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Controlling Module: Operation Mite
Controlling Module: Operation Mite
Controlling Module: Operation Mite
Controlling Module
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Operation MiTE
Table of Contents
CO 01 : Allocation of Cost to Cost Centers - Direct.......................................................................3
CO 02 : Assessment/Distribution of Costs to Cost Centers............................................................6
CO 03 : Direct Activity Allocations................................................................................................9
CO 04 : Assessment of Cost Center costs to Profitability Analysis.............................................12
CO 05 : Standard Cost Estimate....................................................................................................15
CO 06 : Actual Costs.....................................................................................................................19
CO 07 : Overheads.........................................................................................................................24
CO 08 : Actual Postings.................................................................................................................28
CO 09 : Allocation / Assessment of Costs / Revenues..................................................................31
CO 10 : Collection of costs on Internal Orders..............................................................................34
CO 11 : Budget Preparation & Budget Vs Actuals comparison....................................................38
CO 12 : Cost Audit Reports ..........................................................................................................45
CO 13 : Creating Reservation / Managing Commitments.............................................................47
CO 14 : Monthly Accounts............................................................................................................50
CO 15 : Profitability Analysis........................................................................................................54
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1.1 Requirements & Expectations
Dividing the organization into cost centers to follow several goals, depending on the
cost accounting method.
Assigning costs to cost centers to determine where costs are incurred within the
organization.
To plan costs at cost center level, to check cost efficiency at the point where costs are
incurred.
To assign overhead costs accurately to individual products, services, and market
segments, allocating the costs to those cost centers directly involved in the creation of
the products or services and further to assign the activities and costs to the relevant
products, services, and market segments.
Enabling valuation of semi-finished and finished products , and to calculate
contribution margins in Profitability Analysis
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2.1 Existing Process General Explanation
Major Departments are classified as Cost centers and all costs are allocated to cost
centers
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3.1 Proposed Process General Explanation
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All the expenditure items are treated as Cost elements and CO objects such as Cost
centre, Internal Order or Profitability Segment are assigned to the element of cost.
3.2 Explanation of Proposed Functions & Events – Flow Sheet
All departments created as Cost Centers. All expenditure items are treated as Cost
elements. All cost elements assigned to a cost center or Cost object. When a
transaction is entered in FI, the cost center or other CO object has to be given, so that
the cost gets posted to the concerned Cost center or object as the case may be.
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
nil
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Not Applicable
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6.4 Reporting considerations
Cost center wise reports to be taken, cost element wise, periodically to analyse the
actual costs, to compare with the budgets and analyse the difference, if any.
6.5 Authorization considerations
Authorization for maintenance of masters must not be given to any user.
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1.1 Requirements & Expectations
Distribution and assessment are used primarily for cost centers , where direct cost
allocation is not possible due to the variety of transactions, lack of clearly defined
individual activity types and the fact that the entry of the activity is too time-
consuming. For example, the costs of the company canteen may be assigned based on
the number of employees in each cost center. Telephone costs, especially the Board
Numbers of WO, HO are collected on a clearing cost center for each period. They are
then reposted or distributed at the end of the period according to the number of
telephone units or telephone installations in each cost center.
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2.1 Existing Process General Explanation
Presently expenses like canteen, telephone etc are treated as overheads and allocated
based on the direct salary expenses of each cost center.
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3.1 Proposed Process General Explanation
The costs like canteen, telephone, common repairs etc. will be distributed or assessed
to individual cost centers based on SKFs
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
The expenses like Canteen, Telephone, common repairs etc. will first be collected in
an Allocation Cost Center . During month end, these are allocated to the individual
cost centers those have utilised these services in that office, based on the number of
employees or number of telephone instruments, floor area occupied etc, as the case
may in the individual cost centers .
Allocations are carried out at the period end (during period-end closing) and draw
upon predefined parameters (keys, sender-receiver relationships)
In Distribution, the original primary cost element is retained when allocated to the
receiving cost centers, for example, the telephone costs.
Sender and receiver information (sender cost center, receiver cost center) appears in
the Controlling (CO) document.
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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1.1 Requirements & Expectations
Direct labour costs from Production Cost Centres, Maintenance cost centers, Quality
cost centers have to be allocated to the product as part of the cost of production.
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2.1 Existing Process General Explanation
Presently direct costs are treated as fixed costs and allocated full to the cost of
production irrespective of the quantities produced. All the costs relating to the
production cost center are charged to the respective production cost center. Cost
center wise report will show the break up of costs.
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3.1 Proposed Process General Explanation
Activity Types are created as tracing factors (allocation bases which can be used as
cost drivers) for the services of each cost center. Activity allocation occurs, for
example, when business transactions are confirmed or when posting activity quantities
to accounts. The system multiplies the activity produced by the price of the activity
type
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
Activity Types are created as tracing factors (allocation bases which can be used as
cost drivers) for the services of each cost center.
Activity Prices are calculated manually, based on the total costs of the cost center
charged in the previous month and the total hours of services (capacity) of that cost
center – say Production Cost center or Maintenance cost center. ( Total costs divided
by the total hours will give the price as Rs. Per hour)
The Business transacations will contain the number of hours (or minutes) of service
utilised by the Production order (or maintenance order, as the case may be) for the
particular production process ( or maintenance activity).
The time multiplied by the price will be the total labour cost of production which will
be charged to the Production order and credited to the Cost center.
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4.1 Changes Management Issues
The allocations will be based on actual number of instruments, or actual number of
employees etc. These are called Statistical Key figures. The actual SKFs for the
month have to be entered before allocations are carried out.
4.2 Description of Improvements
The allocation of cost to products can be made as accurately as possible. After
crediting the actual activity prices, the balances in the cost center ( if any) will indicate
under absorption or over absorption, if any, which can be treated as per requirements –
i.e. Can be assessesed to the profitability segments in PA
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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1.1 Requirements & Expectations
To transfer other costs in Cost centers including under absorption / over absorption in
production cost centers which are not directly attributable to the production process to
any profitability segments
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2.1 Existing Process General Explanation
Presently there is no Profitability Analylsis and all the costs in the cost centers are
treated as costs of production /overheads as the case may be.
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3.1 Proposed Process General Explanation
Activity Types are created as tracing factors (allocation bases which can be used as
cost drivers) for the services of each cost center. Activity allocation occurs, for
example, when business transactions are confirmed or when posting activity quantities
to accounts. The system multiplies the activity produced by the price of the activity
type. After allocating the production costs, whatever remains in the Cost centers are
under absorption / over absorption. Also there may be costs in certain cost centers
which cannot be directly allocated to the production process. Such costs are assessed
to the Product or to any of the segments in Profitability Analysis.
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
Activity Types are created as tracing factors (allocation bases which can be used as
cost drivers) for the services of each cost center.
Activity Prices are calculated manually, based on the total costs of the cost center
charged in the previous month and the total hours of services (capacity) of that cost
center – say Production Cost center or Maintenance cost center. ( Total costs divided
by the total hours will give the price as Rs. Per hour)
The Business transacations will contain the number of hours (or minutes) of service
utilised by the Production order (or maintenance order, as the case may be) for the
particular production process ( or maintenance activity).
The time multiplied by the price will be the total labour cost of production which will
be charged to the Production order and credited to the Cost center.
The balances in the cost centers after the above credit, if any, are treated as under
absorption and this is transferred to the Profitability segments or products in PA.
These cost centers are first credited during production as the activities they perform
(such as machine hours and assembly hours) are required. The amount of the credit is
based on the quantities confirmed by production and on the activity prices (such as
machine hour rates) usually calculated in cost center planning. The balances that are
thus achieved - or the over absorption / under absorption remaining for the production
cost centers due to the difference between credits and actual costs - are transferred en
bloc in periodic profit analysis to those profitability segments in CO-PA that caused
those costs.
Costs from administrative cost centers are transferred to CO-PA en bloc instead of
allocating them to cost objects. This reduces the period results of the individual
divisions, product groups, or business areas.
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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1.1 Requirements & Expectations
To create a standard cost estimate and use the same for standard costing.
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2.1 Existing Process General Explanation
Presently there is no standard costing.
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3.1 Proposed Process General Explanation
Product Cost Planning (CO-PC-PCP) is an area within Product Cost Controlling (CO-
PC) in which we can plan the non order-related costs of, and determine prices for,
materials and other cost accounting objects. It helps to ascertain
What is the amount of value added of a particular step in the production process?
How high are the material, production and overhead costs?
Can the product be supplied at a competitive price?
Product Cost Planning calculates the cost of goods manufactured (COGM) and cost
of goods sold (COGS) for products such as materials and services. The costs may then
be analyzed and business decisions (such as "make or buy" decisions) made.
The cost of goods manufactured is composed of material and production costs,
process costs and overhead (such as material and production overhead). The cost of
goods sold consists of the cost of goods manufactured together with sales and
administration overhead costs.
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
Create a Costing Variant which gives the purpose of cost estimate, period of validity,
Valuation methods for valuating raw material, labour costs, external services,
overheads etc.
The material costs for a material are calculated using the BOM and the master
records of the materials in the BOM. The production costs are calculated using the
routing, the work centers where the respective operations are carried out, the cost
centers, and the activity types. We can calculate overhead using the material costs and
the production costs as a base.
In the case of MCFL, being a Process Industry, the terms used will be Material Lists
Master Recipe and Resources .
The material list assigned to the master recipe contains the information pertaining to
the material components used. The phase overview details the work required to
manufacture the product and the default values. The resource is the organizational unit
at which an operation or phase is carried out. It also specifies a cost center
First, the system determines the quantity structure, being the BOM and routing. It then
valuates the materials in the BOM and the production activities from the routing with
prices and calculates the overhead.
The material costs are calculated for the material components, by multiplying a price
from the material master record, by the input quantity from the BOM. For materials
not included in inventory (that is, non-stock materials), the unit price is entered in the
BOM itself,
The costs of activity for producing, as contained in the master recipe is calculated
based on the formula and the performance efficiency rate key in the work center , the
standard values for the operation in the routing , the prices for the activity types in
Cost Center Accounting
Overhead costs are costs which can only indirectly be attributed to the product, such as
electricity or general storage costs. Overhead is applied to the reference object as a
percentage rate or a quantity-based rate. The overhead is applied by means of costing
sheet
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4.1 Changes Management Issues
The finished products are valuated with the Standard Cost Estimate which is stored in
the Material Master for the product.
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4.2 Description of Improvements
The allocation of costs to products can be made as accurately as possible. Defining
the cost components and itemization, cost element wise facilitates quicker compilation
of the Cost Audit Report formats and statements.
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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CO 06 : Actual Costs
Module CO – Product Cost Controlling
Process Cost Object Controlling
Sub Process / No Actual Costs CO-06
Description To determine the cost of goods manufactured and cost of goods sold –
actual costs.
The Cost Object Controlling component enables determination of the
cost of goods manufactured or the cost of goods sold for the
manufacturing or service output of the company.
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1.1 Requirements & Expectations
To determine "What costs have been incurred for which objects?" Assign the costs
incurred in the company to the company’s output to determine the cost of goods
manufactured in all plants.
The Cost Object Controlling component enables to determine the cost of goods
manufactured or the cost of goods sold for the manufacturing or service output of the
company.
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2.1 Existing Process General Explanation
Presently all direct costs are collected in Cost centers and all the costs in the cost
centers are treated as costs of production . Overheads are allocated manually outside
the system.
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3.1 Proposed Process General Explanation
Cost object controlling helps to
Establish planned costs (budgeted costs)
Record actual costs for the cost objects
Compare actual costs with target costs and with planned costs, and analyze
variances
Determine price floors for products or individual orders
Cost Object Controlling supplies basic information for the following business
functions:
Price setting and general price policy
Inventory valuation
Cost of goods manufactured
Profitability analysis
Profit Center Accounting
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
In Product Cost Planning, first create a standard cost estimate for the material to
establish the standard cost.
Then the following sequence of steps is performed in Cost Object Controlling:
1. Preliminary costing
The preliminary cost estimate calculates the planned cost for the object being
costed. For example, if the cost object is a production order, planned costs can
be used in variance calculation as the basis for calculating target costs.
2. Simultaneous costing
All actual costs incurred for a cost object are collected directly on the cost
object. Actual costs are incurred in different ways, such as through internal
activity allocations and material withdrawals. This process of collecting actual
costs on a cost object is called simultaneous costing. Simultaneous costing
enables you to view and analyze the actual costs on a cost object at any time.
3. Final costing
Once the cost object has been produced, final costing determines the actual
costs incurred during the production process. Final costing also serves the
purposes of cost analysis and control.
Final costing is normally performed as a period-end closing process. For this
reason, final costing in the R/3 System is one of the menu options under
Period-End Closing.
The period-end closing process includes the capture of period costs. A period
cost is an actual cost that is not attributable to the cost object from a particular
activity. This can be the revaluation of activities at actual prices or the
calculation of process costs or overhead, for example.
In addition, the period-end closing process can determine the value of the
unfinished goods (work in process).
Variances are calculated in the period-end closing process in Product cost by
Period.
While settling, data can be transferred to other application components such as
Financial Accounting.
Period-end closing in Cost Object Controlling is performed after period-end
closing in Cost Center Accounting.
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All postings of actual data that refer to a cost object result in an immediate debit of the
cost object.
The closing activities at the end of the period allow you to do the following:
Revaluate activities at actual prices
Allocate overhead using template allocation and by defining overhead rates for
cost objects
Determine the work in process (the value of unfinished goods)
Determine the variances between target costs and actual costs
Transfer the calculated data to other objects and application components
Compile periodic reports on a regular basis
Reporting functions are supported by the Cost Object Controlling Information
System.
In the R/3 System, you can analyze planned costs, target costs, actual costs, and
quantity information at various levels, such as that of the plant, product group, or
individual cost objects. The data are always available in real time.
Drilldown capabilities enable you to access detailed information.
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4.1 Changes Management Issues
Not Applicable
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4.4 Approaches for covering Functional Deficit
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
6.2 File conversion considerations (Master data maintenance).
Nil .
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CO 07 : Overheads
Module CO – Product Cost Controlling
Process Cost Object Controlling
Sub Process / No Overheads CO-07
Description Allocate overheads using percentage-based or quantity-based overhead
rates for plan or actual data
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1.1 Requirements & Expectations
To allocate overheads to the products.
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2.1 Existing Process General Explanation
Presently all direct costs are collected in Cost centers and all the costs in the cost
centers are treated as costs of production . Other overheads are allocated to Products
based on a costing sheet in which the overheads are grouped and allocated in
proportion to the direct salary costs / dispatch quantity /production quantity/sales
quantity etc.in each production cost center.
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3.1 Proposed Process General Explanation
Overhead costs are costs which can only indirectly be attributed to the product, such as
electricity or general storage costs. In the conventional method, overhead is applied to
the reference object as a percentage rate or a quantity-based rate. The overhead is
applied by means of costing sheets.
Overhead is assigned from FI to the cost centers. The overhead costs are in turn
passed on from Cost Center Accounting to Product Cost Controlling (CO-PC). From
Cost Object Controlling, the overheads are transferred to
Financial Accounting (FI), to valuate finished and unfinished products
Profit Center Accounting (EC-PCA)
Profitability Analysis (CO-PA)
Overhead costs that have not been applied to a cost object (such as sales and
marketing costs) can be passed on directly from Cost Center Accounting to
Profitability Analysis.
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
Costing Sheet
Calculation Base : This defines the primary cost elements to which a particular
overhead is to be applied. This represents a group of cost elements to which
overhead has to be applied.
Overhead : The overhead rate determines to what extent the percentage-based or
quantity-based overhead rate should be applied to the direct costs. It also specifies
under which conditions (dependencies) the overhead rate is to be applied.
Credit: A credit specifies the credit object and the credit cost element. If an object in
actual data is debited with overhead, then another object (such as, a cost center, or
order) is credited at the same time using a special overhead cost element (category
41).
Costing Sheet comprises multiple rows that are processed from top to bottom during
the overhead calculation.
Base Rows : You define these by assigning a calculation base, so that they contain
the direct costs that are to have overhead applied to them during the overhead costing.
Overhead Rows : These are defined by the assignment of an overhead rate. An
overhead row consists of a base row or a totals row. The overhead amount is
calculated by multiplying the amount contained in these rows by the overhead
percentage rate or quantity-based overhead rate determined through the overhead
rates. As well as overheads, the overhead rows contain credit keys. These credit keys
determine which object (such as a cost center or order) is to be credited under which
cost element during overhead rate determination.
Totals Rows : Totals rows are used to generate subtotals or final totals
Applying Overheads: Enter the costing sheet required for overhead costing in the
object (such as a cost center, business process, internal order, project or costing
reference object)
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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CO 08 : Actual Postings
Module EC-Profit Center Accounting
Process Profit Center Accounting
Sub Process / No Actual Postings CO-08
Description Posting Costs and Revenues to Profit Centers on line and determination
of Profit / Loss, profit center wise.
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1.1 Requirements & Expectations
To determine profits and losses by profit center. A profit center is a management-
oriented organizational unit used for internal controlling purposes. Dividing
company into profit centers to analyze areas of responsibility and to delegate
responsibility to decentralized units, thus treating them as "companies within the
company".
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2.1 Existing Process General Explanation
Presently Area offices & each product which they deal with are treated as Profit
centers and budgets are allocated to each product to each area offices and actual costs
and revenues are compared.
Costs incurred in the respective area offices are debited to the profit center.
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2.3 Special Organizational Considerations
To create product wise profit centers in each area office and analyse the profitability
and performance of the area offices product wise.
3.1 Proposed Process General Explanation
Profit centers cannot receive direct postings in the R/3 System. Instead, the data is
posted to other objects and passed on from there to a profit center in Profit Center
Accounting. This makes it possible to display the company’s results by profit center
based on the original postings and with no additional work.
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
6.2 File conversion considerations (Master data maintenance).
Nil .
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1.1 Requirements & Expectations
To allocate the following to different profit centers, namely
Costs (assessment and/or distribution)
Revenues and sales deductions (assessment and/or distribution)
Balance sheet items (distribution)
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2.1 Existing Process General Explanation
Presently Area offices & each product which they deal with are treated as Profit
centers and budgets are allocated to each product to each area offices and actual costs
and revenues are compared.
Costs incurred in the respective area offices are debited to the profit center.
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3.1 Proposed Process General Explanation
Profit centers cannot receive direct postings in the R/3 System. Instead, the data is
posted to other objects and passed on from there to a profit center in Profit Center
Accounting. This makes it possible to display the company’s results by profit center
based on the original postings and with no additional work.
In addition to direct postings, profit center wise, there may be service profit centers,
which provide service to more than one profit center, for which the costs are allocated
to individual profit centers based on assessment or distribution
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4.1 Changes Management Issues
Not Applicable
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4.4 Approaches for covering Functional Deficit
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
Profit Centre Analysis - Month wise & Cumulative for a given period - Area wise,
Product wise & account code wise compared to the Approved Budget with reasons for
variance
a)Profit center review ( Ranking the area office performance product wise)
b)Area office-wise profit center Performance analysis-Urea ,Phospatic & IOP
c)Comparative CPT of Area Offices
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1.1 Requirements & Expectations
To plan, collect, and settle the costs of internal jobs and tasks, including costs of
special events / special jobs / for statistical analyses
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2.1 Existing Process General Explanation
Presently all the expenses are captured cost center wise.
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3.1 Proposed Process General Explanation
Internal Orders can be created for a time-restricted operational job, or for long term
cost monitoring. If required, a statistical posting to internal orders can also be made,
to monitor costs from a different angle, as an alternative to doing so to a true object.
Internal order can be created for each individual job, to collect all costs incurred in
performing that job. These internal orders are often planned in several steps,
depending on the technical planning progress or on the progress of the work itself.
The actual costs collected on these internal orders can be allocated
Either in the month the costs were incurred, using the actual costs in this
month
Or after all the work for the order is completed
Long-term internal orders are most often used to allocate the costs incurred for
recurring deliveries and activities. They allow continuous monitoring of costs in more
detail than is possible using a cost center. The actual costs collected on long-term
internal orders are settled monthly. Such internal orders often remain valid for
several years. Some typical uses include Minor repairs, Maintenance of small
equipment, such as wiring, lighting fixtures, Individual vehicles from the company
fleet, operation of "administrative" equipment, such as photocopiers, telephone
systems, and so on
Statistical internal orders are typically used to evaluate costs that cannot be displayed
in detail either in Cost Element or Cost Center Accounting. These orders allow
evaluations from a viewpoint different to that used in Cost Center Accounting.
To achieve this, the debits for a cost center can receive an additional account
assignment on a statistical internal order. The amount then appears under the original
cost element, both on the cost center (cost effective) and the internal order (statistical).
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
Internal Order is created ( Master data) defining the attributes such as the Purpose,
permitted business transactions, settlement rule etc.
Assign postings of primary costs directly to an internal order within Financial
Accounting (for example, for external services and deliveries).
The internal order is usually used as an interim collector of costs. When the job has
been completed, the costs are settled to one or more receivers (cost center, fixed asset,
profitability segment, and so on).
To be able to settle an order, a settlement rule is defined in each of the senders. This
settlement rule determines where the costs are to be settled to.
The costs collected on an internal order are settled Either to one cost center, one G/L
account, or one business process using one settlement cost element Or through a
comprehensive settlement to various receiver objects.
During settlement, some or all of the plan or actual costs incurred on an object are
allocated to one or more receivers. The system automatically generates offsetting
entries to credit the sender object. The debit postings assigned once to a sender object
remain in place, even after settlement to a receiver (and can therefore be displayed).
The costs settled are updated on the corresponding receiver object and displayed in
reporting.
Information on the status of internal orders can be obtained through reports to
control them effectively. There are several predefined standard reports available for
the Internal Orders component (CO-OM-OPA)
3.3 Special Organizational Considerations
Order management within a company usually differentiates between sales-oriented
orders, and internal orders. Sales-oriented orders (production or sales orders) are
intended mainly for the logistical control of input factors and sales activities. Internal
orders are categorized as either:
Orders used only for monitoring objects in Cost Accounting (such as,
advertising or trade fair orders)
Productive orders that are value-added, that is, orders that can be capitalized
(such as in-house construction of an assembly line).
Internal order management is the most detailed operational level of cost and activity
accounting. It can be used for:
Cost monitoring, for example, where costs need to be looked at from object-
related aspects, unlike in Cost Element Accounting or Cost Center Accounting
Assisting decision-making, when you need to decide between in-house
production and external procurement
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4.1 Changes Management Issues
Additionally the Order reference has to be keyed in wherever more than one cost
object is there, namely cost center and an internal order and the like.
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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1.1 Requirements & Expectations
To prepare the annual, month wise, departmental wise, cost center wise revenue
budget & procurement budget (revenue purchase & capital items).
Product wise budget.
Variance analysis (Quantity,Rate & Production variances)
Compare the budget with the actuals to monitor the costs
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2.1 Existing Process General Explanation
Presently all the expenses are captured cost center wise.
Month wise Budgets are prepared by each department under each cost center
(section wise) to a cost element which are directly controlled by respective
department .
For eg. a) Personnel & administration departments prepare salary & administrative
budget based on requirement to a cost center for a different business area and
consolidate to the company as a whole to each element of cost.
b)Production department will prepare month wise production plan based on :
i.Urea :Based on Essential Commodity Act(ECA) allocation/Govt Policy
ii.Phospatic & ABC :Based on the requirement of Marketing department.
Raw Materials and Utilities cost are calculated based on Production,Specific
Consumption and Rates relating to required production.
c) Maintenance department prepare
a) the month wise consumption budget separately for stores consumption
through stores and directly (non stock item)
b) for repairs costs.
d) Purchase department prepare procurement budget (purchase target for revenue &
capital items) through material balancing ( considering the Closing balance +
consumption -Opening balance ) based on Production & utility department and
Maintenance department consumption target and capital addition plan and these
procurement budget is linked to Financial concurrence where we are monitoring the
utilization of budget.
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variance analysis,
Quarterly variance analysis against departmental budget element wise
Monthly variance analysis against product budget element wise.
LATEST ESTIMATES (I.E..) - [ACTUAL + PROJECTION]
Preparation of Latest estimates (I.E..) - Product wise & Dept-wise
Comparison of LE with actual of Previous Year, Budget , Split period comparison
Projection for next two or more financial years
ANNUAL BUDGET
Preparation of HO budget
Preparation of HO budget - Deptwise
Administrative Cost - Dept. wise - Corporate Office
Administrative Cost - Dept. wise - Works Office
Consolidation of Annual Budget - WO,HO, Marketing budget including AO
Profit and Loss Account - Budget
Profit and Loss Account - Estimate
Profit and Loss Account - Budget Product Wise
Comparison of Budget with LE of Previous Year - product wise
Operating Statement - Summary
Operating Statement Summary - Product wise
Sales Realisation - Product Wise
Details of Production and Sales
Details of Operating and Other cost
Details of Marketing Cost
Assumptions
Cash Flow Projections
Sundry Debtors Collections
Subsidy Dues - plant wise
Stock Flow
Monthly Profit and Loss Account - Budget Product Wise
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2.2 Explanation of Existing Functions & Events – Flow Sheet
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3.1 Proposed Process General Explanation
Cost center planning involves entering / uploading plan figures for Costs or
statistical key figures for a particular cost center and a particular planning period.
Variances are calculated when the actual costs are compared with the plan figures.
These variances serve as a signal to make the necessary changes to business
processes.
Cost center planning forms part of the overall business planning process, and is a
prerequisite for standard costing. The main characteristic of standard costing is that
values and quantities are planned for specified timeframes, independently of the
actual values from previous periods .
Integrated Planning in SAP, covering all aspects of Business Planning, like Sales
plan, production plan, and cost center planning shall be explored to cater to the
complete planning requirements of MCFL
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
Planning primary costs involves entering/uploading those costs that arise from the
consumption of goods and services supplied to the organization from external (as
opposed to internal) sources. Primary costs include Labour costs, External services,
Material costs, Operating supplies, Accrual costs. The accrual costs either have
different values in CO than in FI (imputed interest or depreciation), or are incurred
at different times in CO than FI (special payments such as vacation bonuses, or
irregular costs, for example, repairs, annual turn around).
In primary cost planning, you can enter/upload costs and consumption quantities for
each cost center/cost element. This means that primary costs can be planned by
quantity, as well as by value.
Primary costs can be planned using different methods, namely, Manual primary cost
planning and Automatic primary cost planning
In addition to primary costs, secondary costs are often incurred during the
production of cost center activity. This is because a cost center must often take
activity from other cost centers to produce its own activity. Secondary costs on the
cost center result from internal allocations, such as activity allocations or
assessments.
To get meaningful periodic comparisons of plan and actual data, plan secondary
costs as well as primary costs.
Cost center budgeting provides a further method of planning in addition to primary
cost and secondary cost planning. This tool enables you to carry out a comparison
between actual postings and plan budgets. You can thus determine when the budget
is exceeded and carry out timely availability checks. You can create budgets
for a single cost center or for cost centers of a cost center group
You can see the budget data in a budget report. The budget report compares plan
data , commitment data, and actual data (resulting from actual postings) as well as
the allotted and available amounts
IN the proposed process, the budgets for primary costs prepared by respective
departments will be uploaded, cost center wise and cost element wise.
There can be different versions of plan figures based on latest estimate, optimistic
and pessimistic scenarios etc. as per the requirement of the company.
The following steps are generally carried out in business planning:Sales Planning,
Production Planning, Cost Center Planning, Product Cost Planning, Sales and Profit
Planning. The SAP R/3 System supports all five steps. In SAP Best Practices a
consistently integrated planning is implemented in which various business
activities can be planned separately and yet still be integrated to ensure consistency
and to realistically control group-wide planning. ..
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3.3 Special Organizational Considerations
The present planning methods will be explained by MCFL module / department
wise, in detail. After a study of the same, the standard features in SAP for planning
will be explored to map the requirement. This will be done after the initial
configuration, including Profitability analysis is completed and value flows thereto
tested.
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Before planning the budget, create a budget profile during Customizing for Cost
Center Accounting or use an existing profile. The settings for the following are made,
Budgeting time frame, Decimal places, Scaling factor, Distribution Keys, Fiscal year
or period values
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1.1 Requirements & Expectations
To compile the Cost Audit Reports
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2.1 Existing Process General Explanation
Presently all the expenses are captured cost center wise. Based on the element wise
break up in each cost center the cost audit reports in the required format is compiled.
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3.1 Proposed Process General Explanation
The automatic allocation of costs to cost centers and therefrom to the products will
make the compilation of the reports easy and faster.
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4.1 Changes Management Issues
Not Applicable
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5.1 Notes on Further Improvement
Nil
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6.1 System configuration considerations
Nil
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1.1 Requirements & Expectations
Whenever an expenditure is proposed, the Finance department has to look into budget
availability and enter this expenditure so that it is reduced from the future budget
availability by creating a reservation even though the actual expenditure will be
incurred at a later date.
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2.1 Existing Process General Explanation
Proposals for Financial Sanction-indigenous & Imports Purchases
Verification of Proposals with respect to
1.Company’s procedures and policies.
2.Purchase Requisitions(PRs),Request to Stores(RTS) from the indenting dept.
3.Verifying QCS with quotations
4.Availability of budget sanction
5.Verification of account code given by originator
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3.1 Proposed Process General Explanation
Commitment Management Identifies costs that will be incurred in the future for
materials and services that have been requested or ordered. Commitments reserve
funds that will become costs at a future date.
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4.1 Changes Management Issues
Not Applicable
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4.4 Approaches for covering Functional Deficit
Not Applicable
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5.1 Notes on Further Improvement
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6.1 System configuration considerations
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CO 14 : Monthly Accounts
Module Controlling
Process Monthly Accounts
Sub Process / No Monthly Accounts CO-14
Description Monthly Accounts
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1.1 Requirements & Expectations
To compile monthly accounts which consist of
i. Month wise, product wise profitability and group wise profitability such as
Phoshatic fertilizers, Traded goods, Manufactured goods, budgeted products
profitability , non budgeted products profitability.
ii. Product wise cost of production.
iii.Subsidy realisablity based on existing cost against the claim preferred ( against the
present notification)
iv. Cost Per Tonne analysis .
v. Comparing FICC with actual
vi. Comparing Budget with actual
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2.1 Existing Process General Explanation
Presently all the expenses are captured cost center wise. Based on the element wise
break up in each cost center the monthly reports in the required format is compiled.
Prepare the product wise profitability (only to finished goods) -
Raw material & utilities other than CPP power directly identify to each
product doing "itemisation".
CPP & purchased power allocate based on consumption to each plant then
reallocate based on no. of units produced (different finished goods).
R&M, Stores consumption based on actuals to a plant then reallocate based
on no. of units produced (different finished goods) and in case of
consumption in utility plant CPP to Urea, Water plant to Urea, IAT to DAP
, Bagging Plant for respective product
Marketing variable based on actuals to a product.
Administration & Marketing Fixed cost allocate into Urea & Phosphatic in
79:21 then reallocate the Phosphatic cost in to DAP, 20:20:0 & 16:20:0
based on production and Marketing Quantity.
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3.1 Proposed Process General Explanation
The automatic allocation of costs to cost centers and therefrom to the products will
make the compilation of the reports easy and faster.
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4.1 Changes Management Issues
Not Applicable
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4.4 Approaches for covering Functional Deficit
Not Applicable
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5.1 Notes on Further Improvement
Nil
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No
6.1 System configuration considerations
Nil
6.2 File conversion considerations (Master data maintenance).
Nil .
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CO 15 : Profitability Analysis
Module Controlling
Process Profitability Analysis
Sub Process / No Profitability Analysis CO-15
Description Value flows to PA and Profitability Analysis Reports
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1.1 Requirements & Expectations
To analyse profitability for the market segments comprising of Region, Customer
group and Products
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2.1 Existing Process General Explanation
Presently profit analysis is being made area office and product wise which are profit
centers.
2.2 Explanation of Existing Functions & Events – Flow Sheet
Area offices are considered as Profit Centers and product wise profit details are
studied by way of comparison of actuals with budgets. Customer or Customer group
wise analysis is not done presently.
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3.1 Proposed Process General Explanation
Profitability Analysis will be carried out for the market segments comprising of Area
Offices, Products and Customer groups
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3.2 Explanation of Proposed Functions & Events – Flow Sheet
The market segment comprising of Area office, Product and Customer group will
be considered as Profitability segement and for this combination the Revenues,
discounts / rebates, cost of production, variances and other overheads will be analysed
and contribution margin will be worked out.
The Area Offices, Products and Customer groups will be defined as Characteristics
and the Value Fields will be Revenue, Discount / Rebate, Material costs, salaries and
wages, other production costs, depreciation, insurance, roaylty if any, admin
overheads, sales and marketing overheads etc. The values will flow from the sales
(billing) document, order settlement, and other direct postings in MM and FI. The
under absorption / Over absorption, if any in any of the production cost center as also
the other administrative overheads in Corporate services cost centers will be assessed
to the appropriate segments in PA.
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4.1 Changes Management Issues
There will be new dimension in Profitability analysis involving customer or customer
group. Other characteristics may also be added in course of time as per the company'
s
requirements
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5.1 Notes on Further Improvement
New characteristics can be defined in course of time when the market expands and
the profitability is market-driven.
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6.1 System configuration considerations
Nil
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