1. Controlling Management EGN 5622 Enterprise Systems Integration Spring, 2015

2. Controlling Management Concepts & Theories

3. FI (Financial Accounting (FI) and Controlling Accounting (CO)
ECC 6.0
January 2008
FI (Financial Accounting (FI) and Controlling Accounting (CO)
Most companies divide their accounting function into internal and external.
External accounting is called financial accounting, and
Internal accounting is often called controlling accounting or managerial accounting.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

4. Comparison between FI & CO
ECC 6.0
January 2008
Comparison between FI & CO
Financial Accounting
External Accounting
Balance Sheet
Profit & Loss Statement
Legal Requirements
Standards
Controlling Accounting
Cost Element Accounting
Cost Center Accounting
Internal Orders
Profit Center Accounting
Product Costing
Profitability Analysis
ABC
Different Valuations
Flexibility
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

5. Comparative Reporting
ECC 6.0
Comparative Reporting
January 2008
Liquidity
Calculation
Retained Earnings Report
Financial Accounting (FI)
Balance Sheet
Income Statement
External Reporting
Cost Center Reports
Financial accounting is external and feeds the external reporting requirements
Managerial Accounting is internal only
Product
Costs Reports
Managerial Accounting (CO)
Profit Margin
Profit
Center
Reports
Internal Reporting
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

6. Controlling Accounting
ECC 6.0
January 2008
Controlling Accounting
Objective of controlling accounting is how to cut cost and add value.
Controlling accounting:
Process of identifying, measuring, analyzing, and communicating information in pursuit of an organizations goals.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

7. Controlling (CO) - continued
Version 1.0
Controlling (CO) - continued
January 2007
Controlling accounting:
designed to collect the transactional data for preparing internal reports that support decision-making.
Internal reports include:
Cost center performance
Profit center performance
Budgets analyses
The Rushmore Group, LLC

8. Fundamentals of Cost Management
ECC 6.0
January 2008
Fundamentals of Cost Management
Every cost is linked to an expense booked in the financial accounting system and to a cost element in managerial accounting system.
Cost elements are in turn assigned to cost objects.
Internal (cost management) accounting system and the external (financial) accounting system are fully integrated.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

9. Interrelated and Closely Connected FI & CO
ECC 6.0
January 2008
Interrelated and Closely Connected FI & CO
(FI) Transaction
Document
Amount
G/L Account #
Cost Center
(CO) Transaction
Cost Element
Income Statement Bal. Sheet
Financial Accounting
Supplies Exp.
Bank
100
100
Controlling
Cost Center
Transactions can have an effect on both FI and CO.
The transaction will create a debit and a credit for FI (FI transaction)
If CO is turned on a cost center or cost element bucket will be updated. (CO transactions)
100
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

10. Fundamentals of Cost Management
ECC 6.0
January 2008
Fundamentals of Cost Management
Cost object is a classification of costs desired by the user. It could be a cost center (a department where the cost is incurred), a production order (costs to produce unit ), or a special project (installation of an ERP system), etc.
Cost object is used 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 or EVPs.
A cost element can be assigned to multiple cost objects. For example, travel as a cost element may appear in all cost centers.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

11. Target Audience Executives Senior Management Department Managers
Version 1.0
Target Audience
January 2007
Executives
Senior Management
Department Managers
Controllers
Cost Accountants
The Rushmore Group, LLC

12. Controlling Accounting Terminology
Version 1.0
Controlling Accounting Terminology
January 2007
Controlling Area
A self-contained, organizational element serves to broadly define a managerial accounting and reporting system.
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
The Rushmore Group, LLC

13. Controlling Accounting Terminology
ECC 6.0
January 2008
Controlling Accounting Terminology
Controlling Area (- continue)
6. A controlling area is also broken down into two different “standard” hierarchical structures:
1) standard cost center hierarchy; and
2) standard profit center hierarchy
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.
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

14. Subcomponents of Controlling Accounting
ECC 6.0
January 2008
Subcomponents of Controlling Accounting
Cost Element Accounting
Cost Center accounting
Internal Orders, and
Profit Center Accounting
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

15. 1. Cost Element Accounting
ECC 6.0
January 2008
1. Cost Element Accounting
1.1 Cost Elements
Cost and revenue accounts within a chart of accounts but involved in cost accounting are referred to as “elements,” which are further divided into
primary cost elements,
primary revenue elements, and
secondary cost elements
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

16. Cost Element Accounting
ECC 6.0
January 2008
Cost Element Accounting
1.2 Primary Cost and Revenue Element
Primary cost and revenue elements are 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.
Both flows are first recorded in FI and then transferred automatically to a cost object or revenue object within the CO module (e.g., cost center, internal order, profitability segment, etc.).
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

17. Cost Element Accounting
ECC 6.0
January 2008
Cost Element Accounting
1.3 Secondary Cost Element
Secondary cost elements are created in the CO module and are used exclusively within the CO to account for internal cost flows among cost objects within a controlling area (e.g., cost allocations among cost centers).
There are no secondary revenue elements.
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

18. 2. Cost Center Accounting (CCA)
ECC 6.0
January 2008
2. Cost Center Accounting (CCA)
Cost center accounting (CCA) module is used to assign planned costs and actual costs incurred to areas of cost responsibility within an organization.
For example, if a manager wants to know how much it costs to run his department for the month of April, this module can be used to provide the answer.
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.).
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

19. 2. Cost Center Accounting 2.1 Cost Centers
ECC 6.0
January 2008
2. Cost Center Accounting 2.1 Cost Centers
Cost center is created for internal controlling purposes and provides a tool for collecting costs. It may be a unit distinguished, for example, by area of responsibility, location, or type of activity, such as
Copy center, Security department, Maintenance department
Can be permanent or temporary (e.g., internal order)
Operates as a collector and assignor of responsibility for expenditures
identify and track where costs are incurred for evaluation purposes
Responsible for cost containment, not responsible for revenue generation
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

20. Cost Center (- continued)
ECC 6.0
January 2008
Cost Center (- continued)
A cost center is the basic organizational responsibility component of a controlling area.
There is one and only one standard cost center hierarchy for a controlling area.
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).
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

21. 2. Cost Center Accounting
ECC 6.0
January 2008
2. Cost Center Accounting
2.2 Activity
Any event, action, or transaction that causes a cost to be incurred in the production of a product or the providing of a service.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

22. 2. Cost Center Accounting
ECC 6.0
January 2008
2. Cost Center Accounting
2.3 Activity types
Activity types are production or service activities rendered to a work center or cost center that are used to allocate costs.
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.
Measure of activity type quantity (e.g., hours worked), which 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.).
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

23. 2. Cost Center Accounting
ECC 6.0
January 2008
2. Cost Center Accounting
Activity types (-continued)
Cost center in which the activity is performed is referred to as the “sender,” and the cost objects receiving the allocated costs are called “receivers.”
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).
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

24. 2.Cost Center Accounting
ECC 6.0
January 2008
2.Cost Center Accounting
2.4 Cost Drivers
A cost driver is a factor, such as machine hours, beds occupied, computer usage time, flight hours, or any other factor that causes overhead costs.
Most companies use direct labor-hours or indirect labor cost as the allocation base for manufacturing overhead,
Typical cost driver types: activity types and statistical key figures, such square feet or head count.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

25. 2. Cost Center Accounting
ECC 6.0
January 2008
2. Cost Center Accounting
2.5 Product Costing (PC)
Product costing (PC) is a CO module function which provides the means for developing different types of cost estimates for a particular product or subassembly, such as 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).
Product cost is developed after the material is defined, a bill of materials is created, and a routing is determined..
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

26. 2. Cost Center Accounting
ECC 6.0
January 2008
2. Cost Center Accounting
2.6 Activity Based Costing (ABC)
Activity based costing (ABC) module provides the means for assigning planned costs and actual costs incurred at the cost center level to business processes 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.
Cost center resources can allocate to business processes based on their true utilization of activities.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

27. 2. Cost Center Accounting
ECC 6.0
January 2008
2. Cost Center Accounting
2.7 Work Center
Work centers are organizational units that perform operation functions within a plant.
A work center might include a production line, quality checkpoint, packaging line, and warehouse. For each operation created in a routing, a work center must be identified. All manufacturing processes are routed through work centers.
Each work center is connected to only one 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.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

28. ECC 6.0
January 2008
3. Internal Order
A method of internal cost allocation by which valuated activities from cost centers can be assigned to cost receivers in accordance with the cause of the cost.
The activities or allocation bases represent the output of a cost center (such as production hours or machine hours).
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.
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.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

29. Internal Order (- contimued)
Version 1.0
Internal Order (- contimued)
January 2007
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
The Rushmore Group, LLC

30. 4. Profit Center Accounting (PCA)
ECC 6.0
January 2008
4. Profit Center Accounting (PCA)
Profit center accounting is used to analyze income and expenditure for profit centers that represent an independent subunit within an organization.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

31. 4. Profit Center Accounting
ECC 6.0
January 2008
4. Profit Center Accounting
4.1 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.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

32. Profit Center (- continued)
Version 1.0
Profit Center (- continued)
January 2007
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
The Rushmore Group, LLC

33. Profit Center (- continued)
ECC 6.0
January 2008
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.)
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

34. 4. Profit Center Accounting
ECC 6.0
January 2008
4. Profit Center Accounting
4.2 Profitability Analysis (PA)
Profitability analysis (PA) module 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.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

35. Controlling Management SAP Implementation

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

37. Components of Managerial Accounting
ECC 6.0
January 2008
Components of Managerial Accounting
Controlling
(CO)
Cost
Element
Acct
Center
Product
Internal
Orders
Activity
Based
Costing
Profit
Profitability
Analysis
Controlling (CO) 
Purpose
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.
Cost Element Accounting
Cost Element Accounting is the part of accounting where you enter and organize 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.
Cost Center Accounting  
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.
Internal Orders
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:
Activity-Based Costing
Activity-Based Costing provides a process-oriented, cross-functional view of overhead, in contrast to the traditional location-oriented view provided by Cost Center Accounting. Activity-Based Costing thus complements and enhances Cost Center Accounting.
Activity-Based Costing allocates process quantities based on resource and process drivers, allowing you to define cost allocation along the value-added chain more exactly than is possible with overhead rates. Activity-Based Costing also complements and enhances product costing by assigning costs to the business processes where they originated. Cost center resources can allocate to business processes based on their true utilization of activities.
Product Cost Controlling
Product Cost Planning Cost Object Controlling Actual Costing/Material Ledger Product Cost Controlling Information System
Profit Center Accounting
Profit Center Accounting determines the profit of the defined cost center
Profitability Analysis
Profitability Analysis 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.
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

38. Business Process Integration
ECC 6.0
Business Process Integration
January 2008 FI CO MM PP SD
Transactions
Org Data
Master Data FI
MM/PP SD
Rules FI
MM/PP SD CO CO CO FI
In the Business Process Integration class we use the stool as a metaphor for the SAP structure. There are four basic components needed to run execute SAP. Three of these are the legs of the stool: org data, master data, and rules. These ‘hold up’ the transactions. Transactions cannot be run unless these are setup.
The legs are typically configured during the implementation process.
During BPI 1 we will setup the stool for Finance, Materials management and Sales and Distribution.
MM/PP SD
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

39. Version 1.0
SAP CO Module
January 2007
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 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

40. Business Process Integration
ECC 6.0
Business Process Integration
January 2008 CO
Org Data CO
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

41. SAP CO Organizational Objects
Version 1.0
SAP CO Organizational Objects
January 2007
These objects represent the legal and/or organizational views of an enterprise
They form a framework that supports business activities in the manner desired by management
They permit the accurate and organized collection of business information
They support the development and presentation of relevant information in order to enable and support business decisions
The Rushmore Group, LLC

42. SAP CO Organizational Objects
Version 1.0
SAP CO Organizational Objects
January 2007
Client
Company Code
Chart of Accounts
Controlling Area
Cost Center Group
Cost Center
Profit Center Group
Profit Center
The Rushmore Group, LLC

43. Organizational Structure
ECC 6.0
Organizational Structure
January 2008
Client 570
Chart of
Accounts
Fiscal Year
Variant
Global Bike Inc.
Credit Control
Area
Controlling
Area
Company
Code
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

44. Business Process Integration
ECC 6.0
Business Process Integration
January 2008 CO
Master Data CO
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

45. Cost Element Overview Cost Element Groups Cost Elements
ECC 6.0
January 2008
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.
© SAP AG and The Rushmore Group, LLC 2008

46. ECC 6.0
January 2008
Cost Element Groups
Logical groupings of primary and secondary cost elements
Facilitates reporting, planning, and allocating costs
Total Costs
Total Primary Costs
Total Secondary Costs
Wages
Utilities
Materials
Internal Order
Settlement
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

47. General Ledger Accounts
ECC 6.0
January 2008
Cost Elements (continued)
Controlling
Financial
Accounting
Total Cost Elements
General Ledger Accounts
Income
Statement
Balance
Sheet
Secondary Cost
Elements
Primary Cost
Elements
Expense
Accounts
Revenue
Accounts
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

48. Statistical Key Figures
ECC 6.0
Statistical Key Figures
January 2008
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.
© SAP AG and The Rushmore Group, LLC 2008

49. Statistical Key Figures
ECC 6.0
January 2008
Statistical Key Figures
Cost
Center
Activity
(20 Hours)
6 Hours
Work Center
10 Hours
Maintenance
Department
4 Hours
Information Services
Department
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

50. Primary Cost Element for
ECC 6.0
January 2008
Primary Cost & Secondary Elements
Income Balance
Statement Sheet
Account Account
General Ledger
Account Posting
Rent Expense
Acct. Payable
Debit Credit
1,500
Debit Credit
1,500
Primary Cost Element for
Rent Expense
Cost
Center A
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

51. Primary & Secondary Cost Elements (cont.)
ECC 6.0
January 2008
Primary & Secondary Cost Elements (cont.)
Income Balance
Statement Sheet
Account Account
General Ledger
Account Posting
Rent Expense
Acct. Payable
Debit Credit
1,500
Debit Credit
1,500
Secondary
Cost Element
Cost
Center A
CC 2
CC 3
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

52. Secondary Cost Elements (continued)
ECC 6.0
January 2008
Secondary Cost Elements (continued)
Cost Center 2
Debit Credit
1,500
Rent Expense
1,750
Cost Center A
Sec. Cost Element
Primary Cost Element
Cost Center 3
1,500
2,500
2,000
Supplies Expense
2,000
Debit Credit
Sec. Cost Element
2,500
Primary Cost Element
Cost Center 4
Debit Credit
2,000
Labor Expense
Sec. Cost Element
2,250
Primary Cost Element
Allocation from CCA to CC2, CC3, and CC4 is based on headcount: CC2: 7, CC3, 8, and CC4: 9
© SAP AG and The Rushmore Group, LLC 2008

53. Business Process Integration
ECC 6.0
Business Process Integration
January 2008 CO
Transactions
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

54. Cost Center Allocations
ECC 6.0
Cost Center Allocations
January 2008
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?)
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008

55. Cost Accounting Allocation
ECC 6.0
January 2008
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.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

56. Cost Accounting Allocation
ECC 6.0
January 2008
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. .
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

57. Cost Accounting Allocation
ECC 6.0
January 2008
Cost Accounting Allocation
Posting Types of Cost Allocation (- continued)
Statistical Key Figures (SKFs) are used in the ERP system to allocate costs from a service department to a user department at the closing of a period. These cost drivers, which are often referred to as tracing factors, are used in allocation methods that do not involve the explicit development of activity (transfer) prices. 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.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
© SAP AG and The Rushmore Group, LLC 2008

58. Types of Allocations Cycles
Version 1.0
January 2007
Types of Allocations Cycles
Distributions – primary cost elements
Assessments – combination of primary and/or secondary cost elements
In Distribution and Assessment, you further allocate costs (or quantities for Indirect Activity Allocations) collected on a cost center during the accounting period to receivers, according to user-defined keys. These are therefore indirect allocation methods, because the exchange of activity is not the basis for allocating costs/quantities. Instead, user-defined keys such as percentage rates, amounts, statistical key figures, or posted amounts provide the cost/quantity assignment basis.
The advantage of these methods is that they are easy to use. You usually define the keys and the sender/receiver relationships only once.
Distribution and assessment are used primarily for cost centers. This is because direct cost allocation is not possible here due to the variety of transactions, the lack of clearly defined individual activity types and the fact that the entry of the activity is too time-consuming. For example, the costs of the company cafeteria may be assigned based on the number of employees in each cost center. Telephone costs are seldom allocated directly to the individual cost centers, but are collected on a clearing cost center for each period. They are then reposted or distributed at the end of the period according to the number of telephone units or telephone installations in each cost center.
Assessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers:
The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.
Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

59. Version 1.0
Distribution Cycle
January 2007
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
Distribution 
Use
Distribution is used to allocate the primary costs of a cost center. The following information is passed on to the receivers:
The original cost element (that is, the primary cost element) is retained.
Sender and receiver information (for example, the identities of the sender and receiver cost center/business process) is documented using line items in the CO document.
You can use the information system to analyze the distribution results according to sender and receiver relationships.
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

60. Distribution Cycle Receiving cost centers Sending cost center
Version 1.0
January 2007
Distribution Cycle
Receiving
cost centers
Sending
cost center
Primary cost
element
maintains its
identity
A010 – Administration
Rent Expense
$1,500
Distribution
In this example the distribution of the rent expense is by square footage occupied by each of the cost centers. By the pie chart we see that distribution and administration have the most square footage.
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

61. Distribution Cycle Receiving cost centers Sending cost center
Version 1.0
Distribution Cycle
January 2007
Receiving
cost centers
Sending
cost center
Primary cost
element
maintains its
identity
A010 – Administration
Rent Expense
$1,500
Distribution
Distribution and administration having most of the square footage thus have the majority of the distribution costs.
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

62. Version 1.0
Assessment Cycle
January 2007
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
Assessments are to Secondary Costs
Distributions are to Primary Costs
Assessment 
Use
Assessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers:
The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.
Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.
Allocation through assessment is useful when the composition of the costs is unimportant for the receiver. For example, the assessment of cafeteria costs to a cost center need not be broken down further.
You can use the information system to analyze the assessment results by assessment cost element according to sender and receiver relationships.
A method of internal cost allocation by which you allocate the costs of a sender cost center to receiver CO objects (such as orders and other cost centers) using an assessment cost element.
The system supports the following:
Hierarchical method (where the user determines the assessment sequence)
Iterative method (where the system determines the sequence of assessment using iteration).
Example:
The costs from the cafeteria cost center could be assessed based on the statistical key figure "employee", which was set up on the receiver cost center.
Receiver cost center I has 10 employees, receiver cost center II has 90. The costs of the cafeteria cost center would be transferred (assessed) to receiver cost center I (10%) and receiver cost center II (90%). The credit on the cafeteria cost center and the debit of the two receiver cost centers are posted using an assessment cost element. Depending on the system setting, the total costs or some of the costs for the cafeteria cost center would be debited.
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

63. Assessment Cycle Receiving cost center Sending cost center Primary and
Version 1.0
Assessment Cycle
January 2007
Receiving
cost center
Sending
cost center
Primary and
secondary cost elements
A020 – IT
Software Expense
$4,200
Supplies Expense
$500
Assessment
In this example IT expenses are accumulated. Periodically, the costs are reallocated to the primary and secondary cost elements based upon the budgeting and expense policy of the company. Notice how Sales now has a much larger portion than the other departments.
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

64. Assessment Cycle Receiving cost center Sending cost center Primary and
Version 1.0
Assessment Cycle
January 2007
Receiving
cost center
Sending
cost center
Primary and
secondary cost elements
A020 – IT
Software Expense
$4,200
Supplies Expense
$500
Assessment
The reallocation in Dollars
January 2007 (v1.0)
© 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC
The Rushmore Group, LLC

65. Exercises: (Due date 2/20/2015)
ECC 6.0
January 2008
Exercises: (Due date 2/20/2015)
1 Process overview for cost center accounting process
2 Create cost centers
3 Create statistical figure
4 Create secondary cost elements
5 Create activity types
6 Create cost center group
7 Plan the number of employees
8 Plan activity output
9 Plan primary cost inputs
10 Plan internal activity inputs
11 Review planning
12 Create assessment
13 View assessment results
14 Price calculation of activity types
15 View price calculation results
January 2008
© SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.
© SAP AG and The Rushmore Group, LLC 2008