Management Accounting provides information that management can use to make decisions. It facilitates the coordination, supervision, and optimization of all processes within a company. This involves recording both the consumption of production factors and the services provided by an organization. In SAP S/4HANA, all relevant cost information from financial accounting and management accounting is available in real-time, on line item level in the central table ACDOCA. Costs and revenues are assigned to different Controlling (CO) account assignment objects such as cost centers, projects, or orders. These financial accounting accounts are managed in management accounting as cost or revenue elements.
Cost Center Accounting is used for controlling purposes in your organization. Cost center accounting takes the costs incurred in a company and allocates them to the actual subareas that caused them.
Cost centers are separate areas within a controlling area at which costs are incurred. You can create cost centers according to various criteria including functional considerations, allocation criteria, activities provided, or according to their physical location and/or management area.
Product Cost Controlling calculates the costs incurred when a service is provided or a product is manufactured. It enables you to calculate the minimum price at which a product can be profitably marketed.
Overhead costs are costs that cannot be directly assigned to the manufacture of a product, or the provision of a particular service. The purpose of overhead cost controlling is the planning, allocation, control, and monitoring of overhead costs. You assign all overhead costs to the locations at which they were incurred, or to the activities from which they arose.
An activity type defines the type of activity that can be provided by a cost center. Activity outputs supplied by one cost center (the sending cost center) to other cost centers, orders, or processes, represent the utilization of resources for this sending cost center. You valuate activities using a price calculated on the basis of certain business or management information.
Internal orders are used to plan, collect, and analyze the costs arising from internal activities. There are different methods for allocating values and quantities, depending on the type of management accounting object. In an enterprise scenario in which only costs are allocated, you can use plan/actual comparisons to analyze costs at period end. When allocating quantities, you can use extended analysis tools at period end, which take operating rate into account.
Accounting Tools for Analyzing Profit and Success
The following accounting tools are available for analyzing profit and success:
- Profitability Analysis (CO-PA)
- Use this tool to provide the decision-making groups in your organization (such as the board of management, sales and distribution, marketing, and planning) with market-oriented information. Define market segments by characteristic (such as product, product group, customer, customer group, or geographical area) and internal organizational unit (such as company code or business area) to analyze the profitability of segments in your external market.
- Profit Center Accounting (PCA)
- Use this tool to evaluate specific areas or units in your organization. Structure profit centers by region (such as branches or plants), function (such as production or sales), or product (such as product groups or divisions) to analyze internal profit and loss for profit centers. The online document splitting function in financial accounting provides a balance sheet reporting on profit center level. To meet legal segment accounting requirements (based on International Financial Reporting Standards (IFRS) or United States (US) Generally Accepted Accounting Principles (GAAP), for example), assign the segment accounting object to profit centers in SAP S/4HANA.
Typical Questions in Profitability Analysis
This figure shows the type of questions that are pertinent to profitability analysis.
Profitability Analysis per Market Segment
The external, market-oriented perspective of CO-PA supports sales and distribution, product management, and company-wide planning and decision making. You can configure CO-PA to use characteristics to define market segments that are relevant to your organization. Each combination of characteristic values (such as the sale of a particular product group to a particular customer group) defines a profitability segment and enables you to analyze the profitability of that segment.
When defining a profitability segment, you are required to specify which of the values that affect profitability (such as the revenue type, or cost category used to determine a value for the trade margin) are to be analyzed. These values are key figures.
As different types of users may define the trade margin differently (such as profitability and sales accounting versus product management), you can specify different key figures for the different types of users within your organization. A multidimensional reporting tool within CO-PA enables you to create reports to analyze data for any market segment and any key figure.
Typical Questions in Profit Center Accounting
A profit center is a management-oriented organizational unit used for internal control purposes. Dividing your organization into profit centers enables you to analyze the areas of responsibility and assign responsibility to each profit center. Profit centers essentially become companies within the company.
Profit centers are unique in that they can be assigned to balance sheet transactions as well as to transactions affecting the profit and loss.
PCA enables you to draw conclusions on the internal aspects of profitability. This internal view reflects the success of a given profit center in meeting the profitability goal for which it was assigned responsibility.