Using Internal Orders

In order to effectively manage one-time expenses related to marketing and non-periodic activities, your company is seeking a solution to control and monitor these costs. You are already familiar with cost center accounting and overhead project accounting, but you believe that internal orders may be a simpler option for your needs. Therefore, you need to gain a clear understanding of:

• How to maintain internal orders
• Track order activity
• Settle orders at the end of the month.

Currently, your company participates in multiple trade fairs throughout the year. However, the expenses for these trade shows are charged to the marketing cost center as a whole, making it difficult to determine the exact amount spent on each individual trade show. To address this issue, a new internal order will be assigned to each trade show, allowing for better transparency and accurate tracking of expenditures.

You are going to be responsible for managing internal orders from a master data perspective and so you need to understand how to maintain them. Since the trade show expenses will be posted to internal orders, you need to understand how internal orders are used as cost objects and what reports you can use to analyze the charges. At the end of each period, the internal orders are settled to the marketing cost center. Therefore, it is important to comprehend how to create settlement rules and execute the settlement job.

In order to provide transparency around overhead costs, you have several options. One option is to use cost centers. Cost centers are best suited for periodic expenses such as labor, services, and supplies. These expenses flow into cost centers each month in a fairly consistent way.

However, some overhead costs are non-periodic in nature. In this situation, the best option is to use internal orders. For example, the expenses related to trade shows that occur two or three times a year fall into this category. Internal orders can be used to capture the cost of each trade show before the expenses are later settled to the responsible cost center. If internal orders are not used, then the cost of multiple trade shows are charged to the cost center but the detail by trade show is lost.

Orders support action-oriented planning, monitoring, and allocation of costs. Internal orders may be used for a variety of purposes:

The management of internal orders represents the most detailed operational level of cost and activity accounting and can be used for the following:

• to analyze costs according to aspects other than those used in cost center accounting.
• to compare in-house production and external procurement costs for decision-making purposes.

Note

This course covers the usage of internal orders in the overhead cost controlling, not the usage of an internal order in cost object controlling.