ABC Engineering (India) Ltd

Controlling

ABC Engineering (India) Ltd. To Be Document

Prepared by xyz

1.

Organizational Structure

1.1 Organization Units 1.1.1 Client

General Explanation The client is the highest level in the SAP System hierarchy. Specifications that you make, or data that you enter at this level are valid for all company codes and for all other organizational structures. You there fore only needs to make these specifications, or enter this data once. This ensures that the data is consistent. A commercially, organizationally, and technically self-contained unit within an SAP System. Clients have their own master records and se of tables.

1.1.2 Operating concern

General Explanation An operating concern represents an organizational unit in your company for which the sales market has a uniform structure. It is the valuation level for Profitability Analysis (CO-PA). Business Requirement operating concern shall be centralized Suggested Business Process: CO-PA is a tool for analyzing Profits by segments of business. Segments of business are levels to which we wish to breakdown the revenues and Costs. Eg. Profit by Products. Operating Concern ABCE

Description ABC Engineering (India) Ltd.

Controlling Area ABCE

Controlling Area Name ABC Engineering (India) Ltd.

Operating Concern ABCE would be assigned to the Controlling Area.

1.1.3 Controlling Area

General Explanation The controlling area is the central organizational unit of the Controlling (CO) component. You use the controlling area to carry out cost accounting. Postings are forwarded from Financial Accounting to Controlling. During posting, you can specify any additional account assignments relevant for cost accounting (for example, cost center or internal order). Controlling area is assigned to your company code to ensure that this data is forwarded to Controlling for further processing for cost accounting. Business Requirement Controlling shall be centralized Suggested Business Process: Internal business transactions will be portrayed in the controlling area. Primary costs will be transferred from external accounting and classified according to managerial accounting perspectives. If the primary costs are direct costs, then they will be assigned to cost objects. If

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they are overhead costs, then they will be assigned to cost centers or overhead cost orders. The system will then allocates them using internal allocation techniques, according to their source. When you create master data, the system will always assign the Controlling objects to a controlling area and a company code. The level of detail provided by the Controlling component will enable you to track specific information for cost monitoring, business decisions and sales control. For example, the Controlling component will contain subdivisions such as cost centers and internal orders in addition to accounts. The coding will be as follows: Controlling Area Description Assigned Company Code Company Name ABCE ABC Engineering (India) Ltd. ABC ABC Engineering (India) Ltd. ABCE ABC Engineering (India) Ltd. DLF DLF Engineering Ltd. Controlling Area ABCE would be assigned to the Company Codes.

1.1.4 Company Code

General Explanation The smallest organizational unit for which individual financial statements are created according to the relevant legal requirements. A company can include one or more company codes. All of the company codes within a company must use the same chart of accounts and fiscal year. However, each company code can have a different local currency. Business Requirement There should be one centralized Company Code Suggested Business Process: One Company Code shall be maintained as ABC Engineering (India) Ltd and Jubliant Engineering Ltd. and accounting and reporting for PALM, KRPM and JUBI shall be dealt with Profit center concept (explained later). The coding shall be as follows: Company Code Company Name ABC ABC Engineering (India) Ltd. DLF DLF Engineering Ltd.

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1.2

GENERAL

COST AND REVENUE ACCOUNTING

Cost elements classify an organizations valuated consumption of production factors within a Controlling area. A cost element corresponds to a cost-relevant item in the chart of accounts. We distinguish between primary cost and revenue elements and secondary cost elements. Primary Cost/Revenue Elements: A primary cost or revenue element is a cost or revenuerelevant item in the chart of accounts, for which a corresponding general ledger (G/L) account exists in Financial Accounting (FI). You can only create the cost or revenue element if you have first defined it as a G/L account in the chart of accounts and created it as an account in Financial Accounting. The SAP System checks whether a corresponding account exists in Financial Accounting. Secondary Cost Elements: Secondary cost elements can only be created and administrated in cost accounting (CO). They portray internal value flows, such as those found in internal activity allocation, overheadcalculations and settlement transactions. When you create a secondary cost element, the SAP System checks whether a corresponding Account already exists in Financial Accounting. If one exists, you can not create the secondary Cost element in cost accounting. Cost Element Categories: The cost element category has a technical control function. It determines whether you can Post to a cost element directly or indirectly. Direct posting means: You post a fixed amount to an account by specifying the account number. You can post directly to all primary cost elements. Indirect posting means: The R/3 System determines the account automatically at the time of posting You can not enter the account number with the posting transaction. You can only post indirectly to secondary cost elements.

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1.2.1 Cost Element Master

General Explanation: Cost and revenue elements describe the origin of costs, revenues. Cost elements are defined as either primary cost elements or secondary cost elements. Primary cost and revenue elements in Controlling are created with reference to corresponding expense or revenue accounts in Financial Accounting. It is a prerequisite to create relevant general ledger accounts in FI, in order to create corresponding primary cost elements in CO. Examples for primary cost elements are material costs, salary costs. To be able to post to a primary cost element, you require cost carrying object such cost centre or internal order etc. to identify the origin of the cost. Secondary cost elements are used exclusively in CO to record internal value flows like assessments, activity allocations and settlements. Secondary cost elements can be created only in Controlling and they do not have any corresponding general ledger accounts in FI. When you create a cost element, you must assign a cost element category. This assignment determines the transactions for which you can use the cost element. ABC can define primary cost elements based on requirements under the following categories: Primary costs/cost reducing revenues, Revenues, Sales deductions and External settlement Similarly you can define secondary cost elements under the following categories: Internal Settlement, Order/project results analysis, Overheads, Assessment and Internal activity allocation Cost Element Groups are created to group together the cost elements of similar kind of nature to process the cost elements collectively in cost centre planning, assessment etc. These groups also useful in information system to see the totals group wise. Business Requirement: ABC Engineering (India) Ltd. expects cost accounting records should be updated automatically when the corresponding financial documents are posted in Financial Accounting to know what costs incurred within organization. Suggested Business Process: Presently GL account is treated as Cost Elements. Ref: - G/L master Creation. Create Primary Cost Element (KA01) Create secondary Cost element (KA06)

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Create Cost Element

Need for creation of Cost Element

Primary OR Secondary ?

Select T.Code KA01

Select T.Code KA06

Specify Cost Elementand Validity Period

Specify Basic Data

Specify Cost Element Category

Specify Cost Centre, if assigned to one cost centre

Save

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1.2.2 Cost Element Master Group

General Explanation: Organizational unit storing a group of cost elements. Cost elements with similar characteristics may be grouped together in cost element group. You can define any number of cost element groups for valuation, planning and allocation purposes as part of master data maintenance. You can also arrange cost element groups in further cost element groups, creating a cost element hierarchy. Request for a Cost Element Grouping: These groups could be used for consistency and ease of use in reporting, planning, allocations, etc Changing of Cost Element Group: This process is for changing a Cost Element Group. This allows for values to be added or deleted from the group, or for other groups to be added or deleted from the cost element group (when the group is a hierarchy). Display a Cost Element Group: This process is for displaying a Cost Element Group. This would apply to a Standard Hierarchy or an Alternative Hierarchy. This allows for various cost element groups to be viewed along with their values. Business Requirement: Cost element are grouped the Overheads. Suggested Business Process: Creation of Cost Element Group (KAH1) Changing of Cost Element Group (KAH2) Display a Cost Element Group (KAH3)

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COST CENTER ACCOUNTING

You use Cost Center Accounting for controlling purposes within your organization. Cost Center Accounting lets you analyze the overhead costs according to where they were incurred within the organization. Cost Centers enables you to valuate semi-finished and finished products in Product Cost Controlling (CO-PC), and to calculate contribution margins in Profitability Analysis (CO-PA). The activities of cost centers represent internal resources for business processes in Activity-Based Costing. The costs of each cost-accounting-relevant business transaction portrayed in the R/3 System can be assigned through Cost and Revenue Element Accounting to an account assignment object in the Controlling component (CO). For overhead costs this can be cost centers, internal orders, business processes, or overhead projects. Recording and assigning overhead costs allows you to control costs and prepare information for the subsequent areas of Cost Accounting. You can use the methods of activity allocation, assessment or distribution to further allocate Costs.

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1.2.3 Cost Center Master

General Explanation: Cost centers are locations at which costs are incurred or revenues are generated. Cost centers are designed based on functional requirements, activities provided and areas of responsibility. In ABC Engineering (India) Ltd. cost centers are created according to the cost centre categories Cost center categories Cost centres have been classified into the following categories: 1. Production 2. Service 3. Sales 4. Administration 5. Management 6. Research & development 7. Allocation cost centre For over head cost controlling, cost centers are of similar type are grouped in to Cost Centre Groups, for instance, Inventory Management, Information Systems, Accounting etc., to process the group of cost centers together in cost centre planning, assessment, information system to generate reports. Cost Center master Creation: A cost center is an organizational unit within a controlling area that represents a clearly delimited location where costs occur. You can make organizational divisions on the basis of functional, settlement-related, activity-related, spatial, and/or responsibility-related standpoints. You use cost centers for differentiated assignment of overhead costs to organizational activities, based on utilization of the relevant areas and for differentiated controlling of costs arising in an organization Master data determines the structure of the given application component in the SAP System and remains essentially unchanged in a live system, that is, in the current settlement periods. The system displays the master data fields on different tab pages on the basic screen. After initial entry, the system displays the basic data tab page, which is ready for input. On this tab page, the system generally displays all fields that need to be edited. You can edit more fields by selecting the appropriate tab page. You can use pushbuttons on the tab pages to go from one maintenance transaction or display transaction to another Business Requirement: ABC Engineering (India) Ltd. expects to compare actual operating results (cost) with the planned and identify the variance that serve as signals to take corrective measures at cost centre level, by updating cost centre records automatically on online real time basis when ever corresponding business transaction takes place. Suggested Business Process: The relevant cost centers are updated automatically whenever there is corresponding postings FI and upon implementation of cost centre accounting, actual data relating to a cost center is available on online real time basis. Create standard hierarchy to attach all the cost centers. Manager (costing) shall be authorized to create cost centre master records

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Create Cost Centre

Need for creation of Cost Centre

Specify Cost Centre ID and Validity Date

Specify Person Responsible CCtr Category, Hierarchy, Business Area in Basic Data

Specify Desired Control Data

Specify details in template if other than Standard is used in planning

Specify details in address & Communications

Save

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1.2.4 Cost Center Group

General Explanation: You can collect cost centers according to various criteria into groups. This enables you to use cost centers to depict the structure of the organization in the SAP System. You can use the groups to build cost center hierarchies, which summarize the decisionmaking, responsibility, and control areas according to the particular requirements of the organization. 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 center group is described as the standard hierarchy. You can assign more cost center groups to the standard hierarchy. Cost Center Group Creation: A Cost Center Group is an organizational unit storing a group of cost centers. Cost Centers with similar characteristics may be grouped together in cost center group. You can define any number of cost center groups for valuation, planning and allocation purposes as part of master data maintenance. You can also arrange cost center groups in further cost center groups, creating a cost center hierarchy. Request for a Cost Center Group: - These groups could be used for consistency and ease of use in reporting, planning, allocations, etc You can also create any number of alternative groups. You can structure these, for example, according to organizational and/or functional viewpoints. Cost center groups enable you to perform evaluations for each decision-making, responsibility, or control area. They also support the processes during planning and internal allocations Business Requirement: Cost centers are majourly grouped as Production, Material, and SalesEtc. Under this major groups further sub groups are there like under production Fabrication, Assembly, Testing etc Suggested Business Process: Creation of Cost Center Groups (KSH1)

1.2.5 Activity Types

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General Explanation: Activity types classify the activities produced in the cost centers within a controlling area. To plan and allocate the activities, the system records quantities that are measured in activity Units. Activity quantities are valuated using a price (allocation price). In Overhead Cost Controlling, costs based on the activity quantity of an activity type are posted separately in fixed and variable portions. When you divide the activities of a cost center into activity types, you should consider whether the costs could be allocated effectively to the activity types. The prices of the activity types of a cost center can be either entered manually, or calculated by the system based on the costs allocated to the activities. Prices can be calculated either using plan costs or actual costs. You can plan, allocate, and control costs either at the activity type level of a cost center, or at the cost center level. You can enter actual costs at the cost center level. Costs entered at the cost center level are assigned using splitting You can also assign the activity type of a cost center directly. This use was designed for certain application areas (such as personnel costs and depreciation postings). When the activities produced by a cost center are used by other cost centers, orders, processes, and so on, this means that the resources of the sending cost center are being used by the other objects. Typical examples of activity types for cost centers are machine hours, administrator hours, or units produced. Business Requirement: Bellow Cost centers, work centers exist in production cost centers. A work center finds a place in routing card. For cost accounting purpose the hourly rate per cost center is used and the hourly rate for work center is not available Suggested Business Process: Creation of Activity types (KL01): The activity type classifies the specific activities provided by a cost center along cost allocation lines. Activity inputs from a sender cost center mean that a receiver (another cost center or an order, process, and so on) is drawing on the resources of the sender cost center. Valuation of activity quantities is made with an allocation price calculated based on the managerial strategy chosen. Change Activity Type (KL02): The activity type classifies the specific activities provided by a cost center along cost allocation lines. Activity inputs from a sender cost center mean that a receiver (another cost center or an order, process, and so on) is drawing on the resources of the sender cost center. Valuation of activity quantities is made with an allocation price calculated based on the managerial strategy chosen. Make changes to the activity type master data either at the beginning or at the end of the fiscal year in order to ensure data consistency Display Activity Type (KL03): The activity type classifies the specific activities provided by a cost center along cost allocation lines. Activity inputs from a sender cost center mean that a receiver (another cost center or an order, process, and so on) is drawing on the resources of

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the sender cost center. Valuation of activity quantities is made with an allocation price calculated based on the managerial strategy chosen. Deleting an activity type (KL04): - The activity type classifies the specific activities provided by a cost center along cost allocation lines. Activity inputs from a sender cost center mean that a receiver (another cost center or an order, process, and so on) is drawing on the resources of the sender cost center. Valuation of activity quantities is made with an allocation price calculated based on the managerial strategy chosen. You can only delete activity types in the current Controlling Area if no transaction data exists for the activity type in the plan, commitments or in the actual for the given fiscal year(s). You are also not allowed to plan any statistical key figures Reviewing changes made to activity type (KL05): - Activity types created in the system may require changes to correct errors made at the time of recording the master data or to update the data with additional information. The following screens provide an internal audit trail to verify what changes were made, when, and by whom. To review changes made to activity type master data as a step in investigating other than expected results of activity type allocations

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Create Activity Type

Need for creation of Activity Type

Specify Activity Type ID and Validity Date

Specify name, description, CCtr Category, Activity Category, Allocation Cost Element

Check Lock indicator to lock Activity Type

Specify Out put Unit

Save

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1.2.6 Activity Type Group

General Explanation: You can gather activity types with similar characteristics into activity type groups. You can use activity type groups to process multiple activity types in one business transaction within Cost Center Accounting. This is true for planning or assessment. During planning, for example, you can display and plan multiple activity types in one transaction. You can also use activity type groups during assessment (for example, assessment to specified activity type groups). As with cost elements and cost centers, the SAP System enables you to create and administrate activity type groups in parallel. For example, you can create separate activity type groups for planning and allocation purposes. You can also define additional activity type groups, for purposes such as price analysis.
Create Activity Type Groups: Use this transaction to create Activity Type groups. Activity type

groups are flexible structures and can be used in collective master data processing, reporting, allocations, and authorization objects. Each sub group represents a level of summarization. An Activity Type group is unique within a controlling area. There is a business need or desire to group activity types for processing and reporting requirements
Change An Activity Type Group: - Use this transaction to change an Activity Type Group.

When Activity Type Groups are changed both activity types and other activity type groups may be added, revoked or re-assigned to the Activity Type Group being maintained. Activity type groups are flexible structures and can be used in other activity type groups, collective master data processing, reporting, allocations, and authorization objects. Each sub group represents a level of summarization. Groups are unique within a controlling area. When deleting a group, notice that it is not deleted from the controlling area, its relationship to the next superior node is revoked Business Requirement: Make a group of Activity types Suggested Business Process: Creation of Activity Types Group (KLH1) Changing of An Activity Types Group (KLH2) Transaction to view an existing Activity Types Group (KLH3)

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1.2.7 Statistical Key Figure

General Explanation: You can define statistical key figures as either: Fixed values Key figures defined, as fixed values are valid as of the posting period, and in all Subsequent posting periods of the fiscal year. Totals values Key Figures defined as Total values are valid only in the posting in which they are entered

Key figures defined as fixed values are valid as of the posting period, and in all subsequent posting periods of the fiscal year. You can create, change and display statistical key figures individually or collectively. Individual processing lets you process only one statistical key figure. Collective processing lets you process multiple statistical key figures simultaneously. Change Statistical Key Figure: - The purpose of this script is to demonstrate how to change a statistical key figure. When you make changes to key figures of the category Fixed values, you must enter a new fixed value. This new value is valid for all subsequent periods, until you enter another new value. When you make changes to statistical key figures of the category Totals values, you can first reset the values using reversed +/- signs, and then enter the new values. Business Requirement: ABC Engineering (India) Ltd. desires to distribute the expenses of service and administrative cost centers expenses on a logical basis to other cost centers. Suggested Business Process: Creation of Statistical Key Figure (KK01) Change Statistical Key Figure (KK02) Display Statistical Key Figure (KK03)

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Create Statistical Key Figure

Need for creation of Statistical Key Figure

Specify Statististical Key Figure-ID

Specify name, description, Unit of Measurement and Key figure category

Check Lock indicator to lock Activity Type

Specify Out put Unit

Save

1.2.8 Statistical Key Figure Group

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General Explanation: You can gather statistical key figures into statistical key figure groups. You can use statistical key figures, or parts of them, when you need to process multiple statistical key figures in one business transaction. Creation of statistical key figure Group: - When several statistical key figures have been created, a statistical key figure group may be necessary for reporting and monitoring the contents of the group. For example, a statistical key figure (SKF) type group could be created for all SKFs managed by Business Systems, all SKFs managed by Human Resources, etc. This will help assign responsibility for large numbers of SKFs. To create an organized way of monitoring statistical key figures by creating groups for skfs with user defined similar characteristics Changes To Statistical Key Figure Group: - To make changes to a previously created statistical key figure group. Enter the statistical key figure group name or click on down facing area which opens a statistical key figure group selection box. Leave the radio button highlighted to all nodes and click on the green check mark. Make your selection From the drop down list for the statistical key figure group you wish to make changes to and click on the green check mark to continue Display Statistical Key Figure Group: - To display a previously created statistical key figure group, enter the statistical key figure group name or click on down facing area which Opens a statistical key figure group selection box. Make your selection from the drop down list for the statistical key figure group you wish to display and click on the green check mark to continue. Business Requirement: Make a group of statistical key figures Suggested Business Process: Creation of Statistical Key Figure group (KBH1) Change Statistical Key Figure group (KBH2) Display Statistical Key Figure group (KBH3)

1.2.9 Cost Center Accounting planning

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General Explanation: The basic goals of cost centers cost planning are: Plan and structure of companys future operations for specific period in monetary terms Monitor efficiency by means of plan/actual comparisons The cost and activity inputs section of planning facilitates in planning of both activityindependent and activity-dependent primary costs based on cost elements of cost centers periodically. In activity-independent primary cost planning, planning will be done only for fixed costs. Activity-dependent primary cost planning enables to plan primary costs on a cost centre that are dependent on the work performed by the cost centre, in terms of activity quantities. In activity-dependent planning, provision is made to plan the costs dependent on these activities in fixed and variable portions. This means that the activity type price include two fixed cost portions per cost centre: Activity-independent plan costs and activity-dependent fixed plan costs. The Activity output/prices segment of planning assists in planning of which cost centers provide which activity at what price. These planned prices are used to calculate the actual activities value by considering actual quantities of activities, carried out at production cost centers. Planning of statistical key figures (such as number of power units per cost centre that are used as tracing factors) is for periodic transactions such as assessment. These statistical key figures can be defined as fixed value or as a total value. The fixed value is carried over from the period in which it is entered to all subsequent periods of the same fiscal year. You need to enter a new posting only if the value changes. The total value posts the value only in the period. Where it was entered Cost Centre Budget is used to budget all ABC Engineering (India) Ltd. costs an annual basis, which in turn broken down in to period wise, to compare budget and actual to control the costs at cost centre level. Business Requirement: In order to determine the overhead absorption / recovery rate it is imperative to prepare the budget estimate of expenses that would be part of costs. ABC Engineering (India) Ltd. desires a facility to prepare the budgets / overhead estimates as planned costs Result analysis of Cost centers Suggested Business Process: Actual data is collected whenever the relevant business transaction takes place on online real time basis. Thus comparisons by actual/plan reflect real time data to have firm control over the costs at cost centre level.

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Cost Centre-Planning
Need to Plan costs and Revenues for Cost Centre

Specify Plan Version, Periods from & to Fiscal Year

Specify Cost Centr/Group, Activity Type, Cost Element/ CE Group

Invoke Overview Icon

Specify planned cost for the given activity and given Cost Eleent for each period

Save

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1.2.10 Cost Reposting

Center

Accounting-

Actual

Postings-

General Explanation: ABC Engineering (India) Ltd. can repost primary costs from one controlling object to another using transaction-based transfers; the original cost element is always retained. This function is designed to correct posting errors. Posting errors should preferably be corrected in the application component where they originate, so that external and internal accounting (FI and CO) is always reconciled. In ABC Engineering (India) Ltd. the assignment of CO objects to the transactions in other modules like FI, SD etc. is taken care of where ever possible, to post the entries automatically to the respective CO objects, in order to reduce the chances of error occurrence. Posting errors involving assignment to a controlling object (cost centre or internal order) can, however, is corrected using a transaction-based reposting in CO. Two kinds of reposting transactions are available for ABC Engineering (India) Ltd. to rectify posting errors related to assignment to a controlling object: reposting costs (or revenues), and reposting line items. The reposting costs (or revenues) transaction is simple transfer of cost (or revenue) from one controlling object to another. The reposting does not preserve a direct link between the amount transferred and the transaction that originally posted the costs (or revenues) to CO. Alternatively, ABC Engineering (India) Ltd. can repost line items from CO documents. To do this, the CO reposting document must reference the original FI document that posted the costs to CO. This enables to track the movement of cost with in CO, and still preserve the link with the originating FI document. In repost line items, facility is provide to enter multiple receiver objects for a line item reposting, but the full amount of original line item must be reposted. Business Requirement: Errors are unavoidable and may result particularly during initial days of SAP live operations. Thus, there will be occasions where postings are assigned to the wrong controlling object, and ABC Engineering (India) Ltd. should be able to rectify posting errors related to erroneous assignment to controlling objects. Suggested Business Process: Posting errors involving assignment to a controlling object, calls for transaction-based reposting in CO

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Cost Centre-Repostings
Need to Repost

Specify Document Date, Post date, Period & Text

Specify source Cost Centre, Cost Element and amount

Specify Target Cost Centre

Save

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1.2.11 Cost Center Accounting- period- End ClosingAssessment

General Explanation: Assessment is the process used to transfer primary and secondary costs from sender cost centre to receiving controlling objects. In ABC Engineering (India) Ltd., cost centers is used as senders, where as receivers can be cost centers, internal orders, or cost objects. During assessment, the original cost elements are summarized into assessment cost elements and assessed to the receiving object. ABC ENGINEERING (INDIA) LTD., should consider the following sender and receiver relations before allocating the costs: from which objects the costs are allocated, which objects costs are allocated to, which costs should be allocated, how the costs are distributed among the receivers. ABC ENGINEERING (INDIA) LTD. can combine sender and receiver relations using sender and receiver rules. Sender values can be posted values, fixed amounts as well as fixed prices. On the receiver side rules can be fixed amounts, fixed percentages, fixed portions and variable portions. The tracing factor of the variable portion identifies a posted value on the cost centre as an allocation base. Provision is made to specify whether the variable portion is to consist of costs, consumption, statistical key figures, or activities. Plan and actual values can be used as an allocation base. In assessment, line items are posted for the sender as well as receiver, enabling the allocation to be recorded exactly. The system does not display the original cost elements in the receivers. Business Requirement: ABC Engineering (India) Ltd. anticipate automating the process of allocating primary and secondary costs of some non-production cost centers to the production cost centers based on predefined apportionment basis with statistical key figure, periodically (say monthly). Suggested Business Process: ABC Engineering (India) Ltd. should execute assessment cycles periodically. Whenever there is need for allocation based on new receiver rule, it calls for creation of assessment cycle. ABC ENGINEERING (INDIA) LTD. can modify the allocation basis whenever required, by changing the appropriate assessment cycle.

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Cost Centre-Assessment
Need to run assessment cycle

Specify Period from & to Fiscal Year

Specify Cycle name

Execute

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INTERNAL ORDERS 1.2.12 INTERNAL ORDERS-Master Data-Internal Orders

General Explanation: Internal Orders describe individual jobs within a controlling area. Orders support actionoriented planning, monitoring, and allocation of costs. Through Internal orders ABC ENGINEERING (INDIA) LTD. can analyze costs differently than in Cost Center Accounting for cost management. Internal orders are created with reference to an order type. Each order must be assigned to an order type, which then transfers certain parameters to the order. Order types define the purpose of the order and the way it is processed in the system. The order type may also be used to group together orders with similar characteristics. The order master data includes organizational assignments such as company code, business area, and profit center. ABC Engineering (India) Ltd. can choose between two kinds of internal orders based on its requirements, namely true order or a statistical order. ABC ENGINEERING (INDIA) LTD. uses the true order to collect costs and distribute them later to different cost centers or other objects. In the initial posting, the costs are updated to the true order. During periodic order settlement, ABC ENGINEERING (INDIA) LTD. should allocate the costs to the actual controlling objects. ABC Engineering (India) Ltd. use statistical orders to evaluate costs that cannot be itemized in detail in Cost Element Accounting or Cost Center Accounting. This can be achieved by assigning the costs to both the statistical order and the responsible cost center, which directly displays the costs on the order (statistical, for information purposes only) and the cost center (real costs), during posting. In ABC Engineering (India) Ltd. case, statistical orders are useful in the situations like Communication Expenses (In order to track details of each of communication expenses such as telephone, postage etc.), Insurance, staff welfare expenses, Books and periodicals, Auditors remuneration, motor vehicle maintenance expenses etc. Business Requirement: ABC Engineering (India) Ltd. expects to automate the process of analyzing its cost and revenues at order/job level when the corresponding financial documents are posted in Financial Accounting. Suggested Business Process: A new statistical or true order should be created wherever a different analysis is required on specific job or order, which is not provided by cost centre or cost element accounting. In the business scenario of ABC Engineering (India) Ltd., only statistical orders are envisaged for creation.

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Create Internal Order

Need for creation of Internal Order

Specify Order Type

Specify Order name, short text, Business Area, and assign other appropriate cost objects

Set status to Release

Check Statistical Order in control Data if the order to be created is statistical

Specify Settlement Rule (If not a Statistical Order)

Save

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1.2.13

INTERNAL ORDERS-Actual Posting-Reposting

General Explanation: ABC Engineering (India) Ltd. can repost primary costs from one controlling object to another using transaction-based transfers; the original cost element is always retained. This function is designed to correct posting errors. Posting errors should preferably be corrected in the application component where they occurred, so that external and internal accounting (FI and CO) is always reconciled. Posting errors involving assignment to a controlling object (cost centre or internal order) can, however, is corrected using a transaction-based reposting in CO. Two kinds of reposting transactions are available for ABC Engineering (India) Ltd. to rectify posting errors related to assignment to a controlling object: reposting costs (or revenues), and reposting line items. The reposting costs (or revenues) transaction is simple transfer of cost (or revenue) from one controlling object to another. The reposting does not preserve a direct link between the amount transferred and the transaction that originally posted the costs (or revenues) to CO. Alternatively, ABC Engineering (India) Ltd. can repost line items from CO documents. To do this, the CO reposting document must reference the original FI document that posted the costs to CO. This enables to track the movement of cost with in CO, and still preserve the link with the originating FI document. In repost line items, facility is provide to enter multiple receiver objects for a line item reposting, but the full amount of original line item must be reposted. Business Requirement: In ABC Engineering (India) Ltd., there will be occasions where postings are assigned to the internal orders, and ABC Engineering (India) Ltd. should rectify posting errors related to erroneous assignment to incorrect internal orders. Suggested Business Process: Posting errors involving assignment to a internal order, calls for transaction-based reposting in CO

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Internal Order-Repostings
Need to Repost

Specify Document Date, Post date, Period & Text

Specify source Order, Cost Element and amount

Specify Target Order

Save

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PRODUCT COSTING 1.2.14 Cost object Controlling-Product Cost by Order

General Explanation: Automatic cost computation and collection is ensured through integration between CO and PP, thus every production order scheduled and executed the corresponding cost data are collected, recorded and production are calculated. Complete details are set out in following section-Appendix. The following process is part of period end activities: Overhead Calculation: It is recommended to invoke this process at every period end (usually a month) to valuate production orders including maintenance cost of Engineering Services. Complete details of the above are set out in Appendix. Business Requirement: ABC Engineering (India) Ltd. expects to valuate all production orders online real time basis to accomplish the following: Determining cost based pricing policies Valuating of inventories Determination of Cost of goods (manufactured / sold) Variance analysis (Planned yield vis--vis actual yield) Suggested Business Process: In the IMG activity, create costing variants, valuation variants, costing sheets, cost component structures, line ids, settlement rules, variance keys, overhead keys. Product Costing: The functionality of Product Costing is offered by CO sub module Cost Object controlling. This sub module has been designed to answer the question What costs have been incurred on what objects? An object could be a product, a Production order or a sales order. This sub module offers solution to different business scenarios such as: Production of materials to stock or internal consumption Production based on a sales order (No valuated stock sale stock) Rendering of intangible services

This sub module offers cost management function on real time basis for all the plants with in an enterprise. Cost object controlling enables an enterprise to determine the cost of product viz. Cost of goods manufactured or cost of goods sold. Cost object controlling offers information for the following business requirements: Determining cost based pricing policies Valuating of inventories Determination of Cost of goods (manufactured / sold) Variance analysis (Planned yield vis--vis actual yield)

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Cost object controlling is integrated with the following modules / (sub) modules for actual cost computing for a given cost object ( say a product or an order); FI, from where primary cost information are captured MM, from where material cost information are captured CO-OM, from where the overhead information are captured PP from where production cost information are captured

Cost object controlling has the following sub-components: Product cost by order (Production order) Product cost by period Product cost by sales order Cost of intangible goods and services This appendix discusses in detailed on product cost by order, which is proposed for implementation in Ester Industries Limited. Production order and costing: Basically, the Production cost of a product or order Cost of goods manufactured (COGM) consists of the following elements of cost: Material cost Cost of conversion activities (direct production activities cost) Cost of indirect expenses incurred for conversion. Material costs are collected from Bill of Materials (BOM). A BOM has multiple usages and one among them is computing cost of materials. In SAP it is possible to have production BOM and costing BOM separately. Whenever a costing BOM is prepared separately product costing is performed with this BOM. It is also possible to extend production BOM for using costing purpose. In ABC ENGINEERING (INDIA) LTD., production BOM would be used for costing purposes.

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Cost of Conversion activities is also called cost of production activities. This cost computation is accomplished as below: In PP module, Plants are defined as central organizational units for production activities. These plants consist different Work centers, in case of discrete Production scenario or Resources, in case of continuous processing scenario. Each of the work centers would have set of Routings that defines steps and stages to complete Production process and so as Resources have set of Recipes. Plant, Work centers, Routing are defined in PP module The Plant, work centers, routing has set of activities that are performed to convert the raw materials to semi-finished goods or finished goods. The execution process of these activities consumes men, machine and indirect material that have monetary value. The monetary values of these activities are called Activity Price. These Activities and Activity price of conversion are defined in CO module as a master data. Each of Cost centers utilizes this master data, wherever relevant.

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Every work center / Resource (an entity in PP) is assigned to a Cost center (an entity in CO). Thus the production process and costing process are integrated. As the PP module confirms production order the efficiency and effectiveness of production results are available through data of Plant, work centre, routing / Plant, resources, recipes. The associate costs of conversion activities are collected invoking CO module and capturing Activities and Activity prices from appropriate cost center. Work Center wk1-010 wk2-020

SI 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Work Center Name Raw material inspection (Own/Masop) Gas Cutting

Cost Center BA111010 BA122090

Cost Center Name Material Yard Excavator

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Costs of indirect activities are collected through definitions in Costing sheet, which is attached to every production order through costing variant and valuation variant. This is explained in detail under PP and CO integration in SAP COGM is computed summing M activities and Indirect costs incurred in conversion in costing sheet. Production Planning (PP) and Controlling (CO) integration in SAP: Integration of organizational entities in PP and CO has already been explained in the previous section. This section discusses the objects (such as production order in PP and costing sheet in CO) integration between PP and CO. Production order that is created for production run monitoring and control is assigned with a costing variant. Costing variant contains a valuation variant assigned to it. Valuation variant has a costing sheet attached to it.

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The purpose of Costing variant, Valuation variant and costing sheet are explained below: Costing variant contains all control parameters for costing. This includes parameter that controls how cost estimates are executed and which material prices / activity prices (for production or conversion cost computation) are used to valuate the costing items. Valuation variant is mainly to valuate the material issued for production and consumed. Here the strategy is specified on priority basis, which price (standard price or moving average price or price from info records of MM) needs to be defined. According to the set priority the appropriate prices are picked for costing the product / order. Costing sheet collection of different items of cost and defines how the different overheads are calculated. Costing variant, valuation variant and costing sheets are defined and configured in CO and are attached to Production order in PP Thus the COGM is computed in SAP as summarized below: Material cost through BOM Cost of conversion activities through definition of Plant, work center, routing / Plant, resources, recipes in PP and Cost center, activities and activities price in CO and their integration Indirect expenses incurred in conversion activities through overhead definition and method of computation in costing sheet that is attached to Production order (through coating variant and valuation variant). Deployment of Cost object controlling enables one to do: Preliminary cost estimate computation at the time of order scheduling (Preliminary costing) Collection actual costs as the production order progress (Simultaneous costing) Valuating production order (Cost object) upon completion of order execution

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Broadly these activities are performed as detailed below: Preliminary costing done during scheduling the Production order in PP, this is not discussed in detail in this document as it is out side the scope of the document. Simultaneous costing is performed as cost collection process, which is part of Process throughout the period. Final costing is done at the time of order confirmation, which is part of Process throughout the period Overhead application, variance analysis computation and actual costing are part of Period end closing/processing. Period end closing is generally considered to be month end closing. Processes relating to Process throughout the period and Period end closing are discussed in detail in the subsequent sections, with an example. Macro picture of cost computation The process of costing has very close alignment with Production process almost in every respect. Considering organizational units cost centers and work centers are inter-linked. Every Production order that is scheduled for Production is assigned with costing variant, valuation variant and a costing sheet, which collects the cost. In the same way, at the every stage of Production activity the cost details such as material cost, conversion cost through activity allocation (discussed later), indirect expenses are collected and the cost of the Production order is determined which is distributed to the products manufactured under the given Production order. The cost computation is done in the system, upon confirmation of Production order recording the quantity of goods produced and resources consumed. Thus the costs of semi-finished goods are computed through cost capturing for each of the semi-finished goods Production order and so as finished goods.

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In the following section (section covering process throughout the period and period end closing), costing process of Production

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1.2.15

Profitability Analysis

General Explanation: Profitability Analysis (CO-PA) enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin Costing-based Profitability Analysis is the form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation The actual postings represent the most important source of information in CO-PA. You can transfer both sales orders and billing documents from the Sales and Distribution (SD) application component to CO-PA in real-time. In addition, an interface program is available to let you transfer external data to the R/3 System. You can also transfer costs from cost centers, orders and projects, as well as costs and revenues from direct postings (G/L account postings in FI, orders received in MM, and so on) or settle costs from CO to profitability segments Business Requirement: ABC Engineering (India) Ltd. expects segment wise reporting and combination of reports through Profitability analysis by using Costing based method Suggested Business Process: Operating concern need to be assigning to controlling area. Desired Characteristics: PROFITABILITY ANALYSIS CHARACTERISTICS SALES ORDER-WISE PRODUCT WISE CUSTOMER

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