Q1. – Explain the Organizational Assignment in the SAP Controlling module?

Ans. – We assign Company Codes to Controlling area. And A controlling area to the operating concern.

Controlling Area is the umbrella under which we store all controlling activities of cost center
Accounting, Product Costing, Profitability Analysis, and Profit Center.

Q2. – What are the Primary Cost Element and Secondary Cost Element?

Ans. – We need to define every Profit and Loss GL account as a cost element in SAP that we need to
control. Just as in FI General Ledger Account exists; in Controlling we have Cost Element.

We create each FI General Ledger Account as a cost element in SAP which is a Profit and Loss Account.

Primary Cost Elements are those which we create only in Controlling. This means they do not affect the
Financials of the company. We use them for internal reporting only.

Further, the postings to these accounts do not affect the Profit or Loss of the company.

Internal Settlement– We use Cost Elements of this category to settle order cost to objects in controlling
such as cost centers, PA segment, etc.

Order/Result Analysis– We use it to calculate WIP on the order/project.

Overhead– These we use to calculate indirect costs from cost centers to orders.

Assessment– We use assessment to calculate costs during an assessment.

Internal Activity Allocation We allocate costs during internal activity allocation such as Machine Labour
etc.

Q3. – What are the Cost Objects in SAP CO?

Ans. – A cost object means a cost or a revenue collector wherein we collect all the costs or revenues for
a particular cost object. Examples are, cost center, production order, Internal Order, projects, Sales
Order.

Thus, whenever we look at any controlling function, the basic thing we need to assess is what the cost
element (expense) which we want to control.

Likewise, what is the cost object ( i.e. either the production order, sales order, internal order) we are
using to control this cost element.

Sounds confusing? Read it again. It is very simple.

Controlling is all about knowing the cost element what is the cost object

At the end of the period, we settle all costs or revenues in the cost object to their respective receivers as
like a GL Account, Cost Center, Profitability Analysis or Asset.
Q4. – How do you relate the cost center accounting to the Profit Center?

Ans. – In the master data of the cost center, there is a provision to enter the profit center. Here, all costs
which flow to the cost center are also captured in the profit center. This is to say, we create Cost centers
to capture costs e.g. admin cost center, canteen cost center, etc.

Further, we create Profit Centers to capture cost and revenue for a particular plant, business unit or
product line.

Q5. – What is the Cost Element Group?

Ans. – Cost Element group is nothing but a group of cost elements which help one to track and control
cost more effectively. You can make many cost element groups as you feel necessary by combining
various logical cost elements.

Q6. – What is a Cost Center Group?

Ans. – In a similar line, a cost center group is also a group of cost centers which help one to track and
control the cost of a department more effectively. Noteworthy, we can make as many numbers of cost
centers as we feel necessary by combining various logical cost centers.

Certainly, we can use various combinations of cost center group with the cost element group to track.
Hence we can control our costs per department or across departments.

Q7. – What is the difference between Distribution and Assessment?

Ans. – Distribution:- It uses the original cost element for allocating cost to the sender’s cost center.
Thus, on receiving cost center, we can see the original cost element from the sender cost center.
Distribution only allocates the primary cost.

Assessment:- It uses assessment cost element No 43 defined above to allocate cost. Thus various costs
are summarised under the single assessment cost element. Further, in receiver cost center the original
cost breakup from the sender is not available. Assessment allocates both primary as well as secondary
cost.

Q8. – What are the other activities in the Cost Center?

Ans. – If we have a manufacturing set up entering Activity prices per cost center/Activity type is an
important exercise undertaken in cost center accounting.

Q9. – What is an Activity Type?

Ans. – SAP activity type is the classification of activities that we produce in cost centers in a controlling
area. Example of Activity Type are Machine Hours, Labour Charges, Units Produced, Power, etc.

Q10. – What are the important terms in SAP Product Costing?

Ans. – Important Terminologies to remember in SAP Product Costing are:

Result Analysis Key- This key determines how the work in Progress is calculated.
Cost Components– The breakup of the costs which we see in the Product costing e.g.-Material Cost,
Labor Cost, Overhead, etc.

Costing Sheet– We use a costing sheet to calculate the overhead in Controlling.

Costing Variant– For all manufactured products the price control recommended is the standard price.
Hence, to come up with this standard price for the final goods material we need to cost this material.
We can do this using costing variant.

Q11. – What configuration settings do you maintain in costing variant?

Ans. – Since we carry out and save all cost estimates concerning a costing variant, hence the costing
variant contains all the control parameters for costing.

Further, we maintain the configuration parameters for costing type, valuation variants, date control, and
quantity structure control.

Noteworthy, in costing type we specify the field where we update the price in the material master.
Similarly, in the valuation variant, we specify the order in which the system should go for accessing
prices for the material master (planned price, standard price, moving average price, etc).

Further, we decide which price we should consider for activity price. And finally, how the system should
select BOM and routing.

Q12. – How does SAP go about costing a product having multiple Bill of Material within it?

Ans. – Firstly, SAP first cost the lowest level product. Then it arrives at the cost and it takes and cost the
next highest level and finally arrives at the cost of the final product.

Q13. – What does the concept of cost roll-up mean in product costing context?

Ans. – The purpose of the cost roll-up is to include the cost of goods manufactured of all materials in a
multilevel production structure. It lies within the cost of the material located at the top of the structure.

The costs are rolled-up automatically using the costing levels.

 Firstly, the system calculates the costs for the materials with the lowest costing level and then it
assigns them to cost components.

 Lastly, the system costs the materials in the next highest costing level (such as semi-finished
materials).

This is to say, that the costs for the materials cost first are rolled up and then they become part of the
material costs of the next highest level.

Q14. – What is a settlement profile and why you need it?

Ans. – All the costs or revenues which the system collects in the production order or Sales Order, have to
settle to a receiver at the end of the period. This receiver could be a GL account, cost center, profitability
analysis or asset.

Subsequently, to settle the costs of the production order or sales order, we need a settlement profile.
In a settlement profile, we define a range of control parameters for settlement. We must define the
settlement profile before we can enter a settlement rule for a sender.

Noteworthy, the system maintains the settlement profile in the Order Type and defaults during creating
of order.

Settlement Profile includes:

1. The retention period for settlement documents

2. Valid receivers GL account, sales order, cost objects, order items, business process

3. Document Type is attached here

4. Whether 100% validation,% settlement, equivalence numbers, variances to costing based CO-PA

5. The system attaches the Allocation structure and PA transfer structure to the settlement profile
E.g. A1.