Controlling management

Controlling ManagementControlling Management
SAP PRESSSAP PRESS

Concepts &Concepts & TheoriesTheories

33
Controlling AccountingControlling 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.

44
Controlling (CO)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

55
Fundamentals of Cost ManagementFundamentals 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 2008January 2008
© SAP AG - University Alliances and© SAP AG - University Alliances and
The Rushmore Group, LLC 2008. AllThe Rushmore Group, LLC 2008. All
rights reserved.rights reserved. 66
Fundamentals of Cost ManagementFundamentals 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 10004232), 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.

77
Target AudienceTarget Audience
Executives
Senior Management
Department Managers
Controllers
Cost Accountants

88
Controlling Accounting TerminologyControlling 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


99
Controlling Accounting TerminologyControlling 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.

1010
Subcomponents of ControllingSubcomponents of Controlling
AccountingAccounting
- Cost Element Accounting
- Cost Center accounting
- Internal Orders, and
- Profit Center Accounting

1111
Cost Element AccountingCost 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).

1212
Cost Element AccountingCost 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).

1313
Cost Center Accounting (CCA)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.).

Cost CentersCost 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

1515
Cost Center (- continued)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).

1616
Cost Center AccountingCost 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.

1717
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.

1818
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.).

1919
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).

2020
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.

2121
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).

2222
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.

2323
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.

2424
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.)
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.)

Organizational StructuresOrganizational Structures
-cost center standard hierarchy-cost center standard hierarchy
PlantPlant
(Pxxx)(Pxxx)
Client (600)Client (600)
Chart ofChart of
Accounts (Cxxx)Accounts (Cxxx)
CompanyCompany
Code (Cxxx)Code (Cxxx)
Fiscal YearFiscal Year
Variant (2012)Variant (2012)
Credit ControlCredit Control
Area (Cxxx)Area (Cxxx)
PurchasingPurchasing
OrganizationOrganization
(Pxxx)(Pxxx)
PurchasingPurchasing
Group (xxx)Group (xxx)
ShippingShipping
PointPoint
(Sxxx)(Sxxx)
ControllingControlling
Area (Cxxx)Area (Cxxx)
SL10SL10 SL20SL20
Cost CenterCost Center
StandardStandard
HierarchyHierarchy
(PENINCxxx)(PENINCxxx)
ADMINxxxADMINxxx
A005 A015 A020A010

2626
 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

2727
Internal OrderInternal 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.

2828
Internal Order (- contimued)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

2929
Profit Center Accounting (PCA)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.

3030
Profit Center AccountingProfit 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.

3131
Profit Center (- continued)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

3232
Profit Center AccountingProfit 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.

3333
Accounting and Control withinAccounting and Control within
Production Planning (PP)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.

3434
Accounting and Control withinAccounting and Control within
Production Planning (PP)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 labor, machine, materials, setup costs,
quality costs, and resource consumption.

3535
Estimate CostEstimate 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.

3636
Estimate CostEstimate 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.
3737
Example of Cost AccountingExample 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.
3838
Units sold
Beginning

3939
Cost AccountingCost Accounting
TerminologyTerminology
When looking at a financial point of view, there are actual
costs of $233,211.00, $336.11, and $156.52. 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
$233,211.00 $240,000.00
336.16
156.52
Total Cost $233,703.68 $240,00.00
Production variance -$6,296.32
Debit Credit
$0.00
Work is completed $240,000.00
Units sold $48,000
Ending $192,000.00
4040
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
$6,296.32. When broken down by units, this variance is
$41.98/pc.
Was the production of these motorcycles efficient?
4141
Units sold
Beginning

SAP ImplementationSAP Implementation

R/3
SAP Module ViewSAP 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)

Components of ManagerialComponents of Managerial
AccountingAccounting
Controlling
(CO)
Cost
Element
Acct
Cost
Center
Acct
Product
Cost
Controlling
Internal
Orders
Activity
Based
Costing
Profit
Center
Acct
Profitability
Analysis

ComparisonComparison
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

Comparative ReportingComparative 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

Income Statement Bal. Sheet
Financial Accounting
(FI) Transaction
Document
Amount
G/L Account #
Cost Center
1900012432
(CO) Transaction
Document
Cost Center
Cost Element
20000657 Controlling
100100
BankSupplies Exp.
Cost Center
100
Interrelated and CloselyInterrelated and Closely
ConnectedConnected

Business Process IntegrationBusiness Process Integration
FI
MM/PP
SD
OrgData
Rules
FI
MM/PP
SD
MasterData
FI
MM/PP
SD
FI SDMMCO PP
CO
CO
CO

January 2007 (v1.0)January 2007 (v1.0)
© 2007 by SAP AG. All rights© 2007 by SAP AG. All rights
reserved. SAP University Alliance.reserved. SAP University Alliance.
The Rushmore Group, LLCThe Rushmore Group, LLC 4949
SAP CO ModuleSAP 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)

OrgData
CO
CO

5151
SAP CO Organizational ObjectsSAP 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

5252
SAP CO Organizational ObjectsSAP CO Organizational Objects
Client
Company Code
Chart of Accounts
Controlling Area
Cost Center
Internal Order
Profit Center

Client 765
Credit Control
Area
Company
Code
Fiscal Year
Variant
Chart of
Accounts
Pen Inc.
Controlling
Area
Organizational Structure

Standard HierarchyStandard 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

Standard Hierarchy (- continued)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

Cost Center GroupsCost 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

MasterData
CO
CO

Cost Element OverviewCost Element Overview
Cost Element Groups
Cost Elements
Primary Cost Elements
Secondary Cost Elements
Statistical Key Figures

© SAP AG - University Alliances and The Rushmore Group, LLC© SAP AG - University Alliances and The Rushmore Group, LLC
2007. All rights reserved.2007. All rights reserved. 5959
Cost Element GroupsCost 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

6060
Cost ElementsCost 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

Cost Elements (- continued)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)

Primary Cost ElementsPrimary 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)

6363
Secondary Cost ElementsSecondary Cost Elements
Used exclusively in CO for allocations and
settlements between and amongst cost
centers

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

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

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 Expense Acct. Payable
CC 2
CC 3

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 Elem
ent
Sec. Cost Element
Sec. Cost Elem
ent
Cost Center A
Cost Center 2
Cost Center 4
Cost Center 3
Secondary Cost Elements
(continued)

Statistical Key FiguresStatistical 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

Cost
Center
Activity
(20 Hours)
10 Hours
6 Hours
4 Hours
Work Center
Maintenance
Department
Information Services
Department
Statistical Key Figures

7070
Revenue ElementsRevenue 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

CO

Cost Center AllocationsCost 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?)

7373
Cost Accounting AllocationCost 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.

7474
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.
.

7575
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.

Types of Allocations CyclesTypes of Allocations Cycles
Distributions – primary cost elements
Assessments – combination of primary
and/or secondary cost elements

Distribution CycleDistribution 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

A010 – 600
sq ft
A005 – 400
sq ftD010 – 550
sq ft
D005 – 900
sq ft
S010 – 100
sq ft
S005 – 200
sq ft
A020 – 100
sq ft
A015 – 150
sq ft
Sending
cost center
Primary cost
element
maintains its
identity
Receiving
cost centersDistribution Cycle
A010 – Administration
Rent Expense
$1,500
Distribution

A015
$75A020
$50
S005 –
$100
S010 – $50
A010 –
$300
D005 –
$450
D010 –
$275
A005 –
$200
A010 – Administration
Rent Expense
$1,500
Distribution
Sending
cost center
Primary cost
element
maintains its
identity
Receiving
cost centers
Distribution CycleDistribution Cycle

Assessment CycleAssessment 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

A020 – 0%
A005 – 15%
A010 – 5%
A015 – 10%
S005 – 30%S010 – 10%
D005 – 20%
D010 – 10%
A020 – IT
Software Expense
$4,200
A020 – IT
Supplies Expense
$500
Assessment
Sending
cost center
Primary and
secondary
cost elements
Receiving
cost centerAssessment CycleAssessment Cycle

S010 – $470
D010 – $470
A005 – $705
A010 – $235
A015 – $470
A020 –$0
S005 – $1,410
D005 – $940
A020 – IT
Software Expense
$4,200
A020 – IT
Supplies Expense
$500
Sending
cost center
Primary and
secondary
cost elements
Receiving
cost center
Assessment
Assessment CycleAssessment Cycle

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
7. Repost expense (cost) between cost centers
9. Post statistical key figure
10. Create distribution cycle
11. Review actual line item report
12. Post supplies expense
13. Post information technology expense
15. Create assessment cycle

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

Controlling management

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