1 co 01(cost center accounting)

COST CENTER ACCOUNTING


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Document Reference: Business Blueprint Strategy

Author: Date: 21/05/2003

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Issue Date Author Comments1.0 21.05.2003

File Name: 1co01costcenteraccounting-111009090714-phpapp01.doc Last printed Version: Page 2 of 29


Business Blueprint Format

Business Scenario Code / Name

Cost Center Accounting

Business Process Code / Name

01_Co_01 (CCA)

Process OwnersProcess Team MembersApplication ConsultantsModules Influenced

REQUIREMENT / EXPECTATION

1. Budgetary Control2. Segment Reporting (Statutory)3. Profitability reporting (internal)4. KPI Evaluation5. Cost Audit6. Arriving at Overhead absorption rates7. Control on Special Assignments8. Capital Budgeting



GENERAL EXPECTATIONS (CURRENT PROCESS)

Budgetary Control

INTRODUCTION

Budget is a dual function tool, planning and control. In simple terms it can be defined as :-

Coordinated plan of action.In physical and monitory terms For a future period To achieve a pre-determined objective.

The whole process culminates into projected Income statement and balance sheet, for the period.

BUDGETING SYSTEM

The main objectives of the costing system are as follows:-

1. The budgeting system has been developed with the following end objectives :-

a) To prepare overall business plan for the budget year in line with the corporate mandate set by the management.

b) To lay down targets for the business activities keeping in view the overall business plan and the corporate mandate.

c) To define targets for budget centers in the organization to meet the overall business plan of the company.

d) To fix financial targets with reference to the planned business activities for the budget period.

e) To act as a basis for periodical monitoring of the performance of each budget center (both in quantitative and financial terms for the elapsed period).

BASIC PRINCIPLES

1. The proposed system has been developed on the basis of the following fundamental

Principles: -

a) Definition of corporate objectives by the top level management regarding profitability, expansion and diversification, etc.



b) Projection of activity levels by the unit on the basis of available capacity, market conditions, etc.

c) Definition of budget and sub-budget centers which can be held responsible for planning and controlling their activities in order to achieve the overall corporate objectives.

d) Ensuring consistency in the bases of budgets Formulation by various budget centers. For e.g. the production budget should be prepared keeping in mind the sales budget and the plant’s optimum capacity.

e) Ensuring that the budget targets are in line with the key result areas of the various budget centers.

f) Monitoring performance in light of budgets and fixation of responsibility for variance.

ANNUAL PLAN

1. The company should prepare an annual plan for the budget period based on its overall corporate plan. The main objectives of the annual plan shall be defined in terms of :-

a) Capacity utilization of the plant.

b) Areas of cost optimization.

c) Profitability of operations in terms of return on investment.

d) Physical norms (e.g. consumption norms, standard yields etc).

BUDGET CENTRE

1. A budget center is defined as a section/department/unit to which accountability/

responsibility can be fixed through the budgetary control system.

BUDGET COMMITTEE AND BUDGET APPROVAL

1. A budget committee shall be set up comprising of the following personnel :-

a) Unit Head.

b) Head of marketing.

c) Head of finance.

d) Head of production.



BUDGET PERIOD AND REVISION OF BUDGETS

1. Budget period shall be the accounting year followed by the company i.e. from

January to December.

2. Budgets shall be prepared for the budget and broken up into quarterly and monthly budgets. This would enable periodical performance review for monthly variance analysis.

BUDGET CALENDER

1. The annual budget process shall commence in the last week of the tenth month of the current year (i.e. October). Thus, two months shall be available for budget preparation, consolidation, review, revision and final approval. A detailed budget calendar is given as Annexure `A’.

Annexure `A’

BUDGET CALENDAR

S. No.

Activities Date/Period of completion

1. Circulation of budgeting instruction, corporate plan and objectives by the budget and MIS section to different budget center

Last week of October.

2. Preparation of budgets by the budget and sub-budget centers.

15th November.

3. Consolidation of budgets of different budget centers by the budget and MIS section for the company as a whole.

25th November.

4. Presentation to the budget committee by the budget centers and for the company as a whole by the budget and MIS section.

30th November.

5. Revision, if any by the budget centers. 7th December.

6. Consolidation of revised budgets of different budget centers by the budget and MIS section.

14th December.

7. Review and approval of budget by the MD Secretariat.

21st December.

8. Circulation of copies of approved budgets to 28th December.



respective budget centers.

BUDGET PREPARATION RESPONSIBILITY

1. The responsibility for preparing the budgets would lie with each budget and sub-budget centers. The budget preparation shall be coordinated by the budget and MIS section.

2. The budget and MIS section shall be responsible for :-

a) Coordinating and monitoring activities of budget preparation at the budget and the sub-budget center level.

b) Review of budgets for completeness and compliance with the budgetary system.

c) Consolidation of budgets for the company as a whole.d) Co-ordination with the budget committee and the MD secretarial for

budget approval.e) MIS reporting to the MD secretariat (including analysis of variances).

BUDGET PROCESS

1. The budget process shall commence with definition of corporate objectives and quantification of these objectives into physical terms for the company. The physical terms should be in terms of the level of activity envisaged for production and sales. This would be dependent on the perceived market scenarios and the available production capacity for the budget period. This would be determined through the joint effort of the unit head and head of marketing function for the company.

BUDGET INSTRUCTION FOR PREPARING BUDGETS

Sales Budget

1. The sales budget is the key budget in the budgetary process as it defines the projected level of activity for the budget period.

2. The sales budget shall be prepared keeping in mind inter-alia the following factors :-

a) The projected market scenario for each type of product.b) Expected realizations from domestic and export market.c) Production capacity and utilization.



PRODUCTION BUDGET

1. The quantitative production budget shall be prepared product wise for each month based on the following: -

a) The sales volume budget.b) Plant capacity and its availability.c) Raw material availability.d) Maintenance schedules.

PHYSICAL STANDARDS BUDGET

1. Physical standards shall be set for consumption of raw materials, consumables. These shall be set after taking the following factors into account :-

a) Existing standard norms in the industry.b) Past experience of the company for raw material from each station from

which purchase is expected during the budget period (from R&D and other data).

c) Consistent, significant variation between actual achieved in the past and the standards laid down.

MATERIAL CONSUMPTION BUDGET

1. Material consumption budget (quantitative) shall be estimated based on standard consumption norms per unit of out put and budgeted production for the period shall be based on :-

a) Material consumption budget.b) Stock levels to be maintained.c) Purchase agreement entered/likely to be entered into, by the company.

UTILITIES BUDGET

1. The utilities budget shall be made for the variable cost elements for the following:-

a) Power.b) Airc) Water, DM water, Steam

MAN POWER BUDGET

1. The manpower budget shall be prepared for each budget/sub-budget center. In respect of production budget centers, budget break-up shall be provided for the following type of manpower :-

a) Permanent.b) Casual/contract.



REPAIRS AND MAINTENANCE BUDGET

1. The repairs and maintenance budget shall be prepared by each production budget center and for each category of fixed assets. Further shall specify separately the following :-

a) Electrical Maintenance.b) Instrumentation Budgetc) Mechanical maintenance..d) Civil maintenance.

GENERAL AND ADMINISTRATION EXPENSES BUDGET

1. The general and administration expenses budget shall be made by each budget center. The budget shall be estimated for the budget center as a whole. The following items of expenditure, however, shall be budgeted by each sub-budget center.

a) Traveling.b) Conveyance.c) Telephone etc.

SELLING EXPENSES BUDGET

1. Selling expenses budget shall be prepared by the marketing budget center.2. Selling expenses shall be prepared based on :-

a) Projected sales volume.b) Proposed marketing strategies.c) Seasonal fluctuations.

FINANCIAL EXPENSES BUDGET

1. Financial expenses shall be categorized as :-

a) Interest charges on term loans.b) Interest on working capital.c) Bank and finance charges on.

i) Guarantees.ii) LCs.iii) Others.



DEPRECIATION BUDGET

1. Depreciation on the fixed assets shall be calculated as per the accounting policy followed by the company. Depreciation on projected capital expenditure shall also be calculated and would form part of the depreciation budget.

OTHER INCOME BUDGET

1. Other income shall include income from investments, waste sale etc. Income from Investments like interest income and dividend income shall be budgeted for on the basis of debentures, shares, fixed deposits etc, which the company expects to hold during the budget period. Separate work sheets should be given for income from investments and other incomes.

CONTRIBUTION BUDGET

1. A product wise contribution statement shall be prepared based on inputs from :-

a) Variable costs.b) Sales rate.

BUDGETED PROFIT AND LOSS STATEMENT

1. The budgeted profit and loss statement the company shall be computed from the following: -

a) Sales budget.b) Other income budget.c) Material consumption budget.d) Manufacturing expenses budgete) Personnel expense budgetf) Administration and general expenses budget.g) Selling and distribution expenses budget.h) Interest and financial expenses budget.i) Depreciation budget.

BUDGETED BALANCE SHEET

1. The budgeted balance sheet for the company shall be prepared on the basis of the following budgets :-

a) Opening balance sheet.b) Budgeted profit and loss statement.c) Working capital budget.d) Capital expenditure budget.



Mission

MAIN BUDGET SUB BUDGETS DATA SOURCE(A)Sales Budget 1. Quantity Budget Marketing

2. Selling Price Budget Marketing

(B)Production Budget 1.Quantity Budget PPC Deptt.2. Input price Budget Purchase Deptt.

(C ) Utilities Budget 1. Quantity Utilities Deptt.2. Price Utilities Deptt.

(D)Stores & Cons. 1. Value Budget Engineering Deptt.Process Deptt.

(E) Personnel Budget 1. Manpower ( In Nos.) HRM2. Cost (In Value) HRM

(F) Depreciation 1. Asset List & their Finance3. Depreciation Finance

(G) Financial Cost 1.Division Wise Finance

( H) S&D Cost Marketing

(I) AOH Respective Deptt.

On the basis of all above budgets first Annual budget is prepared, finalized and approved by management, by December of every year. This is divided into quarterly and monthly budget.

Rolling Budget



To arrive at monthly Planned profitability based on current scenario, monthly rolling budget is prepared by 25th of previous month so that corrective actions can be taken proactively to reduce negative variances against planning.

1. Budgetary Control

Control on Procurement and Overheads

Procurement process is independent of Budgetary Process. Materials are procured based on current/seasonal requirement and expenses accounted on budget centers and at the period end, Budget vs Actual is analyzed.

Similarly Budget for Power consumption guides the actual consumption.

The Actual Expense is compared with the Budgeted figures and variances are analyzed. If the variance is negative, the concerned department provides the action plan to cover the negative variance.

COST AUDIT

Requirement of Cost Audit Record Rules (Textile )

1. Material:

1. The proper record requires showing all receipts, Issues and balances both in quantities and cost of cotton, man-made fibers and filament yarn made from manmade fiber, waste cotton, yarn, cloth in gray stage etc. to determine the quantity and cost of receipt (Including all direct charges unto the works in respect of major raw material, issue and balances in quantity as well as value of each item of all such raw material.

2. In case of Imported raw material proper record required showing FOB value, Overseas freight, insurance, custom duty and inland freight charges and further license-wise allowed quantities, actual quantities imported, actual quantities consumed, quantities in stock and quantities yet to be imported out of total licensed quantities.

3. If both indigenous and imported material are consumed the detail of percentage mix of the same is required.

4. Separate record required showing the receipt, issue and balances both in quantities and cost of each item of dyes, sizing materials and processing chemicals used in the manufacture of textiles.The cost includes all direct charges up to works.



The issues, consumption shall be properly identified with the departments, cost-centers and products manufactured

5. Proper records to be required to show the quantity and realizable value of useable soft waste collected from each mixing in each cost center of spinning and also of other waste collected, type-wise and cost center wise separately from different departments.

6. in case further processing is necessary to make the product saleable record of cost incurred to be required.

7. Proper record to be required to show the receipt, issue and balances, both in

quantities and cost of each item of consumable stores, tools and machinery spares. The cost shall include all direct charges up to works.

8. The cost of consumption of consumable stores, small tools and machinery spares to be charged to the cost center on the basis of actual issues.

9. The value of raw material and components, finished and semi-finished, which have not moved for more than twelve months.

10. Where any credit under MODVAT or any other benefit of nature of MODVAT credit under the central Excise ACT, 1944, are available on any item of material, the cost of such material should be shown after adjusting such credit or benefits.

11. If an outside party proper record to be required for the qty sent for processing processes any of the material Purchased or Manufactured, qty received after processing, by-products received, if any, and the cost involved in processing.

2. Salaries & Wages:

1. The proper records to be required to show the attendance and earnings of all employees of the cost centers (like blow room, carding. draw frame simplex ring frame etc.) and the work on which they are employed. Where the employee work in such a manner that it is not possible to identify them with any cost center, the labor charges shall be apportioned to the cost centers on equitable and reasonable basis and applied consistently.

2. The idle labor cost to be separately recorded under classified heading indicating the reasons therefore.

3. Any wages and salaries allocable to capital works such as additions to plant and machinery, building or other fixed assets to be accounted for under the relevant capital heads.



3. Service Department Expenses:

1. The detailed records to be required to indicate the expenses incurred in respect of each service cost center like laboratory, welfare, transport etc. These expenses to be apportioned to other services and production department on equitable and reasonable basis and applied consistently.

4. Utilities:

1. The following information required showing the quantity and cost to enable the determination of the cost of utilities and its distribution to different cost centers.

1. Water2. Steam3. Power4. Humidification5. Compressed Air6. Other Utilities

5. Workshop or repairs and maintenance or tool room:

1. The expenditure incurred by workshop or tool room under different heads and repair and maintenance in the various cost centers to be maintained.

2. In addition to the above, detail of inventory required indicate the amount and also the proportion of closing inventory of stores and spares parts representing items which have not moved for over 24 months.

3. The Expenditure on major repair works from which benefits is likely to accrue for more than one financial year to be allocated over the period expected to benefit on an equitable and reasonable basis and applied consistently.

6. Depreciation:

Cost center wise by applying the rates of depreciation under the provisions of sub-section (2) of section 205 of the companies act.

7. Other Overheads: Cost center wise

8. Royalty or Technical Know-how Fee:

9. Research and development expenses



10. Quality Control

11. Interest

12.Expenses or incentives on Exports

13.Packing Expenses:

Detail of Item wise packing expenses and further Product wise packing expenses incurred.

14.Work in Progress and Finished Stock:

The appropriate share of conversion cost up to the stage of completion to be taken into account while computing the cost of W-I-P.

15. Cost Statement

The cost statement shall be prepared count wise or sort wise and further if the company is operating more than one plant or factory, separate cost statement to be prepared in respect of each plant.

16. Quantitative records of all finished goods.

17. Reconciliation of Cost and Financial Accounts

18. Capital Employed, Net fixed assets and working capital separately.

19. Captive Consumption: Transfer of product from one division to another shall be cost only.

20. Pollution Control:

Expenditure incurred by the company on various measures to protect the environment like effluent treatment, control of pollution of air, water etc, should be required.

As per cost audit record rules

Control Charts



This requires allocation of Expenses as per Profit & Loss account, over various Cost Centers followed by re-allocation / apportionment of Overheads to Production Cost Centers.

Annexure and Performa

Cost Audit Record Rules requires various Annexure and Performa where quantitative details are provided.

Cost Audit Report

Cost Audit requires Cost Audit Report, in which quantitative details are provided.

Control on Special Assignments

Monitoring expenses incurred on special projects undergoing in the Organization eg: ERP, SCM, CRM, KAIZEN etc.

SEGMENT REPORTING (STATUTORY)

As per AS17a we are required to disclose segment wise results and Balance Sheet for every quarter and annual closing. These figures are published along the results. We have identified four business segments namely:

1. Yarn2. Towel3. Paper4. Chemical

Yarn Includes – Gray and Dyed & Mercerized YarnTowel Includes – TowelPaper includes – Paper, Cogen and Soda RecoveryChemical includes – Sulphuric Acid

Business Model

BUSINESS PROCESS DESCRIPTION:



COST CENTER ACCOUNTING IN SAP R/3

Dividing an organization into cost centers allows us to follow several goals, depending on the cost accounting method -

1. Assigning costs to cost centers lets us determine where costs are incurred within the organization.

2. If we plan costs at cost center level, we can check cost efficiency at the point where costs are incurred (Budgeting and Budgetary Control).

3. If we want to assign overhead costs accurately to individual products, services, or market segments, we need to further allocate the costs to those cost centers directly involved in the creation of the products or services. From these cost centers we can then use different methods to assign the activities and costs to the relevant products, services, and market segments. This enables us to valuate semi-finished and finished products in Product Cost Controlling

Features

Entering actual costs

Primary costs can be transferred to Cost Accounting from other components, for example, Financial Accounting (FI) , Materials Management (MM), Asset Accounting (AA), Payroll Accounting (PY).

Allocating actual costs

We can use various methods to further allocate the actual costs We have recorded, according to their source. The R/3 System distinguishes between transaction-based allocations, which occur within one period, and period-based allocations, which occur at period end.

Planning activities and costs

We can use planning to define organizational targets and carry out regular cost-effectiveness checks. Variances can be calculated by comparing the actual costs and activities with the plan values. These variances serve as a control signal, which helps We to correct business processes, when required.

We can plan costs and activities to determine allocation (activity) prices.

Allocating plan costs

All actual allocations that occur for cost centers can also be planned (for example, distribution, assessment, indirect activity allocation).

Entering plan and actual statistical key figures



Statistical key figures are used as the basis for the indirect allocation methods, as well as for evaluations in the information system (for example, employees, telephones).

Activity Accounting

Activity Accounting uses the activity produced by a cost center as the tracing factor for the costs. We can use activities to measure the operating rate or the rate of capacity utilization for a cost center. The target costs of the cost center refer to the activity output.

Depending on the source of the costs, the activities of a cost center are divided into various activity types (for example, for the Work center cost center: Repair hours or Assembly hours.

Information system

The information system provides tools with which We can analyze the cost flows that have occurred in our organization.

Cost Center Planning enables the organization to plan for the overheads and various activities on the cost centers across the controlling area. The planning process can be made for a given cost element on a cost center.

PROCESS PRE-REQUISITES

Master Records

Cost Center Structure

The cost center structure can reflect the structure of our organization. It generally remains constant over long periods. We can execute cost center planning to reflect Our cost center structure and generate periodic cost center and area reports, which can be passed on to the person responsible for analysis. These reports help identify economic weaknesses and planning errors in individual cost centers. To be able to compare results effectively, We should not make changes to this data.

Cost Element Structure

A cost element classifies the organization's valuated consumption of production factors within a controlling area.

A cost element corresponds to a cost-relevant item in the chart of accounts

1) Cost Elements include:

a) Primary Cost elements

b) Secondary Cost Elements



Activity Types

Unit in a controlling area that classifies the activities performed in a cost center.

Example:

Activity types in production cost centers are machine hours or finished units.

Statistical Key Figures

Figure representing

• Cost Centers

• Activity Types

• Orders

• Profit Centers

We can use them as the basis for internal allocations, such as Distribution and Assessment.

Example:

We assess the costs for the cafeteria to the individual cost centers, based on the number of employees in each cost center. To do this, you need to enter the number of employees in each cost center as a statistical key figure.

COST CENTER PLANNING

Cost center planning involves entering plan figures for costs, activities, prices or statistical key figures for a particular cost center and a particular planning period. We can then determine the variances from these figures when We come to compare these plan values with the costs actually incurred. These variances serve as a signal to make the necessary changes to our business processes.

Cost center planning forms part of the overall business planning process, and is a prerequisite for standard costing. The main characteristic of standard costing is that values and quantities are planned for specified timeframes, independently of the actual values from previous periods.

We can take plan costs and plan activity quantities to determine the (activity) prices. These prices can be used to valuate internal activities during the ongoing period, that is, before the actual costs are known.



Cost center planning has the following objectives:

• To plan the structure of the organization’s future operations for a clearly defined time period.

We should define performance targets and target achievement grades. We must consider the internal and external (market) factors affecting our organization.

• To control business methods within the current settlement period.

This ensures that We keep as closely as possible to the plan. Iterative planning lets us adapt the target performance to reflect any changes in the organizational environment.

• To monitor efficiency after completion of the settlement period using plan/actual or target/actual comparisons.

To provide a basis for the valuation of organizational activities, independent of random fluctuations.

Cost center planning is divided into the following planning areas:

• Cost elements/activity input

• Primary costs

• Secondary costs

• Revenues

• Activity type planning/price planning

• Statistical key figure planning

Primary and Secondary Cost Planning

The input side of the cost center is affected when the primary and secondary cost values are planned. The primary and secondary plan costs refer to the costs incurred in producing the plan output on the cost center.

Activity input enables extra planning detail: We can plan primary and secondary costs both independently and dependently of activity.

Activity Type Planning



In activity type planning, we plan the activity produced by a cost center. This represents the quantity-based output of a cost center. During planning We can manually set the price with which the SAP system valuates the activity during allocations. We can choose to retain this price or have the system overwrite it during plan price calculation. We can also plan the capacity required for providing the activity type.

Activity Independent and Activity Dependent Cost Planning

Activity-independent cost planning covers both primary and secondary costs, but does not refer to a specific activity type. The opposite to this is activity-dependent planning.

Activity-dependent planning of primary and secondary costs enables us to plan both fixed and variable costs. We may require this functionality

Standard costing based on full costs means that the fixed costs are distributed in proportion to the operating level. This could mean that portions of fixed costs are included in the prices. We can assign plan activity-independent costs to activity types using various rules, for example, using equivalence numbers or our own splitting rules.

Planning Sequence

Process Flow

T_CO_01_01 Activity No. 1 : Identifying Planner Profile:

A Plan Profile describes the areas in which the Plan is intended for. Some of the areas are:

1. Cost Centers : Cost Elements2. Cost Centers : Activities/Prices3. Cost Centers : Statistical Key figures4. Orders : Cost Elements/Activity Inputs5. Orders : Statistical Key Figures

T_CO_01_01 Activity No. 2. Activity type planning

SAP recommends We begin with activity type planning or allocation base planning since the plan activity quantities and capacities determine the plan volume of costs. The system refers all cost center costs to the activity types. and then calculates the prices for each activity type. We can also plan prices during activity type planning. The prices are not determined by the system in this case. As well as activity quantities and prices, We can also plan equivalence numbers during activity type planning.

When the activity types are further allocated, the system credits the cost centers according to the activity they provide. This requires the determination and setting of plan



prices after cost center planning is complete. Only then can the cost centers be completely cleared of costs. Price calculation therefore represents the final stage of cost center planning.

T_CO_01_01 Activity No. 3 . Planning statistical key figures

We can also execute actual distribution, actual assessment or indirect activity allocations based on the planned statistical key figures.

Statistical Key Figures enables the Costing Department to reallocate the values among the cost objects and Profit Centers. The key figures are also helpful in analyzing the information on per unit of key figure. Planning for such key figures can be made either locally in Controlling Area or they can be transferred from the Logistics Information Systems to the Controlling Area. SKF Planning within the Profit Center Accounting can be derived from the Cost Objects, since each Cost Object is assigned to an individual Profit Center in the Controlling Area.

T_CO_01_01 Activity No. 4. Cost Element Planning

T_CO_01_01 Activity No. 5. Revenue Planning

As well as costs, We can also plan anticipated revenues under special cost elements . If We post revenues on cost centers, the values appear as statistical information only.

T_CO_01_01 Activity No. 6. Plan Distribution

Plan distribution is the final activity of primary cost planning. We plan the primary costs for the entire fiscal year on allocation cost centers. The system periodically distributes these costs, for example, telephone costs, heating costs or rent, to the individual cost centers according to predefined keys.

Before distributing plan costs, We must define distribution rules. In most cases these are identical to actual distribution rules.

Distribution is used to allocate the primary costs of a cost center. The following information is passed on to the receivers:

• The original cost element (that is, the primary cost element) is retained.

• Sender and receiver information (for example, the identities of the sender and receiver cost center) is documented using line items in the CO document.

To execute the above process, a Distribution Cycle is defined which has a certain valid period. The Cost Centers and other Cost Objects forming part of the cycle either as Senders or Receivers should have their master record valid period within the Cycle Period.

In the Cycle definition, it has to be decided whether the distribution should work on iterative basis or non-Iterative basis and cumulative basis or non-cumulative basis.



By Iteration, the system distributes every time the values of a cost center to all other cost centers including the sender cost centers defined in the segment level of the cycle. The process goes on till the value becomes negligible for further distribution.

If the cycle is defined with the cumulating indicator set to active, then the sender amounts posted up to the current period are allocated based on tracing factors, which are cumulated from period 1 onwards. In the current period, the allocation amounts determined are posted less the amounts allocated in the previous periods. Cumulative allocation has the following requirements:

• The sender/receiver relationships should be stable within the fiscal year. In Particular, no sender or receiver may be deleted within the fiscal year.

• The allocation should be made using the sender rule "Posted amounts" and the receiver rule "Variable portions".

To the Distribution Cycle, Segments are attached. In each segment the following are required to be identified:

1. At the Segment Header Level:

• Rules for the Sender Cost Object • Percentage of Costs of Sender Cost Objects that requires distribution• Receiver Rules – Fixed Amounts / Fixed Percentages / Fixed Portions / Variable

Portions.• For a variable portion, identify the type like Actual Costs / Plan costs / Actual

Consumption / Plan Consumption / Actual SKF / Plan SKF / Actual Activity / Plan Activity.

2. In the Sender / Receiver Block:

• The Sender Cost Center / Group and the Cost Element / Element Group• The Receiver Cost Object

3. In the Sender Values Block:

• Is the Distribution intended for Actual or Plan values and in case of plan, version is required to be specified.

• Depending on the rules for sender object, the system will select the either total amounts posted or the fixed amounts or the fixed rates from the sender cost centers.

4. In the Receiver Tracing Factor Block:



• Depending on the Receiver Rules defined at the header level of the segment, the receiver tracing factors for the receiver object demands either the fixed amounts, fixed portions or fixed percentages.

• If the receiver rule is based on variable portion, the tracing factor for actual costs on a receiver cost element, actual SKF on the receiver object needs to be specified.

• Weighted Factor can also be mentioned for the Variable portion of the Receiver Object. The system valuates the receiver value on the basis of weights defined for the tracing factor and applies that weighted factor on the sender value.

Subsequent to the actual cost booking to the common cost center and the definition of the distribution cycle, the actual distribution has to be executed by mentioning the Cycle Name from the Cost Center Accounting.

Distribution Cycle that is already executed for a period can be reversed for any inconsistencies identified and can be re-executed for more than one period in a fiscal year. The system then allocates the values of all identified periods from the sender cost centers to receiver cost centers.On reversals, entries generated in the initial allocation also gets reversed.

The entry will have no effect on the Financial Accounting. This is purely a Controlling Document. In the Distribution Process, the system retains the original cost element with which the Sender cost center has got its debit on the receiver cost center also. If the cost centers are crossing the Company Codes, then system generates an automatic reconciliation entry between FI and CO in the Financial Books of Accounts:

Receiving Company Code Clrg A/c DR 5 (Company code based on Receiving Cost Centers)

Sender Company Code Clrg A/c CR 5 (Company Code based on Sender Cost Center)

For more details on Reconciliation Process, please refer to the Reconciliation Process of FI and CO Ledgers Document.

T_CO_01_01 Activity No. 7. Plan Assessment

Plan assessment is used to plan value-based secondary costs. We can assess the primary and/or secondary cost elements cumulatively, or in groups, according to user-defined rules.

We must define assessment rules before executing plan assessment. In most cases they are identical to actual assessment rules. Plan assessment cannot start until these rules are defined

Assessment is a method of allocating primary and secondary costs in Cost Center Accounting. The following information is passed on to the receivers:



• The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers.

• Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.

Allocation through assessment is useful when the composition of the costs is unimportant for the receiver. For example, the assessment of cafeteria costs to a cost center need not be broken down further.

We can use the information system to analyze the assessment results by assessment cost element according to sender and receiver relationships.

For allocations using assessment, We can summarize all the cost elements into one assessment cost element. When We carry out the assessment, the system allocates all the costs to be allocated from the sender using this cost element. However, this method does not store any information on the receiver, regarding the composition of the costs.

Alternatively, We can use an allocation structure to define which cost elements are to be allocated under which assessment cost elements. We can assign individual cost elements, cost element groups or intervals to an assessment cost element. The allocation structure can be stored during segment maintenance

Cost Center Allocations - Distribution

1. Distribution Cycle is created with segments identifying the sender and receiver cost objects.

2. Within each segment, the method of allocation of costs from sender to receiver are saved along with receiver tracing factors.

3. Validity period of Distribution Cycle should be within the Validity period of the Cost Center and Cost element Master Records.

Some costs like Medical Expenses may be incurred for more than one location and the control for these costs are vested at the Common Cost Center. These costs are incurred to benefit the individual locations in the Organization. When this type of cost is incurred, the individual cost centers cannot be identified at the time of Accounting Document creation. Since the expense is controlled from a cost center, these costs also will be booked initially to a common cost center.

T_CO_01_01 Activity No. 8. Plan Cost Splitting

During plan cost splitting, the system splits the activity-independent plan costs of a cost center among the activity types of this cost center. Splitting activity-independent plan costs on the cost center activity types helps to calculate the fixed price portion of the overall price.



T_CO_01_01 Activity No. 9. Price calculation:

Plan costs are split automatically during price calculation. The SAP System determines the plan prices from the ratio of plan costs and plan activity. Splitting activity-independent plan costs on the cost center activity types helps to calculate the fixed price portion of the overall price. Plan cost splitting therefore ensures that all planned costs are considered during price calculation.

Iterative price calculation is the final stage of the planning process. All the previous planning transactions are taken into account. The SAP System calculates the prices of our activity types for each cost center in multiple iteration steps. The system then uses these prices to valuate the activity relationships.

The SAP System calculates different prices, depending on the Methods indicator, which we set in the corresponding version.

The SAP System calculates the price of an activity type on a cost center or on a business process by dividing the sum of all the costs of this cost center or business process by the plan activity or capacity. As a result, different periodic prices can occur when we use the Periodic price method, which means that either the total plan costs of a cost center or business process, or the plan activity, or both of these factors, can display different values. The following factors produce these periodic differences.

• Distribution keys

If we do not distribute the plan costs and activity equally between the periods, this results in differing values for plan activity and plan costs (primary and secondary), and therefore differing tracing factors in price calculation.

• Equivalence numbers

We can plan equivalence numbers by period. Different equivalence numbers in individual periods result in higher portions of activity-independent costs being distributed to the activity types in these periods. This results in differing total costs in the individual periods, which means that the fixed portion of the price changes periodically. Equivalence numbers have the value 1 unless another value is entered. This means that all activity types are weighted equally.



ACTUAL POSTING

Actual cost entry involves transferring primary costs from upstream components to the Controlling (CO) application component. In the CO component, this transfer occurs real-time from the components Financial Accounting (FI), Asset Accounting (FI-AA), Materials Management (MM), Production Planning (PP) and Plant Maintenance (PM). This is achieved by entering a cost accounting object (such as a cost center or an internal order) during account assignment.

In the case of internal reposting, costs are reposted from one object to another in order to make the necessary adjustments. This enables us to produce up-to-date statements during the current fiscal period, showing the costs incurred on the cost centers and the cost behavior pattern.

Reposting Costs and Revenues Manually You can repost primary costs manually using transaction-based reposting, whereby the original cost element is always retained. This function is designed mainly to adjust posting errors.

Costs can be reposted manually using transaction-based reposting, whereby the original cost element is always retained in both Sender and Receiver cost centers.

Reposting line items corresponds to a reversal posting on the sender object. This is because the system takes the debit/credit indicator from the line item and updates it immediately for the sender and receiver account assignment objects.

The line items that are to be reposted are selected on a selection screen and processed.

This makes it possible, for example, to:• Select the line items to be reposted from the CO document corresponding to the

FI document. The system then reposts the selected line items as follows: The given amount is reassigned from the account assignment object (for example, a cost center) of the selected line item to one or more new CO objects.

• Select all corresponding documents, for example, using account assignment objects. The system then offers these documents for collective processing.

• Repost a primary cost posting, previously allocated to one CO object, to two CO objects.

• Repost a portion of the posted line item. To do this, post the portion of the line item to a new account assignment object, and the remainder to the source object.

• Post a line item to a different account assignment object.The changed document rows are checked by the system, and the data, provided it contains no errors, is updated in one go.



The system uses a reference document number to create a link between the document of the original line item and the adjustment document.

To repost collective postings from one cost center to other cost centers at period end, allocation cycles can be used

Along with reposting of costs, system gives the facility to display, reverse cost and revenues.

Reposting Line Items

Reposting line items enables us to adjust posting errors of costs and revenues. We can repost specific line items from CO documents. This enables us to track the primary postings, for example, from Financial Accounting (FI) through to the account assignment object in Cost Center Accounting.

Reposting line items corresponds to a reversal posting on the sender object. This is because the system takes the debit/credit indicator from the line item and updates it immediately for the sender and receiver account assignment objects.

Manual Actual Price

We can manually set an actual price for an activity price of a cost center or a business transaction, independent of the actual activity price calculation. This price is drawn for the valuation of activity relationships between cost centers or business processes. We can overwrite the price retroactively if the price is dependent on the price indicator or on the actual price calculation.

FLEXIBLE BUDGETING

Use of Multiple Versions



If seasonal fluctuations are expected, we must be able to plan these using flexible distribution keys.

This corresponds to the planning procedure used in industry, whereby an initial version is created by using existing plan or actual values (such as values from the previous or current fiscal year).

These are mainly percentage-based revaluations and the plan values are adjusted to the new targets. These plan values are then revised and reworked in a second version, following discussions with the cost center managers.

We can use these version as the basis for new revaluations to generate any number of new versions, for example, to calculate best-case and worst-case scenarios.

These versions are stored separately in the system and can be compared with each other in the information system (plan/plan comparisons, or comparisons of the actual costs with different versions).

When we create a controlling area, the system automatically creates version 000 (plan/actual). The actual values created when entering primary costs and allocating costs internally are posted in this version.

We also use this version to store the prices required for internal activity allocation in the actual. We must use version 000 for plan/actual comparisons.

We can also edit version 000 during cost center planning, without having to create it previously. Version 000 therefore contains plan and actual data for analysis purposes. We can also use any number of additional plan versions. However, no actual data is saved in these alternative versions.


Documents

1 co 01(cost center accounting)