Comparing Profitability Analysis and Profit Center Accounting

Objectives

After completing this lesson, you will be able to:

Define the flow of the actual values in profitability accounting
Analyze the integration with accounting and the postings to profitability analysis

Profitability Analysis (CO-PA)

Image depicting four business metrics: market segments contribution, margin goals, marketing success, and revenue structure. Each metric has a related question. Icons suggest customer service and market analysis.

The best way to show the purpose of profitability management in the SAP system is to think about some of the typical questions that can be answered using Profitability Analysis (CO-PA).

Profitability Analysis by Market Segments

Image depicting profitability analysis with reporting dimensions like product, customer, region, business unit, and sales office. Chart shows revenue vs. costs, illustrating loss and profit zones.

The business purpose of CO-PA is to provide the company with profitability-oriented information on the performance of its market segments or sales channels. The information is used to support corporate planning and decision-making, especially in the areas of sales and marketing.

CO-PA allows you to define profitability segments and performance figures with maximum flexibility in market evaluation. The definition of a profitability segment is configured in the system by selecting the characteristics that are the subjects of the analysis. Performance figures may be either profit and loss account balances or freely-defined value fields.

Profitability segments are combinations of information related to the selling organization and its customers and products. Performance figures are measurements of the selling organization’s quantities, revenues, discounts, surcharges, product costs, margins, and period costs.

The results of CO-PA can be analyzed with a reporting tool which allows drill-down reporting. This allows for the dynamic sorting and rearranging of data to provide multiple perspectives within a single report.

Within SAP S/4HANA Enterprise Management, you can analyze the contribution margin in CO-PA costing based as well as Margin Analysis.

Profit Center Accounting in New GL (PCA)

A flowchart with four blocks explaining profit center accounting: Contribution (what is the operating profit?), Return on net assets (which asset value is assigned?), Controlling (which areas exceeded profit?), and Management of internal sales and services (what goods and services are exchanged?).

The best way to show the purpose of profitability management in the SAP system is to think about some of the typical questions that can be answered using PCA.

Responsibility Reporting

Diagram of Profit Center Reporting illustrating reporting dimensions such as sales revenue, operating profit, liabilities, cost of capital, return on investment, and more to determine and evaluate profit metrics.

Profit Center Accounting (PCA) in the New General Ledger allows you to calculate the internal operating results for profit centers of the company. A profit center represents an organizational sub-unit that operates independently in the market and is responsible for its own costs and revenues.

Structure your company into profit centers by assigning the master data of each profit-relevant object to a profit center. Profit-relevant objects include materials, cost centers, orders, projects, sales orders, assets, cost objects, and profitability segments.

All cost-relevant and profit-relevant business transactions in the SAP system are updated in the hierarchy structure of the company. These transactions are simultaneously processed in the original component and organized according to cost and revenue elements. This method of maintaining cost and revenue information transforms all the flow of goods and services within the company into exchanges of goods and services between profit centers. This profit center structure applies to the actual posting and the profit center plan data.

You can also regard a profit center as an investment center. In addition to the flow of goods and services, you can transfer the selected balance-sheet line items to profit centers on a periodic basis. Balance-sheet line items include fixed assets, payables and receivables, material stocks, and work-in-process items. This transfer allows you to calculate key figures, such as profit on sales, return on investment, and cash flow.

Profitability Analysis and Profit Center Accounting Reporting

Image showing Comparison chart of profitability analysis (COPA) and profit-center accounting in S/4HANA showing cost elements, revenue, net revenues, various costs, contribution margins, profit, and economic profit calculation.

The method of determining period operating results in CO-PA is based on the assumption that the success of a company can be measured primarily based on its transactions with other companies. The objective of CO-PA is to provide information to the sales, marketing, product management, controlling, and corporate planning teams of the company. This information supports these teams in their decision-making.

The sales-oriented approach in CO-PA means that until a sales transaction has been completed, no contribution to the success of the company is realized. As a result, the products sold are transferred to CO-PA in accordance with the cost-of-sales accounting method and the information about the sales revenue and sales deductions is provided. This net revenue is then compared with the cost of sales of the sold products. The costs consist of the cost of goods manufactured or the services rendered, in addition to any known production variances.

To complete your profitability data, assign the overhead costs to profitability segments in the course of your period-end closing activities.

Using SAP S/4HANA Enterprise Management, the profit and loss statement for profit centers in the New General Ledger allows you to analyze contribution margin. This supports a sales-oriented view in the Profit Center Accounting.

How to Execute Reports of CO-PA and PCA

DemoStart Demo

Execute Reports for CO-PA

ExerciseStart Exercise

Integration Within Accounting

Flowchart showing profitability analysis with segments, overhead cost controlling (processes, cost centers, internal orders), product cost controlling (cost object, standard cost estimate), and cost element accounting.

Management accounting contains all the required accounting functions needed for effective controlling. If a company divides accounting into internal and external viewpoints, Management accounting represents internal accounting because it provides information to managers who are charged with directing and controlling its operations.

Management accounting includes cost and revenue accounting. Together with profit center accounting, it offers all of the controlling opportunities without being limited to company code data in FI. This is because a profit center can incorporate financial data for one or more company codes.

Management accounting is made up of multiple application components that are effective at processing different approaches to managerial accounting.

Management accounting answers the following typical questions with the appropriate component:

What costs are incurred within our company? (CO-OM: Controlling Overhead Management)
How much does producing a product or providing a service cost our company? (CO-PC: Product Costing)
In which market segments are we successful? (CO-PA: Profitability Analysis)
How profitable are our individual organizational areas (profit centers)? (EC-PCA: Profit Center Accounting)

Flow of Actual Values to Profitability Analysis

Diagram showing the flow of billing and cost data from SD, MM, and FI/AM modules to various accounts. It includes processes such as Production Order, Cost Center, Profitability Segment, and Internal Order Project.

The figure, Flow of Actual Values to Profitability Analysis, displays the value flows and their corresponding postings in Margin Analysis.

Value Flows and Postings in Margin Analysis

Value Flow

The value flow from various processes to CO-PA occurs as follows:

Figure Reference	Process	Posting CO-PA
1a)	Billing	Revenues
1b)	Goods issue	Cost of Goods Sold using "cost splitting profile" defined in FI
2)	Production variances from production orders	Accumulated as a price difference and variance categories when using "Price Differences Splitting Profile" defined in FI
3)	Costs from cost centers	Assessments, activity allocation
3a)	Surplus or shortage on cost centers according to functional areas	Cost center overheads
4)	Sales costs through segment levels	Direct account assignment in CO-PA
5)	Revenue and cost from cost objects	Settlement to CO-PA

The actual postings are the most important data source in Margin Analysis. Both sales orders and billing documents can be transferred from Sales and Distribution (SD). In addition, an interface program transfers external data to the SAP system. You can also transfer the costs from cost centers, orders, and projects, as well as the costs and revenues from direct posting, General Ledger (G/L) account posting in FI, and the orders received in operations. You can settle the costs from Controlling (CO) to profitability segments.

An Overview of Value Flows in Costing-Based Profitability Analysis

Image showing blue box lists value fields including Revenue, Sales deductions, Cost of sales, Variable and Fixed standard costs of turnover, Miscellaneous accrued costs, and Administrative and sales overheads, each linked to respective costing methods.

PCA is a statistical accounting component that presents the transaction data posted in other components from a profit-center point of view. The postings in PCA are statistical postings because the allocation of costs and revenues from one profit center is only possible to another profit center, but not to another controlling object.

Integration of the SAP system makes it possible to automatically post profit-relevant data to PCA when a transaction is posted. The system either transfers the relevant items from the original postings or creates additional postings.

In costing-based CO-PA, you can perform the following tasks:

Valuate the incoming sales orders or billing documents to automatically determine the anticipated sales deductions or costs.
Re-evaluate your data periodically to adjust the initial, real-time valuation, or add the actual costs of goods manufactured.

When the system transfers the standard costs of sales, the fixed and the variable cost elements are transferred to different value fields. This transfer enables the necessary contribution margin accounting for profitability and sales accounting. To settle between the costing-based CO-PA and FI profit and loss, all other periodical costs can be transferred to the costing-based CO-PA as well as Margin Analysis. With the settlement of periodic cost to CO-PA, the reconciliation of the Total Cost Procedure with the cost of Sales Procedure is supported.

Summary

Margin Analysis provides profitability-oriented information for market segments.
Profitability segments are defined by selecting analysis characteristics.
Profit centers represent organizational sub-units responsible for costs and revenues.
Integration within accounting provides effective controlling functions.
Actual postings are crucial data sources in Margin Analysis.

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