SAP Product Costing Interview questions

What is a ‘Cost Object’?

‘Cost Object,’ also known as a CO Account Assignment Object, in SAP denotes a
unit to which you can assign objects. It is something like a repository in which you
collect costs, and, if necessary, move the costs from one object to another. All the
components of CO have their own cost objects such as cost centers, internal orders,
etc.
The cost objects decide the nature of postings as to whether they are real postings
or statistical postings. All the objects that are identified as statistical postings are not
considered cost objects (for example, profit centers).
What is a ‘Cost Element’?
‘Cost Elements’ represent the origin of costs. There are two types of cost elements:
Primary Cost Elements
Secondary Cost Elements
Why do You Need ‘Cost Element Accounting’?
Cost Element Accounting’ (CO-OM-CEL) helps you to classify costs/revenues posted
to CO. It also provides you the ability to reconcile the costs between FI and CO. CO-
OM-CEL provides the structure for assignment of CO data in the form of
cost/revenue carriers called cost elements or revenue elements.
Explain Cost Center Accounting?
‘Cost Center Accounting’ deals with the difficult task of managing ‘overheads’ within
your organization. Since overhead costs are something that you cannot directly
associate with a product or service, which can be difficult to control, cost center
accounting provides you with the necessary tools to achieve this.
What is ‘Activity-Based Costing’?
‘Activity-Based Costing,’ popularly known as ABC, helps you to view overhead costs
from the point of business processes. The result is you will be able to optimize costs
for the entire business process. As a single business process, activity-based costing
will cut across several cost centers and will give you an enhanced view of the costs
incurred.
What is ‘Product Cost Controlling’ (CO-PC)?
‘Product Cost Controlling’ (CO-PC) deals with estimating the costs to produce a
product/service. CO-PC is divided into two major areas:
Cost of materials
Cost of processing
With CO-PC, you can calculate:
Cost of goods manufactured (COGM)
Cost of goods sold (COGS)
CO-PC is tightly integrated with Production Planning (PP) and Materials
Management (MM), in addition to FI. The functionality helps to:
Calculate Standard Costs of manufactured goods
Calculate the Work-in-Progress (WIP)
Calculate the Variances, at period-end
Finalize settlement of product costs
Note that CO-PC deals only with production costs as it deals only with the
production.
What is ‘Profitability Analysis’ (CO-PA)?
‘Profitability Analysis’ (CO-PA) helps you determine how profitable (denoted by the
‘contribution margin’) your market segments are. The analysis is on the external side
of the market. You will be able to define what segments, such as customer, product,
geography, sales organization, etc., of the market are required for analyzing
‘operating results/profits.’ With multi-dimensional ‘drill-down’ capability, you have all
the flexibility you need for reporting.
How is ‘Profit Center Accounting’ (EC-PCA) Different from CO-PA?
Unlike CO-PA where the focus is on external market segments’ profitability, ‘Profit
Center Accounting’ (EC-PCA) focuses on profitability of internal areas (profit centers)
of the enterprise. Profit center accounting is used to draw internal balance sheets
and profit & loss statements. You may use EC-PCA in place of business area
accounting.
Both CO-PA and EC-PCA serve different purposes, and are not mutually exclusive.
You may need them both in your organization.
Explain ‘Integration of CO’ with its Components and Other SAP Modules?
The CO module is integrated with FI, AA, SD, MM, PP, and HR:
FI is the main source of data for CO. All expenses, posted in FI, flow to CO through
the ‘primary cost elements’ to the appropriate ‘cost centers.’ Similarly, postings in
Asset Accounting (such as depreciations) are also passed on to CO.
Revenue postings in FI would result in postings in CO-PA and also in EC-PCA.
The SD, MM, and PP modules have many integration points in CO. Goods issue (GI)
to a controlling object or goods receipt (GR) from a ‘production order’ are some
examples of integration. These modules are tightly integrated as consumption
activities, cost of goods issued, overhead charges, material costs, etc., which are
passed on to production objects such as PP production order or sales order. The
WIP (Work-in-Progress) and the variances, at period ends, are settled to CO-PA,
CO-PCA, and also to FI. Revenues are directly posted when you generate billing
documents in SD, if the sales order is a cost object item.
The HR module generates various types of costs to be posted in CO. Planned HR
costs can also be passed on for CO planning.
What is a ‘Primary Cost Element’?
‘Primary Cost Elements’ represent the consumption of production factors such as
raw materials, human resources, utilities, etc. Primary cost elements have their
corresponding GL accounts in FI. All the expense/revenue accounts in FI correspond
to the primary cost elements in CO. Before you can create the primary cost elements
in CO, you first need to create them in FI as GL accounts.
Note that SAP treats revenue elements also as primary cost elements in CO
processing. The only difference is that all the revenue elements are identified with a
negative sign while posting in CO. The revenue elements correspond to the revenue
accounts in FI and they fall under the cost element category, category 01/11.
What is a ‘Secondary Cost Element’?
‘Secondary Cost Elements’ represent the consumption of production factors provided
internally by the enterprise itself, and are present only in the CO. They are actually
like cost carriers, and are used in allocations and settlements in CO. While creating
these elements, you need to mention the cost element category, which can be any of
the following:
Category 21, used in internal settlements
Category 42, used in assessments
Category 43, used in internal activity allocation
What is a ‘Cost Element Category’?
All the cost elements need to be assigned to a ‘Cost Element Category,’ to determine
the transactions for which you can use the cost elements.
Example:
Category 01, known as the ‘general primary cost elements,’ is used in standard
primary postings from FI or MM into CO.
Category 22 is used to settle order/project costs, or cost object costs to objects
outside of CO (such as assets, materials, GL accounts, etc.).
Differentiate Between ‘Real’ and ‘Statistical Postings’ in CO?
The CO account assignment objects decide the type of postings allowed. They can
be real or statistical postings.
‘Real Postings’ allow you to further allocate/settle those costs to any other cost
object in CO, either as ‘senders’ or as ‘receivers.’ The objects that are allowed to
have real postings include:
Cost Centers
Internal Orders (Real)
Projects (Real)
Networks
Profitability Segments
PP—Production Orders (make-to-order)
‘Statistical Postings,’ on the other hand, are only for information purposes. You will
not be able to further allocate/settle these statistical costs to other cost objects.
Examples of such objects include:
Statistical (Internal) Orders
Statistical Projects
Profit Centers
How do You Define ‘Number Ranges’ in CO?
You will be required to define, for each of the controlling areas, the ‘Number Ranges’
for all transactions that will generate documents in CO. Once done for a controlling
area, you may copy from one controlling area to other controlling areas when you
have more than one such area.
To avoid too many documents, SAP recommends grouping multiple but similar
transactions, and then assigning number ranges to this group. Further, you may
create different number ranges for plan and actual data. As in FI, the number ranges
can be internal or external. The document number ranges in CO are independent of
fiscal years.
How Does ‘Master Data’ Differ from ‘Transaction Data’ in CO?
The ‘Master Data’ remain unchanged over a long period, whereas ‘Transaction Data’
are short-term. The transaction data are assigned to the master data.
Though you normally create the master data from transactions, note that you will be
able to create these records from the configuration side as well. When you need to
create a large number of master data, you may use the ‘collective processing’ option
to create related master records in one step. SAP puts master data in ‘groups’ for
easy maintenance.
In the case of master data of cost center/cost elements/activity types, once they are
created, you will not be able to change the date. SAP calls this feature the ‘time
dependency’ of master data. If necessary, you can extend the ‘time’ by creating a
new one and attaching it to the existing objects. In the case of resources, the master
data are time-dependent and the system will allow you to delete these objects.
Statistical Key Figures (SKF) are not time-dependent; once defined they are
available in the system forever.
How do you Automatically Create ‘Cost Elements’?
You will be able to create ‘cost elements’ automatically by specifying the cost
element, the cost element interval, and the cost element category for the cost
elements. All these are achieved by creating default settings. The creation of cost
elements is done in the background.
The primary cost elements can be created only when you have the corresponding
GL accounts in the chart of accounts of the Company Code. Even though the GL
account names are used as the names of the primary cost elements thus created by
the system, you have the option of changing these names in CO. All the secondary
cost elements are created in CO; the name of these cost elements comes from the
cost element category.
Explain ‘Controlling (CO)’ in SAP?
SAP calls managerial accounting ‘Controlling’ and the module is commonly known as
‘CO.’ The CO module is, thus, primarily oriented towards managing and reporting
cost/revenue and is mainly used in ‘internal’ decision-making. As with any other
module, this module also has configuration set-up and application functionality.
The controlling module focuses on internal users and helps management by
providing reports on cost centers, profit centers, contribution margins and
profitability, etc.
What are the Important ‘Organizational Elements of CO’?
The important organizational structure of controlling includes:
Operating Concern (the top-most reporting level for profitability analysis and sales
and marketing controlling).
Controlling Area (central organization in ‘controlling,’ structuring internal accounting
operations).
Cost Centers (lower-most organizational units where costs are incurred and
transferred).
What is a ‘Controlling Area’? How is it Related to a Company Code?
A ‘Controlling Area’ is the central organizational structure in ‘controlling’ (CO) and is
used in cost accounting. The controlling area, as in the case of a Company Code, is
a self-contained cost accounting entity for internal reporting purposes. The
controlling area is assigned to one or more Company Codes to ensure that the
necessary transactions, posted in FI, are transferred to controlling for cost
accounting processing.
One controlling area can be assigned one or more Company Codes.
One chart of accounts can be assigned to one or more controlling areas.
One or more controlling areas can be assigned to an operating concern.
One Client can have one or more controlling areas.
Outline ‘Company Code—Controlling Area’ Assignments.
There are two types of assignments possible between the Company Code and a
controlling area:
One-to-one: Here, one Company Code corresponds to one controlling area.
Many-to-one: More than one Company Code is assigned to a single controlling area.
What are the ‘Components of Controlling’?
There are three major submodules in CO and each of these submodules has many
components as detailed below:
Cost Element Accounting
Cost Controlling
Cost Center Accounting
Internal Orders
Activity-Based Costing
Product Cost Controlling
Profitability Analysis
Profit Center Accounting
Why do You Need ‘Cost Element Accounting’?
‘Cost Element Accounting’ (CO-OM-CEL) helps you to classify costs/revenues
posted to CO. It also provides you the ability to reconcile the costs between FI and
CO. CO-OM-CEL provides the structure for assignment of CO data in the form of
cost/revenue carriers called cost elements or revenue elements.
Explain ‘Cost Center Accounting.’
‘Cost Center Accounting’ deals with the difficult task of managing ‘overheads’ within
your organization. Since overhead costs are something that you cannot directly
associate with a product or service, which can be difficult to control, cost center
accounting provides you with the necessary tools to achieve this.
What is ‘Activity-Based Costing’?
‘Activity-Based Costing,’ popularly known as ABC, helps you to view overhead costs
from the point of business processes. The result is you will be able to optimize costs
for the entire business process. As a single business process, activity-based costing
will cut across several cost centers and will give you an enhanced view of the costs
incurred.
What are the important Terminologies in Product Costing?:Results Analysis
Key?
This key determines how the Work in Progress is calculated
Cost Components
The break up of the costs which get reflected in the product costing eg. Material
Cost, Labour Cost, Overhead etc
Costing Sheets
This is used to calculate the overhead in Controlling
Costing Variant
For All manufactured products the price control recommended is Standard Price. To
come up with this standard price for the finished good material this material has to be
costed. This is done using Costing Variant. Further questions down below will explain
this concept better.
What are the configuration settings maintained in the costingvariant?
Costing variant forms the link between the application and Customizing,since all cost
estimates are carried out and saved with reference to acosting variant. The costing
variant contains all the control parametersfor costing. The configuration parameters
are maintained for costing type, valuationvariants, date control, and quantity
 structure [Link] costing type we specify which field in the material master should
[Link] valuation variant we specify the followinga) the sequence or order the
system should go about accessingprices for the material master (planned price,
standard price,moving average price etc).b) It also contains which price should be
considered for activity pricecalculation and .c) How the system should select BOM
and routing.
How does SAP go about costing a Product having multiple Bill of materials
within it?
SAP first costs the lowest level product, arrives at the cost and then goes and cost
the next highest level and finally arrives at the cost of the final product.
What does the concept of cost roll up mean in product costing context?
The purpose of the cost roll up is to include the cost of goods manufactured of all
materials in a multilevel production structure at thetopmost level of the BOM(Bill of
Material) The costs are rolled up automatically using the costing levels.1) The
system first calculates the costs for the materials with the lowest costing level and
assigns them to cost components.2) The materials in the next highest costing level
(such as semifinishedmaterials) are then costed. The costs for the materialscosted
first are rolled up and become part of the material costs of the next highest level.

1. Question1. What Are The Important Terminologies In Product

Costing?
Answer :

o Results Analysis Key – This key determines how the Work in Progress
is calculated

o Cost Components - The break up of the costs which get reflected in the
product costing eg. Material Cost, Labour Cost, Overhead etc

o Costing Sheets - This is used to calculate the overhead in Controlling

o Costing Variant - For All manufactured products the price control

recommended is Standard Price. To come up with this standard price for the finished
good material this material has to be costed. This is done using Costing Variant.
Further questions down below will explain this concept better.

2. Question2. What Are The Configuration Settings Maintained In

The Costing Variant?

Answer :
 Costing variant forms the link between the application and Customizing, since all cost
estimates are carried out and saved with reference to a costing variant. The costing
variant contains all the control parameters for costing.
The configuration parameters are maintained for costing type, valuation variants, date
control, and quantity structure control. In costing type we specify which field in the
material master should be updated.
In valuation variant we specify the following

o the sequence or order the system should go about accessing prices for
the material master (planned price, standard price, moving average price etc).

o b) It also contains which price should be considered for activity price

calculation and .

o How the system should select BOM and routing.

o Question3. How Does Sap Go About Costing A Product

Having Multiple Bill Of Materials Within It?

Answer :
SAP first costs the lowest level product, arrives at the cost and then goes and cost
the next highest level and finally arrives at the cost of the final product.

o Question4. What Does The Concept Of Cost Roll Up Mean

In Product Costing Context?

Answer :
The purpose of the cost roll up is to include the cost of goods manufactured of all
materials in a multilevel production structure at the topmost level of the BOM(Bill of
Material) The costs are rolled up automatically using the costing levels.

o The system first calculates the costs for the materials with the lowest
costing level and assigns them to cost components.

o The materials in the next highest costing level (such as semifinished

materials) are then costed. The costs for the materials costed first are rolled up and
become part of the material costs of the next highest level.

o Question5. What Is A Settlement Profile And Why Is It

Needed?
Answer :
 All the costs or revenues which are collected in the Production order or Sales order
for example have to be settled to a receiver at the end of the period. This receiver
could be a Gl account, a cost center, profitability analysis or asset. Also read the
question “What is a cost object “ in the section Controlling.
In order to settle the costs of the production order or sales order a settlement profile
is needed. In a settlement profile you define a range of control parameters for
settlement. You must define the settlement profile before you can enter a settlement
rule for a sender.
The Settlement Profile is maintained in the Order Type and defaults during creating of
order.
Settlement profile includes:-

o the retention period for the settlement documents.

o Valid receivers GL account, cost center, order, WBS element, fixed

asset, material, profitability segment, sales order, cost objects, order items, business
process

o Document type is also attached here

o Allocation structure and PA transfer structure is also attached to the

settlement profile e.g. A1

o Question6. What Is Transfer Or Allocation Structure?

Answer :
The transfer structure is what helps in settling the cost from one cost object to the
receiver. It is maintained in the Settlement profile defined above.
The Transfer structure has 2 parts:

o Source of cost elements you want to settle

o Target receiver whether it is a Profitability segment or fixed asset or cost

center

o Question7. What Do You Mean By Primary Cost

Component Split?
Answer :
Primary cost split is defined when you create a cost component structure. When you
switch on this setting, the primary cost from the cost center are picked up and
assigned to the various cost components.
o Question8. How Do Primary Costs Get Picked Up From

Cost Center Into The Cost Component Structure?

Answer :
This is possible when you do a plan activity price calculation from SAP. The primary
cost component structure is assigned to the plan version 0 in Controlling.

o Question9. Is It Possible To Configure 2 Cost Component

Structures For The Same Product In Order To Have 2 Different

Views?
Answer :
Yes it is possible. We create another cost component structure and assign it to the
main cost component structure. This cost component structure is called Auxiliary cost
component structure which provides another view of the cost component structure.

o Question10. How Do You Go About Configuring For The

Sales Order Costing?

Answer :
The flow is as follows:
Sales order -> Requirement Type-à Requirement Class-> All settings for controlling
In a sales order you have a requirement type .In configuration, the requirement Class
is attached to the requirement type and in this requirement class all configuration
settings are maintained for controlling.
In the requirement class we attach the costing variant, we attach the condition type
EK02 where we want the sales order cost to be updated, and the account assignment
category. In the account assignment category we define whether the sales order will
carry cost or not. In case if we do not want to carry cost on the sales order we keep
the consumption posting field blank. We also define here the Results Analysis version
which helps to calculate the Results Analysis for the Sales order if required.

o Question11. What Is Mixed Costing In Sap? Give An

Example To Explain?
Answer :
Mixed costing is required when different processes are used to manufacture the same
material. Mixed costing is required when you have different sources of supply for
purchasing the material.
 Let us take an example:-
There is a finished good Xylene which can be manufactured by 3 different processes.
The first process uses an old machine and labour. The processing time is 9 hrs to
manufacture.
The second process uses a semi-automatic machine and labour. The processing time
is 7 hrs to manufacture.
The third process uses a fully automatic machine and the processing time is 5 hrs.
Thus cost of manufacture for the 3 processes is different. By using Mixed costing you
can create a mixed price for the valuation of this finished good.

o Question12. What Configuration Needs To Done For

Using Mixed Costing?

Answer :
Quantity Structure type for mixed costing must be configured. Here we specify the
time dependency of the structure type .
The following options exist

o You have no time dependency.

o It is based on fiscal year

o It is based on period

This quantity structure type is then assigned to the costing version.

o Question13. Lets Say For A Product There Exists Three

Production Versions. Explain The Process How You Would Go

About Creating A Mixed Cost Estimate?

Answer :
The process of creating a Mixed cost estimate would be as follows:-

o Create procurement alternatives for each of the production version.

o Define Mixing ratios for the procurement alternatives

o Select the configured quantity structure type and execute a material cost
estimate based on the costing version.
o Question14. What Is Mixing Ratios And Why Are They

Required To Be Maintained Before Creation Of Cost Estimate?

Answer :
Mixing ratios are weighting factors assigned to the procurement alternatives. This
weighting factor is obtained from the planning department based on the usage of the
procurement alternatives during the planning year.
For e.g.
Procurement alternative 1 (production version 1) 40% will be manufactured
Procurement alternative 2 (production version 2) 35% will be manufactured
Procurement alternative 3 (production version 3) 25% will be manufactured
This % will be maintained as mixing ratios.
Thus when system calculates the mixed cost estimate, system will first cost each of
the production version and then multiply each of the costs with the weighting factors.
Thus
240 (cost of prod. Vers 1) X 40 = 9600
210 (cost of prod. Vers 2) X 35 = 7350
160 (cost of prod vers 3) X 25 = 4000
Mixed costs 17350/100 = 173.5

o Question15. There Are Result Analysis Categories In Wip

(work In Process). What Do You Mean By The Result Analysis

Category Reserves For Unrealized Costs?

Answer :
If you are calculating the work in process at actual costs, the system will create
reserves for unrealized costs if the credit for the production order based on goods
receipts is greater than the debit of the order with actual costs incurred. The Result
analysis category RUCR (Reserves for unrealized cost) would need to be maintained.
Normally this is not maintained in most of the companies.

o Question16. Which Is The Result Analysis Category

Which Is Normally Maintained For The Wip (work In Process)

Calculation?
Answer :
The Result analysis category WIPR - Work in process with requirement to capitalize
costs is normally maintained for WIP calculation
o Question17. How Do You Define A By-product In Sap?
Answer :
A By-product in SAP is defined as an item with a negative quantity in the Bill of
Material. By-product reduces the cost of the main product. There is no Bill of Material
for a By-product.

o Question18. How Do You Calculate The Cost For A By-

product In Sap?
Answer :
The cost for the By-product is the net realizable value. This is manually maintained in
the system for the by-product through transaction code MR21 Price change.

o Question19. How Do You Define A Co-product In Sap?

Answer :
A Co-product (primary product or by-product) is indicated by a tick in the costing view
of the material master. In the BOM all the primary products are represented as an
item with negative quantity. A primary product is also indicated as a co-product in the
BOM of the leading coproduct.
For primary products the costs are calculated using the apportionment method, while
for by-products the net realizable value method applies.

o Question20. Is It Possible To Use Standard Sap Co-

product Functionality In Repetitive Manufacturing?

Answer :
No. It is not possible to use the Standard Co-product functionality in repetitive
manufacturing

o Question21. How Do You Got About Defining Co-product

Functionality In Repetitive Manufacturing?

Answer :

In the Repetitive manufacturing you need to use the Costing BOM for the other co-
product. Through arithmetical calculation you need to maintain the quantities in the
costing BOM. This co-product will be shown as a negative item in the leading co-
product.
o Question22. In The Above Scenario How Do You Know

Which Cost Element Is Being Called For?

Answer :

In this case you need to the use simulation mode OMWB in MM and enter the
material code plant and the movement type 261 (issue against production order). You
will see the account modifier VBR and against which the GL code is available.

o Question23. What Is The Difference Between A Product

Cost Collector And Production Order?

Answer :

Both of these are cost objects which collect production costs for manufactured
product. Product cost collector is a single order created for a material. All the costs
during the month for that material is debited to single product cost collector. No
costing by lot size is required in case of product cost collector. The latter is where
there are many production orders for a single material during the month. Costs are
collected on each of this production order. Costing by lot size is the main requirement
in case of production orders.

o Question24. Why Is Preliminary Cost Estimate Required?

Answer :

The preliminary cost estimate is required for the following:-

o Confirm the actual activity quantities.

o Evaluate work in process

o Calculate production variances in variance calculation

o Evaluate the unplanned scrap in variance calculation

o Question25. How Are Scrap Costs Shows In The Standard

Cost Estimate?
 Answer :

Scrap costs are assigned to the relevant cost component and can be shown
separately for a material in the costed multilevel BOM.

o Question26. How Are Scrap Variances Calculated?

Answer :

Scrap variance are calculated by valuating the scrap quantities with the amount of the
actual costs less the planned scrap costs.

o Question27. What Do You Mean By Component Scrap And

How Is It Maintained In Sap?

Answer :

Component scrap is the scrap of a material that is expected to occur during

production. When an assembly is produced with this component, the system has to
increase the component quantity to enable to reach the required lot size. The
component scrap can be entered in the BOM item or in the MRP 4 view of the
material master

o Question28. How Do You Configure Split Valuation?

Answer :

The configuration steps involved in split valuation:-

o Activate split valuation – Configure whether split valuation is allowed for

the company code.

o Determine the valuation categories and valuation types that are allowed
for all valuation areas.

o Allocate the valuation types to the valuation categories

o Determine the local valuation categories for each valuation area and
activate the categories to be used in your valuation area.
 o Question29. What Are The Steps Involved Before You Run

A Cost Estimate For A Split Valuated Material?

Answer :

The following are the steps:-

o Create procurement alternatives based on the valuation types for the

material.

o Maintain Mixing ratios for the procurement alternatives

o Question30. How Do You Prevent The System From

Calculating The Cost Estimate For Raw And Packing Material When

You Run A Standard Cost Estimate For The Finished Goods?

Answer :

To prevent the system from calculating cost estimates for raw and packing material,
you need to select the “No costing” checkbox in the costing view of the material
master.

o Question31. When A Standard Cost Estimate Is Run For A

Finished Good Does Sap Calculate Cost Estimate For Its

Components Such As Raw And Packing Material?

Answer :

Yes. SAP calculates the cost estimate even for raw and packing material and stores it
in the standard price field for information purposes

 COURSES
 SAP CONSULTING
 CLOUD SERVICES
 CAREERS
 BLOG

SAP CO INTERVIEW
QUESTIONS
WHAT IS SAP CO?

SAP Controlling (CO) is another important SAP module offered to an

organization. It supports coordination, monitoring, and optimization of
all the processes in an organization. SAP CO involves recording both
the consumption of production factors and the services provided by an
organization.
EXPLAIN ‘CONTROLLING (CO)’ IN SAP?

SAP calls managerial accounting ‘Controlling’ and the module is

commonly known as ‘CO.’ The CO module is, thus, primarily oriented
towards managing and reporting cost/revenue and is mainly used in
‘internal’ decision-making. As with any other module, this module also
has configuration set-up and application functionality.

The controlling module focuses on internal users and helps

management by providing reports on cost centers, profit centers,
contribution margins and profitability, etc.
WHAT ARE THE IMPORTANT ‘ORGANIZATIONAL ELEMENTS OF CO’?

The important organizational structure of controlling includes:

Operating Concern (the top-most reporting level for profitability
analysis and sales and marketing controlling).

Controlling Area (central organization in ‘controlling,’ structuring

internal accounting operations).

Cost Centers (lower-most organizational units where costs are incurred

and transferred).
WHAT IS A ‘CONTROLLING AREA’? HOW IS IT RELATED TO A COMPANY CODE?

A ‘Controlling Area’ is the central organizational structure in

‘controlling’ (CO) and is used in cost accounting. The controlling area,
as in the case of a Company Code, is a self-contained cost accounting
entity for internal reporting purposes. The controlling area is assigned
to one or more Company Codes to ensure that the necessary
 transactions, posted in FI, are transferred to controlling for cost
accounting processing.

 One controlling area can be assigned one or more Company Codes.

 One chart of accounts can be assigned to one or more controlling areas.
 One or more controlling areas can be assigned to an operating concern.
 One Client can have one or more controlling areas.
OUTLINE ‘COMPANY CODE—CONTROLLING AREA’ ASSIGNMENTS.?

There are two types of assignments possible between the Company

Code and a controlling area:
 One-to-one: Here, one Company Code corresponds to one controlling area.
 Many-to-one: More than one Company Code is assigned to a single
controlling area.
WHAT ARE THE ‘COMPONENTS OF CONTROLLING’?

There are three major submodules in CO and each of these

submodules has many components as detailed below:
 Cost Element Accounting
 Cost Controlling
 Cost Center Accounting
 Internal Orders
 Activity-Based Costing
 Product Cost Controlling
 Profitability Analysis
 Profit Center Accounting
WHY DO YOU NEED ‘COST ELEMENT ACCOUNTING’?

‘Cost Element Accounting’ (CO-OM-CEL) helps you to classify

costs/revenues posted to CO. It also provides you the ability to
reconcile the costs between FI and CO. CO-OM-CEL provides the
structure for assignment of CO data in the form of cost/revenue
carriers called cost elements or revenue elements.
EXPLAIN ‘COST CENTER ACCOUNTING.’?

‘Cost Center Accounting’ deals with the difficult task of managing

‘overheads’ within your organization. Since overhead costs are
something that you cannot directly associate with a product or service,
 which can be difficult to control, cost center accounting provides you
with the necessary tools to achieve this.
WHAT IS ‘ACTIVITY-BASED COSTING’?

‘Activity-Based Costing,’ popularly known as ABC, helps you to view

overhead costs from the point of business processes. The result is you
will be able to optimize costs for the entire business process. As a
single business process, activity-based costing will cut across several
cost centers and will give you an enhanced view of the costs incurred.
WHAT IS ‘PRODUCT COST CONTROLLING’ (CO-PC)?

‘Product Cost Controlling’ (CO-PC) deals with estimating the costs to

produce a product/service. CO-PC is divided into two major areas:
 Cost of materials
 Cost of processing
With CO-PC, you can calculate:
 Cost of goods manufactured (COGM)
 Cost of goods sold (COGS)
CO-PC is tightly integrated with Production Planning (PP) and
Materials Management (MM), in addition to FI. The functionality
helps to:
 Calculate Standard Costs of manufactured goods
 Calculate the Work-in-Progress (WIP)
 Calculate the Variances, at period-end
 Finalize settlement of product costs
Note that CO-PC deals only with production costs as it deals only with
the production.
WHAT IS ‘PROFITABILITY ANALYSIS’ (CO-PA)?

‘Profitability Analysis’ (CO-PA) helps you determine how profitable

(denoted by the ‘contribution margin’) your market segments are. The
analysis is on the external side of the market. You will be able to define
what segments, such as customer, product, geography, sales
organization, etc., of the market are required for analyzing ‘operating
results/profits.’ With multi-dimensional ‘drill-down’ capability, you have
all the flexibility you need for reporting.
HOW IS ‘PROFIT CENTER ACCOUNTING’ (EC-PCA) DIFFERENT FROM CO-PA?

Unlike CO-PA where the focus is on external market segments’

profitability, ‘Profit Center Accounting’ (EC-PCA) focuses on profitability
of internal areas (profit centers) of the enterprise. Profit center
 accounting is used to draw internal balance sheets and profit & loss
statements. You may use EC-PCA in place of business area accounting.

Both CO-PA and EC-PCA serve different purposes, and are not mutually
exclusive. You may need them both in your organization.
EXPLAIN ‘INTEGRATION OF CO’ WITH ITS COMPONENTS AND OTHER SAP MODULES.?

The CO module is integrated with FI, AA, SD, MM, PP, and HR:
 FI is the main source of data for CO. All expenses, posted in FI, flow to CO
through the ‘primary cost elements’ to the appropriate ‘cost centers.’ Similarly,
postings in Asset Accounting (such as depreciations) are also passed on to CO.
 Revenue postings in FI would result in postings in CO-PA and also in EC-
PCA.
 The SD, MM, and PP modules have many integration points in CO. Goods
issue (GI) to a controlling object or goods receipt (GR) from a ‘production order’
are some examples of integration. These modules are tightly integrated as
consumption activities, cost of goods issued, overhead charges, material costs,
etc., which are passed on to production objects such as PP production order or
sales order. The WIP (Work-in-Progress) and the variances, at period ends, are
settled to CO-PA, CO-PCA, and also to FI. Revenues are directly posted when you
generate billing documents in SD, if the sales order is a cost object item.
 The HR module generates various types of costs to be posted in CO.
Planned HR costs can also be passed on for CO planning.
WHAT IS A ‘COST OBJECT’?

A ‘Cost Object,’ also known as a CO Account Assignment Object, in SAP

denotes a unit to which you can assign objects. It is something like a
repository in which you collect costs, and, if necessary, move the costs
from one object to another. All the components of CO have their own
cost objects such as cost centers, internal orders, etc.

The cost objects decide the nature of postings as to whether they are
real postings or statistical postings. All the objects that are identified
as statistical postings are not considered cost objects (for example,
profit centers).
DIFFERENTIATE BETWEEN ‘REAL’ AND ‘STATISTICAL POSTINGS’ IN CO.?

The CO account assignment objects decide the type of postings

allowed. They can be real or statistical postings.
 ‘Real Postings’ allow you to further allocate/settle those costs to any
other cost object in CO, either as ‘senders’ or as ‘receivers.’ The
objects that are allowed to have real postings include:

 Cost Centers
 Internal Orders (Real)
 Projects (Real)
 Networks
 Profitability Segments
 PP—Production Orders (make-to-order)
‘Statistical Postings,’ on the other hand, are only for information
purposes. You will not be able to further allocate/settle these
statistical costs to other cost objects. Examples of such objects
include:

 Statistical (Internal) Orders

 Statistical Projects
 Profit Centers
HOW DO YOU DEFINE ‘NUMBER RANGES’ IN CO?

You will be required to define, for each of the controlling areas, the
‘Number Ranges’ for all transactions that will generate documents in
CO. Once done for a controlling area, you may copy from one
controlling area to other controlling areas when you have more than
one such area.

To avoid too many documents, SAP recommends grouping multiple but

similar transactions, and then assigning number ranges to this group.
Further, you may create different number ranges for plan and actual
data. As in FI, the number ranges can be internal or external. The
document number ranges in CO are independent of fiscal years.
HOW DOES ‘MASTER DATA’ DIFFER FROM ‘TRANSACTION DATA’ IN CO?

The ‘Master Data’ remain unchanged over a long period, whereas

‘Transaction Data’ are short-term. The transaction data are assigned to
the master data.

Though you normally create the master data from transactions, note
that you will be able to create these records from the configuration
side as well. When you need to create a large number of master data,
you may use the ‘collective processing’ option to create related master
 records in one step. SAP puts master data in ‘groups’ for easy
maintenance.

In the case of master data of cost center/cost elements/activity types,

once they are created, you will not be able to change the date. SAP
calls this feature the ‘time dependency’ of master data. If necessary,
you can extend the ‘time’ by creating a new one and attaching it to the
existing objects. In the case of resources, the master data are time-
dependent and the system will allow you to delete these objects.
Statistical Key Figures (SKF) are not time-dependent; once defined
they are available in the system forever.
WHAT IS A ‘COST ELEMENT’?

‘Cost Elements’ represent the origin of costs. There are two types of
cost elements:
 Primary Cost Elements
 Secondary Cost Elements
WHAT IS A ‘PRIMARY COST ELEMENT’?

‘Primary Cost Elements’ represent the consumption of production

factors such as raw materials, human resources, utilities, etc. Primary
cost elements have their corresponding GL accounts in FI. All the
expense/revenue accounts in FI correspond to the primary cost
elements in CO. Before you can create the primary cost elements in
CO, you first need to create them in FI as GL accounts.

Note that SAP treats revenue elements also as primary cost elements
in CO processing. The only difference is that all the revenue elements
are identified with a negative sign while posting in CO. The revenue
elements correspond to the revenue accounts in FI and they fall under
the cost element category, category 01/11.
WHAT IS A ‘SECONDARY COST ELEMENT’?

‘Secondary Cost Elements’ represent the consumption of production

factors provided internally by the enterprise itself, and are present only
in the CO. They are actually like cost carriers, and are used in
allocations and settlements in CO. While creating these elements, you
need to mention the cost element category, which can be any of the
following:

 Category 21, used in internal settlements

 Category 42, used in assessments
 Category 43, used in internal activity allocation
WHAT IS A ‘COST ELEMENT CATEGORY’?

All the cost elements need to be assigned to a ‘Cost Element Category,’

to determine the transactions for which you can use the cost elements.

Example:
 Category 01, known as the ‘general primary cost elements,’ is used in
standard primary postings from FI or MM into CO.
 Category 22 is used to settle order/project costs, or cost object costs to
objects outside of CO (such as assets, materials, GL accounts, etc.).
HOW DO YOU AUTOMATICALLY CREATE ‘COST ELEMENTS’?

You will be able to create ‘cost elements’ automatically by specifying

the cost element, the cost element interval, and the cost element
category for the cost elements. All these are achieved by creating
default settings. The creation of cost elements is done in the
background.

The primary cost elements can be created only when you have the
corresponding GL accounts in the chart of accounts of the Company
Code. Even though the GL account names are used as the names of the
primary cost elements thus created by the system, you have the option
of changing these names in CO. All the secondary cost elements are
created in CO; the name of these cost elements comes from the cost
element category.
EXPLAIN ‘SEGMENTS’ AND ‘CYCLES.’?

A ‘Segment’ is one processing unit required to complete an automated

allocation of distribution or assessment or reposting of planned/actual
costs in controlling in SAP. A segment is made up of (a) allocation
characteristics—to identify the sender/receiver, (b) values of the sender
—plan/actual, type of costs to be allocated, and (c) values of the
receiver—the basis for allocation, for example, the tracing factor such
as SKF, percentages, etc.

When you combine multiple segments into a single process, then you
call that the ‘Cycle.’ A Cycle helps you to process various segments in a
chain-like fashion one after another. A Cycle consists of header data
(valid for all Segments in a Cycle) and one or more Segments, with
summarized rules and settings enabling allocation. The Segments
within a ‘cycle’ can be processed iteratively (one segment waits for the
results of another) or non-iteratively (all the segments are processed
independently) or cumulatively (to take care of variations in receiver
Tracing Factors or sender amounts).

Typically, when you start the cycles you will start them in a ‘test’ mode
to see the allocations before actual postings. Technically, you can run
the cycles in ‘production’ mode at any point of time, but the system will
carry out the allocation postings only on the first day of a period. The
utility of the cycle lies in the fact that you can run these period after
period.
WHAT IS ‘ITERATIVE PROCESSING’ OF CYCLES?

‘Iterative Processing’ is nothing but the repetitive processing of

sender/receiver relationships until the sender’s entire cost is
transferred to the receiver(s). During iterative processing, you will not
be able to use ‘fixed amounts’ as the ‘sender rules’; you will also not be
able to define a percentage to remain on the sender. You will be able to
use both plan and actual data while using the iteration.
WHAT IS ‘SPLITTING’? EXPLAIN THE ‘SPLITTING STRUCTURE.’?

‘Splitting’ is a process used to assign ‘activity-independent’

plans/actual costs, both primary and secondary, of a cost center to the
individual activity types within that cost center. But the important
requirement is that you will use this when there is no account
assignment to the activity types.

You may either use the Splitting rules or the Equivalence number to
achieve this. When you split the costs from a cost center, the cost
center temporarily becomes more than one cost center for the purpose
of allocation but again becomes a single cost center when posting
happens in the subsequent period.

If you need to assign different cost elements or cost element groups to

activities in more than one way, then you need to define a ‘Splitting
Structure’ containing ‘splitting rules’ to determine the criteria of
splitting ‘activity-independent’ costs to an activity type. If you have
created the splitting structure in customizing and assigned the same to
a cost center, then the system uses the splitting structure for cost
apportioning; otherwise, it will use the equivalence number.

The ‘splitting rules’ determine the amount or the proportion of costs to

be allocated to various activity types of a cost center and is based on
the consumption of these activity types. The costs thus allocated may
be a fixed sum, or a percentage, or it can even be based on the tracing
factors or SKFs.

The ‘equivalence number’ is a basic method for splitting the costs

when you manually plan for each of the activity types. By this, you will
plan all activity-independent costs according to the equivalence
numbers (the default is 1).
WHAT IS AN ‘ACTIVITY PRICE CALCULATION’?

You will be completing the planning process only when you perform the
‘Activity Price Calculation,’ which is based on planned activities and
costs. By doing this you are evaluating the planned secondary costs at
receiving cost centers. If you do not want to use activity price thus
calculated, you are free to use the political price for the activity type.

As you are aware, the activity price is used for planned/actual

allocation and is determined by using either the political price or the
system-calculated activity price.
WHAT IS KNOWN AS THE ‘POLITICAL PRICE’ FOR AN ACTIVITY TYPE?

The ‘Political Price’ is the price determined outside the SAP system,
which is used in manual input using the required planning layout in
planning.
WHAT IS ‘ALLOCATION PRICE VARIANCE?

‘Allocation Price Variance’ is the difference between the ‘political price’

of an activity type and the ‘system calculated activity price’ of the
same activity type.
WHAT IS ‘BUDGETING’?

‘Budgeting’ is used to augment the planning process at the cost-center

level. While planning is considered the ‘bottom-up’ approach, budgeting
is regarded as the ‘top-down’ method to control costs.

Budgeting usually comes ‘down’ from the ‘top (management)’ and is

used to guide the planning process at the cost-center level. Note that
budgeting is not integrated with postings; you will get an error when
the system comes across a posting that will result in the actual values
exceeding the budget for that cost center.
 WHAT ARE THE ‘DIRECT ALLOCATION’ METHODS OF POSTING IN CO?

The ‘Direct Allocation’ of posting in CO may be an actual cost entry or a

transaction-based posting.

The actual cost entry is the transfer of primary costs from FI to CO, on
a real-time basis, through the primary cost elements. You may also
transfer transaction data by making the cost accounting assignment to
cost objects from other modules such as FI-AA, SD, and MM:

FI-AA: Assign assets to a cost center (to post depreciation, etc.)

MM: Assign GR to a cost center/internal order
SD: Assign or settle a sales order to a cost center or internal order
Note that during actual cost entry, the system creates two documents.
When you post the primary costs from FI to CO, the system will create
a document in FI and a parallel document in CO, which is summarized
from the point of the cost object/element.

Transaction-based postings are executed within the CO, again on a

real-time basis, enabling you to have updated cost information on the
cost centers at any point in time. You will be able to carry out the
following transaction-based postings in CO:

 Reposting
2. Line items
3. Transactions
 Manual cost allocation
 Direct activity allocation
 Posting of Statistical Key Figures
 Posting of sender activities
WHAT IS THE ‘INDIRECT ALLOCATION’ METHOD OF POSTINGS IN CO?

The ‘Indirect Allocation’ of postings in CO may be used at the end of a

period as a periodic allocation. This is done after you have completed
all the primary postings. You may post the following periodic
allocations using indirect allocation:

 Periodic Reposting
 Distribution
 Assessment
 Accrual Cost Calculation (Inputted Cost Calculation)
 Indirect Activity Allocation
EXPLAIN ‘CO AUTOMATIC ACCOUNT ASSIGNMENT.’?

For transferring primary costs to CO, on a real-time basis, you need to

have ‘Automatic Account Assignments’ defined in the system. By doing
this, you will always be able to post a particular cost to a specified
cost center. You can also use this assignment for automatically posting
the exchange rate differences (gain or loss), discount, etc., to CO.

You may also have additional account assignment at different levels

such as:
 Controlling area/account/Company Code in the customizing
 Controlling area/account/cost element in the master record
 Controlling area/account/Company Code/business area/valuation area in
customizing
The system always goes through the route of customizing first, then to
the cost element master record while accessing the account
assignment rules.
HOW DOES ‘VALIDATION’ DIFFER FROM ‘SUBSTITUTION’?

SAP uses validations and substitutions to check the integrity of data

entered before posting a document. When you have both substitutions
and validations defined, the system first completes the substitution
then goes on to validate the entries. Note that only one validation and
one substitution can be activated at a time for a controlling area per
‘call-up point.’

A ‘Validation’ uses Boolean logic for checking any type of combination

of specified criteria (such as account type/cost center combination) for
ensuring the validity before allowing you to post a document.

Example:
Validation Rule: If the cost element is ‘120000,’ then the cost center is
‘1200.’
Document: You try posting a document containing the cost element as
‘120000’ and the cost center is ‘1400.’
System Response: The system will throw an ‘error message’ after
checking that the cost center value does not match the cost center
value of the criteria for that given cost element value.
In contrast to validation which just checks for validity, substitution
ensures that the system replaces a value assigned to one or more
fields based on predetermined criteria, using, again, ‘Boolean logic.’
Example:
Substitution Rule: If the cost element is ‘120000,’ then the cost center
is ‘1200.’
Document: You try posting a document containing the cost element as
‘120000’ and the cost center as ‘1400.’
System Response: The system will replace the entered cost center
value of ‘1400’ with that of the correct value ‘1200.’
WHAT IS A ‘CALL-UP POINT’?

A ‘Call-up Point’ is a particular point in transaction processing that

triggers an action such as substitution or validation.
WHAT IS ‘BOOLEAN LOGIC’?

‘Boolean Logic’ is based on simple logic to determine if a given

statement is true or false. The logic works on the basic principle that a
statement can either be true or false. In a complex statement (created
using operators ‘and’/‘or’/‘nor,’ etc.) with many parts, the logic goes by
assigning true or false from part to part, and then determines at the
end whether the combination is true or false.
EXPLAIN ‘REPOSTING’ IN COST CENTER ACCOUNTING.?

‘Reposting’ is one of the ‘transaction-based postings’ in Cost Center

Accounting used to reallocate costs that were incorrectly posted to
another cost center earlier. Also called internal reposting, there are
two types:

1. Line Item Reposting

2. Transaction Reposting
Use Line Item Reposting only when a certain line item, from the
original posting, needs to be reposted. Under this reposting, at the end
of the transaction, the system creates a new CO document, but keeps
the original FI document unchanged. In the new CO document created,
the original FI number is referenced.

You will resort to the entire Transaction Reposting when the original
posting was incorrect. Here, the original FI documents are not
referenced to in the new CO document created, though the original FI
document remains unchanged.
IS ‘PERIODIC REPOSTING’ DIFFERENT FROM ‘REPOSTING’?

‘Periodic Reposting,’ a method under ‘indirect allocation,’ is used to

correct multiple postings made to cost centers during a particular
 period. As such, this is similar to multiple reposting under ‘transaction-
based postings.’

Periodic reposting is also similar to distribution, when you use this, at

the period end, to transfer all costs from a ‘pooled cost center’ to other
receivers. (Note that the ‘distribution’ is meant primarily for cost
allocation, but periodic reposting is meant for correcting the posting
errors.)
EXPLAIN ‘MANUAL COST ALLOCATION.’?

‘Manual Cost Allocation’one of the ‘transaction-based postings’ is used

to post both primary and secondary actual costs (not the planned
costs), and also to transfer external data. You may also use this to
correct secondary costs that were incorrectly posted earlier. In the
process of manual cost allocation, remember that you can use any type
of cost element except 43, as this is meant exclusively for activity
allocation.

You may use this among cost centers, internal orders, networks,
network activities, sales orders, sales order items, WBS elements, etc.,
identifying these cost objects as senders/receivers.
WHAT IS ‘DIRECT ACTIVITY ALLOCATION’?

‘Direct Activity Allocation’—one of the ‘transaction-based postings’—is

used to record activities performed by a cost center and to allocate
simultaneously to ‘receiving cost centers.’ You will use this ‘direct
activity allocation’ only when you know the activity volumes of both
the sender and the receiver. If not known, then use the indirect activity
allocation at the period end.

You need to input the activity quantity, sender/receiver cost center and
date to enable the system to allocate the costs; the system will
automatically determine the allocation cost element and the activity
price (either the planned price or the actual price). The system
multiplies the activity consumed with that of the activity price to arrive
at the allocated cost.
HOW DO YOU CALCULATE ‘ACCRUED COSTS’?

SAP provides two methods for calculating the Inputted or Accrued

Costs in CO:
 Target=Actual method
 Cost Element Percent method
DESCRIBE THE ‘RECONCILIATION LEDGER.’?

The ‘Reconciliation Ledger’ is used to keep track of all cross-Company

Code transactions between FI and CO, as there is every chance that
there may be some imbalance between the CO totals and FI totals
when more than one Company Code is attached to a controlling area.
This is because you may try to allocate costs from one cost center to
another assigned to a different Company Code.

The reconciliation ledger records the Company Code, business area,

functional area, amount, cost objects, cost element, currency
(Company Code and controlling area), etc. You can make reconciliation
postings at the end of a period to synchronize FI and CO with the
configuration settings to automatically post the differences to FI.

While configuring the reconciliation ledger, you may use extended

account assignments besides the normal account assignment for
automatic transfer of reconciled postings. The extended account
assignment helps make more comprehensive assignments to the
relevant reconciliation accounts, with the option and flexibility of
specifying any field in the reconciliation ledger (Company Code, cost
element, functional area, etc.) for checking the ‘substitution rules.’

To aid in determining possible reconciliation postings, you can opt for

selecting individual cost flows from all the relevant cost flows. This is
accomplished by running the relevant report and looking for the
relevant ‘data block’ (such as total cost flows, basic overview list, and
detailed list).
WHAT IS ‘VARIANCE ANALYSIS’ IN CO-OM-CCA?

‘Variance Analysis’ is the determination and interpretation of the

difference(s) between the actual and planned (target) costs (within a
cost center/cost center group) in cost center accounting. The analysis
is intended to provide important clues to top management to plan
better later.
WHAT ARE THE ‘CATEGORIES OF VARIANCES’ IN CO-OM-CCA?

SAP helps to classify all variances into two categories:

1. Input Variance
2. Output Variance
EXPLAIN THE ‘INPUT VARIANCE.’?

The ‘Input Variance’ is the result of the mismatch of amounts/quantities

of inputs planned and actually used. You will be able to identify the
following input side variances in the system:

Quantity Variance: when there is a difference between planned and

actual quantity of activity consumption. The inference is that there is
some production inefficiency leading to more consumption or there is
some loss/shrinkage in the quantities.
Price Variance: when there is a difference between the planned and
actual price of an activity. The inference will be that you may need to
change the suppliers looking for lower prices or it is just a market
condition.
Resource (use) Variance: when there is use of an unplanned cost
element or there has not been a posting of a planned cost element. The
inference is that there are some unidentified costs that may be
planned in the next planning cycle, or just plain errors in postings.
Remaining (input) Variance: these are all miscellaneous variances
where the system is not able to categorize a variance.
WHAT IS AN ‘OUTPUT VARIANCE’?

An ‘Output Variance’ is the result when the actual costs allocated from
a cost center differ from the planned (or target) cost allocation from
the cost center. The variances on the ‘output side’ may be any one of
the following:

Volume Variance: This variance occurs with actual and planned

activities (in terms of activity quantity and/or the activity itself).
Output Price Variance: This variance occurs when the activity price
used in the actual allocation is a political activity price (manually
entered or plan price) differing from the system calculated activity
price (target price).
Output Quantity Variance: This kind of variance occurs only on the
actual side, when there is a difference between the actual activity
quantity (manually) entered in the sender cost center, and the actual
activity quantity allocated from that sender cost center.
Remaining Variance: This reflects the miscellaneous variance, at the
cost center level, identified by the system on the output side but
remains not categorized into any of the above three types. The possible
reason can be that you have deactivated the output variances in the
variance variant configuration or the output variance is less than the
‘minor difference’ you have defined in the ‘variance variant.’
 HOW DO YOU DEAL WITH ‘VARIANCES’?

Though the system identifies and calculates variances, they are not
automatically dealt with by the system. Hence, these variances will
remain at the cost center as a period-end balance and you need to act
on that in one of the following ways:

 You may do actual activity price calculation to revalue all internal

allocations with a newly calculated price (as against the initial planned activity
price), and post the difference to all the cost centers which initially received the
allocations. This will help you in clearing all or a portion of output price
variances.
 You may ‘transfer’ the variance balance to other modules (such as CO-PA)
for further analysis.
 You may make additional automated allocations within CO-OM-CCA to one
or more cost center.
WHAT ARE ALL THE ‘STANDARD REPORTS’ IN CO?

SAP comes delivered with a number of ‘Standard Reports’ in the CO

module. The reports are grouped under:
 Planning reports
 Comparison reports
 Line item reports
 Report for activity prices
 Reports for variance analysis
 Master data reports
 Document display
All the reports are arranged in a ‘report tree’ with a hierarchical
arrangement of reports under various nodes. Note that you will not be
able to change the standard report tree supplied by SAP; if you need to
you can copy it, define your own reports, and then attach these newly
defined ones to the new report tree you just defined.
WHAT IS ‘SUMMARIZATION’ IN CO?

‘Summarization’ helps to condense and store the transaction data at

the ‘cost center group’ level. You may do the summarization for the
highest node of the standard hierarchy or any of the ‘alternate
hierarchies.’ Once summarized, you will be able to create a vast
number of reports with report run-time vastly reduced as all the data of
the nodes are readily available from the summarized table.
WHAT IS A ‘PLAN VERSION’?

A ‘Plan Version’ is a collection of planning data. The version controls

whether the user will maintain plan data or actual data or both. You
may create as many versions as you need, though SAP provides you
with the necessary versions in the standard system.

Each version has information stored in the system per fiscal year
period. The version ‘000’ is automatically created for a period horizon
of five years, and is normally the final version as this allows for storing
actual information as well. You will be using the data in version ‘000 ′
for all the planned activity price calculation. Once planning is
completed, you need to ‘lock’ that version so that no one will be able to
modify the plan data.
WHAT IS ‘INTEGRATED PLANNING’ IN CO-OM-CCA?

‘Integrated Planning’ helps you to transfer data from other SAP

modules such as PP, HR, FI-AA, etc. If you have planned data in these
modules and just transfer these into CO, without making any changes,
then you do not need plan again in cost center accounting. Before
using integrated planning, you need to activate the integration in the
planning menu.

Note that integrated planning is possible only when there has been no
data planned on that version before activating the integrated planning.
EXPLAIN ‘PLAN LAYOUT.’?

A ‘Plan Layout’ is nothing but a data entry screen or template that you
use to input plan data.

In most situations, it would be more than sufficient to use SAP supplied

planning layouts; however, you may create your own by copying one of
the existing layouts and altering it with the help of report painter. While
creating a custom layout, note that you have the flexibility to create up
to nine lead columns (giving the details the nature of the data
associated with the value columns), and any number of value columns
(plan data such as amount, unit, etc., corresponding to the lead
column).

You also have the option of using MS-Excel spreadsheets as the data
input screen in lieu of the SAP plan layouts; but to achieve this you
need to activate the ‘integrating with Excel option’ while assigning the
layout(s) to a planner profile in IMG.
 You need to define a plan layout for each of the three planning areas
in CO, namely:
 Primary Cost and Activity Inputs
 Activity Output/Prices
 Statistical Key Figures
EXPLAIN A ‘PLAN PROFILE.’?

A ‘Plan Profile’ (or Planning Profile) helps in controlling the whole

process of planning by logically grouping the various plan layouts
together. It determines the timeline for planning. You can have more
than one planning layout per plan profile.

Before you actually start inputting the data, you need to set the plan
profile so that the system knows what layout needs to be used for the
planning exercise.
HOW DO YOU COPY ‘PLAN DATA’ FROM ONE PERIOD TO ANOTHER?

SAP allows you to copy planning data, created manually earlier, from
one fiscal year to the other or from one period to a different period
within the same fiscal year. You have the option of copying existing
plan data to a future period as new plan data or copying actual data
from one period to another as plan data.
WHAT IS THE RECOMMENDED PLANNING SEQUENCE, IN CO?

SAP recommends three steps in the planning. In all three steps, the
planning can be carried out manually or automatically. You may use
assessment, distribution, and indirect activity allocation or inputted
costs for planning. You can also have centralized planning (cost
element planning for all the cost centers) and decentralized planning
(planning for individual cost centers) in your organization.
WHAT ARE THE TWO OPTIONS FOR ENTERING PLAN DATA?

SAP provides you with a choice of two options to enter your plan data.
You may use Form-based entry or Free entry.

In form-based entry, all you need to do is fill in the plan data in the
rows corresponding to the characteristic values (cost centers, cost
element, etc.) displayed on the screen. But, in free entry, you have the
freedom of inputting even the characteristic values.
WHAT ARE ‘DISTRIBUTION KEYS’?

The SAP system uses ‘Distribution Keys’ to distribute planned values

across various periods. With the standard distribution keys supplied by
SAP, you will be able to achieve the type of distribution you need:

1. DK1 (equal distribution)

2. DK2 (distribution as done earlier)
3. DK5 (copy values to period where there is no value)
For example: if you have a planned annual value of 12,000, by using
DK1 you will be able to distribute 1,000 each as the monthly values. If
you had plan values for last year which were something like 1,000 for
January to June, 500 for July, 1,500 for August, and 1,000 each for
September to December, then by using DK2, you will be able to copy
the same amounts to the next fiscal year. DK5 will copy values to
future periods only if there are no values already available for those
periods.
Product costing is used to calculate the cost of goods sold and manufactured for each unit of goods
manufactured.
It is used to keep the track of cost at each and every point of production.

Costing sheet , cost component, Activity types and cost elements are used for product costing.

Costing sheet is used for the overheads purposes.

Cost Component is used for the breaking of expenses into various cost elements for more
transparency of the cost structure.
Activity types are defined as per cost center.

The cost component split will give the transparency on the cost incurred on different levels such as
machinery set up cost, labor costetc.

BOM is used to know the quantity of the material used for the production. Routing is used to define
the sequence of steps required to perform certain operations. For Eg How many labor hours will be
required for a finished product etc.

The entries which flow for product costing are as follows:

For Material issue

Raw Material Inventory(Credit)

To Raw Material Consumption (Debit)

Activities Performed

Respective cost center (Credit)

To Set Up cost (Debit)
Machining Cost (Debit)

Good Receipt

Cost of Production (Credit)

To Inventory of Finished Goods (Debit)

Please note that this entry will come from MM module and at Standard Price.
 Settlement Of Production Order

Cost of Production( Variance)

To Price Difference Account

Post goods Issued

Inventory of Finished Goods (Credit)

To Cost of goods Sold (Debit)

1. uestion1. Explain The Organizational Assignment In The Pa

Module?
Answer :

o The operating Concern is the highest node in Profitability Analysis.

o The operating concern is assigned to the Controlling Area.

o Within the operating concern all the transactions of Profitability Analysis

are stored.

o The operating concern is nothing but a nomenclature for defining the

highest node in PA.

2. Question2. What Do You Mean By Period Based Accounting (gl

Based) And Cost Of Sales Accounting (copa Based)? Period Based

Accounting?
Answer :
“Period based” means that during the month or period, all and only actual events /
transactions are posted in the appropriate period. At the end of the period estimated
accruals and deferrals are made and posted to that posting period to give a more
accurate view of profit. IE any expected revenues and expenditures that should
relate to the current period are accrued for and equally any prepaid expenses or
revenues are deferred to the next period. (Accruals and Deferrals are posted
temporarily, usually to special accounts, and reversed prior to the next period end.)
Cost of Sales Accounting:
Cost of Sales in SAP means that we attempt to record or rather report the “costs of
sales” against the actual sale at as low a level as possible and during the period. (In
CO-PA this is down to a transaction level.) This enables the company to get a
reasonably accurate view of profitability on a real time basis.
This is done by using either standards or estimates for many of the components that
make up the “cost of goods sold”. Any variations from the standards are usually
posted through to the cost of sales system either at month end or when they occur.
3. Question3. What Are Non-fixed Characteristics Or User Defined

Characteristics?
Answer :
Up to 50 non-fixed characteristics can be added to an operating concern.
Create -> Derived the value from Table PAPARTNER (SD partner that can be used in
COPA) -> Create user defined characteristic name WW008 -> Save

4. Question4. What Is A “value Field” In The Co-pa Module?

Answer :
Value fields are number/value related fields in profitability analysis such as quantity,
sales revenue, and discount value.

5. Question5. What Is A “characteristic Field” In The Co-pa

Module?
Answer :
Characteristics are analytical information fields used in CO-PA. Typical examples
include customer number, brand, and distribution channel.

6. Question6. What Do You Mean Fixed Characteristic Fields?

Answer :
Predefined characteristic fields in SAP R/3 system, which are obvious, are known as
fixed characteristic fields such as product, sales org and customer

7. Question7. What Do You Mean By Value Field Groups?

Answer :
Value Field Groups represent the possible combinations of value fields in an
operating concern.
Value field groups are used to specify:

o Which value should be made available to users entering or displaying a

line item

o In what order these value fields should be displayed

o Which specific value fields can be filled

8. Question8. Describe Three Ways Of Disposing Of An Asset

From A Company Code In Sap R/3?

Answer :
An existing asset can be scrapped (transaction ABAVN), transferred to another
company code (ABUMN), sold to a customer account in the accounts receivable
module (F-92), sold with revenue but the revenue is booked to a GL account
(ABAON).

9. Question9. What Is The Basic Difference In Customizing In

Profitability Analysis As Compared To Other Modules?

Answer :
In PA when we configure the system i.e. creating operating concern, maintain
structures no customizing request is generated. The configuration needs to be
transported through a different transaction called as KE3I.

10. Question10. How Do You Configure The Assignment Of

Variances From Product Costing To Copa Module?

Answer :
The variance categories from product costing along with cost element are to be
assigned to the value fields in COPA.

11. Question11. What Are Statistical Key Figures In Co?

Answer :
SKF’s are statistical (or information values) used in cost allocations such as
assessments and distributions.

12. Question12. What Are Account Assignment Models?

Answer :
AAM’s are blocks of document line items that can be used repeatedly to prevent
manual re-entry. Which fields are included in the AAM layout can be configured using
O7E3

13. Question13. How Data Flows From Sd To Copa?

Answer :
The normal SD document flow is as follows:
o Sales order

o Delivery (the delivery creates the goods issue, which debits COGS and
credits Inventory – COGS is updated in CO-PA at this time)

o Billing Document (the billing document updates A/R, Sales revenue,

Discounts, Freight, etc.)

14. Question14. What Are Statistical Internal Orders?

Answer :
Statistical real internal orders are dummy cost objects used for analysis and reporting
purposes. They must be posted to in conjunction with a real cost object such as a
cost center.

15. Question15. What Is The Difference Between “costing Based”

(cb) And “account Based” (ab) Co-pa ?

Answer :

o AB can easily be reconciled with FI at account level through the use of

cost elements. In CB can only be reconciled at account group level (such as
revenues, sales deductions etc) as values are stored in “value fields” as opposed to
accounts.

o In CB data is stored by posting periods and weeks. In AB storage is only

by periods.

o In CB transactions can be stored in operating concern currency and

company code currency. In AB transactions are stored in controlling area currency,
company code currency and transaction currency.

o In CB you can create cross controlling area evaluations or cross

controlling area plans. In AB you cannot as the chart of accounts may differ.

o In CB the cost of good sales (COGS) are updated via material price
valuations. Stock change values can be transferred to CB COPA during billing. Timing
differences can occur if the goods issue and billing documents are in different posting
periods. In AB the value posted in the stock change is posted simultaneously to
COPA.

16. Question16. Name Some Settlement Receivers For Co Internal

Orders?
Answer :
 Typically CO Internal Order is settled to:-

o Other internal orders

o Fixed assets (including assets under constructions)

o GL Accounts

o Cost Centres

17. Question17. Can Both Account Based And Costing Based

Profitability Analysis Be Configured At The Same Time?

Answer :
Yes. It is possible to configure both types of costing based profitability analysis at the
same time.

18. Question18. Why Does Sap Talk About Statistical Assignments

In Co – Why Are These Different From Real Cost Accounting

Assignments?
Answer :
The reason is to facilitate reconciliation between FI and CO. The sum of all ‘real’
assignments in CO should add up to the sum of all expense and revenue postings
(where cost/revenue elements have been created for the GL account of course) in FI.
A normal expense invoice posting to expense accounts / cost elements will be a ‘real’
posting. If the system is displaying an error message insisting on a ‘cost accounting
assignment’ and you think you have entered one, then possibly you have specified a
statistical assignment. A common error is in thinking that the business area will do –
Business areas are FI elements not CO elements.

19. Question19. How Data Flows From Co To Copa?

Answer :
Through Assessments. Allocates costs from cost centers to profitability segments.

20. Question20. How Data Flows Through Mm Into Fi?

Answer :
Through Account assignment model OKB9. Automatic postings created in materials
management, can be passed on to CO-PA by means of automatic account
assignment to a profitability segment.
21. Question21. How Data Flows From Pp Into Fi & Copa?

Answer :

Through Production Variances. It Posts variances from the production (product cost)
estimates or standards to the GL accounts and to Profitability Analysis if real costs
are required (vs standard costs). Standard cost figures would have been used to
update Stock and Cost of Goods sold figures when finished stock was issued from
the production runs.

22. Question22. What Are Characteristics Values?

Answer :

Characteristics are aspects on which we want to break down the profit logically such
as customer, region product, sales person etc.

What is an SAP Internal Order?

Internal orders are cost objects in Controlling-Overhead [Link] cost

objects are intended to be used as “temporary cost collectors” for short-term projects or
events in the organization. They are not as structured or permanent as cost centers.
There is no standard hierarchy for internal orders; however, they can be grouped to meet
individual requirements.

All the control parameters of these cost objects are determined by the order type —
which is configurable.
Compared to cost centers, internal orders are far more flexible and can be utilized to
meet many business requirements.
Internal orders have an advantage over cost centers in that we can plan, budget, and
use availability control. This allows us to monitor spending for these projects or events
by comparing spending to plan, as well as limiting spending against a budget. Think of
this as plan equals funds approved and budget equals funds appropriated. These are
often different values.
Internal orders again differ from cost centers in their ability to collect cost and revenue
and to utilize results analysis to determine profitability.
As business transactions are posted to internal orders, we can analyze that activity in
real time by using reports in the information system. From a single report, we can branch
to additional reports and accounting documents, as well as view the source document.
At the end of a period, amounts can be allocated from orders to other cost objects by the
settlement process. Settlement may be quite simple (to one receiver), or more complex
(using extended settlement to allocate to multiple receivers using several tracing
factors). Periodic reposting can also be used to allocate cost from internal orders using,
for example, statistical key figures. Internal orders can also be used as statistical cost
objects. In this case, there is no further allocation or settlement.

1. Explain ‘controlling (co)’ In Sap?

SAP calls managerial accounting ‘Controlling’ and the module is
commonly known as ‘CO.’ The CO module is, thus, primarily oriented
towards managing and reporting cost/revenue and is mainly used in
‘internal’ decision-making. As with any other module, this module also
has configuration set-up and application functionality.

The controlling module focuses on internal users and helps

management by providing reports on cost centers, profit centers,
contribution margins and profitability, etc.

2. What Are The Important ‘organizational Elements Of Co’?

The important organizational structure of controlling includes:
Operating Concern (the top-most reporting level for profitability
analysis and sales and marketing controlling).

Controlling Area (central organization in ‘controlling,’ structuring

internal accounting operations).

Cost Centers (lower-most organizational units where costs are incurred

and transferred).

3. What Is A ‘controlling Area’? How Is It Related To A Company Code?

A ‘Controlling Area’ is the central organizational structure in
‘controlling’ (CO) and is used in cost accounting. The controlling area,
as in the case of a Company Code, is a self-contained cost accounting
entity for internal reporting purposes. The controlling area is assigned
to one or more Company Codes to ensure that the necessary
transactions, posted in FI, are transferred to controlling for cost
accounting processing.

One controlling area can be assigned one or more Company Codes.

One chart of accounts can be assigned to one or more controlling

areas.
One or more controlling areas can be assigned to an operating
concern.

One Client can have one or more controlling areas.

4. Outline ‘company Code—controlling Area’ Assignments.?

There are two types of assignments possible between the Company
Code and a controlling area:
One-to-one: Here, one Company Code corresponds to one controlling
area.

Many-to-one: More than one Company Code is assigned to a single

controlling area.

5. What Are The ‘components Of Controlling’?

There are three major submodules in CO and each of these
submodules has many components as detailed below:
Cost Element Accounting

Cost Controlling

Cost Center Accounting

Internal Orders

Activity-Based Costing

Product Cost Controlling

Profitability Analysis

Profit Center Accounting

6. Why Do You Need ‘cost Element Accounting’?

‘Cost Element Accounting’ (CO-OM-CEL) helps you to classify
costs/revenues posted to CO. It also provides you the ability to
reconcile the costs between FI and CO. CO-OM-CEL provides the
structure for assignment of CO data in the form of cost/revenue
carriers called cost elements or revenue elements.
7. Explain ‘cost Center Accounting.’?
‘Cost Center Accounting’ deals with the difficult task of managing
‘overheads’ within your organization. Since overhead costs are
something that you cannot directly associate with a product or service,
which can be difficult to control, cost center accounting provides you
with the necessary tools to achieve this.

8. What Is ‘activity-based Costing’?

‘Activity-Based Costing,’ popularly known as ABC, helps you to view
overhead costs from the point of business processes. The result is you
will be able to optimize costs for the entire business process. As a
single business process, activity-based costing will cut across several
cost centers and will give you an enhanced view of the costs incurred.

9. What Is ‘product Cost Controlling’ (co-pc)?

‘Product Cost Controlling’ (CO-PC) deals with estimating the costs to
produce a product/service. CO-PC is divided into two major areas:
Cost of materials

Cost of processing

With CO-PC, you can calculate:

Cost of goods manufactured (COGM)

Cost of goods sold (COGS)

CO-PC is tightly integrated with Production Planning (PP) and

Materials Management (MM), in addition to FI. The functionality
helps to:
Calculate Standard Costs of manufactured goods

Calculate the Work-in-Progress (WIP)

Calculate the Variances, at period-end

Finalize settlement of product costs

Note that CO-PC deals only with production costs as it deals only with
the production.
10. What Is ‘profitability Analysis’ (co-pa)?
‘Profitability Analysis’ (CO-PA) helps you determine how profitable
(denoted by the ‘contribution margin’) your market segments are. The
analysis is on the external side of the market. You will be able to define
what segments, such as customer, product, geography, sales
organization, etc., of the market are required for analyzing ‘operating
results/profits.’ With multi-dimensional ‘drill-down’ capability, you have
all the flexibility you need for reporting.

I N T E R E S T E D I N L E A R N I N G D ATA S C I E N C E

JOIN US NOW!

11. How Is ‘profit Center Accounting’ (ec-pca) Different From Co-pa?

Unlike CO-PA where the focus is on external market segments’
profitability, ‘Profit Center Accounting’ (EC-PCA) focuses on profitability
of internal areas (profit centers) of the enterprise. Profit center
accounting is used to draw internal balance sheets and profit & loss
statements. You may use EC-PCA in place of business area accounting.

Both CO-PA and EC-PCA serve different purposes, and are not mutually
exclusive. You may need them both in your organization.

12. Explain ‘integration Of Co’ With Its Components And Other Sap
Modules.?
The CO module is integrated with FI, AA, SD, MM, PP, and HR:
FI is the main source of data for CO. All expenses, posted in FI, flow to
CO through the ‘primary cost elements’ to the appropriate ‘cost
centers.’ Similarly, postings in Asset Accounting (such as
depreciations) are also passed on to CO.

Revenue postings in FI would result in postings in CO-PA and also in

EC-PCA.

The SD, MM, and PP modules have many integration points in CO.
Goods issue (GI) to a controlling object or goods receipt (GR) from a
‘production order’ are some examples of integration. These modules
are tightly integrated as consumption activities, cost of goods issued,
overhead charges, material costs, etc., which are passed on to
production objects such as PP production order or sales order. The WIP
(Work-in-Progress) and the variances, at period ends, are settled to CO-
PA, CO-PCA, and also to FI. Revenues are directly posted when you
generate billing documents in SD, if the sales order is a cost object
item.

The HR module generates various types of costs to be posted in CO.

Planned HR costs can also be passed on for CO planning.

13. What Is A ‘cost Object’?

A ‘Cost Object,’ also known as a CO Account Assignment Object, in SAP
denotes a unit to which you can assign objects. It is something like a
repository in which you collect costs, and, if necessary, move the costs
from one object to another. All the components of CO have their own
cost objects such as cost centers, internal orders, etc.

The cost objects decide the nature of postings as to whether they are
real postings or statistical postings. All the objects that are identified
as statistical postings are not considered cost objects (for example,
profit centers).

14. Differentiate Between ‘real’ And ‘statistical Postings’ In Co.?

The CO account assignment objects decide the type of postings
allowed. They can be real or statistical postings.

‘Real Postings’ allow you to further allocate/settle those costs to any

other cost object in CO, either as ‘senders’ or as ‘receivers.’ The
objects that are allowed to have real postings include:

Cost Centers
Internal Orders (Real)

Projects (Real)

Networks

Profitability Segments

PP—Production Orders (make-to-order)

‘Statistical Postings,’ on the other hand, are only for information

purposes. You will not be able to further allocate/settle these
statistical costs to other cost objects. Examples of such objects
include:

Statistical (Internal) Orders

Statistical Projects

Profit Centers

15. How Do You Define ‘number Ranges’ In Co?

You will be required to define, for each of the controlling areas, the
‘Number Ranges’ for all transactions that will generate documents in
CO. Once done for a controlling area, you may copy from one
controlling area to other controlling areas when you have more than
one such area.

To avoid too many documents, SAP recommends grouping multiple but

similar transactions, and then assigning number ranges to this group.
Further, you may create different number ranges for plan and actual
data. As in FI, the number ranges can be internal or external. The
document number ranges in CO are independent of fiscal years.

16. How Does ‘master Data’ Differ From ‘transaction Data’ In Co?
The ‘Master Data’ remain unchanged over a long period, whereas
‘Transaction Data’ are short-term. The transaction data are assigned to
the master data.

Though you normally create the master data from transactions, note
that you will be able to create these records from the configuration
side as well. When you need to create a large number of master data,
you may use the ‘collective processing’ option to create related master
records in one step. SAP puts master data in ‘groups’ for easy
maintenance.

In the case of master data of cost center/cost elements/activity types,

once they are created, you will not be able to change the date. SAP
calls this feature the ‘time dependency’ of master data. If necessary,
you can extend the ‘time’ by creating a new one and attaching it to the
existing objects. In the case of resources, the master data are time-
dependent and the system will allow you to delete these objects.
Statistical Key Figures (SKF) are not time-dependent; once defined
they are available in the system forever.

17. What Is A ‘cost Element’?

‘Cost Elements’ represent the origin of costs. There are two types of
cost elements:
Primary Cost Elements

Secondary Cost Elements

18. What Is A ‘primary Cost Element’?

‘Primary Cost Elements’ represent the consumption of production
factors such as raw materials, human resources, utilities, etc. Primary
cost elements have their corresponding GL accounts in FI. All the
expense/revenue accounts in FI correspond to the primary cost
elements in CO. Before you can create the primary cost elements in
CO, you first need to create them in FI as GL accounts.

Note that SAP treats revenue elements also as primary cost elements
in CO processing. The only difference is that all the revenue elements
are identified with a negative sign while posting in CO. The revenue
elements correspond to the revenue accounts in FI and they fall under
the cost element category, category 01/11.

19. What Is A ‘secondary Cost Element’?

‘Secondary Cost Elements’ represent the consumption of production
factors provided internally by the enterprise itself, and are present only
in the CO. They are actually like cost carriers, and are used in
allocations and settlements in CO. While creating these elements, you
need to mention the cost element category, which can be any of the
following:

Category 21, used in internal settlements

Category 42, used in assessments

Category 43, used in internal activity allocation

20. What Is A ‘cost Element Category’?

All the cost elements need to be assigned to a ‘Cost Element Category,’
to determine the transactions for which you can use the cost elements.

Example:
Category 01, known as the ‘general primary cost elements,’ is used in
standard primary postings from FI or MM into CO.

Category 22 is used to settle order/project costs, or cost object costs

to objects outside of CO (such as assets, materials, GL accounts, etc.).

INTERESTED IN LEARNING MACHINE LEARNING!

JOIN US!

21. How Do You Automatically Create ‘cost Elements’?

You will be able to create ‘cost elements’ automatically by specifying
the cost element, the cost element interval, and the cost element
category for the cost elements. All these are achieved by creating
default settings. The creation of cost elements is done in the
background.

The primary cost elements can be created only when you have the
corresponding GL accounts in the chart of accounts of the Company
Code. Even though the GL account names are used as the names of the
primary cost elements thus created by the system, you have the option
of changing these names in CO. All the secondary cost elements are
created in CO; the name of these cost elements comes from the cost
element category.

22. Explain ‘segments’ And ‘cycles.’?

A ‘Segment’ is one processing unit required to complete an automated
allocation of distribution or assessment or reposting of planned/actual
costs in controlling in SAP. A segment is made up of (a) allocation
characteristics—to identify the sender/receiver, (b) values of the sender
—plan/actual, type of costs to be allocated, and (c) values of the
receiver—the basis for allocation, for example, the tracing factor such
as SKF, percentages, etc.

When you combine multiple segments into a single process, then you
call that the ‘Cycle.’ A Cycle helps you to process various segments in a
chain-like fashion one after another. A Cycle consists of header data
(valid for all Segments in a Cycle) and one or more Segments, with
summarized rules and settings enabling allocation. The Segments
within a ‘cycle’ can be processed iteratively (one segment waits for the
results of another) or non-iteratively (all the segments are processed
independently) or cumulatively (to take care of variations in receiver
Tracing Factors or sender amounts).

Typically, when you start the cycles you will start them in a ‘test’ mode
to see the allocations before actual postings. Technically, you can run
the cycles in ‘production’ mode at any point of time, but the system will
carry out the allocation postings only on the first day of a period. The
utility of the cycle lies in the fact that you can run these period after
period.

23. What Is ‘iterative Processing’ Of Cycles?

‘Iterative Processing’ is nothing but the repetitive processing of
sender/receiver relationships until the sender’s entire cost is
transferred to the receiver(s). During iterative processing, you will not
be able to use ‘fixed amounts’ as the ‘sender rules’; you will also not be
able to define a percentage to remain on the sender. You will be able to
use both plan and actual data while using the iteration.

24. What Is ‘splitting’? Explain The ‘splitting Structure.’?

‘Splitting’ is a process used to assign ‘activity-independent’
plans/actual costs, both primary and secondary, of a cost center to the
individual activity types within that cost center. But the important
requirement is that you will use this when there is no account
assignment to the activity types.

You may either use the Splitting rules or the Equivalence number to
achieve this. When you split the costs from a cost center, the cost
center temporarily becomes more than one cost center for the purpose
of allocation but again becomes a single cost center when posting
happens in the subsequent period.

If you need to assign different cost elements or cost element groups to

activities in more than one way, then you need to define a ‘Splitting
Structure’ containing ‘splitting rules’ to determine the criteria of
splitting ‘activity-independent’ costs to an activity type. If you have
created the splitting structure in customizing and assigned the same to
a cost center, then the system uses the splitting structure for cost
apportioning; otherwise, it will use the equivalence number.

The ‘splitting rules’ determine the amount or the proportion of costs to

be allocated to various activity types of a cost center and is based on
the consumption of these activity types. The costs thus allocated may
be a fixed sum, or a percentage, or it can even be based on the tracing
factors or SKFs.

The ‘equivalence number’ is a basic method for splitting the costs

when you manually plan for each of the activity types. By this, you will
plan all activity-independent costs according to the equivalence
numbers (the default is 1).

25. What Is An ‘activity Price Calculation’?

You will be completing the planning process only when you perform the
‘Activity Price Calculation,’ which is based on planned activities and
costs. By doing this you are evaluating the planned secondary costs at
receiving cost centers. If you do not want to use activity price thus
calculated, you are free to use the political price for the activity type.

As you are aware, the activity price is used for planned/actual

allocation and is determined by using either the political price or the
system-calculated activity price.

26. What Is Known As The ‘political Price’ For An Activity Type?

The ‘Political Price’ is the price determined outside the SAP system,
which is used in manual input using the required planning layout in
planning.

27. What Is ‘allocation Price Variance?

‘Allocation Price Variance’ is the difference between the ‘political price’
of an activity type and the ‘system calculated activity price’ of the
same activity type.

28. What Is ‘budgeting’?

‘Budgeting’ is used to augment the planning process at the cost-center
level. While planning is considered the ‘bottom-up’ approach, budgeting
is regarded as the ‘top-down’ method to control costs.

Budgeting usually comes ‘down’ from the ‘top (management)’ and is

used to guide the planning process at the cost-center level. Note that
budgeting is not integrated with postings; you will get an error when
the system comes across a posting that will result in the actual values
exceeding the budget for that cost center.

29. What Are The ‘direct Allocation’ Methods Of Posting In Co?

The ‘Direct Allocation’ of posting in CO may be an actual cost entry or a
transaction-based posting.

The actual cost entry is the transfer of primary costs from FI to CO, on
a real-time basis, through the primary cost elements. You may also
transfer transaction data by making the cost accounting assignment to
cost objects from other modules such as FI-AA, SD, and MM:
FI-AA: Assign assets to a cost center (to post depreciation, etc.)
MM: Assign GR to a cost center/internal order
SD: Assign or settle a sales order to a cost center or internal order
Note that during actual cost entry, the system creates two documents.
When you post the primary costs from FI to CO, the system will create
a document in FI and a parallel document in CO, which is summarized
from the point of the cost object/element.

Transaction-based postings are executed within the CO, again on a

real-time basis, enabling you to have updated cost information on the
cost centers at any point in time. You will be able to carry out the
following transaction-based postings in CO:

Reposting
Line items

Transactions

Manual cost allocation

Direct activity allocation

Posting of Statistical Key Figures

Posting of sender activities

30. What Is The ‘indirect Allocation’ Method Of Postings In Co?

The ‘Indirect Allocation’ of postings in CO may be used at the end of a
period as a periodic allocation. This is done after you have completed
all the primary postings. You may post the following periodic
allocations using indirect allocation:

Periodic Reposting

Distribution

Assessment

Accrual Cost Calculation (Inputted Cost Calculation)

Indirect Activity Allocation

31. Explain ‘co Automatic Account Assignment.’?
For transferring primary costs to CO, on a real-time basis, you need to
have ‘Automatic Account Assignments’ defined in the system. By doing
this, you will always be able to post a particular cost to a specified
cost center. You can also use this assignment for automatically posting
the exchange rate differences (gain or loss), discount, etc., to CO.

You may also have additional account assignment at different levels

such as:
Controlling area/account/Company Code in the customizing

Controlling area/account/cost element in the master record

Controlling area/account/Company Code/business area/valuation area in

customizing

The system always goes through the route of customizing first, then to
the cost element master record while accessing the account
assignment rules.

32. How Does ‘validation’ Differ From ‘substitution’?

SAP uses validations and substitutions to check the integrity of data
entered before posting a document. When you have both substitutions
and validations defined, the system first completes the substitution
then goes on to validate the entries. Note that only one validation and
one substitution can be activated at a time for a controlling area per
‘call-up point.’

A ‘Validation’ uses Boolean logic for checking any type of combination

of specified criteria (such as account type/cost center combination) for
ensuring the validity before allowing you to post a document.

Example:
Validation Rule: If the cost element is ‘120000,’ then the cost center is
‘1200.’
Document: You try posting a document containing the cost element as
‘120000’ and the cost center is ‘1400.’
System Response: The system will throw an ‘error message’ after
checking that the cost center value does not match the cost center
value of the criteria for that given cost element value.
In contrast to validation which just checks for validity, substitution
ensures that the system replaces a value assigned to one or more
fields based on predetermined criteria, using, again, ‘Boolean logic.’
Example:
Substitution Rule: If the cost element is ‘120000,’ then the cost center
is ‘1200.’
Document: You try posting a document containing the cost element as
‘120000’ and the cost center as ‘1400.’
System Response: The system will replace the entered cost center
value of ‘1400’ with that of the correct value ‘1200.’

33. What Is A ‘call-up Point’?

A ‘Call-up Point’ is a particular point in transaction processing that
triggers an action such as substitution or validation.

34. What Is ‘boolean Logic’?

‘Boolean Logic’ is based on simple logic to determine if a given
statement is true or false. The logic works on the basic principle that a
statement can either be true or false. In a complex statement (created
using operators ‘and’/‘or’/‘nor,’ etc.) with many parts, the logic goes by
assigning true or false from part to part, and then determines at the
end whether the combination is true or false.

35. Explain ‘reposting’ In Cost Center Accounting.?

‘Reposting’ is one of the ‘transaction-based postings’ in Cost Center
Accounting used to reallocate costs that were incorrectly posted to
another cost center earlier. Also called internal reposting, there are
two types:

Line Item Reposting

Transaction Reposting

Use Line Item Reposting only when a certain line item, from the
original posting, needs to be reposted. Under this reposting, at the end
of the transaction, the system creates a new CO document, but keeps
the original FI document unchanged. In the new CO document created,
the original FI number is referenced.

You will resort to the entire Transaction Reposting when the original
posting was incorrect. Here, the original FI documents are not
referenced to in the new CO document created, though the original FI
document remains unchanged.
36. Is ‘periodic Reposting’ Different From ‘reposting’?
‘Periodic Reposting,’ a method under ‘indirect allocation,’ is used to
correct multiple postings made to cost centers during a particular
period. As such, this is similar to multiple reposting under ‘transaction-
based postings.’

Periodic reposting is also similar to distribution, when you use this, at

the period end, to transfer all costs from a ‘pooled cost center’ to other
receivers. (Note that the ‘distribution’ is meant primarily for cost
allocation, but periodic reposting is meant for correcting the posting
errors.)

37. Explain ‘manual Cost Allocation.’?

‘Manual Cost Allocation’one of the ‘transaction-based postings’ is used
to post both primary and secondary actual costs (not the planned
costs), and also to transfer external data. You may also use this to
correct secondary costs that were incorrectly posted earlier. In the
process of manual cost allocation, remember that you can use any type
of cost element except 43, as this is meant exclusively for activity
allocation.

You may use this among cost centers, internal orders, networks,
network activities, sales orders, sales order items, WBS elements, etc.,
identifying these cost objects as senders/receivers.

38. What Is ‘direct Activity Allocation’?

‘Direct Activity Allocation’—one of the ‘transaction-based postings’—is
used to record activities performed by a cost center and to allocate
simultaneously to ‘receiving cost centers.’ You will use this ‘direct
activity allocation’ only when you know the activity volumes of both
the sender and the receiver. If not known, then use the indirect activity
allocation at the period end.

You need to input the activity quantity, sender/receiver cost center and
date to enable the system to allocate the costs; the system will
automatically determine the allocation cost element and the activity
price (either the planned price or the actual price). The system
multiplies the activity consumed with that of the activity price to arrive
at the allocated cost.
39. How Do You Calculate ‘accrued Costs’?
SAP provides two methods for calculating the Inputted or Accrued
Costs in CO:
Target=Actual method

Cost Element Percent method

40. Describe The ‘reconciliation Ledger.’?

The ‘Reconciliation Ledger’ is used to keep track of all cross-Company
Code transactions between FI and CO, as there is every chance that
there may be some imbalance between the CO totals and FI totals
when more than one Company Code is attached to a controlling area.
This is because you may try to allocate costs from one cost center to
another assigned to a different Company Code.

The reconciliation ledger records the Company Code, business area,

functional area, amount, cost objects, cost element, currency
(Company Code and controlling area), etc. You can make reconciliation
postings at the end of a period to synchronize FI and CO with the
configuration settings to automatically post the differences to FI.

While configuring the reconciliation ledger, you may use extended

account assignments besides the normal account assignment for
automatic transfer of reconciled postings. The extended account
assignment helps make more comprehensive assignments to the
relevant reconciliation accounts, with the option and flexibility of
specifying any field in the reconciliation ledger (Company Code, cost
element, functional area, etc.) for checking the ‘substitution rules.’

To aid in determining possible reconciliation postings, you can opt for

selecting individual cost flows from all the relevant cost flows. This is
accomplished by running the relevant report and looking for the
relevant ‘data block’ (such as total cost flows, basic overview list, and
detailed list).

41. What Is ‘variance Analysis’ In Co-om-cca?

‘Variance Analysis’ is the determination and interpretation of the
difference(s) between the actual and planned (target) costs (within a
cost center/cost center group) in cost center accounting. The analysis
is intended to provide important clues to top management to plan
better later.

42. What Are The ‘categories Of Variances’ In Co-om-cca?

SAP helps to classify all variances into two categories:
Input Variance

Output Variance

43. Explain The ‘input Variance.’?

The ‘Input Variance’ is the result of the mismatch of amounts/quantities
of inputs planned and actually used. You will be able to identify the
following input side variances in the system:

Quantity Variance: when there is a difference between planned and

actual quantity of activity consumption. The inference is that there is
some production inefficiency leading to more consumption or there is
some loss/shrinkage in the quantities.
Price Variance: when there is a difference between the planned and
actual price of an activity. The inference will be that you may need to
change the suppliers looking for lower prices or it is just a market
condition.
Resource (use) Variance: when there is use of an unplanned cost
element or there has not been a posting of a planned cost element. The
inference is that there are some unidentified costs that may be
planned in the next planning cycle, or just plain errors in postings.
Remaining (input) Variance: these are all miscellaneous variances
where the system is not able to categorize a variance.

44. What Is An ‘output Variance’?

An ‘Output Variance’ is the result when the actual costs allocated from
a cost center differ from the planned (or target) cost allocation from
the cost center. The variances on the ‘output side’ may be any one of
the following:

Volume Variance: This variance occurs with actual and planned

activities (in terms of activity quantity and/or the activity itself).
Output Price Variance: This variance occurs when the activity price
used in the actual allocation is a political activity price (manually
entered or plan price) differing from the system calculated activity
price (target price).
Output Quantity Variance: This kind of variance occurs only on the
actual side, when there is a difference between the actual activity
quantity (manually) entered in the sender cost center, and the actual
activity quantity allocated from that sender cost center.
Remaining Variance: This reflects the miscellaneous variance, at the
cost center level, identified by the system on the output side but
remains not categorized into any of the above three types. The possible
reason can be that you have deactivated the output variances in the
variance variant configuration or the output variance is less than the
‘minor difference’ you have defined in the ‘variance variant.’

45. How Do You Deal With ‘variances’?

Though the system identifies and calculates variances, they are not
automatically dealt with by the system. Hence, these variances will
remain at the cost center as a period-end balance and you need to act
on that in one of the following ways:

You may do actual activity price calculation to revalue all internal

allocations with a newly calculated price (as against the initial planned
activity price), and post the difference to all the cost centers which
initially received the allocations. This will help you in clearing all or a
portion of output price variances.

You may ‘transfer’ the variance balance to other modules (such as CO-
PA) for further analysis.

You may make additional automated allocations within CO-OM-CCA to

one or more cost center.

46. What Are All The ‘standard Reports’ In Co?

SAP comes delivered with a number of ‘Standard Reports’ in the CO
module. The reports are grouped under:
Planning reports

Comparison reports

Line item reports

Report for activity prices

Reports for variance analysis

Master data reports

Document display

All the reports are arranged in a ‘report tree’ with a hierarchical

arrangement of reports under various nodes. Note that you will not be
able to change the standard report tree supplied by SAP; if you need to
you can copy it, define your own reports, and then attach these newly
defined ones to the new report tree you just defined.

47. What Is ‘summarization’ In Co?

‘Summarization’ helps to condense and store the transaction data at
the ‘cost center group’ level. You may do the summarization for the
highest node of the standard hierarchy or any of the ‘alternate
hierarchies.’ Once summarized, you will be able to create a vast
number of reports with report run-time vastly reduced as all the data of
the nodes are readily available from the summarized table.

48. What Is A ‘plan Version’?

A ‘Plan Version’ is a collection of planning data. The version controls
whether the user will maintain plan data or actual data or both. You
may create as many versions as you need, though SAP provides you
with the necessary versions in the standard system.

Each version has information stored in the system per fiscal year
period. The version ‘000’ is automatically created for a period horizon
of five years, and is normally the final version as this allows for storing
actual information as well. You will be using the data in version ‘000 ′
for all the planned activity price calculation. Once planning is
completed, you need to ‘lock’ that version so that no one will be able to
modify the plan data.

49. What Is ‘integrated Planning’ In Co-om-cca?

‘Integrated Planning’ helps you to transfer data from other SAP
modules such as PP, HR, FI-AA, etc. If you have planned data in these
modules and just transfer these into CO, without making any changes,
then you do not need plan again in cost center accounting. Before
using integrated planning, you need to activate the integration in the
planning menu.
Note that integrated planning is possible only when there has been no
data planned on that version before activating the integrated planning.

50. Explain ‘plan Layout.’?

A ‘Plan Layout’ is nothing but a data entry screen or template that you
use to input plan data.

In most situations, it would be more than sufficient to use SAP supplied

planning layouts; however, you may create your own by copying one of
the existing layouts and altering it with the help of report painter. While
creating a custom layout, note that you have the flexibility to create up
to nine lead columns (giving the details the nature of the data
associated with the value columns), and any number of value columns
(plan data such as amount, unit, etc., corresponding to the lead
column).

You also have the option of using MS-Excel spreadsheets as the data
input screen in lieu of the SAP plan layouts; but to achieve this you
need to activate the ‘integrating with Excel option’ while assigning the
layout(s) to a planner profile in IMG.

You need to define a plan layout for each of the three planning areas
in CO, namely:
Primary Cost and Activity Inputs

Activity Output/Prices

Statistical Key Figures

51. Explain A ‘plan Profile.’?

A ‘Plan Profile’ (or Planning Profile) helps in controlling the whole
process of planning by logically grouping the various plan layouts
together. It determines the timeline for planning. You can have more
than one planning layout per plan profile.

Before you actually start inputting the data, you need to set the plan
profile so that the system knows what layout needs to be used for the
planning exercise.
52. How Do You Copy ‘plan Data’ From One Period To Another?
SAP allows you to copy planning data, created manually earlier, from
one fiscal year to the other or from one period to a different period
within the same fiscal year. You have the option of copying existing
plan data to a future period as new plan data or copying actual data
from one period to another as plan data.

53. What Is The Recommended Planning Sequence, In Co?

SAP recommends three steps in the planning. In all three steps, the
planning can be carried out manually or automatically. You may use
assessment, distribution, and indirect activity allocation or inputted
costs for planning. You can also have centralized planning (cost
element planning for all the cost centers) and decentralized planning
(planning for individual cost centers) in your organization.

54. What Are The Two Options For Entering Plan Data?
SAP provides you with a choice of two options to enter your plan data.
You may use Form-based entry or Free entry.

In form-based entry, all you need to do is fill in the plan data in the
rows corresponding to the characteristic values (cost centers, cost
element, etc.) displayed on the screen. But, in free entry, you have the
freedom of inputting even the characteristic values.

55. What Are ‘distribution Keys’?

The SAP system uses ‘Distribution Keys’ to distribute planned values
across various periods. With the standard distribution keys supplied by
SAP, you will be able to achieve the type of distribution you need:

DK1 (equal distribution)

DK2 (distribution as done earlier)

DK5 (copy values to period where there is no value)

For example: if you have a planned annual value of 12,000, by using

DK1 you will be able to distribute 1,000 each as the monthly values. If
you had plan values for last year which were something like 1,000 for
January to June, 500 for July, 1,500 for August, and 1,000 each for
 September to December, then by using DK2, you will be able to copy
the same amounts to the next fiscal year. DK5 will copy values to
future periods only if there are no values already available for those
periods.

CC Accounting :
 CC Allocations, Distribution, Assessment, Periodic Re-posting
 Activity allocations(direct/indirect) Splitting
 Activity price calculation(plan &actual) …etc

Profit Center Accounting :

 Basic Settings
 Master Data
 Planning
 Actual Posting

COPA :
 SD -> COPA mapping
 IO/CC -> COPA settlement
 Prod order variance -> COPA settlement
 Sales order -> COPA settlement
 COPA Valuations(Valuation using Condition types, valuation using Mat cost
estimates, Periodic valuation)
 Top-down distribution of actual data
 Characteristic derivations
 COPA summarization levels, reports (segment level/line item reports)..etc

PP Module :
 BOM, Routing
 Production order types, Order type dependent parameters
 Prod order creation, Prod order confirmation
 WIP / Variance calculation Prod order settlements ..etc

Product Cost Planning:

Scenario:
1. Multilevel costing with multiple plants, Transfer Control, Special Procurement
Types
2. Mixed costing with Procurement alternatives and Mixing Ratios
 Moving Average Price/Standard price
 Automatic and Unit Cost Estimate
 Reference and Simulation Costing
 Creating a cost estimate w/o quantity structure
 Creating a cost estimate with quantity structure
 PP : BOM /Routing ,Internal/External activities
 Origin Groups
 Cost component structure,costing valuation variants etc
 Creating and releasing std cost estimates/ modified std
cost estimates(CK40N) …etc
 Actual Costing ML :
Price determination 2/3 with price control S

Scenario : Muti-level costing with Multiple Valuation Approaches

 Activty allocations /price calculations
 Material consumptions, Overhead calculations
 PP: Prod order creation/confirmation/Settlement
 Actual cost component split
 Costing cockpit (CKMLCP)
 Single/Muti level price determination
 Revaluation of consumptions
 Closing entries
 Material price analysis (CKM3)…etc

Product costing by prod order :

Scenario : Muti-level costing / MTS
 Activty allocations /price calculations
 Material consumptions
 PP: Prod order creation/confirmation/Settlement
 Revaluation at Actual prices
 Overhead Calculation
 RA: WIP Posting \reversal
 Variance calculation (Target cost versions, Scrap variance, Variance categories )
 Variance settlement to FI, COPA
 Reports for Product Cost by Order
 Line items for Variances
 Line items for WIP/Result Analysis
 Prod Order Cost Analysis
 Display CO-PA line items

IO :
 Statistical & Real IOs
 IO to CC settlement
 IO to COPA settlement

aketpratap| 17 May 2007 9:57 am | 0 Comments

 0

 0

 0

 0

SAP Controlling FAQ
CONTROLLING
Controlling: Controlling provides you with information for management decision-making. If
facilitates co-ordination, monitoring and optimization of all process in an organization.

Features of Controlling: Cost Center Accounting, Activity Based Accounting, Internal

Orders, Product Costing, & Profitability Analysis.

Controlling Area: Organization unit that represents a closed system Used for accounting
purposes.

You can assign one or more company codes to one controlling area.

If you assign more than one company code to one controlling area, then you need to note
the following.
1) Consistent Chart of a/c’s (Treat each cost element in all company codes in same way).
2) The Operative fiscal year variants in the company codes must match the fiscal year variant in
controlling area.
3) You should execute period end closing in controlling for all company codes at same time.
4) The system only post reconciliation posting across company codes without taxes, which
means that it cannot automatically create invoice.
5) Maintain controlling area - OKKP .
6) Maintain no. ranges for controlling documents - KANK
7) Maintain versions - OKEQ
COST ELEMENT ACCOUNTING
Cost Elements: Cost Elements Describe the origin of costs. Cost element classifies the
organization valuated consumption of production factors within a controlling area.

Primary Cost Elements: These arise through the consumption of productions factors that
are sourced externally. Primary cost elements are used for direct posting and must be
accompanied in GL a/c’s in FI.

T-code : KA02 : The categories are follows 1) General primary cost element, 03 - Imputed
cost element percentage method 4 - Imputed cost element, target = Actual Method, 11- Revenue
elements, & 12 - sales deductions.

Secondary Cost Elements: Cost elements arise through the consumption of production
factor’s that are provided internally i.e., by enterprise itself. Secondary cost elements are used
strictly for internal controlling posting like assessments and settlements. T-code - ka06

Category: 12 - internal settlements, 31 - Result analyses, 41 - overhead’s, 42 - assessments

etc. Cost Element Group - kah1
COST CENTER’S
Cost Center’s: Organizational Unit within a controlling area that represents a defined location
of cost incurrence. The definition can be based on 1) Functional Requirement, 2) Allocation
criteria, 3) Physical location and 4) Responsibilities for cost.

Change Cost center hierarchy - OKEON

Creation of Cost Center - KS01

Distribution: Was created to transfer primary costs from a sender cost center to receiving
controlling objects. Distribution is primary cost elements.
Define Distribution - KSV1
Execute “” - KSV5

Assessment: Was created to transfer primary and secondary costs from a sender cost center
to receiving controlling objects.
During assessment, the original cost elements are summarized into assessment cost elements
(secondary cost element, category=42).

Define Assessment - KSU1

Execute Assessment - KSU5

Activity Types: Categorizes productions and services activities provided by a cost center to
the organization and used for allocating costs for internal activities to the originates of the costs.

Creation of Allocation Cost elements - KA06

Creating/Maintaining the Activity types - KL01

Statistical key figures: Are used as the basis (tracing factor) on which to make allocations
(assessments & distributions) and to analyze structural key figures.

Searc
Profitability Analysis (CO-PA) Interview Questions
1. What are the differences between Profit Center Accounting (PCA) and
Profitability Analysis (CO-PA)?

PCA CO-PA

PCA is aimed at Profit reporting CO-PA is aimed at external market

on internal responsibility lines or segment reporting for example by
SBU's customer and customer groupings
(industries), geographical areas.
 PCA is limited to reporting by the PCA can slice & dice your information by
profit center hierarchies that you a variety of dynamic hierarchies (a
can setup. 'Rubik’s' cube is often used to symbolize
this idea.

PCA can be reconciled easily back PCA has 2 'styles'

to the GL
 Account based which will reconcile
to the GL

 Costing Based which Allows

approximations, estimations or
standards to be posted, which may
make reconciliation difficult to
explain to the user

2. Why does SAP talk about statistical assignments in CO - why are these different
from real Cost Accounting assignments?

The reason is to facilitate reconciliation between FI and CO. The sum of all 'real'
assignments in CO should add up to the sum of all expense and revenue postings
(where cost/revenue elements have been created for the GL account of course)
in FI. A normal expense invoice posting to expense accounts / cost elements
will be a 'real' posting. If the system is displaying an error message insisting on a
'cost accounting assignment' and you think you have entered one, then possibly
you have specified a statistical assignment. A common error is in thinking that
the business area will do - Business areas are FI elements not CO elements.

Example:

All Profit Center assignments are EC-PCA is defined as statistical, therefore if

statistical posting to a revenue element, the system will
insist on a real cost accounting assignment even
if profit center is specified. A cost center will not
do, since revenue elements are statistical in cost
centers. The system will accept the following as
‘real’: CO-PA profitability segment, sales order,
customer project or a revenue bearing order.

Revenue elements assigned to cost 'Revenue' when defined to the system by setting
centers will always be statistical up a revenue element is always statistical in a
cost center. If however you have setup your
revenue accounts as primary cost elements then
the assignment will be 'real'.
3. What do you mean by Period based accounting (GL based) and cost of sales
accounting (COPA based)?

'Period Based Accounting' is Accrual Accounting and 'Cost of Sales' is 'Cost of Goods
Sold' Accounting.

Period based Accounting

"Period based" means that during the month or period, all and only actual events /
transactions are posted in the appropriate period. At the end of the period estimated
accruals and deferrals are made and posted to that posting period to give a more
accurate view of profit. IE any expected revenues and expenditures that should
relate to the current period are accrued for and equally any prepaid expenses or
revenues are deferred to the next period. (Accruals and Deferrals are posted
temporarily, usually to special accounts, and reversed prior to the next period end.)

These accruals and deferrals are usually done at a fairly high level of summarization
(eg: at company or business area). The FI Ledgers and financial statements etc are
always period based.

Cost of Sales Accounting

Cost of Sales in SAP means that we attempt to record or rather report the "costs of
sales" against the actual sale at as low a level as possible and during the period. (In
CO-PA this is down to a transaction level.) This enables the company to get a
reasonably accurate view of profitability on a real time basis.

This is done by using either standards or estimates for many of the components that
make up the "cost of goods sold". Any variations from the standards are usually
posted through to the cost of sales system either at month end or when they occur.

For example: A product cost estimate might be used to calculate and post a
manufactured cost through to CO-PA when every sale goes through. The actual
production orders variances from the product cost estimate can then be settled to a
separate line in CO-PA. This has the benefits that

a reasonably accurate gross profit could be reported in real time at a transaction

level and of course therefore at all the characteristic levels in CO-PA.

The impact of any abnormal variances in production can quite clearly be seen and
analyzed separately from the normal profitability of a product.

4. How data flows from SD to COPA?

The normal SD document flow is as follows:

1. Sales order

2. Delivery (the delivery creates the goods issue, which debits COGS and
credits Inventory – COGS is updated in CO-PA at this time)

3. Billing Document (the billing document updates A/R, Sales revenue,

Discounts, Freight, etc.)
5. How data flows from CO to COPA?

Through Assessments. Allocates costs from cost centers to profitability

segments.

6. How data flows through MM into FI?

Through Account assignment model OKB9. Automatic postings created in

materials management, can be passed on to CO-PA by means of automatic
account assignment to a profitability segment.

7. How data flows from PP into FI & COPA?

Through Production Variances. It Posts variances from the production (product

cost) estimates or standards to the GL accounts and to Profitability Analysis if
real costs are required (vs standard costs). Standard cost figures would have
been used to update Stock and Cost of Goods sold figures when finished stock
was issued from the production runs.

8. What do you mean by value field groups?

Value Field Groups represent the possible combinations of value fields in an

operating concern. Value field groups are used to specify:

 Which value should be made available to users entering or displaying a

line item

 In what order these value fields should be displayed

 Which specific value fields can be filled

You plan your data for the characteristics Product, Product group and Customer
group. You define three planning levels for which planning data is to be
entered: Customer group/product group (independent of the
product), product/product group (independent of the customer group),
and product/product group/customer group (the lowest, most detailed level). By using
transaction-based top-down distribution, you can ensure that all planning data is
saved at the lowest level

9. What are Characteristics Values?

Characteristics are aspects on which we want to break down the profit logically
such as customer, region product, sales person etc.

10. What do you mean fixed characteristic fields?

Predefined characteristic fields in SAP R/3 system, which are obvious, are known
 as fixed characteristic fields such as product, sales org and customer

11. What are Non-Fixed characteristics or user defined characteristics?

Up to 50 non-fixed characteristics can be added to an operating concern. E.g. Bill-to-

party

Create -> Derived the value from Table PAPARTNER (SD partner that can be used in
COPA) -> Create user defined characteristic name WW008 -> Save