SAP CO Configurations basics

There are several configuration steps that must be considered when implementing the CO (Controlling) Module. Creating the Controlling area is one of the first steps in the CO (Controlling) configuration process. SAP has provided standard controlling areas and company codes which can be utilized as a basis for creating your company’s Controlling Area. The SAP Standard for Controlling Area is “0001” and for company code is “0001”.

It is recommended that these be used as a basis to create the Controlling Area or Company Code that you would like to define . Certain defaults setting such as number ranges have already been set-up in the standard SAP settings, thereby eliminating the need to redo this configuration requirement. Through the SAP Configuration process, you can create a copy of the Standard Controlling Area and Company Code, then update the other fields as needed including the four character alpha numeric field which identifies these areas. (You may want to change the controlling area from “0001” to “A001” and the Company Code from “0001” to “ AA01” as an example.)

Keep in mind that Company Codes are assigned to Controlling Areas and affect the COA (Chart of Accounts), the Fiscal Year Variants, andCurrency set-ups. Cost Center hierarchy and Reconciliation ledger settings are also include in the Controlling Area set-up.

The Control Indicator activates and deactivates certain functions in the Controlling Area. The Controlling Area can also be used for cross-company code business transactions. To enable this function the Controlling Area must be assigned to all company codes used for cross-company code accounting.

SAP CO introduction

Introduction

The SAP CO (Controlling) Module provides supporting information to Management for the purpose of planning, reporting, as well as monitoring the operations of their business. Management decision-making can be achieved with the level of information provided by this module. 

Some of the components of the CO(Controlling) Module are as follows: 

· Cost Element Accounting

· Cost Center Accounting

· Internal Orders

· Activity-Based Costing ( ABC)

· Product Cost Controlling

· Profitability Analysis

· Profit Center Accounting

The Cost Element Accounting component provides information which includes the costs and revenue for an organization. These postings are automatically updated from FI (Financial Accounting) to CO (Controlling). The cost elements are the basis for cost accounting and enables the User the ability to display costs for each of the accounts that have been assigned to the cost element. Examples of accounts that can be assigned are Cost Centers, Internal Orders, WBS(work breakdown structures). 
Cost Center Accounting provides information on the costs incurred by your business. Within SAP, you have the ability to assign Cost Centers to departments and /or Managers responsible for certain areas of the business as well as functional areas within your organization. Cost Centers can be created for such functional areas as Marketing, Purchasing, Human Resources, Finance, Facilities, Information Systems, Administrative Support, Legal, Shipping/Receiving, or even Quality. 

Some of the benefits of Cost Center Accounting : 
(1) Managers can set Budget /Cost Center targets; 
(2) Cost Center visibility of functional departments/areas of your business; 
(3) Planning ; 
(4) Availability of Cost allocation methods; and 
(5) Assessments/Distribution of costs to other cost objects. 

Internal Orders provide a means of tracking costs of a specific job , service, or task. Internal Orders are used as a method to collect those costs and business transactions related to the task. This level of monitoring can be very detailed but allows management the ability to review Internal Order activity for better-decision making purposes.

Activity-Based Costing allows a better definition of the source of costs to the process driving the cost. Activity-Based Costing enhances Cost Center Accounting in that it allows for a process-oriented and cross-functional view of your cost centers. It can also be used with Product Costing and Profitability Analysis. 

Product Cost Controlling allows management the ability to analyze their product costs and to make decisions on the optimal price(s) to market their products. It is within this module of CO (Controlling) that planned, actual and target values are analyzed. Sub-components of the module are: 

· Product Cost Planning which includes Material Costing( Cost estimates with Quantity structure, Cost estimates without quantity structure, Master data for Mixed Cost Estimates, Production lot Cost Estimates) , Price Updates, and Reference and Simulation Costing. 

· Cost Object Controlling includes Product Cost by Period, Product Cost by Order, Product Costs by Sales Orders, Intangible Goods and Services, and CRM Service Processes. 

· Actual Costing/Material Ledger includes Periodic Material valuation, Actual Costing, and Price Changes. 

Profitability Analysis allows Management the ability to review information with respect to the company’s profit or contribution margin by business segment. Profitability Analysis can be obtained by the following methods: 

· Account-Based Analysis which uses an account-based valuation approach. In this analysis, cost and revenue element accounts are used. These accounts can be reconciled with FI(Financial Accounting).

· Cost-Based Analysis uses a costing based valuation approach as defined by the User. 

Profit Center Accounting provides visibility of an organization’s profit and losses by profit center. The methods which can be utilized for EC-PCA (Profit Center Accounting) are period accounting or by the cost-of-sales approach. Profit Centers can be set-up to identify product lines, divisions, geographical regions, offices, production sites or by functions. Profit Centers are used for Internal Control purposes enabling management the ability to review areas of responsibility within their organization. The difference between a Cost Center and a Profit Center is that the Cost Center represents individual costs incurred during a given period and Profit Centers contain the balances of costs and revenues.