BBP

Controlling
Business Blueprint
Submitted to
XYZ LTD
By
Triangle solutions
Version
……………………….. ………
Executive Sponsor Date
DOCUMENT INFORMATION
Project Name Document Name Document Location

XYZ CO Business Blueprint Document Server
DOCUMENT HISTORY
Version Document Name Date Author Reviewed By Change

Control
1.0 CO Business Version 1.0
Blueprint
DOCUMENT HISTORY
Name Organization Change control

XYZ Project - Business Blueprint
Controlling
TABLE OF CONTENTS
1 EXECUTIVE SUMMARY 6
1.1 BACKGROUND..........................................................................................................................6
1.2 Business Blueprint Overview.......................................................................................................8
1.3 CONTROLLING.........................................................................................................................10
1.4 Implementation Scope.............................................................................................................13
1.5 MODULE INTEGRATION.............................................................................................................14
2 ORGANISATION STRUCTURE 16
2.1 Organizational Structures..............................................................................................................16
2.2 Client......................................................................................................................................16
2.3 Operating Concern.....................................................................................................................16
2.4 Controlling Area:........................................................................................................................17
2.5 Company Code.........................................................................................................................17
2.6 Cost Center Hierarchy:.................................................................................................................17
2.7 Profit Center Hierarchy:................................................................................................................18
2.8 Maintain Controlling Area..............................................................................................................19
2.9 Maintain Operating Concern..........................................................................................................20
2.10 Maintain CO number range (Proposed).........................................................................................21
3 MASTER DATA 22
3.1 Master Data - Cost Elements.........................................................................................................22
3.2 Master Data- Cost Centers............................................................................................................26
3.3 Master Data- Activity Types...........................................................................................................30
General Explanation................................................................................................................................30
3.4 Master Data- Statistical Key Figures.................................................................................................34
3.5 Master Data- Profit Center............................................................................................................37
4 BUSINESS PROCESSES 43
4.1 Cost & Revenue Element Accounting...............................................................................................43
4.2 Cost center Accounting................................................................................................................44
4.3 Cost Center Planning..................................................................................................................46
4.4 Cost center Allocations.................................................................................................................51
4.5 Cost Center Activities..................................................................................................................52
4.6 Material Master..........................................................................................................................53
4.7 Internal order............................................................................................................................55
4.8 Cost Center Analysis...................................................................................................................57
4.9 New product Costing...................................................................................................................58
4.10 Standard Cost Estimate...........................................................................................................60
4.11 Product Cost by Order.............................................................................................................70
4.12 Product cost collectors/Product cost by period.........................................................................74
4.13 Product cost by Sales Order..................................................................................................79
4.14 Profit Analysis of Internal Divisions of Enterprise..............................................................................84
4.15 Segment profitability................................................................................................................84
4.16 Scrap accounting...................................................................................................................87
5 MODULE INTEGRATION 89
6 Standard Information system 90
7 Gaps 91
Triangle Solutions Page 2 of 60

Controlling
1 EXECUTIVE SUMMARY
1.1 BACKGROUND
XYZ LTDwas established in the year 1961 in techno-commercial collaboration with the German. Over the years a strong research and
development unit grew within XYZ LTD. XYZ LTD started building world class machines. Today, XYZ LTD is a 100% Indian company. XYZ
LTD is an ISO9001:2000 and ISO14001:2004 accredited company. XYZ LTD is actively engaged in preserving environment within its own
campus as well as at its surroundings. The factory is located on a large plot, but the built-up portion has been kept deliberately small. The rest of
the area is devoted to sprawling gardens, green house, and ponds.
XYZ LTD has the privilege of serving customers through repeat orders. The core strength of XYZ LTD in India and abroad lies in its enduring
alliance with suppliers, customers, employees, shareholders, government, and society.
MACHINE DIVISION
Continuous innovation, research, development, modern manufacturing methods and close customer interaction enable the company to stay in the
forefront of technology
Typical Products:
Xxx marked milling machines, CNC Vertical milling machines, CNC Drill Tap centers, Machining components

Controlling
1.2 Business Blueprint Overview
This document summarizes the findings of the Triangle Solutions consulting team and XYZ LTD XYZ LTDTeam, with respects to SAP processes
to be implemented in XYZ LTDLimited.
Following activities were carried out during different phases of the project.
 CSBP-Current State Business Process Mapping

 XYZ LTD Sites Visit
 FSBP-Future State Business Process Mapping
 GAP Analysis
The information was gathered through above activities carried out during different phases of projects i.e. reviews of business processes, business
procedures, documentation and relevant reports
The purpose of Business Blueprint document is to prepare to move forward with the implementation of XYZ LTD's SAP R/3 system. At the
conclusion of the blueprint, the Triangle Solutions consultants will determine the SAP functionality required to run the XYZ LTD business.
The Blueprint and its associated appendices present a summarized perspective of all functional business processes that will be implemented. As
such, the Blueprint document will serve - from this point forward the dual role of both official project scope as well as system acceptance criteria.
The body of this document describes the organizational structure, Master Data, and R/3 functional process flows to be implemented at XYZ LTD.
Generally, requirements that can be met using standard R/3 functionality through routine configuration tasks are not explicitly documented.
However, certain key requirements are explicitly identified and summarized to highlight their importance to XYZ LTD and to document the
approach proposed to meet the requirement.
One section of the document summarizes identified gaps. The project team has discussed this list with agreement on the approach going forward.
Acceptable approaches may require:
 Additional programming or technical effort

 Recognition and acceptance of procedural changes ("Workarounds") using standard R/3 Additional resource commitment
 Deferral of a feature to a later phase
 Recognition and acceptance of a limitation.
Other section of the document summarizes Value SAP Q&A on Organization Structure, Master Data and Business Processes. These were used as
per Value SAP Methodology to discuss the XYZ LTD requirements in detail.
The Blueprint reiterates the R/3 organizational structures that have been identified and will serve as the basis for the initial configuration
activities. No significant configuration and customization choices have been identified that will prevent the future implementation of additional
capabilities within the R/3 environment.
The information gathered and documented in the Blueprint is sufficient for the team to go forward into the Realization phase. However, it is
critical that both the Triangle Solutions and XYZ LTD XYZ LTDteam agree on the scope of the project as presented in this document.

Controlling
1.3 CONTROLLING
1.3.1 Overview of the Controlling setup
The following are the basic requirements of controlling module:
 Cost control
o Costs are tracked at the origin

o Responsibility is fixed for costs incurred.
o Maximum of 95% of indirect costs are identified to products.
o Overall overhead rate is maintained at the lowest of 5%
 Costing of internal projects/investment proposals
 Transparent costing system is maintained for internal jobs

 Budgetary control is exercised for funds
 Keep tracking as well as settle the cost, finally to the receiver
 Product costing
 Product cost planning at the beginning of the year

 Accurate product costing during the course of production
 Cost accounting standards and CARR will be followed wherever applicable
 Report of cost in summarized form
 Responsibility accounting and segment reporting
 Responsibility accounting for costs and revenues

 Segment reporting for market segments like Domestic, exports etc
1.3.2 Cost control (for overhead costs):
This will be achieved through Cost Center accounting (CCA). The lowest level of control will be the cost center. All costs when posted in FI will
have a parallel entry to the respective cost centers in CCA. It is possible to plan costs at the cost center level and check the variance online as and
when postings take place XYZ LTD. The reports can be displayed at any summation levels of the organization structure hierarchy.
Cost center output will be measured as Cost Center Activities and activity type price will be calculated in planning and actual.
1.3.3 Managing projects /internal jobs/ specific activity
All costs associated with projects/internal jobs including capital investment projects (or those of similar nature such as service programs,
maintenance expenses, other specific activities etc.) will be collected separately on internal orders. Thus the total costs and revenues associated
with such project / activities can be controlled independent of the general cost center costs and also seen together on an online basis. Budgeting of
project costs can be done and variances reporting done on an online basis, as costs are booked. Active availability control can also be exercised
on such internal orders for a fiscal year or on an overall basis.
At the end of the project (or periodically) these costs/revenues can be transferred to an appropriate cost object (more often cost center) to reflect it
on the ultimate utilizing cost object.
1.3.4 Product Cost
Productions orders/Product cost collectors will be opened periodically for the finished and semi-finished products of the company. These
production orders/product cost collectors will collect all production related costs (more specifically material consumption).

Controlling
Conversion cost will be through work centers and activity consumption. Also they will be loaded on with overhead through pre-determined
recovery rates. During this overhead posting, the credits will be passed on to the overhead pool cost centers.
All overhead costs will be allocated to the individual cost object (cost center/ internal order). These overheads will typically reflect cost incurred
on the service cost centers. These allocations will be entered while making FI postings. These objects would in turn pass on the data to the profit
centers.
These overhead pool cost centers will receive their debits through periodic allocations from the service cost centers. Periodic determination of
variances on the pool cost centers would give valuable inputs on the recovery rates and allocation cycles.
Production orders/product cost collectors will be closed periodically and variances arrived at. These variances will be passed on to Financial
Accounting.
1.3.5 Responsibility accounting (contribution)
Apart from company level profits – business segments – wise profits can be arrived at on a profit center level. Each profit center will have a profit
center head who will be responsible for the revenue & costs of the profit center and will operate on a contribution target.
The actual costs and revenues are reflected online as soon as the transactions take place XYZ LTD. However, the sub ledger items will need to be
carried forward periodically. Reports will show individual profitability of each profit center. Apart from the profit and loss accounts, balances in
the balance sheet accounts will also be available profit center wise.
Drill down is also available in many of the PCA reports to navigate right through the originating document both in FI and logistics.
1.3.6 Profit analysis (CO-PA)
Profitability analysis is a CO component. It is capable of marginal costing. As contribution margin accounting, it also provides concurrent
comparison of actual and planned data in order to evaluate the financial results of the individual market segments.
Reports can be raised for period ends. Reports can be prepared using the actual revenue or estimations for revenue and revenue deductions. It
enables to analyze sales and cost data using characteristics contained in the data description. Many key figures are available for evaluation.
In XYZ LTD, market segments like Domestic, Exports will be established.
SD Billing data are generated on the segment lines. When such data are generated in the system, values of line items will be posted to CO-PA.
Corresponding sales deductions like cash discounts, rebates that may arise also will be transferred to CO-PA. Any other cost related to sales will
also be transferred to the profitability system.
Product cost that is standard cost of material will be transferred to CO-PA. All production variances will be settled to CO-PA.
The market segments will be defined in terms of characteristics such as products, product groups, customers, customer groups, geographic areas,
etc. For example, you may wish to analyze profitability for a specific group of products that you sell to a particular customer (or group of
customers).
When setting up CO-PA for use in XYZ LTD, you will have broad flexibility to choose whichever characteristics are relevant for defining your
company's market segments. Each unique combination of characteristic values (e.g. sales of product A to customer Y) defines a profitability
segment.
1.4 Implementation Scope
1.4.1 Geographical Coverage
The following units are within the scope of SAP Implementation at XYZ LTD:
Plant Regional Offices Dedicated Unit
XYZ LTD, All

Foundry,

Controlling
Plant Regional Offices Dedicated Unit
1.4.2 Functional Scope
The Controlling System Document contains the configuration details of the Controlling module as of the document release date and also
describes briefly the maintenance required when there are changes in SAP organization structure, processes and master data.
The objective of this document is to provide important configuration details of the module to enable the application system administrator(s) /
authorized users in further configuration, if any. Any changes in the configuration can affect any of the other CO sub-modules and hence care
should be taken to understand the implications before any changes are made. It is also recommended that this document be a controlled copy.
The following Controlling sub-modules will be implemented during this implementation:
 Cost & Revenue Element account

o Master Data
o Information System
 Cost Center Accounting

o Master Data
o Planning
o Actual Posting
o Information system
 Internal Orders
o Master Data
o Planning
o Budgeting
o Actual Posting
 Product Cost Planning

o Standard Cost Estimate
o Costing Variant
o Cost Component Structure
o Cost sheet for overhead
 Product Cost by order

o Basic Settings
o Manufacturing Orders
o Simultaneous Costing
o Period End Closing
 Product Cost by Sales order

o Basic Settings
o Product cost by Sales Orders
o Period End Closing
 Product Cost by period

o Basic settings
o Product Cost Collectors
o Period end closing
 Profit center accounting

Controlling
o Basic Settings
o Master Data
o Transfer Prices
o Actual Postings
 Profitability Accounting
o Structures
o Master data
o Planning
1.5 MODULE INTEGRATION
In addition to financial application Module, following module integration are required.
 MM for inventory values & material transactions

 PP – to the extent of product costing
 PS – to the extent of project costing
 SD for sales data and sales order costing.
 CS for capturing pre warranty and post warranty cost.
 Asset accounting – Asset values & depreciation
 PM for capturing maintains cost
 QM for capturing inspection cost
 Within Controlling Module, Profit Center Accounting and Profitability Analysis are integrated with Cost center Accounting and Cost
object controlling.

Controlling
2 ORGANISATION STRUCTURE
2.1 Organizational Structures
In the R/3 System the user can use several structures to represent the organizational structure of the entity from the point of view of financial
Accounting, Controlling, materials management, and sales and distribution. The organizational structures form a framework in which all
business transactions can be processed. An organizational structure consists of several organizational levels, which are used by different
functional groups within an organization. The organizational levels relevant to Controlling (CO) are given below.
2.2 Client
The client is the highest hierarchical level in the SAP system. Specifications that you have to make or data that you enter at this level are valid
for all company codes and for all other organizational structures, such as sales organization and purchase organization. Consequently, these
specifications are to be entered only once. Central maintenance ensures standardized data. For example, Customer addresses are stored at client
level so that all company codes can access this central data. Different functional areas also use this data like the customer’s address used for
sending out an order confirmation as well as for printing a dunning notice (reminder letter).
Each client is a self-contained unit with separate master records and a complete set of tables. A client key is used in all master records, which
ensures that they are stored per client. Each user must specify a client key when he or she logs on to the system. By doing this, the user specifies
the client in which he or she wishes to work. All entries are stored per client. Data processing and analysis are carried out per client. For
example, it is not possible to produce a report on customer Accounts from different clients in one dunning notice run. Access authorization is
assigned per client. A user master record must be created for each user in the client where he or she wishes to work.
2.3 Operating Concern
It is SAP organizational unit where market segments are evaluated for their profitability. It represents a part of your organization for which the
sales market is structured in a uniform manner.
By setting off the costs against the revenues, you can calculate an operating profit for the individual market segments, which are defined by a
combination of classifying characteristics (such as product group, customer group, country, or distribution channel). The market segments are
called profitability segments.
You can assign multiple controlling areas to one operating concern.
It is the highest level in CO organizational structure and can span across multiple legal entities within a group.
XYZ LTD will have one operating concern - 1000
2.4 Controlling Area:
The cost accounting system uses controlling area as an organizational unit. Controlling area delimits the company’s managerial accounting
operations. Organization structure is replicated in the controlling system. The company code and controlling area uses identical chart of accounts,
currency.
Cost centers, internal orders, and product hierarchy and profit centers/ profitability segments are used to classify the controlling area. All inter
organizational allocations refers to objects within the same controlling area.
XYZ LTD will have a single Controlling Area equivalent to the company code- 1000
2.5 Company Code
Each company code represents an independent accounting unit. The balance sheet and the profit and loss statement, which are required by law,
are prepared at company code level. XYZ LTD company code is 1000
2.6 Cost Center Hierarchy:
GENERAL EXPLANATION

Controlling
In SAP for each Controlling Area there must be at least one Cost Center group that contains all cost centers and represents the entire business
organization. This cost center group is described as “Standard Hierarchy”. A cost center hierarchy comprises of all cost centers in an organization
and therefore represents the whole enterprise from the costing perspective.
Based on the definition of the Standard hierarchy it will be possible to view all the cost centers for the entire organization arranged and grouped
according to a predefined sequence. Using cost center groups and a uniform codification it will be possible to analyze cost accounting flows
across various divisions of the organization in a centralized and structured manner.
Relationships between different cost centers and their linkages to cost center groups will be clearly defined and visible.
Change and display Standard Hierarchy
Top node of the Standard hierarchy is defined at the time of creation of controlling area. After creation standard hierarchy can be modified and
displayed using the following transaction codes:
Change OKEON
Display OKENN
Procedure for changing standard hierarchy
Go to transaction code OKEON.
On Screen Change standard hierarchy structure you can change the hierarchy area of any cost center by simply dragging and dropping the master
data on the change screen.
To Add Cost Centers to the Cost Center Hierarchy, place the cursor on the Cost Center Group desired, with left mouse click you will get a drop
down with various options to add a cost center. You can then maintain the master data values in this transaction only.
To add a new cost center group to the hierarchy, you can select “Add Cost Center Group” from the drop down list or by pressing the relevant
button on the menu bar. The master data values can be maintained after adding the cost center group.
Once the maintenance of cost center hierarchy is complete you can save the hierarchy by pressing the Save icon or Ctrl + S. The system will
show a message that the cost center hierarchy is saved.
Note: If a Cost Center was added to a Cost Center Group as part of a range, then the individual Cost Center cannot be deleted. The Range must be
deleted and then the desired Cost Centers (minus the one to be deleted) may be re-entered. If a Cost Center was added as part of a range, the
beginning and ending numbers of the range will appear on one line of the hierarchy followed by the individual Cost Centers.
The XYZ LTD - cost center hierarchy is attached to the XYZ LTD Controlling Area. Within, the hierarchy, lower level nodes will have to be
created to enhance reporting. Individual cost centers have been attached to these nodes.
XYZ LTD cost center hierarchy is 1000
2.7 Profit Center Hierarchy:
A profit center is an area of Responsibility within a company for which a separate operating statement can be calculated. Profit centers can be
used to divide the company according to regions (branch offices etc.), functions (sales, admin…) or products (product ranges, division.) and is
used for internal control.
Profit centers have been created for each plant. Within a plant, customer-facing units will be defined as sub-nodes as profit centers.
The profit center hierarchy groups the cost centers to represent the reporting hierarchy of the company. Again the profit center hierarchy is
attached to the controlling area.
Profit center hierarchy is 1000
2.8 Maintain Controlling Area
BASIC DATA

Controlling
Controlling area 1000

Name XYZ LTD Controlling Area.
Assignment control Cross-company cost accounting
Currency type 20 Controlling Area currency
Currency INR Indian Rupee
Chart of accts 1000 - Chart of Accounts
Fiscal year variant V3 Apr.- March, 4 special periods
Cost Center Standard Hierarchy 1000
Distribution method No distribution to other systems
Logical system Not Applicable
ACTIVATE COMPONENTS/CONTROL INDICATORS
Controlling area 1000 XYZ LTD Controlling Area.

Fiscal year 2006 To 9999
Cost centers 1 Component active
Order management 1 Component active
Commitment mgmt 1 Active
Profit Analysis Profitability Analysis active
Activity Based Costing Component not active
Profit Center Accounting X active
Projects X active
Sales orders X active
Cost Objects X active
Variances X active
CONTROL INDICATORS
Year 2006
All currencies -
Variances X
CC validation X
ASSIGNMENT OF COMPANY CODE TO CONTROLLING AREA - 1000
Co. Code Company Name

1000 XYZ Ltd
The controlling area settings are defined here. The deciding factor for setting basic data is the organization of cost accounting, meaning the
assignment of company codes to a controlling area. This decision is irreversible as soon as master data is created.
The way company code and controlling area are assigned affects the currency settings, meaning currency type, currency, and currency updating,
in addition to the controlling area chart of accounts and the fiscal year variant.
Further Basic Data of the controlling area are the standard hierarchy, the reconciliation ledger settings, and the logical system if ALE (Application
link Enabling) is used for data distribution in cost controlling. The control indicators activate or deactivate certain CO components or functions
according to fiscal year.
At XYZ LTD, the company code is equal to the controlling area - a 1:1 relationship with the company code.
The fiscal year variant is same as that for the company code.
2.9 Maintain Operating Concern
Create Attributes of operating Concern:
Operating Concern 1000

Name XYZ LTD Operating Concern
Currency INR Indian Rupee
Fiscal year variant V3 Apr.- March, 4 special periods
Next you have to create data structure for your Operating Concern. Data structure definition controls which characteristics and value fields you
will use in your operating concern.

Controlling
Fixed characteristics are part of the operating concern, which cannot be changed or deleted. User defined characteristics can be added. We will
add some characteristics of operating concern of XYZ LTD.
Next step is to create value fields. Value fields are amounts and quantities. There are no fixed value fields. However, we can choose from the
value field catalogue.
Once characteristics and value fields have been decided, the next step is to save, activate and generate the operating concern.
We will use costing based and accounting based CO-PA. Accounting based CO-PA uses cost elements for analysis.
2.10 Maintain CO number range (Proposed)
Grouping From To
Planning 100000000 199999999
Transfer Posting 200000000 299999999
Profit Center 300000000 399999999
Settlement, Allocation 400000000 499999999
Overheads 500000000 599999999
Imputed Costs 600000000 699999999
Allocate Costs 700000000 799999999
CO General 1100000000 1199999999
Profitability Analysis 1300000000 1399999999
For every posting in CO the R/3 System creates a numbered document. The document numbers are unique to each controlling area since each
number is assigned only once.
Every transaction that you carry out on the controlling area level has to be assigned to a number range group. Each group is in turn attached to
certain transaction(s). You define the document number range in CO independently from the fiscal year.

Controlling
3 MASTER DATA
3.1 Master Data - Cost Elements
3.1.1 Cost Elements
A cost element is an item in a chart of accounts, which is used within controlling area to record the value-assigned consumption of production
factors.
Cost elements are two types. The primary cost or revenue element must have a corresponding GL account in financial accounting.
Secondary cost element exits only in Controlling, used to allocate costs within CO.
3.1.1.1 Creation of primary cost elements
General Explanation
A primary cost or revenue element is a cost or revenue-relevant item in the chart of accounts, for which a corresponding general ledger (G/L)
account exists in Financial Accounting (FI).
You can only create the primary cost or revenue element if you have first defined it as a G/L account in the chart of accounts in Financial
Accounting (FI). At the time of creation of Primary Cost and Revenue Elements, the system checks whether a corresponding G/L account exists
in Financial Accounting.
In an integrated accounting system such as the SAP R/3 System, costing relevant data is not required to be entered separately. This is
because each business transaction having financial implication and relevant to cost accounting, updates online real-time the controlling
component (such as cost center, production order, internal order, etc.) with detailed information for the relevant primary cost element
via an integrated cost flow.
Primary Costs are those costs that arise through the consumption of goods and services that originate from various business
transactions. Primary Costs are first posted / recorded in Financial Accounting and flow automatically to the Controlling component
through the primary cost elements (equivalent to general ledger account in FI). For each controlling relevant business transaction two
separate documents are simultaneously generated by the system in SAP for FI and CO modules.
By using Primary Cost Elements it would be possible to transfer Primary costs automatically, on-line real-time basis to the Controlling
module as and when a business transaction having financial implication and relevant for costing, is booked in Financial Accounting.
The automatic updating of costing records will avoid duplication of effort in compilation and booking of costs, and would enable a
more accurate and reliable analysis of costs. It would also facilitate reconciliation of cost accounting and financial accounting data with
ease.
Since the same naming used for Primary cost elements as for general Ledger Accounts, it results in increased clarity and visibility of
cost heads, and clear establishment of their relationship with Financial Accounting.

Controlling
Creation of Primary Cost Element
Transaction Codes
Create Primary KA01
Change KA02
Display KA03
Delete KA04
Create cost element initial screen:
Field Name Description R/O/C* User Action and Values Comments

Set Controlling area Controlling area R Enter the controlling area. This is in a pop up
window prior to
continuing with the
next 2 items below.
Cost Element New cost element number R Select the drop down arrow to view the
choices available.
Valid To/From Beginning and end dates for the R Select the drop down arrow to view a
analysis period you are defining calendar.
Field Name Description R/O/C User Action and Values Comments

Name Cost Element Name R Enter the name
Description Cost Element description O Enter the description
Cost Element category Cost element category R Select the drop down arrow to view the
choices available.
Attribute Mix Attributes help to further classify cost O Select the drop down arrow to view the
elements. choices available.
Functional area Classification of cost elements with O Select the drop down arrow to view the
regard to functional area choices available.
Indicators

Record Qty Record Quantity O Select if you want to track quantity.
Unit of measure Unit of measure C Provide unit of measure when you select
Record quantity.
Default account assignment:

Cost Center Enter cost center for default account O Enter the name
assignment
Order O Enter the description
(* R=Required Entry, O=Optional Entry, C=Conditional entry)
History tab will show ‘created by’ name and date. You can view change document details.
3.1.1.2 Create secondary Cost elements
General Explanation

Controlling
Secondary cost elements can only be created and administrated in cost accounting (CO). They portray internal value flows, such as allocation of
costs among various cost objects, i.e. Assessment, Internal Activity Allocation, Overhead Allocation, Internal Settlement, etc.
When a secondary cost element is created, the system checks whether a corresponding General Ledger Account already exists in Financial
Accounting. If the General Ledger Account exists, the secondary cost element cannot be created in cost accounting (CO).
Secondary cost element has great importance for CO module. These are need based and may be created as and when required. The secondary cost
elements should be of such nature that it can properly allocate or apportion various costs to different cost objects (cost center, production order,
etc.) properly.
Using Secondary Cost Elements it will be possible to plan, measure and allocate costs that occur within the organization, more accurately and
timely. It offers sufficient amount of flexibility in the online allocation process within the organization.
Creation of Secondary Cost Element
Transaction Codes
Create Secondary KA06
Change KA02
Display KA03
Delete KA04
3.1.1.3 Create cost element groups
General Explanation
The Cost Elements (both primary and secondary cost elements) with similar characteristics can be collected in Cost Element Groups. The cost
element groups can be used in the information system. The cost element groups can be used to process several cost elements in one transaction,
such as in Cost Center Planning, Distribution and Assessment. These groups are also used for report viewing purposes.
For example, in case all Personnel related costs are to be planned, displayed and analyzed in a single business transaction, processing can be
carried out using the Cost Element Group ‘Personnel Costs’ instead of choosing repeatedly each of the numerous individual cost elements
comprised in this group.
The cost element group will facilitate better planning, allocation and reporting of costs. Using Cost element Groups similar expense codes can be
viewed in one group so that it will be possible to plan, allocate and carry out analysis for a given cost object with ease and flexibility.
CREATION OF COST ELEMENT GROUP
Transaction Codes
Create KAH1
Change KAH2
Display KAH3
3.1.1.4 Proposed primary cost elements
Each account code defined in FI for revenue and expenses will have a corresponding primary cost element in CO.

Controlling
3.2 Master Data- Cost Centers
3.2.1 Cost Centers
General Explanation
Cost centers in a controlling area represent a clearly delimited location where costs occur. The organizational division into cost centers can be
made on the basis of functional, settlement-related, activity-related, spatial, and/or responsibility-related standpoints.
The cost centers are used for differentiated assignment of overhead costs to organizational activities based on utilization of the relevant areas
(cost determination function) and for differentiated controlling of costs arising in an organization (cost controlling function).
The flexible structure of Cost Center Hierarchy can be easily adapted and modified due to changes in the organization. New Cost Centers can be
added to the Hierarchy at any later date by creating the relevant Cost Center Master Record and linking the Cost center to the relevant hierarchy
area.
The systematic and organized maintenance of Cost centers will make the cost accounting approach uniform across the various divisions and
branches of the organization. Collection and comparison of costs will become more structured and therefore reports will contain more useful data.
The entire cost center structure will be visible in a tree form on a single screen thus giving an overview of the entire organization from the cost
controlling perspective at a glance.
Creation of Cost Center
Transaction Codes
Create KS01
Change KS02
Display KS03
Delete KS04
Create cost center initial screen

Set Controlling area Controlling area R Enter the controlling area. This is in a pop up
window prior to
continuing with the
next 2 items below.
Cost Center New center number R Select the drop down arrow to view the
choices available.
Valid To/From Beginning and end dates for the R Select the drop down arrow to view a
analysis period you are defining calendar.
Create cost center Basic Screen

Name Cost Center Name R Enter the name
Description Cost Center description O Enter the description
Person responsible Responsible Person’s Name R Enter the name
Department Enter name of the department to which O Enter the department
the cost center belongs
Cost Center category Cost Center category R Select the drop down arrow to view the
choices available.

Controlling
Hierarchy Area As previously defined in the Cost R Select the drop down arrow to view the
Center Standard Hierarchy choices available.
Company Code Enter company code to which the cost R Select the drop down arrow to view the
center belongs choices available.
Business Area Enter business area to which the cost C Select the drop down arrow to view the
center belongs choices available.
Profit Center When Profit Center Accounting is O Enter the profit center. This entry is
activated. optional, but if you
don’t make it, you
will receive a
warning message.
Five other tabs exist in the cost center master record. Entries in these tabs are usually optional depending on how Cost Center Accounting is
customized. The other tabs and input options are described below.
Control Tab (Indicators):
Record quantity – Indicator defining whether the system issues a message if no quantity or quantity unit is specified for commitment or actual
postings (default is on).
Lock entries – indicators checked to prohibit postings to the following cost categories:
 Actual Primary Costs

 Plan Primary Costs
 Actual Secondary Costs
 Plan Secondary Costs
 Actual Revenues
 Plan Revenues
By default for most cost center categories, actual and plan revenue postings are locked (flags checked). Other indicators are usually unchecked
permitting actual and plan primary and secondary cost postings
Commitment Update – indicator defining whether a commitment is updated for the cost center. If the indicator, is active, no
commitments can be updated for the affected cost center
Templates Tab – entries on this tab are filled in to assign templates to the cost center for activity dependent or independent formula planning,
business process allocation or to assign an overhead costing sheet to the cost center for overhead calculations.
Address tab – enter any mailing address information that may apply to the specific cost center.
Communication tab – internal phone and fax communication information for the cost center.
History tab – shows creation and change data.
Cost Centers will be created according to the current organization structure of XYZ LTD.
3.2.1.1 Maintain standard hierarchy
1000 XYZ LTD Cost Centre Standard Hierarchy
Maintain standard hierarchy
The standard hierarchy 1000 for the controlling area XYZ LTD is maintained here. You can change an existing hierarchy or add onto a hierarchy
up to a higher node.
No cost centers can be assigned to the hierarchy highest node.
Note that the group names for
 Cost Centers
 Cost elements
 Activity Types
 Statistical Key Figures

Controlling
 Orders
With in a client must be unique, and each name given only once
3.2.1.1.1 Maintain cost center categories
Description: Cost center types
Plan revenue
Actual Primary costs
Actual Settlement Cost
RevenueActual
Record quantity
Plan Secondary
Commitment
Plan Primary Cost

Cost Center Name
Category
A Administration X X X X X
H Human Resources X X X X X
J Projects X X X X X
L Logistics X X X X X
M Marketing X X X X X
O OH Pools X X X X X X
P Process X X X X X
U Utilities X X X X X
The various cost center categories are defined here.
You can activate/ deactivate the following indicators for each cost center category:
 Lock consumption quantities

 Lock primary postings
 Lock secondary postings
 Lock revenue postings
 Lock commitment update
 Lock primary cost planning
 Lock secondary cost planning
 Lock revenue - planned
The SAP System defaults this indicator when you create cost center master data. You can overwrite the default values if you wish.
Note: The "Cost center category" field is also used in activity type planning. In the activity type master record you enter the cost center
type for which the activity type can be planned. Enter "*" if the activity type is allowed for all cost center categories.

Controlling
Example:
You allow activity type PHR (production hours) to be planned on all cost centers with category P (production). This means the activity type
cannot be planned on an administration cost center by mistake.
3.3 Master Data- Activity Types
3.3.1 Activity Types
General Explanation
Activity types classify the activities performed in the cost centers within a Controlling Area. To plan and allocate the activities, the system records
quantities that are measured in activity units. Activity quantities are valuated using an activity price (allocation price).
The Activity Types at XYZ LTD would help in categorizing production and service activities provided by a cost center. These would be used for
allocating costs of internal activities to the respective production / maintenance departments. The activity types would be defined in such a way
that all activity types be measured in terms of quantity and value.
Use of Activity types helps in identifying, measuring and allocating the cost involved in the production and / or maintenance functions. It is
possible to calculate the activity utilization of a department, by defining the activity rate and recording the activity duration consumed in a
process.
Allocation / booking of various activities would facilitate online booking of costs on runtime basis on various processes, which is not possible in
the legacy system.
Creation of Activity Types
Transaction Codes
Create KL01
Change KL02
Display KL03
Delete KL04
3.3.1.1 Maintain allocation cost elements
Secondary Cost element (type 43) is created for allocation of activity type.
3.3.1.2 Create activity types
Initial screen

Activity Type 6 Char. Identifier that identifies the R
Activity Type to be created
Valid From 10 Char. Identifier that defines the validity R
date from
Valid to 10 Char. Identifier that defines the validity R
date to
Copy from 6 Char. Identifier that defines the Activity type to be
O
Activity Type copied from.
Controlling 4 Char. Identifier that defines the O

Controlling
Area Controlling Area the activity type will be

copied from.
Press enter key or the master data button.
Basic Screen

Name 20 Char identifier that defines the R
name of the Activity type
Description 40 Char. Identifier that describes the O Supplements the description
Activity Type. (if needed)
Activity Unit Identifier that defines the activity type R
unit of measure
Cost Center Identifier that defines which cost R Select * for all, or 1 or more to more to
categories center categories are allowed for restrict.
planning or as the sender Cost center
in an Indirect Activity Allocation.
A Type category 1 Char. Identifier that identifies the R Ensure your selection here,
method of activity quantity planning supports the planning and
and activity allocation allocation methods you will use.
Alloc. Cost Cost element used to allocate the R
Element activity types costs to cost object(s).
Price indicator Key that defines how price is to be O
calculated.
Average price Flag that determines costs for cost O Select or deselect If selected, the price for the cost
center will be constant for the entire center activity type is fixed for a
fiscal year given year.
Pre-distribute Flag that allows activity type or O Select or deselect If selected, activity type can be
Fixed costs business process to be used in fixed used in fixed cost distribution.
price pre-distribution
Activity qty set Flag for manual postings of quantities O Select or deselect If set, manual actual quantities
must be posted.
Plan qty set Flag for whether activity quantity is O Select or deselect Confirm quantity manually in
reconciled with plan actual
Actual Activity 1 Char. Identifier that defines the O Only enter if actual different Blank defaults to A type
Type cat. activity type for actual postings from plan. Category value
Actual Price 3 Char. Identifier that defines actual O Only enter if actual is different Blank value defaults to Plan
indicator allocated price from plan. Price Indicator
Indicator

Lock Indicator Indicator determining whether activity R Select or deselect Activation excludes activity type
type is locked for activity input planning. from activity input planning.
Activate if you use scheduling and
want to ensure that plan activity
remains equal to scheduled
activity.
Save
Activity Types will be numbered externally by 5 digit numerical code.
List of activity type *:
A Type Name Valid from To Allocation Cost Unit of measure

Element

Controlling
3.3.1.3 Activity types have been maintained for product costing purposes. These will also serve as a start up for XYZ LTD to
measure activity and record them on the SAP system.
3.3.1.4 Maintain activity type groups
General Explanation
Activity types with similar characteristics are collected together into activity type groups. Activity type groups may be used to process multiple
activity types in one business transaction within Cost Center Accounting. This is true for planning or assessment. During planning, for example, it
is possible to display and plan multiple activity types in one transaction.
Activity type groups would be defined in the system on need basis.
Activity Type Groups will facilitate ease in Reporting and in Planning of costs.
Creation of Activity Type Groups
Transaction Codes
Create KLH1
Change KLH2
Display KLH3
3.4 Master Data- Statistical Key Figures
3.4.1.1 Statistical Key Figures
General Explanation
Statistical key figures represent the statistics in a cost center, or internal order, such as number of employees, no. of telephone units in a
cost center, etc. They are measured in units of time or quantity. It is possible to post both plan and actual values to cost centers and
orders.
In Controlling, statistical key figures are used as receiver tracing factors for cost allocation within controlling. During the cost
allocation process, such as distribution or assessment, the cost is allocated in the ratio of statistical key figures on the receiver cost
center.
An example of a statistical key figure is the number of employees in a cost center. Once the statistical key figure EMPLOY
(representing Employees) is defined, it can be used for assessing costs from one cost center to other cost centers.
Statistical key figures are a useful tool in CO for cost allocations. These would be finalized in due course, based on the requirements of allocating
costs and basis of allocations.
The statistical key figures can be defined as either:
 Fixed values: These values remain constant and are valid for all subsequent periods of the fiscal year.
 Totals values: These values are specific and valid to the period in which the same are entered.

Controlling
Statistical Key figure serves as a useful tool for allocating costs. Moreover these are recorded in the system for each period and the data
would be available in the information system for reference at any point of time.
Creation of Statistical Key figures
Transaction Codes
Create KK01
Change KK02
Display KK03
Delete KK03DEL
Master Data Initial screen

Stat. key figure The statistical key figure you wish to R
create. 6 characters maximum
COPY FROM Existing statistical key figure you wish to O
copy from
Stat. key
figure
COPY FROM Controlling area of the existing statistical O
key figure
Controlling area
Master Data Basic Screen

Name This is the long description of the R
statistical key figure
Stat. Key fig. This is the unit of measure, quantity or R
Unit M. time, in which the allocation bases are
posted
Key Fig. Cat. Highlight the radio button for either R User decision as to statistical key figure

Controlling
fixed or total values Being a fixed value (these values continue

From the period entered to all subsequent
periods of the fiscal year) and Total Values are
posted only in the period entered)
(Note: On above table, in column "R/O/C”; "R" = Required, "O" = Optional, "C" = Conditional)
SKF Name Valid from To
List of statistical key figures is yet to be framed up.
3.4.1.2 Maintain statistical key figure groups
GENERAL EXPLANATION
You can gather statistical key figures into statistical key figure groups. You can use statistical key figures, or parts of them, when you need to
process multiple statistical key figures in one business transaction. For example, in cost center planning, distribution or assessment. Statistical
key figures used as tracing factors for distribution or assessment can be collected in groups.
Statistical key figure groups will facilitate ease in Allocating and in Planning of costs.
CREATION OF STASTISTICAL KEY FIGURE GROUP
Transaction codes
Create KBH1
Change KBH2
Display KBH3
3.5 Master Data- Profit Center
3.5.1 Profit Center
3.5.2 Maintain standard hierarchy
With this function you can create a standard hierarchy for profit centers.
The standard hierarchy is a structure, which contains all the profit centers belonging to one controlling area.
The standard hierarchy consists of two structural elements. The end nodes are the nodes of the structure to which you can assign profit centers.
Summarization nodes cannot contain profit centers themselves, but rather summarize the profit centers of the nodes, which are attached to them.

Controlling
This distinction between types of nodes is made automatically by the system. Once you have assigned profit centers to a node, you can no longer
assign another node to it. Likewise, once you have attached other nodes, you can no longer assign a profit center to it.
3.5.3 Maintain Profit Center
Create profit Center

Profit center Key that uniquely identifies this R Establish a Profit
Profit Center in the Controlling Area Center naming
10 characters code. convention.
Copy from
Source Profit Center master record C Enter the name of the profit center master
Profit center to be copied. record that will serve as a model for the new
profit center master record.
Controlling Area Uniquely identifies a controlling C

area.

Basic Data Tab
Profit Center R Defaulted by the system from the initial screen.
Status R Defaulted by the system.

Examination Period Dates indicating as of when an entry R
… To is valid.
Name Text description of the new profit R This field is displayed

center. in the Profit Center
Standard Hierarchy.
Description Long text description of the new O
profit center.
Basic Data
Person in charge Profit Center Manager R Text
Department Department O Text .
Profit center group Hierarchy Area R Enter an end node from the Profit Center
Standard Hierarchy.
Indicators Tab
Dummy Profit This flag determines whether the O To activate the field, double click on it. The
Center profit center is defined as the dummy pop window will prompt you to
profit center for the controlling area. activate/deactivate the flag.
Lock indicator Indicator O Activate / Deactivate this indicator using one

mouse click to block / unblock the Profit center
from future postings.
Company Codes
Tab
Assigned Check the company codes for which R Check box
the profit center can receive postings
Address Tab
Title O

Controlling
Name O
Street O
City O
District O
Country O
PO Box O
Postal Code O
Region O
Jurisdiction Code O
Communications Tab
Language Key O
Telephone 1 O
Telephone 2 O
Telebox Number O
Telex Number O
Fax Number O
Printer Name O
Data Line O
History Tab
Created by R Defaulted by the system.
Created on R Defaulted by the system.
Note: To save profit center in inactive status, click on SAVE button. The message "Profit Center XXXX saved in inactive status" will appear.
To save profit center in active status, click the Activate button or Shift + F1. The message "Profit Center XXXX has been created" will appear on
the lowest pane of the screen.
In XYZ LTD, profit center will be identified as 4-character code, externally numbered.
3.5.4 Maintain dummy profit center
Profit Center “Dummy profit center” has been maintained as the dummy profit center
The dummy profit center is updated in data transfers whenever the object to which the data was originally posted (cost center, order, and so on) is
not assigned to a profit center. This ensures that the data in Profit Center Accounting is complete. You can later send the data on the dummy profit
center to the other profit centers using assessment or distribution.
You create the master data for the dummy profit center using this special transaction. To change or display it, use the normal profit center
maintenance functions.
The name of the dummy profit center is displayed in the controlling area settings for Profit Center Accounting.
3.5.5 Assignments to Profit Centers
Assign Material
Each of the material masters has been assigned to a unique profit center to which it belongs. The profit center field has been made mandatory for
all materials. This will help prevent any data from escaping from PCA.
The functions found in this section let you assign material masters to profit centers. This assignment is always valid for one plant.
The system uses these assignments to propose a default profit center when you create a sales order item or a production order. It can also derive
the profit center from the material master for internal goods movements (such as stock transfers or goods issues) and profit-related postings in
Materials Management (such as inventory differences) if no other assignment is available.
This assignment is also used when material stocks (raw material, finished and semi-finished goods) are transferred to Profit Center Accounting.

Controlling
The option "Material master" lets you assign the materials directly in the material master. If you need to assign a large number, use the option
"Fast assignment".
In our case, we enter the profit center while creating each of the material masters.
This assignment of profit centers to each of materials is carried forward during each of transactions involving each of materials. This includes
creating a production and a sales order.
Assign cost centers
Each of the cost centers has been attached to a profit center. It is of a many to one relationship.
This function lets you assign profit centers to cost centers. This makes it possible for you to reflect the costs settled between or posted to cost
centers in Profit Center Accounting.
When you assign a profit center to a cost center, you implicitly also assign it to all the assets assigned to that cost center.
3.5.6 Transfer prices
Profit centers will be used to evaluate the profit using transfer price.
3.5.7 Planning
Profit center planning will be taken up in continuation of cost center planning.
3.5.8 Actual Postings
Standard settings for actual postings.
3.5.9 Set control parameters for actual data
From year Locked Line items Online transfer
2006 No Yes Yes
Here you set all the control parameters for actual postings in Profit Center Accounting.
Enter the control parameters, which should be valid beginning with the fiscal year, entered:
 If the lock indicator is active, the controlling area is locked for actual postings in Profit Center Accounting. No changes can be made
to the actual data.
 The online indicator controls whether or not data is posted to Profit Center Accounting simultaneously (by activity). If the indicator is
not active, you need to post the data later by period or fiscal year using the available programs.
 The line item indicator determines whether actual line items are updated.

Controlling
3.5.10 Choose additional balance and P&L accounts
By default, all profit-related accounts as well as selected balance sheet accounts (payables and receivables, assets, material stocks, and work in
process) are transferred to Profit Center Accounting.
Here you can define which additional accounts you want to transfer.
If no profit center is set for a specific transaction, the system posts to the default profit center for that account interval. If you require greater
flexibility in finding the profit center, you can also define derivation rules for this purpose.

Controlling
4 BUSINESS PROCESSES
4.1 Cost & Revenue Element Accounting
Cost and revenue element form the link between financial and cost accounting.
All postings are happening with an account assignment in CO. The account assignment is cost bearing object, namely Cost Center, Internal Order,
Production Order, Sales Order, PM Order, Service Order and etc.
Accordingly all the cost relevant transactions in FI are routed to CO.
4.1.1 Purpose
XYZ LTD need to manage and reconcile data from financial accounting and CO accounting.
In XYZ LTD there are different types of costs, like salaries, material costs, depreciation, marketing expenses, interest etc.
SAP R/3 being an integrated system, all costs need to be entered once, where they are incurred, in order to effect proper accounting.
Costs might flow from financial accounting, material accounting, and subsidiary ledgers and so on.
Once entered, all cost relevant postings need to be captured in CO.
4.1.2 Master Data
Master data will be Cost Elements and Cost Centers.
4.1.3 Features with respect to XYZ LTD
In XYZ LTD Company Code 1000(only company code) is assigned to Controlling area 1000.
Primary Cost Element in XYZ LTD controlling area corresponds to an account in General Ledger. General ledger accounts are defined by Chart
of accounts of the XYZ LTD company code.
Once the GL account is created, primary cost element is created in CO by assigning it to a controlling area and entering validity period and
description for it.
Cost element type determines which transaction the cost element can be used for. For example, Cost element type 1 is for primary cost postings
from FI and MM. Cost element type 11 is revenue postings from sales accounting.
4.1.4 Business Process
4.1.4.1 Primary cost elements
Cost and revenue element form the link between financial and cost accounting. One GL account in FI is primary cost element in CO.
All postings are happening with an account assignment in CO. The account assignment is cost bearing object, namely Cost Center, Internal Order,
Production Order, Sales Order, PM Order, Service Order and etc.
Accordingly all the cost relevant transactions in FI are routed to CO.
4.1.4.2 Secondary Cost Elements

Controlling
Secondary Cost elements are any costs that are not posted in FI, in other words secondary cost element postings occur only in CO. Accordingly
secondary cost element will not appear in FI Chart of Accounts.
4.2 Cost center Accounting
Cost centers are Responsibility areas for costs within the organization. Cost centers are logical units or functional areas or locations or
organizational hierarchy of a company.
Cost centers are grouped together into decision, control, and Responsibility units.
You use cost centers for differentiated assignment of overhead costs to organizational activities, based on utilization of the relevant areas and for
differentiated controlling of costs arising in an organization.
4.2.1 Purpose
You 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.
Costs transferred to CO by way of cost elements are to be booked in accordance with Responsibility areas.
Once cost elements are set up, the entered costs are assigned to the organizational areas where they are incurred.
4.2.2 Master Data
Cost Elements, Standard Hierarchy of cost centers and Cost Center masters.
In XYZ LTD, a standard hierarchy is assigned to the controlling area and cost centers are created considering the company’s overall management
structure.
Cost center hierarchy, 1000 is the highest node of the cost centers in XYZ LTD.
In XYZ LTD, Cost center Groups are broadly classified as Corporate Level , Services and Manufacturing level.
At corporate level cost centers will be identified like Finance and Accounts, HR Department, MD’s Office etc. (Pl.refer Cost center Design)
At Service level further classified as location wise. At each location level cost centers will be identified as Post Warranty, Warranty etc.
Each production location is a plant according to PP. Plant as highest node and cost centers will be grouped for production units. At plant level,
there are Direct cost centers and also Indirect cost centers.
Once cost elements are set up in XYZ LTD, the entered costs are assigned to the organizational areas where they are incurred.
Cost centers are Responsibility areas for costs within the organization. Cost centers are logical units or functional areas or locations or
organizational hierarchy of a company.
Before cost center is created, a hierarchical structure (called Standard Hierarchy) is set up and assigned to the controlling area.
The cost center is the lowest node of the hierarchical structure.
In XYZ LTD, a standard hierarchy is assigned to the controlling area and cost centers are created considering the company’s overall management
structure.

Controlling
When creating a cost center, we define validity period, name & description, person responsible, cost center category, hierarchy area, and currency
and company code to the cost center. We will also describe whether to record quantity or not, lock indicator of certain type of transactions.
Dividing an organization into cost centers allows you to follow several goals, depending on the cost accounting method.
 Assigning costs to cost centers lets you determine where costs are incurred within the organization.
 If you plan costs at cost center level, you can check cost efficiency at the point where costs are incurred.
 If you want to assign overhead costs accurately to individual products, services, or market segments, you need to further allocate the costs to
those cost centers directly involved in the creation of the products or services. From these cost centers you can then use different methods to
assign the activities and costs to the relevant products, services, and market segments.
4.3 Cost Center Planning
Cost center planning forms part of the overall business planning process, and is a prerequisite for standard costing. The main characteristic of
standard costing is that values and quantities are planned for specified time frames, independently of the actual values from previous periods.
Cost centre planning involves entering plan figures for costs, activities, prices or statistical key figures for a particular cost centre and a particular
planning period. You can then determine the variances from these figures by comparing plan values with the costs actually incurred. These
variances serve as a signal to make the necessary changes to your business processes.
4.3.1 Purpose
The most important result of planning in Overhead Cost Controlling is the determination of the plan prices, that is, the prices of the activity types
for the corresponding sender cost centers, which are then used for actual direct and indirect activity allocation.
Service cost like telephone etc will be known when planning is done according to statistical key figures.
Variances will be calculated at period ends.
4.3.2 Master Data
Cost centers, Cost elements, activity types and statistical key figures.
What is called budget in XYZ LTD is the source for planning of SAP cost center planning. All overheads according to XYZ LTD budget will be
entered cost center wise in our SAP cost center planning.
Cost centers will be organized at the lowest level in an order to capture the cost where it has incurred.
In XYZ LTD, the cost center planning will be undertaken in the following sequence:
Activity type planning

Planning for statistical key figures
Primary cost planning
Plan distribution
Plan assessment
Activity input planning
Planned price calculation
Activity type prices will be calculated at the beginning of the year/every month in order to post to the production and arrive variance.
Before calculation of planned activity price, the cost from the common cost centers utility cost centers and corporate cost centers will be allocated
by way of distribution or assessment to production cost centers.

Controlling
Remaining material and production overheads will be posted to production orders to arrive at the Cost of goods manufactured.
Administration and selling overheads will be posted to arrive the Cost of goods sold.
Cost centre planning consists of the following areas:
 Planning of activity quantities and/or prices
 Planning of costs expected to be incurred
 Planning statistical key figures, which are used as the basis for the allocation of costs
SAP recommends starting with activity type planning, since the planned activity quantities and capacities determine the planned cost volume. You
can also plan prices yourself (manually entered prices) within activity type planning. The system does not determine the prices in this case.
You use the statistical key figures to calculate key figures for reporting, and also as the basis for periodic allocation.
Once activity type planning is complete, you can start planning the statistical key figures. The SAP R/3 system uses the statistical key figures as
the tracing factor for plan distribution, assessment, as well as for periodic reposting.
The statistical key figures “Number of Message Units”, “Headcount”, “Area in sq. ft.” and “Number of Users” are planned in each cost center.
Compressed air, water, and electricity consumption are only planned for the relevant cost centers. (Utilities costing)
As the name implies, primary cost planning involves planning the primary costs such as salary, travel, expenses, depreciation, costs due to
external procurement or material withdrawals, etc.
Both activity-independent (only to cost center) and activity-specific (to cost center/activity type) primary costs are planned.
During activity-specific primary cost planning, you can split the figures into fixed and variable costs. The SAP R/3 system always updates the
activity-independent costs as fully fixed.
You can only plan activity-specific primary costs when the corresponding activity outputs have been planned for the sender cost centers.
The manually planned primary costs can now be allocated further through cycles and other functions, as described here.
You should start the plan accrual once you have completed manual primary cost planning. During this process, overhead cost percentages are
used to plan accrued costs for the corresponding cost centers.
You define an overhead percentage rate for accruing the additional employee benefit costs. Reference cost elements are the costs for wages and
salaries. The accrued costs are credited to an accrual order.
Periodic re-posting is a posting aid that you can use to make corrections to your cost centers, business transactions, and internal orders.
The postings for the phone costs are assigned to the Telephone allocation cost center. This cost center exists solely to collect costs. This reduces
the time required for document entry in Financial Accounting. At the end of the period, statistical key figure (Number of call Units) is used to re-
post the collected costs to the incurring cost centers.
A plan cycle for periodic reposting must be defined in Customizing.
The statistical key figures used, as the tracing factor in the cycle must be planned.
The sender cost center must be planned with primary costs element.
Plan distribution is the last activity in primary cost planning. In the previous planning steps, you planned the primary costs in collective cost
centers for an entire fiscal year. The SAP R/3 System now distributes these costs to the individual cost centers periodically, according to
predefined keys.
Statistical key figures (e.g. electricity consumption) are being used to distribute the primary costs from the power cost center. At the end of the
period, the receiver cost centers receive the costs under original cost elements of the respective costs.

Controlling
A plan distribution cycle must be defined in Customizing.
The statistical key figures are used as the tracing factor in the cycle must be planned.
The sender cost center must be planned with primary costs.
During the automatic secondary cost planning, you can plan secondary costs both on a value basis (as a plan assessment) and on a quantity basis
(with indirect activity allocation).
Assessment is used to allocate primary and secondary costs. The original cost elements are combined and allocated to the receiver cost center in
an assessment cost element.
As an example, expenses planned to cost center - IT is being used to for execution of Allocation using assessment cycle.
Prerequisites
A plan assessment cycle must be defined in Customizing.
The statistical key figures (number of users for IT assessment) used as the tracing factor in the cycle must be planned.
The sender cost centers must be planned with primary costs.
You use cost elements with cost element category 42.
During manual secondary cost planning, you plan secondary costs on a quantity basis as activity inputs (direct activity allocation) as described
below:
 Activity-independent activity input
A sender cost center for which an activity output has been planned allocates that activity type to other cost centers.
Activity input planning can only take place XYZ LTD when the corresponding activity outputs have been planned for the sender cost centers.
You have to select the appropriate planner profile before you can start activity input planning.
The sender cost centers for which an activity output has been planned allocate fixed activity quantities to the receiver cost centers. Price
determination is then used to valuate these quantity flows with the appropriate price, which credits the sender cost centers and charges the
receiver cost centers (secondary costs).
 Indirect Activity Allocation
Indirect activity allocation in the plan is a tool for automatically allocating activities. In contrast to manual plan activity input, you can use keys to
indirectly allocate activities.
Indirect activity allocation is only used when activities in the sender cost center cannot be measured (or only with a major effort) and can only be
derived indirectly. Indirect activity allocation uses the same cycle/segment technique as the assessment.
You use plan reconciliation to check and reconcile the internal exchange of activities. In the process, the SAP R/3 system adjusts the planned
activity output for a cost center to the activity requirements of the receiver cost centers.
 Price Calculation
In order to calculate the activity price that the planning must be complete and reconciled.
All planned activity relationships are valuated using the iteratively calculated prices. The planned prices are then also used for actual direct and
indirect activity allocation.
The SAP R/3 system provides a wide variety of standard reports for the detailed analysis of plan and actual data, along with the corresponding
variances.

Controlling
4.4 Cost center Allocations
In XYZ LTD, costs from service and common cost centers will be allocated by means of Cost center reposting, Distribution and Assessment.
4.4.1 Purpose
Costs transferred to CO by way of cost elements are to be booked in accordance with Responsibility areas. Costs from allocable/service cost
centers are to be further allocated by way of assessment and distribution to receiver cost centers. Wherever required, periodical reposting will be
one of the allocation methods.
4.4.2 Master Data
Cost elements, cost centers, activity types and statistical key figures.
There are common cost centers at corporate level, plant level and unit level. Besides, utility services are consumed by all the cost centers. These
cost are dynamically allocated and output of the production cost centers is priced accurately.
Allocation will happen iteratively wherever inter-dependency between cost centers exits as well as in between activity types.
Assessment of Cost Centers:
Assessment was created to transfer primary cost by way of secondary cost elements from a sender cost center to receiving controlling objects.
During assessment, cost centers can be used as senders.
The receivers for an assessment can be a cost center, internal order, or a cost object. You can restrict the number of receiver categories in
customizing.
Once cost elements are set up, the entered costs are assigned to the organizational areas where they are incurred. You can also reverse
assessments. Cycle-Segment method is used to define the sender-receiver relationships.
Secondary cost element type 42 is used for assessment of cost elements.
Periodic reposting and distribution used for allocation via primary cost elements. The costs are transferred to the receivers using the original
primary cost elements.
In case of periodic reposting, line items created for the sender on debit side negatively leaving the cost center balance to zero.
Distribution is created to distribute primary cost like electricity. Sender will be a service cost center and receivers will be cost centers, internal
orders, or any other cost objects. Cycle segment method will be used and statistical key figures will be used to define the sender and receiver
relationship.
4.5 Cost Center Activities
4.5.1 Purpose
In XYZ LTD, cost centers produce one or more activities. The production processes consume such activity resources. In order to arrive the proper
production costs, XYZ LTD requires proper allocable bases.
4.5.2 Master Data

Controlling
Cost Centers, activity Types, cost elements
In R/3 system cost center activities are allocated by way of Activity Types. Activity type measures the quantity output of the cost centers.
Secondary cost element type 43 is used to allocate the activity type costs.
Cost center’s planned costs are divided by the planned quantity to arrive the planed price of the activity. The planned activity price is used for
subsequent internal activity allocations. Actual price of the activity is arrived at the period end close and the difference (+ or - ) is posted then.
In order to create an activity type, for example “Machine Hours”, Validity period and controlling area is defined first. Activity unit, namely
‘Hours’ is entered as the unit. Cost center category is filled with cost center category. The cost center category determines the cost center
category, which can act as the sender of the activity. Planning is also done with that cost center. An asterisk (*) entered in the cost center category
will allow all cost centers to use this activity type. Activity type category 1 permits manual entry and manual allocation. Secondary cost element
number is filled in cost element field.
4.6 Material Master
Information related material is captured in various data views of material master data Purpose.
It is important in accounting to know how material cost is arrived and valuated at the year end. Same material data has to be accessed by many
departments with many objectives in different angles, like purchasing, sales and production, etc. The total information has to be stored in such a
way that information is usable by all the departments concerned. Material type, lines of industry, valuation procedure are important attributes that
have to be maintained. In addition there to, costing relevant data has to be stored, in order to meet costing requirements.
4.6.1 Master Data
Material master
All materials will have material master and all the materials including finished and semi-finished materials will have costing and accounting
view.
Costing and Accounting Views of Material Master.
In SAP R/3, Material master is the master data of MM. It contains all the information necessary to manage the material. Many departments use
the information. Accordingly, Accounts and costing functions use the material master for the purpose of cost related data, inventory valuation etc.
Material Master Data has been divided into many views like Basic View, MRP view, Purchase view, Sale view, Plant view, Accounting view and
Costing view, etc.
Costing takes into consideration both Accounting and costing views for the purpose of costing, pricing and valuation of the material.
In SAP, creation of material master starts with creation of number assignment to the material. The number range may be internal or external. The
material should be assigned to an industrial sector. In which case, the industrial specific fields will be generated in the master data
Next the user fixes the material type for the material in R/3 system. The materials are classified into Material Types, namely Raw material, Semi-
finished, Finished Products, process material and trading goods, etc.
The material type defines which data needs to be maintained in which view. Also controls number range for the material. Besides, it decides
method of procurement like in house production, external procurement or both.
Important material types are: Raw Material, semi-finished material, components, packing materials, tools, stores and spares, etc.
It is part of the manufactured finished product and procured externally.

Controlling
Operating Supplies: Operating supplies are consumed during the manufacturing and they are not part of the finished product.
Semi-finished products: Forms part of the finished product, either produced in house or procured externally.
Trading goods: Externally procured materials and offered to market via sale.
Finished Product: Produced in house and costing is done. Also sold to out side.
Non-Stock material: Bought for direct consumption to production.
Assign Material to a Plant: In SAP system, material is assigned to a plant.
Costing View: Plant level material uses the costing view. The valuation takes place XYZ LTD at plant level. By marking the product-costing
field, it can be specified whether the material should be included in product costing.
Accounting View: It has the data that is relevant to the accounting department. The fields are: currency, price and valuation category and class.
Valuation category determines whether material should be valuated using a standard method or moving average price. The valuation differs
between in house produced materials and externally procured of the same material.
Base unit of measure for inventory management: The valuation class and price control are particularly important for accounting view.
The valuation class in relation to automatic account assignment determines the GL accounts in which the costs of material movements are posted.
The price control function determines whether standard price indicator ‘S’ or the moving average price indicator ‘V’ is relevant for stock
valuation.
In XYZ LTD price control ‘S’ will be followed for finished and semi finished inventory
The costing lot size field decides default quantity for the costing.
4.7 Internal order
Object used to monitor costs and, in some instances, revenues for an organization.
Internal orders can be used to
 Monitor the costs of short-term measures
 Monitor the costs and revenues related to a specific service
 Monitor ongoing costs
4.7.1 Purpose
The Enterprise needs to collect and analyze actual and planned costs related to a specific project or event.
The project/event will span several accounting periods and all costs will be settled in the period they were incurred.
XYZ LTD requires analyzing events like capturing the cost of major repairs, sales campaign with or without revenue, etc.
4.7.2 Master Data
Internal orders, cost centers, cost elements

Controlling
Internal orders will be used extensively in XYZ LTD as a cost collecting and analyzing tool.
Internal events, External events, repairs and maintenance of vehicles will be tracked through internal orders.
Planning for capital investments will be carried out through investment internal orders. Budget also will be prepared and monitored for capital
investments via internal orders.
Internal orders are cost objects in CO. They collect actual and plan revenues and cost, statistical and activity data. Data is collected in the order
at the transaction level. Based on the order’s purpose, the values can be settled (periodically or all at once) to a final receiver such as a cost
center, general ledger account, asset, another internal order, profitability segment, etc. The order’s inflows as well as outflows can be reported in
the Internal Orders Information System. In the delivered reports, the user can drill down through the original documents to the line item.
Order purpose is defined in order type. Standard order types that are required for our business scenario are provided in the system. An Internal
Order master record is created on the functional side and includes the attributes established in the order type. Use a statistical order to mange
statistical detail with value detail posted to a cost center.
Statistical orders are used to collect costs to evaluate costs that cannot be itemized in detail in cost element or cost center accounting. Costs
could be booked only once to CO. When cost centers are real cost objects, the internal orders serve as a statistical record. That means no further
settlement from the statistical order.
It is achieved by assigning the actual costs to a cost center and statistically to an internal order. The costs will then appear under the original cost
element both on the cost center (real costs) and on the order (statistical, for information purposes only).
Unlike the "real" internal orders, you can neither settle statistical orders, nor apply overhead to them.
As an example, you can create a statistical order for each vehicle in your company’s staff car group.
You post the costs for fuel, repairs, insurance, and so on, to the general cost center "Staff Car Expenses", with an additional account assignment to
the relevant statistical order of each car.
On your cost center, you see the total costs incurred for all vehicles, while the individual orders show you how high the costs were for each
vehicle.
Order Types: Many order types are delivered in the system. If one of the delivered order types does not suit the Enterprise’s needs, the user can
copy and modify a delivered type. A new order type can be created from scratch in Customizing. It is recommended not modifying any of SAP’s
delivered objects.
The layout and field status definition of an order type will be determined by the decisions made in configuring the Controlling Area as well as the
attribute settings in the order type.
When creating the Internal Order the following fields are looked into: Order type, Short text, company code, Profit Center, Object class,
Statistical order (if it is a statistical order), Currency, Plan-integrated order (not for statistical order), CAT, Receiver and Settlement type.
In certain cases, Responsible cost centers and requesting cost centers are required fields.
In period end closing Results Analysis Key for valuation of the order during period end, Costing sheet for calculation of overhead and overhead
key for determination of overhead type.
For settlement receiver of the order, required to define, Settlement cost element, receiving cost center and GL account for external settlement to
asset accounting.
Settlement rule will define the category of the receiver type, receiver like cost center or asset GL account, settlement percentage, periodic or full
settlement and settlement validity period.
Planning: Planning is the expected amount of spending during the lifetime of the internal order.
Two ways of planning are there. The first one is overall planning which does not require any detailed information like cost elements etc. The
overall amount will be broken for year-wise, if required
When it is required to have a detailed planning, the planning is carried out according to primary and secondary cost elements. Activity types or
processes.

Controlling
Statistical key figure is a basis for allocation when planned costs are allocated to internal orders.
Budgeting: Planning is the amount requested for the purpose of the internal order and budget is the approved amount against the planning.
When internal orders are budgeted by the management, it manages the internal order spending. It creates availability checks and alerts the user
with budget over runs.
4.8 Cost Center Analysis
Cost Planning, actual costs and actual activity quantity allocation costs will form part of the cost center cost evaluation. Planned cost rates are
essence of the cost center analysis. In Plan/Actual cost comparison, actual costs are compared with target costs for each cost center and for each
cost element within the cost center.
4.8.1 Purpose
To analyze costs at every period end, whenever an ad-hoc requirement arises and at the event of organizational planning.
4.8.2 Master Data
Cost centers
Cost center activities are analyzed periodically.
SAP R/3 system has a comprehensive and flexible information system. It supports to analyze the cost flow within the company. User could use
standard reports available for period end evaluation as well for ad-hoc situations.
SAP R/3 is a integrated system. Because of that the analysis is possible once the transaction is entered into the system. More over the report could
be drilled down to the document level. User can choose from variety of cost center and cost element reports for individual cost centers or group of
cost centers in order to compare planned or target costs with actual costs.
Reports available could be processed in background or foreground. Background processing (during night hours) is the best way to do bigger
reports.
Reports could be generated for cost center groups or standard hierarchy nodes or for the whole standard hierarchy in a single selection run.
Generation of reports at a higher group level will provide comprehensiveness and higher flexibility of navigation interactively to monitor the
costs.
Reports let the user to transfer XYZ LTD the source of costs. Go to the line item level and further to the document source.
Since variance calculation is integrated with online reports, user can determine the causes for variances with help of SAP standard reports.
When standard reports do not support the special occasions or tasks, user has to go for user-defined reports.
4.9 New product Costing
New product development takes place XYZ LTD at the instance of the customer or due to R&D.

Controlling
4.9.1 Purpose
You have just started the development and planning of a new product. In such a situation, you may require to arrive cost with the available
information.
You are at the draft stage of planning new products and services.
When there is no master data in the R/3 System (material master, BOM, routing, master recipe) or some of the input materials might have master
data at material level, a new product costing has to be calculated.
Some of the work center activities are identified or some activities are carried through a sub-contractor.
4.9.2 Master Data
Material Master, Cost centers, Activity Types.
Continuous research and development of new product is on going activity in XYZ LTD. Accordingly XYZ LTD looks for an easy Costing
procedure of new product. The new product may be within any of the below scenarios:
At the beginning of the planning of new product.
When you are at the draft stage of planning new products and services
When there is no master data in the R/3 System (material master, BOM, routing, master recipe) or some of the input materials might have master
data at material level.
In SAP R/3, you create a base-planning object in order to cost a new product. They provide the data required for management decisions as to the
manufacture of products, the provision of services, or whether the product should be produced internally or externally.
The base-planning object could be used as a building block in other cost estimates like other base planning object, cost estimate without BOM or
routing (with out quantity structure)
The base planning object is used to cost the below:
A new product or material

To use in other base plan objects
Any general costing
Internal orders, etc
Base planning object will access data from the existing R/3 system for the information from material masters, cost centers, activity types, other
base planning objects, material cost estimates.
Accordingly, user can make use of the existing data of the R/3 system wherever available and provide inputs for the other items of the cost.
In order to create a Base Planning Object, the user has to create a Master data for the Base Planning Object.
The user has to enter unit of measure, Company code or plant, name of the BPO, description of BPO, Long text. Required to assign a profit center
for the base-planning object. A cost sheet may be assigned to calculate overhead.
To complete the master data entries, need to assign the costing variant and lot size for the costing.
Next the user will see the costing view screen where he can enter the data for the BPO. The line items can be entered as per the categories
provided by the system.

Controlling
The system provides the categories for ‘M’ for material, ‘B’ for the other BPO as the component, ‘E’ for internal activity and ‘F’ for the external
activity, ‘L’ for the sub-contracting, ‘N’ for service, and ‘P’ for manual process. It is ‘V’ for variable item and ‘T’ for text item.
Besides you can total up the items when use the category ‘S’, can perform some calculation with ‘O’.
When the user does not want to capture the system data the variable ‘V’ should be used for all items. Still one can total up and make other
calculations.
Completed costing could be saved and used in other BPO in other costing or reference for decision-making.
The saved costing could be changed and revaluated. When revaluated, any change in price of the items will also be changed. You can compare
the new product cost working with actual cost when regular production starts.
4.10 Standard Cost Estimate
Material cost estimate used to calculate the standard price in the material master record. The cost estimate must be executed with a costing variant
that updates the material master, and the cost estimate must be released.
4.10.1 Purpose
 XYZ LTD requires Cost of goods manufactured and Cost of goods sold for a product.
 Costs are broken down and costs are known at each level of production steps.
 Cost of goods manufactured is comparable within the plant or across the plant.
 To provide a standard or benchmark in order to assess production efficiency.
 To update a price in the material master to determine stock valuation or post to Profitability Analysis.
 To fix the selling price of the material.
 This is aimed at the level before the product is started to be produced via production order.
4.10.2 Master Data
BOM, Routing, Material Master, Cost center and activity types
On the basis of planning, standard cost is estimated for each material produced at the beginning of the year/beginning of the month.
Costing with a quantity structure is the tool for costing the product cost before it goes to production order stage. It sets the price for the material at
material master. It calculates cost of goods manufactured and cost of goods sold. We can use such prices for valuating material at standard price.
Quantity structure is the product’s BOM and routing. Before a cost estimate is prepared for the product, a BOM or Routing should exist for the
product.
The standard cost estimate uses PP master data to ascertain the materials and internal activities required. The cost estimate is prepared
automatically using the data.
Each cost estimate is based on costing variant. The costing variant contains settings and parameters for costing. The settings decide how the
costing is executed. Costing variant determines as how the prices are to be taken from the system for materials and activities. Costing variant
specifies particular valuation variant and costing type. Costing variant contains additional parameters to select the BOM and routing
automatically and for updating the price to the material master.

Controlling
4.10.5 Define Costing Variants
At XYZ LTD Costing Variants are maintained Plant Level. The last two digits of costing variant indicates the plant number.(eg.BF00–- XYZ
LTD-MFD- Standard cost est. has been maintained.)
The costing variant is attached to:
Costing Type 01 Standard cost est. (mat.)

Valuation Variant 001 XYZ LTD - Valuation variant(Maintained at each plant level
and last two digits indicates the plant number)
Date Control XYZ LTD Std cost est. - month
Find Quantity Structure PC01 Std qty structure determined - 2
Transfer Control PC01 Plant transfer – XYZ LTD
Error management – ‘3’ - Log and save messages, mail inactive
Additive costs – ‘3’ - Take into account and include additive costs
Saving cost estimate with quantity structure – x (saving allowed)
Defaults for update parameters
Save cost element itemization x (allowed)

Save itemization x (allowed)
Save error log x (allowed)
Costing variants contain all necessary control parameters for costing.
Costing variants form the link between the application and Customizing, since all cost estimates are carried out and saved with reference to a
costing variant.
Costing variants allow you to define how costing is carried out. Among other things, they control how the quantity structure or the value structure
is created.
A costing variant contains the following control parameters:
 Costing type
 Valuation variant
 Quantity structure determination
 Transfer control
4.10.6 Define Costing Types
Standard costing type ‘01’ is being used [Standard cost est. (mat.)]
Saving material cost estimates
With qty. structure - with start of the period

Additive cost est. - With start of the period
Update of material price x - Standard Price
Valuation view – legal valuation.
Here you define the technical attributes of the cost estimate.
You define the purpose for which a material cost estimate can be used by specifying which field of the material master record the results of the
costing can be transferred to. The costing type for the standard cost estimate allows, for instance, the standard price to be updated. You can set
only one indicator for each costing type.

Controlling
Update Cost estimate
Standard price Standard cost estimate (01)
Tax price Inventory cost estimate
Commercial price Inventory cost estimate
Other price except std price Modified standard cost estimate or

Current cost estimate
No update Any cost estimate
Note the following when defining the parameters for the standard cost
Estimate:
 The cost component view for stock valuation is used in the calculation of the standard price.
 This cost component view contains the cost components that are flagged as relevant for stock valuation.
4.10.7 Define Valuation Variants
001 - XYZ LTD - Valuation variant is maintained .At XYZ LTD Valuation variants are maintained at the plant level and last two digits indicates
the plant number.
Strategy sequence for material valuation –
1 Valuation price according to price control in material master

2 Moving average price
3 Standard price
Strategy sequence for internal activities –
1 1 Planned standard rate of the period
Costing Sheet for calculation over head
XYZ LTD XYZ LTD Costing Sheet( At XYZ LTD costing sheets are maintained at plant level
and last two digits of the costing sheet indicates the plant number )
Here you create a valuation variant that contains the required parameters for the valuation of a cost estimate.
You also specify which costing sheet is used to calculate overhead.
 Material component with or without additive costs
 Here you define the sequence in which the system searches for prices in the accounting view or the costing view of the material master
to valuate the materials.
 For material cost estimates, you also specify whether additive costs can be added to the selected price.
 Internal Activities
 Here you define the sequence in which the system searches for prices in activity type planning or actual activity price calculation in
Cost Center Accounting to valuate the internal activities.
 You also specify which plan/actual version in Cost Center Accounting is used.

Controlling
Overhead
You can link the valuation variant to a costing sheet. The costing sheet contains the parameters that control the calculation of overhead.
4.10.8 Define Transfer Control
PC01 - Plant transfer has been maintained
Cross plant transfer strategy Sequence
1 Future standard cost estimate

2 Current standard cost estimate
3 Previous standard cost estimate
In this step you define parameters for partial costing. Partial costing prevents new cost estimates from being created for materials in the BOM that
already have costing data. The existing costing data are simply transferred into the new cost estimate, which results in reduced runtimes.
Partial costing can be used to advantage in the following situations:
 You want to calculate the costs for a new product. The BOM for this product contains materials that have already been costed, and you
do not want to cost these materials again.
 You want to cost all new products during the course of the fiscal year. You define a costing run that includes all materials, and use the
transfer strategy to assure that only new products are selected.
 You specify cross-plant transfer with the special procurement type. You do not want to explode and cost the quantity structure in the
other plant.
4.10.9 Define Date Control
ZXYZ LTD - Std cost est. – year/month has been maintained
Costing date from F - Start of next posting period

Costing date to G - End of next posting period
Qty structure date A - Costing date from
Valuation date A - Costing date from
In costing, date control IDs control the dates on which the quantity structure and the value structure are created. These dates determine the
following:
 The validity period of the cost estimate

 The date on which the quantity structure is determined
 The date on which the quantity structure is valuated
Date control determines which dates are proposed or displayed when a cost estimate is created, and whether the user can change these dates.
If you intend to calculate variances with reference to the cost estimate, make sure that the cost estimate is valid in the periods in which you will
calculate the variances.
If you intend to valuate scrap or work in process with the results of the standard cost estimate, you should make sure that the cost estimate is valid
in the periods in which you will calculate variances or work in process.
4.10.10 Define Quantity Structure Determination

Standard setting retained.

Controlling
Quantity structure determination is used in cost estimates with quantity structure to specify for each plant how the system searches for valid
alternative BOMs and alternative routings to create a quantity structure for multilevel BOMs. The search is carried out on the basis of two
parameters:
 Application of BOMs to determine alternatives automatically
 This key determines how the system should choose the suitable alternative for the different company areas in which the BOM is used.
 Selection ID for selecting alternative routings
 This key determines the priority given to routings during routing selection.
Quantity structure determination also specifies whether the required quantity for BOM components with dimensional units of measure is rounded
up to the next whole number if the calculation of scrap-adjusted quantities results in a fraction.
Quantity structure determination is also linked by plant to the order type.
To be able to use the quantity structure determination in costing, you must assign it to the costing variant.
Overhead will be allocated based on user-defined parameters. Parameters are defined in Cost sheet.
The costing sheet integrates all elements of overhead costing. It consists of the following rows that are processed during the calculation:
Base rows
 Base rows contain the bases of the overhead calculation: the cost elements and origins for which overheads are to be calculated. You
can take the calculation bases directly from the costing sheet and then maintain them as necessary, or define them separately in the
step ‘Define calculation base’.
Overhead rows
 You define the overhead rows by assigning overhead to them. An overhead row references one or more base rows or totals rows. The
amount contained in these rows, along with the percentage rate calculated using the overhead rates, delivers the overhead amount.
You can take the overheads directly from the costing sheet and then maintain them as necessary, or define them separately in the steps Define
percentage overhead or Define quantity-based overhead.
The overhead row contains a credit key that defines which object (cost center or order) is credited during the overhead calculation.
You can either take the credit keys directly from the costing sheet and then maintain them as necessary, or define them separately in the step
Define credit.
Totals Rows
 No calculation bases or overheads are assigned to the totals rows. They are used only to form subtotals or end totals.
In product costing, the costing sheet for overhead calculation is selected through the valuation variant.
For overhead surcharges on semi-finished products that are used in the subsequent production step, the calculation base specifies what cost
component view is used as a basis for overhead calculation. The cost component view is specified in the costing type.
4.10.10.1 Costing Sheet: Components
4.10.10.1.1 Define Calculation Bases
A calculation base defines a group of cost elements for which common overheads are calculated. In each controlling area, you assign individual
cost elements or cost element intervals, or origins or origin intervals, to calculation bases.

Controlling
 For production overhead costs, you can differentiate between fixed and variable costs for the calculation base. In this way, you can
charge the fixed and variable portions of the activity price differently for activity types.
 For material overhead costs, you can differentiate the materials used. If you want to define different material overhead costs for
particular raw materials, you can define origin groups and define your own calculation bases for particular origin groups.
4.10.10.1.2 Define Percentage Overhead
An overhead determines the conditions under which overhead is applied to an object.
In this step you define percentage overhead, such as 5% in controlling area 1000.
Percentage overhead is a good idea if, for example, you want to calculate quantity-independent overhead on costs for particular cost elements in a
cost center. Quantity-based overhead, on the other hand, is calculated per unit of measure in a cost element.
You can combine the two by, for example, assigning a 10% overhead to a cost element and an additional RS.3 per hour.
Overheads are limited in duration and can be adapted to meet your requirements as part of current settings.
You must assign a condition to each overhead. Examples of such conditions include the contents of particular order fields. The system prescribes
which fields you can use. For example: if you enter "plant" as a condition, a defined overhead is calculated for each plant.
Using this condition, the system can access the relevant condition fields in the appropriate condition tables. All the condition tables delivered in
the standard contain the fields "Controlling area", "Overhead type" and at least one field from the order master.
Plan, actual, and commitment overhead can be calculated. The overhead type distinguishes between the three.
4.10.10.1.3 Define Credits
Cost allocation is part of the process of determining overhead. If this leads to an object being debited with actual costs, another object must be
credited at the same time. This can be either a cost center or an order. Such postings are recorded under a secondary cost element of cost element
category 41 in the SAP System.
In the credit, you also define what percentage of the overhead is allocated as fixed costs. If you enter "*", the fixed portion of the costs is
determined via the specification in the relevant calculation base.
4.10.10.1.4 Define Cost Components
Illustrative Cost Component structure XYZ LTD - Cost Component has been designed
Cost Comp. Cost Component Cost element (From) Cost element (To)
010 Raw Material
020 Production costs
030 Material Overhead
040 Production Overhead
050 Cost of goods mfg.
060 Admin. Overhead
070 Sell & Dist. Overhead
080 Cost of goods sold
The cost components split the results of product costing into raw materials, material overhead, external activities, setup costs, machine costs,
personnel costs, production costs, and so forth.
The cost components can be

 Displayed in product costing
 Analyzed in the information system

Controlling
The cost components also serve as a filter for the costing results. They determine
 What costs are included in the cost estimate for the higher-level material.
 What costs should be part of the standard price for the material costed.
 What costs should be part of the commercial and tax price for the material costed.
The structure of the cost components (such as raw materials, material overhead, external activities, setup costs, machine costs, personnel costs,
production costs, and other costs) is the same for each material in the BOM. This means, for example, that
 The costs for a raw material appear under the cost component "raw materials" in the cost estimate of the semi-finished material and
the higher-level semi-finished materials and finished materials
 The costs for the usage of an internal activity appear under the cost component "production costs" in the cost estimate of the semi-
finished product and the higher-level semi-finished products and finished products
This way the product cost estimate shows you not only the total costs for the usage of a semi-finished product but also what the costs are
composed of. This is called a cost component split. The system updates a cost component split for each material in the BOM (including the raw
materials).
There are many reports in the information system to analyze the cost estimates. The results can be linked to the relevant BOM. Reports are like
Costed Multilevel BOM, itemization.
The reports could be arrived in cost component splits for cost of goods manufactured.
Saved cost estimates can be compared to the cost estimates of previous periods or cost estimates of the two materials can be compared.
Cost estimates can be used for “make or buy” decisions.
Saved cost estimate has to be marked and released in order to update the Material Master as standard price.
4.11 Product Cost by Order
In Product Cost by Order, the manufacturing orders themselves are the cost objects. Costs charged to manufacturing orders are usually analyzed
and settled by lot. The variances can be analyzed after the entire planned production quantity has been put into inventory.
4.11.1 Purpose
To capture the cost of the Component.
4.11.2 Master Data
BOM, Routing, Cost Center and activity types
In XYZ LTD, all components are produced on discrete manufacturing environment except Foundry division. In Foundry division, all components
are produced on Repetitive manufacturing environment.
In discrete manufacturing environment, order related production is preferred. In Product Cost by Order, the manufacturing orders themselves are
the cost objects. Costs charged to manufacturing orders are usually analyzed and settled by lot. The variances can be analyzed after the entire
planned production quantity has been put into inventory.
For repetitive manufacturing environments, products cost collectors are best suitable.

Controlling
Costing is done on the basis of production orders based on quantity structure (PP production orders) or without quantity structures (CO
production orders).
Production order creation is in PP.
Costing variant, costing sheet for overhead calculation and cost component structure are defined as Standard Cost estimate.
Costing variant for planning and actual cost are defined.
Preliminary Cost Estimates:
Preliminary costing in the Product Cost by order component calculates the costs for the production order as a pre-cost.
A preliminary cost estimate for a production order can calculate the costs for the production process, when a production order is saved or
released, as per settings.
You pre-cost a manufacturing order (production order) for the following purposes:
To determine the planned costs for the material being manufactured based on the planned lot size of the order
To calculate the planning variances and use them to decide what production version to use
To determine the production variances at a later time.
Pre-cost is done on the basis of BOM and routing. Pre-cost is done when the order is saved or released, according to the settings.
Actual Costs: Actual costs can be collected on the production order in the following ways:
It is through the logistical transactions (such as goods issues or confirmations for activity allocations) for manufacturing orders.
Directly, for example through G/L account postings in Financial Accounting (FI)
You can view the actual costs and the planned costs for the production order at any time.
Revaluation of activity types at actual prices.
Planned activity prices are posted to the production order at the time of confirmation and at the period end actual activity prices are calculated and
production orders are revalued.
Overhead Calculation
You can apply both percentage overhead and quantity-based overhead to production orders. In R/3 System, you can assign the overhead to a
product by creating a costing sheet in Customizing for Product Cost Planning. Using this costing sheet, you specify the level of overhead and the
conditions under which it is calculated.
You can calculate the following:
Material and production overhead

Administration and sales overhead
The costing sheet thus specifies the cost elements under which the sales and administration costs are updated in costing. The cost component
structure determines the cost components under which these costs are shown. It flags these cost components as sales and administration costs
In order-related production, repetitive manufacturing and process manufacturing, the sales and administration costs are generally passed on from
Cost Center Accounting directly to Profitability Analysis. The cost of goods manufactured for the product is passed on to Profitability Analysis.
To be able to calculate overhead in the R/3 System, you must do the following:
Create a costing sheet in Customizing

Controlling
Assign the costing sheet to the valuation variant in Customizing
In the initial screen of the cost estimate, enter a costing variant that either contains this valuation variant or that assigns the costing variant to the
order type
To define particular overhead conditions for certain reference objects, you must do the following:
Enter an overhead group in the master record of the reference object (such as the material master record, base object master record, cost object)
Enter an overhead key in the costing sheet that is linked to this overhead group in Customizing for Product Cost Controlling.
WIP Calculation
In R/3 system, the value of components and finished products, which are in the production process, is referred to as WIP (work in process). WIP
is also known as the stock of unfinished products.
System calculates the work in process in order to determine the costs that have accrued for production orders that have not yet reached the final
delivery stage.
The WIP is determined periodically and forwarded to the financial accounting. A posting rule is defined and posting rule creates the link to the
GL accounts from CO. Accordingly, the function is associated with month end closing for order related production.
Each order that you want to calculate WIP should have a results analysis key. It is defined in customizing. The key integrates the control
parameters for calculating the WIP.
WIP is actual value of material and conversion cost for the stages completed.
Variance calculation
Comparison of actual costs and planned costs at order level provides the result of variance calculation. There may be a number of reasons for both
positive and negative plan variances.
There may be difference between the planned quantities and actual quantities consumed. This is known as usage variance. When target costs are
compared with charged actual costs, it provides the amount of volume variance.
In R/3 system the variances are determined for each cost element and assigned to number of variance categories. Variance categories specify the
cause of a variance such as price variance or lot variance.
When the order is completed and delivered, the difference between the actual cost posted to the order and the standard cost estimate of the
quantity produced is the order balance. The order balance is settled in accordance with the control parameters in the settlement structure.
Plan cost versions determine which values are compared in order to determine the variance.
If the price control is ‘S’, that is controlled by standard cost price, then the variance is posted to price difference account in GL and settled to the
CO-PA.
If the price control of the material is ‘V’, that is moving average price then the system posts the variance to the inventory account and individual
variance categories are also settled to the CO-PA.
In XYZ LTD, we follow the price control ‘S’ (subject to the final decision from the stakeholders),
In all the situations, the PA transfer structure provides such settlement to CO-PA.
Settlement
When production is completed, the complete order is settled. There are order debits due to issue of raw material, components and activities or
processes to the production. The outward movement of goods from the order is the delivery of finished goods to the inventory. The amount of
delivery of goods is credited to the production order. It happens every time the deliveries of finished goods are taking place XYZ LTD from
production order.
The credit value is based on the price control of the finished product of the production order. After due credit for the delivery of goods from the
production order, the difference between the debits and credits of the production order is the variance. The variance amount is transferred to Price
difference account or Inventory account in accordance with price control of the material. The variance is also settled to the profitability analysis.
The settlement parameters are defined in settlement profile and settlement structure.

Controlling
The purpose of settlement is to send the cost to the target objects affecting inventory value or profit & loss.
Variance analysis
The final step in production order life cycle is production order settlement. When a order is settled the cost are settled to the target objects and
order balance amount is treated in accordance with price control indicator of the finished product. Accordingly, the amount might be posted to
inventory account or price difference account in Profit and loss account.
Besides the profitability analysis is settled with variance amount per variance categories. The variance categories are assigned to cost elements.
The variance categories specified in SAP system for example are Price variance, quantity variance in consumption, quantity variance in
production, resource usage variance, lot size variance, other in put variance and remaining variance. Besides scrap is also valued.
Production orders are settled once the production lot size is completed. Accordingly, the order balance arising in between is WIP at actual cost.
You can analyze costs of manufacturing orders by period. However, SAP recommends lot-based cost controlling for manufacturing orders. The
manufacturing order must have settlement type FUL (full settlement) in the case of production orders.
4.12 Product cost collectors/Product cost by period
Product cost collector is the cost object in the Product Cost by Period component that collects the periodic actual costs incurred in the production
of a material. When you use a product cost collector, the product becomes the main cost object.
Purpose
XYZ LTD has saleable products like casting etc produced at Foundry plant. Production is carried out make-to-stock or sales order related
production. Periodical costing is required for such activities.
Master Data
BOM, Routing, Material Master, Cost Centers, work centers and activity types
Features with respect to XYZ LTD
In XYZ LTD, it is a repetitive manufacturing environment.
Business Process
You can use repetitive manufacturing as sales-order-oriented production or make-to-stock scenario. The system generates one or more planned
orders that have a direct link to the sales order item. The material is manufactured on the basis of these planned orders. The manufacturing
process is therefore initiated by sales orders.
In repetitive manufacturing environments, you must create a product cost collector to collect the costs of manufacturing of a material.
Product cost collectors is independent of the production type. This means that you can collect actual costs on product cost collectors in the
following production environments:
In order-related production (that is, when you are using production orders) when you analyze the costs by period rather than by lot.
You can also use one product cost collector on which the costs for a material are collected that is manufactured both for the sales order and for the
make-to-stock inventory. A requirement is that the Repetitive-manufacturing indicator in the material master record is selected.
If you use product cost collectors, there are relatively fewer cost objects than in Product Cost by Order. This improves performance in period-end
closing and in the information system.
You can pre-cost product cost collectors.
Function of creating Product cost collector is with production planning.

Controlling
You create a product cost collector for the combination of material, plant, and production process.
You do not need to manually create the production process for the product cost collector. The system generates the production process
automatically when you create the product cost collector.
Preliminary Cost Estimates for Product Cost Collectors.
Preliminary costing in the Product Cost by Period component calculates the costs for the product cost collector.
A preliminary cost estimate for a product cost collector can calculate the costs for the production process (that is, on the basis of a particular
production version or for a particular combination of BOM and routing). In repetitive manufacturing, you can therefore create cost estimates for
specific production versions.
You can do the following on the basis of the preliminary cost estimate:
Confirm actual activity quantities
In simultaneous costing in repetitive manufacturing, you can use the activity quantity structure of the preliminary cost estimate. This means that
reporting point back flushes use the activity quantities that were used in the preliminary cost estimate for the product cost collector. However, the
actual quantities confirmed are valuated using the valuation variant of simultaneous costing rather than the valuation variant of preliminary
costing.
Valuate the work in process
The system calculates the target costs on the basis of the preliminary cost estimate for the product cost collector to valuate the confirmation
quantities for the calculation of work in process.
Calculate the production variances in variance calculation
The system calculates the target costs on the basis of the preliminary cost estimate for the product cost collector, and compares these target costs
against the actual costs.
Valuate the unplanned scrap in variance calculation
The system calculates the target costs on the basis of the preliminary cost estimate for the product cost collector to valuate the confirmation
quantities for the calculation of scrap.
In repetitive manufacturing, SAP recommends that you valuate work in process and scrap using the target costs calculated in a preliminary cost
estimate for the product cost collector. This enables you to calculate work in process and scrap variances even if changes have been made in the
reporting point structure. You must update the preliminary cost estimate after the reporting points have been changed.
Actual Costs: Actual costs can be collected on the product cost collector in the following ways:
It is through the logistical transactions (such as goods issues or confirmations) for manufacturing orders (production orders or process orders) and
run schedule headers. For example, goods issues for a production order or reporting point back flushes in repetitive manufacturing debit the
product cost collector with actual costs. Goods receipts credit the product cost collector.
Directly, for example through G/L account postings in Financial Accounting (FI)
In the screen Display Product Cost Collector, you can access reports by choosing Display Costs. You can also view the actual costs for the
product cost collector in the Information System at any time
SAP recommendations in repetitive manufacturing environments:
Create a separate product cost collector for each production version.

When you create the product cost collector, choose the Controlling level Production Version.
Period End Closing:
1) Revaluation of activity types at actual prices.

Planned activity prices are posted to the production order at the time of confirmation and at the period end actual activity prices are calculated and
production orders are revalued.

Controlling
2) Overhead Calculation
You can apply both percentage overhead and quantity-based overhead to production orders or product cost collectors. In R/3 System, you can
assign the overhead to a product by creating a costing sheet in Customizing for Product Cost Planning. Using this costing sheet, you specify the
level of overhead and the conditions under which it is calculated.

order type
3) WIP Calculation
In R/3 system, the value of components and finished products that are in the production process is referred to as WIP (work in process). WIP is
also known as the stock of unfinished products. System calculates the work in process in order to determine the costs that have accrued for
production orders that have not yet reached the final delivery stage. The WIP is determined periodically and forwarded to the financial
accounting. A posting rule is defined and posting rule creates the link to the GL accounts from CO. Accordingly, the function is associated with
month end closing for order related production.
4) Variance calculation
When the order is completed and delivered, the difference between the actual cost posted to the order and the standard cost estimate of the
quantity produced is the order balance. The order balance is settled in accordance with the control parameters in the settlement structure.
Target cost versions determine which values are compared in order to determine the variance.
CO-PA.

Controlling
In XYZ LTD, we follow the price control ‘S’.
5) Settlement
delivery of goods is credited to the production order. It happens every time the deliveries of finished goods are taking place from production
order.
6) Variance analysis
4.13 Product cost by Sales Order
In Product Cost by Sales Order, the sales orders themselves are the cost objects. The Sales orders drive the production process from logistics
point of view. The sales order automatically creates a production order, using MRP processing, which manages the direct resources used to
produce a product. With the use of valuated stock, the focus of the direct, controllable cost s incurred during the production process is the
production order not sales order. These manufacturing costs may be incurred during the production of finished product or semi-finished product.
Purpose
XYZ LTD needs to capture the total actual cost of executing a sales order should be available from the system, for analyzing the total cost
incurred and profitability of sales orders.
Master Data
BOM, Routing, Material Master, Cost Centers, work centers and activity types

Controlling
Features with respect to XYZ LTD
In XYZ LTD, all components are produced on discrete manufacturing environment except Foundry division.
Business Process
In Product Cost by Sales Order, the sales orders themselves are the cost objects. The Sales orders drive the production process from logistics
point of view. The sales order automatically creates a production order, using MRP processing, which manages the direct resources used to
produce a product. With the use of valuated stock, the focus of the direct, controllable cost s incurred during the production process is the
production order not sales order. These manufacturing costs may be incurred during the production of finished product or semi-finished product.
Product costing is closely tied to production, so the financial and costing entries automatically result from the daily manufacturing transactions
that are entered in the system. The month end process are necessary to complete the financial picture for product costing.
As a Sales order is created , the option chosen using variant configuration are used to determine the components that will be required to build the
customer specific product.A cost estimate is saved and marked automatically for the sales order item , using particular options specified by the
customer.
MRP is run based on the sales order, a planned production order is created to manage the manufacturing process for the Make to Order Product.
The planned order is converted to a production order.
The activities are Provide from the production cost center to the production order.
The month end process is executed for production orders and cost centers. Since Sales order item is not considered a controlling object in the
MTO environment using valuated stock, a month end process does not need to be performed for the sales order item.
The finished product may have multiple options, each of which would result in a different cost estimate for the product. However, since variances
should not be incurred because a different option of the finished product was chosen by the customer , no standard cost can be maintained on
these configurable materials. A cost estimate is available for each sales order item instead of a standard cost , which act as a temporary standard
cost for the option chosen by the customer.
This cost estimate is used to valuate the finished product, and all variances that are incurred compared to this cost estimate are considered to be
manufacturing variances.
Based on the BOM settings, a purchase requisition may be automatically created by the system when the production order is created, and these
component materials are received directly against the production order, not into the inventory. In the MTO process using valuated stock, these
components are received against the production order, not against the sales order, since the production order controls the manufacturing process.
Accounting Implications In Sales order costing with valuated stock
1. Finished goods are received from production order into Inventory :
The completed finished products are received as goods receipts from the production order. These finished goods are received into
restricted Inventory since it was produced to customer specifications. The goods receipt places the finished good into the sales order
stock. It is linked to the sales order that was used to create the production order for the specific finished product.
The goods receipts signals the sales order that the manufacturing of the finished product is complete, and product may now be
delivered to the customer. The inventory value is updated with the actual quantity produced multiplied by the sales order cost estimate
developed for the product. The goods receipts automatically post the financial and material documents. The finished goods are
valuated with at the sales order cost estimate.
2. Delivery product to customer
Once production of a finished product has been completed and the product has been received into sales order stock, it can be delivered
to a customer. The sales order stock is relieved when the delivery is processed. At this time, the cost of sales is posted to the G/L, since
the finished product is valuated at the sales order item cost estimate, the entry cost of sales uses this value. There are no postings to the
COPA at this time.
3. Invoice the customer
At the time of invoice, the revenue is posted to the G/L and to the COPA.The cost of sales has already been posted to FI at the time of
delivery, and it is posted cost based copa with the invoice data so that the cost of the product is matched with the revenue.

Controlling
Overhead Calculation
You can apply both percentage overhead and quantity-based overhead to production orders. In R/3 System, you can assign the overhead to a
product by creating a costing sheet in Customizing for Product Cost Planning. Using this costing sheet, you specify the level of overhead and the
conditions under which it is calculated.

order type
WIP Calculation
In R/3 system, the value of components and finished products, which are in the production process, is referred to as WIP (work in process). WIP
is also known as the stock of unfinished products.
System calculates the work in process in order to determine the costs that have accrued for production orders that have not yet reached the final
delivery stage.
The WIP is determined periodically and forwarded to the financial accounting. A posting rule is defined and posting rule creates the link to the
GL accounts from CO. Accordingly, the function is associated with month end closing for order related production.
WIP is actual value of material and conversion cost for the stages completed.
Variance calculation
When the order is completed and delivered, the difference between the actual cost posted to the order and the cost estimate of the quantity
produced is the order balance. The order balance is settled in accordance with the control parameters in the settlement structure.
Plan cost versions determine which values are compared in order to determine the variance.
CO-PA.

Controlling
In XYZ LTD, we follow the price control ‘S’ (subject to the final decision from the stakeholders),
Settlement
delivery of goods is credited to the production order. It happens every time the deliveries of finished goods are taking place XYZ LTD from
production order.
Variance analysis
Production orders are settled once the production lot size is completed. Accordingly, the order balance arising in between is WIP at actual cost.
You can analyze costs of manufacturing orders by period. However, SAP recommends lot-based cost controlling for manufacturing orders. The
manufacturing order must have settlement type FUL (full settlement) in the case of production orders.
4.14 Profit Analysis of Internal Divisions of Enterprise
Profit center is a management oriented organizational unit in SAP used for internal controlling purpose. Enterprise will be divided into profit
center units. It enables you to analyze the profitability of the Responsibility areas and to delegate Responsibility to such units.
Profit center will be of Products (products or product lines), Geographical areas (regions, sites, offices) or functional areas (production, sales)
Profit Center Accounting (CO-PCA) helps to analyze the operating results of the internal organizational units. Profit center reporting is used to
control the results of the individual areas of Responsibility (profit centers) within the organization.
Broad objectives of the profit center accounting are to get Profit and loss account and balance sheet for the each profit center. Profit Center
accounting is a component of CO and differs from the objectives of Profitability Analysis. Profitability Analysis mainly focuses on external
market segments for controlling.
4.14.1 Purpose
Evaluation of profitability of internal units of XYZ LTD: Company has two divisions located in different geographical locations. Materials are
moved in between the divisions. Costs and revenue has to be analyzed. Wherever inter-unit goods’ movements are there, transactions have to be
considered at arms length.
4.14.2 Master Data
Profit center

Controlling
In XYZ LTD, Profit centers are defined at each plant level.XYZ LTD can view the profit and loss at each profit center level and Balance sheets
subject to some limitations.
4.15 Segment profitability
Profit analysis (CO-PA) is a CO component. It is capable of marginal costing. As contribution margin accounting, it also provides concurrent
comparison of actual and planned data in order to evaluate the financial results of the individual market segments.
Reports can be raised for period ends. Reports can be prepared using the actual revenue or estimations based on cost accounts for revenue and
revenue deductions. It enables to analyze sales and cost data using characteristics contained in the data description. Many key figures are
available for evaluation.
4.15.1 Purpose
Market segments of XYZ LTD are exports, domestic and services. Company requires profitability analysis in terms of market segments in order
to evaluate the customer and product profitability. In XYZ LTD, this report is intended for evaluation of market segments of Machines and spares.
This report is to know whether as a company, XYZ LTD earns profit or loss on the end product it invoices to its customers.
4.15.2 Master Data
Characteristics and value fields
In XYZ LTD, market segments like domestic, exports, customer group, Product group etc.will be established.
SD Billing data are generated on the segment lines. When such data are generated in the system, values of line items will be posted to CO-PA.
Corresponding sales deductions like cash discounts, rebates that may arise also will be transferred to CO-PA. Any other cost related to sales will
also be transferred to the profitability system.
Product cost that is standard cost of material will be transferred to CO-PA. All production variances will be settled to CO-PA.
The market segments will be defined in terms of characteristics such as products, product groups, customers, customer groups, geographic areas,
etc. For example, you may wish to analyze profitability for a specific group of products that you sell to a particular customer (or group of
customers).
When setting up CO-PA for use in XYZ LTD, you will have broad flexibility to choose whichever characteristics are relevant for defining your
company's market segments. Each unique combination of characteristic values (e.g. sales of product A to customer Y) defines a profitability
segment.
You must also decide which specific values related to profitability should be analyzed for those segments. These values are known as key
figures. For example, you can define which types of revenue and expense/cost categories should be used to determine a value for gross margin
according to your company's requirements. Here again, CO-PA gives you the ability to freely select whichever values are relevant to the various
users in your company. If different types of users define gross margin differently (e.g. sales management vs. product management), it is possible
to provide separate gross margin figures for each, calculated according to their individual requirements.
CO-PA provides a multidimensional reporting tool that can be used to design reports that analyze data for any selected market segments, and any
defined measures of profitability.

Controlling
Account Based CO-PA:
Account-based Profitability Analysis is a form of profitability analysis organized in accounts and using an account-based valuation approach. The
distinguishing characteristic of this form is its use of cost and revenue elements. It provides you with a profitability report that is permanently
reconciled with financial accounting. You can also use both of these types of CO-PA simultaneously.
In XYZ LTD, we shall use both costing based and account based CO-PA.
Account based CO-PA shall be used for FI-CO reconciliation.
Reporting: Drill-down reporting facilities are there for CO-PA reports. With drill-down report facility, you can evaluate the data in Profitability
Analysis interactively. You can select the desired dataset according to any of the characteristics in your CO-PA system and draw on any important
business ratios (so-called key figures) you wish using the dynamic drilldown function. You can display several profitability segments for any key
figure, or several key figures for any profitability segment. You can also perform variance analyses, such as plan/actual comparisons, fiscal year
comparisons, comparisons of profitability segments, and so on.
Characteristics: Region, Division, Products, and Customers, etc
Characteristic Values: (e.g.) Region south, Region North, etc
Profitability Segments: (e.g.) Region North + Product
Value Fields: Gross Sales, Discounts, and Cost of Sales.
Some Reports:
Costing Based
Plan/actual Comparison
Division Comparison
Districts/Plant/Material group
Account Based:
Cost element Report

Plan/Actual Comparison
4.16 Scrap accounting
4.16.1 Purpose
It is an inherent nature of production lines in XYZ LTD to generate scrap as part of the manufacturing process, which includes design and
production scrap in the case of XYZ LTD. This kind of scrap has to be quantified and valuated wherever required and accordingly product cost is
arrived after reducing the scrap value.
4.16.2 Master Data
Material Master, BOM, Production order
In the plant, kinds of scrap that may arise are:
 Design Scrap
 Production scrap
 Line rejection

Controlling
You can plan and cost the scrap expected in production in the system.
MRP automatically adds the scrap quantity to material requirements.
Product costing uses the scrap to determine excess consumption of materials.
You can maintain the following types of scrap:
 Assembly Scrap
 Component Scrap
 Operation Scrap
Planned scrap in respect of assembly, operation and component will be captured through the BOM and material master.
Using the component back flush, you can back flush component scrap or excess component consumption in Repetitive Manufacturing.
A separate movement type is provided for the scrap back flush so that you can also define a separate cost element in Controlling.
All other scrap will be defined, as By-products in BOM and quantities will be recorded on actual basis. The valuation is based on net realizable
value or fixed price or manually net material value.

Controlling
5 MODULE INTEGRATION
 CO is integrated with FI for all cost related transactions.

 Sales related data are transferred from SD
 Material related data are captured from MM
 Employee cost data is from Pay roll.
 PM orders are settled from PM
 Quality costs are from QM orders
 Project cost from PS
 Service cost from CS

Controlling
6 STANDARD INFORMATION SYSTEM
The following would be the output from the system
 Standard cost estimate of each of the manufactured product for which a bill of material is available.
 Components/ Itemization & detailed breakup including overhead of each of the cost estimates.
 Actual & plan data on each of the production orders/product cost collectors – both quantity and value.
 Detailed report on variances on production orders/product cost collectors.
 Cost center account wise reports – plan/actual/ variances
 Profit center reports at each account level.
 Detailed reports (individual document level) on sub-ledgers – profit center wise.
 Market segment reports and product profitability

Controlling
7 GAPS
Sl Num Description of Gap Remarks

1 Stock Age Analysis Covered under MM Module
2 Issue against Production Order based on BOM Quantity only. Excess Not possible.
issue should be monitored by approval process. Covered under PP Module
3 Cost Estimate message should be shown as Error message at the time Posted the issue to SAP. Awaiting reply.
of creation of Production Order
4 Travel request form and Travel expense sheet Not covered under the project scope
5 Closing stock bifurcation into Excise Non-excise VAT Non-VAT Covered under MM Module.
Finding a work around solution through
Batch.
Based on that report development can be
undertaken.
6 Idle time reporting Covered under the HR Module. Based on the
HR Module discussion the same will be taken
up.

BBP

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Controlling

Project Name Document Name Document Location

Version Document Name Date Author Reviewed By Change

Name Organization Change control

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1.2 Business Blueprint Overview

 CSBP-Current State Business Process Mapping

 Additional programming or technical effort

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1.3.1 Overview of the Controlling setup

The following are the basic requirements of controlling module:

o Costs are tracked at the origin

 Costing of internal projects/investment proposals

 Transparent costing system is maintained for internal jobs

 Product cost planning at the beginning of the year

 Responsibility accounting and segment reporting

 Responsibility accounting for costs and revenues

1.3.2 Cost control (for overhead costs):

1.3.3 Managing projects /internal jobs/ specific activity

1.3.4 Product Cost

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1.3.5 Responsibility accounting (contribution)

1.3.6 Profit analysis (CO-PA)

In XYZ LTD, market segments like Domestic, Exports will be established.

1.4 Implementation Scope

1.4.1 Geographical Coverage

Plant Regional Offices Dedicated Unit

XYZ LTD, All

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Plant Regional Offices Dedicated Unit

1.4.2 Functional Scope

The following Controlling sub-modules will be implemented during this implementation:

 Cost & Revenue Element account

 Cost Center Accounting

 Product Cost Planning

 Product Cost by order

 Product Cost by Sales order

 Product Cost by period

 Profit center accounting

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1.5 MODULE INTEGRATION

In addition to financial application Module, following module integration are required.

 MM for inventory values & material transactions

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2.1 Organizational Structures

2.3 Operating Concern

XYZ LTD will have one operating concern - 1000

2.4 Controlling Area:

2.5 Company Code

2.6 Cost Center Hierarchy:

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Change and display Standard Hierarchy

Procedure for changing standard hierarchy

Go to transaction code OKEON.

XYZ LTD cost center hierarchy is 1000

2.7 Profit Center Hierarchy:

Profit center hierarchy is 1000

2.8 Maintain Controlling Area

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Controlling area 1000

ACTIVATE COMPONENTS/CONTROL INDICATORS

Controlling area 1000 XYZ LTD Controlling Area.