All data relevant to cost flows automatically to Controlling from Financial Accounting.

At the same time, the system assigns the

costs and revenues to different CO account assignment objects, such as cost centers, business processes, projects or orders.

In Nandan Denim SAP controlling system, we have proposed to implement total business process automation system. Thus no
manual entry/intervention allowed in the costing transaction. Entire Product Costing, inventory valuation , variances, material &
production overhead, absorption costing etc transactions to flow in controlling module as per the structure configured in the
system.

Main components of SAP CO module are

Cost Object Controlling
Cost Center Accounting
Product Cost Planning & Controlling
Profitability Analysis
Overhead Cost Controlling
Profit Center Accounting.
I

II
III
IV
V
Factory wise Calculation of Cost Component Structure of FG/SFG and COGS Split Up Structure

The Cost Component Split allows for granularity of the cost drivers in your inventory and cost of goods sold. The cost compone
Cost Planning and Material Ledger.. This will provide suitable transparency about cost drivers in the General Ledger, and also po
is compatible.This functionality can be used to split cost components for COGS accounts as well as Inventory accounts (which m
how much material stock or Fixed costs are sitting in inventory).

The actual cost component split is used to analyze actual costs over multiple production levels.
· Differences from preliminary valuation
· Price differences
· Exchange rate differences
The entered actual costs of a material are listed according to cost components. The original identity of the costs (for example, w
production costs) is retained throughout all production levels.

As with material ledger data, the actual cost component split is updated based on the transactions. During the entry of follow-
for a material, you can analyze the complete composition of the costs in the parallel currencies / valuations. Because you can d
the level of the procurement alternative, you can compare the different production procedures with each other in detail.
At the end of the month, Profitability Analysis can use the actual cost component split to revaluate the cost of goods manufact

The actual cost component split is updated with the following:

Changes in stock
Execution of invoice verification
Order settlements
Price changes
Material debits and credits
Account maintenance
Single-level material price determination
Multilevel material price determination
Closing entries

Calculation of Material Overhead/ Production Overhead Absorption on Product Cost through percentage logic or quantity b
Production Order wise WIP calcualtion at Actual Cost
Product Drill Down & Summarisation Customised Reports
Determining Variances from Standards production order wise

5.1 The three common types of variance calculation are as follows;

5.1.1) Total Variance
Total variance is the difference between the actual cost debited to the order and credits from deliveries to invent
settlement. The variance is settled in Financial Accounting (FI), Profit Center Accounting and Profitability Analysis
5.1.2) Production Variance
Production variance is the difference between net actual costs debited to the order and target costs based on the
delivered to inventory.
Production variance is not relevant for settlement, only for information.
5.1.3) Planning Variance
 Planning variance is the difference between costs on the preliminary cost estimate for the order and target costs b
planned order quantity.

The following types of variance can be calculated;

Planning variances
– Input price variance
– Resource-usage variance
– Input quantity variance
– Remaining input variance
– Scrap variance

Production variance of the period

– Input price
– variance
– Resource-usage variance
– Input quantity variance
– Remaining input variance
– Scrap variance
– Mixed-price variance
– Output price variance
– Lot size variance

Total variance
– Input price
– variance
– Resource-usage variance
– Input quantity variance
– Remaining input variance
– Scrap variance
– Mixed-price variance
– Output price variance
– Lot size variance
– Remaining variance

It suggests efficiencies in incurring manufacturing costs and in using direct materials, direct labour, and manufacturing overhe
inferior quality materials.

5.2.1) Input Variance

Variance based on Goods Issue, Internal activity allocation, overhead allocation, general ledger account postings.
Input variance is divided into the following categories during variance calculation, according to their source:
Category IV.1) Input Price Variance
Input price variance occurs as a result of material price change after the higher level material cost estimate is released.
It occurs in any of the below mentioned scenarios;
If the material valuation is based on standard price control, a standard cost estimate for the component could be released aft
released.
 If the material valuation is based on Moving average price control, a goods receipt of the component could change the comp
material is released.
                                      Input price variance = (actual price – plan price) * actual input quantity
Category IV.2) Resource – Usage Variance
Resource – Usage variance occurs as a result of substituting components. This could occur if a component is not available, and
material number is used instead.
                                          Resource Usage variance = Actual costs –target costs – Input price variance
Category IV.3) Input quantity variance
Input quantity variance occurs as a result of a difference between plan and actual quantities of materials and activities consum
                                                        Input quantity variance = (actual input quantity – target input quantity) * plan price
Category IV.4) Remaining Input Variance
When input variance cannot be assigned to any other variance category. 5.2.2) Output Variance
Variance can be from too little or too much of planned order quantity being delivered, or because the delivered quantity was v
5.2.2) Output Variance is divided into;
Category OV.1) Mixed – Price Variance
Mixed-Price variance occurs when inventory is valuated using a mixed cost estimate for the material.
Category OV.2) Output Price Variance
Output price variance can occur in the following scenarios;
1) If the standard price is changed after delivery to inventory, and before variance calculation.
2) If the material is valuated at moving average price and it is not delivered to inventory at standard price during target va
                        Output price variance = actual activity * (plan price – actual price)
Category OV.3) Lot Size Variance
Lot Size variance occurs if a manufacturing order lot size is different from the standard cost estimate costing lot size.
Category OV.4) Remaining Variance
Occurs if variance cannot be assigned to any other variance category.
Category OV.5) Output Quantity Variance
Represents the difference between manually entered actual costs and allocated actual quantities.
                                                  Output Quantity  variance = ( actual quantity –manual actual quantity) * plan price
Product Cost Controlling: Product Cost Planning

Theory & Concept Understanding

•Product cost planning is used to develop the cost estimates of materials and other cost accounting
objects without reference to orders.
•The cost estimates helps in determination of right method of production, setting the price, value
added at each stage of production process by providing the detailed breakdown of costs.

On configuring PP - CO in factories following would be applicable:

•The cost estimates can be developed automatically by the system by accessing the data from logistics
and other components or it can be entered manually by means of unit costing or can be transferred
automatically from non-SAP system using batch input.
•The cost estimates developed can be utilized by other components like material management for
material valuation, profitability analysis for contribution margin analysis, sales and distribution for
pricing, cost object controlling for variance analysis.

•Advanced reporting features are available to adapt individual requirements. The reports enable
comparison of cost estimates, effect of changed cost on material valuation, profitability etc. The
reports provides sorting, totaling, filter, download, sent as email and other advanced features.
Make to Order Valuation: Sales order item specific cost estimate.System automatically
carries out single-item, multilevel planning for a sales order
Configured application allows a distinct way for managing production process. Consumption of components and assets gets tra

Financial statements produced guides to do Budget Framing on production and selling cost of furnished clothing.
 System will automatically provide planned cost at each and every level of cost center hiearchy of organisation { production/pr
support/business support/service cost center level/ cost center group level/ plant level etc.} based on historical data and logic
We can simultaneously maintain differrent budget cost ( uploaded by differrent user for eg: director & number of plan cost ver
cost of previous 2 months, average cost of previous fiscal period, any other customised logic based on capacity utilised by resp

Thus we can compare Budget Cost at any cost center(uploaded by user) hiearchy , Plan cost (automatically by system ) , Actual
differrent modules automatically from PP/MM/FI/PM/QM/HR)

The planning of the cost elements in the cost center will be used to compare the planned vs actual costs when there
in the cost center for that particular cost element. The difference between the planned and actual costs can be seen
standard reports.
Cost center will have activity dependent and activity independent planning. Activity dependent planning will have a
which is used in planning with quantity/or unit. Planned activity price and actual activity price will be calculated in th
costing.
Activity Types Report
Commitment Analysis Report inorder to ascertain future commitement of funds
Direct Activity Rate - Planned/Actual Calculation for Product Costing
Atleast 60 MIS Reports
Tracking Under/Over Absorption at Cost Center/ Plant Level
Indirect Overhead Activity Allocation to Business Support/ Production Cost Center to logically apportion direc
overhead
Revaluation of Direct Activity Rates as per the logic specified based on historical data calculation

Configured application allows a distinct way for managing production process. Consumption of components and assets gets tracked

Financial statements produced guides to do Budget Framing on production and selling cost of furnished clothing.
and reported.
Profitability Management : Profitability Analysis & Responsibility Management
What is the profitability of my various market segments ?

Introduction & Theory

Use & Benefits to Nandan Denim as an organisation :

Profit Center Reporting /Responsibility Reporting:

Use & Benefits to Nandan Denim as an organisation :

•

•
ofitability Management : Profitability Analysis & Responsibility Management
What is the profitability of my various market segments ?

Introduction & Theory

In order to sustain and thrive in this contemporary and dynamic environment rapid and timely decision making is more essen
decision. Organization profitability is one the core parameter to assess when it come to designing organization goals, objec
achieve them.

Profitability Analysis is one the most vital and valuable functionality provided by SAP Controlling module. It helps the man
Profitability from various dimension, develop its strategy and make decisions by collecting and analyzing all the useful data fro
Material Management, Sale and Distribution, Production and Finance

Profitability Analysis (CO-PA) enables you to evaluate market segments, which can be classified according to products, custome
combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's
margin.
The aim of the system is to provide your sales, marketing, product management and corporate planning departments with info
internal accounting and decision-making.

Use & Benefits to Nandan Denim as an organisation :

It provides multi-dimensional reports for selected market segments. The profitability reports can be used to display profita
product, product group, region, state, sales area, customer and customer groups.
There are pre-defined characteristics like customer, product, region, distribution channel and division etc in the system. A
characteristics may be created.
Description
Customer
Product
Region
Sales Organization
Distribution Channel
Division
Plant
Profit Center
Ship to Party
Product Hierarchy 1
Product Hierarchy 2
sales order wise
Material Group
Industry
Sales Office
Customer Group
Business Area
External Material Group ( Brand)
Sales document Type
Account Group
Sales Line Item
Profit Center Reporting /Responsibility Reporting:

Profit Center Accounting is used to determine profit for internal areas of responsibility. It lets you determine profits and los
accounting or the cost-of-sales approach.

It allows you to analyze fixed assets by profit center, thus using them as investment centers. It allows to expand profit centers t

Use & Benefits to Nandan Denim as an organisation :

The main aim of creating a Profit Center is to analyze the cost of a business unit.
You can also generate P&L accounts according to a Profit Center and also generate balance sheets

Profit center planning is a part of short-term corporate planning and thus encompasses as span of one fiscal year. Short-term c
generally consists of the following partial plans:
Sales plan
Master production schedule
Cost plan
Sales revenue plan

§Sales Plan: The starting point for short-term planning is the sales plan, in which you determine the quantities you expect to se
period. The sales plan is usually created by the sales department. The planned sales quantities are then passed on to productio
planned capacities and activities can be coordinated.
§Cost Plan (Cost Center Plan) Once the activity units have been planned, it is necessary to plan the costs expected for these activities.

§Sales and Profit Plan: The planned costs and sales quantities can then be used to derived planned contribution margins. The c
planning and the planned sales quantities (valuated based on the expected revenue) are used in sales revenue planning.