DESIGN DOCUMENT

CO PROFITABILTY ANALYSIS

AUTHOR/APPROVERDate Document

VersionDocument Revision Description Role (Author/Approver) Author/Approver Name

TABLE OF CONTENTS

1.OVERVIEW............................................................................................................................................12.ASSUMPTIONS.....................................................................................................................................23. KEY DECISIONS...................................................................................................................................24.DESIGN DETAILS..................................................................................................................................3

4.1MASTER DATA.......................................................................................................................................44.2.PLANNING...........................................................................................................................................104.3.ACTUAL DATA.....................................................................................................................................114.4.ASSESSMENTS....................................................................................................................................144.5.PROCESS DESCRIPTION......................................................................................................................144.6.VALUATION.........................................................................................................................................144.7.INFORMATION SYSTEMS......................................................................................................................164.8.RECONCILIATIONS...............................................................................................................................18

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1. OVERVIEW<The purpose of this document is to provide information in support of creating design documents. Each client project team should enhance and modify this document according to specific business design requirements. This overview section should include the purpose, scope, target audience, responsibilities etc.>

SAP’s CO-PA (Profitability Analysis Module) will support the need to analyze profitability by market segment. These segments are defined using characteristics. Some are predefined by SAP (i.e., Company Code, Profit Center, Material Number), others are manually defined (i.e., Product Hierarchy, Customer Hierarchy). For the transfer of the actual and plan data from other modules (sales, production, etc.), standard SAP can be used.

The following illustration gives an overview of profitability analysis.

Reporting Dimensions

CustomerRegion

Sales OfficeArea

Answers

Revenue

Cost

Loss

Profit

Profit analysis

Market segments

SalesQuantitySales revenue

Customer discountSales commissionDirect sales costs

Net revenueDirect material costsVariable production costs

Contribution margin IMaterialoverhead costsFixed production costs

Contribution margin IIVariances

Contribution margin IIIOverhead costs

Operating profit

Product

Basic concept of CO-PA:

2. ASSUMPTIONS<This document is intended for the purpose of communicating and recording system design and configuration decisions. As a result, it should not be considered as an educational tool to be referenced in place of formal SAP R/3 training. If further clarification is required on specific SAP terminology, refer to the on-line system documentation.>

• The module CO-PA is used to collect and deliver data for the Business Warehouse (BW).

• Main focus is the financial reporting (Hyperion report….)

• The other modules (sales, production, general ledger, etc.) provide the data, which is required for the reports.

3. KEY DECISIONS<Initial key decisions may be listed to assist the creator of this document in making decisions on how the system and/or processes will support the design document. The following key decisions will most likely be removed and/or replaced with client specific key decision information made in support of the this document. >

• Costing based vs. Account based CO-PA. The most major decision to be made in a CO-PA implementation is the selection of costing based versus account based CO-PA implementation methods. Account based CO-PA uses actual Cost elements as performance measures. In that sense it can be thought of as a special ledger with a flexible selection of fields and characteristics to report on. The disadvantage of costing based CO-PA is its inflexibility in terms of creating user defined performance measures. The advantage of it is the ease of reconciliation with FI and PCA. Costing based CO-PA uses flexible, user defined “value fields” as performance measures . These value fields can be a one to one or many to one match with cost elements. They can also be declared to match a pricing condition in SD, which indirectly represents a group of accounts in accounting. Users can also create value fields that do not correspond to any real accounts or cost elements , and are used for internal analysis and reporting purposes only. Value fields can even be more detailed than accounts, in

CUST.

GRP.

Sales region NorthProduct Prod1Product group Compressor customer Cust1Cust. grp Public

sector Country UKSales rep. Miller

CharacteristicsCharacteristics

Revenues 800Sales, discountsand returns 100COGS 650

Value fields RevenuesRevenues

Sales, discountsSales, discountsand returnsand returns

COGSCOGS

Profitabilitysegment

ValuesValues

RE

GIO

N

S

N

W

PRODUCT GRP

Compr.Chiller

a one to many correspondence scenario (For example splitting of fixed and variable parts of costs in the same account into different value fields). In short, Costing based CO-PA gives much more flexibility to the user than account based. The downside is the difficulty of reconciliation with accounting reports, and the fact that the chart of accounts level of detail can typically not be replicated in a value field structure (SAP limits the number of value fields used)

It is also possible to use both account and costing based methods in parallel.

• The content of the Operating Concern. The Operating concern defines the set of characteristics and (in costing based CO-PA) value fields that are used for market segmentation and reporting.

• A contribution margin scheme to be used in the profitability analysis. This will define the income statement structure to be used in profitability reporting. Users can create alternative schemes for analysis purposes

• Whether actual sales and sales deductions will be shown for CO-PA reporting. SAP has the ability to show estimated or actual deductions. This is done through the standard CO-PA functionality to post incoming orders as well as billing documents to CO-PA to estimate the future sales landscape.

• (mentioned in the first bullet.).(This is mentioned in the second bullet)

• (Mentioned in the second bullet)Standard cost (S-Price) from the product costing module will be the valuation for delivery out of stock activity.

• One operating concern used in the global set up for CO-PA. This is the highest reporting level within CO-PA.

• Whether standard warranty, discount or commission provisions or other accruals will be built as a factor of revenue or other measures and actual charges will be posted against these accruals. In short, the management of accruals on the balance sheet may be handled (estimated) in CO-PA.

• The source of data feeding each line of the contribution margin scheme within SAP.

4. DESIGN DETAILS<The design document records the decisions and reasoning behind configuration and should show how the system will be configured. It contains some high-level configuration values if known. In the following section, explain what is being configured and why. List configuration values (if known) by using bullet points, tables and/or body text.

This document is not intended to list business processes or process diagrams. For these documents, see additional documents available (with the document type of Detail Process Description). You do not have to show all configuration values in the Design Document, that is the purpose of the Configuration Guide (another document type), which may also contain configuration instructions if required by the client. >

R/3 Costing based Profitability Analysis is based on a customer-designed structure of so-called value fields, in which users can separate costs according to fixed and variable components of general overhead, sales, administration, customer service, marketing and so on.

From SD to CO-PA:

Users can define profitability segments needed to analyze for their business. The profitability segments are user defined combinations of characteristics, such as product groups, sales areas, orders and so on.

The system automatically assigns revenues, cost and sales deductions to individual profitability segments when the business transactions (sales orders, invoices) are processed in the system. R/3 ensures that the reports generated contain all the relevant business transactions , and that management information is consistent and complete. This is accomplished thorough the assignment of sales condition types to value fields in CO-PA configuration

Users can allocate costs to profitability segments manually, for example – to assess specific overhead costs.

Users can also define key figures and performance measures, such as contribution margin, and have these calculated automatically by the system. The report layouts can be defined quickly and easily, and offer a maximum of flexibility. The information is displayed in spreadsheet form, and can be reformatted at any time.

Profitability analysis is also an important tool for planning and forecasting. Users can plan their sales and cost data by accounting period or by week. They can also use formulas to link between revenues with sales quantities, and forecast data using seasonal or probabilistic models. Planning in profitability analysis is also integrated with Sales and Operational Planning. Users can release budgets and transfer data to Production Planning with just a few mouse clicks.

4.1 Master Data

4.1.1 Characteristics

Characteristics represent the levels at which it is possible to create and analyze actual and plan data. There are two types of characteristics:

• Standard characteristics, which are automatically predefined in SAP. These include the product number, company code, customer number, and country.

• User-defined characteristics, which can be created to provide additional client specific information.

To derive values for these characteristics, it is necessary to create derivation rules or table lookup rules unless they are readily available in the sender application (For example, in SD data flow to CO-PA, fields on the billing document, such as sales org, sales group, customer, etc. are readily available to the CO-PA line item if such fields are selected as CO-PA characteristics in the operating concern).

Characteristic derivation makes it possible for the system to automatically derive unknown characteristic values (especially for user-defined characteristics) if these are dependent on characteristics whose values are known.

The following characteristics are typical examples of required fields for reporting and/or planning:

Area Characteristics

Product View • Product number

• Product hierarchy (all available levels) – Franchise, Brand, Product Category, Product Group

• Plant

• Material type

Customer View • Customer number

• Account group (3rd party, Inter company, Intra group)

• Commission sale

Market/Country View • Customer group 1 (Market code)

• Profit center

• Country

• Region

Other • Posting period

• Legal entity/company code

• Order type

• Record type

• Item Category

• Cost center

• Use (sales order)

Most characteristics already exist in other R/3 applications and it is possible to pick them up from SAP tables. Derivation rules / table lookups have to be defined.

4.1.2. Characteristic Values

For the characteristic values, companies may choose to use the existing master data tables in SAP.

Fixed characteristics:

• Company code

• Profit center

• Material number

• Customer (Possible party roles: sold-to party, shipped-to-party, and payer)

• Country

• Region

• District (State or County)

• Sales office

• Branch

• Distribution channel (Equipment, Service, Contracting, Parts, Marine)

• Division (YRG, UPG, ESG, Inter company)

• (Sales person) – open action item

Company Specific Characteristics:

• Product hierarchy

• Customer hierarchy/group

• Vendor source (plant)

The following table gives an example of user-defined characteristics:

Characteristic Description

WW001 SKU

WW002 International Product

WW003 Segment

WW004 Indication

WW005 Minor Product Group (Brand)

WW006 Therapeutic Group

WW007 Therapeutic

Class

WW008 Major

Product Group

WW009 Sub-Franchise

WW010 Franchise

WW011 World Wide

Franchise

WW012 Region Sales

WW013 Customer

WW014 NTC

WW015 IND Customer

4.1.3. Derivation Rules

The following are examples of derivation rules:

• Automatically from the system: profit center (from material master, plant view) and company code (from the accounting transaction).

• From the sales order: material number, customer, country, region, district, sales office, distribution channel, division and sales person.

• From material master data: product hierarchy.

• From customer master data: customer hierarchy.

• Derivation rule from sales offices: Branch.

• Vendor source will be derived from material master data, plant or vendor number.

4.1.4. Value Fields

(This statement is misleading) For each row of the contribution margin scheme there has to be at least one value field. Values fields are the fields that contain the currency amounts and quantities in CO-PA. There are two types of value fields:

• Value fields that contain amounts in currencies (amount fields).

• Value fields that contain quantities (quantity fields).

Value fields that are used frequently are predefined in the standard R/3 System. These include fields for revenue, sales quantity, freight, and others.

In the following areas, value fields will be necessary to display performance figures for profitability segments:

Area Value Fields

Sales quantity Sales Quantity

Equivalent Units (Sales Quantity X Unit Per Vial)

Gross sales Revenue fields

Discount, rebate, freight, commission, packaging,

Transport insurance

Fields assigned to SD-conditions, SD-Interface

Fields for calculated values in CO-PA

COGS manufactured products Cost component fields

COGS merchandise Cost of goods field

COSS Cost of services sold

Other corporate COGS Global Manufacturing Standard (Full Standard Cost)

Global Manufacturing Standard less Markup

Manufacturing Conversion Standard Cost

Settlement orders

Sales orders

(Make to order manufacturing)

Revenue fields, cost fields

Direct postings from FI Fields for direct posted primary costs

Manual postings Liability fields for rebate, rebate in kind, allowance, commission

CO-PA will not perform any inter company and intra group profit elimination. (I think it is misleading.) The following table gives some examples of the source of value fields.

Source Description Value Fields

SD Billing Document (Sales and Service Order)

Quantity

Sales Revenues

Sales Deductions

Costs of Goods Sold

CO-PC Cost Estimate (Standard Price) Variable Cost of Goods Mfd

Fixed Cost of Goods Mfd

FI General Ledger Posting Bonuses

Freight Costs

Source Description Value Fields

CO-OM Cost Center

Internal Order

Sales and Administration Costs

Marketing Costs

Variances

PS WBS Element

Network Operation

Contracting, project revenue , project costs

CO-PA Additional Costs Costed Discounts

Costed Bonuses

The following table gives an example of user-defined value fields:

Value Field Description Type

VV001 Gross Sales Value

VV002 Spillover (OBI Only) ???? Value

VV003 Rebates Value

VV004 Non-government Chargebacks Value

VV005 Cash Discounts Value

VV006 Other NTS Value

VV007 Medicaid Value

VV008 Government Chargebacks Value

VV009 Other Revenue Value

VV010 Intco Sales Value

VV011 Standard Cost Value

VV012 Manufacturing Variances Value

VV013 Inventory Adjustments Value

VV015 Royalty Expense Value

VV016 Interco COGS Value

VV017 Carrying Cost Value

VV018 Freight Value

VV019 Total Comp Salary Value

VV020 Direct Benefits Salary Value

VV021 Indirect Benefits Salary Value

VV022 Total Comp Wage Value

VV023 Direct Benefits Wage Value

VV024 Indirect Benefits Wage Value

VV025 Travel Exp General Value

VV026 Business Meals Value

VV027 Entertainment Value

VV028 External Training Courses Value

Value Field Description Type

VV029 Internal Training Courses Value

VV031 Automobile Expense Value

VV032 Petty Cash Expenditure Value

VV033 Employee Moving Value

VV034 Recruiting Costs Value

VV035 Other Exp Related To Emp Act Value

VV036 Departmental Supplies Value

VV037 Work Order Supplies Value

VV038 Prod Development Supplies Value

VV039 Equip Prch Non IM Value

VV040 Equip Prch IM Value

VV041 Mechanical Stock Supplies Value

VV042 Equip Rental Non IM Value

VV043 Equip Rental IM Process Value

VV044 Space Rental Value

VV045 Telephone,Telex & Telegraph Value

VV046 Utilities Value

VV047 Building & Grounds R&M Value

VV048 Equip&Parts Non IM R&M Value

VV049 Equip&Parts IM R&M Value

VV050 Waste Removal Value

VV051 Moving & Alteration Value

VV052 Project Maintenance Value

VV053 Bank & Credit Card Fees Value

VV054 Misc Postage Value

VV055 Misc Insurance Value

VV056 Oth Prch Goods & Services Value

VV057 External Legal Services Value

VV058 External Audit Fees EB Value

VV059 Selling Expense Value

VV060 R&D Value

VV061 Marketing Management Value

VV062 Marketing Expense Value

VV063 Other Income EB Value

VV064 Other Expenses EB Value

VV065 CurrGain/LossTransact Value

Value Field Description Type

VV066 CarryCostRec&InvBTOffset Value

VV067 Allocated Corp Exp BT Value

VV068 Profit Sharing for JV BT Value

VV069 Interest Income BT EB Value

VV070 Interest Expense BT EB Value

VV071 Top-down Distribution Qty

VV072 Units Qty

VV073 Taxes Value

4.2. Planning

CO-PA allows planning at detailed levels such as product and customer. The planning will consist of sales quantities, revenues, cost of goods and profit margin. The system will be used to transfer planned sales quantities from Sales and Operations Planning (S&OP) to CO-PA.

The following are examples of business requirements:

• Revenue and Cost is planned at the SKU level by month for each combination of:

o Legal Entity Source (legal entity that ships the product and receives the legal revenue).

o Market/Franchise (Market/Franchise that receives management revenue).

• The global requirement for planning is to plan values for:

1. Sales Quantity (Units) Input

2. Equivalent Units Input

3. Conversion Factor Calculated (1 / 2)

4. Revenue Input or Calculated (Price * Quantity)

5. Average Selling Price Input

6. Local Standard Cost (Future Price) Derived from Material Master

• The following additional value fields will be planned based on local requirements:

o Freight / Insurance

o Packaging for shipment

o Royalties

The following diagram depicts the process transfer from plan data into CO-PA:

Copy, revalue and use top down distributions as planning aids. The copy function can be used for data transfer to CO-PA. Revaluation and top down distribution functions use predefined percentages and factors to re-state a plan.

4.3. Actual Data

The following tables provide examples of value flows.

This next table is too obviously a copy and paste from an equipment manufacturer (I bet it was synopsis) I am not going to touch it now, let me know if you want me to come up with something more generic all together.

COCO--PAPACOCO--PAPA

QuantityQuantity + + AverageAverage priceprice ((oneoneinternalinternal, , oneone externalexternal custcust .) on .) on productproduct groupgroup and and LELE--levellevel orormanuallymanually--> > RevenueRevenue . . SS--Price Price oror averageaverage percentagepercentage of of GM on GM on productproduct groupgroup and and LELE--levellevel= COGS

COCO--OPAOPA

COCO--CCACCA

PSPS

SOPSOP

SettlementSettlement

AssessmentAssessment

TransferTransfer

SettlementSettlement

CostCost Center Plan Center Plan (OH)(OH)

InternalInternal Order Order (OH)(OH)

PlannedPlanned

QuantityQuantity

Project planProject plan

CSCSSettlementSettlement

ContractContract plan/plan/service planservice plan

RevenueRevenue and and costscosts

RevenueRevenue and and costscosts

Manual Manual PlanningPlanning ::

if necessaryif necessary

CostsCosts

CostsCosts

To get this information from other modules to CO-PA we use the following methods:

1. Settlement of make-to-order sales orders, service orders/contracts and projects (Work break down structure = WBS):

Margin at STD

Total Cost of Sales - STD

Delivery out of stock: S-Price or V-PriceMake-to-order sales orders: Settlement of the sales order result analysis cost element for the all costsContracting: Settlement of the WBS, results analysis cost element for all costsService/Repair: Settlement of the service order or contract, primary or results analysis cost element for all costsParts: S-Price or V-PriceCost Intercompany

Delivery out of stock: S-Price or V-PriceMake-to-order sales orders: Settlement of the sales order result analysis cost element for the all costsContracting: Settlement of the WBS, results analysis cost element for all costsService/Repair: Settlement of the service order or contract, primary or results analysis cost element for all costsParts: S-Price or V-PriceDirect posting for adjustments

Std cost of Outside Sales (incl. deduction + sales costs like freight, packaging)

Total Sales

Delivery out of stock: Condition from the sales orderMake-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXXContracting: Settlement of the WBS, results analysis cost element for the revenues XXXXService/Repair: Settlement of the service order or contract, primary or results analysis cost element for the revenuesParts: Condition from the sales orderSales - Intercompany

Direct Posting for revenue adjustmentsTotal Sales - Outside

Service/Repair: Settlement of the service order or contract, primary or results analysis cost element for the revenuesParts: Condition from the sales orderSales – Service / Parts

Delivery out of stock: Condition from the sales orderMake-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXXContracting: Settlement of the WBS, results analysis cost element for the revenues XXXXSales - Equipment

Margin at STD

Total Cost of Sales - STD

Delivery out of stock: S-Price or V-PriceMake-to-order sales orders: Settlement of the sales order result analysis cost element for the all costsContracting: Settlement of the WBS, results analysis cost element for all costsService/Repair: Settlement of the service order or contract, primary or results analysis cost element for all costsParts: S-Price or V-PriceCost Intercompany

Delivery out of stock: S-Price or V-PriceMake-to-order sales orders: Settlement of the sales order result analysis cost element for the all costsContracting: Settlement of the WBS, results analysis cost element for all costsService/Repair: Settlement of the service order or contract, primary or results analysis cost element for all costsParts: S-Price or V-PriceDirect posting for adjustments

Std cost of Outside Sales (incl. deduction + sales costs like freight, packaging)

Total Sales

Delivery out of stock: Condition from the sales orderMake-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXXContracting: Settlement of the WBS, results analysis cost element for the revenues XXXXService/Repair: Settlement of the service order or contract, primary or results analysis cost element for the revenuesParts: Condition from the sales orderSales - Intercompany

Direct Posting for revenue adjustmentsTotal Sales - Outside

Service/Repair: Settlement of the service order or contract, primary or results analysis cost element for the revenuesParts: Condition from the sales orderSales – Service / Parts

Delivery out of stock: Condition from the sales orderMake-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXXContracting: Settlement of the WBS, results analysis cost element for the revenues XXXXSales - Equipment

Value Field Data Source

Value Field Data Source

EBIT

Direct postingOperatingExpensesAffiliates

Royalty,gain/loss fixed assets, commission income, Direct Posting or cost center assessmentOther Income/Expenses

Direct Posting from FIIntangiblesAmortization

Allocationof all admin cost centers + direct postingAdministrative Expense

Allocationof all sales and marketing costcenters (balance between actual costsand creditedhours), credit memo (UPG) + bad debt reserve (direct posting)Selling Expense

Allocationof all engineeringcost centers (Balance between costs and possiblecreditedhours) withoutcapitalization of intangiblefixed assets and project system settlementEngineerExpense

Margin at Actual

Total Cost of Sales

Total Other Costs

Direct posting from FIOperatingFX

Allocation of all service office cost centers (Variance betweenactual costs and creditedhours)Total variances

Settlementfrom the productionorders, direct posting and cost center assessment for contracting engineer

Delivery out of stock: Cost Center assessementMake-to-order sales orders: Settlementof the sales order result analysiscost elementfor the all costsContracting: Settlementof the WBS, results analysis cost element for all costsService/Repair: Settlementof the serviceorder or contract, primary or results analysiscost element for all costsParts: S-Price or V-PriceWarrantyExpense

Direct posting from FI, Cost center assessmentDirect Charges

Allocationof all serviceoverheadcost centers (Not included in the rates of the service engineers)Service overhead

To get the revenue and the COGS from the monthly results analysis, the result analysis cost elements have to be linked to the appropriate value field (revenue internal/external or COGS internal/external). Warranty estimated and actual will be assigned to a separate value field estimated or actual.

2. Set-up data transfer from the make-to-stock sales revenues during the invoice process.

Transfer with a link of the conditions in the sales order with the appropriate value field (revenue internal/external, COGS internal/external, etc.). Automated transfer of the data with each invoice valuated with the standard cost (S-Price) of this product.

3. Settlement of variances from production orders.

After the monthly variance calculation the variances will be settled to CO-PA. Therefore the variance categories (price variance, quantity variance etc.) have to be assigned to the value field “variances”.

4. Assessment cycles for allocation of the cost center costs.

The last step in the period end process of cost center accounting is the assessment of the overhead costs to CO-PA. In an assessment cycle it has to be defined which sender (which cost center or cost center group and which cost element or cost element group) is assigned to which profitability segment. E.g. for the cost centers of the sales offices, the information “sales office” in the characteristic is necessary to get the P&L of each sales office.

5. Settlement of the internal orders.

To get the costs and potential revenues of the internal orders, which are not settled to a cost center, a month end settlement has to be run. The cost elements have to be linked to the appropriate value field here as well.

6. Direct posting from the General Ledger with the profitability segment as cost object.

With data entry on special GL accounts (these accounts have to be defined after finishing the chart of accounts) the controlling object is the profitability segment as a combination of the characteristic values. These costs do not appear on cost centers or internal orders. They are only visible in CO-PA and profit center accounting.

4.3.1. Transferring Billing Documents Online

Transferring billing documents from the SAP Sales and Distribution (SD) module simultaneously to FI, CO-PCA and CO-PA. The billing documents provide the base data for populating the value fields in CO-PA. The system must transfer billing documents from SAP SD simultaneously to FI, CO-PCA and CO-PA.

I don’t understand what this means Transferring Incoming Sales Orders Online

Valuate incoming sales orders (as expected revenues) and transfer them from SD to CO-PA in order to obtain an early estimate of anticipated profits and to get information about the expected loss on pending orders. By analyzing this data, users can obtain early contribution margins for business segments. The system must transfer sales incoming orders from the SD module to Profitability Analysis.

Consideration - Transferring of incoming orders will only apply to legal entities/sales organizations that will be implementing the SD module.

4.3.2. Settlement of Service Orders

Sales Orders will be used for Service Sales in some cases. These service sales orders will be used to collect both revenues and costs associated with the service. For period end closing and reporting purposes it is essential to settle these sales orders to profitability segments. The costs/revenues will be settled to cost elements as specified in the settlement structure of the order. The system must be able to settle revenues and costs from service orders to specific cost elements. These cost elements will be linked value fields in Profitability Analysis.

4.3.3. Direct and manual postings

By using the post document function in FI to assign sales deductions and costs directly to profitability segments (e.g. customers, products) in CO-PA it is possible to post sales deductions or actual costs that are first accrued at the end of the period for the purposes of estimating profits to the appropriate profitability segments at a later point

in time. This makes it possible to compare your anticipated costs with the final actual costs. Both of these can be displayed in profitability reports.

A requirement would be the ability to post to a profitability segment when entering an FI document for the following GL accounts.

• Revenue accounts that allow manual postings (e.g. liabilities for allowance, rebate, rebate in kind, commission).

• COGS at Standard accounts that allow manual postings.

Consideration - Revenue and COGS at standard accounts that allow manual posting must be assigned to a field status group that requires postings to profitability segments.

4.4. Assessments

Assessments are used to transfer cost center costs at the end of the period to Profitability Analysis. Assessments move costs using secondary cost elements meaning these allocations are only reflected in the Controlling Module, not in the general ledger in the Financial Module. Assessments are broken down into cycles. An Assessment Cycle is a collection of rules for cost allocation. A given cycle can contain a number of segments. A segment consists of the following elements:

• Sender objects whose values to be allocated are computed using the same rules.

• Receiver objects whose allocation bases are computed using the same rules.

The sender-receiver relationships defined in a cycle are processed iteratively. Iteration processing is generally used when a sender object is also a receiver object. The cycle processing continues iteratively (repeatedly) until the sender/receiver object is fully credited. This can increase the amount of time needed to process the cycle.

If users want to process hierarchies separately, they must define a cycle for each level of the hierarchy. Then they process the cycles in succession.

4.5. Process Description

4.5.1. Global Settings

One operating concern will be created, costing-based. Data is stored and can be reported in 2 currencies:

• Company code currency

• Operating concern currency (currency = US$).

All Controlling areas assigned to an operating concern will have the same fiscal year variant. In defining the data structure, assign all required characteristics and values to the operating concern. These characteristics are now valid for all operating concerns. Harmonized global decision and maintenance of the characteristics and values is necessary. Avoid frequent changes because of impact on the table structure.

4.6. Valuation

Valuation can be used for the invoice process of standard products with standard costs (S-Price). During the invoicing, the revenue and sales quantity will be posted to CO-PA. At the same time, the valuation will add the calculated standard costs (split by material, labor, overhead) to the appropriate revenue. The use of further possible valuation e.g. imputed commissions will be decided in the specific deployments.

Valuation enables companies to calculate cost of goods manufactured/sold, as well as anticipated costs and sales deductions. These valuations can be used in Profitability Analysis for actual postings as well as for planning purposes.

The following are examples of valuation requirements:

1. Valuation of Cost of Goods sold for manufactured products:

• Product cost estimate will be used to determine the cost of goods. The cost will be transferred to Profitability Analysis and assigned to value fields based on the cost component split and will use the current standard cost estimate.

• All other sites: the standard cost stored in the material master will be used to determine the cost of goods sold.

2. Valuation of Cost of Goods Sold for merchandise/services (trading goods, raw materials, packaging materials). For all sites the standard cost stored in the material master will be used to determine the cost of goods sold.

3. Valuation of rebate, commission, royalties, freight: Will use conditions in CO-PA to calculate anticipated business costs that are not yet known at the time a sales invoice is processed. These conditions will be defined as either fixed rates for percentages.

4. Valuation of management standard costs: Will use conditions in CO-PA to record the following management standards for corporate analysis purposes:

• Global Manufacturing Standard

• Global Manufacturing Standard less Plasma Markup

• Manufacturing Conversion Standard

• Global Manufacturing Plasma Capacity

5. Plan Valuation for Cost of Goods: Future Price from Material Master.

For all saleable produced products, a standard cost estimate has to be established. Use standard cost accounting for manufactured products.

4.7. Information Systems

The diagram listed below illustrates typical controlling area tasks report option and questions.

4.7.1. Reporting and Analysis

Companies require a management tool for the purpose of sales reporting and analysis. It has to support the analysis and controlling of the profitability of market segment structures according to the following parameters:

• Market/Franchise/Profit Center.

• Product/Product hierarchy.

• Customer.

• Country.

It must also allow summarization of these parameters by organizational units, for example summarization by legal entity/company code.

The goal of this reporting and analysis tool is to provide the sales, marketing, planning, and management organizations with decision-support from a market-oriented point of view. Specifically, the tool should provide profit margin analysis (Revenue, Cost of Goods at Standard, Margin).

The most important benefit of CO-PA is the flexible analyzing structure. The CO-PA information system is an online reporting tool. It allows evaluating the data collected in profitability analysis. The system will be used to analyze data using any of the characteristics in the CO-PA system. When using the dynamic drilldown facility, management can draw on any important business ratios (so-called key figures). They can display several profitability segments for any key figure, or several key figures for any profitability segment.

Companies may require the ability to:

1. Display sales / contribution margin / performance figures on different levels.

2. Navigate through a multidimensional "data cube" (drilldown or switching hierarchies).

3. Report in local (company code currency) and global (USD) currency.

4. Answer ad hoc inquiries according to sales key figures.

5. Run reports that compare actual fiscal year data.

6. Run reports that compare budget/forecast versions.

ProfitCenterAccounting

ProfitCenterAccounting

Overhead CostControllingOverhead CostControlling

Product CostControllingProduct CostControlling

ProfitabilityAnalysisProfitabilityAnalysis

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nti

ng

How can we reduce our overhead costs?

Are the areas ofresponsibility effective?

How high are the costs- of a product?

- of a manufacturing order?

- of a project?

How profitable are individualmarket segments?

How effective are the sales organizations?

Wh

ich

exp

ense

s

are

also

co

sts? How

efficient

are my

enterprise

areas

(profit

centers)

-

7. Run reports that compare budget/forecast versions for actual.

8. Generate an intercompany profit report per article/package and country/market code.

9. Evaluate expected losses on pending orders.

10. Depreciations to the realized selling price.

11. Determine commission for products sold.

12. Run weekly sales report by product/market.

Considerations –

• Conversion of data from the missing periods January – March for YXXXX.

• Reporting requirements are met.

• Work with costing based profitability analysis.

• Sales reporting will be done based on standard costs.

• Revenue accounts will need to be created in CO as cost elements with type 11 or 12 (amendments in current controlling and FI account field status necessary).

4.8.2. Contribution Margin

The following illustrations are examples of a Contribution Margin scheme:

Sales – EquipmentSales – Service/PartsSales - Contracting

Margin at STD

Total Cost of Sales - STD

Cost Intercompany

Std cost of Outside Sales ( incl. sales costs likefreight only if invoiced (recoverable) to customer, packaging)

Total Sales

Sales - Intercompany

Total Sales - Outside (incl. Deductions and freight revenue)

EBIT

Operating Expenses

Operating Income

Affiliate

Other Income/Expenses

Intangibles Amortisation

Administrative Expense

Selling Expense

Engineering Expense

Margin at Actual

Total Cost of Sales

Total Other Costs

Operating FX

Variances

Warranty Expense

Direct Charges (freight costs not billed to the customer – non-recoverable)

Service overhead

Value Field Value Field

Revenue

Cost of sales std

Margin at std

Warranty

Variances

Service OH/FX

Margin at Actual

Engineering

Selling

Admin

EBIT

X

X

X

X

(X)

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

(X)

X

Product /Customer Sales Office Profit Center

Company

Code

X

X

X

X

X

X

X

X

X

X

X

4.8. Reconciliations

To verify the correctness of performance figures, valuation and data in Profitability Analysis it is required to reconcile the posted totals with total results in financial accounting and PCA on an aggregated monthly level. Financial analysts will perform this reconciliation based on SAP reports and their own analysis.

It may be required to reconcile COPA to SD, FI and PCA in the following areas:

• Sales (gross and net) accounts with value fields gross sales by company code and market.

• COGS (standard costs) from financial accounts with value fields COGS (cost components) for manufactured products and value field COGS for merchandise by company code and market.