SAP Business Process Improvement Series - Transfer Pricing and Material Ledger in SAP
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Transcript of SAP Business Process Improvement Series - Transfer Pricing and Material Ledger in SAP
SAP Business Process Improvement Series
Transfer Pricing and Material Ledger in SAP
www.Enterprizeerp.com
Slide | 2
Transfer Pricing Introduction
• What is Transfer Pricing?
• Transfer Pricing in SAP
• SAP’s Parallel Valuation Concept
• Transfer Prices in SAP components
• Transfer Pricing Options in SAP
• Transfer Pricing Simplified Example
• Transfer Pricing and Material Ledger
Slide | 3
What is Transfer Pricing?
• A transfer price is a price used to valuate the transfer of goods and services between independent organizational units.
• The income tax rules in different countries require that the transactions between related legal entities between countries be priced at an arms-length price.
• An arms-length price is the price that a willing unrelated buyer and seller would agree upon
Slide | 4
Transfer Pricing – General Comments
• Available in core SAP since Release 4.0
• Not a separate module, but rather functionality used across many modules
• Consistent settings required across the entire system
• Can implement transfer pricing in an already live environment
• Can create ALE scenario’s to invoke transfer pricing functionality across different SAP instances
• Customers are live with transfer pricing functionality – proven solution
Slide | 5
Transfer Prices in SAP System
Controlling area
PCA
FI
CO
Transfer price from the group viewpoint = group production costs
Transfer price from the profit center viewpoint = management price
Transfer price from the legal viewpoint = sales and purchase price
Company code
Profit center
Slide | 6
Currency and Valuation Profile
Currency type
Valuation
0
1
2
Company code currency
Group currency
10 30
10
Leg.
30
PrCtr.
30
Grp
Legal
Group
PrCtr
Slide | 7
Parallel Valuation Concept
Slide | 8
Why Parallel Valuation?
• Allows transfer of materials between independent companies according to a legal reporting requirements (legal view)
• Allows you to valuate the exchange of materials within the group using a corporate wide standard cost of goods manufactured with internal profits between group companies being eliminated (group view)
Slide | 9
Parallel Valuation Approaches
Group view Legal view Profit center view
Profit center 1
CoCd 1 CoCd 2 CoCd 3 CoCd 4
Group
Profit center 2
Slide | 10
Goods movements valuated with sale or
purchase price
Goods movements valuated with group
cost of goods manufactured
Goods movements valuated with internally
agreed prices
Valuation Approaches
Legal
Group
Profit center
Slide | 11
PCA
Profit center 1 Profit center 2
Quantity and Value Flow
FI CO-
OM
CO-
PA
Direct
co
sts
CO-
PC
Ove
rhe
ad
co
sts
Purchase
Production
Transfer
Sale
Process
and
data
V
A
L
U
E
F
L
O
W
Slide | 12
PCA
Profit center 1 Profit center 2
FI CO-
OM
CO-
PA
Direct
co
sts
O
ve
rhe
ad
co
sts
Material Ledger
CO-
PC
or or
L G P
Process
and
data
V
A
L
U
E
F
L
O
W L G P
Stock L G P
The Concept of Parallel Value Flows
Slide | 13
Different Scenarios
or or PCA
Profit Center Accounting
FI
Financial Accounting
mand.
opt.
opt.
CO- OM
Controlling
CO- PC
CO- PA
mand.
Material Ledger
FI-AA
ML Cur.
Leg.
Cur.
Leg.
Cur.
Leg.
Cur.
Leg.
Cur.
Leg.
Cur.
Grp
Cur.
Grp
Cur.
Grp
Cur.
Grp
Cur.
Grp
Cur.
PrCtr
Cur.
PrCtr
Cur.
PrCtr
Cur.
PrCtr
Cur.
PrCtr
mand. opt.
opt.
opt.
Slide | 14
Example I - Group Valuation
PCA
Profit Center Accounting
FI
Financial Accounting
CO- OM
Controlling
CO- PC
CO- PA
Material Ledger
operational
Cur.
Grp
Cur.
Grp
Cur.
Grp
Cur.
Leg.
Cur.
Grp
Cur.
Leg.
Cur.
Leg.
Cur.
Grp
Cur.
Leg.
FI-AA
Slide | 15
Example II - PCA Valuation
Profit Center Accounting
FI
Financial Accounting
CO- OM
Controlling
CO- PC
CO- PA
Material Ledger
operational
Cur.
PrCtr
Cur.
PrCtr
Cur.
PrCtr
Cur.
PrCtr
Cur.
PrCtr
Cur.
Leg.
Cur.
Leg.
Cur.
Leg.
Cur.
Leg.
PCA
FI-AA
Slide | 16
Parallel Valuation - Production Example
Semifin.
material
Distribution
center Sales
order
Finished
product
Raw
material
Production
order
Cost center
Production
order
Slide | 17
Production
order
Sales
order
Cost center
Company code 1
PrCtr1 PrCtr2 PrCtr3 PrCtr4
75 100
120
CCtr 20
Assumed Plan = Actual => No Variances
220
240
Company code 2 Company code 3
Production
order
Semifin.
material
Raw
material Distribution
center Finished
product
L 120
G 90
P 140
L 120
G 90
P 140
L 70
G 70
P 75
L 70
G 70
P 75
G 70
L 70
P 70 P 240
G 90
L 220
Parallel Valuation - Production Example
Slide | 18
Options – Transfer Pricing in SAP
Slide | 19
Case 1: Internal Sales Revenue Tracking • Situation: There are two products within an organization, Product A and
Product B. Product A is a finished product while Product B is a semi-finished product. Both products are sold to the outside world. However, B is a sub-assembly in the bill of material of A. That means every time A is produced, B is consumed. Or the situation could be that there are two plants in a company, with one plant transferring materials to the other plant.
• Requirements: Products A and B have separate product managers and they each have certain revenue budget requirements. They need a report that shows how much sales revenue they have generated by selling their products internally and externally. The reporting requirement is straightforward in that the product managers are interested only in the revenue and cost numbers by each product number.
• Facts: The overhead structure of the company is such that the overheads are applied to both products uniformly. Therefore, there is no need for B to charge extra if the product is sold to A.
• Solution: In this option, with some additional configuration, the Profit Center Accounting module can easily meet the needs of the managers of A and B
Slide | 20
Case 2: Within the Same Plant/Cross Plant • Situation: Now that the organization has matured, it would like to enhance
the original method implemented for it to track the sales revenues. It would like to start charging Product A with Product B’s overhead and some profits. In other words, it wants to treat the A division like an outside customer for B.
• Requirements: The company wants to charge an extra amount to division A to cover division B’s overhead structure and make some profit by B, because B is now treated as an external vendor. Also, the company wants to pass this information on to the Profitability Analysis (CO-PA) module for reporting purposes.
• Facts: A and B belong to the same company code. They could belong to the same plant or not.
• Solution: Use the Profit Center Accounting module and the CO-PA module with transfer pricing.
Slide | 21
Case 3: Cross-Company Code • Situation: The transfer of goods is happening between two legal entities.
• Requirements: The corporation is interested in charging the transfer prices between company codes.
• Facts: A and B belong to separate company codes. The SAP Sales and Distribution (SD) module uses the functionality to move goods between company codes.
• Caution: Make sure the legal department agrees with this idea of having transfer prices in the Profit Center Accounting module and double-check if the transfer of goods involves cross-country transactions. In the case of cross-country transactions, you may want to consider using the more traditional SD pricing to charge the transfer price between company codes.
• Solution: Use the Profit Center Accounting module with transfer pricing.
Slide | 22
Comparison of the Options
• Case 1 has a very simple solution you can use without worrying about material ledger or CO-PA. You should think about using that method before starting to implement the others.
• Cases 2 and 3 become progressively difficult in implementation. However, it’s more difficult to get the concept adapted in the business than it is to actually implement it in SAP. The level of difficulty was in synch with the level of involvement from the business organization in getting it implemented.
• Cases 2 and 3 add some additional configuration on the Product Costing side. As you need to maintain the legal and profit center values in the costed part, the best option would be to set up a costing variant for Profit Center Accounting using legal calculated values as a reference. This then populates the Profit Center Accounting valuation with the same values as legal values once you run product costing for the Profit Center Accounting valuation. If your company has split valuation active for costed parts, you will have a hard time configuring the automatic Profit Center Accounting cost calculation that is not equal to the legal valuation.
Slide | 23
Impacts on other modules
Slide | 24
Financial Accounting Viewpoint
• Must have the legal valuation stored in Financial Accounting
General Ledger (FI-GL)
• Optional to store other values in Financial Accounting
• Set up is same as parallel currencies in FI-GL
• Receivables and Payables are always represented from the legal view because this is the value that they will be cleared in
• Same valuation approaches must be in used Asset Accounting as used in FI-GL
Slide | 25
Controlling Viewpoint
• One value is stored in the CO actual version (operative), and the other values are stored in other CO actual versions
• The currency and valuation view chosen for the operative CO version is key. Not all transactions are stored in all chosen valuations, e.g. internal activity allocation, mfg order variance calculation, overhead calculation
• Can only perform group costing (enterprise standard cost) within one Controlling area
• Cannot be used for unvaluated sales order stock
• To calculate WIP correctly using target costs, the operative version must use the legal valuation approach
Slide | 26
Transfer Prices in PCA
• Only one valuation view is stored in Profit center accounting (either legal, group, or profit center view)
• Profit centers earn profit just like independent companies.
• Goods movements between profit centers can be valuated using transfer prices.
• Goods movements between profit centers can be analyzed in CO-PA.
• No internal payables/receivables are posted.
Slide | 27
Purchasing / MM
• Multiple inventory values are stored in the Material Ledger – Material Ledger is required to store parallel inventory values. Material ledger stores up to three valuation approaches
• Mutliple values can only be transferred during logistics invoice verification
• Multiple values can only be transferred across systems using the ALE or EDI interfaces
• Transfer pricing / paralell valuatoin is invoked during goods movements only
Slide | 28
Transfer Pricing and Value Flows
• Parallel value flows throughout all of Financials
• The valuation approaches stored in the system are defined in the currency and valuation profile.
• You can store up to - 3 valuations in - 2 currencies
• Inventory is valuated using all active valuation approaches in parallel.
• The material ledger is a subsidiary ledger in inventory accounting.
Slide | 29
Transfer Pricing and Value Flows
• Inventories are valuated by plant or company code in the SAP System.
• Inventories of one material in one plant always belong to the same profit center.
• No influence on posting logic or account determination.
• Parallel values posted to the same accounts.
• Parallel valuation approaches are currently only supported for goods movements.
Slide | 30
Simplified Examples
Slide | 31
Simplified Examples - Assumptions
• Example assumes transfer between two company codes and no rebilling intermediary
• Example is within one SAP instance
• All currencies are in USD to minimize confusion
• This scenario will only utilize two valuation views (Legal and Group) – it ignores the profit center valuation.
• Transfer selling price from distribution center to sales company is equal to sales company local standard cost
• No quantity or price variance between goods receipt and invoice receipt
Slide | 32
Financial Accounting Postings
Sales Company Distribution Center Co. Code B Co. Code A
Goods Receipt Goods Issue
Invoice Receipt IC Billing
Two Company Example
L Legal Valuation
G Group Valuation
L 50 50 L
G 40 40 G
Goods Issue
Cost of Sales Inventory
10 unit difference represents
difference between ESC and
local standard cost
Slide | 33
Financial Accounting Postings
Sales Company Distribution Center Co. Code B Co. Code A
Goods Receipt Goods Issue
Invoice Receipt IC Billing
Two Company Example
L Legal Valuation
G Group Valuation
L 50 50 L
G 40 40 G
Goods Issue
Cost of Sales Inventory
L 130 130 L
G 40 40 G
Goods Receipt
Inventory GR / IR
90 unit difference represents
intercompany profit in inventory
balances and must be eliminated
Slide | 34
Financial Accounting Postings
Sales Company Distribution Center Co. Code B Co. Code A
Goods Receipt Goods Issue
Invoice Receipt IC Billing
Two Company Example
L Legal Valuation
G Group Valuation
L 130 130 L
G 40 40 G
Goods Receipt
Inventory GR / IRL 50 50 L
G 40 40 G
L 130 130 L
G 130 40 G
L
90 G
Goods Issue
Intercompany Billing
Cost of Sales
IC Acct. Rec.
Non Operating Profit
Revenue
Inventory
Slide | 35
Financial Accounting Postings
Sales Company Distribution Center Co. Code B Co. Code A
Goods Receipt Goods Issue
Invoice Receipt IC Billing
Two Company Example
L 50 50 L
G 40 40 G
L 130 130 L
G 130 40 G
L
90 G
Goods Issue
Intercompany Billing
Cost of Sales
IC Acct. Rec.
Non Operating Profit
Revenue
Inventory
L 130 130 L
G 40 40 G
130 L 130
130 G 40
L
G 90
Goods Receipt
Inventory GR / IR
Invoice Receipt
IC Acc. Pay GR / IR
Non Operating Profit
L Legal Valuation
G Group Valuation
Slide | 36
Transfer Pricing and Material Ledger
Slide | 37
What is Material Ledger ?
• Material Ledger serves for recording of real costs of purchased
materials and products that are being produced and at the same
time it takes into consideration and records all factors effecting price
fluctuation. The use of functionality of Material Ledger in the system
SAP enables faster and more effective decision taking on all purchase and sale management, controlling and production levels
• Real Costs : Upon ascertaining of real prices of purchased
materials, the price of raw materials, commercial goods and
overhead material is influenced by purchase prices and expenses for
the sole purchase transaction. In addition to this the real price of
products and semi-finished products is composed of real costs
connected to production or as the case may be with further processing of raw materials and material.
Slide | 38
What is Material Ledger ?
• Parallel Currencies: Multinational companies can use Material Ledger
for recording of inventory in up to three parallel currencies, with the possibility of recording historical exchange rates: – in the currency of accounting area – valuation according legislation of the given
country with connection to financial accounting – in the currency of the group – valuation within the group – in the currency of the profit center – another valuation for goods exchange between
profit centers within the company.
• Stock Valuation: The information system SAP generally supports two
methods of stock valuation, i.e. valuation by means of standard or
variable prices. Material Ledger combines advantages of both methods
– static and stability of standard prices suitable for costing of products
with dynamics and flexibility of variable prices, which more faithfully
reflect the reality. At the same time the history of real and standard
prices gets recorded in time. The tool Material Ledger provides also the
possibility of revaluation of stock on the basis of real calculation, which is required by valid legislation in some countries.
Slide | 39
Why Materials Ledger?
• Ascertaining of real costs for procuring of material and resulting from this
support of decision taking on optimizing of amount and kinds of material inventory from the aspect of time
• Decision taking on selection of suppliers with the purpose of elimination of price variances is made easier
• Possibility of keeping records of inventory in up to three parallel currencies and
from this resulting advantages in consolidation within the companies belonging
to multinational holdings and groups; support in decision-taking on the selection of the most advantageous currency in purchase of materials and semi-products
• Support of decision taking in selection of the manner of valuation of stock, this
will effect structure and value of the company assets, and at the same time it will finally effect the profits of the company
• Supporting material for setting the optimum portfolio of the products from the
point of view of real production costs according to individual products (covering contribution for the production of the product)
• Supporting material for decision taking on the manner of valuation of products
from the point of view of production costs and supporting material for negotiation with suppliers and clients on provided discounts and bonuses
Slide | 40
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