Transfer Prices

Transfer Prices in Release 4.
SAP AG D40TP (S. Kraus) 17.11.1997/Introduction
Target Audience
Course participants
Project members implementing SAP R/3 in a group
SAP consultants and partners who work with groups
Requirements
Thorough understanding of the integrated value flows in MM, PP, FI, CO and EC-PCA Hands-on experience of the SAP R/3 System
Length of course: 1 day
Overview
1. 2. 3. 4. 5.
Introduction Basic Principles of the SAP Transfer Price Solution Transfer Prices in Profit Center Accounting
Implementation of Transfer Prices in R/3 Components
Posting Examples using Parallel Values
Overview
1.
Introduction Basic Principles of the SAP Transfer Price Solution Transfer Prices in Profit Center Accounting
2.
3.
4.
5.
Implementation of Transfer Prices in R/3 Components Posting Examples using Parallel Values
Characteristics of Group Structures

Stronger division of tasks among companies in group Complex value-added chains International cooperation
Decentralization of responsibilities => Analysis of transfers from different points of view is crucial to success.
Parallel Valuation Views in SAP R/3 Release 4.0A
Group
Group
Comp1 Comp2
Legal
Profit Center
Comp3
Comp4
Profit Center 1
Profit Center 2
Definitions
A transfer price is an agreed value for the purpose

of valuating transfers of goods and services between organizational units.
Purposes of Transfer Prices

optimize tax payments and distribution of profits
calculate the profit or loss of organizational units

coordinate and guide unit managers enable cost estimates to be used as basis for decisions affecting the entire group
Valuation Views
Legal
Transfers of goods and services between independent legal units in accordance with their legal obligation to provide individual financial statements. From Release 4.0 transfers of goods and services can also be valuated using group production costs, i.e. from the point of view of the group as an entity. In this method internal profits are eliminated. In addition, internal transfers of goods and services between profit centers in EC-PCA can be valuated with a price for management purposes. This enables management to calculate internal profits and better control business operations.
Group
Profit Center
Definition: Transfer Prices in SAP R/3

Group 1 Organizational units
ECPCA
Profit center
2
CO
3
FI
Controlling area
Legal units (Company codes)
(1) Transfer price from group point of view = group prod. costs (2) Transfer price from profit center view = management price (3) Internal price for activities exchanged between cost centers (4) Transfer price from legal point of view = sales and purchase price
Illustration of Need for Parallel Approaches
Raw materials
Semi finished product
Cost center Finished products Distribution center Sales order
Prod.order
Prod. order
Illustration of Need for Parallel Approaches

Raw materials Semifinished product Cost center Finished product Distribution center Sales order
Prod.order
Prod. order
Company Code 1 PrCtr1 PrCtr2 L G P 70.70.75.-
Company Code 2 PrCtr3 100.L 120.G 90.P 140.-
Company Code 3 CCtr 20.PrCtr4
75.-L G P 70.70.70.-
- +
L G P 70.70.75.-
120.-
L 120.G 90.P 140.-
220.240.-
L G P
220.90.240.-
Assumption: Plan = Act => No variance
Overview
1. 2. 3. 4. 5.
Introduction Basic Principles of the SAP Transfer Price Solution
Transfer Prices in Profit Center Accounting
Quantity and Value Flows

ECPCA
Profit Center 1
Profit Center 2
Overhead costs
Cost element accounting
V A L U E
F L O W
FI
COOM
Order
COPA Process
Overhead Cost Controlling

COPC
Profit. Analysis
Direct costs
Cost Object Controlling
Business process + data
Purchase
Produce
Transfer
Sell, Bill
Parallel Value Flows in Accounting

ECPCA
Profit Center 1
Profit Center 2
Overhead costs
Cost Element Accounting
V A L U E
F L O W
or COOM
Order
or
FI
Consumption L 100.G (80.-) P (150.-)
COPA Process
Overhead Cost Controlling

COPC
Profitability Analysis
Stock L 100.G 80.P 120.-
Direct costs
Cost Object Controlling

Stock L 100.G 80.P 120.-
Material Ledger
Additional Dimension: Valuation View

The currency and valuation profile determines which valuation views are to be stored with which currencies in the system.
Valuation view
Leg.
10
Legal Group PrCtr
0 1 2
X
Grp
30
X X
30 PrCtr.
10
20
30
Currency types
Company code currency Controlling area currency Group currency ...

Rule I:
Parallel Value Flows in Accounting
The valuation approaches defined in the currency and valuation profile are stored in parallel in the system. A maximum of 3 parallel valuation views in 2 currencies can be stored in the system!
Rule II:
The valuation of stock occurs in parallel!

The Material Ledger is the subledger for materials and stores parallel stock values.
Stock valuation is carried out in the SAP system at plant or company code level.
Stocks of a material in the same plant belong to the same profit center.
Rule III:
No change to posting rules!
Parallel values are posted to the same accounts in additional data fields. Additional accounts are only necessary in exceptional cases: - To balance accounts payable and accounts receivable - For internal revenue und costs In 4.0A, parallel values can only be stored for the transfer of goods but not for services!
Scenarios: Parallel Valuation Approaches in R/3

Profit Center Accounting
ECPCA Curr. PrCtr
or
Curr. Grp
or
Curr. as in 3.0 Leg.
Financial Accounting
Curr. Leg.
Controlling
COOM
COPC
Curr. Leg. Curr. Grp Curr. PrCtr
Oblig. Opt.
FI
Curr. Grp Curr. PrCtr
see version concept
COPA
Curr. Leg. Curr. Grp
Opt.
Material Ledger
Curr. PrCtr
Oblig.
Curr. Grp
Opt.
Curr. Leg.
Opt.
Scenario: US Model
ECPCA Curr. Grp
Curr. Leg.
Controlling
COOM
COPC
Curr. Grp
FI
Curr. Grp
Operative version
COPA
Curr. Leg. Curr. Grp
Curr. Leg.
Material Ledger
Curr. Grp
Curr. Leg.
Scenario: Profit Center Model

ECPCA Curr. PrCtr
Controlling
COOM
COPC
Curr. PrCtr
FI
Curr. Leg.
Operative version
COPA
Curr. Leg.
Curr. PrCtr
Curr. Leg.
Material Ledger
Curr. PrCtr
Curr. Leg.
Restrictions I
... General

Services can only be allocated in one valuation. In Release 4.0A transfer prices can only be implemented by new customers. Productive customers should contact SAP directly.
... In Financial Accounting
Parallel valuations must be posted in MM and the Material Ledger. In Release 4.0A the transfer price concept does not allow manual entries or corrections to parallel valuations.
Restrictions II
... In Cost Object Controlling
In Release 4.0A group costing can only be implemented within a single controlling area. Parallel valuations cannot be stored for the purposes of maketo-order production. This affects
valuated sales order stock nonvaluated sales order and project stock.
To calculate WIP at target costs during periodic settlement, the operative version must contain the legal valuation.
Restrictions III
... In Profitability Analysis
In Profitability Analysis only sales between company codes are documented. The profit center valuation view will be fully supported as of Release 4.0C.
... In Materials Management/Purchasing
The transfer of parallel values during invoice verification is only possible in logistics invoice verification. Goods-receipt-based invoice verification is not supported in Release 4.0A. Parallel values can only be transferred between company codes via ALE and EDI interfaces, even if the company codes are in the same system.
Overview
1. 2. 3. 4. 5.
Valuation Approaches in Profit Center Accounting

In Customizing for Profit Center Accounting you decide which valuation approach (legal, group or profit center) you want to store. If you choose...
the legal view, all goods movements will be posted between profit centers using the legal valuation approach with no transfer price surcharge (as in Release 3.0).
the group view, all goods movements will be depicted in EC-PCA using the group production costs (new in Release 4.0). the profit center view, each profit center will be treated as an independent company for the purposes of payment. That means that all goods movements are valuated with an internally set value (transfer price) if the movement crosses profit center boundaries.
Possible Valuations in EC-PCA
Profit Center 1
Profit Center 2
Internal revenues
Internal costs
FI/CO
Parallel value flow
Logistics
Quantity flow
Transfer Prices from the Profit Center View

Example: Profit Center Valuation Profit Center 1 Profit Center Accounting
150.Calculation of transfer price
Profit Center 2
Raw materials
Production order
120.FI/CO
150.-
Parallel value flow
Logistics
Quantity flow
Posting Example: Material Consumption

Profit Center 1 Profit Center Accounting
150.-
Profit Center 2
Internal revenue -150.Internal change in stock + 120.Stock - 120.-
Consumption Raw materials
150.-
Raw materials
Production order
120.FI/CO
150.-
Parallel value flow
Logistics
Quantity flow
Calculating Transfer Prices (Using Conditions)

Pricing Procedure describes the logic used in calc.
Ex. market prices percentage increase on costs quantity-dependent increase on costs
Condition types Ex. percentage increase
Access sequence: Transfer price calculated

Plant Material Plant Receiver ....
Examples for Calculation of Transfer Prices

Transfer price calculation
Sender plant, Material, PrCtr, Receiver PrCtr
Plant 0001 0001 ... Plant 0001 0002 ... Plant 0001 ... Material M4711 M4712 S-PrCtr P1 PA R-PrCtr P2 PB
Transfer price
Transfer price (fixed price) 1200 USD 1500 USD
Product group A B
S-PrCtr P1 PA
R-PrCtr P2 PB
TP surcharge 5% 6.25%
Product group C
TP surcharge 5.5%
Important:
Goods movements can be valuated in Profit Center Accounting with a special transfer price
=> Profit centers calculate their profit like individual companies (using internal revenues and costs) => Internal accounts payable and accounts receivable will not be balanced by payments and are therefore not posted.
=> The posting lines generated in Profit Center Accounting can also be posted in Financial Accounting if necessary.
Overview
1. 2. 3. 4. 5.
Parallel Valuation Approaches for Material Stock

Material P-100
Cost estimate for material
Material Master
Plant 1000 Quantity: 1200 units Value : 24,000
Inventory management
Invoice verification Delivery and settlement of production orders
Material Ledger
Curr. Leg.
Financial Accounting Information systems in Logistics and Controlling
Curr. Grp
Curr. PrCtr
Parallel Values in Product Cost Planning
COPC
Controlling area
Material Activity Overhead Profit St.price
Legal costing
DEM
1000.00
100.00
100.00
1200.00
Material (Prod.) Legal
Group costing
USD 170.00 50.00 50.00 207.50 270.00
Group
Profit center costing

USD
400.00
50.00
50.00
500.00
Profit center
Background to Group Costing

Member of grp: Company A
Group = St. costing
Member of grp: Company B

Grp costing St. costing
Member of grp: Company C

Grp costing St. costing
Group costing
Broken down Total
DCA
POHA FOHA
DCA
POHA FOHA
DCA
POHA FOHA
DCA
DCB DCC DCC
POHA FOHA POHB FOHB POH FOH POHC FOHC
DC
DCB PA PA
DCB POHB FOHB POHB FOHB
PA DCB
POHB FOHB
PB
Key: DC POH FOH P Index A, B, C
PB
PB DCC
PA PB PC P
= = = = =
Direct costs Prop. overhead costs Fixed overhead costs Profit (Revenue ./. Full costs) Company A, B, C
POHC FOHC POHC FOHC
PC
PC
Group Costing in Release 4.0

Group
Company A Profit Center1
Finished Product
Company B Profit Center2 Semi-Fin.Prod. Profit Center3
Raw Material
Raw Material
Reporting - Group View
Material number + 08123 + 47-123548585 - 5967-0956/434 + Company code 0001 + Company code 0002 - Company code 0003 ... Profit center PC - 1 Profit center PC - 3 Profit center PC - 5 Profit center PC - 9
Material 30,000 45,000 54,000 12,500 20,000 21,500 10,000 9,000 500 2,000
Production 34,400 47,000 63,900 13,500 22,500 27,900 11,000 15,000 900 1,000
Profit 4,400 2,000 9,900 1,000 2,500 6,400 1,000 3,000 400 2,000
...
Parallel Value Flows in Procurement and Sales

Company A IDOC Company B Stock transport order
Goods issue and invoice issue
Goods receipt and invoice receipt
PrCtr1
PrCtr2
Sale within group

100.-
PrCtr3
- +
L G 70.70.-
120.-
L
G P
100.70.120.-
75.-
Using Transfer Prices in FI

In FI, the different valuation approaches are stored in the old currency fields and updated in the general ledger.
Company code
FI
Currency and valuation profile

Currency Valuation
Group Local currency currency
FI doc.
. .
General ledger
10
X
30
- curr1 - curr2 - curr3
Legal
Group PrCtr
X X
Posting Logic in FI
Sample posting: Sale of products between company codes
FI
Goods issue
Cost of sales L 50.G 40.Stock L G 50.40.-
Goods receipt
Stock L 80.G 40.GR / IR L G 80.40.-
Billing document
Acc. Receiv. L 150.G 150.Key L - Legal G - Group P - PrCtr
Invoice receipt
GR / IR L 80.G 40.Sales tax L 20.K 20.I/C Profit L G 90.L K
Revenues L G 130.40.-
Supplier 150.150.-
I/ C Profit L G 90.-
Sales tax
L G
20.20.-
Price diff. L 50.G
Account Categories from the Point of View of Parallel Valuation

FI
Accounts with parallel valuation

Cost of Sales L 50.G 40.-
Revenues L 130.G 40.-
Stock L 50.G 40.GR/IR L 80.80.G 75.75.-
C onsumption L 50.G 40.-
Price difference L 50.G
Internal WIP L 50.G 40.-
Accounts without parallel valuation

Receivables L 165.G 165.Sales tax L 20.G 20.-
Accounts payable L 150.G 150.-
Accounts for balancing accounts

I/C Profit L G 90.-
Transfer Prices in AA: Settling an Order to an Asset
IM
Settlement to asset
AA
Cap. invest. order L 50.G(40.-) P (60.-)
Depreciation areas
Curr. type Area
50.50.50.-
01 11 21
01 31 32
Parallel Versions in Controlling

Profit Center 2 Profit Center 1
Material Legal Group PrCtr 500 USD 400 USD 600 USD 500 USD -300 400 USD operative 700 USD Material 70 USD 70 USD 70 USD Mat. overhead Production order
Transfer price 700 USD
Using Transfer Prices in CO/Version Concept

In CO the different valuation approaches are stored in up to three different versions. Two currencies can be stored in the system at the same time.
CO Controlling area
Currency and valuation profile

Currency Valuation
Group Local currency currency
Operational version (000)
Choice of valuation view PrCtr
CO data Curr1 Curr2

10 P P 10 30 30
10
X
30
Legal
Group PrCtr
Legal
X Group X
10 . G .
30 . G .
Parallel Values in Controlling

PrCtr 1 Cost center COOM PrCtr 2 70 USD -70 USD Operational version Internal order
10 %
(Additional) Legal view (Additional) Group view Base for overhead 500 USD 400 USD 600 USD
Material Legal Group PrCtr
500 USD
400 USD
70 USD
70 USD
70 USD operational
Transfer price 700 USD
700 USD Material
Mat. overhead
Production order
Using Transfer Prices in CO-PA (Release 4.0A)

Example: Value fields
Sales are documented from the point of view of the company code in CO-PA.
Internal sales between profit centers will be supported from Release 4.0C. Legal values and group values can be stored in parallel value fields.
Revenue Sales ded. Prod. costs
Legal
Group
Legal Legal
Group
Variance
Legal
Group
Overhead
Legal
Group
Depending on the operative version in Controlling, the legal OR the group view is used.
Overview
1. 2. 3. 4. 5.
Introduction to the Posting Examples

The following valuation approaches are shown in the example: Currency and valuation profile
Currency Valuation
Local Group currency currency
Maximum solution in posting example

Profit Center Accounting P
ECPCA COPA
FI
Controlling L. G
COOM COPC
Legal
Group
X X X
L . operational G
L. G
P
L. K P
PrCtr
Material Ledger
Conventions for the Examples

Posting lines in Profit Center Accounting
ECPCA
F l o w o f v a l u e s
Internal WIP P 120.-
FI
Account L 100.G (80.-) P (150.-)
Postings in FI L = Legal G = Group P = Profit center
COOM
Postings in CO
COPC
COPA

Processes + data
Example: Values Posted in Release 3.0

PrCtr 2
Consumption L 60.-
ECPCA
FI
COOM
COPA
Consumption L 60.-
COPC
Production order
Consumption L 60.-
Stock L
60.-
PrCtr1
Stock L 60.-
Material withdrawal
PrCtr2 Production order

Consumption L 60.-
Material Withdrawal for Production Order

PrCtr 1
Int. change in stock P 120.Stock P
Price => 150.00 USD

Internal revenues P 150.120.Usage raw mat. P 150.-
PrCtr 2
ECPCA
FI
Usage rawmaterial L 100.G (80.-) P (150.-)
Stock L G P
EC-PCA
Internal revenues L G P 150.Int. change in stock L G P 120.-
COOM
COPA
COPC
Production order
Usage raw mat. L 100.G 80.P 150.-
100.(80.-) (120.-)
PrCtr 1
Material stock L 100.G 80.P 120.-
Withdrawal for production order

Transfer price = 150.00
PrCtr 2
Production order
Usage raw mat. L 100.G 80.P 150.-
Activity Allocation to a Production Order

PrCtr 1
Activity allocation P 600.-
PrCtr 2
Activity allocation P 600.-
ECPCA
FI
COOM
Cost center
Activity allocation L 600.G 600.P 600.COPC
COPA
Production order Activity allocation

L 600.G 600.P 600.-
PrCtr 1
Cost center
Activity allocation L 600.G 600.P 600.-
PrCtr 2 Activity allocation (10 PC * 60.00 USD)

Production order
Activity allocation L 600.G 600.P 600.-
Work in Process
ECPCA
Stock WIP P 750.-
Changes WIP P 750.-
FI
Stock WIP L 700.G(680.-) P (750.-)
Changes WIP L 700.G (680.-) P (750.-)
COOM
COPA
COPC
Production order
Production costs L 700.G 680.P 750.-
PrCtr 1
Calculation and settlement of work in process
FI document
Delivery to Stock (within one plant)

PrCtr2
P Plant activity acc. 600.-
ECPCA
FI
Stock finished goods L 500.G (400.-) P (600.-)
COOM
COPA
COPC Production costs Delivery at standard prices
Plant activity acc. L 500.G ( 400.-) P (600.-)
Production costs L 700.G 680.Plant activity acc. P 750.L G P 500.400.600.-
Production order
PrCtr 1
Production order
Delivery to stock
PrCtr 1
Stock finished gds L 500.G 400.P 600.-
Stock Transfer Between Profit Centers

PrCtr 1
Int. change stock P 60.Stock P
Price = > 100 USD

Internal revenues P 100.60.Stock P 90.Price difference P 10.-
PrCtr 2 opt.
Deliv. from other PC P 100.Int. changes stock P 100.-
ECPCA
FI
Stock tock Plant Plant 2 2 L 80.G (40.-) P (90.-)
EC-PCA
Internal revenues L G P 100.-
COOM
COPA
Stock Plant 1 L 50.G (40.-) P (60.-)

Price difference L 30.G P (10.-)
Deliv. from other PC L G P 100.Int. Changes Stock L G P ( 60.-) (100.-)
COPC
Plant1/ PrCtr 1
Material stock L 50.G 40.P 60.-
Plant2/ PrCtr 2 Stock transfer

Price = 100 USD
Material stock L 80.G (40.-) P (90.-)
Primary Posting to Cost Center

PrCtr 1
Consultant's bill P 200.-
PrCtr 2
ECPCA
FI
Consultant's bill L 200.G 200.Supplier L G P 200.200.200.-
COOM
Cost center
Consultant's bill L 200.G 200.P 200.-
COPA
COPC
PrCtr 1
Consultant's bill L 200.G P
PrCtr 2
Primary posting to cost center
Cost center
Consultant's bill L 200.-

Transfer Prices

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Transfer Prices in Release 4.

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Project members implementing SAP R/3 in a group

SAP consultants and partners who work with groups

Length of course: 1 day

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Implementation of Transfer Prices in R/3 Components

Posting Examples using Parallel Values

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Characteristics of Group Structures

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Parallel Valuation Views in SAP R/3 Release 4.0A

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

A transfer price is an agreed value for the purpose

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Purposes of Transfer Prices

calculate the profit or loss of organizational units

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Definition: Transfer Prices in SAP R/3

Legal units (Company codes)

Illustration of Need for Parallel Approaches

Semi finished product

Cost center Finished products Distribution center Sales order

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Illustration of Need for Parallel Approaches

Company Code 1 PrCtr1 PrCtr2 L G P 70.70.75.-

Company Code 2 PrCtr3 100.L 120.G 90.P 140.-

Company Code 3 CCtr 20.PrCtr4

L 120.G 90.P 140.-

Assumption: Plan = Act => No variance

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Transfer Prices in Profit Center Accounting

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Quantity and Value Flows

Cost element accounting

Overhead Cost Controlling

Cost Object Controlling

Business process + data

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Parallel Value Flows in Accounting

Cost Element Accounting

Consumption L 100.G (80.-) P (150.-)

Overhead Cost Controlling

Stock L 100.G 80.P 120.-

Cost Object Controlling

Business process + data

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Additional Dimension: Valuation View

Legal Group PrCtr

Company code currency Controlling area currency Group currency ...

Parallel Value Flows in Accounting

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

The valuation of stock occurs in parallel!

No change to posting rules!

Scenarios: Parallel Valuation Approaches in R/3

Curr. as in 3.0 Leg.

Curr. Grp Curr. PrCtr

see version concept

Curr. Leg. Curr. Grp

SAP AG D40TP (S. Kraus) 17.11.1997/Introduction

Curr. Leg. Curr. Grp