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DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

DERBA MIDROC CEMENT

Business Blueprint Document

Cost and cost control


Version 1.0

January 2012

Prepared by: Mr. Harisankar .S

Approved by: DMC

Functional Lead: Mr. Harisankar .S


Ms. Frehiwot Teka
Mr. Semir Said

Core Team Member: Mr. Tsegaye Asseffa


Mr. Dawit Tadesse
DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

CONTENTS

1. INTRODUCTION
1.1.1. ABOUT DERBA MIDROC CEMENTS
1.1.2. CONTROLLING MODULE AT DMC
1.1.3. PRODUCT COSTING AT DMC
2. PROCESS ARCHITECTURE
2.1.1. Organization Structure in Controlling
2.1.2. OPERATING CONCERN
2.1.3. CONTROLLING AREA
2.1.4. COST CENTRE STANDARD HIERARCHY
2.1.5. PROFIT CENTER MAPPING TO COST CENTER:
2.1.6. COST ELEMENTS
2.1.7. COST/REVENUE ELEMENT GROUPS
2.1.8. COST CENTRES
2.1.9. COST CENTRE GROUPS
2.1.10. STATISTICAL KEY FIGURES
2.1.11. INTERNAL ORDERS
2.1.12. PROFIT CENTRE
2.1.13. PROFIT CENTRE GROUPS
2.1.14. ACTIVITY TYPES
2.1.15. INTEGRATION WITH FI
3. COST CENTRE ACCOUNTING
3.1.1. PROCESS FLOW
3.1.2. COST CENTRE PLANNING
3.1.3. ACTIVITY TYPE PLANNING
3.1.4. PLANNED ACTIVITY PRICE
3.1.5. POSTINGS IN COST CENTRE
3.1.6. REPOSTING OF COSTS MANUALLY
3.1.7. PERIOD END CLOSING- COST CENTRE ACCOUNTING
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3.1.8. ALLOCATION OF COSTS


3.1.9. ALLOCATION BASIS
3.1.10. ALLOCATION – ASSESSMENT
3.1.11. STANDARD SAP REPORTS
3.1.1 INTEGRATION WITH OTHER MODULES
4. INTERNAL ORDERS
4.1.1 PROCESS FLOW
4.1.2 ORDER TYPE
4.1.3 Order Group:
4.1.4 Status Management:
4.1.5 ACTUAL POSTINGS TO INTERNAL ORDERS
4.1.6 Settlement:
4.1.7 STANDARD SAP REPORTS
5. Overhead Cost Management
5.1.1 Define assessment and distribution
5.1.2 Plan prices of activity types.
5.1.3 Plan primary costs on cost centers and internal orders
5.1.4 Plan and reconcile prices of activity types.
5.1.5 Perform manual postings and corrections.
6. PRODUCT COSTING
6.1 Product Costing-Made to stock
6.1.1 MADE TO STOCK COSTING CYCLE
6.1.1.1 Revaluate at actual prices
6.1.1.2 Analyze variances
6.1.1.3 Settlement of Process Orders
6.1.2 PRODUCT COSTING-MADE TO ORDER
6.1.2.1 Production Process Flow
6.1.2.2 Valuation
6.1.2.3 Result Analysis
6.1.2.4 Settlement
7. Profitability Analysis (COPA)
7.1.1 Define derivation rules for profitability characteristics
7.1.2 Define automatic transfer and allocation of Planned overhead
7.1.3 Enter plan data manually
7.1.4 INTEGRATION WITH OTHER MODULES

8. List of reporting considerations (Standard) in SAP CO module


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Cost and Cost Controlling


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Cost and Cost Controlling

1. INTRODUCTION
The purpose of the Business Blueprint is to serve as conceptual master plan for controlling module for
DERBA MIDROC Cement. This Blueprint has been developed by documenting all input gathered from
the core team. This document shows the business requirements in detail, and serves as the basis for
organization, configuration and development activities.

Objective of this Report

During the course of this phase of the assignment detailed discussions with core team members have
been carried out to study the following expectations
 Business Process
 Expectations / Improvements
 Reporting / Information requirements
Based on the discussions the business scenarios have been documented which need to be
addressed by the system. The purpose of this report is to confirm the understanding of these
business scenarios, which would form the basis for system specifications and to also list requirements
which cannot be addressed by the system. This document forms the basis for all subsequent activities
to be conducted during the term of project.

Structure of the Report

The report initially gives an overview of the Controlling Module purview. This would essentially help in
defining the boundaries of the module and also in identifying the activities to be performed within
Controlling Module in SAP. Subsequently, the report discusses in detail, the proposed coverage of
SAP at DMC, in terms of organizational entities and business processes. Each business process has
been described with all the variations. The authorization requirements would be identified and
configured during the configuration phase.

Organization Overview

1.1.1. ABOUT DERBA MIDROC CEMENTS


DERBA MIDROC, based in Addis Ababa (Ethiopia) is involved in the business of manufacturing
Cement products. At present it is into the Business of Cement Production.
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Cost and Cost Controlling

The requirements of organisation design for Financial Accounting are to ensure ease of use and
operation of the system, scalability to ensure future changes to the organisation structure and timely
generation and monitoring of Management Information System for decision making.

The organizational needs of Financial Accounting are to report for external purposes, that is, they fulfil
requirements that the business is subject to external entities and legal consideration of the country.

The organizational units of Controlling are used to satisfy internal reporting requirements. They
enable reporting performance within the organization and can be used to generate multi-dimensional
analysis in wiz Profit Centre, Cost Centre, Internal Order, Product Costing and Profitability Analysis.

1.1.2. CONTROLLING MODULE AT DMC


Controlling Module broadly comprises of following three Components-
 Overhead Cost Controlling
 Product Costing
 Profitability Analysis

1.1.3. PRODUCT COSTING AT DMC


The Product costing at DMC will be based on the actual cost (Standard Price * Standard Qty) derived
from the BOM (Bill of Material), Routing, Work Centers, Resources, Master Recipes, Activity prices
and Overhead rates. Production will be carried on in Production orders. The Production process will
be MAKE TO STOCK till Cement produced in SILO; afterwards the packing production process will be
based on MAKE TO ORDER.
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2. PROCESS ARCHITECTURE
Controlling Overview
Controlling (CO) contains all accounting functions necessary for effective controlling. If an
organization divides accounting into internal and external viewpoints, CO represents the internal
accounting perspective, because it provides information for managers’ -those who are inside an
organization and are charged with directing and controlling its operations.

Controlling primarily divides the entire process into three basic areas:
 Overhead Cost Controlling - provides tools to answer the question- “How do we control our
overhead costs?”
 Product Cost Controlling - provides tools to answer the question. - “What is the manufacturing
cost of a product?”
 Profitability Analysis – provides tools to answer the question – “How Profitable is individual
Market Segments?”

The CO processes can be depicted as under:


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Controlling Objects: For postings in External Accounting that use a Cost Element, a Controlling
Object needs to be assigned to which data flows from FI (Financial) to CO (Controlling). In DMC the
following CO Objects shall be used to capture Revenues & Costs-

CO Object Primary Costs/Revenues


Cost Centre TO production, Admin and Accounts, Sales & Marketing
Internal Order Can be used to track certain expenses separately. For example :
Vehicle wise expenses
Production/Process Order Material & Labour costs in Manufacturing scenario
Profitability Segment Sales Revenue and Cost of Sale to calculate Profitability

2.1.1. Organization Structure in Controlling

The organization structure of DMC needs to be mapped to the organization entities in SAP.

2.1.2. OPERATING CONCERN


An operating concern is an organizational unit in DMC for which the sales market has a uniform
structure (the company’s defined Sales org, Product Divisions, Distribution channels, sales offices
etc). It represents the highest reporting level in Profitability Analysis (this gives a cumulative
profitability for all company codes and profit centers assigned to this operating concern.

By setting off the costs against the revenues, you can calculate contribution margins for the individual
market segments.

When you transfer data to Profitability Analysis, the system derives the appropriate operating concern
from the controlling area, and derives the controlling area, in turn, from the company code. Therefore,
in configuration assign each operating concern at least one controlling area. Below is the structure for
the Company Code i.e. Derba Midroc Cement.

Operating Concern Description


1000 DMC Operating Concern

2.1.3. CONTROLLING AREA


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A controlling area is an organizational unit within CO module. It is used for cost accounting. It is within
the controlling area that Cost Centre hierarchies are defined and cost centers are assigned to these.
A controlling area may be assigned to one company code or to many company codes. If you assign a
controlling area to many company codes then you can do cross-company code cost accounting.
However, each company code must use the same chart of accounts and also same fiscal year. In
case a Company Code has a separate Fiscal Year a new Controlling Area shall be created and the
Company Code shall be assigned to this Controlling Area.

Controlling Area Description


1000 DMC Controlling area

Figure 1: Operating Concern Hierarchy

2.1.4. COST CENTRE STANDARD HIERARCHY


Cost center is an organizational unit within a Controlling area that represents a defined location of cost
incurrence. Cost Center Hierarchy is a tree structure representing all Cost Centers belonging to a
Controlling Area from a Controlling perspective. Hierarchy is useful for reporting and cost allocation
purposes.
Cost centers can be combined into cost centre groups. You can then create cost centre hierarchies
from these groups by combining the groups according to decision-making area, area of responsibility
or management area.
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A cost centre hierarchy comprises all cost centers for a given period and therefore represents the
whole enterprise. This hierarchy is known as the Standard Hierarchy. Since DMC has not yet started
actual production any addition of Cost Centers at latter stages for additional classification of cost is
also possible.

Figure 2: Cost Center hierarchy


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2.1.5. PROFIT CENTRE STANDARD HIERARCHY


Profit Center is an organizational unit in Accounting that reflects a management oriented structure of
the organization for the purpose of internal control.
The Standard Hierarchy is a tree structure which contains all profit centers in a Controlling Area and
reflects the Organizational structure used in Profit Centre Accounting.
Client has yet to come up with a PC hierarchy

Figure 3: Profit Center Hierarchy

In addition to the profit centers defined above, one dummy profit center will be created for DMC,
herein named as “DUMMY”. Dummy Profit Center is a system requirement to activate the Profit
Center functionality. This dummy profit center will contain all profit-related postings, which cannot be
assigned directly to a profit center. Subsequently, these postings can be allocated to appropriate profit
centers.

2.1.6. PROFIT CENTER MAPPING TO COST CENTER:


Profit Centers Cost Centers
Pumice Pumice production
Raw meal preparation
Parts and supplies management
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plant maintenance and workshop


Electric power and control
Quality control and lab
Water supply/treatment
Lime stone Quarry
Raw material preparation /Crusher/
Raw meal preparation
Parts and supplies management
plant maintenance and workshop
Electric power and control
Quality control and lab
Water supply/treatment
Sand Quarry
Raw meal preparation
Parts and supplies management
plant maintenance and workshop
Electric power and control
Quality control and lab
Water supply/treatment
Clay Quarry
Raw meal preparation
Parts and supplies management
plant maintenance and workshop
Electric power and control
Quality control and lab
Water supply/treatment
Basalt Quarry
Raw meal preparation
Parts and supplies management
plant maintenance and workshop
Electric power and control
Quality control and lab
Water supply/treatment
Clinker product 1 Raw meal preparation
Clinker production
Parts and supplies management
plant maintenance and workshop
Electric power and control
Alternative fuel/ coal preparation and handling

Quality control and lab


Water supply/treatment
service cost centers
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Clinker product 2 Raw meal preparation


Clinker production
Parts and supplies management
plant maintenance and workshop
Electric power and control
Alternative fuel/ coal preparation and handling

Water supply/treatment
Quality control and lab
Portland cement cement grinding
Packing
Parts and supplies management
plant maintenance and workshop
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Portland-slag cement cement grinding
Packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Portland-pozzolana cement cement grinding
Packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Service cost centers
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Portland -fly ash cement cement grinding


packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Protland-burnt shale cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Portland-composite cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Blastfurnes cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
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Gypsum and additives preparation and handling


Pozzolnic cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Composite cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Portland - silica fume cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
Alternative fuel preparation and handling
Gypsum and additives preparation and handling
Portland - limestone cement cement grinding
packing
Parts and supplies management
plant maintenance
Electric power and control
Water supply/treatment
Mobile equipment maintenance/ garage
Sewage and disposal
Quality control and lab
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Alternative fuel preparation and handling


Gypsum and additives preparation and handling

Staff Residence and Recreation Staff Residence and Recreation

Admin / Service Finance


Sales and Distribution
Procurement and Supply
GM and HRD
IT Department

Business Process Scope


The Controlling module shall cover the following Business Processes:
 Cost Centre wise Planning of expenses and their comparison with Actual to monitor
and control Overhead Costs
 Cost of Manufacture of a Product in Made to Stock Scenario
 Identification of Variances in production process compared to Standards Overheads
and fixing up the responsibility and accountability at each level
 Profit Centre wise Planning of revenues and expenses
 Actual Operating Profit of each Profit Centre
 Gross Profitability by Customer, Product Groups, Sales Executives, Distribution
Channels etc.

To meet the above requirements the following scope has been identified in Controlling Module-

 Cost Element Accounting


 Cost Element Master
 Cost Element Groups
 Cost Centre Accounting
 Cost Centre Master
 Cost Centre Hierarchy
 Cost Centre Planning
 Cost Allocation
 Activity Type Master
 Activity Planning
 Activity Price Calculation
 Internal Order
 Product Costing in Made to stock Scenario( Limestone, Clinker & Cement)
 Product Cost Planning (Actual cost estimate)
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 Overhead Calculation
 WIP Calculation
 Variance Calculation
 Settlement
 Product Costing in Made to Order Scenario (Cement Packing)
 Sales Order Settlement
 Profit Centre Accounting
 Profitability Analysis

Master Data
Master Data in Controlling consists of the following-
 Cost Elements
 Cost Element Groups
 Cost Centers
 Cost Centre Groups
 Activity Types
 Statistical Key Figures
 Internal Orders
 Profit Centers
 Profit Centre Groups
 Material Master

2.1.7. COST ELEMENTS


A cost element describes the nature of cost. Cost element is created in a controlling area. Cost
elements are time dependant data. Cost Elements can be broadly categorized into Primary and
Secondary. Primary Cost/Revenue Elements are GL accounts, as defined in the DMC Chart of
Accounts, which would require a compulsory Cost Object whenever these accounts are credited or
debited. The Cost Centre / Internal Order transactions of DMC shall be analyzed Cost Element wise.
Examples of Primary cost elements include: Electricity Charges, Water Charges, Salary & Wages,
Repairs & Maintenance, Hire Charges – Equipment, Fuel Expenses, Consumption – Raw Materials
The detailed cost elements shall be created based on the finalized Chart of Accounts. Cost element
code shall be given a serial number which shall be in line with the G.L. accounts for all primary cost
elements Secondary Cost Elements are used for allocations and settlements. These are not
represented by GL accounts in FI. Based on the type of activity allocations, the secondary Cost
Elements shall be created in Controlling Module.

Categories of Secondary cost elements include:


 Assessment: Allocations from Cost Centers to Cost Centers
 Internal Settlement: Allocations from Internal Orders to Cost Centers
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 Internal Activity Allocation: Direct allocations from Cost Centers to Production Orders
 Overhead: Indirect allocations from Cost Centers to Production Orders

2.1.8. COST/REVENUE ELEMENT GROUPS


Cost element group collects cost elements with similar characteristics. Cost element groups can serve
various purposes. For example, they can be used in planning, during allocation, or in reports as
selection criteria, or to process several cost elements in one business transaction.
The Cost Elements for DMC shall be grouped into the following logical groups
 Direct material
 Direct Labor
 Factory Overhead
 Sales and general admin expenses
 Revenue
These groupings shall be required for cost monitoring, reporting and control as also for allocation
cycles.

2.1.9. COST CENTRES


Cost Center is an organizational unit within a controlling area that represents a defined location of cost
incurrence. A Cost Centre represents the location/responsible area of cost occurrence in an
Enterprise.
It can be set up based on function, geographical location, area of responsibility, activities /service
provided or allocation criteria.
The Cost Centre structure should serve the following purposes:
 All reporting requirements which require costs to be displayed separately for a department /
function
 All allocation requirements that require costs to be identified separately and put in separate
buckets such that they could be directly picked up for different basis of allocations.
 All segmental requirements (profit centre) where costs need to be identified /reported and
allocated in a different manner to meet segmental reporting requirements
Cost Center Group Number Ranges
Production 1000-1999
Auxiliary 3000-3999
Services 5000-5999

2.1.10. COST CENTRE GROUPS


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Cost Center Group is a hierarchical group of cost centers defined and organized according to
selected criteria. Cost Center Groups can serve various purposes. For instance, they can be applied
to call up reports, create reports, or be used in an allocation process. . This enables to use cost
centers to depict the structure of the organization in the SAP System.
The individual cost centers form the lowest hierarchical level. There must be at least one group that
contains all cost centers and represents the entire business organization. This cost centre group is
described as the standard hierarchy.
Any number of alternative groups can be created, for example, according to organizational and/or
functional viewpoints. Cost centre groups enable to perform evaluations for each decision-making,
responsibility, or control area. They also support the processes during planning and internal
allocations.

2.1.11. STATISTICAL KEY FIGURES


Statistical Key Figures can be used to determine ratios in Cost Centers (e.g. Number of employees in
each Cost Centre) and as an allocation base for assessments and distribution cycle.
For example, Cafeteria costs can be allocated to individual Cost Centers on the basis of SKF, Number
of Employees. Similarly Power Costs captured in Electrical Cost Centre can be allocated to individual
Cost Centers on the basis of SKF-Kilo Watt Hour for distribution of Power Costs.

2.1.12. INTERNAL ORDERS


An Internal Order is an extremely flexible CO tool that can be used for a wide variety of purposes to
track costs within a Controlling Area. Internal orders provide capabilities for planning, monitoring, and
allocation of costs

Internal orders are normally used to plan, collect, and settle the costs of internal jobs and tasks. The
SAP system enables to monitor internal orders throughout their entire life-cycle; from initial creation,
through the planning and posting of all the actual costs, to the final settlement. Internal orders can
also be used for statistical posting. This provides further break-up of expenses per event. For e.g.,
Travelling expense of 10000 Birr incurred by Marketing cost centre which consists of travel for 5
different events. If 5 statistical internal orders one each for one event is created and while in FI
posting internal order is also referred to the system shall give both the view of the same expenses
(a) travelling expenses cost centre wise and (b) travelling expenses Event wise.

Internal Order can be real or statistical. A real Internal Order is Actual Cost Object, the Costs of which
can be Settled to a Cost Centre or another Cost Object. For e.g. Vehicle Costs can be captured
through Vehicle Orders. Here Vehicle Orders are Real Orders. During period end, the Vehicle Orders
cost can be settled to the Cost Centre to which the Vehicle pertains. Statistical Internal Order on the
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other hand is not the Actual Cost Object & postings to a Statistical Internal Order are for information
purpose only. For example, Marketing Office may have many Sales Employees, who incur Travel
Expenses. While booking the Travel Expenses the real Cost Object is the Marketing Office Cost
Centre while Sales Employees can be created as separate Statistical Internal Orders to capture Sales
Employee wise Travelling Expenses.

2.1.13. PROFIT CENTRE


Profit centre is an organizational unit in accounting that reflects a management-oriented structure of
the organization for the purpose of internal control. The main distinction between a profit centre and
cost centre is that, typically, cost centers will have only cost components; profit centers have revenue
as well as cost components. Thus reporting can done at profit centre level in line the company’s P&L
account.

Profit Centers are created under a controlling area. Cost centers are linked to Profit Centers. The Cost
Centers are attached to the Company Code. Thus for entries in a profit centre, the company code is
derived through the link to cost centre. An entry posted to a Cost Centre will automatically get
duplicated in profit centre if profit centre is attached to a Cost Centre.

2.1.14. PROFIT CENTRE GROUPS


Profit Centre group is hierarchical structure of profit centers. As in cost centre grouping Profit centers
can also be grouped logically to provide Business group oriented, Product line oriented, Geographical
oriented etc. view of the responsibility accounting. Profit centre groups are used for reporting,
allocations or in various planning functions, where it does not make sense to enter or display data at
the lowest level (with a high level of detail).

2.1.15. ACTIVITY TYPES


Activity types are used to determine the quantity-based output of a cost centre. In DMC we will be
defining “Overheads” as a quantity and attaching it to production cost centers for loading the
overheads cost on the product.

Integration
2.1.16. INTEGRATION WITH FI
Primary Cost and Revenue Elements shall be created for the corresponding Expense and Revenue
GL’s created in FI.
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4 COST CENTRE ACCOUNTING


4.1.1 PROCESS FLOW
DMC shall capture all the expenses in the nature of administration, selling and distribution, personnel
etc against those departments/ locations that are incurring these costs or are responsible for the
costs. This shall be achieved through Cost Centre Accounting. The Cost Centre Accounting
component tracks where costs occur in the organization. The Cost Centre is an organizational unit in
a Controlling Area. Cost Centers can be defined for each low level organizational unit that has
responsibility for managing costs. As costs are incurred, they are assigned or posted to the
appropriate Cost Centre. These costs shall include the payroll costs, rent and utility costs, training,
administration etc assignable to a given cost centre.

4.1.2 COST CENTRE PLANNING


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 within a fiscal year and forms part of the
overall business planning process.
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.
 The objectives of Cost Centre Planning are:
Cost control through variance analysis
Determination of Planned Activity Rates (For example: Labor Hours in Production Cost
Centers for Product Costing)
Cost Centre Planning shall be used to enter the plan costs of various Cost Centers. This shall be
monitored against the actual expenses booked to the Cost Centre. The actual costs shall be
compared with the plan to determine the variance.

4.1.3 ACTIVITY TYPE PLANNING


Activity types are used to determine the quantity-based output of a cost centre. Activity types are used
primarily to control the activity quantities on the cost centers. This enables to determine the Activity
rate (For example: Labour Hour, Engg. Hour, etc) and the rate of capacity utilization of a cost centre.

4.1.4 PLANNED ACTIVITY PRICE


Planning of Activity prices is the entering of the rate for the activity to the cost centre. DMC will define
one activity type as “Overheads” and attach it to the production cost centers. The rate of overhead
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e.g., overheads per liter will be entered at the beginning of the period the year, later on this rate will
be changed based on the actual overheads for that cost centre.

4.1.5 POSTINGS IN COST CENTRE


Postings in Cost Centre involve direct posting of expenses from upstream components (Other SAP
modules) to the Controlling (CO) application component (module). In the CO component, this transfer
occurs real-time from the components Financial Accounting (FI), Asset Accounting (FIAA), Materials
Management (MM). This is achieved by entering a cost accounting object (such as a cost centre or an
internal order) during account assignment.
 Postings from MM: Certain material are not stocked but is charged off at the time of
purchase itself. The item is assigned to a cost centre in the purchase order. In this case
consumption is booked at the time of goods receipt. For example: - Printing & Stationery is
issued and cost booked to Administration Cost Centre.
 Postings from Asset Accounting: Each asset is assigned to a cost centre and depreciation
is debited to it during Depreciation Run at period end.
 Postings from FI: During expense booking in FI the relevant Cost Centre is assigned which
enables the flow of the expense to the relevant cost centre. For example: While booking
Salary of an Employee the relevant Cost Centre to which the Employee pertains is given
which enables flow of the expense to the relevant Cost Centre.

4.1.6 REPOSTING OF COSTS MANUALLY


Primary costs can be reposted manually using transaction-based reposting, whereby the original cost
element is always retained. This function is designed mainly to adjust posting errors. It is advisable to
adjust the posting error in the application component where they occurred so that external & internal
accountings are always reconciled for e.g. if FI posting is done to wrong cost centre then it should be
rectified through reversal of original FI posting and again make a correct FI posting instead of
correcting the error in CO component.

4.1.7 PERIOD END CLOSING- COST CENTRE


ACCOUNTING
The following steps need to be followed for period end closing
 Primary postings from FI should be completed for the period and FI period should be closed
 Enter Allocation basis-like Statistical Key Figures
 Execute allocation cycles in Cost Centre Accounting

4.1.8 ALLOCATION OF COSTS


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Certain individual costs are collected at default cost centre for ease of entry. Thereafter at the end of
the period, it is allocated to the actual cost centre using the secondary/primary cost element through
Assessment/Distribution cycle. The allocation cycles must be executed in the correct sequence to
ensure that costs are allocated correctly.
The overheads are allocated from Service Cost Centers to Production Cost Centers. For example:
Power Costs in Utilities Cost Centre or Cafeteria Costs in Cafeteria Cost Centre. Allocations can be
done through Assessment Cycles or Distribution Cycles. These cycles are used in both plan and
actual for allocation and apportionment of Costs.

4.1.9 ALLOCATION BASIS


The basis for allocating the costs may be:
 Statistical key figures - It is used for allocation of overheads to other cost centers. For
example: Electricity expenses will be booked through FI to Utilities Cost Centre. At month
end these costs shall be apportioned to Production and Other Administrative Cost Centers
on the basis of Statistical Key Figure-KWH which will determine the number of units
consumed in various Cost Centers.

4.1.10 ALLOCATION – ASSESSMENT


Assessment is a method of internal cost allocation by which the costs of the sender Cost Centre are
allocated to receiver Cost Objects (other cost centers, internal orders etc). It is a method of allocating
primary and secondary costs in Cost Centre Accounting.

The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost
elements, i.e. Assessment records the costs in a separate head in the sender and receiver objects
without reflecting original Cost Elements.

Assessment is done in the form of cycles to settle primary and secondary Cost Elements.
Assessments are also defined in Segments, each Segment representing a rule for allocation of costs.

 The original cost elements are not recorded on the receivers. Sender and receiver
information (sender cost centre, receiver cost centre) appears in the Controlling (CO)
document.
 The total expenses of service cost centers are allocated on a reasonable basis. For
example, all expenses of Cafeteria cost centre can be allocated to other cost centers on the
number of employees.
 The allocation cycles must be executed in the correct sequence to ensure that costs are not
allocated to a cost centre after its costs are fully allocated.
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Cost and Cost Controlling

4.1.11 STANDARD SAP REPORTS


Cost Centre wise Actual/Plan Variance Report.

4.1.12 INTEGRATION WITH OTHER MODULES


Postings to Cost Centers occur from entries in the following Modules-
 Finance-Expense Postings
 Asset Accounting-Depreciation Postings
 Materials Management-Consumption Postings
 Production Planning
 Quality Management

4. INTERNAL ORDERS

4.1.8 PROCESS FLOW

Internal orders are normally used to plan, collect, and settle the costs of internal jobs and tasks. The
SAP system enables to monitor internal orders throughout their entire life-cycle; from initial creation,
through the planning and posting of all the actual costs, to the final settlement. Different types of
internal orders that are available in SAP for the tracking of cost and revenue which are:

 Overhead cost orders are used for the time-restricted monitoring of overhead costs (that are
incurred when you execute a job) or for the long-term monitoring of parts of the overhead
costs. This will be used in DMC.
 Investment orders let monitor investment costs that can be capitalized and settled to fixed
assets. This will be used for tracking of cost through Investment Management.DMC is not
going to use it as of now.
 Orders with revenues let monitor costs and revenues that are incurred for activities for
external partners, or for internal activities that do not form part of the core business for your
organization.
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Cost and Cost Controlling

Figure 4: Internal Order Process Flow

4.1.9 ORDER TYPE


An order type has a large amount of control information important to order management. This
information includes a range of default values that are used when you create a new order with this
order type.
Internal order is created with reference to the Order type. Number Ranges are also controlled by
Order type.
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Cost and Cost Controlling

Order Number
Type Short text Cat Range Number From Number To
412 PR Activity/Event Management 1 01 000000100000 000000199999
Internal Order - Capital
600 Spending 1 02 000000200000 000000299999
900 Internal Order - Special Jobs 1 03 000000300000 000000399999
930 Internal Order - Revenue 1 04 000000400000 000000499999
1100 Internal Order - Statistical 1 05 000000500000 000000599999

4.1.10 Order Group:


Several order groups can be maintained in order to build a structure. The Structure will be more
helpful in reporting. The top most hierarchy will be INT_ORDER_CO.

4.1.11 Status Management:


The current status of an internal order (or the combination of all status) determines which business
transactions can be performed on the internal order. The use of status management to specify the
current processing status of an internal order is done. The status can be set by the system or by the
user.

An internal order is not a static object, but has its own life cycle that begins when it is created and
ends after it is closed. During this time, the internal order is changed by various business transactions.
For example, costs are planned, posted and settled for it.

Each internal order passes through four system status, one of which is always active.

 Created
In this status, for example, actual postings are not possible.
 Released
Nearly all business transactions are allowed in this status.
 Technically completed
This status, for example, cannot make any planning changes.
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Cost and Cost Controlling

 Closed
In this status, for example, no cost-relevant business transactions are allowed.

DMC will maintain the system created status with permitted business transaction. The Order will
be released once it is created, there will not be automatic release on creation.

4.1.12 ACTUAL POSTINGS TO INTERNAL ORDERS

Actual postings will take place in internal order based on FI entries, MM entries and Assets
Accounting, similar to that of cost centre.

4.1.13 Settlement:
An internal order is usually used as an interim collector of costs and an aid to the planning,
monitoring, and controlling processes needed. When the job has been completed, it is possible to
settle the costs to one or more receivers such as cost centre, fixed asset, profitability segment, and so
on.

DMC will do the settlement at the end of every month. The settlement profile will be created which will
allow the settlement of costs to one or more receivers (cost center, fixed asset, profitability segment,
and so on).

4.1.14 STANDARD SAP REPORTS


Standard SAP Reports are available for reporting purposes such as
 Internal Order wise Actual/Plan Variance Report
 Internal Order Actual/Actual comparison-Yearly, Quarterly and by Period
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Cost and Cost Controlling

 Internal Order Actual line item report


 List: Cost Elements by Order
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Cost and Cost Controlling

5. Overhead Cost Management


The Overhead Cost Controlling component (CO-OM) helps you to plan, allocate, control, and monitor
overhead in your organization
By planning in overhead areas, you can develop standards that allow you to control costs and valuate
internal activities.

Cost Centre Accounting


 Cost Center Accounting analyzes where overhead occurs within the organization• Costs
are assigned to the sub-areas of the organization where they originated.
 SAP offers a wide variety of methods for allocating posted amounts and quantities.

Internal Order Accounting


 Internal Orders collect and analyze costs based on individual internal jobs.
 SAP can monitor and automatically check budgets assigned to each job.

5.1.6 Define assessment and distribution

Requirements/Expectations

The Company intends to transfer the plan costs from service cost centers to the production cost
centers based on certain basis of apportionment.

General explanations

Assessment is a method of allocating primary and secondary costs in Cost Center Accounting. The
following information is passed on to the receivers:

 The original cost elements are assigned cumulatively, or in groups, to assessment


(secondary) cost elements. The original cost elements are not recorded on the receivers.
 Sender and receiver information (sender cost center, receiver cost center) appears in the
Controlling (CO) document.
 Allocation through assessment is useful when the composition of the costs is unimportant
for the receiver. For example, the assessment of cafeteria costs to a cost center need not
be broken down further.

Distribution is used to allocate the primary costs of a cost center. The following information is passed
on to the receivers:
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Cost and Cost Controlling

 The original cost element (that is, the primary cost element) is retained.
 Sender and receiver information (for example, the identities of the sender and receiver
cost center) is documented using line items in the CO document.
 Cycle should have a valid sender and receiver cost center or cost objects like Internal
Order, WBS Elements etc. This is documented by line items in the Cost object.
 Information system reports can be used to analyze the distribution results according to
sender and receiver relationships.

Explanation of functions and events

 Settlement Structure/Profile needs to be maintained.

System configuration considerations

 Assessment and Distribution cycle need to be created/Maintained in order to repost the


costs from sender cost center to receiver cost center.

5.1.7 Plan prices of activity types.

Requirements/Expectations

The Company intends to allocate the planned fixed & variable costs from the cost centers to the cost
of the product.

General explanations

The cost driver is to allocate the indirect costs to the cost objects i.e., Process Orders.

In SAP, the cost drivers are Activity type for allocating costs from production cost center to Process
Orders. The allocation of costs are based on the units produced for each period e.g., UOM Ton etc.

Each cost center provides a portion of the services in the activity process of the whole enterprise.

System configuration considerations

 Maintain Secondary cost elements


 Create Activity Types
 Create cost centers for each work center / plant / material
 Provide the values for the aforesaid cost centers for all activity types for each period
 Assign the cost center to the work center
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Cost and Cost Controlling

 Assign the Activity type in each work center


 Provide the unit of measure (Like quantity, hours) of activity types in the Routing where
the work center is assigned.

5.1.8 Plan primary costs on cost centers and internal


orders

Requirements/Expectations

The Company intends to define the budgets approved by the Management as planned costs. The
planned costs from these cost centers would be loaded to the planned cost of the product.

General explanations

Each cost center provides a portion of the services in the activity process of the whole enterprise. We
plan activity-dependent primary costs as follows on a cost center(s)/cost center group:

 By cost element(s)/cost element group


 Based on the activity types.
 Plan versions can be established directly in the SAP system.
 Analysis of actual costs, plan costs and variances will be possible online.
 Managers will be able to track specific costs and revenues in terms of plan vs. actual.
This will offer better control over spending to directors and managers.

This means that we can plan a fixed amount for the primary costs in producing a given activity,
proportional to the quantity of activity produced.

Explanation of functions and events

The Company intends to load the planned cost of the activity types like staff cost, depreciation,
maintenance cost etc., to all the products.
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Cost and Cost Controlling

Each product is assigned to a cost center which is known as production cost center. This activity is
used for planning the cost of each activity for the said product. All the activities are planned for the
respective cost elements associated with. The said costs would be per unit of production for each
product.

This process is not required to be performed for the Activity type “Depreciation” as planned data
would directly flow from FI-AA (Asset Accounting) into the cost center planning based on plan
depreciation.

System configuration considerations

 Create Number Ranges for Planning Documents


 Create Plan Versions
 Create Planning Layout
 Maintain Secondary cost elements
 Create Activity Types
 Create cost centers for each work center / plant / material
 Provide the activity values for the aforesaid cost centers for all activity types for each
period
 Assign the cost center to the work center
 Assign the Activity type in each work center
 Provide the unit of measure (like quantity, Hours) of activity types in the Routing where
the work center is assigned
 Provide the list of cost elements which are linked to the Activity types
 Provide the costs for Cost Center / Activity Type / Cost elements / Period to arrive at the
total planned costs for a cost center for all activity types.

5.1.9 Plan and reconcile prices of activity types.

Requirements/Expectations

The Company intends to allocate the planned costs from the cost centers to the planned cost of the
product.

General explanations
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Cost and Cost Controlling

At the end of the period the planned costs of the cost elements are accumulated in the production
cost centers / Activities.

Explanation of functions and events

 The planned costs for all the cost elements are accumulated for the Activities for all the
respective cost centers.
 The planned cost for the cost elements linked to each Activity is split to derive the
accurate actual activity price of each activity.
 This ensures absorption costing of the fixed costs of the respective product debited the
respective cost center.

5.1.10 Perform manual postings and corrections.

Requirements/Expectations

The Company intends to arrive at the actual costs of the entire product.

General explanations

During the period, there are some activities which are required to derive the accurate costs of the
products. Here are some of the functions which are explained as under:

Explanation of functions and events

Manual Reporting of Line items

During the period we need to make some rectifications, where we need transfer posting from one
product to another product (Orders), and one cost center to another etc.

6. PRODUCT COSTING
The Cement costing involved in the process consists of transferring the costs from service cost center
to the main production cost centers. At period-end closing the service cost centers (Auxiliary) are
balanced to zero, using secondary cost elements (assessment cycles), and costs are transferred to
the main production cost centers based on fixed percentages or statistical key figures.
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Cost and Cost Controlling

The production cost centers costs are also balanced to zero and costs are transferred to the products
with secondary cost elements based on activity types. These activity types are evaluated in produced
quantities, worked hours (machine/product) and consumed kWh (machine/product).

At year-end closing, the deviations between the standard costs and the actual costs are settled to the
products. If deviations are very high, they can also be corrected during the year.

DCBL will be using both the scenarios of Made to Order and Made to Stock.
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Cost and Cost Controlling

7.1 Product Costing-Made to stock

7.1.1 MADE TO STOCK COSTING CYCLE

In Made to Stock scenario Production Process is initiated on receipt of planned order resulting from
the MRP run based on Annual Sales forecast. Stocks are manufactured and kept for storage.

Flow Chart depicting the process is given here under-


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Cost and Cost Controlling

Costing with a quantity structure is a tool for planning costs and setting prices for materials without
reference to orders. It is used to calculate the cost of goods manufactured for each product. You can
use the results of material cost estimates with a quantity structure to valuate materials at standard
prices.

Preparations for Material costing

We need to do the following customizing parameters for material costing.

Cost Component Structure

A control of how the results of activity price calculation or material costing are stored.

The cost component structure groups cost elements into cost components to show the following
information:

 Activity prices for an activity type


 Cost of a process
 Planned cost of a product

In Product Cost Controlling (CO-PC), the cost component structure determines the attributes for
passing on the following costs:

 Material costs passed on to material valuation as the standard price or inventory price
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Cost and Cost Controlling

 Cost of goods manufactured passed on to Profitability Analysis

Costing Variant

A tool that contains all control parameters for costing, including parameters that control how cost
estimates are executed and the material prices or activity prices that are used to valuate the costing
items.

The Costing Variant Controls the following parameters.

Costing Type

 Specify whether the costing is for legal, profit center or group valuation
 Define which prices are to be updated Standard price, Planned prices, Commercial prices
etc.,
 Display the cost in cost component Split
 Valuation Variant
 Specifies which prices are used to evaluate the materials, activity types, processes,
subcontracting, and external activities.

Quantity Structure Control

 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.

Transfer Control

In this step we define parameters for partial costing. The purpose of partial costing is to prevent the
system from creating a new cost estimate for a material when costing data already exists. Instead, the
existing costing data is simply transferred into the new cost estimate.

Date Control

Controls the validity period of the cost estimate, the quantity structure date, and the valuation date

Others

 Whether the costing results can be saved


 Whether system messages are collected in a log and saved
 Whether additive costs are included in material costing
 Which lot size is used in the cost estimate
 Whether the current standard cost estimate should be used when materials are costed with
errors

Before a cost estimate with a quantity structure can be created, a bill of materials and routing (PP)
must exist for the material being costed.
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Cost and Cost Controlling

Component Data accessible for costing purposes

MM Material master records and purchasing info records

PP Bills of material, routings and work centers

CO Cost centers and activity types

The material costs for a material are calculated using the BOM and the master records of the
materials in the BOM. The production costs are calculated using the routing, the work centers where
the respective operations are carried out, the cost centers, and the activity types.

In Production Planning (PP), the work center is the organizational entity in which an operation is
carried out. Each work center is linked to a cost center. The cost center is the organizational entity in
Controlling (CO) where costs are incurred.

A routing contains the default values for the production of a product. The work center contains
parameters such as:

 Formulas that access the default values in the routing


 Activity types for which activity prices are planned or determined in Cost Center Accounting

On the basis of the formula in the work center and the default values in the operation, the system
calculates the anticipated activity input. This activity is valuated using the prices in Cost Center
Accounting to calculate the planned costs for the operation.

All the materials can be costed together. It also costs the semi-finished products which are contained
in the BOM and costs up to the last level. This procedure is called as Costing Multilevel BOM.

It updates the planned price and Standard price for all the materials for the said period mentioned in
the cost run.

Explanation of functions and events

o Create a Costing Run

o Selection - Range of Materials, Plant

o Structure Explosion - that it explodes all the Bills of Materials up to the last level of
production

o Costing of Materials – It costs all the materials up to the last level of production.

o Analysis – It displays details of costing results of all the materials.


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Cost and Cost Controlling

o Marking – It releases the cost as planned cost estimate and updates the Material
Masters.

o Release – It releases the cost as Current Standard Cost estimate and updates the
Material Masters. It also revalues the Inventory based on the current standard cost.

 DMC would be able to cost all the products independently with detailed break-up of variable
and fixed costs. The costs are further consumed at the higher level of production to derive
the costs of higher levels of products.
 DMC can get accurate cost of each material they are producing.
 You can now have a distinction between Cost of Goods Manufactured (COGM) and Cost of
Goods Sold (COGS).
 DMC can identify the Costs of Production and Selling & Administration separately.

7.1.1.1 Revaluate at actual prices

Requirements/Expectations

DMC intends to load the cost of staff costs, maintenance, depreciation, overheads etc., at actual cost
periodically to the interim and finished products.

General explanations

If a cost accounting object uses an activity from a cost center, we usually start with a plan price to
allocate the activity. This is because the actual price is calculated during period-end closing. In the
actual activity price calculation, the SAP system performs calculation of the prices for the activity
types.

To do this, it uses the actual costs that were debited to the cost center, and the activities actually
incurred. The system accounts for all activity relationships with the cost centers as per the cost
elements / activity in the splitting structure.

After actual price calculation, we can revaluate the objects at actual prices if they have used the
activities from cost centers. The system always determines the variances between the costs posted
up to this point and the costs that occur under the new prices. The corresponding sender cost center
is credited by the actual price revaluation and the receiver Process Order is debited accordingly.

In DMC the Process Order is the receiver and sender is the cost center after revaluation. The values
of activities are revalued based on the actual costs of the cost center pertaining to the activity.
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Cost and Cost Controlling

This would ensure that all the total costs accumulated in the cost center of the materials produced are
loaded. Hence it ensures absorption costing. This would result in absorption costing of all costs in the
cost center for the said period.

Explanation of functions and events

The revaluation at actual prices would be performed for all production cost centers.

7.1.1.2 Analyze variances

Requirements/Expectations

The Company intends to analyze the variance of all production processes.

General explanations

Variance calculation provides us with detailed cost information on products or manufacturing orders.

The variance calculation function does the following:

 Shows the variance between target costs and actual costs


 Determines the difference between the actual costs debited to the object and the credit
from goods receipts (total variance).
 Determines production variances and planning variances for informational purposes.
 Shows the causes of the variances and assigns the variances to different variance
categories depending on the cause.

The system compares the control costs (Actual costs) against the target costs (Plan costs for actual
production) and assigns the resulting variances to variance categories. The variances are assigned to
variance categories in the following sequence:

 Input price variance - Input price variances are caused by differences between the
planned and actual prices of the input materials and activities used.
 Resource-usage variance - Resource-usage variances are caused by the use of
different materials and activities than were planned.

The system calculates resource-usage variances if:


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Cost and Cost Controlling

o The target costs of a cost element, origin group, or origin are not zero while the
actual costs of the same cost element, origin group, or origin are zero.
o The target costs of a cost element, origin group, or origin are zero but the actual
costs of the same cost element, origin group, or origin are not zero.
 Input quantity variance - Input quantity variances are caused by differences between
the planned and actual consumption quantities of materials and activities. Turn on the
Material origin indicator in the costing view of the master record of all materials that have
a large influence on the costs.
 Remaining input variance - The system calculates variances for each cost element on
the input side. If the system cannot assign a variance on the input side to any of the
above categories, it assigns the variance to the remaining input variance category. This
can happen when costs are entered without a quantity, or when the overhead rates are
changed.

 Mixed-price variance - Mixed-price variances arise when the system valuates


inventories using a mixed cost estimate for the material. A mixed-price variance is caused
by a difference between the target credit (Confirmed Quantity x Standard Cost of
Procurement Alternative) determined by variance calculation and the actual credit that
was posted when the goods were received (Confirmed Quantity x Standard Price). The
standard price corresponds to the mixed price.

 Output price variance - Output price variances are reported in the following situations:
o If the standard price has changed between the time point of delivery to stock and
the time point when the variances are calculated
o If the material’s price control indicator is set to V and the material was not
delivered to stock at the standard price
o If the price used to valuate the inventory is not a mixed price

Output price variances are caused by a difference between the target credit (such as Confirmed
Quantity x Standard Price) determined by variance calculation, and the actual credit posted when the
goods were received (such as Confirmed Quantity x Moving Price).

 Remaining variance - Differences between the target costs and the allocated actual costs that
cannot be assigned to any other variance category. For example, rounding differences are
reported as remaining variances.

Overhead applied to costs that do not vary with the lot size are also reported as remaining
variances.
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Cost and Cost Controlling

Remaining variances are reported in the following situations:

When the system cannot calculate target costs, such as when no cost estimate for the material exists
or because no goods receipt for the order has taken place in the Product Cost by Period component.

If we do not select a variance category, the variances of that category are assigned to the category
remaining variances. The scrap variances are an exception to this. Scrap variances that are not
shown as such can flow into any other variance category on the input side.

Explanation of functions and events

The variance calculation would be done for all the product cost collectors.

7.1.1.3 Settlement of Process Orders

Requirements/Expectations

The Company intends to settle Process Orders to Products once in every month.

General explanations

During production, Process Orders are debited with actual costs. The actual costs posted to an order
can be more or less than the value with which an order was credited when the goods receipt was
posted. When we settle, this difference between the debit and credit of the order is transferred to
Financial Accounting (FI).

The following can happen during the settlement process:

The order balance can be reduced to zero by transferring to Financial Accounting (FI) the difference
between the preliminary inventory valuation (goods receipt) and the actual costs incurred. The price
difference can also be transferred to Profit Center Accounting (EC-PCA).

The total variance can be transferred to profitability segments in Profitability Analysis (CO-PA). This
enables us to see an actual contribution margin in CO-PA. We can transfer the individual variance
categories of the total variance to value fields in CO-PA in combination with certain cost elements or
cost element groups.

The variances are normally settled to CO-PA as variance categories.

Explanation of functions and events


DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

The variance calculation would be done for all the product cost collectors.

7.1.2 PRODUCT COSTING-MADE TO ORDER


7.1.2.1 Production Process Flow

In the application component Product Cost by Sales Order, the sales document items (items in
inquires, quotations, or sales orders) function as the cost objects for which you can determine costs
and revenues in both planned and actual data.

In sales-order-related production, you use the functions of Product Cost by Sales Order to collect and
analyze the costs in complex on the sales order item.

The Product Cost by Sales Order component enables us to do the following:

 Calculate and analyze planned costs and actual costs by sales document item
 Calculate and analyze planned revenues and actual revenues by sales document item
 Revaluate the activities and business processes allocated to the cost objects with actual
activity prices
 Allocate the overhead costs to the cost object using overhead calculation or dynamic process
allocation
 Calculate the value of goods that have been delivered to the customer but not invoiced
 Create reserves automatically
 Transfer data to Financial Accounting (FI)
 Transfer data to Profitability Analysis (CO-PA)

7.1.2.2 Valuation

In Valuated sales order stock goods movements takes place corresponding postings in Financial
Accounting (FI).

A sales order stock is assigned exclusively to a particular sales order and sales order item and cannot
be used for other sales orders or sales order items. Sales order stocks can be for independent
requirements as well as for the dependent individual requirements of the individual requirements
material (finished product). For this reason, the material components can only be used to manufacture
the material ordered by the customer and listed in a particular sales order item, and the material
manufactured can only be delivered to the customer in the context of the sales order item.

The inventory values are updated when the goods receipts of the internally manufactured or
externally procured materials are entered.

The valuation indicator M is selected in the requirements class in Customizing for Product Cost by
Sales Order, posting the goods receipt in the sales order stock automatically updates the following
data:
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Cost and Cost Controlling

 Standard price: updated by the first goods receipt posting


 Total stock: Total quantity of all valuated inventories of the sales order stock
 Total value: Total value of all valuated inventories of the sales order stock

7.1.2.3 Result Analysis

Results analysis is performed on the sales order item.

The following sections describe results analysis at the level of the sales order item.

You can perform results analysis for each sales order item to valuate the result of the sales order
item.

We can use results analysis to:

 Calculate the value of the costs that can be capitalized for each sales order item
 You can capitalize costs with an option to capitalize by means of settlement to Financial
Accounting (FI).
 Determine whether reserves should be created
 Results analysis creates reserves that you can transfer to FI, Profit Center Accounting (EC-
PCA), and (depending on the type of reserve) Profitability Analysis (CO-PA) when you settle.
 Reconcile the data posted in FI and in CO-PA to each other
 Because the revenues affecting net income and the costs affecting net income are usually
different from the actual revenues and actual costs posted in FI, the result shown in CO-PA is
different from the profit/loss in FI. The difference between the value in CO-PA and the value in
FI can be offset by means of postings of reserves and inventories. If you are not using CO-
PA, correction postings can still be made in FI. The correction postings are made through the
settlement of results analysis data.

7.1.2.4 Settlement

We can settle the following results analysis data to FI and EC-PCA:

 Inventory values (depending on the results analysis method, capitalized costs or revenue in
excess of billings)
 Reserves for unrealized costs
 Reserves for imminent loss
 Reserves for complaints and commissions
 Balancing in Financial Accounting with the cost-of-sales accounting method

We can settle the following results analysis data to CO-PA:

 Cost of sales or calculated revenue


 Reserves for imminent loss and complaints
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Cost and Cost Controlling

7. Profitability Analysis (COPA)


Profitability Analysis (COPA) enables to evaluate market segments according to products, customers,
orders or any combination of these with respect to company's profit or contribution margin. The aim is
to provide your sales, marketing, planning, and management organizations with decision-support from
a market-oriented viewpoint. Costing-based Profitability Analysis is the form of profitability analysis
that groups costs and revenues according to value fields. This helps in generating various Profitability
Reports.

COPA
Process Flow Manual Planning

Segments
Customer
Product
Region

Sales &
Actual
Distribution
Revenue
Billing

Actual
Cost of Production
of Goods Sold

Data
Actual
Sales Related
Deductions

Product cost Production


collector Variances

Plan / Actual
Cost Center Corporate & Assessment /
Corporate Marketing Distribution Tool
Expenses

7.1.5 Define derivation rules for profitability characteristics

Requirements/Expectations
DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

The Company intends to analyze Market Segments like Customer, Product, Region, Country,
Consignee etc.

General explanations

Characteristic derivation is the attempt to determine the characteristic values for all CO-PA
characteristics in a given profitability-relevant business transaction. The characteristic values that are
transferred automatically are used to determine other logically dependent characteristics.

The combination of the values for the characteristics in an operating concern is called a Profitability
Segment. Characteristics include-

 Sales Organization
 Division
 Distribution Channel - Example: Institutional Sales, Trade Sales,
 Sales Office
 Sales Order
 Product
 Customer etc.

Characteristic derivation consists of a series of derivation steps (the derivation strategy), each of
which can be used in turn to derive characteristic values from other characteristics.

For each operating concern we define, the system generates standard derivation steps that
automatically contain all the known dependencies between characteristics. The standard derivation
strategy contains:

 Steps for deriving fixed characteristics


 Steps for deriving the characteristics We selected from SAP tables
 Steps for determining units of measure for the quantity fields assigned in the Sales and
Distribution (SD) application or in planning.

Each derivation step describes how a group of target fields can be populated with values derived from
a group of source fields. One or more values are derived from the combination of values in the source
fields and then entered into the target fields. To find out which fields are valid as source fields and
target fields, refer to the section Source and Target Fields.

Explanation of functions and events

All the required characteristics are automatically derived in COPA. There are no new characteristic
which needs to be derived for meeting the business requirement of DMC.

7.1.6 Define automatic transfer and allocation of Planned overhead


DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

Requirements/Expectations

The Company intends to load the Plan Corporate Overheads to the cost of goods manufactured.

General explanations

To reflect all the Plan costs from Overhead Cost Controlling to Profitability Analysis, We need to
transfer the cost center costs which are not directly attributable to the production process. We can
transfer these costs to any profitability segments we wish and thus assign them to any level of the
contribution margin hierarchies.

This function makes it possible for We to transfer to Profitability Analysis overhead costs, such as the
variances for production cost centers (as a single whole, not according to variance categories) and
the costs for sales and administrative cost centers.

Cost center costs are always transferred to one profitability segment:

 Production cost centers

These cost centers are first credited during production as the activities they perform (such as
machine hours and assembly hours) are required. The amount of the credit is based on the
quantities confirmed by production and on the activity prices (such as machine hour rates)
usually calculated in cost center planning. The balances that are thus achieved - or the over
absorption / under absorption remaining for the production cost centers due to the difference
between credits and actual costs - are transferred.

Explanation of functions and events

Assessment

From an accounting viewpoint, assessment cycles allocate the planned or actual costs for cost
centers to profitability segments in CO-PA on the basis of reference values, percentages, or fixed
amounts.

The planned cost of Corporate would be transferred to COPA periodically as mentioned above based
on the cost of goods manufactured.

Additionally the data can also be captured to the Sales Organization, Sales Division and Sales
Distribution Channel.

 This helps in segregation of Selling & Administration expenses from the Cost of Goods
Manufactured.
DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

 Selling & Administration can be allocated to all the market segments like Customer
group, Product, area etc.

System configuration considerations

 Maintain Operating Concern


 Maintain Characteristics
 Maintain Value fields
 Maintain Derivation rules for characteristics

7.1.7 Enter plan data manually

Requirements/Expectations

The Company intends to do planning of sales and related costs of the Market Segments like
Customer, Product, Region, Country, Ship to Party (Consignee) etc.

General explanations

Planning in Profitability Analysis allows us to plan sales, revenue and profitability data for any
selected profitability segments. We can display the entire planning process of the company in different
ways, depending on the business demands.

To support the individual steps of a planning process, the planning tool for Profitability Analysis offers
a wide range of planning methods and planning aids that we can use to create the planning data and
to modify it to suit the needs. These include automatic methods that allow us to produce data
automatically for an entire plan or to carry out changes on that data, and functions that allow us to
enter planning data manually. As alternatives to using the standard SAP interface, we can enter
planning data locally using Microsoft Excel before loading it centrally into the SAP system.

The elements that we can use to build the architecture for planning and to edit the planning data are
essentially as follows:

 Planning level

We use the planning level to determine the level at which planning is to occur. We do
this by specifying the characteristics for planning.
DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

 Planning package

We specify characteristic values in a planning package. In this way, we determine the


market segment for which planning is to take place for a particular period. A planning
package can thereby be seen as a work package that determines which planning
objects are relevant to a specific planner.

 Planning method

Planning methods are functions with which planning data can be entered and
changed.

 Parameter set

A parameter set contains all the settings necessary for executing a planning method.

Explanation of functions and events

 Creating Number Ranges for Planning Documents


 Creating COPA Planning
 Creating Number Ranges for Actual flow of documents

7.1.8 Settle values on Process orders and projects to Profitability


Analysis

Requirements/Expectations

The Company wants to analyze the actual costs of goods manufactured to the COPA segments like
products, customers, region etc.

General explanations

The actual costs are accumulated in the Process Order for all products. As per the standard SAP,
production variances i.e., difference between Actual costs less Standard cost in the product cost
collectors are transferred to the Price Difference Account in Finance.

In order to capture the actual costs in COPA segmental reporting, the production variance has to be
transferred also COPA.

Explanation of functions and events


DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

At the time of Billing to the Customer, The Sales, Sales related expenses, Cost of Goods
Manufactured at Standard costs are transferred to COPA.

At the end of the month, once all the actual costs of all the products are captured, the productions
variances are transferred to the Price Difference Account are also transferred to COPA.

The various types of price differences can be assigned to difference value fields to meet the business
requirements of DMC.

System configuration considerations

 Maintain Derivation rules for characteristics


 Transfer of periodic billing documents from SD to COPA
 Transferring production variances to COPA

7.1.9 INTEGRATION WITH OTHER MODULES

Integration with SD
 Identification of Characteristics (For example : Product, Customer, Product Hierarchy,
Division etc.) which will flow from Sales Order to COPA.
 Identification of Value fields(For example : Sales Revenues, Discounts etc.) which will flow to
COPA through SD conditions.

Integration with MM

 Identification of Characteristics – Material Group and Manufacturer Code through M module.

8. List of reporting considerations (Standard) in


SAP CO module
Cost Elements Reports

 KA23 – List of Cost Element group / All Cost elements Master data information
 KA03 – Display Cost Element Master Data
 KSB5 - CO Documents: Actual Costs

Cost Center Reports

 KS13 – List of Cost Center group / All Cost Center Master data information
 KS03 – Display Cost Center Master data
 S_ALR_87013611 - Cost Centers: Actual/Plan/Variance
 S_ALR_87013612 - Range: Cost Centers
 S_ALR_87013624 - Cost Centers: Fiscal Year Comparison
 KSB1 - Cost Centers: Actual Line Items
DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

 KSBP - Cost Centers: Plan Line Items


 KSB5 - CO Documents: Actual Costs
 KABP - CO Plan Documents
 KSBL - Cost Centers: Planning Overview

Activity Type Reports

 KL13 – To display the master data of the Activity Types created in the controlling area
 KL03 – To display the individual Activity Types
 KSPL – Planning Overview of Cost centers
 KSBT – Activity Price Report
 KSBP – Cost center plan line items per Activity / cost element
 S_ALR_87013617 - Range: Activity Types Plan / Actual
 S_ALR_87013611 - Cost Centers: Actual/Plan/Variance

Internal Order Reports

 S_ALR_87012993 - Orders: Actual/Plan/Variance


 S_ALR_87012995 - List: Orders
 S_ALR_87012997 - List: Cost Elements by Order
 KOB1 - Orders: Actual Line Items
 KOBP - Orders: Plan Line Items

Profit Center Reports

 S_ALR_87013326 - Profit Center Group: Plan/Actual/Variance


 S_ALR_87013330 - Profit Center Group: Plan/Plan/Actual Versions
 S_ALR_87013330 - Profit Center Group: Plan/Plan/Actual Versions
 S_ALR_87013332 - Profit Center Group: Current Period/Aggregated/Year
 S_ALR_87013334 - Profit Center Group: Compare Actual Quarters over 2 Years
 S_ALR_87013336 - Profit Center Group: Balance Sheet Accounts Plan/Actual/Variance
 KE5Z - Profit Center: Actual Line Items
 KE5Y - Profit Center: Plan Line Items

Cost Centre Planning Report

 S_ALR_87013611 - Cost Centers: Actual/Plan/Variance (Cost element wise)


 S_ALR_87013612 - Range: Cost Centers (Summary cost center wise)
 KSPL – Planning Overview of Cost centers
 KSBT – Activity Price Report
 KSBP – Cost center plan line items per Activity / cost element
 KSBL - Cost Centers: Planning Overview

Reconciliation of Prices relating to Activities


DRAFT BUSINESS BLUEPRINT

Cost and Cost Controlling

 KSS4 – Display planned cost splitting of cost elements for each Activity for each cost
center.

Cost Itemization

 CK86_99 - Costed Multilevel BOM


 CK80_99 - Cost Components
 CK84_99 - Itemization
 CK88_99 - Partner Cost Component Split

Variance Analysis

 KKS6 - Individual Processing


 KKS5 - Collective Processing
 KKFB – Variances

Settlement Reports

 KKFB – Variances
 KK87 - Individual Processing
 CO88 - Collective Processing

CO-PA

 KE25 - Plan Line Items


 KE30 / KE 33 - Display various Standard SAP COPA Reports