Outlining Cost Object Controlling

The Controlling architecture explains how quantities and values flow between the components of the SAP S/4HANA application with respect to accounting. Controlling adds the quantity flows in terms of preliminary costing, simultaneous costing, and final costing.

The typical quantity flows of logistics follow the supply chain sequence for procurement, production, stock movements, sales, and billing.

• Valuation of manufacturing efficiency

  • Set relevant standards to measure performance
  • Variance analysis
  • Reports for individual plants, product groups, products, or orders

• Supports strategic decision-making

  • Primary cost component split and cost component splits by organizational unit
  • Scrap costs, process costs, and overhead allocation

• Inventory valuation

  • Alternative valuations according to commercial law, group, and profit center
  • Three parallel currencies
  • Standard costs
  • Actual costs using the actual costing or Material Ledger component

• Valuation of finished and semi-finished goods

  • Standard prices provided by cost estimates
  • Creation of alternative cost estimates for balance sheet purposes for closing activities

• Determination and valuation of WIP at period-end closing

• Period-based accrual calculation with provisions for imminent losses

  • In a make-to-order (MTO) environment
  • Corresponding updates of balance sheet as well as profit and loss statements

In Cost Object Controlling, the system uses a cost object to collect the costs incurred when a product or service is created. The cost object to be used depends on your Controlling requirements. Possible cost objects are sales orders, production orders, process orders, product cost collectors, and projects, among others. Cost Object Controlling allows simultaneous costing (mapping and valuating logistical quantity flows) and final costing (period-based accrual calculation and variance calculation). The results of period end closing with the cost objects are settled to Financial Accounting (FI) and CO-PA.

Actual costing is used to calculate the actual cost of goods manufactured at the end of the period. The result can be saved in the material master as a periodic average price for the closed period. The quantity structure is derived dynamically from the material movements in the SAP S/4 HANA application. The values connected with these movements are collected in the material ledger. With multilevel settlement, you allocate variances over multiple procurement levels.

• What actual costs did you incur in your area during the current period?

• What costs did you expect based on the quantity manufactured?

• Are some product groups performing significantly better than others?

• What is causing these variances?

• What are the scrap costs of your new production line?

• Did continuous improvements have an effect on the costs?

• What kind of profit is brought about by a concrete sales order?

• Goods movements in Materials Management (MM)

• Invoice receipts in FI

• Confirmations in PP

• Account Assignment of external services directly purchased for the cost object

• Settlement of costs for re-work

You can enter material withdrawals from the warehouse, confirmations, and goods receipts in separate operations. You can use the control key of the operation to specify that a goods receipt is to be posted automatically when the operation is confirmed (normally the last operation). You can also assign consumable materials to an operation and specify that a goods issue for these materials can be automatically posted with the confirmation. You can create the confirmation at order or operation level. Confirmation at operation level is recommended if WIP and variances are to be calculated later.

Template allocation is an allocation technique for activities and processes in Management Accounting. The sender could be cost centers or business processes, the receiver might be any controlling object type. Essentially, it can use any information from the SAP S/4HANA application as a cost driver to allocate overhead costs based on consumption. Regarding revaluation, for cost center activities an actual price calculation could be performed to revaluate the activity allocation with these actual prices.

Overhead allocation is a traditional method of calculating the overhead costs of cost centers on cost objects using surcharges on direct costs. Template allocation has extended functionality due to the diversity of available drivers.

The system uses results analysis to determine the WIP based on either actual costs when full settlement is used, or target costs when periodic settlement is used. Variance calculation determines the target costs of the cost object. The target costs enable you to run a target/actual comparison report. The scrap variance is calculated always based on the target costs compared to actual costs.

The system performs a results analysis for cost objects that carries revenue. Those cost objects are as follows:

• Sales Order Items

• Work Breakdown Structures

• Internal Orders

• Maintenance Orders

• Customer Service Orders

To perform results analysis, the system needs the parameter Results Analysis Key in the cost object to be assigned. Settlement is the last step of period-end closing in Cost Object Controlling. The values determined are settled in other components, such as FI and CO-PA, and at the same time, the system creates the appropriate line items in the Material Ledger.

Costs are captured for goods issues, confirmations and goods receipts. These costs are posted to the cost object, such as a production order.

The settlement rule has the settlement type FUL, which means full settlement. For period-end closing, the status of the cost object chooses whether WIP or variances could be calculated.

In the Product Cost by Order component, the status of the cost object indicates whether the system calculates WIP or variances.

• If the order has neither the status delivered (DLV) nor technically completed (TECO), WIP is calculated based on actual costs. The difference between all debits and credits of the order is the value of the WIP.
• If the order has status DLV or TECO, any existing WIP will be canceled and the system interprets the entire remaining order balance as variances. Various variance causes are evaluated and summarized into appropriate variance categories.
• Product Cost by Order does not realize variances until the last period of production.

Costs for goods issues, confirmations, and goods receipts are posted to the cost object, such as product cost collectors. The settlement rule has the settlement type PER. For period-end closing, the system calculates WIP in target costs and variances simultaneously.

• For repetitive manufacturing, you need to define reporting points to obtain return values for operations. For production and process orders controlled by period, you must enter confirmations for the operations. SAP recommends a product cost collector as the cost object for repetitive manufacturing.

• The system determines the target costs of the cost object based on the costing that you can specify with a valuation variant in Customizing. Based on this, the system calculates the WIP and the scraps at target cost. Regarding to WIP, the confirmed quantity of a following operation is subtracted from the confirmed quantity of the previous operation and multiplied with the calculated cost from the fist to the previous operation of the confirmation. Regarding to the scrap, the scrap quantity is entered with the confirmation of the production order and multiplied with the calculated cost from the first operation up to the operation where the scrap quantity has been confirmed.

• Variances result from deducting the WIP and the scrap at target cost from the balance, where various variance causes are examined and represented by appropriate variance categories.

• Variances are realized by period in Product Cost by Period.

The product cost collector can only be controlled by period. The product cost collector can only be controlled by period. The process order without co-production and the production order without co-production can be controlled by order and by period. To enable cost object controlling by order, the settlement type in the settlement rule of the order must be set to FULL SETTLEMENT. Cost object controlling by period requires the settlement type PERIODIC SETTLEMENT.

If a customer order is added to order-specific product controlling or periodic controlling, the work with the objects that represent the production does not necessarily change. By means of Customizing, it is possible that the customer order is processed with the Product Cost by Sales Order, whereby the result analysis for this revenue-bearing cost carrier is performed.

Sub-products, especially those with the flag Collective Requirements Only and the production scenario Repetitive Manufacturing, will be controlled with the controlling concept Product Cost by Period. Sub-products with the requirement type "Individual Requirements Only" or requirement type "_" (blank) deriving upper level make-to-order requirements will be controlled with Product Cost by Order.

While the period-end closing in Product Cost by Period and Product Cost by Order focus on work in process (WIP) and variance analysis, the Product Cost by Sales Order calculates the reserves for anticipated losses or missing actual costs.