Results Analysis: Principle

By: TED Delpriore

Posted on : December 22, 2009 Views : 221

Results Analysis can calculate the following values among others: Inventory values Reserves for unrealized costs Reserves for imminent loss Reserves for complaints and commissions Costofsale The results of Results Analysis are then settled to FI, CO-PA and PCA. You can also settle the following to Financial Accounting (FI) and Profit Center Accounting (CO-PCA): Inventory values Reserves for unrealized costs Reserves for imminent loss Reserves for complaints and commissions The cost of sale if you are using an unvaluated sales order stock and using the cost-of-sales accounting method in Financial Accounting. You can settle the following to Profitability Analysis (CO-PA): Cost of sale or calculated revenue Reserves for imminent loss and complaints The starting point for calculating accrual values is the calculation of a "percentage of completion" for the cost object. The period-based costs and revenues of the sale are calculated from the percentage of completion. If these values are settled to Profitability Analysis, the profit generated here will differ from the profit generated in FI and PCA. Stock and reserves are calculated in terms of the costs and revenue depending on the constellation of data. Then, stock and reserves are transferred to FI and PCA so that the profit generated there is the same as the profit in CO-PA. The system can carry out Results Analysis for cost objects automatically. Which Results Analysis method you choose depends on your business requirements. Different business objectives as well as different reporting rules for different business transactions mean that several methods can be used simultaneously. The Results Analysis method contains the rule for calculating Results Analysis data. Decision Criteria Different legal regulations in different countries determine whether unrealized profits can or cannot be capitalized. Forautomatic creation of reserves for unrealized costs or reserves for imminent losses plan costs are necessary. When should the stock and reserves be cancelled? Particularly regarding capitalizing unrealized profits, legal regulations and the applied valuation rules differ widely between different countries, such as between North America and Germany, but also alone between the HGB (German Commercial Code) and IAS/IFRS (International Accounting Standards/International Financial Reporting Standards). This situation demands different Results Analysis methods, which can be transferred parallel to Financial Accounting (but using different accounts). If you do not want to capitalize unrealized profits, use a Results Analysis method that can be used to create work in process. If you want to capitalize unrealized profits, use a Results Analysis method that can be used to create stock from which yield (revenue in excess of billings) can be generated. Some methods of creating work in process and creating revenue in excess of billings also allow automatic creation of reserves for unrealized costs or reserves for imminent losses. Example: Revenue-Based Method 2 examples using the same figures but different methods to calculate accrual values are provided to illustrate how Results Analysis works: the revenue-based and the cost-based method: The revenue-based method derives the percentage of completion (POC) from the relationship between actual and planned revenue. This means that actual revenue is assessed period-based correctly. The costs relevant to profit are calculated by multiplying the planned costs by the percentage of completion (POC): (K(pa) = C(p) x R(a) / R(p)). The corresponding stock and reserves are created: If the actual costs are greater than the costs relevant to profit, the system creates work in process If the actual costs are less than the costs relevant to profit, the system creates reserves for unrealized costs If you are using the revenue-based method with profit realization, the calculated cost of sales is zero as long as your actual revenue for the period is zero. The work in process then equals the actual costs of the period. This method provides you with the following capabilities: You can create reserves for unrealized costs You can create reserves for imminent losses You can use milestone billing You can report intermediate profits Example: You have planned revenue of 3,000 and costs of 2,000 for your sales order. You have actual costs of 1,000 but no revenue. During Results Analysis, the system calculates the following data: Revenue: 0 Cost of sales: 0 Costs to be capitalized in stock (WIP): 1.000. No line items are generated for CO-PA by settlement. You then settle the capitalized costs to FI and EC-PCA. On the basis of posting rules (which must be maintained in Customizing), settlement generates the following posting: WIP against inventory change account of 1,000. As the inventory change account is settled to the profit and loss account, actual amounts of 1,000 in profit and 1,000 in losses are generated on the profit and loss account. As in CO-PA, FI and PCA do not generate any profit. You have actual costs of 1,000 and actual revenue of 1,200. During Results Analysis, the system calculates the following data: Revenue: 1.200 Cost of sales: 800 Costs to be capitalized in stock (WIP): 200 Settlement settles revenue and cost of sales to CO-PA, which consequently generates a profit of 400. You then settle the capitalized costs to FI and PCA. Settlement generates the following posting: WIP account against inventory change account 200. As the inventory change account is settled to the profit and loss account, actual revenue of 1,200 plus 200 inventory change in profit, and actual costs of 1,000 in losses are indicated on the profit and loss account. As in CO-PA, FI and PCA generate a profit of 400. You have actual costs of 1,800 and actual revenue of 3,000. During Results Analysis, the system calculates the following data: Revenue: 3.000 Cost of sales: 2.000 Reserves for unrealized costs: 200 Settlement settles revenue and cost of sales to CO-PA, which consequently generates a profit of 1,000. You then settle the reserves to FI and PCA. Settlement generates the following posting: Inventory change account against reserve 200. As the inventory change account is settled to the profit and loss account, actual revenue of 3,000 is indicated in profit and actual costs of 1,800 plus the inventory change of 200 is indicated in losses by the profit and loss account. As in CO-PA, FI and PCA indicate a profit of 1,000. Example: Cost-Based Method The cost-based POC method derives the percentage of completion from the relationship between actual and planned revenue. This means that actual costs are assessed period-based correctly. The POC method differs from revenuebased Results Analysis particularly when actual costs have been incurred, but no revenue has been received. Profit-relevant revenue is calculated by multiplying the planned revenue by the percentage of completion (POC): (R(pa) =

R(p) x C(a) / C(p)). The corresponding stock and reserves are created: if the actual revenue is greater than the profit-relevant revenue, the system creates revenue in excess of billings, if the actual revenue is less than the profit-relevant revenue, the system creates revenue surplus. Example: You have planned revenue of 3,000 and costs of 2,000 for your sales order. You have actual costs of 1,000 but no revenue. During Results Analysis, the system calculates the following data: Costs affecting net income of the sale (cost of sale): 1.000 Revenue affecting net income: 1.500 Revenue in excess of billings: 1.500 Settlement settles revenue and cost of sales to CO-PA, which consequently generates a profit of 500. You then settle the capitalized costs to FI and EC-PCA. On the basis of posting rules (which must be maintained in Customizing), settlement generates the following posting: Inventory account against inventory change account 1,500. As the inventory change account is settled to the profit and loss account, actual amounts of 1,500 in profit and 1,000 in losses are generated on the profit and loss account. As in CO-PA, FI and PCA generate a profit of 500. Although no revenues have been received, profit has already been capitalized. You have actual costs of 1,000 and actual revenue of 1,500. During Results Analysis, the system calculates the following data: Costs affecting net income of the sale (cost of sale): 1.000 Revenue affecting net income: 1.500 Revenue in excess of billings: 300 Settlement settles revenue and cost of sales to CO-PA, which consequently generates a profit of 500. You then settle the capitalized costs to FI and EC-PCA. On the basis of posting rules (which must be maintained in Customizing), settlement generates the following posting: inventory account against inventory change account 300. As the inventory change account is settled to the profit and loss account, actual revenue of 1,200 plus 300 inventory change in profit, and actual costs of 1,000 in losses are indicated on the profit and loss account. As in CO-PA, FI and PCA generate a profit of 500. You have actual costs of 1,800 and actual revenue of 3,000. During Results Analysis, the system calculates the following data: Costs affecting net income of the sale (cost of sale): 1.800 Revenue affecting net income: 2.700 Revenue surplus: 300 Settlement settles revenue and cost of sales to CO-PA, which consequently generates a profit of 900. You then settle the capitalized costs to FI and EC-PCA. On the basis of posting rules (which must be maintained in Customizing), settlement generates the following posting: inventory change account against inventory account 300. As the inventory change account is settled to the profit and loss account, actual revenue of 3,000 in profit, and actual costs of 1,800 plus 300 inventory change in losses are generated on the profit and loss account. As in CO-PA, FI and PCA generate a profit of 900. Method without Planned Costs and Partial Billing "Inventory determination without planned costs and partial billing" provides a further example. If you use this method, the calculated cost of sales is zero as long as your actual revenue is zero. The work in process is equal to the actual costs during this time. If the actual revenue is not zero, the calculated cost of sales is equal to the actual costs. The work in process is canceled as soon as actual revenues are received. When you bill, it is no longer possible to activate work in process. The cost portion in stock is canceled when it achieves status TECO. Customizing for Results Analysis Which Results Analysis method you choose depends on your business requirements. A company will normally run different types of processing - and therefore use different methods of Results Analysis - simultaneously. The Results Analysis method contains the rule for calculating Results Analysis data. You can determine how accurately the system generates accrual values in Customizing. Simply choose one of the 17 pre-defined methods in "Non-expert mode". Further options are available in expert mode. In make-to-order production, the sales order item goes through several stages, which are represented by different statuses and lead to different results in Results Analysis. In the standard system there are three relevant system statuses: REL (released) FNBL (final billing) TECO (technically completed) In Customizing for Sales Order Controlling under Period-End Closing Results Analysis state:

At which status Results Analysis can be performed At which status the work in process is canceled (optional) At which status the work in process and reserves are canceled (optional) Results Analysis saves the Results Analysis data for the sales order item under secondary cost elements, which you assign in Customizing. To be able to pass theWIP and reserves to Financial Accounting, you must define posting rules in Customizing so that G/L accounts can be assigned to these secondary cost elements. When you select the line identification level, Results Analysis calculates separate values for each line ID. Under certain conditions, this method can result in one line ID showing work in process while another line ID shows reserves. If you select valuation at the totals level, the system calculates work in process, reserves for unrealized costs, reserves for complaints and commissions, and reserves for imminent loss for each order. These values are then distributed to line IDs according to a method of apportionment specified in the valuation method. The standard setting for apportionment is: Capitalized costs/work in process: cumulative actual costs Reserves for unrealized costs: difference between planned costs and cumulative actual costs Reserves for costs of complaints and commissions: difference between planned costs and cumulative actual costs Reserves for imminent loss: display of credit for stock which cannot be capitalized and stock with the option to capitalize. If a method of apportionment cannot be used, the system looks for an alternative method of apportionment. The system searches in the following order: Apportionment numbers (according to the number defined under "Update for Results Analysis") Cumulative actual costs Planned costs Apportionment numbers with apportionment numbers per line ID = 1 Settlement The results of Results Analysis are then settled to FI, CO-PA and PCA. You can settle the following to Financial Accounting (FI) and Profit Center Accounting (CO-PCA): Stock values Reserves for unrealized costs Reserves for imminent loss Reserves for complaints and commissions The cost of sale if you are using an unvaluated sales order stock and using the cost-of-sales accounting method in Financial Accounting. You can settle the following to Profitability Analysis (CO-PA): Cost of sales or calculated revenue Reserves for imminent loss and complaints During settlement to Profitability Analysis, the generated line item of the CO-PA can be valuated with the cost component split of the sales order cost estimate or with the cost component split of a standard cost estimate. If CO-PA is active, the settlement rule is automatically generated for the profitability segment when the sales order item is generated. If CO-PA is inactive, you can specify in the settlement profile that the sales order must not be settled. If you do settle, a posting to FI in accordance with the posting rules will be made. To use the settlement structure, you must first create cost element groups that aggregate the primary and secondary cost elements used for debit postings to your orders. In Customizing, you link the cost element group to the settlement structure with a settlement assignment. For each settlement assignment, you stipulate by receiver type whether the settlement will use the original posted cost elements or a designated settlement cost element. You might use settlement cost elements: To identify costs allocated from orders to receiver and to describe their purpose, such as repairs or maintenance To reduce data volume by consolidating several debit cost elements under one settlement cost element If you want to settle costs and revenue of a sales order item to a profitability segment, you must define a PA transfer structure, which assigns costs and revenue to the value fields in Profitability Analysis. The PA transfer structure consists of one or more items called PA settlement assignments. When defining the PA transfer structure, ensure that every debit cost element is represented in the settlement structure and can only be assigned to one settlement cost element. If you do not carry out Results Analysis, the posted actual costs and actual revenue of the sales order item will be settled to the profitability segment. The PA transfer structure must contain all cost elements under which costs and revenue can be posted on the sales order item.

Once you have carried out Results Analysis, the Results Analysis data (valuated actual revenue, cost of sales, and reserves for imminent loss) is settled to the profitability segment. In this case, the PA transfer structure must contain all Results Analysis cost elements under which data used in Profitability Analysis is posted. In Profitability Analysis (CO-PA), you can valuate documents by reading the cost of goods manufactured in the material cost estimates from Product Cost Planning. You do this by defining costing keys. Which costing key is used for a particular document can depend on when the document is valuated in CO-PA, the record type, the product sold, the material type of that product, or any other characteristic in your operating concern. The following steps in Customizing are necessary to set up valuation using material cost estimates in your system: When you maintain costing keys, you determine which cost estimates the system should read in Product Cost Accounting in order to valuate the data in CO-PA. Once you have done this, you can assign these costing keys to a product or material type. Alternatively, you can use the flexible assignment function to assign costing keys to any characteristics in your operating concern for valuation. You then need to use value field assignment to determine for each operating concern and at each point of valuation how the cost components in the cost component split are to be assigned to the value fields in CO-PA. This must be done for each relevant cost component split. Product Cost Planning is used to determine the planned cost of goods manufactured for a product. In Profitability Analysis (CO-PA), you can use these material cost estimates to valuate the data in CO-PA. These include cost estimates with and without quantity structures. With this function, you determine which cost estimates from Product Cost Planning should be used to value actual or planning data in CO-PA. You do this by defining costing keys. A costing key is a set of access parameters which are used in valuation to determine which data in Product Cost Planning should be read. Normally you need at least 2 costing keys. You use one costing key to valuate a make-to-stock process with a standard cost estimate and another to value a make-to-order process with a sales order cost estimate. The steps "Assign costing keys to products" or "Assign costing keys to material types" let you assign costing keys to individual products or material types. The product-dependent or material-dependent access of material cost estimates in Product Cost Accounting is not flexible enough for parallel use of make-to-stock and make-to-order scenarios. To meet this or other requirements, you can determine the costing keys using your own "strategy" for the flexible assignment of costing keys. Use this strategy to determine the costing keys, generally using user-defined assignment tables. As in characteristic derivation in CO-PA, you can also work with table lookups or your own customer enhancements when setting up the strategy. You can use the following methods to define a strategy: Table Lookup A table lookup allows you to access individual data records in any SAP table. You can transfer the contents of individual table fields to target fields of the type USERTEMP. The USERTEMP fields that have been filled by a table lookup can then be used in a subsequent strategy step as source fields for an assignment rule. In our scenario we will look up the requirement type of the sales order item to determine the process. User-Defined Assignment Tables As with the pre-defined assignment tables for products and material types, these user-defined assignment tables let you assign costing keys separately for each point of valuation, record type and plan version. We specify an userdefined assignment table to assign the requirement type to a costing key. Here you can assign the components of a cost component structure from Product Cost Controlling to the value fields of your operating concern. Note that you need to maintain separate value field assignments for each point of valuation in Profitability Analysis (CO-PA). You can separate cost elements into fixed and variable components before tranferring them to CO-PA. You can assign as many cost component as you wish (n:1 - relationship) to the same value field for each cost estimate. The values from these cost components are then added together in the value field. If you valuate using multiple material cost estimates simultaneously, the values of different cost components within the same cost estimate are aggregated and then entered in one CO-PA value field. However, value fields that already contain data from a previous cost estimate are not overwritten by a later cost estimate. Consequently, you should assign value fields in Customizing so that the values of different cost estimates are entered in different sets of value fields. You can assign up to six different value fields from your operating concern to each cost component in the cost component structure. These assignments are indicated by the value fields entered in the columns Field name 1 through Field name 6.