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.
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Introduction
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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.
1. How do we reduce our overhead costs
2. What costs occurred within our organisation
3. What are the manufacturing costs of our products
4. 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
EC-
PCA
CO Controlling Management accounting
Profit Center Accounting
Cost accounting
Various valuations
Flexibility
FI IA External accounting
Financial GA S Tax
Financial GO A Closing
Accounting B P audit
Legal requirements
Accounting Standards
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CO: Controlling
SD FI
Sales & Financial
Distribution Accounting
MM CO
R/3
Materials Controlling
Mgmt.
PP TR
Product Treasury
Planning
QM
Quality
Client/Server PS
Project
PM ABAP/4 WF
Mgmt. System
Plant Mainte- Workflow
nance
HR IS
Human Industry
Resources Solutions
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Controlling with the CO system
EC- CO-
EIS CO OPA
SD FI
MM CO CO- CO-
PP IM
R/3 CCA ABC
QA Client/Server PS
ABAP/4 EC- CO- CO-
PM WF
PCA PA PC
HR IS
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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
Transaction
-based
postings Planning
Master data
Period-end
closing
Organizational
units Information
system
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Organisational Units in CO
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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 UNI
- Chart of accounts INT
- Fiscal year variant K2
(12 posting periods)
Company code 1000
- Currency UNI
- Chart of accounts INT
- Fiscal year variant K2
(12 posting periods)
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Organisational Units in CO
1:n Assignment
Controlling area 1000
- Currency UNI
- Chart of accounts (operative) INT
- Fiscal year variant K2
(12 posting periods)
Company code 1000 Company code 2000
- Currency $
- Currency UNI - Chart of Accounts:
- Chart of Accounts: • Operative INT
• Operative INT • Local CAUS
- FY variant K2 - FY variant K2
(12 posting periods) (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 key figure: Base for internal cost allocation.
Order: Collector of costs for a certain goal and period of time.
Process: Group of tasks made across cost centers (e.g. develop product).
Costobjects: 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 CO
G/L
Primary cost elements
accounts
Primary cost element
Imputed cost element
External order settlement P&L Balance sheet
accounts accounts
Secondary cost elements Expense accounts Accounts posted
to directly, like
Internal activity allocation bank accounts
Assessment
Overheads
Internal order settlement Accounts posted
to indirectly, like
reconciliation
Revenue elements
accounts
Revenue element Revenue account
Sales deduction
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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
=
Costs of goods manuf.
+
Administrative overhead
+
COSTING- Sales overhead
SHEET =
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 in-
house 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 market-
oriented viewpoint
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Profitabiltiy Analysis
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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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