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Calculate Actual Costs Across Multiple Company Codes Using a Business Function in SAP Enhancement Package 5 for SAP

ERP 6.0New
The material ledger records the flow of goods from the initial purchase of the raw material to the final sale of the finished product. It assigns any price differences incurred during purchasing and production to the product sold — or at least it does provided that the goods flow remains within a single company code. Until SAP enhancement package 5 for SAP ERP 6.0, a material sold to another company in the same group was treated as an externally procured material. Instead of the actual costs for the material purchased being transferred to the affiliated company, only the material price was recorded in the material ledger. Learn how to record both the legal view (in which the purchased good is treated as an external purchase for legal reporting purposes) and the group view (in which the actual costs for the purchased good are passed on to the other company and split into their cost components for group reporting purposes) and how to capture the intercompany markups in your cost component split.

In group valuation, actual costs are recorded as if they were incurred within a single entity. They are recorded without the profit markups that are charged when the individual companies buy and sell goods from one another as if they were not related (sometimes called arm’s length trading). This view is used for corporate decision making and controlling and allows organizations to see the actual costs broken down into their cost components (e.g., raw materials, energy, labor, overhead, and freight) across all units. The legal valuation, on the other hand, records the intercompany transactions as sales and purchases by each unit that must be reported to the appropriate jurisdiction for tax purposes.

In today’s global supply chains, it is common for several plants to be involved in manufacturing a single product and for these plants to belong to different legal entities. It’s also common for organizations to have a central distribution center that is being supplied by multiple plants that belong to different legal entities. From a group accounting point of view, you should treat the flow of goods between the plants and distribution center as a single flow, as if the goods were simply moving around the same factory. From a legal accounting point of view, however, the flow is broken because goods are being sold by the one plant to the other plant or distribution center. In this case, the one plant bills the other plant for the goods delivered and generally adds a profit mark-up.

While this business situation is common, companies have only recently started to explore the potential of group costing within SAP ERP. One reason is that in their early implementations, organizations made decisions that constrained their ability to use this function. One constraint is that group costing can only take place within a single controlling area. In many early SAP ERP implementations, organizations set their controlling areas at more or less the same level as their company codes, meaning that they could not view the whole supply chain in managerial accounting (CO) but only that part of the chain that was within each controlling area. Now, many organizations are using landscape transformation services to migrate to a single controlling area.

Another constraint was that the internal invoice that handled the billing between the two companies had to be created using electronic data interchange (EDI). This was partly a technical issue because transaction MIRO does not support the group valuation, but is also a people issue because the accounting clerk processing the invoice should see only the legal valuation (sales price) and not the group valuation (cost of goods manufactured).

Now organizations have matured sufficiently and have automated their billing processes to replace manual processes with EDI. And, of course, there was the functional gap in the process: The material ledger did not account for group valuation for actual costs, but treated goods purchased from affiliated companies as if they were externally procured goods. This gap has been closed in SAP enhancement package 5 for SAP ERP 6.0 using the business function Cross-Company Code Stock Transfer & Actual Costing (LOG_MM_SIT). I will show you how to set up group costing and walk you through the steps involved. I’ll start with preparatory steps before making any postings and then show you the demo steps in the material ledger.

Step 1. Identify the Customers and Vendors Involved in the Intercompany Process
Start by creating customer and vendor records for each of the plants participating in the intercompany process. You need to create vendor master records for each supplying plant and customer master records for each receiving plant. To create a vendor master, use transaction XK01 or follow menu path Logistics > Materials Management > Purchasing > Master Data > Vendor > Central > Create. Enter the name of the vendor (e.g., 4444) and the company code for the supplying plant. In the General Data section, click the Control flag. Figure 1 shows the vendor master for the supplying plant. The control data links the supplying plant to the receiving plant via the entry in the Customer field (e.g., 1186). The entry in the Trading partner field (e.g., 2000) identifies the company ID to which the plant belongs for consolidation purposes (see the “Group Costing and Consolidation” sidebar).

Figure 2 shows the customer master for the receiving plant. To create a customer master. . The entry in the Trading partner field (1000 in this example) identifies the company ID to which the plant belongs for consolidation purposes. Enter the name of the customer (e. 1186) and the company code for the receiving plant and click the Control Data tab.. use transaction XD01 or follow menu path Logistics > Sales and Distribution > Master Data > Business Partner > Customer > Create > Complete.g.Figure 1 The vendor master control data shows the intercompany customer and trading partner You see the same screen in reverse if you look at the customer master for the receiving plant. The control data links the receiving plant to the supplying plant via the entry in the Vendor field (4444 here).

. group valuation in the group currency (i.Figure 2 The customer master control data shows the intercompany vendor and trading partner Step 2.e. I discussed this type of valuation in my article “Provide Parallel Product Costs for Inventory Valuation in the SAP General Ledger. energy costs. I’m working with the currency and valuation profile ID01. the controlling area currency). the intercompany sale is recorded as a payable by the receiving company and a receivable by the supplying company. Click ID01 and choose Details. profit center valuation in the group currency. labor costs. The costs are transferred to the other company broken down into their cost components (e.g. In legal valuation.” posted to the Financials Expert knowledgebase in October 2009. In this example. In group valuation. Set Up Group Valuation in Accounting Next. activate group valuation alongside legal valuation (which is always present by default). Figure 3 shows a currency and valuation profile that handles legal valuation in the company code currency.. Group valuation is activated by setting up a currency and valuation profile and assigning it to the controlling area. and a second legal valuation for parallel cost of goods manufactured. To create a group valuation view. follow IMG menu path Controlling > General Controlling > Multiple Valuation Approaches/Transfer Prices > Basic Settings > Maintain Currency and Valuation Profile. the transaction is recorded as if it were simply a stock transfer. raw material costs. . and overhead).

To activate the material ledger. Figure 4 shows that the material ledger is active for plants 1000 and 2000 in this example. follow IMG menu path Controlling > Product Cost Controlling > Actual Costing/Material Ledger > Activate Valuation Areas for Material Ledger. Material prices for legal valuation purposes are stored in the Accounting view of the material master. you need to activate the material ledger for each of the plants participating in the intercompany process to capture the additional values.Figure 3 Currency and valuation profile Now link the currency and valuation profile to your controlling area by following menu path Controlling > General Controlling > Multiple Valuation Approaches/Transfer Prices > Basic Settings > Assign Currency and Valuation Profile to Controlling Area. . and parallel cost of goods manufactured. to use the group valuation. profit center valuation. However.

values in group valuation and profit center valuation are also visible in the material master (Figure 5). .Figure 4Activate the material ledger Once the material ledger is active.

Nanda’s article “Cater to Arm’s Length Standards with Automated Intercompany Transfer Pricing Design. so I won’t reiterate the basics. This process was described at length in Ashim A. and profit center valuation Step 3. group.Figure 5The Accounting view of the material master shows legal. Figure 6 shows the new options for this process in more detail. Set Up the Stock Transfer Process Now you set up the stock transfer order process to handle the delivery process. However. The new intercompany transfer process ensures that the issue and the receipt are captured in the same document. you should review the new options for valuating stock in transit in the business function LOG_MM_SIT. since you need these steps to ensure that the material ledger is able to establish the relationship between delivered material and received material.” which was posted to the Financials Expert knowledgebase in October 2010. .

Choose your existing cost component structure (01 in my .Figure 6 New options for posting stock in transit in enhancement package 5 The first variant (variant 0) already exists in SAP ERP and uses a one-step delivery to directly transfer ownership of the goods from the sending plant to the receiving plant. so you might need a two-step delivery for stock in transit. Movement types 645 and 101 are executed in one step when the goods issue is made with reference to the delivery. Price condition KW00 picks up the value of the material in the sending plant and uses this value as the invoice value on the receiving side in group valuation. 3. The goods issue is then posted to the sender’s transit stock. you have to extend your cost component split. Receiver’s transit stock: The value and quantity of the material is shown in the receiving plant while in transit. Thus. To check your entries for the intercompany billing process. Store the Profit Markup in the Cost Component Split If you defined a profit mark-up in the legal valuation (based on price condition PR00). Note You can find further details about the intercompany billing process in SAP Notes 31126 (Intercompany billing . 2. Note that in the material ledger. you must ensure that the material value and quantity are visible at all times. Step 4. the physical flow of goods may take days or even weeks. you are using two price conditions: PR00 to handle the legal valuation with profit markup and KW00 to handle the group valuation. an employee at the receiving plant triggers the transfer to the receiver’s transit stock. As soon as the truck arrives at the warehouse of the receiving plant the goods movement to the receiver’s free stock can be performed. Then the materials are loaded onto a truck. This transfer takes place using transaction VLPOD. this markup is actually stored as a delta in the legal valuation along with the sender and receiver information. Ownership for the material changes en route: This might happen when the material is loaded onto a ship. To extend the cost component structure. To assign this mark-up to a cost component. the goods issue of the material from the sending plant results in a direct posting to the in-transit stock of the receiving plant. the material value and quantity can be transferred to the receiver’s free stock. Regardless of when the transfer of ownership takes place. follow menu path Controlling > Product Cost Controlling > Product Cost Planning > Basic Settings for Material Costing > Define Cost Component Structure. However. but the standard cost component split: The actual is assigned during multi-level material ledger settlement at period close. In short. there are three new process variants for this transfer: 1. you have to use the group view to capture intercompany markups. Step 5. Sender’s transit stock: The value and quantity of the material in transit is shown in the sending plant until the material physically arrives at the receiving plant. Then a goods receipt is performed and the value and quantity are transferred to the receiving plant.posting to vendor account using EDI) and 659590 (EDI: Stock transfer and cross-company sales). follow menu path Sales and Distribution > Billing > Intercompany Billing > Automatic Posting to Vendor Account (SAP EDI). This value is not a single material price. where ownership of the transit stock can be transferred from the supplying plant to the receiving plant en route. Set Up the Billing Process Then determine how the selling company (vendor 4444) is going to bill the receiving company (customer 1186) for the goods delivered. then you need to identify a cost component that stores this mark-up during intercompany billing. In standard costing. When the ship arrives at the harbor in the destination country. As soon as the truck arrives at the receiving plant. From SAP enhancement package 5.

. It is also important to check the Roll up Cost Component flag to ensure that the profit markup is rolled up as the material is moved through the supply chain.example). Figure 7 Cost component structure You should also review the documentation for the Business Add-In (BAdI) Control of Cross-Company Transfer. 310) but you can use a BAdI to direct some markups to a different cost component. which you can find at IMG menu path Controlling > Product Cost Controlling > Actual Costing/Material Ledger. and period. Observe Intercompany Sales from a Legal Perspective I will now show you how the value flow for a stock transport order and its intercompany invoice are represented in the material ledger from a legal perspective. You can access this screen by clicking the Mat. Create a new cost component for the markup (310 in my example) and set the Company Code flag under the Delta Profit for Group Costing heading (Figure 7). Price Analysis button in Figure 5 or by using transaction CKM3 and entering the material. plant 1000 has purchased material RH-3S-02 from plant 2000. The default is that all markups are assigned to a single cost component (e.g. The following options are available: • • • • • ROLLUP_COST_COMP_SPLIT: Control that the cost component split is also transferred across company codes in the legal view REVAL_MARKUP_AT_ACTUAL_COSTS: Control that the intercompany profit is calculated on the plan costs of the sender and not using the actual costs DISPLAY_COST_COMPONENTS: In transaction CKM3 (material price analysis). . In this example. control that all cost components not relevant to inventory valuation are displayed (and not just the cost component for the intercompany profit) GET_MARKUP_COMPONENT: Control that the intercompany profit is assigned to any cost component not relevant to inventory MODIFY_MARKUP: Calculate the intercompany profit in accordance with a separate algorithm Now let’s move on to the demo sequence in the material ledger. as required. plant. You may wish to use a BAdI implementation to determine how to handle the markups.

. the first difference you notice in Figure 8 is that instead of the receipt being labeled simply as a purchase order (i.e. Note the document numbers for these two lines.First.. Figure 8Sale of goods in legal valuation Now let’s look at the same material in the receiving plant (1000) in Figure 9. If you are an expert in the use of the material ledger. the bottom two lines). let’s look at the situation for the material in the supplying plant (2000). You also see the line Consumption for Next Level RH-3S-02/1000. you can see that two goods transfers have taken place for 6 kg and 5 kg of the material (i. If you look at the lines below. which represents the flow from the supplying plant to the receiving plant. the line title is Purchase order (grp) to indicate that the goods have been purchased from a plant in the same group.. This means that you can separate external and intercompany purchases at a glance.e. as if it came from outside the organization).

to see details.Figure 9Purchase of goods in legal valuation Starting at the bottom of the display. the supplying plant) to plant 1000 (i. the lower levels refer to another company — you only see these values in group valuation or as a delta value in the cost component split.e. double-click the goods receipt line for the 6 kg. two deliveries have been received: 6 kg were purchased directly from plant 2000 and 5 kg were transferred from a transit stock in plant 1000. Figure 10 shows the goods receipt from plant 2000 (i. Note that the document numbers are exactly the same as the ones in Figure 8.. you can see that two invoices have also been received.. the plant in the other company code). To see details of this posting. The twin lines in this document are important as the material ledger uses this link to determine which company has purchased goods from an affiliated company when rolling variances through the supply chain during multilevel price determination at period close. but in this scenario. . This is because the rollup of the price variances took place. Figure 11 shows that EUR 0 have been rolled up as price differences from the lower levels (i. but the value for this line is zero. the receiving plant). Figure 10Material ledger documents for goods receipt Returning to the Material Price Analysis screen. This has resulted in the creation of the Receipts from Lower Levels line.e. Again.e. You can see from the green status flags in the Period Status field in Figure 9 that the material ledger settlement has also been performed for the period. resulting in further variances (shown in the Price diff column).. double-click the Receipts from Lower Level line.

In other words. you created a cost component (310) to store the differences coming from the plant in the affiliated company. you see the breakdown of the actual costs into their cost components (Figure 12). you are seeing actual costs for material RH-3S-02 as if the supply chain were a single flow without the break for the intercompany transfer. however. you see the Delta Company Code column. . Note that this is in a different color to indicate the special nature of this cost component. If you now return to the Material Price Analysis screen (Figure 9) and switch to the cost components (View field)./Valuation field (Figure 9).06 is shown in the Receipts from Lower Levels line. but this time EUR 33. In Figure 13. To do this. they will not all be visible on the initial screen). This field stores the details of the intercompany markups or deltas from the other company code. If you now scroll to the far right (if you have a large number of cost components. This is because the price differences from the source plant have been rolled up and update the price and cost component split in the receiving plant during material ledger settlement. that when you configured the cost component split. Figure 12 Cost components in legal view with profit markup (delta company code) Observe Intercompany Sales from a Group Perspective Now let’s look at the same information from a corporate perspective. switch to the group valuation by choosing Group currency. group valuation in the Curr. you see the same five lines as in Figure 9.Figure 11Multilevel price determination in legal view Remember.

the legal view for each unit is extracted to the consolidation system and then the inter-unit eliminations are performed based on rules within the consolidation system. or an external tool. . note that owing to the highly sensitive nature of this information.Figure 13 Purchase of goods in group valuation Again. SAP Business Consolidation (EC-CS). However. double-clicking the Receipts from Lower Level line takes you to the results of multilevel price determination (Figure 14). Figure 14Multilevel price determination in group view The group view gives unequalled transparency into the costs in your supply chain. whether you consolidate in SAP BusinessObjects Planning and Consolidation. During consolidation. The first is that in group costing. Group Costing and Consolidation The process of eliminating intercompany profit markups is one of the main steps in the consolidation process. You can use authorization object K_TP_VALU to establish which users are authorized to view this information. This authorization object allows you to set per controlling area which users are allowed to see the group valuation view (VALUTYP = 1). but this time you can see that EUR 33. SAP BusinessObjects Financial Consolidation.06 have been rolled up from the plant in the other company. the group view (without the markup) is transferred to the other unit as the intercompany billing document is posted. It is thus immediately available to corporate controllers with the appropriate authorization. SAP Strategic Enterprise Management – Business Consolidation System (SEM-BCS). you should restrict access to the group valuation view. This approach differs from group costing in two important aspects. After six months of training on R/2. You may contact her via email at janet. with her husband and two children. helping numerous international organizations set up Product Costing. she has worked on CO content for SAP NetWeaver Business Warehouse.salmon@sap. and role-based portals. since there are legal requirements for your consolidated financial statements over and above the elimination of intercompany profit. Financial Analytics. regardless of their business. becoming a technical writer for the Product Costing area in 1993. while group costing gives you more transparency into your intercompany processes. must provide a consolidated view of all units. by its very nature. (A consolidation solution. it does not remove the need for a consolidation solution. The second is that a group costing solution is not necessarily global. she began to hold classes and became a product manager for the Product Costing area in 1996. Janet Salmon joined SAP AG in 1992. She is currently the product owner for management accounting in SAP ERP. . In short.) You might design your system to have separate controlling areas for strategic business units that do not have significant goods movements with other units belonging to the same organization. she began work as a translator. As English speakers with a grasp of German costing methodologies were rare in the early 1990s. More recently. She lives in Speyer.rather than being calculated during the consolidation process at period close.