CLASS NO-8

CONTROLING
Managing & Reporting Cost/Revenues & mainly used in Internal Decision making.
01. Org Element In Co
a. Operating Concern – Top most reporting level for profitability analysis.
b. Controlling Area – Central Org. in Controlling, Structuring Internal Accounting Operation
c. Cost Center – Lower most Org. units where Costs are incurred & Transferred

02. Controlling Area in SAP is Central Org. Structure that represents a closed system used for
Cost Accounting Purpose. It’s an Org. unit in the Controlling & has different function with the
Company Codes to ensure that the necessary transaction posted in FI are transferred to
controlling for Cost Accounting Purpose.

a. CACo. Code
b. COACA
c. Operating ConcernCA
d. ClientCA

03. Cost Element Accounting helps you classify cost / revenues posted to Co. Helps to reconcile
the Cost between FI & CO.
04. Cost Center Accounting deals with the task of managing “Overheads” within Org. Oth. Cost
is not directly related with products/Service which can be difficult to control. Cost Center
Accounting provides you with the necessary tools to achieve this.
05. Activity Based Costing known as ABC, helps you to view other cost from the point of
Business Process. You will be able to optimize costs for the entire Business Process. As a single
Business Process, ABC will Cut across Several Cost Centers & will give you a enhanced view of
Cost incurred.
06. Product Cost Controlling deals with estimating the Cost to produce as products/Service.
Two major areas (a)Cost of Material (b) Cost of Processing.

07. Profitability Analysis helps you determine how profitable (denoted by Contribution Margin)
your market segments are.

08. Profit Center Accounting focuses on Profitability of internal areas (profit Center) of the
Enterprise.

09. Cost Object also known as CO A/C Assignment Object. It’s repository in which you can
collect Costs & if necessary, more the Cost from 1 object to another. All the components of CO
have their own Cost Objects such as Cost Center, Internal Orders. It decides the nature of
posting, real posting or Statistical posting. All the objects are identified as Statistical posting are
not considered as Cost Objects (eg.-Profit Center).

10. Cost Element represents the origin of Costs.

a. Primary Cost Element represents the consumption of production factor (eg.- raw
material, HR) which have their corresponding G/L A/C in FI.
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 b. Secondary Cost Element represents the consumption of production factor
provided internally by the Enterprise itself & are present only in CO. they actually like Cost
Carries & used in allocation & settlement in CO
Cat. – 21 – Internal Settlements
42 – Assessments
43 – Internal Activity Allocation

11. Cost Element Category determines the transaction for which you can use the Cost
Elements. All the Cost Elements are assigned to Cost Element Category.
12. Cost Center is an org element within Controlling Area. Cost Center can be defined
according to specific needs to manage the Overhead. Each Cost Center is assigned to one Cost
Center Categories. All Cost Center of a Controlling Area assigned to Std. Hierarchy.
13. Cost Center Category is an indicator in the Cost Center master record that identifies what
kind of activities a particular Cost Center performs. Default Cost Center Categories are Admin,
Production, Logistics, Marketing, Development, Management etc.
14. Std. Hierarchy :- A tree like Hierarchy structural grouping all the cost centers (Of all the
Company Codes belonging to a Single Controlling area). So defined is known as “Std. Hierarchy”
in CO, helps in analysing Cost Summary at the end of the notes of the hierarchy. A Cost Center
can be attached to any no. of Cost Center groups but you can’t assign the Same Cost Center
more than once within a Cost Center Group.
15. Activity Type helps you to define service/action (eg:-human, machine, repair, labour)
performed or provided by Cost Center. It’s a basis for allowing Cost to other Cost Center or
Internal Order.
16. Plan Version is a Collection of Plan Data. It Controls whether the user will maintain plan
data or actual data or both. SAP provides necessary Versions (000) but you create as many
version as you need.
17. Real Posting: It allows you to further allocate settle those costs to any other cost objects
in CO either as senders or as receivers cost centre, Internal order (real), Project (real), Networks,
Profitability Segments, PP production orders.
Statistical Posting: This are only for information purpose, you will not be able to further
allocated settle Statistical cost to other cost objects. Internal order (Statistical), Projects
(Statistical), Profit centre (Statistical).
18. Internal order : It is a cost object used mainly for recording costs associated with
certain events (marketing campaign, repairs, trade exhibition) taking place within the country.
19. Order Type: It has a large amount of control info important to order right. This info includes
a range of default value that is used when you create a new order with this order type.
You need to assign each order to an order type that transfer certain Parameters ( ) to the
order. Each order type can be used in all CA.

20. Create Cost Centre (KS01)

Input Cost Centre name, valid from & to Enter Input name & Description Person
responsible cost centre category Hierarchy Area & crcy. Save.

21. Create Controlling Area For Profit Centre (OKE5)

Input std Hierarchy, Eline of business vol, Profit centre local currency type - 20, Profit
centre local currency - INR, Store transaction currency, valuation view - legal valuation ,ALE
Distribution method -

22. What is Statistical Key Figure (SKF)?

The ‘Statistical Key Figure (SKF)’ is used as the basis (tracing factor) for making
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allocations (assessments/distributions). They are the statistical data such as number of
employees, area in square meters, etc. You will make use of a SKF when you are faced with a
situation where it is not possible to use any other conventional method or measure to arrive at
the share of costs to be allocated to cost centers.
Suppose that you are incurring a monthly expense of USD 5,000 in the cost center
cafeteria, the cost of which needs to be allocated to other cost centers. You can achieve this by
the SKF. Imagine that you want this to be allocated based on the ‘number of employees’
working in each of the other cost centers such as administrative office (50 employees) and the
factory (200 employees). You will now use the number of employees as the SKF for allocating
the costs.
In SKF allocation, you have the flexibility of using two different SKF Categories; namely,
Total value or Fixed value. You will use fixed values in situations where the SKF does not
change very often, as in the case of the number of employees, area, etc. You will use total
values in situations where the value is expected to change every now and then, as in the case
of power use or water consumption and the like.

A cost center as you will know is for fixed reporting for a long time span as part of
your company structure (cost center usually = department or work center).
An internal order is used to accumulate cost for a specific project or task for a
specific time period. An internal order is therefore used for a short period with a specific
deadline.
Your internal order will usually settle to cost centers (and not visa versa) according to
the settlement rule in the order setup.
An internal order can therefore be used to group all the expenses incurred to plan
and hold a conference over a 3 month period. The order can be settled on a monthly basis
to cost centers.
When the conference is finished the order can be settled finally. The cost of the
conference will then be spread over 2 or more cost centers, but can be viewed in total on
the internal order when needed.
It is important to understand the difference between a settlement and an
assessment cycle. An assessment cycle distributes costs from one cost center to various
other cost centers. You cannot assess from a cost center to an internal order nor visa versa.
Assessment cycles are only between cost centers.
Settlements are used for orders. In the setup of each order is a "settlement rule". In
this settlement rule you tell the system to which cost centers the cost in the order must be
settled.
Typically, you will execute the following procedure at month ends:
1. Settle all orders this will settle all costs on orders to cost centers.
2. Run assessment cycles Now that you have all costs against cost centers from your
orders, you can start distributing costs between cost centers with assessments.

Difference between Cost Centers and Internal Orders

Costs are posted to an order. When you process a purchase order you post to the
internal order and not to a cost center. The same applies to journals in FI. You will post
the costs to the order and not to a cost center. You will then settle the order on month-
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 ends to post to the relevant cost centers. It is very important to settle these orders
otherwise FI and CO will not balance on your system.
Internal orders can also be used as "statistical" orders. This is also specified in the
setup of the order. You do not have to settle statistical orders. When posting costs, you
will post to the cost center and the order simultaneously. Both have to be specified
when posting journals or purchase orders against statistical orders.

MM BUSINESS PROCESS/ A/C PAYABLE / PROCUREMENT PROCESS CYCLE /

PROCESS TO PAY PROCESS PROCUREMENT PROCESS ( PROCESS TO PAY PROCESS)
Every Org. That Operates A Business Has To Purchase Materials Such As Raw Materials,
Services, Etc. The Procurement Process Has Become a Part of Today’s Efficient Business
Operation. The Company Can Produce Those Materials as In House Production or External
Procurement.

PROCUREMENT PROCESS CYCLE

Process To Pay Consists The Following Process:-
Material Requirement Planning.
Vendor Selection.
Request For Quotation
Purchase Requisition
Purchase Order
Goods Receipt
Goods Receipt Invoice
Invoice Verification
Payment To Vendors

MATERIAL REQUIREMENT PLANNING

Using Projected Manufacturing Production Schedule to Find Out What and When
Materials Need. MRP Controls MRP Procedures, Pricing, Materials Valuation, MRP Carried
Out By MRP Controller, Production Dept.

VENDOR SELECTION
With The Help Of Obtained Quotation From Sources And Comparing Them, Vendors Are
Selected.

REQUEST FOR QUOTATION

Requesting Potential Vendors to Submit A Quotation For Material Or Service.
Quotation Contains The Vendors T & C And It Is A Basis Of Vendor Selection.

PURCHASE REQUISITION
A Purchase Requisition Is An Internal Request To Purchasing. You Ask the Buyer To
Provide A Certain Quantity Of A Material Or Service On A Certain Date. A Pr Can Be Created
Automatically By MRP or Manually Created Pr Converts RFQ, Po or Outline Agreement. Pr
Includes:-
Material Quantity, Description of Goods and Services, Total Value. Dept A/C
Number Signature By An Authorized Dept. Attached Quote From The Vendor.
Delivery Instruction.
Attached Quote from the Suggested Vendor.

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PURCHASE ORDER
Formal Request to A Vendor To Supply Certain Materials Or Services Under Certain
Condition. It Can Be Created With Ref Or Without Ref To A Purchase Requisition, A Request
For Quotation Or Another Purchase Order. Po Usually Specify Terms of Payment, Incotems,
Delivery Date, Specifications, Price and Ref of Plant No.
TYPES –
STANDARD PO- 1 Time Purchase of Material.
PLANNED PO – It Agreement Po Specifies Materials, Estimated Costs & Tentative
Delivery Scheduler.

CONTRACT PO – Materials Required Are Not Specified.

GOODS RECEIPT
GR Is Created To Reflect the Goods Receipt For the Specified Materials Ordered From A
Vendor Using Purchase Order Process. After Receiving the Goods Company Can Record
Following Info Which Is Used In Accounting Stock Check And Rotation To Return Every Good .
What Goods Are Delivered?
Which Vendor Delivered the Goods
Who, How, When Goods Were Delivered and Received the Goods.
GOODS RECEIPT INVOICE
In GRI Process Goods That the Company Receives with Company P.O. are Matched. It
Checks Damaging Goods, Fits for Use, Qty, Verifying the Price, Payment Terms. Goods
Movement Are Entered Into The System With Reference Of Purchase Order And Goods
Receipt Material Does Are Posted, Automatically Appropriate G/L Are Posted And Stock
Amounts Are Updated.
INVOICE VERIFICATION
TASKS:-
1. Under Invoice Can Be Created With Ref. To A P.O., A Goods Receipt, A Delivery Note.
2. Invoice Is Verified In Terms Of Prices, Quantity.
3. Necessary Approvals by Project Manager.

After Verifying All The Data, The Invoice Is Posted And The Data Is Saved In The System.
The System Updates The Invoice Data In Mm & FI.
PAYMENT TO VENDORS
Also Known As Procure To Pay Process. Vendors are get Paid as per Payment Terms.
Company Can Pay Through Many Methods To Vendor. Eg. Net Banking, Check Payment Etc.
PROCUREMMENT TO PAY OR A/P OR PURCHASE PROCESS FLOW
1. MRP
2. MR
3. Purchase Raised Shortlisted Vendor
4. Goods Receipt Raw Material
5. Invoice Receipt
6. Vendor Payment