1.

Profitability Analysis
1. General Explanation: As part of management reporting, the profitability of the company is analyzed on various dimensions such as company, business area, brand, product, channel and customer.

Sales transactions Posting to variable GL accts Operating Concern: 2. in FI Overheads Overheads The operating concern represents the highest reporting level in CO-PA. This is the Assessment level at which the products and markets of the company are defined. Generally, an Sales Transactions organization is represented using a single operating concern. In SAP, STRATA company codes are assigned to controlling area STR. This controlling area will be assigned to the operating concern STRA.

FI Module COPA

CCA Module

3. Characteristics: The characteristics in Profitability Analysis represent those criteria according to which you can analyze your operating results and your sales and profit. The following characteristics will be available for STRATA for profitability reporting other than fixed characteristics.
Fixed Characteristics Business Area Company Code Customer Plant Product Profit Center Record Type Sales Org. Billing Type CO Area Cost Object Distr. Channel Division Order Partner PC

4. Value Fields: Value fields are values and key figures that should be analyzed like Revenues, Sales Quantities, and Discounts etc. The system stores this value field for each characteristic value. The following values fields will be defined to meet the reporting requirements

Value Fields Sales quantity Gross Revenue Sales Tax Std Cost RM Std Cost PM Std Cost SFG OH- Std Labor Costs OH- Std Machine Costs OH- Std Repairs & Maintenance OH- Std Indirect Actual Cost RM Actual Cost PM Actual Cost SFG OH- Actual Labor Costs OH- Actual Machine Costs OH- Actual Repairs & Maintenance OH- Actual Indirect Primary Freight Nett Revenue Selling and Administrative Expense(Salary, Bonus and other benefit of Sales Team and Branch and Sales OH) Admin OH Salary Admin Other OH Selling OH Advertisement Freight Outward Discount Foreign Trip Selling Other OH Interest Cost

5. Profitability Segments: Profitability Segment is a combination of Characteristic Values within Operating Concern. It is an object in COPA to which costs and revenues are assigned. A profitability segment corresponds to a market segment like Product X, Customer 1 and Territory AB. We can calculate the profitability of a profitability segment by setting off its sales revenues against its costs. Whenever an accounting document is generated, COPA relevant documents will get updated through Profitability Segments. All Billing documents will flow to COPA with the derived Profitability Segments from Billing Document. (Auto definition will occur at the time of billing cycle; user is not expected to enter) Every time when entry is posted to CE1XXXX (XXXX-for operating concern - the table where COPA entries are stored) the system creates segment level entries in CE3 and CE4 for tables. This helps in generating summary level reports

Note: The characteristics which are not part of segment characteristics cannot be used for ASSESSMENT and TOP-DOWN DISTRIBUTION The following are the fixed characteristics for profitability segments Company Code Business Area CO Area Profit Center The following default segment level characteristics can be activated for segment level characteristic Customer Plant Product Record Type Sales Org. Distr. Channel Division Region Sales Employee Material group

6. Flow chart for the Business process: Not Applicable. 7. Activity Flow for the Business process Not Applicable. 8. Events in CO-PA 8.1. General Explanation:

Data gets updated in CO-PA by these following possible ways:

a. b. c.

d.

Transferring Billing Documents Direct Posting from FI Periodic Overhead Allocation a. Cost Center Assessment b. Transferring Production Variances (Product Costing) Top-Down Distribution of Actual Data

8.2.

Transferring Of Billing Documents:

The Sales and Distribution Module (SD) calculates revenues during billing with the help of a pricing mechanism, and then enters it in the billing document. If sales deductions are known (granted discounts, planned cash discount), these are also recorded in the billing document. In addition, the stock value of the product (delivered price for wholesale or retail goods, or cost of goods manufactured for in-house products) can also be determined. The system transfers all the characteristics defined in Profitability Analysis and contained in the billing document, along with the customer and product numbers, from the document to the CO-PA line item. Every billing document generated in SD (including credit memos, sales returns and so on) immediately results in a corresponding line item in Profitability Analysis. This means that the update in Profitability Analysis is linked with that in Financial Accounting (FI). That ensures that the same revenues and sales deductions are transferred to both modules at the same time. 8.3. COPA Assessment:

Actual costs from overhead cost controlling should be transferred to profitability analysis to reflect the actual costs in profitability analysis. The overhead costs can be transferred to any profitability segments like profit centers, products etc. by creating and running assessment cycles at period end. Assessment - A method of internal cost allocation by which you allocate the costs of a sender cost center to receiver CO objects (such as orders, cost centers, Profit Centers, Product/Item code) using an assessment cost element. Assessment cycles allocate costs for cost centers to profitability segments in CO-PA on the basis of Fixed Amount, Variable Portion and Fixed Percentage. Method of Allocation (Tracing Factor) Means of allocation Fixed Amount Variable Portion Fixed Percentage Amount Actual Amount posted, Plan amount posted Percentage

To assess overhead to CO-PA, you need to define cycles, which let you allocate overhead to profitability segments in connection with your period-end closing activities.
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For the periodic transfer of overhead to Profitability Analysis (CO-PA), we need to start an assessment at the end of the month. This performs a cycle or several cycles at once. These cycles contain the control information and can be maintained in Customizing in CO-PA.
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Cycle

A cycle controls how assessment is processed. All the relevant information about the senders, receivers, sender rules, receiver rules and tracing factors is contained in Segments. A cycle contains one or several segments describing combinations of senders and receivers that are to be processed together to CO-PA You can run cycles online or in the background. It is recommended that Assessment cycles that process large amounts of data should always be executed in the background in order to avoid bottlenecks. You can perform cycles sequentially or in parallel. If you want to prevent specific cycles from being performed in parallel (such as ones that are dependent on other ones), you must assign these particular cycles to the same cycle run group In CO-PA, the receiver data is transferred to value fields in CO-PA. Records are also created in CO-PA with record type D. All records that are getting posted in CO-PA through assessment are identified with record type D. For the allocation of actual data, the posting date of the allocation results is the last day of the period. Segment A segment is part of a cycle. Senders using the same rules to determine the allocated values and the corresponding receivers using the same rules to determine the tracing factor are grouped into the same segment for period-based allocation. A new segment has to be created if any of the following differs Senders In an assessment cycle Senders is defined by

Senders Rules for allocated values Receivers Tracing factors

Cost centers or cost center group (where the data to be allocated originates) A cost element or a cost element group (what is being allocated) Sender value (the value is being allocated) The sender cost elements are grouped into a single assessment cost element or alternatively into several assessment cost elements via an allocation structure before being allocated to CO-PA. The sender value can be calculated using various rules. You also enter the rule you want to use in the segment header. You must also enter a percentage for the sender value (with which the sender value is to be credited). The following are possible sender rules:

Posted amounts (rule 1) System allocates the amount posted in the sender. Fixed portions (rule 2) Fixed portion of the amount posted in the sender is allocated.

Receivers The receiver is defined in assessment by:

The profitability segment (which market segment is being allocated to/what generated the costs) The value field (which is being allocated to) Tracing factor (according to which distribution to the receivers occurs) The profitability segment for the receiver is defined by a combination of characteristic values. Tracing factors The tracing factor for allocating to the receivers can be selected using various rules:

Variable portions (rule 1) Fixed amounts (rule 2) Fixed percentage rates (rule 3) Fixed portions (rule 4) (Tracing Means of allocation Amount Actual Amount posted, Plan amount posted Percentage

Method of Allocation Factor) Fixed Amount Variable Portion Fixed Percentage

The tracing factors could be both period based or cumulative. In STRATA, only the period based allocation is going to be done. Overhead allocation process for STRATA The overheads expenses are posted to department cost centers during the original entry. The costs collected in these cost centers will be allocated to products during the periodic overhead allocation. Senders The sender cost centers will be the department cost center codes (e.g. General and Head Office Departments in STRATA). The individual cost centers or cost center groups can be specified as senders. Cost center groups defined in the Standard hierarchy will be used to define the sender cost center groups if they are the logical groups for the allocation, otherwise separate set of cost center groups have to be created only for use in Assessment cycle. The sender cost element will be specified once the assessment cycles are finalized. The sender values will be Posted amounts where the total amount posted is taken into account for allocation

Receivers The following values constitute the receivers The profitability segment e.g. Customer, Product, etc. The value field (which is being allocated to) e.g. Example of Value fields: Sales Value, Discount, etc. Tracing factor (according to which distribution to the receivers occurs) basis of allocating the cost. The profitability segments (Characteristics) of CO-PA to which the overheads are allocated are: Profit centers The Profit center to which the allocation should take place is specified in the assessment segment. The business area and the company code characteristics are determined automatically from the sender cost center. Value Fields has to be identified based on the Reporting structure of STRATA. 9. Top-Down Distribution of Actual Data: In Profitability Analysis, sales revenues, sales deductions, and costs of goods manufactured are generally stored at the product/customer level. However, many business transactions - such as General overhead, Administration overhead, etc., cannot easily be assigned to such a detailed level in CO-PA. Consequently, these need to be posted at a summarized level such as brand without providing information such as the Product etc. Top-down distribution of actual data is a periodic function that lets you distribute this aggregated data to more detailed levels in CO-PA on the basis of reference information. The data is distributed according to existing "reference data". You can use either planning or actual data as a reference. When top-down distribution is executed, values that are assigned at the higher level are distributed to the characteristics specified in the top-down distribution.

We can select values posted to any profitability segments and in any value fields, and then distribute this data to a specified distribution level. You can use existing actual or planning data as the basis for this distribution. The basis can be the values in a single value field (such as revenue) or a calculated value (such as contribution margin 1 or occur by value fields. In order to process the top down distribution at the period end, we need to maintain top down distribution set up in SAP. The top down distribution can be saved as a variant and executed each period. The following information is required to set up of top down distribution in SAP
A. Entries for the actual data:

Period for which the distribution is being done to be given Record Type like B (FI Posting data) to be given. The records existing against this record type are selected for top down distribution.

B. Entries for the reference data: Enter the periods from which the reference data should be selected. Record type like F Billing data (Sales Value, Qty), B Direct posting from FI, etc. You can choose one or more record types. It is advisable to choose only one record type for doing one topdown distribution. Cumulative period - Select this indicator if you want to add together the period values of the reference data rather than distributing them directly. This gives you the same value in each period for each segment, to smooth out incidental differences which occurred from period to period. In STRATA allocation will be on a periodic basis only and not on the cumulative basis. Cumulative is not recommended due to performance issues. Plan / Actual Data reference data can be plan or actual. In STRATA, current period actual data only will be taken.

C. Entries for the reference base: You can use any value field or key figure (formula defined using value fields). The key figures you can use here need to be defined in Customizing.

D. Processing Instructions: Here we can specify how each characteristic should be processed in top-down distribution: Distribution level: This is the level to which the data is distributed. Retain: The characteristic values remain the same. Summarize: The data for all values of the characteristic is summarized.

E. Selection Criteria: Here you can restrict the amount of profitability segments that you want to distribute. You can enter one or more single values or an interval for each characteristic. All the values of that characteristic are distributed if you use the default asterisk (*). F. Value Fields: The value fields we want to distribute are specified here. See the explanation of value fields above for the value fields used by STRATA. G. Execution of Top down distribution: At the period end the top down distribution will be executed by specifying the period for execution. Background processing Choose this if you are distributing for a large number of segments. The system will execute the function in the background so that your system is not loaded down unnecessarily.