Using Overhead Orders

The figure illustrates the main purpose of internal order use in Overhead Cost Controlling. In the first case, you post costs for the two trade fairs directly to the cost center responsible for supporting these events. Because external costs and internal activities are treated with the same cost relevant G/L accounts on the same cost center, you cannot easily determine which event created which costs. Therefore, you can make no further comparison analyses of the two trade fair events.

If, however, each event is given its own internal order, as in the second case, the costs can be collected separately. The settlement function allocates the order costs to the cost center responsible for supporting the trade fairs, in order to provide you with the organizational view of the costs. With this approach, you can analyze and compare the results for the trade fairs, even after the settlement to the cost center has been executed.

A further advantage is the wide variety of planning and budgeting functions offered for orders.

Orders can be used as internal cost objects.

Depending on the kind of measure described on the order, there are different ways to settle this order:

• If a job is for a single product, you could settle the costs to the responsible cost center. The next step would then be to allocate the costs from the cost center to CO-PA.

• If the job is a general one that concerns the whole company, it would be difficult to find the appropriate cost center to debit. In this situation, it would be convenient to settle directly to CO-PA.

You can use internal orders to conduct detailed controlling for a particular object or activity. All costs concerning this object or activity are assigned to the relevant order. When you create an internal order master record, you choose whether to create it as a real order or a statistical order.

You use the real order to collect costs and allocate them later to different recipients.

In the primary cost posting, the costs are updated to the real order. In the periodic process of order settlement, you allocate the actual costs to controlling objects. You can settle portions of the order costs to many objects.

When you create a real order, you must assign the order to a company code.

You use the statistical order to evaluate costs that cannot be itemized in detail in cost relevant G/L accounts or cost center accounting.

You achieve this by assigning the costs to both the statistical order and the cost center. You immediately see the costs in the order (statistical, for information purposes only) and the cost center (real costs).

The cost center to be posted can be stored in the order master data. The system then finds the cost center automatically. Otherwise, you must specify the cost center as well as the order to complete the posting document.

You also have the option on a statistical order whether to record a company code on the order master record. If you make these assignments, you can only post transactions to controlling objects, such as cost centers, which belong to the same company code. For cross-company code controlling, do not assign a company code on the statistical order.

You can neither settle statistical orders nor apply overhead rates to them.

Internal orders in the SAP System describe individual jobs within a controlling area. Orders support action-oriented planning, monitoring, and allocation of costs.

Internal orders may be used for a variety of purposes:

• To monitor internal actions settled to cost centers (overhead cost orders)

• To monitor internal actions settled to fixed assets (investment orders)

• To offset postings of accrued costs calculated in Management Accounting (accrual orders)

• To display cost accounting sections of sales orders in Sales Order Management and include revenues that are not part of the company's core business (orders with revenues)

The management of internal orders represents the most detailed operational level of cost and activity accounting and can be used for the following:

• You can consider costs according to aspects other than those used in cost center accounting.

• You can compare in-house production and external procurement costs for decision making purposes.

The primary focus of this course is overhead cost orders.

The Investment Management (IM) component provides functions supporting the planning, investment and financing processes involved in capital investment measures within your enterprise. You can control measures that your company undertakes for the purpose of producing long term assets for its own use, and which have to be entered in the balance sheet as assets under construction. A prerequisite for this is an investment profile that is stored in the order master record.

Measures are represented in the system by either internal orders or WBS (work breakdown structure) elements. You can create an internal order that automatically includes an asset under construction. A prerequisite for this is the investment profile in the order master data.

In the construction phase, you post all transactions to the order. During periodic settlement, all debits that do not have to be capitalized are settled to a Management Accounting receiver, such as a cost center. All items that are not to be settled to receivers in Management Accounting and that require capitalization are settled directly to the asset under construction. The monthly evaluation balances display the capital investment undertaking in the asset inventory.

The full settlement takes place when the capital investment measure is completed. In complete or partial activation, you enter in the order settlement rules the final assets which are to be the basis for the settlement of the asset under construction. The debits settled to the asset in construction are reposted to the final assets and the asset under construction is automatically credited.

The settlement side includes a line item settlement procedure for this particular order type in addition to the standard settlement methods for internal orders.

Internal orders can be used as collectors of monthly credits resulting from the accrual calculation.

Organizational expenses are often allocated differently in Financial Accounting than in Management Accounting. For example, an expense entered into FI in one accounting period may cover a whole year from a Management Accounting point of view. In order to avoid cost fluctuations in Cost Center Accounting, costs that do not occur on a regular basis should be allocated to the relevant time periods and cost centers. Any costs allocated on this basis are known as accrued costs. This even distribution of an irregular expense is termed accrued cost.

You can use the percentage method or the target=actual method to calculate accrued costs.

With the percentage method, you determine accrued costs on the basis of an overhead percentage rate applied to a reference cost element or group of cost elements.

When an accrual is calculated, the system debits the cost centers with the accrual cost amounts. At the same time, a user-defined accrual object (cost center or internal order) is credited. The effective actual costs are also posted on the accrual object in order to calculate, analyze, and allocate any balances between expenses from Financial Accounting and accrued costs from Management Accounting.

In the target=actual method you also can use an internal order for collecting the credits.

Accrual calculation requires order category 02 (accrual calculation order).

If you are not using the application Sales & Distribution, you can use internal orders with revenues to display the cost accounting sections for sales orders in Sales Order Management. You can also use them to monitor costs and revenues for activities that are not part of your company's core business.

Using the identifier "Revenue postings allowed" in the order type, you can control whether or not revenues can be posted to an order.

Orders with revenues can be settled at the end of the period in the following ways:

• Costs can be settled to any receiver

• Revenues can be settled primarily to the following objects:

  • Profitability segments

  • Other orders with revenues

  • G/L Accounts

  • Not to cost centers

• Internal orders help track and allocate costs for specific activities, enhancing cost visibility and analysis.
• Real orders collect costs for allocation to various recipients, while statistical orders provide informational cost evaluations.
• Overhead cost orders monitor internal actions settled to cost centers, supporting detailed operational cost accounting.
• Investment orders manage capital investment measures, facilitating asset creation and financial planning.
• Accrual orders distribute irregular expenses evenly, preventing cost fluctuations in Management Accounting.