TEAM :5

3511110595-VISHAL PRANAV M 3511110622-RAGUL D 3511110642-RAJESH KANNA S SECTION-J

TOPIC : ACTIVITY BASED COSTING (ABC) CONTROL 1. WHAT IS ACTIVITY BASED COSTING CONTROL
ANSWERE: activities to ABC is the assignment of costs from resources to activities and then from

cost objects: ABC identifies the processes and activities involved in producing the cost object (e.g. a course, program, project or faculty/group) and then costs these activities. The activitiesare costed by taking the traditional general ledger cost reports and determining an appropriate resource driver to assign the resource costs to the various activities. This involves accumulating costs that behave in a similar way into cost pools (e.g. salary costs, facility costs), and then identifying appropriate resource drivers to assign the costs from the cost pools to the activities (e.g. % of academic time, teaching space-M2 etc).

2. WHAT ARE MODULES IN ABC CONTROL

ANSWERE: Resources Module: Salaries and operating expenses. These costs are obtained from the general ledger and are included in the ABC model to calculate the cost of activities. - Resource Drivers are used to assign resource costs to activities. Activity Module: Activity can be defined as an action or set of actions within an organisation that consume resources with the aim of producing an end product or service. - Activity Drivers are used to assign the cost of activities to the cost object. Cost Object Module:

Cost objects are the reason or purpose for performing the activities. A cost object can be a product, service, customer group, department, organisation or project. - Cost drivers are factors causing a change in the performance of an activity, and therefore affects the resources required by the activity

Activity-Based Costing: Model

Process

Process

Process

CO-OM

Product

ABC
CO - PC CO

PA CO

Product Groups Customers Distrib. Channels ...

SAP AG

3. APPLICATIONS OF ABC CONTROLS IN DAILY BUSINESS:

ABC has proven its applicability beyond academic discussion. ABC is applicable throughout company financing, costing and accounting:

ABC is a modeling process applicable for full scope as well as for partial views. ABC helps to identify inefficient products, departments and activities. ABC helps to allocate more resources on profitable products, departments and activities. ABC helps to control the costs at any per-product-level level and on a departmental level. ABC helps to find unnecessary costs that may be eliminated. ABC helps fixing the price of a product or service with any desired analytical resolution.

Better Management Budgeting, performance measurement Calculating costs more accurately Ensuring product /customer profitability Evaluating and justifying investments in new technologies Improving product quality via better product and process design Increasing competitiveness or coping with more competition Management Managing costs Providing behavioral incentives by creating cost consciousness among employees Responding to an increase in overheads Responding to increased pressure from regulators Supporting other management innovations such as TQM and JIT systems

4. What are cost centre accountings?

Cost centers are divisions that add to the cost of the organization, but only indirectly add to the profit of the company. Typical examples include Research and Development, Marketing and Customer service

5. What are the cost element accountings in SAP controlling?

Basically, cost elements are carriers of costs. Primary cost elements are like material costs, personnel costs, energy costs... where a corresponding GL account exists in FI..to allow costs to flow... Secondary cost elements are like production costs, material overheads, production overheads, they can be created and administered in only CO. These are used in internal cost allocation, overhead calculation, settlement transactions. It does not flow to FI...

6. Difference between Cost Centers and Internal Orders

A cost center as you will know is for fixed reporting for a long time span as part of your company structure (cost center usually = department or work center). An internal order is used to accumulate cost for a specific project or task for a specific time period. An internal order is therefore used for a short period with a specific deadline. Your internal order will usually settle to cost centers (and not visa versa) according to the settlement rule in the order setup.

An internal order can therefore be used to group all the expenses incurred to plan and hold a conference over a 3 month period. The order can be settled on a monthly basis to cost centers. When the conference is finished the order can be settled finally. The cost of the conference will then be spread over 2 or more cost centers, but can be viewed in total on the internal order when needed.

It is important to understand the difference between a settlement and an assessment cycle. An assessment cycle distributes costs from one cost center to various other cost centers. You cannot assess from a cost center to an internal order nor visa versa. Assessment cycles are only between cost centers. Costs are posted to an order. When you process a purchase order you post to the internal order and not to a cost center. The same applies to journals in FI. You will post the costs to the order and not to a cost center. You will then settle the order on month-ends to post to the relevant cost centers. It is very important to settle these orders otherwise FI and CO will not balance on your system. Internal orders can also be used as "statistical" orders. This is also specified in the setup of the order. You do not have to settle statistical orders. When posting costs, you will post to the cost center and the order simultaneously. Both have to be specified when posting journals or purchase orders against statistical orders.

7. Purpose of Defining Internal Orders

Lets say in an organization there are various events such as trade fairs, training seminars, which occur during the year. Now lets assume for a second that these Trade fairs are organized by the Marketing cost center of the organization. Therefore in this case marketing cost center is responsible for all the trade fairs costs. All these trade fairs costs are posted to the marketing cost centers. Now if the management wants an analysis of the cost incurred for each of the trade fair organized by the marketing cost center how would the marketing manager get this piece of information across to them? The cost center report would not give this piece of info Now this is where Internal Order steps in .If you go through all cost center reports this information is not readily available since all the costs are posted to the cost center. SAP, therefore provides the facility of using internal orders which comes in real handy in such situations. In the above scenario the controlling department would then need to create an internal order for each of the trade fair organized. The cost incurred for each of the trade fair will be posted to the internal orders during the month. At the month end, these costs which are collected in the internal order will be settled from these orders to the marketing cost center. Thus the controlling person is now in a position to analyze the cost for each of the trade fair separately. Thus internal order is used to monitor costs for short term events, activities. It

helps in providing more information than that is provided on the cost centers. It can be widely used for various purposes .