Explaining Management Accounting (CO)

After completing this lesson, you will be able to:

After completing this lesson, you will be able to:

  • Explain Management Accounting (CO)

Management Accounting Components

CO contains all of the functions necessary for controlling cost and revenue effectively. It covers all aspects of management controlling and includes many tools for compiling information for company management.

CO consists of several components, as shown in the figure, Components of Management Accounting.

Data that the system creates in other SAP S/4HANA applications can have a direct influence on CO. For example, if you purchase a non-stock item, the system posts an expense to the general ledger (G/L). The system also posts this expense as costs to the cost center for which the item was purchased. This cost center can then pass these costs as overhead to a production cost center.

FI, in the SAP S/4HANA application, is a primary source of data for CO. In fact, most expense postings in the G/L result in a cost posting in CO. These expense postings to the G/L can be journal postings, vendor invoices, or depreciation postings from Asset Management.

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 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.

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. The manufacturing area of Logistics also works closely with CO. Bills of material (BOMs) and routings can be used in CO-PC.

Profitability Analysis analyzes the profit or loss of an organization according to individual market segments. In Profitability Analysis, costs are assigned to the revenues of each market segment. This gives you a basis for calculating prices, targeting customers, determining conditions, and choosing sales channels, for example. Sales order management is a primary source for revenue postings from billing documents to revenue postings in CO-PA and PCA. In addition to direct postings from FI, Profitability Analysis (CO-PA) can receive cost assessments from cost centers and ABC processes, settlements of costs from internal orders, and settlements of production variances from cost objects.

Within the Overhead Cost Controlling (CO-OM) area, you can post costs to cost centers, internal orders, and processes from other SAP S/4HANA applications (external costs). Cost centers can then allocate these costs to other cost centers, internal orders, and processes in Activity-Based Costing (ABC). ABC, in turn, can pass costs to cost centers and internal orders. Internal orders can settle costs to cost centers, processes in ABC, and other internal orders.

You use Cost Center Accounting 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.

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.

SAP Human Capital Management (HCM) can generate cost postings in CO. SAP HCM allows you to allocate labor costs to various controlling objects. In addition, you can transfer and use planned personnel costs for planning in CO.

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