1. Profit Center Accounting

2. Course Objectives  Understand the functions in Profit Center Accounting.  Explain Profitability management in SAP.  Describe and maintain CO-PCA master data.  Identify the source of actual values.  Execute planning.  Use the CO-PCA information system.

3. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

4. PCA Overview  Profit center accounting, in conjunction with transfer pricing, enables:-  Structuring of the A Group according to Strategic Business Units (SBUs), leading to:Full Income Statements according to lines of business (Product Groups rolled up to SBU/Sectors)  Selected reporting of Balance Sheet items by Product Group/SBU and Sector (e.g. Payables/Receivables, Fixed Assets. Inventories).  The ability to reflect material movements between SBUs at commercial prices rather than cost

5.  Accounting Methods  Period Accounting  Cost-of-Sales Accounting  Values  Gross Sales  Net Sales  Variances  Ratios  Return on Investment  Margins  Economic Profit  Cash Flow  Contribution Margin Terms used in Profitability Management

6. How profitable are individual market segments? Overhead Cost Controlling How can we reduce our overhead?  Are the responsibility areas working efficiently?  How high are the organisational activity costs? Are they within their budgets?  How can we optimise our internal business processes? EC PCA Profit Center Accounting How Profitable are Individual areas? Overhead Cost Controlling What costs occur within the organisation? CO CEL CO PA CO OM Profitability Analysis CO PC Product Cost Controlling What are the Manufacturing Costs of a product? CO Module Overview

7. Profitability Analysis Profit Center Accounting Human Resources Financial Accounting FI S&D Sales and Materials Management Materials Management CO PA CO OM EC - PCA Distribution CO Components Cost Element Accounting CO CEL HR MM SD Financial Accounting Cost Element Accounting Cost centers Internal orders Profitability segment AssetRevenues Expense Activity types Internal Orders Company Code (9100 A Ltd, 9200 A1 Ltd Operating concern (9100 – A Grp) Overhead Cost Controlling Product Cost Controlling Standard Cost Estimate Product Cost Collector Controlling area (9100 – A Grp)

8. Organisational Units & Master Data A1 Ltd 9200 A Ltd 9100 HQ 1000 Cost Centers Purchasing 13… Gen Services 14… Company Codes OrdersCost Objects Sales and Marketing 15… R & T 16… Other Cost Objects Operating Concern Controlling Area A Grp Operating Concern (9100) A Grp Controlling Area (1000) Ethylene Propylene PharmaPolyolefinsPower Teleco mmuni cation Inform ation techno logy Corporate common Profit Centers

9. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

10. Aspects of Profitability Management Revenue 2000 Discounts 100 COGS 230 Contr. Margin 1440 Revenue 2000 Salaries 468 Materials 230 Profit DistributionProductionProcurementSales Advertising Profitability Analysis By Market segment (Market oriented) Responsibility Accounting (Company oriented) Profit Centers PCA PA Segments External Market Profitability

11. Aspects of Profitability Management Characteristics CO-PA costing-based EC-PCA profit center Enterprise controlling Aims of profitability accounting Key figures Calculation of profits Reconciliation with FI profit-related key figures posted and imputed values Sales and profitability controlling period accounting and cost-of sales methods cost-of-sales method profit-rel. key fig. balance sheet fig. posted values

12. Typical Questions in Profit Center Acctng. What is the operating profit for a profit center? What asset value is attributed to A profit center? Which responsibility areas Exceeded their plan for last month? What goods and services are exchanged within The corporation? Return on capital Cost management Management of internal sales & services Contribution of organizational unit

13. Responsibility Accounting Reporting Dimensions Profit Centers Answers Profit Sales Revenue Sales Deductions Cost of Goods Sold Operating Profit Liabilities Accounts Receivables Invested Capital in Assets Inventory Cost of Capital Return on Investment Accounts ROI Equity Turnover Return on Sales Economic Profit Invested Capital Determine and analyze profit, balance and financial ratios by Profit Center

14. Company 3 A2 Ltd Group Company 1 A Ltd Company 2 A1 Ltd Profit Center 1 Profit Center 2  You use valuation views to represent different ways of viewing business transactions in a company.  Legal view (Individual enterprise) – For transactions between company codes.  Group view – For a consolidated view of the corporation.  Profit center view – For business transactions between profit centers. LegalProfit Center A Group Valuation Views

15. Parallel Currencies in Profit Center Acctn. Profit Center Accounting EC - - PCA Transaction CompanySpecial CodeEC-PCA Currency

16. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

17. Organisational Units & Master Data A1 Ltd 9200 A Ltd 9100 HQ 1000 Cost Centers Purchasing 13… Gen Services 14… Company Codes OrdersCost Objects Sales and Marketing 15… R & T 16… Other Cost Objects Operating Concern Controlling Area A Grp Operating Concern (9100) A Grp Controlling Area (1000) Ethylene Propylene PharmaPolyolefinsPower Teleco mmuni cation Inform ation techno logy Corporate common Profit Centers

18. Master Data in Profit Center Accounting  Profit Centers  Profit Center Groups  Accounts P&L, Balance Sheet Items  Statistical key figures

19. Master Data - Profit Center (1) Profit Center Organizational unit in Accounting that reflects a management-oriented structure of the organization for the purpose of internal control. Profit Center groups are collections of Profit centers with similar characteristics. In the case of A Grp this structure is by Product Group.

20. Address / Communications Data Basic data Company Code Assignment Master Data – Profit Center (2) Validity Period Profit Center

21. Address / Communications Data Basic data Indicators: Dummy Profit Center Master Data – Dummy Profit Center Validity Period Dummy Profit Center

22. Profit Center Profit Center Profit Center Profit Center Mass Processing Company Code Assignment Master Data Maintenance Profit Center Comp. Cd1 Comp. Cd2 Ethylene   Styrene  ..... Profit Center Depart. Responsible Collective Master Data Processing N.N. Ethylene Styrene XXX YYY.....

23. 9 Controlling Revenue elements 123 Assets 4 Liabilities Equity Financial Accounting Expense accounts 8 Revenue Profit Center Accounting 1 Current financial assets and short- term capital 2 Non- opera- ting costs, revenue 3 Material inventory Accounts in PCA A Grp Chart of Accounts Primary cost elements Secondary cost elements 4 8

24. Master Data Groups WagesSalaries Personnel CostElements PHR1PHR2 R&TPROD. HOURS HOURS ActivityTypes TempsTenured Employees Statistical Key Figures Domestic Foreign Labour : contract CostElements F1F2F3 Fertilizers ProfitCenters

25. Cost center Internal order Sales order Material Profitability Segment Asset Production order Profit Center Profit Center Assignments

26. Monitoring Assignments  Materials  Cost Centers  Orders Material fast assignment Profit centers without cost centers Objects per profit center Not assigned Check Assignments for:

27. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

28. Definition of a Transfer Price  A transfer price is a price used to valuate the transfer of goods and services between independent organizational units.

29. Enterprise Controlling  Legal View – that of independent legal companies  Group View – that of the organization as a whole  Profit center view - that of the decentralized responsibility areas Division A Division B AmericaEuropeMiddle East Asia BRA MEX USA KSA UK

30. Transfer Prices in SAP Controlling area (Corporate Group) PCA FI CO Transfer price from the group viewpoint=group production costs Transfer price from the profit center viewpoint=management price Transfer price from the legalviewpoint=sales and purchase price Company code (Legal View) ProfitCenter (Negotiated prices)

31. AssumedPlan =Actual=>No Variances Company code 9100 A3 Ltd PrCtr1 PrCtr2 +5 L 80 G 80 P 85 L 80 G 80 P 85 G 70 L 70 P 70 Company code 9300 A Ltd Company code 9200 A1 Ltd PrCtr2 85 CCtr20 L 120 G 100 P 120 L 120 G 100 P 120 100 PrCtr3 P 220 G 100 L 220 220 Transfer Pricing CCtr 10 Ethylene Butene-1 Polyethylene Butene-1 L 100 P 85 G 70 L 70 P 70 PrCtr3 G 100

32. Transfer prices in PCA Profit Center 1Profit Center 2 PCA Quantity flow Parallelvalue flows 120 Material Production order Logistics FI/CO Transferprice 120

33. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

34. Profit Center Planning Objectives  Plan Integration  Planning Methods  Plan Data Transfer

35. Plan Integration Sales100,000 Discounts5,000 Cost of Sales50,000 Marketing Expenses10,000 Admin. Expenses15,000 Number of Sales Orders 1,000 …. Profit Center Plan Cost Center Internal Order Microsoft Excel CO Production Order

36. Planning methods in PCA Plan Allocations New Plan Final Plan Plan data transferManual entry Copy existing data Excel-Upload

37. Plan Profit Center Revenue 100,000 Marketing 50,000 Admin 10,000 …. Cost Center Internal/ On-line Plan Data Transfer AND/OR Subsequent Postings Plan Data Transfer CO Production Order

38. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

39. Actual Values Overview  Flow of Actuals in Profit Center Accounting  Overview  Flow from Profit and Loss accounts  Flow from materials management  Flow from sales and distribution  Flow from Balance Sheet items – Period end closing  Flow from Asset Management  Transfer of Material Stock  Transfer of Work In Process  Flow from Accounts payable and receivable  Flow from controlling – Period end closing  Flow from Overhead Cost Management  Profit Center Document Entry  Assessment & Distribution

40. Actual Values Overview  Flow of Actuals in Profit Center Accounting  Overview  Flow from Profit and Loss accounts  Flow from materials management  Flow from sales and distribution  Flow from Balance Sheet items – Period end closing  Flow from Asset Management  Transfer of Material Stock  Transfer of Work In Process  Flow from Accounts payable and receivable  Flow from controlling – Period end closing  Flow from Overhead Cost Management  Profit Center Document Entry  Assessment & Distribution

41. FI CO - - PC CO - - PA CO - - OM Overview of Value Flow in PCA E E Business process V V A A L L U U F F L L O O W W EC - - PCA Production Goods Sales/Billing Procurement MMMMPPPPSDSDMMMM E Profit Center Accounting Movement Primary Costs

42. Actual Values Overview  Flow of Actuals in Profit Center Accounting  Overview  Flow from Profit and Loss accounts  Flow from materials management  Flow from sales and distribution  Flow from Balance Sheet items – Period end closing  Flow from Asset Management  Transfer of Material Stock  Transfer of Work In Process  Flow from Accounts payable and receivable  Flow from controlling – Period end closing  Flow from Overhead Cost Management  Profit Center Document Entry  Assessment & Distribution

43. Material/Plantof SalesOrder Substitution Material/Plant of PurchaseOrder Material/Plant Indirect/ManualAssignment Customized Automatic AccountAssignment Invoice Receipt Goods Movement Direct Posting from FI Other P&L Accounts Source Transaction Profit Center Billing Document Determination of Profit Centers in P&L

44. Business process V V A A L L U U F F L L O O W W EC - - PCA FI PP MM Material Expense 400000 Raw Materials 119400 500 Consumption Production Order CO - - PC Material Expense 500 Flow from materials management (1) E Material Expense 400000

45. Business process V V A A L L U U F F L L O O W W EC - - PCA FI FIFI PP MM Finished Products 119430 450 Delivery to Stock Production Order 450 M. Expense 500 Production Output-450 CO - - PC Production Output 462001 Flow from materials management (2) E Production Output 462001

46. Business process V V A A L L U U F F L L O O W W FI 6,028.50- Cost of Goods Sold 462002 Inventory - Finished Product (FG) 119430 6,028.50 Goods Issue MMMM Flow from sales and distribution (1) E Stock Change Stock EC - - PCA

47. Flow from sales and distribution (2) Business process V V A A L L U U F F L L O O W W Sales/Billing SD Receivables … 10,000 Sales 810000 10,000 E FI Sales 810000 10,000 EC - - PCA

48. Actual Values Overview  Flow of Actuals in Profit Center Accounting  Overview  Flow from Profit and Loss accounts  Flow from materials management  Flow from sales and distribution  Flow from Balance Sheet items – Period end closing  Flow from Asset Management  Transfer of Material Stock  Transfer of Work In Process  Flow from Accounts payable and receivable  Flow from controlling – Period end closing  Flow from Overhead Cost Management  Profit Center Document Entry  Assessment & Distribution

49. CostCenter/InternalOrder Assignment of Asset Material/Plant Material/Plant Account Assignment of Sales order/PurchaseOrder Assets Inventory Values Source Transaction Profit Center CustomizingAutomatic AccountAssignment Accounts Receivable Accounts Payable Other Balance Sheet Items Determination of Profit Center for B/Sheet

50. Flow from Asset management Business process V V A A L L U U F F L L O O W W E Building Assets 100 Building Assets 100 Transaction Processing: Acquisition of Asset Period End Closing: Transferof Asset Values Periodic Transfer On-line EC - - PCA FI

51. Transfer of Material Stock V V A A L L U U F F L L O O W W E Material Stock 1000 Material Stock 1000 Periodic Transfer On-line EC - - PCA FI

52. Transfer of Work in Process V V A A L L U U F F L L O O W W E WIP 80 WIP 80 Periodic Transfer On-line EC - - PCA FI

53. Item 1 Item 2 Item 3 Carry out period- FI (payables and receivables are split according to profit center) Run transfer program in Profit Center Accounting Sales order FI SD EC - - PCA Profit center A Profit center B Profit center C 1000 2000 3000 A/R Profit Center C 3000 A/R Profit Center B 2000 A/R Profit Center A 1000 FI Accounts Receivable 6000 Flow of value in AP and AR 1 2 closing activities for payables and receivables in

54. Actual Values Overview  Flow of Actuals in Profit Center Accounting  Overview  Flow from Profit and Loss accounts  Flow from materials management  Flow from sales and distribution  Flow from Balance Sheet items – Period end closing  Flow from Asset Management  Transfer of Material Stock  Transfer of Work In Process  Flow from Accounts payable and receivable  Flow from controlling – Period end closing  Flow from Overhead Cost Management  Profit Center Document Entry  Assessment & Distribution

55. Business process V V A A L L U U F F L L O O W W Auto Expenses 450017 CO - - OM Auto Expenses 500 Transaction Processing: PostVendor Invoice Transfer from Controlling (1) E FI Vendor 500 Auto Expenses 450017 500 EC - - PCA

56. Transfer from Controlling (2) Business process V V A A L L U U F F L L O O W W E CO - - OM R&T PROD. HR.-500 Transaction Processing: Internal Activity Allocation R&T PROD. HR.500 Profit Center 2 Profit Center 1 Cost Center 2 500 Cost Center 1 5 hours 500 EC - - PCA CO - - OM

57. Business process V V A A L L U U F F L L O O W W E PeriodEndClosing: Profit Center 2 Profit Center 1 8000 General costs to R&T. 8000. EC - - PCA Profit Center Document Entry General costs to R&T EC - - PCA Statistical Key Figure

58. Business process V V A A L L U U F F L L O O W W E PeriodEndClosing: Assessment Profit Center 1112 Profit Center 7000. EC - - PCA Assessment Profit Center 1114. Others/ Allocations Benzene Butadiene EC - - PCA

59. Module 1: Overview Module 2: Profitability Management Course Map Table of contents Module 5: Planning Module 3: Master Data Module 4: Transfer Prices Module 6: Actual Data Module 7: Information System

60. Line Item Reports Profit Center Report Interactive Reporting List- oriented Reports Master Data Index Summary Records Information System Overview

61. Report Output Types Interactive Reporting  Variable output areas  Navigation tree / drag & drop  Cumulative display functionality List – Oriented Reports  Interface Report-to-Report  Printing options  Integration with MS Office

62. Course Summary You should now:  Have an understanding the functions in Profit Center Accounting.  Explain Profitability management in SAP.  Describe and maintain CO-PCA master data.  Identify the source of actual values.  Execute planning.  Use the CO-PCA information system.