Describing the Architecture of Management Accounting

In this lesson, we will introduce the areas of Management Accounting supported by SAP S/4HANA. You will then be able to explain the importance of using various cost assignment objects to collect overhead costs in multiple valuations.

In your company, your costs need to be monitored regularly and efficiently. You need to track costs that you can directly assign to products or services (such as raw materials used in production or the time employees spent in production) but also costs that are for running the processes that support business operations, such as the finance department. These are overhead costs. Your company's cost matrix tends to include increasing amounts of overhead costs either in the service or the product business. You need to be able to analyze these costs in detail and accurately.

Overhead Cost Controlling in SAP S/4HANA provides you with such structures and cost objects to help you to plan, track, assign, allocate, and analyze these costs.

This topic provides you with an overview of what management accounting (controlling) in SAP S/4HANA is about and which areas it consists of. Each process matches the corresponding controlling tasks in the system.

Controlling processes costs and revenues that come from different SAP modules, such as Financial Accounting, Human Capital Management, or Sales.

The costs and revenues generated are collected in controlling.

The following figure shows you a quick overview of the different areas in controlling.

• In the different Modules, the operational events are mapped and controlled and deliver data to the Controlling module.
  • Finance posts to controlling objects, e.g. rent to building cost centers (1).
  • Human Capital Management causes posting of salaries and related costs to cost centers (2).
  • Material Management causes posting of purchased material, e.g. stationary to administration cost centers (3) or of purchased (e.g. bike chain) or semi-finished material (wheels) to production orders (4).
  • Production Planning confirms quantities after production, e.g. 10 bikes were assembled and delivered to the storage (5).
  • Sales transfers the revenues for sold goods (6).
• Overhead Cost Controlling collects and allocates all costs that can‘t be assigned directly to a product. ​By confirmation of production time costs are posted for example from cost centers to production orders (7). Remaining cost center variances are posted to the profitability component (8). All this requires incoming data from other SAP modules.
• Product Cost Controlling calculates how expensive a product is to manufacture and provides a break-even sale price for the product.​ The calculation includes overhead costs and logistics data. Remaining production variances are posted to the profitability component (9).
• Profitability Analysis collects all company rising costs and revenues and analyzes the operating result. It has an external facing view to the market.​ For example: what did you earn with product A selling it in country B through distribution channel C?

• Profit Center Accounting analyzes the profitability of specific businesses and departments. Profit centers are areas of responsibilities ("companies within the company") that collect information about posted revenues, costs and balance sheet values (10), (11).

By summarizing the data flow, you see that the end-goal of allocations in controlling is that all costs and revenues posted finally end up in Profitability Analysis.

Now that you know the areas of management accounting and the goals they have, let's look at the organizational unit concept of SAP S/4HANA.

Organizational units are system representations of the functional units of the company. Depending on how tasks are distributed in the company, these can be, for example, departments or project teams. When you set up the organizational units and their hierarchical links, you create an organizational model of your company, that is, how the organizational units fit together.

Organizational units for controlling guarantee a common context for accounting and reporting with elements applied to all company codes assigned to them:

• A common fiscal year variant.
• A common chart of accounts.

The controlling area and operating concern are the organizational units for management accounting. The controlling area is needed for overhead cost controlling, profit center accounting and product cost controlling. The operating concern is dedicated to profitability analysis.

In this learning journey, we are focusing on the area of overhead cost controlling.