Controlling Area:
The controlling area is the central organizational unit of the Controlling (CO) component. You use the controlling area to carry out cost accounting.
If you implement the Controlling component, postings are forwarded from Financial Accounting to Controlling. During posting, you can specify any additional account assignments relevant for cost accounting (for example, cost center or internal order). You must assign a controlling area to your company code to ensure that this data is forwarded to Controlling for further processing for cost accounting.
The company code and controlling area do not have to exist in a one-to-one relationship. You have the following options for this assignment:
· The company code can correspond to exactly one controlling area
· Several company codes can correspond to one controlling area
Internal business transactions are portrayed in the controlling area. Primary costs are transferred from external accounting and classified according to managerial accounting perspectives. If the primary costs are direct costs, then they are assigned to cost objects. If they are overhead costs, then they are assigned to cost centres or overhead cost orders. The system then allocates them using internal allocation techniques, according to their source.
When you create master data, the system always assigns the Controlling objects to a controlling area and a company code.
The level of detail provided by the Controlling component enables you to track specific information for cost monitoring, business decisions and sales control. For example, the Controlling component contains subdivisions such as cost centres and internal orders in addition to accounts.
Cost Elements
A cost element corresponds to a cost-relevant item in the chart of accounts.
Primary Cost Element:
A primary cost or revenue element is a cost or revenue-relevant item in the chart of accounts, for which a corresponding general ledger (G/L) account exists in Financial Accounting (FI). You can only create the cost or revenue element if you have first defined it as a G/L account in the chart of accounts and created it as an account in Financial Accounting. The SAP System checks whether a corresponding account exists in Financial Accounting.
Examples of primary cost elements include:
· Material costs
· Personnel costs
· Energy costs
Secondary Cost Element:
Secondary cost elements can only be created and administrated in cost accounting (CO). They portray internal value flows, such as those found in internal activity allocation, overhead calculations and settlement transactions.
When you create a secondary cost element, the SAP System checks whether a corresponding account already exists in Financial Accounting. If one exists, you cannot create the secondary cost element in cost accounting.
Examples of secondary cost elements include:
· Assessment cost elements
· Cost elements for Internal Activity Allocation
· Cost elements for Order Settlement
The assessment cost elements are used in transfer of costs between cost centres.
Cost elements for internal activity allocation are used activity types.
Cost elements for order settlement are used for calculation and posting of Work-in-progress.
Cost Element Group
You can collect cost elements with similar characteristics in cost element groups.
You can use cost element groups in the information system, for example. You can use the cost element group structure to define the row structure of your reports. Totals are calculated in the report for each node.
You can also use cost element groups whenever you want to process several cost elements in one transaction. For example, in cost center planning, distribution or assessment
The Cost centre is used in Legacy Package to analyse those expenses, which are recurring in nature, and detailed analysis is required for such expenditure.
Organizational unit within a controlling area that represents a clearly delimited location where costs occur. You can make organizational divisions on the basis of functional, settlement-related, activity-related, spatial, and/or responsibility-related standpoints.
The Term Cost center means the specific area or individual department, Item where we would like to capture our expenses based on the same the expenditure analysis can be done.
You can collect cost centres according to various criteria into groups. This enables you to use cost centres to depict the structure of the organization in the SAP System.
You can use the groups to build cost center hierarchies, which summarize the decision-making, responsibility, and control areas according to the particular requirements of the organization. The individual cost centres form the lowest hierarchical level.
There must be at least one group that contains all cost centres and represents the entire business organization. This cost center group is described as the standard hierarchy. You can assign more cost center groups to the standard hierarchy.
You can also create any number of alternative groups. You can structure these, for example, according to organizational and/or functional viewpoints. Cost center groups enable you to perform evaluations for each decision-making, responsibility, or control area. They also support the processes during planning and internal allocations.
You can assign each cost center to only one group in the standard hierarchy, but to as many alternative groups as you require.
Activity types classify the activities produced in the cost centres within a controlling area.
To plan and allocate the activities, the system records quantities that are measured in activity units. Activity quantities are valuated using a price (allocation price).
In Overhead Cost Controlling, costs based on the activity quantity of an activity type are posted separately in fixed and variable portions. When you divide the activities of a cost center into activity types, you should consider whether the costs could be allocated effectively to the activity types.
The prices of the activity types of a cost center can be either entered manually, or calculated by the system based on the costs allocated to the activities. Prices can be calculated either using plan costs or actual costs.
You can plan, allocate, and control costs either at the activity type level of a cost center, or at the cost center level. You can enter actual costs at the cost center level. Costs entered at the cost center level are assigned using splitting.
When the activities produced by a cost center are used by other cost centres, orders, processes, and so on, this means that the work centers of the sending cost center are being used by the other objects.
You can assign one activity type, multiple activity types, or no activity types to a cost center.
Internal Orders
· You use statistical orders to evaluate costs that cannot be itemized in detail in Cost Element Accounting or Cost Center Accounting.
· You achieve this by assigning the costs to both the statistical order and the responsible cost center, which directly displays the costs on the order (statistical, for information purposes only) and the cost center (real costs).
· The cost center to which you want to post costs can be stored in the master data. This enables the system to find the cost center automatically. Normally you need to specify the cost center and the order so that the posting document is complete.
· You also have the option on a statistical order whether to record a company code and business area on the order master record. If you make these assignments, you can only post transactions to controlling objects, such as cost centres, which belong to the same company code and business area
· You can neither settle statistical orders nor apply overhead to them.
Standard Cost:
Normal expected cost of an operation, process or product including labour, material and overhead charges computed on the basis of past performance costs, estimates of work measurement. This is used as measurement against the actual. In other words, it’s a provisional cost that is used as the basis for the budget and is founded in past cost records and technical specifications, which serves as a benchmark against which to compare the actual cost.
Actual Cost:
An actual costing system determines the actual labour, material and overhead expenditures for the period and assigns them directly to cost objects, The amount of overhead applied, therefore, is always equal to the amount of overhead incurred.
Variance:
It is the difference between the estimated cost of an activity and the actual cost of that activity.
Product:
A finished good made after allowing it to undergo the various processes of manufacturing, based on the specifications given by the customers, that is intended to be useful for the end user as tile allowing the customer to give it a unique name, that is, a product name.
Machine hour:
It is the cost incurred in running the Machine per hour and includes the cost of repairs and maintenance, depreciation, insurance etc.
Material Saving:
It is the difference between Standard Cost and Actual Cost for the Actual Yield, achieved due to the skill and efficiency of the work force and adoption of better systems in the manufacturing process.
Types of the planning:
Each planning screen has the option of 1) Free Planning 2) Form Based planning. For example, we have assigned four cost elements to a group. We are in the process to plan cost elements for cost centers. In the former case, the planning screen for a cost center will be empty and we have to manually input the requisite cost elements numbers and their values for planning. While in the second case all the four cost elements numbers will be automatically displayed in the planning screen of the cost center and we need to simply key in the amounts.
Cycles:
Many of the processes like reposting, distribution, assessment, indirect activity allocation etc. uses cycles for transferring cost from one cost centers (called sender cost centers) to the other cost centers (called receiver cost centers). The other receivers in the cycle could be internal orders, cost objects, WBS elements.
Cost Element Accounting
Cost and Revenue Element Accounting provides you with an overview of the costs and revenues that occur in an organization. Most of the values are moved automatically from Financial Accounting to Controlling. Cost and Revenue Element Accounting only calculates costs, which either do not have another expense or only one expense in Financial Accounting.
Cost Centre Accounting
You use Cost Centre Accounting for controlling purposes within your organization. It is useful for a source-related assignment of overhead costs to the location in which they occurred.
Internal Order Accounting
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.
Product Cost Controlling
Product Cost Controlling calculates the costs that occur during manufacture of a product, or provision of a service. It enables you to calculate the minimum price at which a product can be profitably marketed.
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