ employees; and the factory :HJJ employees;/ =ou will nowuse the num&er of employees as the !- for allocating the costs/




%n !- allocation, you ha+e theBexi&ility of using two di0erent !-Categories8 namely, Total +alue or -ixed+alue/ =ou will use 'xed +alues in

situations where the !- does notchange +ery often, as in the case of thenum&er of employees, area, etc/ =ouwill use total +alues in situations where

the +alue is expected to change e+erynow and then, as in the case of poweruse or water consumption and the like/




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ExerciseCompany Code :Kasic !ettings which

are mandatory for C con'guration;

Create Kusiness "rea

Create Controlling "rea

"ssignment for Company Code toControlling "rea

Creating Cost Element from @L "ccount

Create Cost CenterCreate #ro't Center



"ssessment * .istri&ution

.istri&ution was created for transfer primary costs from a sendercost center to recei+ing controlling o&jects/

.uring distri&ution, only cost centers or &usiness process can &eused as sender/

" distri&ution recei+er can &e a cost center, WK!

element, internal order, cost o&ject, or a &usiness process/

=ou can restrict the num&er of recei+er categories in customi3ing/#rimary #ostings :such as, energy costs; are collected on a cost

center, and allocated at the end of the period &y means of the user4de'ned key/

=ou can only distri&ute primary costs/

.uring this process, the original cost element remains the same/

Line items are posted for the sender as well as for the recei+er,ena&ling the allocation to &e recorded exactly/

=ou can re+erse distri&utions as often as re?uired/

=ou use the Cycle4!egment method to de'ne sender4recei+errelationships/

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