Document: Profit Center Transfer Pricing Process in SAP PDF

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Document: Profit Center Transfer

Pricing Process in SAP
Real life example with detail information.
Tarek Hossain Chowdhury

Sr. Consultant SAP FICO, Bangladesh
M & WhatsApp: +8801819-210126
Email ID: tarekhchy@gmail.com
Skype ID: tarekhchy
Linkedin:https://www.linkedin.com/in/ta
rek-hossain-chowdhury-b192a341/
TAREK HOSSAIN CHOWDHURY ---------- SR. CONSULTNAT (SAP FICO) EMAIL : TAREKHCHY@GMAIL.COM /// M
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Contents
A) Transfer Pricing Concepts ..................................................... 3
B) Organizational Units Affected By Transfer Pricing ................. 6
C) Real life requirement .............................................................. 7
D) Prerequisite of the Process .................................................... 7
E) Configuration.......................................................................... 9
F) Business Process ................................................................ 11
G) Detail Execution of Business Process ................................. 14
1) Requirement raise .......................................................... 15
2) Management Approval ................................................... 15
3) Display Material Master ................................................. 16
4) Pricing Condition set by the costing unit. .................... 18
A) Fix Transfer Price Condition. .................................... 18
B) Markup price condition set. ...................................... 20
5) Reservation Raise by WH of Receiving PC ................ 23
6) Material transfer by WH of Sending PC ...................... 24
7) Internal Profit Center Reporting .................................... 32
H) Observation ......................................................................... 33
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A) Transfer Pricing Concepts

A transfer price is a price used to valuate the transfer of a good or
service between independently operating units of an organization.
You can use a transfer price to valuate goods movements between
profit centers. Activities cannot be valuated with transfer prices at
this point.
The SAP system supports three types of transfer prices that

represent the three primary views of goods movements within a
corporate group.
In the legal view, transfer prices represent the value (sales price)
of goods or services transferred between legally independent
member companies in the group. These values are reflected in the
individual financial statements of those companies.
Transfer prices according to the group view represent the costs

of goods manufactured, which can be used for the allocation of
goods and services within a group of companies. For these prices,
group-internal profits are eliminated from the prices of the legal
view.
Transfer prices according to the profit

center represent valuation approaches
(management approaches) which are agreed
between different areas of responsibility (profit
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centers) and used to determine their internal

profitability.
The above graphic shows the three different views:
1. Group view , in which business transactions within the group are

represented using group-wide cost rates
2. Profit center view, in which business transactions between

profit centers are valuated using managerial or controlling
rates. You portray the profit center view either in classic
Profit Center Accounting (EC-PCA) or as part of New
General Ledger Accounting.
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3. Legal view , in which business transactions between affiliated

companies are valuated using external sales prices
The following concepts are also of importance for an understanding

of transfer pricing in the SAP system:
The three different views of business transactions - those of the

individual company, the group as a whole and the profit center - are
referred to as valuations or valuation views.
In the SAP system, each valuation view always uses its own
currency type. The combination of currency type and valuation view
is referred to as the valuation approach (see also Consistency of
the Valuation Settings in Different Applications: Currency and
Valuation Profile ).
In a currency and valuation profile, you can specify up to three

valuation approaches that you want to store in parallel in your
system. This ensures that these approaches are updated
consistently throughout all the affected application components
(see also Consistency of the Valuation Settings in Different
Applications: Currency and Valuation Profile ).
Except in classic Profit Center Accounting, transfer prices from the

legal view must be stored in all application components. Storing up
to two additional valuation approaches for material inventories and
goods movements in parallel is referred to as parallel valuation.
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B) Organizational Units Affected By

Transfer Pricing
In order to use transfer prices in the SAP system, you need to store
multiple valuation approaches in parallel throughout the accounting
application components. Consequently, the following
organizational units play an important role:
 The controlling area represents a group of companies in which

transfer prices can be used.
In Profit Center Accounting, this group is divided into areas of
responsibility that act as independent units and have responsibility
for their own profits.
 If you employ cross-company accounting, the company codes
represent the individual companies, which you need to assign to
your controlling area.
In each company code, material inventories are stored in individual
plants. The plant represents the level at which these material
inventories are valuated using parallel approaches.
Reference:
https://help.sap.com/viewer/1b28652e774d490db5310fd6e426691f/6.00.31
/en-US/226dd7531a4d424de10000000a174cb4.html
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C) Real life requirement

1) Material will transfer from one profit center to another
profit center with some margin or fixed price.
2) Internal Revenue will be shown in the Profit center that

is sending the material. This will be considered as internal
profit center performance purpose.
3) But this internal revenue will not be shown in the

financial statement. (T Code F.01)
D) Prerequisite of the Process
1) Profit center valuation method needs to be

active.
2) Two costing variant needs to be active.
3) 04 GLs need to be created.
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GL Code
GL Code Detail information of GL
Description
This is the internal revenue
account for the sending profit
GL center. It is based on the transfer
Internal Revenue
400611 price amount multiplied by the
quantity transferred to the
receiving profit center
This is the internal COGS
account for the sending cost
GL Change in Stock / center. It is based on the value of
400612 Internal COGS inventory in the Profit Center
Valuation view of the sending
Profit Center
This is the internal Goods
Receipt Account in the receiving
GL Delivery from Profit Profit Center. It is based on the
400613 Center transfer price amount multiplied
by the quantity transferred from
the sending Profit Center
This is the offset to the Delivery
GL Change in Stock in
from Profit Center Amount in the
400614 the Receiver Side
Receiving Profit Center
4) The material needs to be extended to receiving

plant.
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E) Configuration
1)Define Account Determination for internal
Goods Movement
Menu Path /// Profit Center Accounting >> Transfer
Prices >> Settings for internal Goods Movements >>
Define Account Determination for internal Goods
Movement. T Code 0KEK
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2)Automatic Account determination. T Code

OKB9
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F) Business Process
Business Process -
Profit Center Transfer Pricing Process
Requirement
1) Material will transfer from one profit center to another

profit center with some margin or fixed price.
2) Internal Revenue will be shown in the Profit center

that is sending the material. This will be considered as
internal profit center performance purpose.
3) But this internal revenue will not be shown in the

financial statement. (T Code F.01)
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User
1 Material transfer requirement Manual

has to be raised.
Management
Mgt. approval for transferring
2 some material from One PC to Manual
Other PC with some margin &
fixed price.
User
Mgt. Approval copy will be send
3 to Manual
A) Costing unit
B) WH of Sending PC
C) WH of Receiving PC
Costing Unit
4 Material will be displayed for TC MM03
taking information and analysis
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Costing Unit
5 Costing Unit will update TC 8KEZ
Material Transfer Price in SAP
Receiving Profit Center

6 Authorized WH person will
TC MB21
create Material Reservation
based on Mgt. Approval
Sending Profit Center

7 Authorized WH person will
TC MIGO_TR
Transfer Material based on
Reservation.
Costing Unit
8 Costing Unit will report to Mgt.
TC FAGLL03H
regarding Internal revenue/
Internal performance of Profit
Center
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G) Detail Execution of Business

Process
Step by Step Process
1) Requirement raise Manual

2) Management Approval Manual
3) Approved Mgt. Approval send to Manual
 Costing unit
 WH of Sending PC
 WH of Receiving PC
4) Display Material MM03
5) Price Condition update 8KEZ
6) Reservation Raise-WH receiving PC MB21
7) Material transfer-WH Sending PC MIGO_TR
8) Reporting FAGLL03H
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
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1)Requirement raise
Manual
The Material Transfer requirement from PC1080 to
PC1070 with 20% Margin & Fixed price BDT 3,500/-
From TO
Material L81GGS-MMM-35-20 L81GGS-MMM-35-20
Plant 1201 1102
Profit center PC1080 PC1070
Storage location FG81 FG70
Batch REFILL REFILL
Quantity 1
Price BDT 3,500/-
Material L81GGS-MMM-35-22 L81GGS-MMM-35-22

Plant 1201 1102
Profit center PC1080 PC1070
Storage location FG81 FG70
Batch REFILL REFILL
Quantity 1
Price 20% Margin
2) Management Approval
Manual
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Based on requirement Management will approve the

Material transfer from one PC to other PC @ 20%
Margin & Fixed price BDT 3,500/-
Approved Management document will be send to
 Costing unit
 WH of Sending PC
 WH of Receiving PC
3) Display Material Master

T Code MM03
Costing unit will check the material price in SAP

system.
Plant 1201
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4) Pricing Condition set by the costing

unit.
T Code 8KEZ
A) Fix Transfer Price Condition.
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B) Markup price condition set.
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5)Reservation Raise by WH of Receiving

PC
T Code MB21
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6) Material transfer by WH of Sending PC

T Code MIGO_TR.
T Code MIGO_TR (L81GGS-MMM-35-20)
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Material document 4900121187 posted
T Code MIGO_TR (L81GGS-MMM-35-22)
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Material document 4900121188 posted
Document number
Material
MM FI Controlling
Ledger
4900121187 490000104 A0002QVF00 A0002QVF00
4900121188 490000105 A0002QVG00 A0002QVG00
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490000104
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490000105
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7) Internal Profit Center Reporting

T Code FAGLL03H
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H) Observation
1) Transfer pricing is activated based on Material type. So

appropriate material type should be selected. (Example: only
FG material type)
2) When Transfer pricing process will be activated then all plants

will come under this process.
3) Appropriate company: Example - One company has two

plants. One is making parts and the other one is assembling
Car/Generator etc. So parts making profit center will show
internal revenue by supplying parts to assembling profit
center.
4) Before implementation cross module tests need to be taken.
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Document: Profit Center Transfer

Real life example with detail information.

Tarek Hossain Chowdhury

A) Transfer Pricing Concepts

The SAP system supports three types of transfer prices that

Transfer prices according to the group view represent the costs

Transfer prices according to the profit

centers) and used to determine their internal

The above graphic shows the three different views:

1. Group view , in which business transactions within the group are

2. Profit center view, in which business transactions between

3. Legal view , in which business transactions between affiliated

The following concepts are also of importance for an understanding

The three different views of business transactions - those of the

In a currency and valuation profile, you can specify up to three

Except in classic Profit Center Accounting, transfer prices from the

B) Organizational Units Affected By

 The controlling area represents a group of companies in which

C) Real life requirement

2) Internal Revenue will be shown in the Profit center that

3) But this internal revenue will not be shown in the

D) Prerequisite of the Process

1) Profit center valuation method needs to be

2) Two costing variant needs to be active.

3) 04 GLs need to be created.

4) The material needs to be extended to receiving

2)Automatic Account determination. T Code

1) Material will transfer from one profit center to another

2) Internal Revenue will be shown in the Profit center

3) But this internal revenue will not be shown in the

1 Material transfer requirement Manual

Receiving Profit Center

Sending Profit Center

G) Detail Execution of Business

Step by Step Process

1) Requirement raise Manual

Material L81GGS-MMM-35-22 L81GGS-MMM-35-22

Based on requirement Management will approve the

3) Display Material Master

Costing unit will check the material price in SAP

4) Pricing Condition set by the costing

A) Fix Transfer Price Condition.

B) Markup price condition set.

5)Reservation Raise by WH of Receiving

6) Material transfer by WH of Sending PC

T Code MIGO_TR (L81GGS-MMM-35-20)

Material document 4900121187 posted

T Code MIGO_TR (L81GGS-MMM-35-22)

Material document 4900121188 posted

7) Internal Profit Center Reporting

1) Transfer pricing is activated based on Material type. So

2) When Transfer pricing process will be activated then all plants

3) Appropriate company: Example - One company has two

4) Before implementation cross module tests need to be taken.

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