Controlling

Using the controlling component, we can provide the information to the management for
the performance analysis and decision making. The controlling component is always
concerned with analysis of “expenses and income”. It is also called “internal reporting
tool”.

Controlling object: It is the entity for which the information is maintained and analyzed
in controlling. The following controlling objects are available in SAP controlling.

Cost center – maintain cost center accounting

Internal order – maintain internal order accounting
Cost objects
 Production costing
 Manufacturing order/production order
 Sales order
 Sales order item
 General cost object

Profit center - profit center accounting

Profitability segment – profitability analysis
Project – project system
 WBS element(work breakdown structure)
 Network activity

Cost object: it is the unit of production or service for which the cost is ascertained and
controlled.
SAP ECC system extracts the different types of information from different modules and
maintains them for every controlling objects as follows

MM-material consumption
SD-sales revenues/sales related expenses
PPC-production information
HR-employees cost
AA-depreciation
P/m-repair costs/maintenances costs
FI-all other expenses (over heads)

Enterprise structure for controlling:

Controlling area: it is the organization area in controlling for which all the controlling
activities are performed. There are two scenarios in maintaining the controlling area.

Controlling area same as company code:

 In this scenario we maintain the controlling area at the company code level i.e., for each
company code. A separate controlling area is maintained, and then the expenses and
incomes of each company code will be takes to the respective controlling areas for
analysis purpose.

Cross company cost cost accounting:

In this scenario the controlling area is define at company level.

i.e., all the company codes under the company are assigned to same controlling area. The
incomes and expenses of all the company will be available in the same controlling area,
as a result we can compare the cost & incomes of one company codes with that of
another company codes. i.e., it is called cross company code. To assign several company
codes to one controlling area. The following two conditions must be satisfied.

1. All company codes should use same operational chart of accounts.

2. All company codes should use same fiscal year variant.

Cost center standard hierarchy: It is the arrangement of cost centers for the reporting
purposes. It is mandatory that we should have one cost center standard hierarchy for each
controlling area. There can be only one cost center hierarchy for controlling area.

Versions: It is the set of values for alternative plans (It is nothing but budget)

Ex: Installed capacity-----20,000.00

Optimistic Pessimistic Moderate

Sales Qty 16,000.00 14,000.00 15,000.00

Cost element accounting

Cost element: Cost element describes the origin/source of cost.

Cost elements can be classified into tow types

Primary cost element: These are the cost elements which have corresponding GL
accounts in FI, to which cost elements, we can post directly.

Ex: Rent, wages and salaries

The primary cost elements are used to identify the expenses and incomes from FI to CO.
In order to create the primary cost elements, they are to be first created in FI as GL
master record.
Based on the nature of GL in SAP Primary cost elements are classified as cost element
categories. Following are the cost elements.

01 General primary cost elements/cost reducing revenues

02 Imputed (Notional) cost elements % method
03 Imputed cost elements Actual=target
03 and 04 are used to create provisions in controlling
Ex: Bonus

11 Sales revenue/Revenue elements Ex: Sales

12 Sales Deductions -----These are used to identify the expenses directly
reduces the sales revenues

Ex: Trade discount, sales men commission……. This is also used in PA.

22----- External settlement cost element

Ex: Settlement of cost of a production order to a GL A/c Dr
To Finished goods stock A/c in FI

The primary cost elements arise due to the consumption of production factors and
sourced externally.

Secondary cost element: These are the cost elements which do not have corresponding
GL A/c in FI and to which cost elements we can not post directly. Secondary cost
elements are created only in CO. The secondary cost elements arise due to the
consumption of production factors and sourced internally.

The secondary cost element categories are:

21------Internal settlement cost element---Used to settle the cost on internal order IO

to other controlling object such as CCA IO.

41-----To apportion the functional over heads

Ex: Admn O/hs, S&D O/hs, Fixed O/hs and R&D O/hs.

42---- To apportion the cost of service cost center to other cost centers(Assessment).

43---- To allocate the overheads( Internal Activity allocations).

31---- Used for work-in progress calculation

 Cost element can be created in three ways

 From FI module---- go to FS00---Click on edit cost elements.

 Directly in controlling --------KA01
 Automatic creation of cost elements

Generate automatic creation—OKB2 A/C

From To Cost element category

400000 400599 01
300000 200299 11

Create batch input session-----OKB3

Execute batch input session---SM35

Mass maintenance of GL master records-------OB_GLACC_12

Cost object: Cost object means a cost or revenue collector. Where in all the costs or
revenues are collected for a particular cost object.
Ex: Cost center, Production order and internal order

Cost center accounting

Using the cost center accounting, we can identify which department, which group of
people, which machinery or group of machines or which activity or which manufacturing
process or which phase of a particular manufacturing process is responsible for the cost.
Cost center: it is an area of activity or a area of responsibility for which, the cost are
incurred. We can design our cost center based on one or more of the following criteria.

Functional requirements
Allocation requirements / Allocation criteria
Physical location
Responsibility for cost
Based on the reporting requirements of the management, we design the cost centers with
the help of settings done in the cost element accounting. Whenever any expenses posted
in any module they are automatically identified with respective cost centers. This is
called the actual expenditure for every cost center. We can also plan for the expenditure
of every cost center. Using this actual information and planned information, we can
generate the variance reports. In the cost center accounting, we have to maintain the
master records for the following objects.

Cost element
Cost center
Statistical key figure (SCF)
Activity type.

Naming logic for the cost centers (ex) : the cost center identification contains , seven
digits from the left . the first two digits represents the company code , the next two digits
represents the functions , such as production , service , finance , marketing & HR…. the
last three digits represents the individual cost centers.
Cost Center Category: The cost center category controls the Activity which we can
perform for every cost center created under the category. The following activities we can
perform for every cost center (Transaction code: OKA2).
Posting of quantities
Posting of Actual Primary costs
Posting of Actual Secondary costs
Posting of Actual Revenues
Posting of Planned Primary costs
Posting of Planned Secondary costs
Posting of Planned Revenues

Cost Center Groups: Based on the common attributes among the cost centers, we can
group them together. These are called Cost center groups. These groups are used for
planning and reposting of costs.
Reposting of Costs: This activity is used to transfer the costs from one cost center to
another cost center with cost element wise. This activity can also be used to rectify the
wrong allocation of costs. In this case, only CO document will generate.

Month end Activities in Cost Center Accounting:

Assessment of Overhead
Distribution of Overhead
Reposting of Overhead

Cost center group: Based on the common attributes among the cost centers, we group
them together these are called cost center groups.

Production cost center: It is the cost center in which the actual production carried on.
Service cost center: It is the cost center whose services are required to carry on the
production smoothly.
Ex: Canteen, plant maintenance, power generation and admn.

Assessment: In assessment we can allocate both primary as well as secondary cost

element in receiver cost center the original cost break up from sender is not available.

Features of Assessment: Below are the features of Assessment

 Sender is always a Cost center

 Receiver can be any Controlling object (Cost center/Internal order /WBS element
etc)
 It is mandatory, that to create a Secondary cost element (Category-42) with the
name of the nature of the sender.
 We can apportion both Primary costs and Secondary costs.
 We cannot identify the cost elements of sender (Original) cost center in the
receiver controlling objects
 The system posts the Debit and Credit line items in the Receivers and Senders
Cost centers with the name of the secondary cost elements.

Actual : Define KSU1 Execution KSU5

Planning: Define KSU7 Execution KSUB

Cycle: Cycle is a program which is executed at the end of every month for assessment
and distributions. A cycle can contain any number of segments (parts).In every segment,
we can define the sender cost centers, receiver cost centers, and assessment cost elements
and receiver gracing factors.

Distribution: In distribution, we can allocate only primary cost elements. In distribution

we can see original cost elements in sender. We can see the individual costs (Original
costs).

Features of Distribution: Below are the features of Distribution

 Sender is always a Cost center

 Receiver can be any Controlling object (Cost center/Internal order /WBS element
etc)
 We can apportion only Primary costs.
 We can identify the cost elements of sender (Original) cost center in the receiver
controlling objects
 The system posts the Debit and Credit line items in the Receivers and Senders
Cost centers with the name of cost elements of sender cost centers.

Define KSV1 Execution KSVS

Activity type: It is the nature of activity carried on in a cost center, we can measure the
Quantities of each activity type. The activity type quantities can be used as the basis in
the apportionment of overheads. We have to maintain a master record for each activity
type in cost center accounting.

Ex: Machinery hr rate

 Creation of activity type KL01

 Creation of allocation cost element KA06

Statistical Key figures: This is the information, which is used as a base for assessment,
distributions and periodic reposting of overheads.

Ex: No .of employees, floor area, no.of telephone calls etc.

There are two category of statistical key figures- Fixed and Totals

Fixed Category: These are the statistical key figures which remains same over a period
of time. Ex: No.of employees etc

Totals Category: These are the statistical key figures which change in every field.
Ex: No.of telephone calls.