Profit Center Accounting

Course Objectives

◆ Understand the functions in Profit Center

Accounting.
◆ Explain Profitability management in SAP.
◆ Describe and maintain CO-PCA master data.
◆ Identify the source of actual values.
◆ Execute planning.
◆ Use the CO-PCA information system.
 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

PCA Overview

◆ Profit center accounting, in conjunction with transfer pricing,

enables:-
 Structuring of the A Group according to Strategic Business Units
(SBUs), leading to:Full Income Statements according to lines of
business (Product Groups rolled up to SBU/Sectors)
 Selected reporting of Balance Sheet items by Product Group/SBU
and Sector (e.g. Payables/Receivables, Fixed Assets. Inventories).
 The ability to reflect material movements between SBUs at
commercial prices rather than cost
Terms used in Profitability Management

◆ Accounting Methods
 Period Accounting
 Cost-of-Sales Accounting

◆ Values
 Gross Sales
 Net Sales
 Variances

◆ Ratios
 Return on Investment
 Margins
 Economic Profit
 Cash Flow
 Contribution Margin
CO Module Overview

CO Profitability Analysis EC
PA PCA
How profitable are individual market segments?

Profit Center Accounting

CO
Overhead Cost Controlling PC Product
How can we reduce our overhead? Cost
CO
 Are the responsibility areas working Controlling
OM
efficiently?
What are the
 How high are the organisational activity
Manufacturing
costs? Are they within their budgets?
Costs of a
 How can we optimise our internal
product?
business processes?

CO
Overhead Cost Controlling How
CEL What costs occur within the organisation? Profitable
are
Individual areas?
CO Components
CO EC -
Operating concern (9100 – A Grp) Profitability
PCA
PA segment
Profitability Analysis
Profitability Analysis
CO
OM Overhead Cost Controlling Product Cost

Profit Center Accounting

Controlling
Internal
Cost centers
orders

Internal Orders
Controlling Product Cost
area (9100 – A Grp)
Collector
Activity
types
Standard
Cost Estimate
CO
CEL Cost Element Accounting Cost Element Accounting

Financial Asset Revenues

FI Accounting
Financial Expense Company Code (9100 A Ltd, 9200 A1 Ltd
Accounting

HR Human Materials
Materials SD Sales and
MM S&D
Resources Management
Management Distribution
 Organisational Units & Master Data
A Grp Operating
Operating Concern Concern (9100)

A Grp Controlling
Controlling Area Area (1000)

Profit Centers

Inform
Teleco
Ethylene ation Corporate
Pharma Polyolefins Power mmuni
Propylene techno common
cation
logy

A Ltd A1 Ltd HQ
Company Codes 9100 9200 1000

Gen Sales and

Cost Centers Purchasing
Services Marketing
R&T
13… 16…
14… 15…

Other Cost Objects Orders Cost Objects

 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

 Aspects of Profitability Management
PCA PA

Profitability Analysis
Responsibility Accounting By Market segment
(Company oriented) (Market oriented)
Profitability
Segments
Revenue 2000 Revenue 2000
External Market
Salaries 468 Discounts 100

Materials 230 COGS 230

Profit Contr. Margin 1440

Profit Centers Advertising

Procurement Production Sales Distribution

Aspects of Profitability Management

CO-PA EC-PCA
Characteristics
costing-based profit center

Aims of Sales and Enterprise

profitability profitability controlling
accounting controlling

Calculation period accounting

cost-of-sales
of profits and cost-of sales
method
methods

profit-related profit-rel. key fig.

key figures balance sheet fig.
Key figures

Reconciliation posted values

posted and
with FI
imputed values
Typical Questions in Profit Center Acctng.

Contribution of
What is the operating profit for a profit center?
organizational
unit

Return What asset value is attributed to

on A profit center?
capital

Cost Which responsibility areas

management
Exceeded their plan for last month?

Management What goods and services are exchanged within

of internal
The corporation?
sales & services
Responsibility Accounting

Accounts

Profit Centers

Reporting Dimensions
Sales Revenue
Sales Deductions
Cost of Goods Sold
Operating Profit Determine
Answersand analyze profit, balance
and financial ratios by Profit Center
Liabilities
Accounts Receivables
Invested Capital in Assets
Inventory Profit
Cost of Capital ROI
Equity Turnover
Return on Investment Return on Sales
Economic Profit Invested
Capital
Valuation Views

A
Group
Legal Profit Center

Group
Company 1 Company 2 Company 3
A Ltd A1 Ltd A2 Ltd

Profit Center 1

Profit Center 2

◆ You use valuation views to represent different ways of viewing business

transactions in a company.
 Legal view (Individual enterprise) – For transactions between company codes.
 Group view – For a consolidated view of the corporation.
 Profit center view – For business transactions between profit centers.
Parallel Currencies in Profit Center Acctn.

EC-
EC-
Profit Center Accounting
PCA

Company Special
Transaction
Code EC - PCA
Currency
Currency Currency
 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

 Organisational Units & Master Data
A Grp Operating
Operating Concern Concern (9100)

A Grp Controlling
Controlling Area Area (1000)

Profit Centers

Inform
Teleco
Ethylene ation Corporate
Pharma Polyolefins Power mmuni
Propylene techno common
cation
logy

A Ltd A1 Ltd HQ
Company Codes 9100 9200 1000

Gen Sales and

Cost Centers Purchasing
Services Marketing
R&T
13… 16…
14… 15…

Other Cost Objects Orders Cost Objects

Master Data in Profit Center Accounting

◆ Profit Centers

◆ Profit Center Groups

◆ Accounts P&L, Balance Sheet Items

◆ Statistical key figures

Master Data - Profit Center (1)

Organizational unit in Accounting that reflects a

management-oriented structure of the organization
for the purpose of internal control. Profit Center groups
Profit
are collections of Profit centers with similar characteristics.
Center In the case of A Grp this structure is by Product Group.
Master Data – Profit Center (2)

Validity Company Code

Period Assignment

Address / Profit
Communications Center Basic data
Data
Master Data – Dummy Profit Center

Validity Indicators:
Dummy Profit Center
Period

Dummy Profit
Center

Address /
Communications Basic data
Data
Collective Master Data Processing

Profit Profit Profit Profit

Center Center Center Center

Mass Processing

Company Code Master Data

Assignment Maintenance
Profit Center Comp. Cd1 Comp. Cd2
Profit Center Depart . Responsible
Ethylene r Ethylene N.N. XXX
Styrene r
Styrene N.N. YYY
.....
.....
.....
Accounts in PCA
A Grp Chart of Accounts

Financial Accounting
1 2 3 4 8
Assets Liabilities Equity Expense Revenue
accounts

1 2 3 4 8 9
Current Non- Material Primary Revenue
Secondary
financial opera- inventory cost
ting elements cost
assets costs, elements elements
and revenue
short-
term
capital Controlling

Profit Center Accounting

Master Data Groups

Cost Profit Activity Statistical Cost

Elements Centers Types Key Figures Elements

R&T Labour :
Personnel Fertilizers PROD. Employees contract
HOURS

Wages Salaries F1 F2 F3 PHR1 PHR2 Tenured Temps Domestic Foreign

Profit Center Assignments

Profitability
Segment

Sales order
Cost center

Profit
Center Asset

Internal order
Production order

Material
Monitoring Assignments

Not
Check Assignments for: assigned
 Materials
 Cost Centers
 Orders Objects per
profit center

Profit centers
without
cost centers

Material fast
assignment
 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

Definition of a Transfer Price

◆ A transfer price is a price used to valuate the transfer of

goods and services between independent organizational
units.
Enterprise Controlling

America Europe Middle Asia

East

Division A
USA
UK

KSA
MEX
Division B

BRA

◆ Legal View – that of independent legal companies

◆ Group View – that of the organization as a whole
◆ Profit center view - that of the decentralized responsibility areas
Transfer Prices in SAP

Controlling area (Corporate Group)

CO
Profit Center
PCA
(Negotiated prices)

Company code
FI (Legal View)

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
 Transfer Pricing

Company code 9100 A Ltd Company code 9200 A1 Ltd Company code 9300 A3 Ltd
PrCtr1 PrCtr2 PrCtr2 PrCtr3
CCtr 10 CCtr 20
L 80 L 120 PrCtr3
100
+5 G 80 G 100
P 85 85 P 120
L 70 L 80 L 120 220 L 220
L 70 L 100
G 70 G 80 G 100 G 100
G 70 G 100 220 P 220
P 70 P 85 P 120
P 70 P 85

Assumed Plan = Actual => No Variances

Ethylene Butene-1 Butene-1 Polyethylene Polyethylene

Transfer prices in PCA

Transfer price
Profit Center 1 120 Profit Center 2

PCA

Production
Material order

120

FI/CO Parallel value flows

Logistics Quantity flow

 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

Profit Center Planning Objectives

◆ Plan Integration

◆ Planning Methods

◆ Plan Data Transfer

Plan Integration
Microsoft Excel

Profit Center Plan

Sales 100,000
Discounts 5,000
Cost of Sales 50,000
Marketing Expenses 10,000
Admin. Expenses 15,000
Number of Sales Orders 1,000
….

Internal Cost
CO Production
Order Center
Order
Planning methods in PCA

Plan data transfer Excel-Upload Manual entry

Copy existing data

New Plan

Plan
Allocations

Final Plan
Plan Data Transfer

Plan Profit Center

Cost Center
On-line Plan Data Transfer Revenue 100,000
AND/OR Marketing 50,000
Internal / Subsequent Postings Admin 10,000
CO Production
….
Order
….
 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

Actual Values Overview

◆ Flow of Actuals in Profit Center Accounting

 Overview
 Flow from Profit and Loss accounts
➢ Flow from materials management
➢ Flow from sales and distribution
 Flow from Balance Sheet items – Period end closing
➢ Flow from Asset Management
➢ Transfer of Material Stock
➢ Transfer of Work In Process
➢ Flow from Accounts payable and receivable
 Flow from controlling – Period end closing
➢ Flow from Overhead Cost Management
➢ Profit Center Document Entry
➢ Assessment & Distribution
Actual Values Overview

◆ Flow of Actuals in Profit Center Accounting

 Overview
 Flow from Profit and Loss accounts
➢ Flow from materials management
➢ Flow from sales and distribution
 Flow from Balance Sheet items – Period end closing
➢ Flow from Asset Management
➢ Transfer of Material Stock
➢ Transfer of Work In Process
➢ Flow from Accounts payable and receivable
 Flow from controlling – Period end closing
➢ Flow from Overhead Cost Management
➢ Profit Center Document Entry
➢ Assessment & Distribution
Overview of Value Flow in PCA
EC-
EC-
Profit Center Accounting PCA
V
A
L
U
E
E Primary Costs CO- CO-
FI
F OM PA
L
O
W
CO-
PC

Goods
Business
Procurement Production Movement Sales/ Billing
process
MM PP MM SD
Actual Values Overview

◆ Flow of Actuals in Profit Center Accounting

 Overview
 Flow from Profit and Loss accounts
➢ Flow from materials management
➢ Flow from sales and distribution
 Flow from Balance Sheet items – Period end closing
➢ Flow from Asset Management
➢ Transfer of Material Stock
➢ Transfer of Work In Process
➢ Flow from Accounts payable and receivable
 Flow from controlling – Period end closing
➢ Flow from Overhead Cost Management
➢ Profit Center Document Entry
➢ Assessment & Distribution
Determination of Profit Centers in P&L

Profit
Source Transaction Center

Billing Document Material/Plant of Sales Order

Substitution

Invoice Receipt Material/Plant

of Purchase Order

Goods Movement Material/Plant

Direct Posting from FI Indirect /Manual Assignment

Other P&L Accounts Customized Automatic

Account Assignment
Flow from materials management (1)
Material Expense EC-
EC-
400000 PCA
V 500
A
L
U
E Material Expense
FI 400000
F 500 CO-
L PC
O Raw Materials
W 119400 Material Expense 500
500

Business Consumption Production

process Order
MM PP
Flow from materials management (2)
Production Output
EC-
EC-
462001 M. Expense
PCA
V 450 500
A
L
U
E Finished Products
FI 119430
F 450 CO-
L PC
O Production Output
W 462001
Production Output- 450
450

Business Delivery to Stock

process Production Order
PP MM
Flow from sales and distribution (1)
EC-
EC-
PCA
V
A
L
U Inventory
E - Finished Product (FG)
119430
F Stock
6,028.50-
L FI
O
W
Cost of Goods Sold
462002
Change Stock
6,028.50

Business Goods Issue

process
MM
Flow from sales and distribution (2)
Sales
EC-
EC-
810000 PCA
V 10,000
A
L
U
E
FI Receivables
…
F
L 10,000
O
W Sales
810000
10,000

Business Sales/ Billing

process
SD
Actual Values Overview

◆ Flow of Actuals in Profit Center Accounting

 Overview
 Flow from Profit and Loss accounts
➢ Flow from materials management
➢ Flow from sales and distribution
 Flow from Balance Sheet items – Period end closing
➢ Flow from Asset Management
➢ Transfer of Material Stock
➢ Transfer of Work In Process
➢ Flow from Accounts payable and receivable
 Flow from controlling – Period end closing
➢ Flow from Overhead Cost Management
➢ Profit Center Document Entry
➢ Assessment & Distribution
Determination of Profit Center for B/Sheet

Source Transaction Profit

Center

Assets Cost Center/Internal Order

Assignment of Asset

Inventory Values Material/Plant

Accounts Receivable Material/Plant Account

Accounts Payable Assignment of
Sales order/Purchase Order

Other Balance Sheet Items Customizing Automatic

Account Assignment
Flow from Asset management
Building Assets
EC-
EC-
PCA
PCA
V 100
A
L
U
E On-line Periodic Transfer
FI
Building Assets
F
L 100
O
W

Business Transaction Processing: Period End Closing:

process Acquisition of Asset Transfer of Asset
Values
Transfer of Material Stock

Material Stock
EC-
EC-
PCA
PCA
V 1000
A
L
U
E On-line Periodic Transfer
FI
F Material Stock
L
O 1000
W
Transfer of Work in Process

WIP
EC-
EC-
PCA
PCA
V 80
A
L
U
E On-line Periodic Transfer
FI
F WIP
L
O 80
W
Flow of value in AP and AR

SD FI
Sales order
Accounts Receivable
Item 1 Profit center A 1000
Item 2 Profit center B 2000 6000
Item 3 Profit center C 3000

1 Carry out period -closing activities for payables and receivables in

FI (payables and receivables are split according to profit center)
2 Run transfer program in Profit Center Accounting

EC-
EC-
PCA A/R Profit Center A A/R Profit Center B A/R Profit Center C

1000 2000 3000

Actual Values Overview

◆ Flow of Actuals in Profit Center Accounting

 Overview
 Flow from Profit and Loss accounts
➢ Flow from materials management
➢ Flow from sales and distribution
 Flow from Balance Sheet items – Period end closing
➢ Flow from Asset Management
➢ Transfer of Material Stock
➢ Transfer of Work In Process
➢ Flow from Accounts payable and receivable
 Flow from controlling – Period end closing
➢ Flow from Overhead Cost Management
➢ Profit Center Document Entry
➢ Assessment & Distribution
Transfer from Controlling (1)

Auto Expenses
V 450017 EC-
PCA
A
FI
L 500
U Auto Expenses
E 450017

500
F
L CO -
O OM

W Vendor

500 Auto Expenses 500

Business Transaction Processing:

process Post Vendor Invoice
Transfer from Controlling (2)
EC-
EC-
Cost Center 1 Cost Center 2 PCA
V Profit 500 500 Profit
A Center 1 Center 2
L
U
E CO-
CO-
OM

F R&T PROD. HR. - 500

L 5 hours CO-
O OM
W

R&T PROD. HR. 500

5 hours

Transaction Processing:
Business
Internal Activity
process Allocation
Profit Center Document Entry
Statistical
Key
V Figure
A
L General costs to R&T. General costs to R&T. EC-
EC-
U PCA
Profit 8000 8000 Profit
E Center 1 Center 2

F
L
O
W

EC-
EC-
PCA
Period End Closing:
Business
process
Assessment

.
EC-
EC-
PCA
V Profit Profit
A Center 7000 Center 1112
Butadiene
L
U Others/
.
E Allocations
Profit
F Center 1114
Benzene
L
O
W

EC-
EC-
PCA
Period End Closing:
Business
Assessment
process
 Table of contents

Course Map
Module 1: Overview

Module 2: Profitability Management

Module 3: Master Data

Module 4: Transfer Prices

Module 5: Planning

Module 6: Actual Data

Module 7: Information System

Information System Overview
Master
Data
Index

List-
Summary Interactive oriented
Records Reporting Reports

Line Item
Reports
Report Output Types
 Variable output areas
Interactive Reporting  Navigation tree / drag & drop
Cumulative display functionality

 Interface Report-to-Report
List – Oriented Reports  Printing options
 Integration with MS Office
 Course Summary

You should now:

◆ Have an understanding the functions in Profit Center
Accounting.
◆ Explain Profitability management in SAP.
◆ Describe and maintain CO-PCA master data.
◆ Identify the source of actual values.
◆ Execute planning.
◆ Use the CO-PCA information system.