A cost object means a cost or a revenue collector wherein all the costs or revenues are collected for a particular cost object. Examples of this could be cost center, production order, internal order, projects & sales order.
So whenever you look at any controlling function the basic thing you need to ask yourself is What is the cost element(expense) I want to control and what is the cost object ( i.e. either the production order, sales order, internal order) I am using to control this cost element. Sounds confusing read it again it is very simple.
The SAP CO (Controlling) Module provides supporting information to Management for the purpose of planning, reporting, as well as monitoring the operations of their business. Management decision-making can be achieved with the level of information provided by this module.
Some of the components of the CO(Controlling) Module are as follows:
1. Cost Element Accounting
2. Cost Center Accounting
3. Internal Orders
4. Activity-Based Costing ( ABC)
5. Product Cost Controlling
6. Profitability Analysis
7. Profit Center Accounting
Cost Element Accounting
The Cost Element Accounting component provides information which includes the costs and revenue for an organization. These postings are automatically updated from FI (Financial Accounting) to CO (Controlling). The cost elements are the basis for cost accounting and enable the User the ability to display costs for each of the accounts that have been assigned to the cost element. Examples of accounts that can be assigned are Cost Centers, Internal Orders, WBS (work breakdown structures).
Cost Center Accounting
Cost Center Accounting provides information on the costs incurred by your business. Within SAP, you have the ability to assign Cost Centers to departments and /or Managers responsible for certain areas of the business as well as functional areas within your organization. Cost Centers can be created for such functional areas as Marketing, Purchasing, Human Resources, Finance, Facilities, Information Systems, Administrative Support, Legal, Shipping/Receiving, or even Quality.
Some of the benefits of Cost Center Accounting: (1) Managers can set Budget /Cost Center targets; (2) Cost Center visibility of functional departments/areas of your business; (3) Planning; (4) Availability of Cost allocation methods; and (5) Assessments/Distribution of costs to other cost objects.
Internal Orders provide a means of tracking costs of a specific job, service, or task. Internal Orders are used as a method to collect those costs and business transactions related to the task. This level of monitoring can be very detailed but allows management the ability to review Internal Order activity for better-decision making purposes.
Activity-Based Costing allows a better definition of the source of costs to the process driving the cost. Activity-Based Costing enhances Cost Center Accounting in that it allows for a process-oriented and cross-functional view of your cost centers. It can also be used with Product Costing and Profitability Analysis.
Product Cost Controlling
Product Cost Controlling allows management the ability to analyze their product costs and to make decisions on the optimal price(s) to market their products. It is within this module of CO (Controlling) that planned, actual and target values are analyzed. Sub-components of the module are:
- Product Cost Planning which includes Material Costing( Cost estimates with Quantity structure, Cost estimates without quantity structure, Master data for Mixed Cost Estimates, Production lot Cost Estimates) , Price Updates, and Reference and Simulation Costing.
- Cost Object Controlling includes Product Cost by Period, Product Cost by Order, Product Costs by Sales Orders, Intangible Goods and Services, and CRM Service Processes.
- Actual Costing/Material Ledger includes Periodic Material valuation, Actual Costing, and Price Changes.
- Profitability Analysis allows Management the ability to review information with respect to the company’s profit or contribution margin by business segment. Profitability Analysis can be obtained by the following methods:
Profitability Analysis allows Management the ability to review information with respect to the company’s profit or contribution margin by business segment. Profitability Analysis can be obtained by the following methods:
- Account-Based Analysis which uses an account-based valuation approach. In this analysis, cost and revenue element accounts are used. These accounts can be reconciled with FI(Financial Accounting).
- Cost-Based Analysis uses a costing based valuation approach as defined by the User.
Profit Center Accounting
Profit Center Accounting provides visibility of an organization’s profit and losses by profit center. The methods which can be utilized for EC-PCA (Profit Center Accounting) are period accounting or by the cost-of-sales approach. Profit Centers can be set-up to identify product lines, divisions, geographical regions, offices, production sites or by functions. Profit Centers are used for Internal Control purposes enabling management the ability to review areas of responsibility within their organization. The difference between a Cost Center and a Profit Center is that the Cost Center represents individual costs incurred during a given period and Profit Centers contain the balances of costs and revenues.
Primary configuration considerations:
There are several configuration steps that must be considered when implementing the CO (Controlling) Module. Creating the Controlling area is one of the first steps in the CO (Controlling) configuration process. SAP has provided standard controlling areas and company codes which can be utilized as a basis for creating your company’s Controlling Area. The SAP Standard for Controlling Area is “0001” and for company code is “0001”.
It is recommended that these be used as a basis to create the Controlling Area or Company Code that you would like to define. Certain defaults setting such as number ranges have already been set-up in the standard SAP settings, thereby eliminating the need to redo this configuration requirement. Through the SAP Configuration process, you can create a copy of the Standard Controlling Area and Company Code, then update the other fields as needed including the four character alpha numeric field which identifies these areas. (You may want to change the controlling area from “0001” to “A001” and the Company Code from “0001” to “ AA01” as an example.)
Keep in mind that Company Codes are assigned to Controlling Areas and affect the COA (Chart of Accounts), the Fiscal Year Variants, and Currency set-ups. Cost Center hierarchy and Reconciliation ledger settings are also include in the Controlling Area set-up.
The Control Indicator activates and deactivates certain functions in the Controlling Area. The Controlling Area can also be used for cross-company code business transactions. To enable this function the Controlling Area must be assigned to all company codes used for cross-company code accounting.
Configuration in the CO (Controlling) Modules requires maintenance of number ranges for documents generated from business transactions. A systems’ generated document number is assigned for every CO (Controlling) posting. These numbers are sequential and are required to be assigned to number range groups. The number range group consists of two number intervals, one for internal document numbering and one for external document numbering. The SAP R/3 system keeps track of those document numbers that are externally generated and fed to SAP via batches and User manual input, otherwise, the system generates the next internally assigned document number for the transaction posted.
As previously stated when defining the Controlling Area, you have the ability to copy the Standard SAP Controlling Area “0001” which already has the number ranges defined eliminating the need for maintenance of number ranges. Keep in mind that you also have the flexibility to change number ranges and number range groups to meet your business needs. As a caution, never overlap number intervals in a group. For example, if you decide to assign number range interval 10000000 thru 199999999 to the number range group “05”, you can not assign it to number range group “06”. Number ranges should never be transported for data consistency purposes, therefore create these manually in each system.
Within the CO (Controlling) Module, you can configure Plan Versions. Maintaining Plan Versions allows for set-up of planning assumptions and determination of plan rates for allocation and plan activity purposes. The SAP Standard Version “000” is created for a five year fiscal year plan. It is recommended that the standard version be utilized for your plan/actual comparisons if you do not require multiple plan versions. SAP always allows the flexibility to create additional Plan versions by coping the Standard Version “000” and changing certain fields as required. There is also the option of defining and creating a totally new Plan Version.
After the Controlling Area, Number Ranges, and Plan Versions have been defined and maintained, then settings for the other components in the CO (Controlling) Module should be maintained. (Cost Center Accounting, Cost Element Accounting, Activity-Based Costing, Internal Orders, Product Cost Controlling, Profitability Analysis, and Profit Center Accounting)
The Account Assignment Logic allows configuration for Validation and Substitution Rules whose purpose is to check certain input values as defined by the User.
More specifically, Validations allow for business transactions to either post or not post documents based on the criteria defined in the validation rule. Certain input conditions are checked as defined by the User and if those conditions are met then the document(s) are updated and/or posted in the system. If the condition is not met, then an error message is generated to the User with a brief explanation of the error. These messages are defined in Configuration and can be identified as a warning, error, or a note. You also have the option to deactivate messages.
Substitutions on the other hand, checks input values and replaces the values with another value if the criteria as defined is met.
Maintaining Currency and Valuation Profiles allows for the definition of valuation approaches to be used in accounting components. These valuation profiles are checked in the system when activated in the Controlling Area. Certain rules apply if there is a need to maintain the currency and valuation profiles: (1) Company Code Currency must be assigned to a legal valuation approach, (2) Valuation approaches must also be maintain in the material ledger, and (3) Profit Center valuations can only be maintained if you are using Profit Center Accounting.
The CO(Controlling)Module has multiple configuration steps that must be followed for complete implementation of this module. Each sub-component of the CO (Controlling) Module has it’s level of configuration requirements. Once you have defined your business needs in the Controlling Area, a determination can be made as to what should be configured and what you do not need.
End-user Training documents on Controlling
Activity Prices of Cost Centers
How to Change Cost Center?
Copy Plan to Plan View post
Cost Planning – Depreciation
Create Activity Type
Create Cost Center
Create Secondary Cost Element
Delete Activity Type
Display Activity Type
Execute Plan Cost Assessment
Execute Plan Cost Distribution
Execute Plan Cost Splitting
Execute Plan Price Calculation
Period Lock and Unlock
Plan Activity Output on Cost Center
Primary Cost Planning
Reposting Line Items
Reversal of Reposted Line Item