Overhead Cost Controlling

Objectives
To gain understanding of key business processes of SAP Overhead Cost
Management (OCM)
Understand the Organizational unit in Controlling
Determine the origin of posting in Cost center Accounting


SAP Overview
SAP Overhead Cost Management

Overhead Cost Management
The Overhead Cost Controlling component (CO-OM) helps you to plan, allocate, control,
and monitor overhead in your organization
By planning in overhead areas, you can develop standards, that allow you to control costs
and valuate internal activities.
Cost Centre Accounting
Cost Center Accounting analyzes where overhead occurs within the organization
Costs are assigned to the sub-areas of the organization where they originated.
SAP offers a wide variety of methods for allocating posted amounts and
quantities.
Internal Order Accounting
Internal Orders collect and analyze costs based on individual internal jobs.
SAP can monitor and automatically check budgets assigned to each job.

OCM Processes
SAP Overhead Cost Management

OCM Process Overview
Planning Master
Data
Cost Centre
Accounting
Actual
Posting
Period End
Closing
Reporting

Controlling

Planning Master
Data
Actual
Posting
Period End
Closing
Reporting
OCM Processes
Planning
preparation
Cost Centre
Planning
Internal Order
Planning
Plan cost
distribution
Plan cost
assessment
Plan indirect
activity allocation
Plan settlement of
overhead cost
orders

Reposting
Actual Cost
distribution
Actual Cost
Assessment
Cost Splitting
Calculate Actual
Activity Prices
Settlement of
Overhead Orders
Manual Cost
Allocation
FICO
Reconciliation
Cost Element
Cost Centre
Activity Type
Resource
Statistical Key
Figures
Internal order
Groups
Manual entries
SKF entry
Direct activity
allocation
Indirect activity
allocation
Order budget

Master Data
SAP Overhead Cost Management

Organizational Units & Master Data
A1 Ltd
9200
A Ltd
9100
HQ
1000
Cost Centers
Purchasing
13
Gen
Services
14
Company Codes
Orders Cost Objects
Sales and
Marketing
15
R & T
16
Other Cost Objects
Operating Concern
Controlling Area
A Grp Operating
Concern (9100)
A Grp Controlling
Area (1000)
Ethylene
Propylene
Pharma Polyolefins Power
Teleco
mmuni
cation
Inform
ation
techno
logy
Corporate
common
Profit Centers

Cost Element
Description
A cost element classifies the organization's valuated
consumption of production factors within a controlling area
Primary Element - costs that originate outside the company;
relate directly to the income statement in FI and must be
included in the FI Chart of Accounts
Secondary Element - costs that result from internal
allocation activities; NO relation to G/L accounts in FI. These
accounts are exclusively for cost accounting and are only
maintained in CO

Financial
Accounting
General Ledger
Accounts Payable
Accounts Receivable
Fixed Assets
Treasury
Controlling
Cost Centre Accounting
Internal Orders
Product Costing
Profitability Analysis
Cost Element vs GL Account
C
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r
t

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f

A
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t
s

Balance
Sheet
Accounts
Adjustment
Accounts
C
o
s
t

E
l
e
m
e
n
t
s

Secondary
Cost
Elements
Income
Statement
Accounts
Primary
Cost
Elements

Cost Centre
Description
Organizational unit within a controlling area that represents a
defined location of cost incurrence. The definition can be
based on:
Functional requirements
Allocation criteria
Physical location
Responsibility for costs
Defines the smallest area of responsibility within the
company that causes and influences costs; the lowest level
to which you can meaningfully assign direct and indirect
costs



Cost Centre Standard Hierarchy
xx01 - Production
xx02 - Maintenance
xx03 - Utilities
xx04 Engineering & Projects
xx05 Quality Assurance
xx06 Production Planning
xx07 Production Handling
xx08 Warehousing & Storage
xx09 Executive Office
xx10 - Finance
xx11 Human Resources
xx12 Information Technology
xx13 - Purchasing
xx14 General Services
xx15 Safety & Security
xx16 Sales & Marketing
xx17 Research & Technology
xx18 Company General
A group
Standard
Hierarchy
A Ltd
9100
A1 Ltd
9200
A11 Ltd
9300
A111 Ltd
9400
9101000 Production Common
9101011 EG- 1 Plant
9110000 Finance
9111000 Human Resources
9111001 Housing Services
9111002 Training Centre
Functional Area Company Enterprise Cost Center

Activity Type
Description
Unit in a controlling area that classifies the activities performed in a cost
centre, e.g. maintenance hours for a maintenance cost centre
Used in activity allocation process


Statistical Key Figure
Description
Used to track quantities and values for various operating activities
Designed to be used in reporting and analysis
Used to assist in the allocation of costs throughout the OCM environment

Internal Order
Description
Used to plan, collect and settle the costs of internal jobs and tasks.
Internal orders are categorized as either:
Orders used purely to monitor objects within Cost Accounting (such as
advertising, training, or trade fair orders) and
Productive orders that are value-added, that is, orders that can be capitalized
(such as in-house construction of an assembly line).

Groups
Description
OCM master data can be grouped together, for example
Cost Centre Groups
Cost Element Groups
Activity Type Groups
Statistical Key Figure groups
Internal Order Groups
Master data groups are used in reporting, planning, allocation, etc.
You can divide complex groups into manageable sections by separating them into
sub-groups
You can create and maintain sub-groups separately and then combine them in
larger groups

Planning
SAP Overhead Cost Management

Planning preparation

Cost center planning

Cost Element Planning
Cost Element Planning Cost Element Planning
Year 2001
Periods 1 to 12
Cost center 30100 FI/CO consulting
Cost element Name
Salaries
Travel costs
1
1
Version Planned costs
Cost center Senior
consulting
Cost center
FI/CO
consulting
Junior
consulting
Planned costs on the cost
center
900000
500000
430000
474100

Plan cost Distribution
Company General
Materials 100
Staff Salaries 200
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 20
Hotels 30

Total 0
Administration
Materials 60
Staff Salaries 120
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 12
Hotels 18
Total 210
Production Support
Materials 40
Staff Salaries 80
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 8
Hotels 12
Total 140
Allocation through original cost element

Plan Cost Assessment
Company General
Materials 100
Staff Salaries 200
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 20
Hotels 30
Company General Costs -350
Total 0
Administration
Materials
Staff Salaries
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling
Hotels
Company General Costs 210
Total 210
Production Support
Materials
Staff Salaries
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling
Hotels
Company General Costs 140
Total 140
Allocation through secondary cost element

Actual Posting
SAP Overhead Cost Management

Manual Entries
Description
Actual cost entry enables you to monitor and trace costs incurred by your
company as they arise. This allows you to identify variances quickly and
take appropriate action to deal with them.
Actual cost entry involves transferring the primary costs recorded in
Financial Accounting (FI) to the Controlling (CO) application component.
In the CO component, this transfer occurs real-time from the components
FI, MM, and AM, whereby a cost accounting object is recorded during
account assignment
Process
Incorporated into other processes, e.g. FI Journal Entry, Goods Issue, etc

Manual Entries
Primary postings include the following transactions
Payroll
Material Usage
Travel
Goods Receipt / Invoice
Journal entry
Depreciation

Statistical Key Figure Entry
Statistical Key Figures required for reporting and allocations may be
entered into the system during the month or at month-end
They are recorded with a Controlling document number
Statistical Key Figures may also be transferred from Logistics Information
System (LIS)

Direct Activity Allocation
Description
Direct activity allocation involves the measuring, recording, and allocating
of business services performed
Activity types are used as the cost drivers
Activity allocation occurs, for example, when business transactions are
confirmed or when posting activity quantities to accounts, eg Plant
Maintenance Hour, Production Hours, Utilities, etc
The system multiplies the activity produced by the price of the activity
type.
Activity types are planned using prices set manually or using SAPs price
calculation


Indirect Activity Allocation
Description
Indirect Activity Allocation is a method of allocating actual and plan costs
using activity quantities as the basis. It is extremely beneficial when
calculating the activity quantities on the sender involves too much time or
expense. The value can be calculated inversely based on the activity
quantities actually consumed or planned on the receivers


Internal Order Budgets
Description
The budget is the approved cost limit for an internal order
The budget is the limit set by management for internal order costs over a
certain period of time
Budgets have the following components
Original Budget
Supplements
Returns
Transfers




Period End Closing
SAP Overhead Cost Management

Reposting
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.
You should always adjust posting errors in the application component
where they occurred. This ensures that FI and CO are always reconciled
You can only adjust posting errors involving one cost accounting object (a
cost center or internal order for example) using a transaction-based
reposting in Controlling (CO).


Allocations - Description
Two types of allocations:
Distribution
The following information is passed on to the receivers:
The original, primary, cost element is retained.
Sender and receiver information is documented with line items in the
CO document
Assessment
The following information is passed on to the receivers:
The original cost elements are grouped together into assessment cost
elements (secondary cost elements). The original cost elements are
not displayed on the receivers.
Sender and receiver information is displayed in the CO document

Distribution
Company General
Materials 100
Staff Salaries 200
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 20
Hotels 30

Total 0
Administration
Materials 60
Staff Salaries 120
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 12
Hotels 18
Total 210
Production Support
Materials 40
Staff Salaries 80
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 8
Hotels 12
Total 140
Allocation through original cost element

Assessment
Company General
Materials 100
Staff Salaries 200
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling 20
Hotels 30
Company General Costs -350
Total 0
Administration
Materials
Staff Salaries
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling
Hotels
Company General Costs 210
Total 210
Production Support
Materials
Staff Salaries
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling
Hotels
Company General Costs 140
Total 140
Allocation through secondary cost element

Cost Splitting
Actual cost splitting makes it possible to divide costs into fixed and
variable portions
The actual costs are split in two stages:
In the first splitting step, the system distributes actual costs by cost
element to the activity types based on the target costs or target
quantities
In the second splitting step, the actual costs are distributed on the
activity types according to splitting rules. If you have not defined any
splitting rules for a cost center, the system splits actual costs based on
the equivalence numbers for the activity types.
It is only in this way that you can compare the actual costs with the target
costs of the activity types and display the variances by activity type.



Calculate Actual Activity Prices
During actual price calculation, the system calculates iterative prices for
activity types or business processes based on actual costs and actual
activities. The calculation takes into account all activity exchanges
between cost centres or business processes.
Price calculation, which you can carry out during planning, is based on
planned costs and activity. The resulting prices are used to valuate actual
activity.
After running actual price calculation, you can choose to revalue actual
activity at actual prices. This revaluates the activity using the difference
between plan and actual prices. By revaluing the actual activity with
actual prices, you can fully balance sender cost centres and sender
business processes.


Settlement of Overhead Cost Orders
Some or all of the plan and actual costs incurred on an object are
allocated to one or more receivers.
System automatically generates offsetting entries to credit the sender
object. The debit postings assigned to a sender object remain in place
even after settlement to a receiver
Two types:
Periodic Every period
Full After completion
Two methods:
Individual
By individual sender object
Allows to analyze in greater detail
Collective
Processes a large number of sender objects
Used during period-end closing activities

Fixed Asset
Settlement of Overhead Cost Orders
Overhead Cost Order
Materials 100
Staff Salaries 200
Rent & Rates
Vehicles
Repairs
Travelling 20
Hotels 30
Company General Costs -150
Capitalisation -200
Total 0
Cost Object B
Materials
Staff Salaries
Rent & Rates
Light & Heating
Vehicles
Repairs
Travelling
Hotels
Company General Costs 150
Total 150
Allocation through original cost account
or settlement cost element

Manual Cost Allocation
Manual cost allocation involves posting secondary costs manually. The
system credits a sender object (for example, a cost center) and debits a
receiver object (for example, an order)
You can use manual allocation to:
Avoid the need for complicated Customizing settings for simple
allocations
Manually transfer external data
Make simple adjustments to incorrect secondary postings.

FICO Reconciliation
The reconciliation ledger is a tool used to portray transaction figures in
Controlling in a summarized form
It provides reports with which you can monitor the CO/FI reconciliation for
each account
It can determine and display value flows that were posted in CO across
company codes and functional areas
Each company code in FI represents an independent accounting unit for
which a balance sheet must be created. Data flows between company
codes must be posted separately so that no information is lost. These
boundaries are not relevant for Controlling (CO).
You can use reconciliation postings to transfer cross-company code, or
cross-functional area postings made in CO that are relevant to FI, and to
automatically create reconciliation postings there



Month/Year end Closing - Process Map(1/2)
SAP Enabled
Processes
Electronic
Processes
SAP Job Role
Adjust
Inventory *
GL Doc. entry
9
Review & correct
billing errors
3
Release the
payroll
-5
Ensure payroll
Are posted
GL Inquiry
4
Ensure settlement
& depreciation
Are posted
Run Depreciation
Close the period
for AP & AR
Close Posting
Period
Enter journal
voucher *
GL Doc. entry
8 10 11
Close the period
for MM
Close Posting
Period
7
AP Disbursement
-1
Cash Out
-2
Fixed Asset
WBS Settlement
-6
Fixed Asset
Run Depreciation
-13
Send the monthly
Schedule manager
Logistics
1
Acknowledge
Schedule manager
2
Treasury
activities
Treasury
6
Simultaneous
Costing *
Logistics
5

Month/Year end Closing - Process Map(2/2)
SAP Enabled
Processes
Electronic
Processes
SAP Job Role
Execute
Assessment
Cycle
Allocations
21
Run the
Reconciliation
Ledger
Rec. CO with FI
22
Final Close
Of GL
Close Posting
Period
23
Generated
financial reports
GL Reporting
24
Temporally
Close GL
Close Posting
Period
17
End
Run the foreign
Currency valuation *
GL Periodic
Processing
Complete the
electronic bank
reconciliation *

Carry
forward
balances *
Periodic Pro.

15 16
25
Generate a
Preliminary
financial report
GL Reporting
18

Update materials
prices *
Pricing
14
Determine the
Lowest value
Principle *
Pricing
13
Product Costing *
Logistics
Material Ledger/
Actual Costing *
Logistics

19 20
Close the
Period for FA
Close Posting
Period
12

Reporting
SAP Overhead Cost Management

OCM Reporting
Comprehensive, flexible information system to analyze cost flows
Carry out standard recurring evaluations
Construct special reports for unique situations
Analyze all costs online and trace them right back to the original
document
Execute all reports available online in background runs as well (helpful for
large amounts of data)
For hierarchically grouped objects, such as cost centers, you can create
separate reports for all hierarchy nodes and individual objects, or you can
create all the relevant reports in a single selection run through the
database
The second option allows you to navigate within a hierarchy. This enables
particularly flexible monitoring of cost center areas


OCM Reporting Menu Path

OCM Sample Report Selection Criteria