Cost center accounting extended functions by SAP ERP officials

• Activity Allocation: Concept and Master Data• Advanced Planning Methods Actual Cost Allocation • Period-End Closing: Allocations and Analysis • ConclusionThe information in this course

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AC412 Cost Center Accounting: Extended

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This handbook is intended to complement the instructor-led presentation of thiscourse, and serve as a source of reference It is not suitable for self-study.

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Course Overview vii

Course Goals vii

Course Objectives viii

Unit 1: Activity Allocation: Concept and Master Data 1

Activity Allocation: Concept 2

Master Data: Activity Type 9

Unit 2: Advanced Planning Methods 31

Planning Scenarios 32

Manual Planning 35

Automatic Planning Techniques 49

Plan Closing 83

Unit 3: Actual Cost Allocation 121

Transaction-Based Activity Allocation 122

Periodic Activity Allocation 133

Unit 4: Period-end closing 169

Plan/Actual Comparison 171

Target Cost Analysis 176

Variance Analysis 193

Actual Price Revaluation 209

Marginal Costs 226

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• Activity Allocation: Concept and Master Data

• Advanced Planning Methods Actual Cost Allocation

• Period-End Closing: Allocations and Analysis

• ConclusionThe information in this course refer to the following SAP software componentsand releases

• SAP ERP Central Component

Target Audience

This course is intended for the following audiences:

• Project team members who are responsible for implementing OverheadCost Controlling extended functions

• Financial accounting employees responsible for efficient activity allocation,extended planning functions and differentiated analysis of target costs,variances, marginal costs, or revaluation at actual prices

Course Prerequisites

Required Knowledge

• AC410 Cost Center Accounting

• Theoretical knowledge and practical experience in Cost Center Accounting

Recommended Knowledge

• AC415 Overhead Orders

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Course Goals

This course will prepare you to:

• Distinguish various Management Accounting concepts for responsibilityareas

• Configure and use the advanced functions for planning and activityallocation

• Analyze information and effects of various cost accounting systems inoverhead cost controlling

• Describe and maintain the advanced planning functions for quantity-basedplanning

• Use plan reconciliation, plan cost splitting, and plan activity price calculation

• Use the various tools for activity allocation of actuals

• Investigate and analyze variances between plan or target costs and actualcosts in detail

• Distinguish various cost accounting systems and their effect in overheadcost controlling

Course Objectives

After completing this course, you will be able to:

• Distinguish various Management Accounting concepts for responsibilityareas in the SAP System

• Configure and use the advanced functions for planning and activity allocation

• Analyze information and effects of various cost accounting systems inoverhead cost controlling

SAP Software Component Information

The information in this course pertains to the following SAP Software Componentsand releases:

• SAP ERP Central Component

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Unit Objectives

After completing this unit, you will be able to:

• Explain and differentiate between the concepts of cost assignment andinterpret their objectives

• Make the key basic settings for “activity type” master data

Unit Contents

Lesson: Activity Allocation: Concept 2Lesson: Master Data: Activity Type 9Exercise 1: Master Data 13

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Lesson: Activity Allocation: Concept

Lesson Overview

This lesson explains key issues related to activity allocation

Lesson Objectives

After completing this lesson, you will be able to:

by management It facilitates coordination, monitoring, and optimization of all

processes used in an organization This involves recording both the consumption

of production factors and the activity provided by an organization

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This means that all cost-relevant data flows automatically from FinancialAccounting to Management Accounting As part of this process, the systemassigns the costs and revenues to different CO account assignment objects such

as cost centers, business processes, projects or orders The relevant accounts inFinancial Accounting are recorded in Management Accounting as cost elements orrevenue elements

You use Cost Center Accounting for controlling purposes in your organization It

is the appropriate tool for monitoring all the overhead costs incurred and allocatingthem appropriately to the place where they were incurred

Product Cost Controlling calculates the costs arising from the manufacture of

a product or the provision of a service It enables you to calculate the minimumprice at which a product can be profitably marketed

Profitability Analysis analyzes the profit or loss of an organization according to

individual market segments The system allocates the corresponding costs tothe revenues for each market segment Profitability Analysis provides a basisfor decision-making, price determination, customer selection, conditioning, andfor choosing the distribution channel

Figure 2: Responsibility Area Controlling

Overhead costs are costs that cannot be directly assigned to the manufacture of

a product, or the provision of a particular service You assign all overhead costs

to the locations at which they were incurred, or to the activities from which theyarose

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A cost center represents a separate location of cost occurrence within a controlling

area You can create cost centers according to a number of criteria, includingfunctional considerations, allocation criteria, activities provided, or according to

their physical location and/or management area.

An activity type defines the type of activity that can be provided by a cost center.

Activities provided by one cost center to other cost centers, orders, or processes,

represent the utilization of resources of the sender cost center You valuate

activities using a price calculated on the basis of certain business or managementinformation

A business process combines a sequence of activities within an organization across cost centers Business processes can be used to control organizational

processes in line with particular functions

Internal orders are used to plan, collect, and analyze the costs arising from internal activities.

There are different methods for allocating values and quantities, depending on the

type of CO object in question You can use advanced analysis tools at period-end

on quantity allocations: The SAP System uses the operating rate (target costs)

to compare the plan costs with the corresponding actual costs You can thenanalyze the variances identified, and their causes

Concepts and Their Objectives

Figure 3: Cost distribution

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Assigning costs to cost centers enables you to determine where costs are incurred

in your organization If you plan costs at cost center level, you can check cost efficiency at the point where costs are incurred.

Actual cost entry: Primary costs can be transferred to Cost Accounting from

other components, for example, Materials Management, Asset Accounting,Payroll Accounting Additional costs or valuation differences are periodicallyentered using the accrual method, or the overhead or plan=actual processes

Actual cost allocation: You can use various methods to allocate the actual

costs you have recorded The system distinguishes between transaction-basedallocations, which occur within a period, and period-based allocations, whichoccur at period end

Characteristics of the cost allocation methods:

• Either no or only simplified planning is required.

• The sender specifies the allocation amount.

• Both primary and secondary costs can be transferred.

• Various reports are available for cost center analysis, which are based on

plan-actual or actual-actual comparisons.

Figure 4: Activity Allocation

More advanced methods of overhead cost allocation are also available Youcan use these methods throughout the organization, or in separate particular

problem areas They can help determine what internal activities are needed to

supply services or products, and to market them This enables you to allocate

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overhead costs according to resource consumption and activity utilization.

The SAP System can automatically determine the quantities used in many cases,considerably reducing the time required to carry out an activity allocation Thisinvalidates the argument in favor of simple assessment and overhead calculationmethods which is often voiced in many organizations Along with time-savingautomatic allocations, the integration of Overhead Cost Controlling in the SAPSystem environment minimizes entry of actual data and reduces the work involved

in planning

Activity type allocation: Activity allocation uses the activity produced by a cost center as the allocation base for the costs You can use activities to measure the

operating rate or the rate of capacity utilization for a cost center The target costs

of the cost center refer to the activity output When you allocate internal activities,you enter the quantity of the activity to be allocated Otherwise, the system

automatically calculates this quantity The SAP system needs an activity price to

allocate costs and to allocate activities You can either set this price manually, oryou can calculate it, using plan or actual costs

Figure 5: Objectives of Each Concept The significance of overhead costs from planning, management, quality control,

and coordination in areas such as research and development, procurement,and work preparation is continually increasing when compared with the actualmanufacturing of the product Although direct activity output provides a great deal

of cost transparency to which an organization can apply proven cost controlling

methods to reduce costs, managers have already exhausted most of these options.The interconnections in overhead costs, however, often remain unclear and theoptimization potential is not fully realized

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At the end of the period, you can use the methods of activity allocation to compare the plan costs (target costs) and their corresponding actual costs, based on the operating rate You can make a source-based analysis of the resulting target/actual variances, and use the analyses for further managerial accounting measures within Management Accounting.

Unlike the analysis tools used in the cost assignment procedure, more detailed Management Accounting instruments are also available:

• Statistics on the costs based on the current operating level

• Advanced variance analyses

• Comparison and, if required, revaluation at actual prices

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Lesson Summary

You should now be able to:

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Lesson: Master Data: Activity Type

Lesson Overview

In this lesson, you learn how to make the key activity type settings in master data

Lesson Objectives

After completing this lesson, you will be able to:

Business Example

For the controlling concept in your company, activity types are created for the costcenters whose costs will be analyzed based on the operating level

General Settings and Activity Type Category

Figure 6: Activity Type: General Settings

An activity type classifies the activities provided by a cost center If a cost center

provides activities for other cost centers, orders, processes, and so on, this means

that the resources of this cost center are being used The costs of these resources need to be assessed to the receivers of the activity Activity types serve as tracing factors for this cost allocation.

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In an internal activity allocation, the quantity of the activity such as the number

of repair hours, is entered in the R/3 System (manually or automatically) The

System calculates the associated cost based on the activity price and generates adebit to the receiver and a credit to the sender for both the quantity and costs The

internal activity allocation is carried out using secondary cost elements, which

are stored as default types in the activity type master data

You can restrict the use of the activity type to certain cost element types, by

entering the allowed cost center types in the activity type master data You

can enter up to eight permitted cost center types, or leave the assignments

“unrestricted” by entering an asterisk (*) If you change the cost center type, becareful to avoid inconsistencies with information stored in the cost center masterdata

You can assign any number of activity types, or none at all, to a cost center Anactivity type is uniquely assigned to a cost center during planning

Figure 7: Activity Type Category The activity type category is used to determine whether and how an activity type

is recorded and allocated For example, for some activity types you can allow

certain activities to be allocated directly based on transactions while others are allocated automatically.

In activity type maintenance, you can enter separate plan and actual activity typecategories You only need an actual activity type category if actual allocationvaries from plan allocation Otherwise, the R/3 System automatically adopts theplan activity type category in actual

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Actual quantity set: This indicator determines whether you can post a manual

activity quantity in addition to the allocated quantity that credited the cost center.Manual posting is advisable when you want to determine the allocated activityquantity automatically, but you do not yet know the actual quantity from thesender side

Plan quantity set: If you select this indicator, the planned activity quantity

is not changed by plan reconciliation – even if planning for the object is not to

be reconciled

Figure 8: Activity Type Categories: Time Spent Entering Quantities

Activity type category 1: You plan activity quantities manually for activity types

in this category You enter actual activity quantities in internal activity allocation,based on business transactions Plan activities are allocated to the receivers, usingactivity input planning You may need to reconcile the planned sender quantitiesand the planned scheduled activity

Activity type categories 2, 3, and 5: You can automatically plan and allocate quantities for activity types of these categories They will save you time and

effort when making transaction-based postings and plans Category 5 can be usedonly with actual data Categories 2 and 3 are assigned using cycles and segmentsrelated to planning or period-end closing work More detailed information on thedifferences is contained in later units

Activity type category 4: You plan activity quantities manually for activity types

in this category The entry of actual activity quantities is transaction-based You

cannot specify receiver objects for this You cannot allocate to other objects.

However, you can calculate target costs for this activity type category

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Changes between activity type categories 1, 2, 3, and 5 are possible, even if theindividual activity type has already been used for planning, as these are onlyestimated amounts for activity planning You can only make changes in activitycategory 4, or from activity type category 4 to a different category, if you have notyet posted to the planning or actual data of the fiscal year with each activity type.

Activity Type: Price Indicator

Figure 9: Activity Type: Price Indicator

To plan and allocate the activities, the system records quantities, which are

measured in activity units The valuation of the activity quantity results in a price This price is recorded in separate fixed and variable portions, depending

on the activity amount of an activity type The apportionment of activities to costcenters should therefore reflect the allocation of costs to the activity types

You can specify the planned activity price manually or use a function to have the system automatically calculate the price Prices can be calculated either on the basis of planned costs or actual costs.

If you set the values 1 or 2 in the plan, new prices are calculated when the plan price is calculated If you set the value 3, you have to set the price of the activity type manually.

For actual allocations, you can enter a price indicator that is different to that in

the plan If you do not enter a price indicator for the actual allocation, the R/3System uses the same price indicator for actual and planning data

During actual price calculation, the price indicators Actual 5 and 6 are used to determine new prices and revaluate existing price allocations in CO-OM Value

7 allows you to determine an actual price manually This indicator allows you to

set a price that is scheduled and varies from the plan

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Exercise 1: Master Data

Exercise Objectives

After completing this exercise, you will be able to:

• Describe the functions of activity types as master data

• Explain the use of activity type categories

• Explain the function of the price indicator

Business Example

The exercises use the example of a firm that produces computers You will useadvanced analysis methods and various allocation techniques for ManagementAccounting of the costs of areas of responsibility Target costs and varianceswill be analyzed in order to establish a relationship between internal costs andactivities

You will therefore create a number of different activity types for your organization,which will reveal what activities caused the costs As only some activity quantitiescan be measured in practice, you can also use activity type categories, which allowyou to automatically calculate and allocate activity flows

Hint: The exercises and solutions use the following menu paths:

CCA: Accounting → Controlling → Cost Center Accounting IMG: Tools → Customizing → IMG → Execute Project → SAP Reference

IMG

Task 1:

Familiarize yourself with the company used in this exercise Analyze the existingstructures in the system, and make your own user-defined settings

1 Display the node H_TECH## (## is your PC number in the classroom)

in the standard hierarchy of controlling area 1000 (under the nodeH9500-H-AC412) How many cost centers are there in the various areas

of your organization?

Enter your cost centers in the organization chart

2 Make your user settings in the information system These default settingswill make it easier for you to enter data at a later stage

Controlling area: 1000 Cost center group: H_TECH## Planning period:current fiscal year, periods 1 – 12 Reporting period: current fiscal year,periods 1 – 12 Plan version: Version 0

Continued on next page

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3 Go to the information system and analyze the plan and actual costs incurred

by your organization up to this point Call the Plan/Actual Variance report

for your cost center group H_TECH## Check that no actual or plan costs

have been posted for the current fiscal year

Task 2:

Create the activity types that you will use to measure the efficiency of the costcenters in your organization At the end of the period, the costs incurred by each

cost center will be compared against the activity output All master data should

be valid from January 1 of the current fiscal year to December 31, 9999.

Hint: When you create the activity types, follow the instructions exactly.

Check whether you have entered the correct activity type categories andprice indicators for the activity types If necessary, look at the solutions to

be sure Do not set any indicators that are not mentioned in the exercises(such as predistribution of fixed costs, actual quantity set, or plan quantityset

1 Create the activity type MAH## (machine hours ##) in hours (h), which

you will use later to measure the output of your chip production and PCproduction cost centers This activity type can only be used by production

cost centers (F) The activity should use transaction-based allocation in plan and actual data (activity type category 1) Choose an appropriate secondary cost element (such as 620000), since this passes on the origin of the allocation

operation to the receiver At the close of planning, plan prices are calculated

iteratively by the system based on the planned activity (PI 1) Actual prices are calculated based on the actual activity quantity (Actual PI 5).

2 Create the activity type SETH## (setup time ##) in hours (h) This is

used later to measure the setup time of PC production This activity type

can only be used by production cost centers (F) The activity should use transaction-based calculations in the plan and actual (Type 1) Choose an

appropriate secondary cost element (such as 613000), since this passes onthe origin of the allocation to the receiver At the close of planning, planprices are calculated iteratively by the system based on the planned activity

(PI 1) Actual prices are calculated based on the actual activity quantity (Actual PI 5).

3 Create the activity type QUAH## (quality check ##) in hours (h) This is

used later to measure the time needed for quality checks of PCs and chips

This activity type may be used by all service cost centers (H) In plan data, the activity should be recorded manually (type 1) In actual data, it should

be recorded using indirect activity allocation (actual type 3) Choose an appropriate secondary cost element (such as 632000), since this passes on

the origin of the allocation to the receiver At the close of planning, plan

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prices are calculated iteratively by the system based on the planned activity

(PI 1) Likewise, actual prices should be calculated at period-end based

on the activity output (Actual PI 5).

4 Create activity type REPH## (repair hours ##) in hours (h), which will beused to measure the activity output This activity type may only be used bycost centers with cost center category R The activity should be allocatedmanually in the plan and actual data (Type 1) Choose an appropriatesecondary cost element (such as 615000) so that the origin of the allocation ispassed on to the receiver At the close of planning, plan prices are calculatediteratively by the system based on the planned activity (PI 1) When theperiod is closed, the system calculates an actual price based on the actualactivity quantity (PI 5)

5 Create activity type ENH## (energy costs ##) in units of kWh which will beused to measure the energy consumption of the production cost center Thisactivity type may be used only by cost centers with cost center category G

In the plan data, the activity should be recorded manually (Type 1), and inthe actual data it should be recorded using target=actual activity allocation(Actual Type 5) Choose an appropriate secondary cost element (such as639200), since this passes on the origin of the allocation to the receiver Atthe close of planning, plan prices are calculated iteratively by the systembased on the capacity (PI 2) This ensures that the high fixed costs needed

to supply the activity are not allocated to the receivers of the activity Atperiod-end closing, the system calculates actual prices based on the capacity(PI 6)

are correct

Activity type

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Activity type

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Solution 1: Master Data

Task 1:

Familiarize yourself with the company used in this exercise Analyze the existingstructures in the system, and make your own user-defined settings

1 Display the node H_TECH## (## is your PC number in the classroom)

in the standard hierarchy of controlling area 1000 (under the nodeH9500-H-AC412) How many cost centers are there in the various areas

2 Make your user settings in the information system These default settingswill make it easier for you to enter data at a later stage

Controlling area: 1000 Cost center group: H_TECH## Planning period:current fiscal year, periods 1 – 12 Reporting period: current fiscal year,periods 1 – 12 Plan version: Version 0

a) User Settings

CCA Information System → User Settings

Basic data tab:

Controlling area: 1000; cost center group: H_TECH##

Planning period tab:

Fiscal year = current; Period = From 1 – 12

Reporting period tab:

Fiscal year = current; Period = From 1 – 12

Further entries tab:

Plan version = 0

Save your data.

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3 Go to the information system and analyze the plan and actual costs incurred

by your organization up to this point Call the Plan/Actual Variance report

for your cost center group H_TECH## Check that no actual or plan costs

have been posted for the current fiscal year

a) Statement not true as plan dollars are found on the report

CCA: Information System → Reports for Cost Center Accounting → Plan/Actual Comparisons → Cost

Cost Centers: Actual/ Plan/ Variance Controlling Area: 1000

Fiscal year: current From period: 1

To period: 12 Plan version: 0 Cost center group: H_TECH##

Execute the report