Controlling Management EGN 5622 Enterprise Systems Integration Professional MSEM Fall, 2012 Controlling Management EGN 5622 Enterprise Systems Integration Professional MSEM Fall, 2012

Controlling Management Concepts & Theories EGN 5622 Enterprise Systems Integration Controlling Management Concepts & Theories EGN 5622 Enterprise Systems Integration

3 Controlling Accounting Most companies divide their accounting function into internal and external, and controlling accounting represents the internal accounting. Controlling (managerial) accounting is the process of identifying, measuring, analyzing, and communicating information in pursuit of an organizations goals. The controlling accounting objective is to show how the system adds value by structuring information in a certain way.

4 Controlling (CO) Managerial accounting – termed controlling – is designed to collect the transactional data that provides a foundation for preparing internal reports that support decision-making within the enterprise. These reports are exclusively for use within the enterprise and include: ◦Cost center performance ◦Profit center performance ◦Budgets analyses

5 Fundamentals of Cost Management Financial (external) accounting system and the cost management (internal accounting) system are fully integrated. Every cost is linked to an expense booked in the financial accounting system and to a cost element in the managerial accounting system. Cost elements are in turn assigned to cost objects.

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.6 Fundamentals of Cost Management A cost object is a classification of costs that is desired by the user. It could be a cost center (a department where the cost is incurred), a production order (costs to produce unit ), or a special project (installation of an ERP system), etc. A cost object is simply a way to aggregate costs for some decision purpose at a later time. For instance, sales/marketing, finance/accounting, and general administration could be three cost centers (objects) in the headquarters under the direction of three different VPs. A cost element can be assigned to multiple cost objects. For example, travel as a cost element may appear in all cost centers.

7 Target Audience Executives Senior Management Department Managers Controllers Cost Accountants

8 Controlling Accounting Terminology Controlling Area A self-contained, organizational element serves to broadly define a managerial accounting and reporting system for which the management of revenues and expenses can be performed A controlling area is the highest level organizational entity within the Control module in which cost and profit analysis takes place (except for PA analysis which takes place within an operating concern. A controlling area may include one or more company codes; therefore, an enterprise can perform management accounting analyses and reports across several companies Each company code can be assigned to one and only one controlling area A way to identify and track where revenues and costs are incurred for evaluation purposes

9 Controlling Accounting Terminology Controlling Area (- continue) A controlling area is also broken down into two different “standard” hierarchical structures: ◦1) standard cost center hierarchy; and ◦2) standard profit center hierarchy Internal financial (controlling) reporting and analysis focuses on measuring the cost or profit results of components of a controlling area, such as cost centers or profit centers. Note: ◦External reporting does not take place for a controlling area. Neither income statements nor balance sheets are created for an entire controlling area.

10 Subcomponents of Controlling Accounting - Cost Element Accounting - Cost Center accounting - Internal Orders, and - Profit Center Accounting

11 Cost Element Accounting Cost Elements Cost and revenue accounts within a chart of accounts that are involved in cost accounting are referred to as “elements,” which are further divided into primary cost elements, primary revenue elements, and secondary cost elements (there are no secondary revenue elements).

12 Cost Element Accounting Cost Elements (- continued) Primary cost and revenue elements created in the FI module and are used both in the FI and CO modules to account for cost and revenue flows with parties external to the organization. Primary cost and revenue flows are first recorded in FI and then transferred automatically to a cost or revenue object within the CO module (e.g., cost center, internal order, profitability segment, etc.). Secondary cost elements are created in the CO module and are used exclusively within CO to account for internal cost flows among cost objects within a controlling area (e.g., cost allocations among cost centers).

13 Cost Center Accounting (CCA) Created for internal controlling purposes and provides a tool that can collect costs. The cost center accounting (CCA) module within CO provides the means for assigning 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. The CCA module contains a variety of methods for allocating costs among cost centers and from cost centers to other cost objects (e.g., internal orders, production orders, profitability segments, etc.).

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.14 Cost Centers Units that are distinguished, for example, by area of responsibility, location, or type of activity ◦Copy center ◦Security department ◦Maintenance department Can be permanent or temporary (e.g., internal order) Operates as a collector and assignor of responsibility for expenditures A way to identify and track where costs are incurred for evaluation purposes Responsible for cost containment, not responsible for revenue generation ◦One or more value-added activities are performed within each cost center

15 Cost Center (- continued) A cost center is the basic organizational/responsibility component of a controlling area. A controlling area is broken down into cost centers, which are organized in a “standard cost center hierarchy.” Cost centers may also be linked to a specific business area, company code, and profit center (i.e., business areas, company codes, profit centers and controlling areas may all be viewed as collections of cost centers).

16 Cost Center Accounting 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. Most companies use direct labor-hours or direct labor cost as the allocation base for manufacturing overhead, However, major shifts are being made in the way cost is structured. With the increased usage of sophisticated and complex equipment in manufacturing, there is less direct labor relative to overhead as a component of product costs. Typical cost driver types: activity types and statistical key figures.

17 Cost Center Accounting 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.

18 Cost Center Accounting Activity types Activity types are production or service activities rendered to a work center or cost center that are used to allocate costs. Activity types generally include different types of labor (e.g., setup, production labor, machine labor, etc.) that are performed by personnel within a work center or cost center. The measure of the activity type quantity (e.g., hours worked), which is essentially a cost driver measure, may be used to allocate all or a portion of the costs of a cost center to other cost objects (e.g., other cost centers, production orders, profitability segments, etc.).

19 Cost Center Accounting Activity types (-continued) The 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.” The allocation is based on an “activity (transfer) price” that is developed for the activity type. The activity price may be set manually by management, or it may be calculated automatically using an iterative routine that explicitly takes into account “cross allocations” (i.e., allocations back and forth among two or more cost centers).

20 Cost Center Accounting Product Costing (PC) The product costing (PC) is a CO module which provides the means for developing different types of cost estimates for a particular product or subassembly, such as standard cost, future cost, tax cost, or commercial 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). The product cost is developed after the material is defined, a bill of materials is created, and a routing is determined. This product cost reflects the cost structure of the product on a standard costing basis prior to manufacturing. The product cost structure is normally defined for one unit and can be broken out by individual material parts and further defined as variable or fixed.

21 Cost Center Accounting Value-added activity Any activity that increases the worth of a product or service. Non-value-added-activity Any activity that adds cost to, or increases the time spent on, a product or service without increasing its market value. Product-level activities Activities that are performed for and are identifiable with an entire product (line).

22 Cost Center Accounting Activity Based Costing (ABC) The activity based costing (ABC) module within CO provides the means for assigning planned costs and actual costs incurred at the cost center level to business processes that cut across areas of responsibility within an organization. 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. It is generally used as a tool for understanding product and customer cost and profitability. ABC has predominantly been used to support strategic decisions such as pricing, outsourcing and identification and measurement of process improvement initiatives.

23 Cost Center Accounting Each cost center is assigned to a controlling area, profit center, company code, and business area. Taken together, all cost centers within a controlling area constitute the “standard cost center hierarchy.” (There is one and only one standard cost center hierarchy for a controlling area.) The cost center standard hierarchy is a special type of cost center group. All cost centers in that controlling area must be assigned to a level of the standard hierarchy.

24 Cost Center Accounting 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. All manufacturing processes are routed through work centers. Each work center is connected to a cost center as defined in Work Center Master Records. This way allows costing, scheduling, and capacity planning to be done for each functional production area individually. The amount of work that can take place at a work center is represented as its capacity. When a capacity is used, the operations are evaluated by charge rates. Generally, a work center is combination of the following resources: ◦ Machinery, Equipment, and Vehicles ◦ Employees ◦ Production Lines ◦ Assembly Lines

25 Internal Order A method of internal cost allocation by which valuated activities (allocation bases) 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). In internal activity allocation, the activity produced by the cost center is multiplied by the activity price. The result is the cost to be allocated. The sender cost center is credited with this amount and the receiver object is debited. Internal orders support task-oriented planning, monitoring, and allocation of costs.

26 Internal Order (- contimued) Temporary cost center responsible for cost containment, not responsible for revenue generation It is used to plan, collect, and monitor the costs associated with a distinct short-term event, activity, or project ◦Company picnic ◦Trade show ◦Recruiting campaign

27 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.

28 Profit Center Accounting Profit Center Profit centers are similar to business areas, in the sense that they are set up for internal reporting purposes. Profit centers, however, are formally defined as components of a controlling area, not as components of one or more company codes. Income statements may be created for profit centers, and selected assets may also be reported for profit centers, but not complete balance sheets (which can be done for business areas). Profit centers are linked to cost centers with one-to-one or one-to-many relationship.

29 Profit Center (- continued) Responsible for revenue generation and cost containment Evaluated on profit or return on investment Enterprises are commonly divided into profit centers based on ◦Region ◦Function ◦Product

30 Profit Center (- continued) Profit centers generally involve subdivisions of companies that are set up for internal planning and control purposes. Taken together, all profit centers within a controlling area constitute the “standard profit center hierarchy.” (There is one and only one standard profit center hierarchy for a controlling area.)

31 Profit Center Accounting Profitability Analysis (PA) The profitability analysis (PA) module within CO provides the means for assigning planned and actual revenues and costs to a variety of profitability segments, including customers, sales territories, sales employee groups, product groups, etc. This provides great flexibility in defining, both the market characteristics that are of interest to managers, and the related performance measures (e.g., gross margin, contribution margin, segment margin) that managers use to evaluate market segments.

32 Accounting and Control within Production Planning (PP) For each operation created in a routing, a work center must be identified for where the operation is to be performed. A work center is allocated to one and only one cost center. Cost centers are organizational units within a controlling area that represent a defined location of cost incurrence. Organizational divisions can be made on the basis of functionality, settlement-related, activity-related, spatial, and/or responsibility-related business requirements.

33 Accounting and Control within Production Planning (PP) Accounting and Control within PP (- continued) You plan standard activity costs in the corresponding cost centers using activity types. When an activity type is allocated to a cost center, it is given a value, for example, in dollars per hour. The work center specifies production activity availability for operations at the work center. One work center can perform up to six different production activities within different charge rates. Examples of activity types are 1.labor, 2.machine, 3.materials, 4.setup costs, 5.quality costs, and 6.resource consumption.

34 Estimate Cost For management to make the best decisions possible, managers must be able to estimate costs as close to actual costs as possible. When considering product costs, there are several costs that can be traced directly to the product. These will give an estimate that is near the actual costs of making the product. Examples of these costs are direct material and direct labor. By using material requisition forms and payroll time sheets, these costs can easily be traced to a product. The costs that are harder to trace are called overhead costs. They are indirect costs because they cannot be specifically traced to a product. Estimates must be used to allocate overhead to products and services.

35 Estimate Cost The most difficult part of estimating product costs is calculating the amount of overhead that must be allocated to each product, service, or job. Many times a predetermined overhead rate is used. A predetermined overhead rate refers to a single rate that is used to apply overhead to all products produced. When using job order costing systems, direct labor cost is generally the base used to apply overhead to each job. In process costing, machine hours would be an example of an activity base that is used to allocate overhead. In the following example, 150 units of a motorcycle were produced. Of the finished units, 30 have been sold thus far. This is seen in the figures below.

Debit Credit 150 Work is completed 150 Ending 0 Debit Credit 0 Work is completed 150 Units sold 30 Ending 120 When the units are completed, work in progress must be credited for the 150 units, and the finished goods inventory must be debited the same. 36 Example of Cost Accounting Work in Process Beginning Finished Goods Inventory Beginning

Debit Credit 0 Work is completed Units sold 30 Ending 30 When the 30 units are sold, the Units Sold must be debited for the units and the finished goods inventory must be credited. 37 Example of Cost Accounting Units sold Beginning

38 Cost Accounting Terminology When looking at a financial point of view, there are actual costs of $233,211.00, $336.11, and $ The standard cost of creating the motorcycles is $240,000. This can be found by taking the price of $1600 per motorcycle and multiplying it by the 150 units. When the 30 units are sold, they have a cost of $48,000, and there is $192,000 remaining in the finished goods inventory. This can be seen in the figures below.

Debit Credit $233, $240, Total Cost$233,703.68$240,00.00 Production variance -$6, Debit Credit $0.00 Work is completed$240, Units sold $48,000 Ending $192, Example of Cost Accounting Work in Process Beginning Finished Goods Inventory Beginning

Debit Credit $0 Work is completed Units sold $48,000 Ending $48,000 Because of the difference between the standard cost and the actual cost, there is a Production variance of $6, When broken down by units, this variance is $41.98/pc. Was the production of these motorcycles efficient? 40 Example of Cost Accounting Units sold Beginning

Controlling Management SAP Implementation Controlling Management SAP Implementation

R/3 SAP Module View Integrated Solution Client / Server Open Systems Financial Accounting Controlling Fixed Assets Mgmt. Project System Workflow Industry Solutions Production Planning Sales & Distribution Materials Mgmt. Plant Management Quality Maintenance Human Resources Controlling (CO)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.43 Components of Managerial Accounting Controlling (CO) Cost Element Acct Cost Center Acct Product Cost Controlling Internal Orders Activity Based Costing Profit Center Acct Profitability Analysis

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.44 Comparison Managerial Accounting Cost Element Accounting Cost Center Accounting Internal Orders Profit Center Accounting Product Costing Profitability Analysis ABC Different Valuations Flexibility Financial Accounting External Accounting ◦Balance Sheet ◦Profit & Loss Statement Legal Requirements Standards

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.45 Comparative Reporting Financial Accounting (FI) External Reporting Managerial Accounting (CO) Product Costs Reports Internal Reporting Cost Center Reports Profit Center Reports Profit Margin Retained Earnings Report Liquidity Calculation Income Statement Balance Sheet

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.46 Income Statement Bal. Sheet Financial Accounting (FI) Transaction Document Amount G/L Account # Cost Center (CO) Transaction Document Cost Center Cost Element Controlling 100 BankSupplies Exp. Cost Center 100 Interrelated and Closely Connected

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.47 Business Process Integration FI MM/PP SD Org Data Rules FI MM/PP SD Master Data FI MM/PP SD FI SD MM CO PP CO

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC48 SAP CO Module Fully integrated with other SAP modules including, but not limited to: ◦Financial Accounting (FI) ◦Materials Management (MM) ◦Sales and Distribution (SD) ◦Production Planning and Execution (PP)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.49 Business Process Integration Org Data CO

50 SAP CO Organizational Objects These represent the legal and/or organizational views of an enterprise They form a framework that supports the activities of a business in the manner desired by management Permit the accurate and organized collection of business information Support the development and presentation of relevant information in order to enable and support business decisions

51 SAP CO Organizational Objects Client Company Code Chart of Accounts Controlling Area Cost Center Internal Order Profit Center

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.52 Client 600 Credit Control Area Company Code Fiscal Year Variant Chart of Accounts Pen Inc. Controlling Area Organizational Structure

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.53 Standard Hierarchy An organizational unit that serves to refine and focus a managerial accounting and reporting sub-system A mapping of responsibility to individual managers Mapping of cost centers facilitates expense ◦Collection ◦Tracking ◦Reporting

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.54 Standard Hierarchy (- continued) Standard hierarchies are maintained in Cost Center Accounting (CCA) master data maintenance A specific name is assigned to identify a standard hierarchy Each standard hierarchy is attached to the appropriate Controlling Area All cost centers of interest must be entered in the Standard Hierarchy

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.55 Cost Center Groups Logical groupings of cost centers in the standard hierarchy to establish accountability and responsibility for one or more cost centers Facilitates reporting, planning, and allocating costs at a more aggregated level

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.56 Business Process Integration Master Data CO

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.57 Cost Element Overview Cost Element Groups Cost Elements Primary Cost Elements Secondary Cost Elements Statistical Key Figures

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.58 Cost Element Groups Logical groupings of primary and secondary cost elements Facilitates reporting, planning, and allocating costs Total Costs Total Primary CostsTotal Secondary Costs WagesUtilitiesMaterials Internal Order Settlement

59 Cost Elements A one-to-one linkage (mapping) between General Ledger expense accounts and CO cost elements is established to permit the transfer of FI expense information to CO Postings in FI that impact cost accounts lead to an posting in CO to a cost element In other words, expense account = cost element – just different words depending on whether FI object or CO object

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.60 Cost Elements (- continued) Used to categorize costs ◦Primary cost elements originate with Financial Accounting (FI) postings and are linked in whole to Controlling (CO) objects (maintain their source and identity) ◦Secondary cost elements are used exclusively in Controlling (CO) for allocations and settlements to and between Controlling (CO) objects (may not maintain their source and identity)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.61 Primary Cost Elements Linked to expenditure accounts in the chart of accounts (not just expense accounts, may include capital acquisition accounts) Costs are automatically posted to assigned Controlling (CO) objects (e.g., cost center or internal order) upon posting in Financial Accounting (FI) The elements source identity - salaries, utilities, selling expenses - is maintained within Controlling (CO)

62 Secondary Cost Elements ◦Used exclusively in CO for allocations and settlements between and amongst cost centers

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.63 Cost Elements (continued) Financial Accounting General Ledger Accounts Revenue Accounts Balance Sheet Income Statement Expense Accounts Controlling Total Cost Elements Primary Cost Elements Secondary Cost Elements

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.64 Primary Cost Element for Rent Expense Income Balance Statement Sheet Account Account General Ledger Account Posting Debit Credit 1,500 Cost Center A Primary Cost Elements (cont.) Debit Credit 1,500 Rent Expense Acct. Payable

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.65 Secondary Cost Element Income Balance Statement Sheet Account Account General Ledger Account Posting Debit Credit 1,500 Cost Center A Secondary Cost Elements (cont.) Debit Credit 1,500 Rent ExpenseAcct. Payable CC 2 CC 3

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.66 Debit Credit 1,500 Rent Expense Debit Credit 2,500 Supplies Expense Debit Credit 2,000 Labor Expense 1,500 2,500 2,000 1,750 2,000 2,250 Primary Cost Element Sec. Cost Element Cost Center A Cost Center 2 Cost Center 4 Cost Center 3 Secondary Cost Elements (continued)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.67 Statistical Key Figures Provide the foundation for accurate and effective cost allocations between cost objects Utilized to support internal cost allocations involving allocations, assessments, and distributions Examples: number of employees, square footage, minutes of computer usage

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.68 Cost Center Activity (20 Hours) 10 Hours 6 Hours 4 Hours Work Center Maintenance Department Information Services Department Statistical Key Figures

69 Revenue Elements A one-to-one linkage (mapping) between General Ledger revenue accounts and CO revenue elements is established to permit the transfer of FI revenue information to CO Posting in FI that impact revenue accounts lead to an posting in CO to a revenue element In other words, revenue account = revenue element – just different words depending on whether FI object or CO object

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.70 Business Process Integration CO

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.71 Cost Center Allocations Define Sender and Receiver Rules ◦Percentage, portions, fixed Identify Sender ◦Cost center or internal order (what object has the amounts?) ◦Cost element (which expenditures are we interested in transferring?) Identify Receiver ◦Cost center or internal order (where do the amounts need to go to?)

72 Cost Accounting Allocation Posting Types of Cost Allocation In this unit, Costs will be allocated to particular Cost Centers. There are three different types of cost allocation: Direct Reposting, Percentage Allocation, and Statistical Key Figures. In Direct Reposting, an amount of money is allocated directly to a specific cost center. For example, $200 is allocated directly to the Production cost center.

73 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..

74 Cost Accounting Allocation Posting Types of Cost Allocation (- continued) Statistical Key Figures (SKFs) are used in the R/3 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. Nevertheless, the allocation approach is quite similar. A lump sum amount associated with the service department is allocated to a user department in proportion to the relative amounts of the SKF associated with each receiver.

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC75 Types of Allocations Cycles Distributions – primary cost elements Assessments – combination of primary and/or secondary cost elements

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC76 Distribution Cycle Method for periodically allocating primary cost elements Primary cost elements maintain their identities in both the sending and receiving objects Sender and receiver cost centers are fully documented in a unique Controlling (CO) document

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC77 Sending cost center Primary cost element maintains its identity Receiving cost centers Distribution Cycle A010 – Administration Rent Expense $1,500 Distribution

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC78 A010 – Administration Rent Expense $1,500 Distribution Sending cost center Primary cost element maintains its identity Receiving cost centers Distribution Cycle

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC79 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

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC80 A020 – IT Software Expense $4,200 A020 – IT Supplies Expense $500 Assessment Sending cost center Primary and secondary cost elements Receiving cost center Assessment Cycle

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC81 A020 – IT Software Expense $4,200 A020 – IT Supplies Expense $500 Sending cost center Primary and secondary cost elements Receiving cost center Assessment Assessment Cycle

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.82 Exercises: Exercises: 1. Review cost center standard hierarchy 2. Review cost elements 3. Review cost element groups 4. Display individual line items 5. Create G/L document entry 6. Display individual line items 7. Repost expense (cost) between cost centers 8. Display individual line items 9. Post statistical key figure 10. Create distribution cycle 11. Review actual line item report 12. Post supplies expense 13. Post information technology expense 14. Review actual line item report 15. Create assessment cycle 16. Review actual line item report

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.83 Exercises: Exercises: PP 17. Convert planned order into production order PP 18. Issue goods to production order PP 19. Review production order status and documents PP 20. Confirm production completion PP 21. Receipt of goods from production order PP 22. Review costs assigned to production order PP 23. Settle costs of production order