1. Explain 'Controlling (CO)' in SAP.
SAP calls managerial accounting as 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 in with any other module, this module also has (a) configuration setup and (b) application
functionality.
The controlling module focuses on the internal users, and helps the management by providing
reports on cost centers, profit centers, contribution margins & profitability etc
What are the important 'Organizational Elements of CO'?
The important organizational structure of controlling includes:
Operating Concern, Controlling Area and Company Code
• Operating Concern (the top most reporting level for profitability analysis and sales &
marketing controlling)
• Controlling Area (central organization in 'controlling', structuring the internal accounting
operations)
• Cost Centers (lower most organizational units where costs are incurred and transferred)
What is a 'Controlling Area'? How it is related to 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 Company Code, is a self contained cost
accounting entity for internal reporting purposes. The controlling area is assigned to one or more
Company Codes, so as to ensure that the necessary transactions, posted in FI, are transferred to
controlling for cost accounting processing.
Figure: Controlling Area Details

2. • 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
What are all the 'Components of Controlling'?
• Cost Element Accounting
• Cost Controlling
• Cost Center Accounting
• Internal Orders
• Activity-Based Costing
• Product Cost Controlling
• Profitability Analysis
• Profit Center Accounting.
What is 'Activity Based Costing'?
Activity Based Costing, popularly called as ABC, helps you to view the overhead costs from the
point of business processes. The result is, you will be able to optimize costs for the entire
business process.

3. As a single business process will cut across several cost centers, ABC will help you to have in
enhanced view of the costs incurred.
What is ' Product Cost Controlling '?
Product Cost Controlling (CO-PC) deals with estimating of what will cost to produce a product
of service.
CO-PC is divided into two major areas:
i. Cost of materials
ii. Cost of processing
With CO-PC, you will be able to calculate:
a. Cost of goods manufactured (COGM)
b. Cost of goods sold (COGS)
CO-PC is tightly integrated with Production Planning (PP) and Materials Management (MM),
Besides FI.
The functionality helps to:
• Calculate Standard Costs of manufactured goods
• Calculate the Work-in-Progress (WIP)
• Calculate the Variances, at period-end
• Settlement of product costs
Note that CO-PC deals only with the production costs.
What is 'Profitability Analysis '?
Profitability Analysis (CO-PA) helps you to 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 which segments, like customer, product, geography, sales
Organization etc., of the market which are required for analyzing the 'operating results /profits'.
With multi-dimensional 'drill-down' capability, you have all the flexibility you require for the
reporting.
What is Cost Object in SAP?

4. Cost object is nothing but a cost or revenue collector in SAP.
Every P&L posting must be assigned to a Cost Object. Examples of Cost Object includes Cost
Center, Internal Order, WBS element, Sales Order, Production order. Cost Object is the key
concept in SAP Controlling.
Differentiate 'Real' and 'Statistical Postings' in CO.
The CO account assignment objects decide the type of postings allowed. This can be real or
statistical posting.
The Real Postings, allow you to further allocate / settle those costs to any other cost object in PO,
either as 'senders' or as 'receiver's.
The objects which are allowed to have real postings include:
• Cost Centers
• Internal Orders (Real)
• Projects (Real)
• Networks
• Profitability Segments
• PP - Production Orders (make-to-order)
The Statistical Posting, 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.
The example of such ' objects includes:
• 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 area, 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 of 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.

5. What is a Cost Element'?
The 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'?
The Primary Cost Elements represent the consumption of production factors like raw materials,
Human resources, utilities etc. The 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
Category 01 / 11 of cost element category.
What is a 'Secondary Cost Element'?
The 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
(like assets, materials, GL accounts etc)

6. How to, automatically, create 'Cost Elements'?
You will be able to create 'cost elements', automatically by specifying (i) the cost element, (ii)
the cost element interval and (iii) cost element category for the cost elements. All these are
achieved making 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 naming of these cost
elements comes from the cost element category.
Define 'Cost Centre Accounting '.
Cost Centre Accounting (CO-OM-CCA) helps you to track where costs are incurred in your
enterprise. All the costs, like salary and wages, rent, water charges etc., incurred are either
assigned or posted to a cost centre.
Explain posting of costs to 'Cost Centers’.
When you create accounting transitions in Fl / FI-AA / MM, you typically post to one or more
GL accounts. While doing so, provided you have already configured in such a way, you also
require the user to input the cost centre for that transactions, so that when the transaction is
posted the values costs flow not only to the GL but also to CO to the appropriate cost centre.
The system will be creating two posting documents: one for FI and another for CO.
Besides, you will also be able to post non-financial information like direct labor hours from HR
or SAP modules to cost centers in CO.
What is an 'Activity Type'?
Activity Type helps you do define the service / action (example: human labor, machine
labor, repair hours etc) performed or provided by a cost centre. It forms the 'basis' for allocating
costs to if other cost centers or internal orders etc. You may assign an activity type to an
operation so that they are reflected in PP. a CO document is created with the costs of the
operation allocated from m the cost center that produced the operation to a production order,
when the operation is completed in PP.
You may group activity types into activity type groups for easy maintenance.

7. You need to arrive at the activity price which needs to be attached to that particular activity
type for planning or recording the actual. The activity price is calculated by dividing the total
costs by the If total planned / actual activity quantity (hours, units etc).
It is not necessary that all the cost centers need to have activity types associated with them. If
there is no output from a cost centre, then there will be no activity type for that cost centre.
What is a 'Resource' in CO?
Resources are goods / services, consumed by CO objects like cost centre / internal order / WBS
element, which are supplied (internally or externally) to an organization in order to produce
business activities. The resources are used only in planning and not for tracking the actual.
There are three types of resources:
• Type B (used in base planning object)
• Type M (refers to a material)
• Type R (exists only in CO-OM)