SAP CO Module Introduction The SAP CO (Controlling) Module provides supporting information to Management for the purpose of planning,

reporting, as well as monitoring the operations of their business. Management decision-making can be achieved with the level of information provided by this module. Controlling provides you with information for management decision-making. It facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization. As well as documenting actual events, the main task of controlling is planning. You can determine variances by comparing actual data with plan data. These variance calculations enable you to control business flows. Income statements such as, contribution margin accounting, are used to control the cost efficiency of individual areas of an organization, as well as the entire organization. Controlling (CO) and Financial Accounting (FI) are independent components in the SAP system. The data flow between the two components takes place on a regular basis. Therefore, all data relevant to cost flows automatically to Controlling from Financial Accounting. At the same time, the system assigns the costs and revenues to different CO account assignment objects, such as cost centers, business processes, projects or orders. The relevant accounts in Financial Accounting are managed in Controlling as cost elements or revenue elements. This enables you to compare and reconcile the values from Controlling and Financial Accounting. Some of the components of the CO(Controlling) Module are as follows: Cost Element Accounting Cost Center Accounting Internal Orders Product Cost Controlling Profitability Analysis Profit Center Accounting

Controlling Area Organizational unit in an organization that represents a closed system used for cost accounting purposes. Cost accounting in the system also has the task of identifying the costs incurred in subareas of the company and tracing the cost flows. The system provides complete information on the costs for all types of account assignment objects (such as cost centers, orders, and projects). A controlling area may contain one or more company codes, which can operate in different currencies, if required. The company codes within a controlling area must all use the same operational chart of accounts. All internal allocation transactions refer only to objects from the same controlling area. Internal business transactions are portrayed in the controlling area. Primary costs are transferred from external accounting and classified according to managerial accounting perspectives. If the primary costs are direct costs, then they are assigned to cost objects. If they are overhead costs, then they are assigned to cost centers or overhead cost orders. The system then allocates them using internal allocation techniques, according to their source. When you create master data, the system always assigns the Controlling objects to a controlling area and a company code. The level of detail provided by the Controlling component enables you to track specific information for cost monitoring, business decisions and sales control. For example, the Controlling component contains subdivisions such as cost centers and internal orders in addition to accounts.

Cost Element Accounting (CO-OM-CEL) Cost Element Accounting is the area of cost accounting where you track and structure the costs incurred during a settlement period. It is thus not an accounting system as such, but rather a detailed recording of data that forms the basis for cost accounting. In SAP system, you do not need to enter cost data separately. This is because each business transaction that involves costs updates the CO component with detailed information on the cost element and on the account assignment object itself. Each consumption transaction in Material Management (MM), each billing in Sales and Distribution (SD) (= revenue), and each external transaction for invoice verification flows directly through the G/L Account (= cost element) to the corresponding account assignment object. Primary and secondary cost elements Primary cost elements are like materail costs, personnel costs, energy costs... where a corresponding GL account exists in FI..to allow costs to flow... Secondary cost elements are like production costs, material overheads, production overheads, they can be created and administered in only CO. These are used in internal cost allocation, overhead calculation, settlement transactions., it does not flow to FI... Basically, cost element are carriers of costs. Primary Cost Element -------------------------------When cost element carriers cost between FI and CO they are called Primary, the link is established GL A/c = Cost element(Primary). A question may arise as to whether all GL accounts are cost element, it again depends upon the business requirement. Entry while booking expenses Travel Expenses A/c - with Cost Centre Dr. Rs.YY (will be a GL A/c and cost element) - entries flows to CO thru FI To Cash A/c Cr. Rs.YY Secondary Cost Element ------------------------------------When cost element carries cost with in CO, then they are called secondary cost element. Example.... - Product Costing --------------------------------------------------On manufacture of the goods the cost of the above product (production order) is arrived at accumulating material cost + operational cost + overheads (%), additive cost if any. The cost of operation is accumulated in cost centre be it production / production service / service cost centres, while booking FI entries. Those operational cost has to be allocated to production order based on operational activities carried on and its cost involved in it. Those operation activities in CO are termed as activity types and has to link the same in KP26 with rates and cost centre (ie., sender cost centre and receiver production order). In order to find the production order cost, the allocation of cost from sender cost centre to production order for the operational activities carried on and its cost associated with it, have to be loaded, hence in CO the cost centre allocate that portion of operational cost to production order, and this cost is carried by a cost element (since there are

no FI involvement and entries are flowing within CO by crediting sender cost centre and debiting receiver production order a cost element has to be created.... say "Operational Cost - Activity" the entry will be Operational Cost - Activity (Production Order) Dr Rs.XX To Operational Cost - Activity (Cost Centre) Cr Rs.XX The entries are with in CO. And the cost element created is secondary since it does not has an link with GL Account in FI correspondingly.

Cost Center Accounting (CO-OM-CCA) You use Cost Center Accounting for controlling purposes within your organization. The costs incurred by your organization should be transparent. This enables you to check the profitability of individual functional areas and provide decision-making data for management. This requires that all costs be assigned according to their source. However, source-related assignment is especially difficult for overhead costs. Cost Center Accounting lets you analyze the overhead costs according to where they were incurred within the organization. Depending on the level of decision-making powers assigned to the manager of an organizational unit, you can distinguish between various types of responsibility areas within an organization: Cost center Profit centers Investment centers Recording costs with reference to plan values Calculating operating results Calculating Return On Investment

Dividing an organization into cost centers allows you to follow several goals, depending on the cost accounting method. Assigning costs to cost centers lets you determine where costs are incurred within the organization. If you plan costs at cost center level, you can check cost efficiency at the point where costs are incurred.

If you want to assign overhead costs accurately to individual products, services, or market segments, you need to further allocate the costs to those cost centers directly involved in the creation of the products or services. From these cost centers you can then use different methods to assign the activities and costs to the relevant products, services, and market segments. This enables you to valuate semi-finished and finished products in Product Cost Controlling (CO-PC), and to calculate contribution margins in Profitability Analysis (CO-PA). The activities of cost centers represent internal resources for business processes in Activity-Based Costing. Integration The costs of each cost-accounting-relevant business transaction portrayed in the system through can be assigned through Cost and Revenue Element Accounting (CO-OM-CEL) to an account assignment object in the Controlling component (CO). For overhead costs this can be cost centers, internal orders, business processes, or overhead projects. You can use the methods of activity allocation, assessment or distribution to further allocate costs, for example, to internal orders (CO-OM-OPA), projects (PS), cost objects (CO-PC) or market segments (CO-PA).

Cost Center Planning (CO-OM-CCA) Cost center planning involves entering plan figures for costs, activities, prices or statistical key figures for a particular cost center and a particular planning period. You can then determine the variances from these figures when you come to compare these plan values with the costs actually incurred. These variances serve as a signal to make the necessary changes to your business processes. Cost center planning forms part of the overall business planning process, and is a prerequisite for standard costing. The main characteristic of standard costing is that values and quantities are planned for specified timeframes, independently of the actual values from previous periods. You can take plan costs and plan activity quantities to determine the (activity) prices. These prices can be used to valuate internal activities during the ongoing period, that is, before the actual costs are known. Manual Actual Postings (CO-OM-CCA) You post actual values manually to enable you to monitor costs on an ongoing basis. These postings enable you to recognize variances at an early stage, and to take the necessary counter measures. Actual cost entry involves transferring primary costs from upstream components to the Controlling (CO) application component. In the CO component, this transfer occurs real-time from the components Financial Accounting (FI), Asset Accounting (FI-AA), Materials Management (MM), Production Planning (PP) and Payroll Accounting (PA-PA). This is achieved by entering a cost accounting object (such as a cost center or an internal order) during account assignment. Primary costs entered in other systems are allocated further using internal allocations and as true to source as is possible. To enable this, costs are determined for each business transaction, based on the valued internal activity. They are then posted real-time to the sender and receiver object(s) (debit and credit postings). In the case of internal repostings, costs are reposted from one object to another in order to make the necessary adjustments. This enables you to produce up-to-date statements during the current fiscal period, showing the costs incurred on the cost centers and the cost behavior pattern. The following business-transaction based repostings or allocations are available in Cost Center Accounting: Reposting Costs Manually Reposting Revenues Manually Reposting Line Items Direct Activity Allocation Reposting Internal Activity Allocation Entering Sender Activity Entering Actual Prices Manual Cost Allocation Entering Statistical Key Figures

Internal Orders (CO-OM-OPA) Internal orders are normally used to plan, collect, and settle the costs of internal jobs and tasks. The SAP system enables you to monitor your internal orders throughout their entire life-cycle; from initial creation, through the planning and posting of all the actual costs, to the final settlement and archiving: Order management within a company usually differentiates between sales-oriented orders, and internal orders. Sales-oriented orders (production or sales orders) are intended mainly for the logistical control of input factors and sales activities. Internal orders are categorized as either: y y Orders used only for monitoring objects in Cost Accounting (such as, advertising or trade fair orders) Productive orders that are value-added, that is, orders that can be capitalized (such as in-house construction of an assembly line).

An internal order is used to monitor parts of the costs, and under certain circumstances, the revenues of the organization. You can create an internal order to monitor the costs of a time-restricted job or the costs (and revenues, if required) for the production of activities. Internal orders can also be used for the long-term monitoring of costs. y Overhead cost orders are used for the time-restricted monitoring of overhead costs (that are incurred when you execute a job) or for the long-term monitoring of parts of the overhead costs. Investment orders let you monitor investment costs that can be capitalized and settled to fixed assets. Accrual orders enable you to monitor period-related accrual calculation between expenses posted in Financial Accounting and the costing-based costs debited in Cost Accounting. Orders with revenues let you monitor costs and revenues that are incurred for activities for external partners, or for internal activities that do not form part of the core business for your organization.

y y

Features y You can use master data to assign certain characteristics to your internal orders, which enables you to control which business transactions can be used with the internal order. Internal order planning enables you to roughly estimate the costs of a job before the order starts and to make an exact calculation at a later date. You can choose between various planning approaches to compare the effectiveness of different methods. You can assign and manage budgets for internal orders. You apply the actual costs incurred by a job to your internal orders using actual postings. In Financial Accounting, you can assign primary cost postings (such as the procurement of external activities and external deliveries) directly to internal orders. In period-end closing you can use various different allocation methods (for example, overhead costing) to allocate costs between different areas of Cost Accounting.

y y

Order settlement enables you to transfer the costs incurred by an order to the appropriate receivers.

Manual Actual Postings in Internal Orders You use actual postings to enter actual costs that enable up-to-date monitoring of the costs incurred by the organization. In this way, you can identify any variances at an early stage and correct them. Manual actual postings are the daily transaction-based postings of primary and secondary costs. Manual actual postings consist of: y Postings in Financial Accounting:

You can assign postings of primary costs directly to an internal order within Financial Accounting (for example, for external services and deliveries). The same applies to goods movements, if you are not using the Materials Management component (MM). y Goods Movements in Materials Management:

In the MM component, you can make the following statistical postings to internal orders: o o Purchase requisitions Purchase orders

When you create a purchase order that is statistically posted to an internal order, a commitment is created on the order. The commitment is converted to actual costs when the goods are received. A goods issue that refers to a material reservation in which an internal order number is stored, automatically leads to the posting of actual costs on the internal order. Internal Order Settlement An internal order is usually used as an interim collector of costs and an aid to the planning, monitoring, and controlling processes needed. When the job has been completed, you settle the costs to one or more receivers (cost center, fixed asset, profitability segment, and so on). To be able to settle an order, you must have saved a settlement rule in each of the senders. This settlement rule determines where the costs are to be settled to. You can achieve this in two ways: y Settlement to One Receiver

You use this basic form of order settlement to completely settle the costs collected on the internal order. This is either to a cost center, or a G/L account under a settlement cost element. The system generates the appropriate settlement rule from the information contained in the internal order master data. y Comprehensive Settlement

Definition of a comprehensive settlement rule gives you more settlement possibilities, for example, you can: y y y Settle costs to a wide range of receivers (project, sales order, profitability segment, and so on). Specify how the costs are to be distributed between receivers. Define the cost elements under which the sender is to be credited and the receivers debited.

Product Cost Controlling (CO-PC) Product Cost Planning Purpose Product Cost Planning (CO-PC-PCP) is an area within Product Cost Controlling (CO-PC) where you can plan costs for materials without reference to orders, and set prices for materials and other cost accounting objects. You can use Product Cost Planning to analyze the costs of your companys products such as: y y y Manufactured materials Services Other intangible goods

You can analyze costs to help provide answers to questions such as: o o o o o o What is the value added of a particular step in the production process? What proportion of the value added can be attributed to a particular organizational unit? What is the cost breakdown including primary costs or transfer prices? How high are the material, production, and overhead costs? How can production efficiency be improved? Can the product be supplied at a competitive price?

Product Cost Planning comprises the following components: Cost Estimate with Quantity Structure Cost Estimate without Quantity Structure Price Update Costing materials based on a quantity structure in PP Costing materials without a quantity structure in PP

Transferring the results of material cost estimates to the material master Planning new products and services using base planning objects Rapid cost planning without master data within an ad hoc cost estimate

Reference and Simulation Costing Easy Cost Planning and Execution Services

Product Cost Controlling (CO-PC) Cost Object Controlling (CO-PC-OBJ) Cost Object Controlling is an area in cost accounting that assigns the costs incurred in the production of company activities (such as materials manufactured in-house) to those activities. Cost Object Controlling supports you in: Reaching make-or-buy decisions Determining price floors Performing complex cost analysis (such as target/actual analysis) Determining inventory values

Cost Object Controlling in the system is divided into the following components: Product Cost by Period

Product Cost by Periodis used for recurring periodic cost control of products that are manufactured in the same way over an extended period of time. Product Cost by Order

Product Cost by Order is mainly used to control the costs of individual production lots. Product Cost by Sales Order

Product Cost by Sales Order is used to control costs in complex make-to-order production or customer-specific services, for example.

Profitability Analysis (CO-PA) Purpose Profitability Analysis (CO-PA) enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin. The aim of the system is to provide your sales, marketing, product management and corporate planning departments with information to support internal accounting and decision-making. Two forms of Profitability Analysis are supported: costing-based and account-based. Costing-based Profitability Analysis is the form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches, both of which you can define yourself. It guarantees you access at all times to a complete, short-term profitability report. Account-based Profitability Analysis is a form of profitability analysis organized in accounts and using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides you with a profitability report that is permanently reconciled with financial accounting. You can also use both of these types of CO-PA simultaneously.

Features In the application component CO-PA, you can define your master data, the basic structures of this form of profitability analysis. This includes both units you want to evaluate (characteristics) and the categories in which you analyze values. In costing-based CO-PA, you define value fields in which to store your data for analysis. In account-based CO-PA, the values are structured by account. Using the SAP master data (customer, product, customer hierarchy) or CO-PA derivation rules, the system can derive additional characteristics based on the ones entered manually or transferred from primary transactions. The combination of characteristic values forms a multidimensional profitability segment, for which you can analyze profitability by comparing its costs and revenues. The actual postings represent the most important source of information in CO-PA. You can transfer both sales orders and billing documents from the Sales and Distribution (SD) application component to CO-PA in real time. In addition, an interface program is available to let you transfer external data to the SAP system. You can also transfer costs from cost centers, orders and projects, as well as costs and revenues from direct postings (G/L account postings in FI, orders received in MM, and so on) or settle costs from CO to profitability segments. In costing-based CO-PA, you can valuate incoming sales orders or billing documents to automatically determine anticipated sales deductions or costs. You can also revaluate your data periodically to adjust the initial, real-time valuation or add the actual costs of goods manufactured. In CO-PA Planning, you can create a sales and profit plan. Whereas both types of Profitability Analysis can receive actual data in parallel, there is no common source of planning data. Consequently, you always plan either in accounts (account-based CO-PA) or in value fields (costing-based CO-PA). In costing-based CO-PA you can use automatic valuation to calculate planned revenues, sales deductions and costs of goods manufactured based on the planned sales quantity. The manual planning function lets you define planning screens for your organization. With this you can display reference data in planning, calculate formulas, create forecasts, and more. Planning can be performed at any degree of detail. For example, you can plan at a higher level, and have this data distributed top-down automatically. In automatic planning, you can copy and revaluate actual or planning data for a large number of profitability segments at once. You can also transfer planned sales quantities from (costing-based) CO-PA to Sales and Operations Planning (SOP) for the purpose of creating a production plan there.

Profit Center A profit center is an organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal control. The profit center differs from a cost center in that cost centers merely represent the units in which capacity costs arise, whereas the person in charge of the profit center is responsible for its balance of costs and revenues. The master data of a profit center includes the name of the profit center, the controlling area it is assigned to, and the profit centers period of validity, as well as information about the person responsible for the profit center, the profit centers assignment to a node of the standard hierarchy, and data required for communication (address, telephone number and so on). Every profit center is assigned to the controlling area organizational unit. This assignment is necessary because Profit Center Accounting displays values in G/L accounts. The system transfers all the data to Profit Center Accounting together with the G/L account to which the data was originally posted. The Standard Hierarchy To ensure that your data in Profit center Accounting is consistent with that in other areas, you must assign each profit center to the Standard Hierarchy. The standard hierarchy is used in the information system, allocations, and various planning functions. You can also assign your profit centers to alternative hierarchical structures, called Profit Center Groups. Features EC-PCA lets you set up your profit centers according to product (product lines, divisions), geographical factors (regions, offices or production sites) or function (production, sales). You divide you business into profit centers by assigning the profit centers to the various master data that is relevant for profits (materials, cost centers, orders, projects, sales orders, assets, cost objects and profitability segments). This lets you set up Profit Center Accounting in a way that meets your companys requirements regardless of what sector of industry your company is in (machinery, chemicals, services, and so on) or what form of manufacturing you employ (repetitive manufacturing, make-to-order production, continuous flow production). Every profit center is assigned to the organizational unit Controlling area. The profit centers in a company code belong to a standard profit center hierarchy that is also assigned to the controlling area. All profit-relevant business transactions are updated in the profit center hierarchy according to G/L account at the same time they are processed in the original module of the SAP system. This ensures that the entire flow of goods and services within a company is transformed in goods and services relationships between profit centers. This is true both with actual postings and in planning. Goods movements between profit centers can be valuated either at external prices, group-internal prices or specially defined transfer prices.