1. Controlling in SAP Mark Van Hoe

2. Table of contents 1.Accounting in SAP, the modules. 2.The different results 3.Product costing 4.Reconciliation 5.Additional information 2Controlling in SAP at Ontex

3. 1. Sap & Accounting The SAP system mainly consists of three parts: –Accounting –Logistics –Human Resources We focus in this paper on the accounting world. We consider again three major parts: –Financial Accounting (FI) –Controlling (CO) –Enterprise Controlling (EC) 3Controlling in SAP at Ontex

4. Finance (FI) In FI we post on balance sheet accounts and on profit and loss accounts. The organisational entity in which we work is the juridical company, called a “company code”. This module delivers legal, local information. We distinguish 4 major sub-modules: –General ledger (GL) –Accounts receivable (AR) –Accounts payable (AP) –Asset accounting (AA) 4Controlling in SAP at Ontex

5. Controlling (CO) The information that comes out of FI cannot serve as management information, the reporting level is too high. In CO we will focus on management reporting. –Each P&L posting in FI can come into CO. An account in FI will be a primary cost element in CO. In CO there is additional information needed on each cost element in order to gather management information. That additional information is a “cost object”. We post the cost element on the cost object. –In CO we can further allocate between cost objects. This is done with secondary cost elements which are invisible in FI. 5Controlling in SAP at Ontex

6. The different cost objects in CO We distinguish following commonly used cost objects: –Cost centres (CC) in cost centre accounting (CCA) –Internal orders (IO) in internal order accounting (IO) –Production orders (PO) in cost object controlling (COC) –Profitability segments (PSG) in profitability analysis (COPA) Dependent of the nature of the cost/profit and the responsibility of the cost/profit the correct cost object will be triggered. 6Controlling in SAP at Ontex

7. Cost centres Posting on a cost centre is done in order to: –Collect costs for further allocations within CO –Collecting costs on a responsibility area Cost centres gather primarily overhead costs –As direct production costs are post on a production order and direct sales costs are post on a profitability segment, just the remaining overhead is gathered on cost centres. –Also some direct costs are first collected on cost centres and then allocated to the PO or PSG. A cost centre is a stable organisational entity. It has no life cycle but remains in the system. 7Controlling in SAP at Ontex

8. Cost centres Example of postings on a cost centre: –Report plan – actual – variance on cost centre Machine in Mayen 103101303 in feb –Report actual plan in two currencies Machine in Tsjechie 107001303 in feb Easy download into excel –A lot of other reports on CC possible. 8Controlling in SAP at Ontex

9. Internal orders An internal order is a cost object with a life cycle: –it is created, released, post, completed and deleted. An internal order is a temporary cost collector: –Mainly used to follow up projects, marketing costs, investments, personnel specific costs, … An internal order can be real or statistical –A real internal order gathers the cost elements. There is no other cost object. At period end the costs are settled (allocated) to another cost object (cost centre or profitability segment). –A statistical order is detail of a cost centre: you post on the order AND on the linked cost centre. The real posting is on the cost centre, but the orders give statistical details. 9Controlling in SAP at Ontex

10. Internal orders Reports on internal orders –Quite similar to the cost centre reports Actual plan variance on group 0410 Budget actual commitments on 0350invest 10Controlling in SAP at Ontex

11. The production order as cost object A production order starts in logistics (PP) but is also an important cost object in CO. –It gathers the costs of production: material consumption, labour hours, production overhead. –It has also a revenue: what is produced will be a credit posting on the order (the produced quantity at standard price). –As the debit side is actual and the credit side is standard, we will see the profit and loss of the PO. –One PO will not often be analysed, we will summarise the PO’s on different characteristics and report on these (material, machine, production line, product group, plant, company, …) 11Controlling in SAP at Ontex

12. The production order as cost object Typical report on a production order: –Target – actual comparison on an order Order 1113265 in P350 12Controlling in SAP at Ontex

13. The profitability segment In the module COPA we find the fourth cost object, a profitability segment (PSG). –A PSG is a combination of characteristic values. –A characteristic is something ON which we report: a customer, a country, a brand, a product(group), … –A characteristic value is the exact value of a characteristic. The values for country: Belgium, France, US, UK, Germany, … The values for a currency: EUR, GBP, USD, … –The combination of these values form a PSG: PSG 1: Belgium, EUR, February, Retail, Baby products. PSG 2: France, EUR, March, Retail, Sterile products. PSG 3: customer Carrefour, Belgium. –There are millions of possible PSG’s. 13Controlling in SAP at Ontex

14. The profitability segment Typical reports in COPA : –COPA-700-06: Tsjechie P&L in feb –COPA-0410-11: 12 months –Heavy in SAP, better in BW -> same figures ! 14Controlling in SAP at Ontex

15. The complete CO layer Overhead Cost Cost Object Controlling Profitability Analysis Production order Profitability segment Cost Centers Internal Orders 15Controlling in SAP at Ontex

16. Analysis versus reporting In FI there is no management information, but in CO there could be an overload of reports. –We can report on CC, IO, PO and PSG. The sum of all these reports should give the same result as in FI (reconciliation). –However for reporting purposes we need another tool that gathers again the CO information into 1 cost object. We can then reports on that unique cost object and do the analysis on all the cost objects of CO. –The reporting layer is called the third layer and the cost object is there a profit centre. 16Controlling in SAP at Ontex

17. Three layers in accounting Overhead cost controlling Product cost controlling Profitability Analysis Profit center Accounting Cost Center Overhead order Process order Profitability Segment FI 17Controlling in SAP at Ontex

18. The three layers The three layers must generate the same result: –FI has the total on company level –CO has split the P&L postings on different cost objects and has allocated the postings between cost objects. Detailed analysis and variance calculation is possible. –PCA, profit centre accounting, aggregates again in order to be able to report the different results. That means that each cost object must have a link to one profit centre. –As this link is ascertained the posting sis PCA come in Automatically On line In parallel 18Controlling in SAP at Ontex

19. 2. The different results in CO/PCA In FI we have a complete integrated result on company level. In PCA we want to report a split of results, each with its responsibility. We distinguish: –Sales result –Production result –Purchase result –Non operational result –Group result –Other operational result –Revaluation result –Result of idle capacity 19Controlling in SAP at Ontex

20. The sales result The sales result in CO is visible in COPA. There you can report on each PSG: –on customer, product, product group, country, sales organization, … –The postings are coming from FI (revenue, cogs) or are internally post in CO. The sales overhead was first collected on cost centres and then allocated (assessed) to PSG’s. The customer specific costs are first collected on internal orders and then allocated (settled) to PSG’s. –The sales result is analysed in COPA. The sales result is reported on the sales profit centre 20Controlling in SAP at Ontex

21. The production result The production result is the setoff of production costs and production revenue. –The production revenue is the quantity that has been produced, valorised at it’s standard cost as the materials are being put in stock at standard price This is the credit side of all production orders. –The production costs will be visible at the debit side of all orders. Material consumption via FI Labour costs via the routing: labour allocated from the machine CC to the PO (credit CC, debit PO via secondary cost element) Overhead via a costing sheet: credit the PRG cc, debit the PO via secondary cost element. 21Controlling in SAP at Ontex

22. The production result –If we summarise the order in an order hierarchy we see the total. –Some production costs will remain on cost centre as they cannot all be allocated to the PO’s For instance subcontracting All the PO’s and some production CC will be linked to the production profit centre. The production result will be fully visible there. –In CO it will be the combination of production cc and the PO’s that generates the production result. 22Controlling in SAP at Ontex

23. The purchase result The complete flow in CO, from production to sales is at standard price. –The actual price is split at purchase. The purchase is post at actual but the material is put is stock at standard. –The difference is the purchase price variance (PPV). –This variance is post on cost centres that are linked to the purchase result profit centre. Also some other cost centres are linked to it (purchasing costs, transport, customs, discounts, …) 23Controlling in SAP at Ontex

24. Relevancy of costs Why the split between commercial, production and purchase result? –This is primarily a matter of relevancy of costs. A purchase price variance may not influence the sales performance, nor the production result. –The production result may only be influenced by efficiency, because there is no price power. –The production efficiency, on the other hand, is not at all relevant for sales performance. –If we would integrate all results in one result we would see the same as in FI: no management information, no relevant information. We would only see data and figures, without being able to take correct decisions. 24Controlling in SAP at Ontex

25. Further results There are other costs that are not relevant for sales, production or purchase. –So we leave them out of these results and make an own result for each of them. –Non operational result: post on specific cost centres that are linked with the non operational profit centre. –Group result: again specific group relevant costs are collected on specific cost centres that are linked with the group result profit centre. –Other operational result: specific operational result but not production, sales or purchase relevant: specific cost centres linked to one profit centre. 25Controlling in SAP at Ontex

26. Further results –Revaluation result: when the standard price of a material is changed, the stock is re-valued. The P&L effect comes on specific cost centres linked to one profit centre. In that way it doesn’t influence the other results. –Result of idle capacity: The cost of overcapacity is left outside the production result. When we invest 100 euro in a machine to make 1000 ton, but we make only 200 ton, then only 20 euro may be absorbed in the standard price. The remaining 80 euro is not the production responsibility and is reported separately as the result of over- investment. 26Controlling in SAP at Ontex

27. Reporting the results in PCA Sales result 0500, account group 590000 Production result PCP500, account group 500000 Others –Total company result in 0500 To be reconciled with FI 27Controlling in SAP at Ontex

28. 3. Product costing Product costing is a separate module in CO where the standard prices and other cost prices are calculated: –PPC1: standard cost estimate –GPC1: group standard cost estimate –ZFIF: FIFO based cost for balance valuation –Other local tax based cost estimates The module is not part of the CO closing and reporting flow but stands alone. The Ontex way of working in product costing is conceptually quite heavy. 28Controlling in SAP at Ontex

29. Product costing The key for standard price calculation is the procurement type from the MRP view: –E: EIGEN, meaning the plant produces the material. –F: FREMD, meaning the plant purchases the material or transfers it from another plant. For EIGEN materials the system will explode BOM and ROUTING to obtain the standard production cost. For FREMD materials the material will take the current moving average (which is in fact the purchase price) as the standard. The standard PPC1 is calculated on material level per plant. 29Controlling in SAP at Ontex

30. Product costing: PPC1 The sources of costs in the standard for procurement E are: –BOM: the material components Raw mate & packaging –The routing: labour The activities pack, oper, qual –The costing sheet for: Energy Maintenance Overhead Depreciation For procurement F, it is only a figure without structure. 30Controlling in SAP at Ontex

31. Product costing: PPC1 Example in the system: –In Tsjechie Mat 23009 in P700 31Controlling in SAP at Ontex

32. Product costing: the GPC1 In profitability analysis the COGS is always a standard price. –But the PPC1 gives for externally procured materials no cost roll up of BOM and routing. Moreover it includes a transfer margin. That is why a second standard price is introduced: the GPC1. –It takes the PPC1 of the producing plant and compares with the PPC1 of its own plant. The difference is put in the cost component “interco profit”. The PPC1 is in total in a plant always equal to the GPC1 !!! 32Controlling in SAP at Ontex

33. Product costing: the GPC1 Example: material 153403 produced in P401, purchased in P001 33Controlling in SAP at Ontex

34. 6. Reconciliation FI – CO - PCA The FI result in statement ONGR, chart off accounts ONTX should equal the total PCA result. The FI result gives an overview on cost nature base The PCA result gives the same result but on a responsibility base. Example Spain in feb 34Controlling in SAP at Ontex

35. 7. Further documentation The detailed work instructions for each transaction can be found on the intranet (document browser) http://homer:8000/sapdoc/ Questions via helpdesk tickets –Always mention the company code and / or plant you are working in, as well as the transaction or the report concerned. 35Controlling in SAP at Ontex