Cost Center Planning, Control, and Performance Evaluation Module 2

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Cost Center Planning, Control, and
Performance Evaluation (Module 2)
ACCT 320 FALL 2007 Prepared by Neelam Bahl
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Primary Function of Controlling

• Is to accumulate costs in relevant controlling
  objects to support the analysis of necessary
  data and to answer business questions.
• controlling objectsor cost objects are the
  objects which incur costs. Example of cost
  objects are cost center, production order,
  project etc.

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Learning Objectives (Module 2)

• To familiarize students with the SAP R/3
  functions involved in
• 1. Setting up organizational units involving
  cost centers
• 2. Recording actual costs against cost centers
  and
• 3. Allocating actual costs among cost centers.
  
• Modules 2, Three exercises
• First exercise
• - Setting Up Organizational Units Cost centers
• Second exercise
• actual transactions will be recorded to capture
  the activities.  
• Third exercise
• allocating costs among different types of cost
  objects

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Case Overview

• Company 3000 in Controlling area 2000 has decided
  to offer a new service to its computer customers
  that involves
• Field technical support and service which will be
  provided on the basis of yearly contracts

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First Exercise

• Setting Up Organizational Units
• Setting up three cost centers
• Clerical Support - headed by Jim Johnson
  (4100-XXX)
• Will provide information and communication
  services to the field service center and to
  custodial support
• Field Service Center - headed by Jenny Smith
  (4110-XXX)
• Will provide the field support to customers
• Custodial Support - headed by Ruth Jones
  (4120-XXX)
• Will provide occupancy and janitorial services to
  the field service center and to clerical support
  
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First Exercise
Ruth Jones
Jim Johnson
Jenny Smith



X
X
X
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Second Exercise

• Recording actual costs against cost centers and
  Error correction
• All costs/expenses that arise from transactions
  with external parties (e.g., purchases of
  supplies, payment of telephone charges, purchase
  of insurance) will be initially recorded in FI
  and automatically transferred to CO as primary
  cost elements.
• Costs/expenses that arise from internal
  transactions among organizational units and/or
  cost objects (e.g., allocation of cafeteria
  costs to cost centers, transfer of cost center
  costs to a production order) are recorded within
  CO as secondary cost elements.
• Error correction
• R/3 system provides a reposting function that
  may be used to correct errors in original
  postings. Execution of the reposting function
  leads to the creation of a reposting document,
  which provide an audit trail for the correcting
  entry

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Third Exercise

• Allocating Costs Among Cost Centers
• Two methods of allocating costs
• Transaction-based allocation Costs may be
  allocated in real time as activities are
  performed.
• Periodic allocation Costs may be allocated in
  delayed time at the end of a period (month).

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Third Exercise

• Two methods of allocating costs
• Transaction-based allocation
• a company may monitor day-by-day activities of
  sender and receiver cost centers and the flow of
  resources among those cost centers. In order to
  use transaction-based allocations, a company must
  capture activity usage as it takes place on an
  hour-by-hour, day-by-day basis.

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Third Exercise

• Two methods of allocating costs (continued)
• Periodic allocations
• Three of the major R/3 periodic allocation
  approaches
• Surcharge allocation allocated based on
  specified surcharge
• Tracing factor allocation (has two alternatives)
  allocated based the relative proportions of a
  tracing factor
•   Assessment
• - This method may be used to allocated
  primary and/or
• secondary cost
•   Distribution
• - This method may be used to allocate
  primary cost elements
• only among the sender and receiver
  cost centers
• Activity allocation allocations of overhead
  based on the activity provided to a cost center
  by another

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Process Flow

• Define a cycle
• A collection of rules for cost allocation
• defining sender-receiver relationships for these
  allocation types by specifying which object
  allocates the costs and to which object are the
  costs to be allocated?
• Define segments for a cycle
• 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

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Process Flow

• Specify the Tracing factor
• The basis for allocations 9202 employee head
• Execute the cycle
• Check the debits and credits by running a report.

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Cycle
Name
Cycle
Date
Planned or actual values
Segment
100 allocation
Sending cost center
Sender/ Receiver
Which costs to be assessed
Receiving cost center(s)
Tracing Factor
SKF