Professional Documents
Culture Documents
Spring, 2016
Controlling Management
Process of identifying,
measuring, analyzing, and
communicating information
for organizations goals.
4
Comparative Reporting
Liquidity
Calculation Retained
Financial Accounting (FI) Earnings
Balance
Report
Sheet
Income
External Statement
Reporting
Cost
Center
Reports
Product
Managerial Accounting (CO) Costs Profit
Reports Profit Margin
Center
Internal Reports
Reporting © SAP AG - University Alliances and
The Rushmore Group, LLC 2008. All
January 2008 rights reserved. 5
Fundamentals of Cost Management
• Internal (cost management) accounting
system and the external (financial) accounting
system are fully integrated.
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Cost Elements assigned in Prod Order
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Interrelated and Closely
Connected FI & CO
(FI) Transaction
Document Income Statement
Supplies Exp. Bank
Bal. Sheet
Amount
1000 1000
G/L Account #
Cost Center
1900012432 Financial Accounting
Cost Element
20000657 Controlling
© SAP AG - University Alliances and
The Rushmore Group, LLC 2008. All
January 2008 rights reserved. 8
Interrelated and Closely
Connected FI & CO
Cost Center
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Fundamentals of Cost Management
• Cost object is a classification of costs desired by the
user. It could be a cost center (a department where the
cost is incurred), a production order (costs to produce unit
10004232), or a special project (installation of an ERP
system), etc.
1. Executives
2. Senior Management
3. Department Managers
4. Controllers
5. Cost Accountants
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Controlling Accounting Terminology
Controlling Area
1. A self-contained, organizational element for
managerial accounting and reporting system.
2. A controlling area is the highest level organizational
entity within the Control module
3. A controlling area may include one or more
company codes; therefore, an enterprise can perform
management accounting analyses and reports across
several companies
4. Each company code can be assigned to one and only
one controlling area
5. A way to identify and track where revenues and costs
are incurred for evaluation purposes
6. A controlling area is also broken down into two different
“standard” hierarchical structures:
1) standard cost center hierarchy; and
2) standard profit center hierarchy 12
Subcomponents of Controlling
Accounting
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1. Cost Element Accounting
1.1 Cost Elements
Cost and revenue accounts within a chart of
accounts but involved in cost accounting are
referred to as “elements,” which are further
divided into
• primary cost elements,
• primary revenue elements, and
• secondary cost elements
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Cost Element Accounting
1.2 Primary Cost and Revenue Element
• Primary cost and revenue accounts are created
in the FI module first, then the primary cost
and revenue accounts created in CO module
with the same numbers. The primary cost and
revenue accounts/elements are used in the FI
and CO modules to account for cost and
revenue flows with parties external to the
organization.
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Cost Element Accounting
1.3 Secondary Cost Element
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2. Cost Center Accounting (CCA)
1) Cost center accounting (CCA) module is used to
assign planned costs and actual costs incurred to
areas of cost responsibility within an organization.
For example, if a manager wants to know how much it
costs to run his department for the month of April, this
module can be used to provide the answer.
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2. Cost Center Accounting
2.1 Cost Centers
• Cost center is created for internal controlling purposes and
provides a tool for collecting costs. It may be a unit
distinguished, for example, by area of
responsibility, location, or type of activity, such as
• Copy center, Security department, Maintenance department
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2. Cost Center Accounting
2.2 Activity
• Any event, action, or transaction that causes a
cost to be incurred in the production of a
product or the providing of a service.
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2. Cost Center Accounting
2.3 Activity types
• Activity types are production or service activities
rendered to a work center or cost center that are used
to allocate costs.
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2. Cost Center Accounting
Activity types (-continued)
• Cost center in which the activity is performed is
referred to as the “sender,” and the cost objects
receiving the allocated costs are called “receivers.”
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2.Cost Center Accounting
2.4 Cost Drivers
• A cost driver is a factor, such as machine
hours, beds occupied, computer usage
time, flight hours, or any other factor that
causes overhead costs.
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2. Cost Center Accounting
2.5 Product Costing (PC)
• Product costing (PC) is a CO module function which
provides the means for developing different types of cost
estimates for a particular product or subassembly, such as
current (standard cost), future cost, previous cost
estimate. These estimates may be used for a variety of
purposes, including product pricing, production planning
and control, inventory valuation, and income measurement
(cost of goods sold).
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2. Cost Center Accounting
2.6 Activity Based Costing (ABC)
• Activity based costing (ABC) module provides the
means for assigning planned costs and actual costs
incurred at the cost center level to business processes.
The costs assigned to a business process can in turn be
allocated to those cost objects (products, services,
customers, etc.) that utilize the business process.
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2. Cost Center Accounting
2.7 Work Center
Work centers are organizational units that perform
operation functions within a plant.
• A work center might include a production line, quality
checkpoint, packaging line, and warehouse. For each
operation created in a routing, a work center must be
identified. All manufacturing processes are routed
through work centers.
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2. Cost Center Accounting
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3. Internal Order
• A method of internal cost allocation by which valuated
activities from cost centers can be assigned to cost
receivers in accordance with the cause of the cost.
• The activities or allocation bases represent the output
of a cost center (such as production hours or machine
hours).
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4. Profit Center Accounting (PCA)
Profit center accounting is used to analyze
income and expenditure for profit centers
that represent an independent subunit
within an organization.
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Controlling Management
SAP Implementation
Controlling (CO)
R/3
Production Fixed Assets
Planning Mgmt.
Human
Integrated Solution
Project
Resources Client / Server System
Quality Open Systems
Management Workflow
Plant Industry
Maitenance Solutions
Components of Managerial
Accounting
Internal
Orders
Cost
Profitability
Element
Analysis
Acct
Activity
Controlling Based
(CO) Cost
Costing
Profit
Center Center
Acct Acct
Product
Cost
Controlling
FI CO MM PP SD
Rules
CO
FI
MM/PP
CO
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Organizational Structure
Client (620)
CO
Master Data
CO
Total Costs
Internal Order
Wages Utilities Materials
Settlement
Financial
Controlling
Accounting
Income Balance
Statement Sheet
Revenue
Accounts
© SAP AG - University Alliances and
The Rushmore Group, LLC 2007. All
January 2008 rights reserved. 44
Statistical Key Figures
• Provide the foundation for accurate and
effective cost allocations between cost
objects
Cost
Center Maintenance
10 Hours
Activity Department
(20 Hours)
Information Services
4 Hours
Department
Income Balance
Statement General Ledger Sheet
Account Account Posting Account
Cost CC 2
Center Secondary
A CC 3
Cost Element
CC 4 January 2008 48
Secondary Cost Elements
(continued)
Cost Center 2
Rent Expense
Debit Credit 1,750
1,500 Cost Center A
Cost Center 3
Supplies Expense 1,500
Debit Credit Sec. Cost Element
2,500 2,000
2,500
2,000
Labor Expense
Cost Center 4
Debit Credit
2,250
2,000
Allocation from CCA to CC2, CC3, and
CC4 is based on headcount: CC2: 7, 49
CO
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Cost Accounting Allocation
Posting Types of Cost Allocation (-
continued)
• In Percentage Allocation, the amount that is to be
allocated is split up among multiple cost centers based on
a predetermined percentage.
• For instance, assume that there are two services, and 70%
of the cost is to be assigned to one service, while 30% is
assigned to the other. In addition, the total costs to be
allocated equal $2,500. Because the first service is to be
allocated 70% of the cost, it will be allocated $1750.
Likewise, the second service which is to be allocated 30%
of the cost will be allocated for the remaining $750.
.
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Cost Accounting Allocation
Posting Types of Cost Allocation (-
continued)
• Statistical Key Figures (SKFs) are used in the ERP system
to allocate costs from a service department to a user
department at the closing of a period. These cost drivers,
which are often referred to as tracing factors, are used in
allocation methods that do not involve the explicit
development of activity (transfer) prices.
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Types of Allocations Cycles
Distributions – primary cost elements
Assessments – combination of primary
and/or secondary cost elements
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Receiving
Distribution Cycle cost centers
Sending
cost center
Primary cost
element A005 – 400
maintains its D010 – 550 sq ft
sq ft
identity
A010 – Administration A010 – 600
Rent Expense Distribution sq ft
D005 – 900
$1,500 sq ft
A015 – 150
sq ft
A020 – 100
sq ft
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Distribution Cycle Receiving
cost centers
Sending
cost center
Primary cost
element A005 –
D010 – $200
maintains its $275
identity
A010 –
A010 – Administration
$300
Rent Expense Distribution D005 –
$1,500 $450
A015
A020 $75
$50
S010 – $50 S005 –
$100
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Assessment Cycle
A method of allocating both primary and
secondary cost elements
Primary and/or secondary cost
elements are grouped together and
transferred to receiver cost centers
through use of a secondary cost element
Sender and receiver cost centers are fully
documented in a unique Controlling (CO)
document
D010 – 10%
Primary and A005 – 15%
secondary
A020 – IT cost elements A010 – 5%
Software Expense D005 – 20%
$4,200 A015 – 10%
Assessment
A020 – IT A020 – 0%
Supplies Expense S010 – 10%
$500 S005 – 30%
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Assessment Cycle Receiving
cost center
Sending
cost center
Primary and
secondary A005 – $705
cost elements D010 – $470
A020 – IT
Software Expense A010 – $235
$4,200 D005 – $940
Assessment A015 – $470
A020 – IT A020 –$0
Supplies Expense
$500 S010 – $470
S005 – $1,410
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Lab 4-1 Exercises: (Due date 2/24/2016)