This document provides an overview of controlling accounting concepts and terminology used in SAP. It defines key terms like cost elements, cost centers, internal orders, profit centers, and activity-based costing. Cost elements capture costs and revenues, while cost centers collect costs by responsibility area. Internal orders track costs of temporary projects. Profit centers are evaluated on profit/return. Activity-based costing assigns costs to business processes and products. Work centers perform manufacturing operations linked to a cost center.
3. 33
Controlling AccountingControlling Accounting
Most companies divide their accounting function
into internal and external, and controlling
accounting represents the internal accounting.
Controlling (managerial) accounting is the
process of identifying, measuring, analyzing, and
communicating information in pursuit of an
organizations goals.
The controlling accounting objective is to show
how the system adds value by structuring
information in a certain way.
4. 44
Controlling (CO)Controlling (CO)
Managerial accounting – termed controlling
– is designed to collect the transactional
data that provides a foundation for
preparing internal reports that support
decision-making within the enterprise.
These reports are exclusively for use
within the enterprise and include:
◦ Cost center performance
◦ Profit center performance
◦ Budgets analyses
5. 55
Fundamentals of Cost ManagementFundamentals of Cost Management
Financial (external) accounting system and the
cost management (internal accounting)
system are fully integrated.
Every cost is linked to an expense booked in
the financial accounting system and to a cost
element in the managerial accounting
system.
Cost elements are in turn assigned to cost
objects.
8. 88
Controlling Accounting TerminologyControlling Accounting Terminology
Controlling Area
A self-contained, organizational element serves to broadly
define a managerial accounting and reporting system for
which the management of revenues and expenses can be
performed
A controlling area is the highest level organizational entity
within the Control module in which cost and profit analysis
takes place (except for PA analysis which takes place
within an operating concern.
A controlling area may include one or more company
codes; therefore, an enterprise can perform management
accounting analyses and reports across several companies
Each company code can be assigned to one and only
one controlling area
A way to identify and track where revenues and costs are
incurred for evaluation purposes
9. 99
Controlling Accounting TerminologyControlling Accounting Terminology
Controlling Area (- continue)
A controlling area is also broken down into two different
“standard” hierarchical structures:
◦ 1) standard cost center hierarchy; and
◦ 2) standard profit center hierarchy
Internal financial (controlling) reporting and analysis
focuses on measuring the cost or profit results of
components of a controlling area, such as cost centers
or profit centers.
Note:
◦ External reporting does not take place for a controlling area. Neither
income statements nor balance sheets are created for an entire
controlling area.
11. 1111
Cost Element AccountingCost Element Accounting
Cost Elements
Cost and revenue accounts within a chart of accounts that
are involved in cost accounting are referred to as
“elements,” which are further divided into primary cost
elements, primary revenue elements, and
secondary cost elements (there are no secondary
revenue elements).
12. 1212
Cost Element AccountingCost Element Accounting
Cost Elements (- continued)
Primary cost and revenue elements created in the FI
module and are used both in the FI and CO modules
to account for cost and revenue flows with parties
external to the organization. Primary cost and
revenue flows are first recorded in FI and then
transferred automatically to a cost or revenue
object within the CO module (e.g., cost center,
internal order, profitability segment, etc.).
Secondary cost elements are created in the CO module
and are used exclusively within CO to account for
internal cost flows among cost objects within a
controlling area (e.g., cost allocations among cost
centers).
13. 1313
Cost Center Accounting (CCA)Cost Center Accounting (CCA)
Created for internal controlling purposes and provides
a tool that can collect costs.
The cost center accounting (CCA) module within CO
provides the means for assigning planned costs and
actual costs incurred to areas of cost responsibility
within an organization. For example, if a manager wants
to know how much it costs to run his department for the
month of April, this module can be used to provide the
answer. The CCA module contains a variety of methods
for allocating costs among cost centers and from cost
centers to other cost objects (e.g., internal orders,
production orders, profitability segments, etc.).
15. 1515
Cost Center (- continued)Cost Center (- continued)
A cost center is the basic
organizational/responsibility component of a
controlling area. A controlling area is broken
down into cost centers, which are organized
in a “standard cost center hierarchy.”
Cost centers may also be linked to a specific
business area, company code, and profit center
(i.e., business areas, company codes, profit
centers and controlling areas may all be viewed
as collections of cost centers).
16. 1616
Cost Center AccountingCost Center Accounting
Cost Drivers
A cost driver is a factor, such as machine hours, beds
occupied, computer usage time, flight hours, or any other
factor that causes overhead costs.
Most companies use direct labor-hours or direct labor cost
as the allocation base for manufacturing overhead,
However, major shifts are being made in the way cost is
structured. With the increased usage of sophisticated and
complex equipment in manufacturing, there is less direct
labor relative to overhead as a component of product
costs.
Typical cost driver types: activity types and statistical
key figures.
17. 1717
Cost Center AccountingCost Center Accounting
Activity
Any event, action, or transaction that causes a cost to
be incurred in the production of a product or the
providing of a service.
18. 1818
Cost Center AccountingCost Center Accounting
Activity types
Activity types are production or service activities
rendered to a work center or cost center that are
used to allocate costs.
Activity types generally include different types of labor
(e.g., setup, production labor, machine labor, etc.) that
are performed by personnel within a work center or cost
center.
The measure of the activity type quantity (e.g., hours
worked), which is essentially a cost driver measure, may
be used to allocate all or a portion of the costs of a cost
center to other cost objects (e.g., other cost centers,
production orders, profitability segments, etc.).
19. 1919
Cost Center AccountingCost Center Accounting
Activity types (-continued)
The cost center in which the activity is performed is
referred to as the “sender,” and the cost objects
receiving the allocated costs are called
“receivers.” The allocation is based on an “activity
(transfer) price” that is developed for the activity type.
The activity price may be set manually by management,
or it may be calculated automatically using an iterative
routine that explicitly takes into account “cross
allocations” (i.e., allocations back and forth among two
or more cost centers).
20. 2020
Cost Center AccountingCost Center Accounting
Product Costing (PC)
The product costing (PC) is a CO module which provides
the means for developing different types of cost
estimates for a particular product or subassembly, such
as standard cost, future cost, tax cost, or commercial
cost estimate. These estimates may be used for a
variety of purposes, including product pricing,
production planning and control, inventory valuation,
and income measurement (cost of goods sold).
The product cost is developed after the material is
defined, a bill of materials is created, and a
routing is determined. This product cost reflects the
cost structure of the product on a standard costing basis
prior to manufacturing. The product cost structure is
normally defined for one unit and can be broken out by
individual material parts and further defined as variable
or fixed.
21. 2121
Cost Center AccountingCost Center Accounting
Value-added activity
Any activity that increases the worth of a product or
service.
Non-value-added-activity
Any activity that adds cost to, or increases the time spent
on, a product or service without increasing its market
value.
Product-level activities
Activities that are performed for and are identifiable with
an entire product (line).
22. 2222
Cost Center AccountingCost Center Accounting
Activity Based Costing (ABC)
The activity based costing (ABC) module within CO
provides the means for assigning planned costs and actual
costs incurred at the cost center level to business processes
that cut across areas of responsibility within an organization.
The costs assigned to a business process can in turn be
allocated to those cost objects (products, services,
customers, etc.) that utilize the business process.
It is generally used as a tool for understanding product and
customer cost and profitability. ABC has predominantly been
used to support strategic decisions such as pricing,
outsourcing and identification and measurement of process
improvement initiatives.
23. 2323
Cost Center AccountingCost Center Accounting
Each cost center is assigned to a controlling area,
profit center, company code, and business area.
Taken together, all cost centers within a
controlling area constitute the “standard cost
center hierarchy.” (There is one and only one
standard cost center hierarchy for a
controlling area.)
The cost center standard hierarchy is a special type
of cost center group.
All cost centers in that controlling area must be
assigned to a level of the standard hierarchy.
24. 2424
Cost Center AccountingCost Center Accounting
Each cost center is assigned to a controlling area,
profit center, company code, and business area.
Taken together, all cost centers within a
controlling area constitute the “standard cost
center hierarchy.” (There is one and only one
standard cost center hierarchy for a
controlling area.)
Profit centers generally involve subdivisions of
companies that are set up for internal planning
and control purposes. Taken together, all profit
centers within a controlling area constitute the
“standard profit center hierarchy.” (There is one
and only one standard profit center hierarchy
for a controlling area.)
25. Organizational StructuresOrganizational Structures
-cost center standard hierarchy-cost center standard hierarchy
PlantPlant
(Pxxx)(Pxxx)
Client (600)Client (600)
Chart ofChart of
Accounts (Cxxx)Accounts (Cxxx)
CompanyCompany
Code (Cxxx)Code (Cxxx)
Fiscal YearFiscal Year
Variant (2012)Variant (2012)
Credit ControlCredit Control
Area (Cxxx)Area (Cxxx)
PurchasingPurchasing
OrganizationOrganization
(Pxxx)(Pxxx)
PurchasingPurchasing
Group (xxx)Group (xxx)
ShippingShipping
PointPoint
(Sxxx)(Sxxx)
ControllingControlling
Area (Cxxx)Area (Cxxx)
SL10SL10 SL20SL20
Cost CenterCost Center
StandardStandard
HierarchyHierarchy
(PENINCxxx)(PENINCxxx)
ADMINxxxADMINxxx
A005 A015 A020A010
26. 2626
Cost Center AccountingCost Center Accounting
Work Center
Work centers are organizational units that perform operation
functions within a plant. A work center might include a
production line, quality checkpoint, packaging line, and
warehouse. All manufacturing processes are routed
through work centers. Each work center is connected to
a cost center as defined in Work Center Master Records.
This way allows costing, scheduling, and capacity planning to
be done for each functional production area individually. The
amount of work that can take place at a work center is
represented as its capacity. When a capacity is used, the
operations are evaluated by charge rates.
Generally, a work center is combination of the following
resources:
◦ • Machinery, Equipment, and Vehicles
◦ • Employees
◦ • Production Lines
◦ • Assembly Lines
27. 2727
Internal OrderInternal Order
A method of internal cost allocation by which valuated
activities (allocation bases) from cost centers can be
assigned to cost receivers in accordance with the cause of
the cost. The activities or allocation bases represent the
output of a cost center (such as production hours or
machine hours).
In internal activity allocation, the activity produced by the
cost center is multiplied by the activity price. The result is
the cost to be allocated. The sender cost center is
credited with this amount and the receiver object is
debited.
Internal orders support task-oriented planning, monitoring,
and allocation of costs.
28. 2828
Internal Order (- contimued)Internal Order (- contimued)
Temporary cost center responsible for
cost containment, not responsible for
revenue generation
It is used to plan, collect, and monitor the
costs associated with a distinct short-term
event, activity, or project
◦ Company picnic
◦ Trade show
◦ Recruiting campaign
29. 2929
Profit Center Accounting (PCA)Profit Center Accounting (PCA)
Profit center accounting is used to analyze
income and expenditure for profit centers that
represent an independent subunit within an
organization.
30. 3030
Profit Center AccountingProfit Center Accounting
Profit Center
Profit centers are similar to business areas, in the sense
that they are set up for internal reporting purposes.
Profit centers, however, are formally defined as
components of a controlling area, not as components of
one or more company codes.
Income statements may be created for profit centers, and
selected assets may also be reported for profit centers,
but not complete balance sheets (which can be done for
business areas).
Profit centers are linked to cost centers with one-to-one or
one-to-many relationship.
31. 3131
Profit Center (- continued)Profit Center (- continued)
Responsible for revenue generation and
cost containment
Evaluated on profit or return on
investment
Enterprises are commonly divided into
profit centers based on
◦ Region
◦ Function
◦ Product
32. 3232
Profit Center AccountingProfit Center Accounting
Profitability Analysis (PA)
The profitability analysis (PA) module within CO
provides the means for assigning planned and actual
revenues and costs to a variety of profitability
segments, including customers, sales territories, sales
employee groups, product groups, etc. This provides
great flexibility in defining, both the market
characteristics that are of interest to managers, and the
related performance measures (e.g., gross margin,
contribution margin, segment margin) that managers
use to evaluate market segments.
33. 3333
Accounting and Control withinAccounting and Control within
Production Planning (PP)Production Planning (PP)
For each operation created in a routing, a work center must be
identified for where the operation is to be performed.
A work center is allocated to one and only one cost
center.
Cost centers are organizational units within a controlling area
that represent a defined location of cost incurrence.
Organizational divisions can be made on the basis of
functionality, settlement-related, activity-related, spatial,
and/or responsibility-related business requirements.
34. 3434
Accounting and Control withinAccounting and Control within
Production Planning (PP)Production Planning (PP)
Accounting and Control within PP (- continued)
You plan standard activity costs in the corresponding cost
centers using activity types. When an activity type is
allocated to a cost center, it is given a value, for
example, in dollars per hour. The work center specifies
production activity availability for operations at the work
center.
One work center can perform up to six different production
activities within different charge rates. Examples of
activity types are labor, machine, materials, setup costs,
quality costs, and resource consumption.
35. 3535
Estimate CostEstimate Cost
For management to make the best decisions possible,
managers must be able to estimate costs as close to
actual costs as possible. When considering product
costs, there are several costs that can be traced directly
to the product. These will give an estimate that is near
the actual costs of making the product.
Examples of these costs are direct material and direct
labor. By using material requisition forms and
payroll time sheets, these costs can easily be traced
to a product.
The costs that are harder to trace are called overhead
costs. They are indirect costs because they cannot be
specifically traced to a product. Estimates must be
used to allocate overhead to products and services.
36. 3636
Estimate CostEstimate Cost
The most difficult part of estimating product costs is
calculating the amount of overhead that must be
allocated to each product, service, or job. Many times a
predetermined overhead rate is used.
A predetermined overhead rate refers to a single rate
that is used to apply overhead to all products
produced. When using job order costing systems,
direct labor cost is generally the base used to apply
overhead to each job. In process costing, machine hours
would be an example of an activity base that is used to
allocate overhead.
In the following example, 150 units of a motorcycle were
produced. Of the finished units, 30 have been sold thus
far. This is seen in the figures below.
37. Debit Credit
150
Work is completed 150
Ending 0
Debit Credit
0
Work is completed 150
Units sold 30
Ending 120
When the units are completed, work in progress must be
credited for the 150 units, and the finished goods
inventory must be debited the same.
3737
Example of Cost AccountingExample of Cost Accounting
Work in Process
Beginning
Finished Goods Inventory
Beginning
38. Debit Credit
0
Work is completed
Units sold 30
Ending 30
When the 30 units are sold, the Units Sold must be debited
for the units and the finished goods inventory must be
credited.
3838
Example of Cost AccountingExample of Cost Accounting
Units sold
Beginning
39. 3939
Cost AccountingCost Accounting
TerminologyTerminology
When looking at a financial point of view, there are actual
costs of $233,211.00, $336.11, and $156.52. The
standard cost of creating the motorcycles is $240,000.
This can be found by taking the price of $1600 per
motorcycle and multiplying it by the 150 units. When
the 30 units are sold, they have a cost of $48,000, and
there is $192,000 remaining in the finished goods
inventory. This can be seen in the figures below.
40. Debit Credit
$233,211.00 $240,000.00
336.16
156.52
Total Cost $233,703.68 $240,00.00
Production variance -$6,296.32
Debit Credit
$0.00
Work is completed $240,000.00
Units sold $48,000
Ending $192,000.00
4040
Example of Cost AccountingExample of Cost Accounting
Work in Process
Beginning
Finished Goods Inventory
Beginning
41. Debit Credit
$0
Work is completed
Units sold $48,000
Ending $48,000
Because of the difference between the standard cost and
the actual cost, there is a Production variance of
$6,296.32. When broken down by units, this variance is
$41.98/pc.
Was the production of these motorcycles efficient?
4141
Example of Cost AccountingExample of Cost Accounting
Units sold
Beginning
43. R/3
SAP Module ViewSAP Module View
Integrated Solution
Client / Server
Open Systems
Financial
Accounting
Controlling
Fixed Assets
Mgmt.
Project
System
Workflow
Industry
Solutions
Production
Planning
Sales &
Distribution
Materials
Mgmt.
Plant
Management
Quality
Maintenance
Human
Resources
Controlling (CO)
51. 5151
SAP CO Organizational ObjectsSAP CO Organizational Objects
These represent the legal and/or
organizational views of an enterprise
They form a framework that supports the
activities of a business in the manner
desired by management
Permit the accurate and organized
collection of business information
Support the development and
presentation of relevant information in
order to enable and support business
decisions
52. 5252
SAP CO Organizational ObjectsSAP CO Organizational Objects
Client
Company Code
Chart of Accounts
Controlling Area
Cost Center
Internal Order
Profit Center
60. 6060
Cost ElementsCost Elements
A one-to-one linkage (mapping) between
General Ledger expense accounts and CO
cost elements is established to permit the
transfer of FI expense information to CO
Postings in FI that impact cost accounts
lead to an posting in CO to a cost element
In other words, expense account = cost
element – just different words depending
on whether FI object or CO object
70. 7070
Revenue ElementsRevenue Elements
A one-to-one linkage (mapping) between
General Ledger revenue accounts and CO
revenue elements is established to permit
the transfer of FI revenue information to
CO
Posting in FI that impact revenue
accounts lead to an posting in CO to a
revenue element
In other words, revenue account =
revenue element – just different words
depending on whether FI object or CO
object
73. 7373
Cost Accounting AllocationCost Accounting Allocation
Posting Types of Cost Allocation
In this unit, Costs will be allocated to particular Cost
Centers.
There are three different types of cost allocation:
Direct Reposting,
Percentage Allocation, and
Statistical Key Figures.
In Direct Reposting, an amount of money is allocated
directly to a specific cost center. For example, $200 is
allocated directly to the Production cost center.
74. 7474
Cost Accounting AllocationCost Accounting Allocation
Posting Types of Cost Allocation (-
continued)
In Percentage Allocation, the amount that is to be
allocated is split up among multiple cost centers based
on a predetermined percentage. For instance,
assume that there are two services, and 70% of the cost
is to be assigned to one service, while 30% is assigned
to the other. In addition, the total costs to be allocated
equal $2,500. Because the first service is to be allocated
70% of the cost, it will be allocated $1750. Likewise, the
second service which is to be allocated 30% of the cost
will be allocated for the remaining $750.
.
75. 7575
Cost Accounting AllocationCost Accounting Allocation
Posting Types of Cost Allocation (-
continued)
Statistical Key Figures (SKFs) are used in the R/3 system to
allocate costs from a service department to a user
department at the closing of a period. These cost drivers,
which are often referred to as tracing factors, are used in
allocation methods that do not involve the explicit
development of activity (transfer) prices. Nevertheless, the
allocation approach is quite similar. A lump sum amount
associated with the service department is allocated to a user
department in proportion to the relative amounts of the SKF
associated with each receiver.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these costs any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
Controlling (CO)
Purpose
Controlling provides you with information for management decision-making. It facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization.
As well as documenting actual events, the main task of controlling is planning. You can determine variances by comparing actual data with plan data. These variance calculations enable you to control business flows.
Income statements such as, contribution margin accounting, are used to control the cost efficiency of individual areas of an organization, as well as the entire organization.
Cost Element Accounting
Purpose
Cost Element Accounting is the part of accounting where you enter and organize costs incurred during a settlement period. It is thus not an accounting system as such, but rather a detailed recording of data that forms the basis for cost accounting.
Cost Center Accounting
Purpose
You use Cost Center Accounting for controlling purposes within your organization. The costs incurred by your organization should be transparent. This enables you to check the profitability of individual functional areas and provide decision-making data for management. This requires that all costs be assigned according to their source. However, source-related assignment is especially difficult for overhead costs. Cost Center Accounting lets you analyze the overhead costs according to where they were incurred within the organization.
Internal Orders
Purpose
Internal orders are normally used to plan, collect, and settle the costs of internal jobs and tasks. The SAP system enables you to monitor your internal orders throughout their entire life-cycle; from initial creation, through the planning and posting of all the actual costs, to the final settlement and archiving:
Activity-Based Costing
Purpose
Activity-Based Costing provides a process-oriented, cross-functional view of overhead, in contrast to the traditional location-oriented view provided by Cost Center Accounting. Activity-Based Costing thus complements and enhances Cost Center Accounting.
Activity-Based Costing allocates process quantities based on resource and process drivers, allowing you to define cost allocation along the value-added chain more exactly than is possible with overhead rates. Activity-Based Costing also complements and enhances product costing by assigning costs to the business processes where they originated. Cost center resources can allocate to business processes based on their true utilization of activities.
Product Cost Controlling
Product Cost Planning Cost Object Controlling Actual Costing/Material Ledger Product Cost Controlling Information System
Profit Center Accounting
Purpose
Profit Center Accounting determines the profit of the defined cost center
Profitability Analysis
Purpose
Profitability Analysis enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
Financial accounting is external and feeds the external reporting requirements
Managerial Accounting is internal only
Transactions can have an effect on both FI and CO.
The transaction will create a debit and a credit for FI (FI transaction)
If CO is turned on a cost center or cost element bucket will be updated. (CO transactions)
In the Business Process Integration class we use the stool as a metaphor for the SAP structure. There are four basic components needed to run execute SAP. Three of these are the legs of the stool: org data, master data, and rules. These ‘hold up’ the transactions. Transactions cannot be run unless these are setup.
The legs are typically configured during the implementation process.
During BPI 1 we will setup the stool for Finance, Materials management and Sales and Distribution.
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
You can capture these cost any way you want.
Manager’s bonuses are often based upon their profit center’s profitability
In Distribution and Assessment, you further allocate costs (or quantities for Indirect Activity Allocations) collected on a cost center during the accounting period to receivers, according to user-defined keys. These are therefore indirect allocation methods, because the exchange of activity is not the basis for allocating costs/quantities. Instead, user-defined keys such as percentage rates, amounts, statistical key figures, or posted amounts provide the cost/quantity assignment basis.
The advantage of these methods is that they are easy to use. You usually define the keys and the sender/receiver relationships only once.
Distribution and assessment are used primarily for cost centers. This is because direct cost allocation is not possible here due to the variety of transactions, the 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 cafeteria may be assigned based on the number of employees in each cost center. Telephone costs are seldom allocated directly to the individual cost centers, but 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.
Assessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers:
The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.
Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.
Distribution
Use
Distribution is used to allocate the primary costs of a cost center. The following information is passed on to the receivers:
The original cost element (that is, the primary cost element) is retained.
Sender and receiver information (for example, the identities of the sender and receiver cost center/business process) is documented using line items in the CO document.
You can use the information system to analyze the distribution results according to sender and receiver relationships.
In this example the distribution of the rent expense is by square footage occupied by each of the cost centers. By the pie chart we see that distribution and administration have the most square footage.
Distribution and administration having most of the square footage thus have the majority of the distribution costs.
Assessments are to Secondary Costs
Distributions are to Primary Costs
Assessment
Use
Assessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers:
The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.
Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.
Allocation through assessment is useful when the composition of the costs is unimportant for the receiver. For example, the assessment of cafeteria costs to a cost center need not be broken down further.
You can use the information system to analyze the assessment results by assessment cost element according to sender and receiver relationships.
A method of internal cost allocation by which you allocate the costs of a sender cost center to receiver CO objects (such as orders and other cost centers) using an assessment cost element.
The system supports the following:
Hierarchical method (where the user determines the assessment sequence)
Iterative method (where the system determines the sequence of assessment using iteration).
Example:
The costs from the cafeteria cost center could be assessed based on the statistical key figure "employee", which was set up on the receiver cost center.
Receiver cost center I has 10 employees, receiver cost center II has 90. The costs of the cafeteria cost center would be transferred (assessed) to receiver cost center I (10%) and receiver cost center II (90%). The credit on the cafeteria cost center and the debit of the two receiver cost centers are posted using an assessment cost element. Depending on the system setting, the total costs or some of the costs for the cafeteria cost center would be debited.
In this example IT expenses are accumulated. Periodically, the costs are reallocated to the primary and secondary cost elements based upon the budgeting and expense policy of the company. Notice how Sales now has a much larger portion than the other departments.