Introduction

Overview Of Controlling: Business Scenario

Your initial focus is to gain an understanding

of the purpose of CO, and how FI and CO work
together to provide both financial and
management information.
You learn that CO has several different major
components, each having a particular purpose.
You also learn that these different components
are integrated with each other, as well as with
other R/3 components.

SAP AG 1999

CO - 1

Introduction
Reporting Requirements

External reporting

External Accounting

Balance
Sheet

Profit &
loss
(P&L)

Internal
reporting
Internal Accounting

Product
cost
reports

Cash
flow
statement Retained
earnings

Cost
center
reports
Profit
center
reports

Contribution
margins

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Features of Controlling

In Financial Accounting (FI) you generate your financial

reports like the balance sheet and the profit and loss
statement. This is external reporting which must meet certain
standards and conform with legal requirements.

Internal Accounting is referred to as managerial accounting or

controlling. It focuses on internal performance of the
organization.
Internal Accounting is useful to take the following decisions by
the management.

4.

How do we reduce our overhead costs

5.

What costs occurred within our organisation

6.

What are the manufacturing costs of our products

7.

How profitable are individual market segments

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Features of Controlling

Controlling provides you with information for

management decision-making. It facilitates
coordination, monitoring and optimization of all
processes in an organization.

All data relevant to costs flows automatically from

Financial Accounting to Controlling. As part of this
process, the system assigns the costs and revenues
to different CO account assignment objects like cost
centers, business processes, projects, or orders.

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FI and CO: Standard Requirements Versus

Flexibility
ECPCA

Controlling

FI

Financial
Financial
Accounting
Accounting

Management accounting
Cost accounting
Various valuations
Flexibility

IA
GA S
GO A
B P

Tax
audit

Profit Center Accounting

CO

External accounting
Closing
Legal requirements
Standards

SAP AG 1999

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CO: Controlling
SD

Sales &
Distribution

MM

PP

R/3

Materials
Mgmt.

Product
Planning

QM
Quality
Mgmt.

FI

Financial
Accounting

CO

Controlling

TR

Treasury

Client/Server PS
PM ABAP/4 WF

Project
System

Plant Maintenance

HR

Human
Resources

Workflow

IS

Industry
Solutions

CO - 6

Controlling with the CO system

SD
MM
PP

ECEIS

FI

R/3

CO
IM

QA Client/Server PS
ABAP/4
WF
PM
HR
IS

CO

COOPA

CO-

CO-

CCA

ABC

ECPCA

COPA

COPC

CO - 7

The Components of CO

The Components of CO
Cost and Revenue Element
Accounting
Overhead Cost Controlling:

Cost Center Accounting

Internal Orders

Activity-Based Costing

Product Cost Controlling:

Product Cost Planning

Cost Object Controlling

Actual Costing/ Material Ledger

Profitability Management

Profitability Analysis

Profit Center Accounting

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Training
Course Overview

Master data

Organizational
units

Transaction
-based
postings
Period-end
closing

Planning

Information
system

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Organisational Units in CO

Organizational Units

COPA

Operating Concern

A
A A

Controlling Area

COOM

Company Code

Focus on External
Accounting

Sales Organization

Focus on Sales

Plant

COPC

ECPCA

Focus on Manufacturing

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Organisational Units in CO
Assignments of Organizational Units
Operating concern
0,1
1,n
Controlling area
1
1,n
Company code
1
0,1,n
Plant
Business area:
Independent of
Organizational units
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Organisational Units in CO

Operating Concern

The operating concern is the highest reporting level

in Controlling, and the central organizational unit in
Profitability Analysis (CO-PA).

Generation of Operating concern required only if

Profitability analysis is implemented.

You Can assign more than one Controlling areas to

the Operating Concern.

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Organisational Units in CO
Controlling Area

Controlling areas structure the internal accounting operations

of an organization within Controlling.

You can link company codes and controlling areas to each

other in different ways.

If Financial Accounting and Controlling perspectives are

identical, you can assign one company code to one controlling
area.
If you assign more than one company code to a given
controlling area, you are then able to carry out controlling on a
cross-company code basis.

If you assign multiple company codes to one controlling area,

you may need to uses the reconciliation ledger for creating
reconciliation postings to Financial Accounting

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Organisational Units in CO
1 : 1 Assignment

Controlling area 1000

- Currency
- Chart of accounts
- Fiscal year variant
(12 posting periods)

UNI
INT
K2

Company code 1000

- Currency
- Chart of accounts
- Fiscal year variant
(12 posting periods)

UNI
INT
K2

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Organisational Units in CO

1:n Assignment

Controlling area 1000

- Currency
- Chart of accounts (operative)
- Fiscal year variant
(12 posting periods)

Company code 1000

- Currency
UNI
- Chart of Accounts:
Operative
INT
- FY variant
K2
(12 posting periods)

UNI
INT
K2

Company code 2000

- Currency
$
- Chart of Accounts:
Operative
INT
Local
CAUS
- FY variant
K2
(12 posting periods)

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Master Data in CO
MASTER DATA
Cost elements, Cost centers, Activity types,
Statistical key figures, Orders, Processes, Cost
Objects, ...
Cost

element: Type of cost (e.g. wages, supplies, management overhead ...)

Cost

center: Area of responsibility.

Activity

type: Units of measures for activity-dependent internal cost allocation.

Statistical
Order:

key figure: Base for internal cost allocation.

Collector of costs for a certain goal and period of time.

Process:

Group of tasks made across cost centers (e.g. develop product).

Cost

objects: Any object that is "responsible" for costs (e.g. product,

customer group, distribution channel, ...)
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Cost element Accounting

What Costs Occur with in our Organistaion.

Cost Element accounting helps to classify the costs
and revenues that are posted and provides the
capability for reconciliation of costs in CO with the
Financial Accounting module.

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Cost Element Accounting

Cost Elements
FI

G/L
accounts

Primary cost elements

Primary cost element
Imputed cost element
External order settlement

Secondary cost elements

P&L
accounts
Expense accounts

Internal activity allocation

Assessment
Overheads
Internal order settlement

Balance sheet
accounts
Accounts posted
to directly, like
bank accounts
Accounts posted
to indirectly, like
reconciliation
accounts

Revenue elements
Revenue element
Sales deduction

CO

Revenue account

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Overhead Cost Controlling

Over head cost are defined as costs that cannot be

assigned directly to cost objects.

Research in the United states revealed that Overhead

makes up approximately 80% of the costs in the
machine and electronics manufacturing industries.

It is becoming increasingly important to analyse,

control Overhead costs

Overhead Cost Controlling has three components.

Cost Center Accounting
Internal Order Accounting
Activity based Costing

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Overhead Cost Controlling

Cost Center Accounting

Cost Center Accounting serves as a tool for

monitoring overhead costs and assigning them to
the location at which they occurred in line with their
source.

The Cost center accounting component tracks

where costs occur in the organisation.

Cost center is a low level organisational unit that

has responsibility for managing costs.

Cost Centers can be defined according to several

different design approaches.

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Overhead Cost Controlling

Internal Order Accounting

Its extremely flexible CO tool that can be used for a

wide variety of purpose to track costs.

Internal orders provides capabilities of Planning,

monitoring and allocation of costs.

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Overhead Cost Controlling

Activity Based Costing

Cost Center Accounting answers the question of

where costs occur, whereas Activity-Based Costing
answers the question of why (for what purpose)
costs occur

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Product Costing
Direct material costs
+

Material costs

Material overhead
+
Direct labor costs
+

Manufacturing costs

Manufacturing overhead

COSTINGSHEET

=
Costs of goods manuf.
+
Administrative overhead
+
Sales overhead
=
Cost of sales
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Product Cost Controlling

Product Cost Planning

Is used for preliminary costing and can answer the

following questions:
What will be the cost of producing a certain product
or service?
Is external procurement less expensive than inhouse production?

It enables you to calculate the minimum price at

which a product can be profitably marketed.

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Product Cost Controlling

Cost Object Controlling

It focuses on tracking the actual direct costs of

production and the period end closing process.

Actual production costs are accumulated as raw

materials are issued and labor is performed. This
information allows detailed comparisons between
the planned cost and the actual cost of any given
production phase.

Period end closing procedures include the

application of overhead costs, calculation and
posting of the value of goods still in production
(work in process), calculation of variances between
standard and actual costs, and settlement of
variances to the CO-PA, EC-PCA and FI modules.

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Product Cost Controlling

Material ledger / Actual Costing

Is used to calculate actual costs for each material at

the end of the period.

Materials and their movements are valued with a

standard price during the period. Any variances
from this standard are collected in the material
ledger

During period end closing these variances are used

to calculate an actual price for the material in the
closed period. Postings can be made in FI to reflect
this price.

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Profitability Management
Profitability Analysis

Lets you analyze the profitability of segments of your

external market. These segments can be defined
according to products, customers, geographic areas,
and numerous other characteristics, as well as your
internal organizational units such as company codes
or business areas.

The aim is to provide your executive management,

sales, marketing, planning, and other groups in your
organization with decision-support from a marketoriented viewpoint

CO - 27

Profitabiltiy Analysis
Typical Questions in Profitability Analysis

Contribution of
Individual Market
Segments

Margin goals of
Individual
Sales Entities

Success of
Marketing
Activities

Revenue
and
Cost Structure

Which are the largest and

fastest growing customers?

Did the sales force reach their

contribution margin goal?
What was the success of the
most recent sales promotion for
a product line?
What is the impact of a pricing
strategy for a group of customers?

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Profit Center Accounting

Profit Center Accounting is a component of the

module Enterprise Controlling (EC).

EC-PCA lets you analyze internal profit and loss for

profit centers.

You can divide your company up into profit centers

according to region (branch offices, plants), function
(production, sales) or product (product ranges,
divisions).

EC-PCA uses (at the present time) the period

accounting method

It relates all period costs of a profit center to the

respective period revenues.

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