Processing Plan and Actual Data in Overhead Cost Controlling

Objective

After completing this lesson, you will be able to Manage cost centers, secondary cost accounts and work breakdown structure elements (WBS elements).

Overhead Cost Controlling

Introduction

In this lesson we define the scope of overhead cost controlling. We also introduce the cost assignment objects that are used to collect overhead costs (cost center and WBS element) and look at how they are maintained in the system.

We then explore selected planning options in Overhead Cost Controlling. Finally, we look at how actual values are posted on cost centers and WBS elements.

Current Process Step

The relevant process step (summarized Scope Items) is highlighted in the overview below.

Overhead Cost Controlling - Overview

In the Bike Company, we have costs that arise as a direct consequence of producing a single bike, for purchasing bike components and labor costs in the production line.

However, in addition to these direct product costs, there are costs that arise from the normal operation of our business: labor costs for business departments (for example, finance and marketing departments), energy and telecommunication costs, and costs associated with running the employee canteen.

Overhead Cost Controlling in SAP S/4HANA provides structures, master records, and processes that help to plan, track, assign, allocate, and analyze these costs.

Keisha has prepared a video to introduce you into some examples of processes performed in Overhead Cost Controlling. Please watch it, before you move on.

Test Your Knowledge

Please have a look at the question below and think about what you have learned so far. Do you know the answer? Select the card to flip it and see if you were right.

Cost Center Master Data

Business Scenario

It is extremely important for the Bike Company to be able to display the costs for each area of responsibility in a transparent manner. For this reason, we are testing the structure of the cost center master data as part of the integration tests.

Cost Center Master Data

In SAP S/4HANA, cost centers define areas of responsibility within the company that collect overhead costs. Typical cost centers of this category are the Finance, Sales, Procurement, and Marketing departments.

Cost centers are often hierarchical structures, especially in larger companies. For example, the Finance department might be split into Accounting, Controlling, Treasury, and Receivables. This hierarchical relation is depicted in the system in a tree structured hierarchy, the Cost Center Hierarchy.

In addition to cost centers that depict departments, you can create cost centers for special purposes that aren't mapped to a specific department. These are used to gather costs that will later be allocated to other cost centers, for example a cost center for the canteen or for energy.

These cost centers must also be assigned to the cost center hierarchy.

Before you can create cost centers, you must define a Cost Center Hierarchy. This hierarchy is a tree structure that consists of different cost center groups (hierarchy nodes). Every cost center created is assigned to a specific hierarchy node. Postings cannot be made to the hierarchy nodes themselves. They are used as a summary level in reporting or to select a group of cost centers for planning or special reporting purposes.

How to Display Cost Center Master Data

Secondary Cost Accounts

We introduced Secondary Cost Accounts when defining G/L accounts in Financial Accounting. In this lesson, we learn more about the tasks associated with these accounts.

Secondary cost elements are only posted in Management Accounting (CO). They are used for certain internal allocations, such as assessments or settlements.

For secondary cost elements, G/L accounts are managed in FI with the Secondary Costs G/L account type.

Activity Types

When a cost center provides activities for other cost centers or Work Breakdown Structure elements (WBS elements), the resources of that cost center are used. The cost of this must be allocated to the receivers of the activity. Activity types are used as tracing factors for this cost allocation.

The activity type classifies activities that are performed within a company by one or several cost centers.

Typical Activity Types are:

  • Machine Hours
  • Personnel Hours
  • Repair Hours
  • Service Hours
  • Internal Consulting Hours

To enable internal activity allocation, for each activity type, you must specify the cost center providing the activity and the price of the activity. You do this in the SAP S/4HANA system by planning the activity output/prices for a cost center.

How to Display an Activity Type

Cost Planning

In the graphic below, you can see the relevant summarized Scope Items of the process step.

If you’re wondering why the Bike Company needs to plan their business activities, Keisha is more than happy to answer your question.

Planning Cycle

The extent and method of planning, however, can vary greatly from one enterprise to another. The following interactive graphic provides a basic planning cycle of a company:

Planning in Overhead Cost Controlling

In this section, we focus on some of the basic planning options in Overhead Cost Controlling. Other planning areas are covered in the upcoming units.

Planning in Overhead Cost Controlling

Cost managers must have an efficient way to compare planned and actual costs (including costs incurred by cost centers outside Management Accounting) and track all cost and activity allocations that take place in the period-end closing process.

You can plan the cost flows of a cost center so that all overhead costs are covered through cost or activity type allocations.

Planning Activity-dependent Primary Costs

When you have finished planning activity types, you can plan the primary costs associated with those activities. Activity-dependent primary costs are divided into fixed costs and variable costs. Variable costs are relative to the quantity of the planned activity.

The following video shows a simplified example of how the Bike Company plans activity-dependent primary costs for a production cost center:

Planning Secondary Costs

In addition to the primary costs, a cost center often incurs secondary costs because it must use services (activity input) from other cost centers.

To calculate the planned secondary costs, the SAP system multiplies the price of the activity type (from the sender cost center) with the activity quantity that is consumed by the receiver cost center.

SAP Analytics Cloud

SAP Analytics Cloud is an analytics and planning solution that can be integrated with SAP S/4HANA or deployed as a single, cloud-based solution. SAP Analytics Cloud includes planning, reporting, and analytics capabilities in one product.

It can connect data from internal and external sources and create visualizations of that data in the SAP Analytics Cloud.

The Bike Company uses SAP Analytics Cloud to perform overhead cost planning.

The following video introduces the concept of cost center planning using the SAP Analytics Cloud (detached from the Bike Company business scenario).

Actual Postings

After looking at the basic features of planning in Overhead Cost Controlling, let's go over a couple actual posting processes in controlling:

  • Direct Activity Allocation
  • Postings using WBS Elements

The relevant business process steps are highlighted below:

Direct Activity Allocation

During the normal business activity, costs are charged to various cost centers. These costs are usually indicated in an invoice that a supplier sends for a product or service provided. The invoice for common expenses such as utility bills, is posted in FI directly.

We already learned about account assignment to cost centers in FI. In this lesson, we focus on cost flows within Controlling.

Direct Activity Allocation

In direct activity allocation, you enter the cost center that provides the activity (sender cost center), the object that receives the activity (receiver cost object), the type of activity provided (activity type), and the activity quantity.

The sender cost center is credited, and the receiver cost object is debited using a secondary G/L account.

The value of the activity allocation is calculated by multiplying the activity quantity provided by the planned price of the period.

How to Enter and Analyze a Direct Activity Allocation

The Internal Services cost center performs activities for other cost centers as part of repair measures. The cost of this internal activity depends on the number of units of the executed activity quantity.

Project and WBS Elements

In addition to analyzing costs at a departmental level using cost centers, it is often useful to be able to track the costs for projects. Projects are business undertakings that have a specific goal and finite time line.

In SAP S/4HANA, you manage projects using Work Breakdown Structure (WBS) Elements. WBS Elements are an integral part of the complete project system functionality with a lot of possibilities and complexity. However, their simplest form, the WBS Element can act as a "bucket" that you fill with costs and revenues. This is done by assigning the WBS element in the journal entries when posting purchasing, sales, and financial documents.

In the figure Project and WBS Elements, a trade fair project is displayed as a work breakdown structure. A WBS shows the required project activities in a hierarchical form. All activities are maintained as WBS elements, which can be subdivided.

Example: The Rough Planning activity includes Choose Location, Set Up Structure and Set Up Project Team. Each of these WBS elements can carry a different type of data, such as costs, revenues or a budget (depending on their settings).

Business Scenario

The Bike Company Germany participates in several trade fairs in Germany. To get a precise overview of the costs of each individual trade fair, the respective costs are entered in a WBS element for each trade fair. For test purposes, a Project with a single WBS element has already been defined in the system to post actual costs on this cost object.

At the end of a trade fair, 50% each of the costs will be borne by the Sales and Marketing cost center.

Watch the following demo how this is managed by WBS elements.

How to Manage WBS Elements

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