copa desing doc.doc

7/28/2019 COPA Desing doc.doc

1/19

DESIGN DOCUMENT

CO PROFITABILTY ANALYSIS

AUTHOR/APPROVER

Date Document

Version

Document Revision Description Role (Author/Approver) Author/Approver Name

TABLE OF CONTENTS

1.OVERVIEW.....................................................................................................1

2.ASSUMPTIONS...............................................................................................2

3. KEY DECISIONS.............................................................................................2

4.DESIGN DETAILS............................................................................................3

4.1MASTER DATA.......................................................................................................................................4

4.2.PLANNING...........................................................................................................................................10

4.3.ACTUAL DATA.....................................................................................................................................11

4.4.ASSESSMENTS....................................................................................................................................14

4.5.PROCESS DESCRIPTION......................................................................................................................14

4.6.VALUATION.........................................................................................................................................144.7.INFORMATION SYSTEMS......................................................................................................................16

4.8.RECONCILIATIONS...............................................................................................................................18

.


2/19

1. OVERVIEW

SAPs CO-PA (Profitability Analysis Module) will support the need to analyze profitability by market segment.These segments are defined using characteristics. Some are predefined by SAP (i.e., Company Code, Profit Center,Material Number), others are manually defined (i.e., Product Hierarchy, Customer Hierarchy). For the transfer ofthe actual and plan data from other modules (sales, production, etc.), standard SAP can be used.

The following illustration gives an overview of profitability analysis.

Reporting Dimensions

Customer

RegionSales Office

Area

Answers

Revenue

Cost

Loss

Profit

Profit analysis

Market segments

Sales

Quantity

Sales revenue

Customer discount

Sales commission

Direct sales costs

Net revenueDirect material costs

Variableproduction costs

Contribution marginI

Materialoverhead costs

Fixed production costs

Contribution marginII

VariancesContribution marginIII

Overhead costs

Operating profit

Product


3/19

Basic concept of CO-PA:

2. ASSUMPTIONS

The module CO-PA is used to collect and deliver data for the Business Warehouse (BW).

Main focus is the financial reporting (Hyperion report.)

The other modules (sales, production, general ledger, etc.) provide the data, which is required for the

reports.

3. KEY DECISIONS

Costing based vs. Account based CO-PA. The most major decision to be made in a CO-PAimplementation is the selection of costing based versus account based CO-PA implementationmethods. Account based CO-PA uses actual Cost elements as performance measures. In that sense itcan be thought of as a special ledger with a flexible selection of fields and characteristics to report on.The disadvantage of costing based CO-PA is its inflexibility in terms of creating user definedperformance measures. The advantage of it is the ease of reconciliation with FI and PCA. Costingbased CO-PA uses flexible, user defined value fields as performance measures . These value fieldscan be a one to one or many to one match with cost elements. They can also be declared to match apricing condition in SD, which indirectly represents a group of accounts in accounting. Users can alsocreate value fields that do not correspond to any real accounts or cost elements , and are used forinternal analysis and reporting purposes only. Value fields can even be more detailed than accounts, in

CUST

.

GRP

.

Sales region North

Product Prod1Product group Compressorcustomer Cust1Cust. grp Public

sectorCountry UKSales rep. Miller

CharacteristicsCharacteristics

Revenues 800

Sales, discountsand returns 100COGS 650

Value fields RevenuesRevenues

Sales, discountsSales, discounts

and returnsand returnsCOGSCOGS

Profitabilitysegment

ValuesValues

REGIO

N

S

N

W

PRODUCT GRP

Compr.Chiller


4/19

a one to many correspondence scenario (For example splitting of fixed and variable parts of costs in thesame account into different value fields). In short, Costing based CO-PA gives much more flexibility tothe user than account based. The downside is the difficulty of reconciliation with accounting reports,and the fact that the chart of accounts level of detail can typically not be replicated in a value fieldstructure (SAP limits the number of value fields used)

It is also possible to use both account and costing based methods in parallel.

The content of the Operating Concern. The Operating concern defines the set of characteristics and (in

costing based CO-PA) value fields that are used for market segmentation and reporting.

A contribution margin scheme to be used in the profitability analysis. This will define the income statement

structure to be used in profitability reporting. Users can create alternative schemes for analysis purposes

Whether actual sales and sales deductions will be shown for CO-PA reporting. SAP has the ability to show

estimated or actual deductions. This is done through the standard CO-PA functionality to post incomingorders as well as billing documents to CO-PA to estimate the future sales landscape.

(mentioned in the first bullet.).(This is mentioned in the second bullet)

(Mentioned in the second bullet)Standard cost (S-Price) from the product costing module will be the

valuation for delivery out of stock activity.

One operating concern used in the global set up for CO-PA. This is the highest reporting level within CO-

PA.

Whether standard warranty, discount or commission provisions or other accruals will be built as a factor of

revenue or other measures and actual charges will be posted against these accruals. In short, themanagement of accruals on the balance sheet may be handled (estimated) in CO-PA.

The source of data feeding each line of the contribution margin scheme within SAP.

4. DESIGN DETAILS

R/3 Costing based Profitability Analysis is based on a customer-designed structure of so-called value fields, inwhich users can separate costs according to fixed and variable components of general overhead, sales,administration, customer service, marketing and so on.

From SD to CO-PA:


5/19

Users can define profitability segments needed to analyze for their business. The profitability segments are userdefined combinations of characteristics, such as product groups, sales areas, orders and so on.

The system automatically assigns revenues, cost and sales deductions to individual profitability segments when thebusiness transactions (sales orders, invoices) are processed in the system. R/3 ensures that the reports generatedcontain all the relevant business transactions , and that management information is consistent and complete. This is

accomplished thorough the assignment of sales condition types to value fields in CO-PA configuration

Users can allocate costs to profitability segments manually, for example to assess specific overhead costs.

Users can also define key figures and performance measures, such as contribution margin, and have thesecalculated automatically by the system. The report layouts can be defined quickly and easily, and offer a maximumof flexibility. The information is displayed in spreadsheet form, and can be reformatted at any time.

Profitability analysis is also an important tool for planning and forecasting. Users can plan their sales and cost databy accounting period or by week. They can also use formulas to link between revenues with sales quantities, andforecast data using seasonal or probabilistic models. Planning in profitability analysis is also integrated with Salesand Operational Planning. Users can release budgets and transfer data to Production Planning with just a fewmouse clicks.

4.1 Master Data

4.1.1 Characteristics

Characteristics represent the levels at which it is possible to create and analyze actual and plan data. There aretwo types of characteristics:

Standard characteristics, which are automatically predefined in SAP. These include the product number,

company code, customer number, and country.

User-defined characteristics, which can be created to provide additional client specific information.

To derive values for these characteristics, it is necessary to create derivation rules or table lookup rules unless theyare readily available in the sender application (For example, in SD data flow to CO-PA, fields on the billing

document, such as sales org, sales group, customer, etc. are readily available to the CO-PA line item if such fieldsare selected as CO-PA characteristics in the operating concern).

Characteristic derivation makes it possible for the system to automatically derive unknown characteristic values(especially for user-defined characteristics) if these are dependent on characteristics whose values are known.

The following characteristics are typical examples of required fields for reporting and/or planning:


6/19

Area Characteristics

Product View Product number

Product hierarchy (all available levels) Franchise,

Brand, Product Category, Product Group

Plant

Material type

Customer View Customer number

Account group (3rd party, Inter company, Intra group)

Commission sale

Market/Country View Customer group 1 (Market code)

Profit center

Country

Region

Other Posting period

Legal entity/company code

Order type

Record type

Item Category

Cost center

Use (sales order)

Most characteristics already exist in other R/3 applications and it is possible to pick them up from SAP tables.Derivation rules / table lookups have to be defined.

4.1.2. Characteristic ValuesFor the characteristic values, companies may choose to use the existing master data tables in SAP.

Fixed characteristics:

Company code

Profit center

Material number

Customer (Possible party roles: sold-to party, shipped-to-party, and payer)

Country

Region

District (State or County)

Sales office

Branch

Distribution channel (Equipment, Service, Contracting, Parts, Marine)

Division (YRG, UPG, ESG, Inter company)

(Sales person) open action item


7/19

Company Specific Characteristics:

Product hierarchy

Customer hierarchy/group

Vendor source (plant)

The following table gives an example of user-defined characteristics:

Characteristic Description

WW001 SKU

WW002 International Product

WW003 Segment

WW004 Indication

WW005 Minor Product Group (Brand)

WW006 Therapeutic Group

WW007 Therapeutic

Class

WW008 Major

Product Group

WW009 Sub-Franchise

WW010 Franchise

WW011 World Wide

Franchise

WW012 Region Sales

WW013 Customer

WW014 NTC

WW015 IND Customer

4.1.3. Derivation Rules

The following are examples of derivation rules:

Automatically from the system: profit center (from material master, plant view) and company code (from

the accounting transaction).

From the sales order: material number, customer, country, region, district, sales office, distribution channel,

division and sales person.

From material master data: product hierarchy.

From customer master data: customer hierarchy.

Derivation rule from sales offices: Branch.

Vendor source will be derived from material master data, plant or vendor number.


8/19

4.1.4. Value Fields

(This statement is misleading) For each row of the contribution margin scheme there has to be at least one valuefield. Values fields are the fields that contain the currency amounts and quantities in CO-PA. There are two typesof value fields:

Value fields that contain amounts in currencies (amount fields).

Value fields that contain quantities (quantity fields).

Value fields that are used frequently are predefined in the standard R/3 System. These include fields for revenue,sales quantity, freight, and others.

In the following areas, value fields will be necessary to display performance figures for profitability segments:

Area Value Fields

Sales quantity Sales Quantity

Equivalent Units (Sales Quantity X Unit Per Vial)

Gross sales Revenue fields

Discount, rebate, freight, commission,

packaging,

Transport insurance

Fields assigned to SD-conditions, SD-Interface

Fields for calculated values in CO-PA

COGS manufactured products Cost component fields

COGS merchandise Cost of goods field

COSS Cost of services sold

Other corporate COGS Global Manufacturing Standard (Full Standard Cost)

Global Manufacturing Standard less Markup

Manufacturing Conversion Standard Cost

Settlement orders

Sales orders(Make to order manufacturing)

Revenue fields, cost fields

Direct postings from FI Fields for direct posted primary costs

Manual postings Liability fields for rebate, rebate in kind, allowance, commission

CO-PA will not perform any inter company and intra group profit elimination. (I think it is misleading.) Thefollowing table gives some examples of the source of value fields.

Source Description Value Fields

SD Billing Document (Sales and ServiceOrder)

Quantity

Sales RevenuesSales Deductions

Costs of Goods Sold

CO-PC Cost Estimate (Standard Price) Variable Cost of Goods Mfd

Fixed Cost of Goods Mfd

FI General Ledger Posting Bonuses

Freight Costs


9/19

Source Description Value Fields

CO-OM Cost Center

Internal Order

Sales and Administration Costs

Marketing Costs

Variances

PS WBS Element

Network Operation

Contracting, project revenue , project

costs

CO-PA Additional Costs Costed Discounts

Costed Bonuses

The following table gives an example of user-defined value fields:

Value Field Description Type

VV001 Gross Sales Value

VV002 Spillover (OBI Only) ???? Value

VV003 Rebates Value

VV004 Non-government Chargebacks Value

VV005 Cash Discounts Value

VV006 Other NTS Value

VV007 Medicaid Value

VV008 Government Chargebacks Value

VV009 Other Revenue Value

VV010 Intco Sales Value

VV011 Standard Cost Value

VV012 Manufacturing Variances Value

VV013 Inventory Adjustments Value

VV015 Royalty Expense Value

VV016 Interco COGS Value

VV017 Carrying Cost Value

VV018 Freight Value

VV019 Total Comp Salary Value

VV020 Direct Benefits Salary Value

VV021 Indirect Benefits Salary Value

VV022 Total Comp Wage Value

VV023 Direct Benefits Wage Value

VV024 Indirect Benefits Wage Value

VV025 Travel Exp General Value

VV026 Business Meals Value

VV027 Entertainment Value

VV028 External Training Courses Value


10/19


VV029 Internal Training Courses Value

VV031 Automobile Expense Value

VV032 Petty Cash Expenditure Value

VV033 Employee Moving Value

VV034 Recruiting Costs Value

VV035 Other Exp Related To Emp Act Value

VV036 Departmental Supplies Value

VV037 Work Order Supplies Value

VV038 Prod Development Supplies Value

VV039 Equip Prch Non IM Value

VV040 Equip Prch IM Value

VV041 Mechanical Stock Supplies Value

VV042 Equip Rental Non IM Value

VV043 Equip Rental IM Process Value

VV044 Space Rental Value

VV045 Telephone,Telex & Telegraph Value

VV046 Utilities Value

VV047 Building & Grounds R&M Value

VV048 Equip&Parts Non IM R&M Value

VV049 Equip&Parts IM R&M Value

VV050 Waste Removal Value

VV051 Moving & Alteration Value

VV052 Project Maintenance Value

VV053 Bank & Credit Card Fees Value

VV054 Misc Postage Value

VV055 Misc Insurance Value

VV056 Oth Prch Goods & Services Value

VV057 External Legal Services Value

VV058 External Audit Fees EB Value

VV059 Selling Expense Value

VV060 R&D Value

VV061 Marketing Management Value

VV062 Marketing Expense Value

VV063 Other Income EB Value

VV064 Other Expenses EB Value

VV065 CurrGain/LossTransact Value


11/19


VV066 CarryCostRec&InvBTOffset Value

VV067 Allocated Corp Exp BT Value

VV068 Profit Sharing for JV BT Value

VV069 Interest Income BT EB Value

VV070 Interest Expense BT EB Value

VV071 Top-down Distribution Qty

VV072 Units Qty

VV073 Taxes Value

4.2. Planning

CO-PA allows planning at detailed levels such as product and customer. The planning will consist of salesquantities, revenues, cost of goods and profit margin. The system will be used to transfer planned sales quantitiesfrom Sales and Operations Planning (S&OP) to CO-PA.

The following are examples of business requirements:

Revenue and Cost is planned at the SKU level by month for each combination of:

o Legal Entity Source (legal entity that ships the product and receives the legal revenue).

o Market/Franchise (Market/Franchise that receives management revenue).

The global requirement for planning is to plan values for:

1. Sales Quantity (Units) Input

2. Equivalent Units Input

3. Conversion Factor Calculated (1 / 2)

4. Revenue Input or Calculated (Price * Quantity)

5. Average Selling Price Input

6. Local Standard Cost (Future Price) Derived from Material Master

The following additional value fields will be planned based on local requirements:

o Freight / Insurance

o Packaging for shipment

o Royalties

The following diagram depicts the process transfer from plan data into CO-PA:


12/19

Copy, revalue and use top down distributions as planning aids. The copy function can be used for data transfer toCO-PA. Revaluation and top down distribution functions use predefined percentages and factors to re-state a plan.

4.3. Actual Data

The following tables provide examples of value flows.

This next table is too obviously a copy and paste from an equipment manufacturer (I bet it was synopsis) I am notgoing to touch it now, let me know if you want me to come up with something more generic all together.

COCO--

PAPA

COCO--

PAPA

QuantityQuantity ++ AverageAverage priceprice ((oneone

internalinternal,, oneone externalexternal custcust .) on.) on

productproduct groupgroup andand LELE--levellevel oror

manuallymanually-->> RevenueRevenue ..

SS--PricePrice oror averageaverage percentagepercentage ofof

GM onGM on productproduct groupgroup andand LELE--levellevel= COGS

COCO--

OPAOPA

COCO--

CCACCA

PSPS

SOPSOP

SettlementSettlement

AssessmentAssessment

TransferTransfer

SettlementSettlement

CostCost Center PlanCenter Plan

(OH)(OH)

InternalInternal OrderOrder

(OH)(OH)

PlannedPlanned

QuantityQuantity

Project planProject plan

CSCSSettlementSettlement

ContractContract plan/plan/

service planservice planRevenueRevenue andand costscosts

RevenueRevenue andand costscosts

ManualManual PlanningPlanning ::

if necessaryif necessary

CostsCosts

CostsCosts


13/19

To get this information from other modules to CO-PA we use the following methods:

1. Settlement of make-to-order sales orders, service orders/contracts and projects (Work break down structure= WBS):

Margin at STD

Total Cost of Sales - STD

Delivery out of stock:S-Price or V-PriceMake-to-order sales orders: Settlement of the sales order result analysis cost element for the all costs

Contracting: Settlementof the WBS, results analysis cost element for all costs

Service/Repair: Settlement of the service order or contract, primary or results analysis cost elementfor all costsParts: S-Price or V-PriceCost Intercompany

Delivery out of stock:S-Price or V-Price

Make-to-order sales orders: Settlement of the sales order result analysis cost element for the all costsContracting: Settlementof the WBS, results analysis cost element for all costs

Service/Repair: Settlement of the service order or contract, primary or results analysis cost elementfor all costs

Parts: S-Price or V-Price

Direct posting for adjustments

Std cost of Outside Sales (incl.

deduction + sales costs like freight,

packaging)

Total Sales

Delivery out of stock:Condition from the sales orderMake-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXX

Contracting: Settlement of the WBS, results analysis cost element for the revenues XXXX

Service/Repair: Settlement of the service order or contract, primary or results analysis cost elementfor the revenues

Parts: Condition from the sales orderSales - Intercompany

Direct Posting for revenue adjustmentsTotal Sales - Outside


Parts: Condition from the sales orderSales Service / Parts

Delivery out of stock:Condition from the sales order

Make-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXX

Contracting: Settlement of the WBS, results analysis cost element for the revenues XXXXSales - Equipment

Margin at STD


Delivery out of stock:S-Price or V-PriceMake-to-order sales orders: Settlement of the sales order result analysis cost element for the all costs

Contracting: Settlementof the WBS, results analysis cost element for all costs

Service/Repair: Settlement of the service order or contract, primary or results analysis cost elementfor all costsParts: S-Price or V-PriceCost Intercompany

Delivery out of stock:S-Price or V-Price

Make-to-order sales orders: Settlement of the sales order result analysis cost element for the all costsContracting: Settlementof the WBS, results analysis cost element for all costs

Service/Repair: Settlement of the service order or contract, primary or results analysis cost elementfor all costs

Parts: S-Price or V-Price

Direct posting for adjustments

Std cost of Outside Sales (incl.

deduction + sales costs like freight,

packaging)

Total Sales

Delivery out of stock:Condition from the sales orderMake-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXX

Contracting: Settlement of the WBS, results analysis cost element for the revenues XXXX


Parts: Condition from the sales orderSales - Intercompany

Direct Posting for revenue adjustmentsTotal Sales - Outside


Parts: Condition from the sales orderSales Service / Parts

Delivery out of stock:Condition from the sales order

Make-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXX

Contracting: Settlement of the WBS, results analysis cost element for the revenues XXXXSales - Equipment

Value Field Data Source

Value Field Data Source

EBIT

Direct posting

OperatingExpensesAffiliates

Royalty,gain/loss fixed assets, commission income, DirectPosting or cost center assessmentOther Income/Expenses

Direct Postingfrom FIIntangiblesAmortization

Allocationof all admincost centers + direct postingAdministrative Expense

Allocationof all salesand marketing costcenters(balance between actual costsand creditedhours), credit memo(UPG) + bad debt reserve (direct posting)Selling Expense

Allocationof all engineeringcost centers(Balance between costs and possiblecreditedhours) withoutcapitalization of intangiblefixedassets and project system settlementEngineerExpense

Margin at Actual

Total Cost of Sales

Total OtherCosts

Direct postingfrom FIOperatingFX

Allocation of all service office cost centers(Variancebetween actual costs and creditedhours)Total variances

Settlementfrom the productionorders, direct posting and cost center assessment for contracting engineer

Delivery out of stock: Cost Center assessementMake-to-ordersales orders: Settlementof the salesorder result analysiscost elementfor the all costsContracting: Settlementof the WBS, resultsanalysiscost elementfor all costsService/Repair: Settlementof the serviceorder or contract, primaryor resultsanalysiscost elementfor all costs

Parts: S-Price or V-PriceWarrantyExpense

Direct postingfrom FI, Cost center assessmentDirect Charges

Allocationof all serviceoverheadcost centers(Not includedin the rates of theservice engineers)Service overhead


14/19

To get the revenue and the COGS from the monthly results analysis, the result analysis cost elements haveto be linked to the appropriate value field (revenue internal/external or COGS internal/external). Warrantyestimated and actual will be assigned to a separate value field estimated or actual.

2. Set-up data transfer from the make-to-stock sales revenues during the invoice process.

Transfer with a link of the conditions in the sales order with the appropriate value field (revenueinternal/external, COGS internal/external, etc.). Automated transfer of the data with each invoice valuatedwith the standard cost (S-Price) of this product.

3. Settlement of variances from production orders.

After the monthly variance calculation the variances will be settled to CO-PA. Therefore the variancecategories (price variance, quantity variance etc.) have to be assigned to the value field variances.

4. Assessment cycles for allocation of the cost center costs.

The last step in the period end process of cost center accounting is the assessment of the overhead costs toCO-PA. In an assessment cycle it has to be defined which sender (which cost center or cost center groupand which cost element or cost element group) is assigned to which profitability segment. E.g. for the costcenters of the sales offices, the information sales office in the characteristic is necessary to get the P&Lof each sales office.

5. Settlement of the internal orders.

To get the costs and potential revenues of the internal orders, which are not settled to a cost center, a monthend settlement has to be run. The cost elements have to be linked to the appropriate value field here as well.

6. Direct posting from the General Ledger with the profitability segment as cost object.

With data entry on special GL accounts (these accounts have to be defined after finishing the chart ofaccounts) the controlling object is the profitability segment as a combination of the characteristic values.These costs do not appear on cost centers or internal orders. They are only visible in CO-PA and profitcenter accounting.

4.3.1. Transferring Billing Documents Online

Transferring billing documents from the SAP Sales and Distribution (SD) module simultaneously to FI, CO-PCAand CO-PA. The billing documents provide the base data for populating the value fields in CO-PA. The systemmust transfer billing documents from SAP SD simultaneously to FI, CO-PCA and CO-PA.

I dont understand what this means Transferring Incoming Sales Orders Online

Valuate incoming sales orders (as expected revenues) and transfer them from SD to CO-PA in order to obtain anearly estimate of anticipated profits and to get information about the expected loss on pending orders. By analyzingthis data, users can obtain early contribution margins for business segments. The system must transfer salesincoming orders from the SD module to Profitability Analysis.

Consideration - Transferring of incoming orders will only apply to legal entities/sales organizations that will beimplementing the SD module.

4.3.2. Settlement of Service OrdersSales Orders will be used for Service Sales in some cases. These service sales orders will be used to collect bothrevenues and costs associated with the service. For period end closing and reporting purposes it is essential to settlethese sales orders to profitability segments. The costs/revenues will be settled to cost elements as specified in thesettlement structure of the order. The system must be able to settle revenues and costs from service orders tospecific cost elements. These cost elements will be linked value fields in Profitability Analysis.

4.3.3. Direct and manual postings

By using the post document function in FI to assign sales deductions and costs directly to profitability segments(e.g. customers, products) in CO-PA it is possible to post sales deductions or actual costs that are first accrued atthe end of the period for the purposes of estimating profits to the appropriate profitability segments at a later point


15/19

in time. This makes it possible to compare your anticipated costs with the final actual costs. Both of these can bedisplayed in profitability reports.

A requirement would be the ability to post to a profitability segment when entering an FI document for thefollowing GL accounts.

Revenue accounts that allow manual postings (e.g. liabilities for allowance, rebate, rebate in kind,

commission).

COGS at Standard accounts that allow manual postings.

Consideration - Revenue and COGS at standard accounts that allow manual posting must be assigned to a fieldstatus group that requires postings to profitability segments.

4.4. Assessments

Assessments are used to transfer cost center costs at the end of the period to Profitability Analysis. Assessmentsmove costs using secondary cost elements meaning these allocations are only reflected in the Controlling Module,not in the general ledger in the Financial Module. Assessments are broken down into cycles. An Assessment Cycleis a collection of rules for cost allocation. A given cycle can contain a number of segments. A segment consists ofthe following elements:

Sender objects whose values to be allocated are computed using the same rules.

Receiver objects whose allocation bases are computed using the same rules.

The sender-receiver relationships defined in a cycle are processed iteratively. Iteration processing is generally usedwhen a sender object is also a receiver object. The cycle processing continues iteratively (repeatedly) until thesender/receiver object is fully credited. This can increase the amount of time needed to process the cycle.

If users want to process hierarchies separately, they must define a cycle for each level of the hierarchy. Then theyprocess the cycles in succession.

4.5. Process Description

4.5.1. Global Settings

One operating concern will be created, costing-based. Data is stored and can be reported in 2 currencies:

Company code currency

Operating concern currency (currency = US$).

All Controlling areas assigned to an operating concern will have the same fiscal year variant. In defining the datastructure, assign all required characteristics and values to the operating concern. These characteristics are nowvalid for all operating concerns. Harmonized global decision and maintenance of the characteristics and values isnecessary. Avoid frequent changes because of impact on the table structure.

4.6. Valuation

Valuation can be used for the invoice process of standard products with standard costs (S-Price). During the

invoicing, the revenue and sales quantity will be posted to CO-PA. At the same time, the valuation will add thecalculated standard costs (split by material, labor, overhead) to the appropriate revenue. The use of further possiblevaluation e.g. imputed commissions will be decided in the specific deployments.

Valuation enables companies to calculate cost of goods manufactured/sold, as well as anticipated costs and salesdeductions. These valuations can be used in Profitability Analysis for actual postings as well as for planningpurposes.

The following are examples of valuation requirements:

1. Valuation of Cost of Goods sold for manufactured products:


16/19

Product cost estimate will be used to determine the cost of goods. The cost will be transferred to

Profitability Analysis and assigned to value fields based on the cost component split and will usethe current standard cost estimate.

All other sites: the standard cost stored in the material master will be used to determine the cost of

goods sold.

2. Valuation of Cost of Goods Sold for merchandise/services (trading goods, raw materials, packagingmaterials). For all sites the standard cost stored in the material master will be used to determine the cost ofgoods sold.

3. Valuation of rebate, commission, royalties, freight: Will use conditions in CO-PA to calculate anticipatedbusiness costs that are not yet known at the time a sales invoice is processed. These conditions will bedefined as either fixed rates for percentages.

4. Valuation of management standard costs: Will use conditions in CO-PA to record the followingmanagement standards for corporate analysis purposes:

Global Manufacturing Standard

Global Manufacturing Standard less Plasma Markup

Manufacturing Conversion Standard

Global Manufacturing Plasma Capacity

5. Plan Valuation for Cost of Goods: Future Price from Material Master.

For all saleable produced products, a standard cost estimate has to be established. Use standard cost accounting formanufactured products.


17/19

4.7. Information Systems

The diagram listed below illustrates typical controlling area tasks report option and questions.

4.7.1. Reporting and Analysis

Companies require a management tool for the purpose of sales reporting and analysis. It has to support the analysisand controlling of the profitability of market segment structures according to the following parameters:

Market/Franchise/Profit Center.

Product/Product hierarchy.

Customer.

Country.

It must also allow summarization of these parameters by organizational units, for example summarization by legalentity/company code.

The goal of this reporting and analysis tool is to provide the sales, marketing, planning, and managementorganizations with decision-support from a market-oriented point of view. Specifically, the tool should provideprofit margin analysis (Revenue, Cost of Goods at Standard, Margin).

The most important benefit of CO-PA is the flexible analyzing structure. The CO-PA information system is anonline reporting tool. It allows evaluating the data collected in profitability analysis. The system will be used toanalyze data using any of the characteristics in the CO-PA system. When using the dynamic drilldown facility,management can draw on any important business ratios (so-called key figures). They can display severalprofitability segments for any key figure, or several key figures for any profitability segment.

Companies may require the ability to:

1. Display sales / contribution margin / performance figures on different levels.

2. Navigate through a multidimensional "data cube" (drilldown or switching hierarchies).

3. Report in local (company code currency) and global (USD) currency.

4. Answer ad hoc inquiries according to sales key figures.

5. Run reports that compare actual fiscal year data.

6. Run reports that compare budget/forecast versions.

Profit

Center

Accounting

Profit

Center

Accounting

Overhead Cost

ControllingOverhead Cost

Controlling

Product Cost

ControllingProduct Cost

Controlling

Profitability

AnalysisProfitability

Analysis

CostElement

Accou

nting

CostE

lement

Accou

nting

How can we reduce our

overhead costs?

Are the areas of

responsibility effective?

How high are the costs

- of a product?

- of a manufacturing order?

- of a project?

How profitable are

individual

market segments?

How effective are the sales

organizations?

Whichexpenses

arealsocosts?

How

efficient

are my

enterprise

areas

(profit

centers)

-


18/19

7. Run reports that compare budget/forecast versions for actual.

8. Generate an intercompany profit report per article/package and country/market code.

9. Evaluate expected losses on pending orders.

10. Depreciations to the realized selling price.

11. Determine commission for products sold.

12. Run weekly sales report by product/market.

Considerations

Conversion of data from the missing periods January March for YXXXX.

Reporting requirements are met.

Work with costing based profitability analysis.

Sales reporting will be done based on standard costs.

Revenue accounts will need to be created in CO as cost elements with type 11 or 12 (amendments in

current controlling and FI account field status necessary).

4.8.2. Contribution Margin

The following illustrations are examples of a Contribution Margin scheme:

Sales Equipment

Sales Service/Parts

Sales - Contracting

Margin at STD


Cost Intercompany

Std cost of Outside Sales (incl.sales costs likefreight only if invoiced(recoverable) to customer, packaging)

Total Sales

Sales - Intercompany

Total Sales - Outside (incl. Deductions and freight revenue)

EBIT

OperatingExpenses

Operating Income

Affiliate

Other Income/Expenses

Intangibles Amortisation

AdministrativeExpense

Selling Expense

Engineering Expense

Margin at Actual

Total Cost of Sales

Total OtherCosts

Operating FX

Variances

Warranty Expense

Direct Charges (freight costs not billed to the customer non-recoverable)

Service overhead

Value Field Value Field

RevenueCost of sales std

Margin at std

Warranty

Variances

Service OH/FX

Margin at Actual

Engineering

Selling

Admin

EBIT

XX

X

X

(X)

XX

X

X

X

X

X

X

X

X

X

XX

X

X

(X)

X

Product /

CustomerSales Office Profit Center

Company

Code

XX

X

X

X

X

X

X

X

X

X


19/19

4.8. Reconciliations

To verify the correctness of performance figures, valuation and data in Profitability Analysis it is required toreconcile the posted totals with total results in financial accounting and PCA on an aggregated monthly level.Financial analysts will perform this reconciliation based on SAP reports and their own analysis.

It may be required to reconcile COPA to SD, FI and PCA in the following areas:

Sales (gross and net) accounts with value fields gross sales by company code and market.

COGS (standard costs) from financial accounts with value fields COGS (cost components) for

manufactured products and value field COGS for merchandise by company code and market.