Overhead Cost Controlling

Objectives

To gain understanding of key business processes of SAP Overhead Cost

Management (OCM)
Understand the Organizational unit in Controlling
Determine the origin of posting in Cost center Accounting
 SAP Overview

SAP Overhead Cost Management

Overhead Cost Management

The Overhead Cost Controlling component (CO-OM) helps you to plan, allocate, control,
and monitor overhead in your organization
By planning in overhead areas, you can develop standards, that allow you to control costs
and valuate internal activities.
Cost Centre Accounting
Cost Center Accounting analyzes where overhead occurs within the organization
Costs are assigned to the sub-areas of the organization where they originated.
SAP offers a wide variety of methods for allocating posted amounts and
quantities.
Internal Order Accounting
Internal Orders collect and analyze costs based on individual internal jobs.
SAP can monitor and automatically check budgets assigned to each job.
 OCM Processes

SAP Overhead Cost Management

OCM Process Overview

Controlling

Cost Centre
Accounting

Master Planning Actual Period End Reporting

Data Posting Closing
OCM Processes

Master Planning Actual Period End Reporting

Data Posting Closing

Cost Element Planning Manual entries Reposting

Cost Centre preparation SKF entry Actual Cost
Activity Type Cost Centre Direct activity distribution
Resource Planning allocation Actual Cost
Statistical Key Internal Order Indirect activity Assessment
Figures Planning allocation Cost Splitting
Internal order Plan cost Order budget Calculate Actual
Groups distribution Activity Prices
Plan cost Settlement of
assessment Overhead Orders
Plan indirect Manual Cost
activity allocation Allocation
Plan settlement of FICO
overhead cost Reconciliation
orders
 Master Data

SAP Overhead Cost Management

Organizational 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

Cost Element

Description
A cost element classifies the organization's valuated
consumption of production factors within a controlling area
Primary Element - costs that originate outside the company;
relate directly to the income statement in FI and must be
included in the FI Chart of Accounts
Secondary Element - costs that result from internal
allocation activities; NO relation to G/L accounts in FI. These
accounts are exclusively for cost accounting and are only
maintained in CO
Cost Element vs GL Account
Financial Controlling
Accounting
Cost Centre Accounting
Balance Internal Orders
Sheet Product Costing
Chart of Accounts
Accounts Profitability Analysis

Adjustment
Accounts

Income Primary

Cost Elements
Statement Cost
Accounts Elements

General Ledger
Secondary
Accounts Payable
Accounts Receivable Cost
Fixed Assets Elements
Treasury
Cost Centre

Description
Organizational unit within a controlling area that represents a
defined location of cost incurrence. The definition can be
based on:
Functional requirements
Allocation criteria
Physical location
Responsibility for costs
Defines the smallest area of responsibility within the
company that causes and influences costs; the lowest level
to which you can meaningfully assign direct and indirect
costs
Cost Centre Standard Hierarchy
Enterprise Company Functional Area Cost Center
A group xx01 - Production 9101000 Production Common
A Ltd
Standard xx02 - Maintenance 9101011 EG- 1 Plant
9100
Hierarchy xx03 - Utilities
xx04 Engineering & Projects
xx05 Quality Assurance
A1 Ltd
xx06 Production Planning
9200
xx07 Production Handling
xx08 Warehousing & Storage

A11 Ltd xx09 Executive Office

9300 xx10 - Finance 9110000 Finance
xx11 Human Resources 9111000 Human Resources
xx12 Information Technology 9111001 Housing Services
A111 Ltd xx13 - Purchasing 9111002 Training Centre
9400 xx14 General Services
xx15 Safety & Security
xx16 Sales & Marketing
xx17 Research & Technology
xx18 Company General
Activity Type

Description
Unit in a controlling area that classifies the activities performed in a cost
centre, e.g. maintenance hours for a maintenance cost centre
Used in activity allocation process
Statistical Key Figure

Description
Used to track quantities and values for various operating activities
Designed to be used in reporting and analysis
Used to assist in the allocation of costs throughout the OCM environment
Internal Order

Description
Used to plan, collect and settle the costs of internal jobs and tasks.
Internal orders are categorized as either:
Orders used purely to monitor objects within Cost Accounting (such as
advertising, training, or trade fair orders) and
Productive orders that are value-added, that is, orders that can be capitalized
(such as in-house construction of an assembly line).
Groups

Description
OCM master data can be grouped together, for example
Cost Centre Groups
Cost Element Groups
Activity Type Groups
Statistical Key Figure groups
Internal Order Groups
Master data groups are used in reporting, planning, allocation, etc.
You can divide complex groups into manageable sections by separating them into
sub-groups
You can create and maintain sub-groups separately and then combine them in
larger groups
 Planning

SAP Overhead Cost Management

Planning preparation
Cost center planning

Cost Element Planning

Cost center Senior

consulting

Planned costs on the cost Cost center

center FI/CO Junior
consulting consulting

Cost Element Planning

Year 2001
Periods 1 to 12
Cost center 30100 FI/CO consulting

Cost element Name Planned costs Version

430000 Salaries 900000 1
474100 Travel costs 500000 1
Plan cost Distribution

Administration
Materials 60
Staff Salaries 120
Rent & Rates
Company General Light & Heating
Materials 100 Vehicles
Staff Salaries 200
Production Support
Repairs
Rent & Rates Travelling 12 Materials 40
Light & Heating Hotels 18 Staff Salaries 80
Vehicles Rent & Rates
Repairs Light & Heating
Travelling 20 Total 210 Vehicles
Hotels 30 Repairs
Travelling 8
Hotels 12
Total 0

Total 140

Allocation through original cost element

Plan Cost Assessment

Administration
Materials
Staff Salaries
Rent & Rates
Company General Light & Heating
Materials 100 Vehicles
Staff Salaries 200
Production Support
Repairs
Rent & Rates Travelling Materials
Light & Heating Hotels Staff Salaries
Vehicles Company General Costs 210 Rent & Rates
Repairs Light & Heating
Travelling 20 Total 210 Vehicles
Hotels 30 Repairs
Company General Costs -350 Travelling
Hotels
Total 0 Company General Costs 140

Total 140

Allocation through secondary cost element

 Actual Posting

SAP Overhead Cost Management

Manual Entries

Description
Actual cost entry enables you to monitor and trace costs incurred by your
company as they arise. This allows you to identify variances quickly and
take appropriate action to deal with them.
Actual cost entry involves transferring the primary costs recorded in
Financial Accounting (FI) to the Controlling (CO) application component.
In the CO component, this transfer occurs real-time from the components
FI, MM, and AM, whereby a cost accounting object is recorded during
account assignment
Process
Incorporated into other processes, e.g. FI Journal Entry, Goods Issue, etc
Manual Entries

Primary postings include the following transactions

Payroll
Material Usage
Travel
Goods Receipt / Invoice
Journal entry
Depreciation
Statistical Key Figure Entry

Statistical Key Figures required for reporting and allocations may be

entered into the system during the month or at month-end
They are recorded with a Controlling document number
Statistical Key Figures may also be transferred from Logistics Information
System (LIS)
Direct Activity Allocation

Description
Direct activity allocation involves the measuring, recording, and allocating
of business services performed
Activity types are used as the cost drivers
Activity allocation occurs, for example, when business transactions are
confirmed or when posting activity quantities to accounts, eg Plant
Maintenance Hour, Production Hours, Utilities, etc
The system multiplies the activity produced by the price of the activity
type.
Activity types are planned using prices set manually or using SAPs price
calculation
Indirect Activity Allocation

Description
Indirect Activity Allocation is a method of allocating actual and plan costs
using activity quantities as the basis. It is extremely beneficial when
calculating the activity quantities on the sender involves too much time or
expense. The value can be calculated inversely based on the activity
quantities actually consumed or planned on the receivers
Internal Order Budgets

Description
The budget is the approved cost limit for an internal order
The budget is the limit set by management for internal order costs over a
certain period of time
Budgets have the following components
Original Budget
Supplements
Returns
Transfers
 Period End Closing

SAP Overhead Cost Management

Reposting

You can repost primary costs manually using transaction-based reposting,

whereby the original cost element is always retained. This function is
designed mainly to adjust posting errors.
You should always adjust posting errors in the application component
where they occurred. This ensures that FI and CO are always reconciled
You can only adjust posting errors involving one cost accounting object (a
cost center or internal order for example) using a transaction-based
reposting in Controlling (CO).
Allocations - Description

Two types of allocations:

Distribution
The following information is passed on to the receivers:
The original, primary, cost element is retained.
Sender and receiver information is documented with line items in the
CO document
Assessment
The following information is passed on to the receivers:
The original cost elements are grouped together into assessment cost
elements (secondary cost elements). The original cost elements are
not displayed on the receivers.
Sender and receiver information is displayed in the CO document
Distribution

Administration
Materials 60
Staff Salaries 120
Rent & Rates
Company General Light & Heating
Materials 100 Vehicles
Staff Salaries 200
Production Support
Repairs
Rent & Rates Travelling 12 Materials 40
Light & Heating Hotels 18 Staff Salaries 80
Vehicles Rent & Rates
Repairs Light & Heating
Travelling 20 Total 210 Vehicles
Hotels 30 Repairs
Travelling 8
Hotels 12
Total 0

Total 140

Allocation through original cost element

Assessment

Administration
Materials
Staff Salaries
Rent & Rates
Company General Light & Heating
Materials 100 Vehicles
Staff Salaries 200
Production Support
Repairs
Rent & Rates Travelling Materials
Light & Heating Hotels Staff Salaries
Vehicles Company General Costs 210 Rent & Rates
Repairs Light & Heating
Travelling 20 Total 210 Vehicles
Hotels 30 Repairs
Company General Costs -350 Travelling
Hotels
Total 0 Company General Costs 140

Total 140

Allocation through secondary cost element

Cost Splitting

Actual cost splitting makes it possible to divide costs into fixed and
variable portions
The actual costs are split in two stages:
In the first splitting step, the system distributes actual costs by cost
element to the activity types based on the target costs or target
quantities
In the second splitting step, the actual costs are distributed on the
activity types according to splitting rules. If you have not defined any
splitting rules for a cost center, the system splits actual costs based on
the equivalence numbers for the activity types.
It is only in this way that you can compare the actual costs with the target
costs of the activity types and display the variances by activity type.
Calculate Actual Activity Prices

During actual price calculation, the system calculates iterative prices for
activity types or business processes based on actual costs and actual
activities. The calculation takes into account all activity exchanges
between cost centres or business processes.
Price calculation, which you can carry out during planning, is based on
planned costs and activity. The resulting prices are used to valuate actual
activity.
After running actual price calculation, you can choose to revalue actual
activity at actual prices. This revaluates the activity using the difference
between plan and actual prices. By revaluing the actual activity with
actual prices, you can fully balance sender cost centres and sender
business processes.
Settlement of Overhead Cost Orders

Some or all of the plan and actual costs incurred on an object are
allocated to one or more receivers.
System automatically generates offsetting entries to credit the sender
object. The debit postings assigned to a sender object remain in place
even after settlement to a receiver
Two types:
Periodic Every period
Full After completion
Two methods:
Individual
By individual sender object
Allows to analyze in greater detail
Collective
Processes a large number of sender objects
Used during period-end closing activities
Settlement of Overhead Cost Orders

Cost Object B
Materials
Staff Salaries
Rent & Rates
Overhead Cost Order Light & Heating
Materials 100 Vehicles
Staff Salaries 200 Repairs
Rent & Rates Travelling
Vehicles Hotels
Repairs Company General Costs 150
Travelling 20
Hotels 30 Total 150
Company General Costs -150 Fixed Asset
Capitalisation -200

Total 0

Allocation through original cost account

or settlement cost element
Manual Cost Allocation

Manual cost allocation involves posting secondary costs manually. The

system credits a sender object (for example, a cost center) and debits a
receiver object (for example, an order)
You can use manual allocation to:
Avoid the need for complicated Customizing settings for simple
allocations
Manually transfer external data
Make simple adjustments to incorrect secondary postings.
FICO Reconciliation

The reconciliation ledger is a tool used to portray transaction figures in

Controlling in a summarized form
It provides reports with which you can monitor the CO/FI reconciliation for
each account
It can determine and display value flows that were posted in CO across
company codes and functional areas
Each company code in FI represents an independent accounting unit for
which a balance sheet must be created. Data flows between company
codes must be posted separately so that no information is lost. These
boundaries are not relevant for Controlling (CO).
You can use reconciliation postings to transfer cross-company code, or
cross-functional area postings made in CO that are relevant to FI, and to
automatically create reconciliation postings there
Month/Year end Closing - Process Map(1/2)
4 7 8 9 10 11
1
Close the period Close the period Ensure settlement
Send the monthly Ensure payroll Enter journal Adjust
for MM for AP & AR & depreciation
Schedule manager Are posted voucher * Inventory *
Close Posting Close Posting Are posted
Logistics GL Inquiry GL Doc. entry GL Doc. entry
Period Period Run Depreciation

2 Release the 5 Simultaneous 6 Treasury

Acknowledge
payroll Costing * activities
Schedule manager
-5 Logistics Treasury

Fixed Asset Fixed Asset

Cash Out WBS Settlement Run Depreciation
-2 -6 -13

AP Disbursement
-1

3
Review & correct
billing errors

Electronic SAP Enabled

SAP Job Role
Processes Processes
Month/Year end Closing - Process Map(2/2)
12 13 14 15 16 17 18
Close the Determine the Complete the Run the foreign Temporally Generate a
Period for FA Lowest value Update materials electronic bank Currency valuation * Close GL Preliminary
Close Posting Principle * prices * reconciliation * GL Periodic Close Posting financial report
Period Pricing Pricing Processing Period GL Reporting

19 20 21 22 23 24 25
Carry
Material Ledger/ Execute Run the Final Close Generated
forward
Product Costing * Actual Costing * Assessment Reconciliation Of GL financial reports
balances *
Logistics Logistics Cycle Ledger Close Posting GL Reporting
Periodic Pro.
Allocations Rec. CO with FI Period

End

Electronic SAP Enabled

SAP Job Role
Processes Processes
 Reporting

SAP Overhead Cost Management

OCM Reporting

Comprehensive, flexible information system to analyze cost flows

Carry out standard recurring evaluations
Construct special reports for unique situations
Analyze all costs online and trace them right back to the original
document
Execute all reports available online in background runs as well (helpful for
large amounts of data)
For hierarchically grouped objects, such as cost centers, you can create
separate reports for all hierarchy nodes and individual objects, or you can
create all the relevant reports in a single selection run through the
database
The second option allows you to navigate within a hierarchy. This enables
particularly flexible monitoring of cost center areas
OCM Reporting Menu Path
OCM Sample Report Selection Criteria