SAP Controlling (CO) is another important SAP module offered to an organization. It supports coordination, monitoring, and optimization of all the processes in an organization. SAP CO involves recording both the consumption of production factors and the services provided by an organization.
SAP CO includes managing and configuring master data that covers cost and profit centers, internal orders, and other cost elements and functional areas.
The main purpose of SAP controlling module is planning. It enables you to determine variances by comparing actual data with plan data and thus enables you to control business flows in your organization.
SAP CO Integration with Financial Accounting
Both SAP CO and SAP FI modules are independent components in a SAP system. The data flow between these components takes place on a regular basis.
Data flows relevant to cost flows to Controlling from Financial Accounting. At the same time, the system assigns the costs and revenues to different CO account assignment objects, such as cost centers, business processes, projects or orders.
The key submodules of SAP controlling system are listed below −
- Cost Element Accounting − Cost and Revenue Element Accounting provides you with an overview of the costs and revenues that occur in an organization. Most of the values are moved automatically from Financial Accounting to Controlling. Cost and Revenue Element Accounting only calculates costs which either do not have another expense or only one expense in Financial Accounting.
- Cost Center Accounting − Cost Center Accounting is used for controlling purposes within your organization.
- Activity-Based-Accounting − It is used to analyze cross-departmental business processes.
- Internal Orders − Internal orders in SAP CO are used to collect and control according to the job that incurred them. You can assign budgets for these jobs that is system monitored to ensure that they are not exceeded from the set budgets.
- Product Cost Controlling − It calculates the cost for manufacture a product, or to provide a service. It allows you to calculate the price at which you can profitably marketed it.
- Profitability Analysis − It is used to analyze the profit or loss of an organization by individual market segments. Profitability Analysis provides a basis for decisionmaking. For example, it is used to determine price, conditioning, customer, distribution channel, and market segment.
- Profit Center Accounting − It is used to evaluate profit or loss of individual, independent areas within an organization. These areas are responsible for their costs and revenues.A Cost Center is defined as a component in an organization that adds to the cost and indirectly adds to the profit of the organization. Examples include Marketing and Customer Service.
A company can classify a business unit in three ways −
- Profit center,
- Cost center, or
- Investment center.
The simple and straightforward division in an organization can be classified as cost center because cost is easy to measure.
Cost Center Hierarchy
The hierarchy of a cost center looks as follows −
To create a cost center, use the T-code KS01. It will open the following window.
Enter the Controlling Area in the next screen and click the tick mark.
In the next window, enter the following details and click the Master Data.- New cost center number.
- Validity dates of the new cost center.
You can also create a new cost center with a reference.
Once you click Master Data, a new window will open. Enter the following details in the basic data tab −- Enter the name of the new cost center.
- Enter a description for the new cost center.
- Enter the User and Person Responsible.
- Cost Center Category.
- Hierarchy area.
- Company Code.
- Profit Center.
Next, click the Control tab and select the correct indicator.
At the end, click the save icon at the top.
SAP CO internal order monitors the parts of the costs and in a few cases, it also monitors the revenues of the organization.
You can create an internal order to monitor the costs of a time-restricted job or the costs for the production of activities. Internal orders can also be used for the long-term monitoring of costs.
Investment cost related to fixed assets are monitored using Investment orders.
Period-related accrual calculation between expenses in FI and the costing-based costs debited in Cost Accounting are monitored using Accrual orders.
Costs and revenues incurred for activities for external partners or for internal activities that do not form a part of the core business for your organization are monitored using order with revenues.
How to create an Internal Order in SAP CO?
Use the T-code KO04 or go to Accounting → Controlling → Internal Orders → Master Data → Order Manager.
In the next screen, input the controlling area as shown below −
Click the Create button at the top to create a new internal order and enter the order type.
In the next window, enter the following details −- Company Code
- Business area
- Object Class of the Order
- Profit Center
- Cost Center responsible for the internal order
After entering the above details, click the Save button at the top to create the internal order.
An internal order is used as an interim collector of costs and is used for planning, monitoring, and controlling the processes. When the job has been completed, you settle the costs to one or more receivers like cost centers, fixed assets, etc.
How to perform settlement of IO to Cost Centers?
Use the T-code − KO02 or Go to Accounting → Controlling → Internal Orders → Master Data → Special Functions → Change.
A new window will open. Enter the Order number for which settlement is to be done.
Click the Settlement rule button at the top −
Enter the following details −- In Category column, enter ‘CTR’ for the cost center.
- In Settlement receiver Column, enter the Cost Center in which the Order is to be settled.
- Enter the percentage amount which is to be settled.
- In Settlement type, enter ‘PER’ for periodic settlement.
Click the save button at the top to save the settlement rule and come back to the main screen.Enter the T-code KO88 and input the following details −
- Order for which the settlement rule is maintained.
- Period for settlement.
- Fiscal Year.
- Uncheck the Test Run.
- Click on the Execute Button to run the settlement.
A new window will open with a Settlement display message. Click the Continue button to complete the processing.SAP CO Profit Center is used for managing internal controlling. When you divide your company into profit centers, it allows you to delegate responsibility to decentralized units and treat them as separate companies in a company. It also allows you to calculate key figures in cost accounting like ROI, Cash flow, etc.
Profit Center is a part of Enterprise Controlling module and is integrated with a new General Ledger Accounting.
Key Features of SAP CO Profit Center
Profit Center Accounting is used to determine profit for internal areas of responsibility. It lets you determine profits and losses using either period accounting or the cost-of-sales approach.
It allows you to analyze fixed assets by profit center, thus using them as investment centers. It allows to expand profit centers to investment centers.