CONTROLLING QUESTIONS & ANSWERS

1. Explain the organizational assignment in the controlling module?

Company codes are assigned to the controlling area. A controlling area is assigned to the
operating concern. Controlling Area is the umbrella under which all controlling activities of Cost
Center Accounting, Product costing, Profitability Analysis and Profit Center are stored.
Operating Concern is the highest node in Profitability Analysis

2. What is primary Cost element and secondary cost element?

Every Profit and Loss GL account that needs to be controlled has to be defined as a cost element
in SAP. Just as in FI General Ledger Accounts exist, in Controlling we have Cost element. Each
FI General Ledger Account that is a Profit and Loss Account is also created as a Cost element in
SAP.

Primary Cost Elements are those which are created from FI general Ledger Accounts and
impact the financial accounts eg. Traveling expenses, consumption account infect, any Profit and
Loss GL account

Secondary Cost Elements are those which are created only in controlling and does not affect
the financials of the company. It is used for internal reporting only. The postings to these
accounts do not affect
the Profit or Loss of the company. The following categories exist for secondary cost elements:

21 Internal Settlement: Cost elements of this category is used to settle order costs to objects in
controlling such as cost centers, pa segments etc.

31 Order/Results Analysis: Used to calculate WIP on the order/project

41 Overhead: Used to calculate indirect costs from cost centers to orders

42. Assessment: Used to calculate costs during assessment

43 Internal Activity Allocation: Used to allocate costs during internal activity allocation such
as Machine
Labour etc

3) What are cost objects?

A cost object means a cost or a revenue collector wherein all the costs or revenues are collected
for a particular cost object. Examples of this could be cost center, production order, internal
order, projects, sales order So whenever you look at any controlling function the basic thing you
need to ask yourself is What is the cost element(expense) I want to control and what is the cost
object ( i.e. either the production order, sales order, internal order) I am using to control this cost
element. Sounds confusing read it again it is very simple

Controlling is all about knowing the cost element and the cost object. Every time pose this
question to yourself what is the cost element what is the cost object. At the end of the period all
costs or revenues in the cost object are settled
to their respective receivers which could be a gl account, a cost center, profitability analysis or
asset. It is very mportant that you understand this otherwise you would struggle to understand
Controlling.

Cost Center Accounting

4) How is cost center accounting related to profit center?

In the master data of the Cost Center there is a provision to enter the profit center. This way all
costs which flow to the cost center are also captured in the profit center. Cost centers are
basically created to capture costs e.g. admin cost center, canteen cost center etc Profit centers are
created to capture cost and revenue for a particular plant, business unit or product line.
5) What is a cost element group?

Cost element group is nothing but a group of cost elements which help one to track and control
cost more effectively. You can make as many number of cost element groups as you feel
necessary by combining
various logical cost elements.

6) What is a cost center group?

In a similar line the cost center group is also a group of cost centers which help one to track and
control the cost of a department more effectively. You can make as many number of cost centers
as you feel necessary by combining various logical cost centers Infact you can use various
combinations of cost center group with the cost element group to track and control your costs per
department or across departments

7) What is the difference between Distribution and Assessment?

Distribution uses the original cost element for allocating cost to the sender cost center. Thus on
the receiving cost center we can see the original cost element from the sender cost center.
Distribution only allocates primary cost.
Assessment uses assessment cost element No 43 defined above to allocate cost. Thus various
costs are summarized under a single assessment cost element. In receiver cost center the original
cost breakup from sender is not available. Assessment allocates both primary as well as
secondary cost.

8) What are the other activities in Cost center?

If you have a manufacturing set up, entering of Activity prices per cost center/activity type is an
important exercise undertaken in Cost center accounting.
9) What is an Activity Type?

Activity types classify the activities produced in the cost centers. Examples of Activity Type
could be Machine, Labour, Utilities

10) You want to calculate the activity price through system? What are the requirements for
that?

In the activity type master you need to select price indicator 1 – Plan price, automatically based
on activity.

11) When activity price is calculated through system whether activity price is shown as
fixed or variable?

Normally when activity price is calculated through system it is shown as fixed activity price
since primary cost are planned as activity independent costs.

12) What is required to be done if activity price is to be shown both fixed and variable?

In this case you need to plan both activity independent cost which are shown as fixed costs and
activity dependent costs which are shown as variable costs.

13) Is it possible to calculate the planned activity output through system?

Yes. It is possible to calculate the planned activity output through system by using Long term
Planning process in PP module.
14) Explain the process of calculating the planned activity output through Long term
planning?

In Long term planning process the planned production quantities are entered for the planning
year in a particular scenario. The Long term planning is executed for the scenario. This generates
the planned activity requirements taking the activity quantities from the routing and multiplying
with the planned production. The activity requirements are then transferred to the controlling
module as scheduled activity quantities. Thereafter you execute a plan activity reconciliation
which will reconcile the schedule activity and the activity you have planned manually. The
reconciliation program updates the scheduled activity quantity as the planned activity in the
controlling module.

15) You want to revalue the production orders using actual activity prices. Is there any
configuration setting?

Yes. There is a configuration setting to be done.

16) Where is the configuration setting to be done for carrying out revaluation of planned
activity prices in various cost objects?

The configuration setting is to be done in the cost center accounting version maintenance for
fiscal year. This has to be maintained for version 0. You need to select revalue option either
using own business transaction or original business transaction.

17) At month end you calculate actual activity prices in the system. You want to revalue the
production orders with this actual activity prices. What are the options available in the
system for revaluation?

The options available are as follows:-

You can revalue the transactions using periodic price, average price or cumulative price.
Further you can revalue the various cost objects as follows:-
Own business transaction – Differential entries are posted
Original business transaction – The original business transaction is changed.

Internal orders

18) What is the purpose of defining Internal Orders?

An example would help us understand this much better. Lets say in an organization there are
various events such as trade fairs, training seminars, which occur during the year. Now lets
assume for a second that these Trade fairs are organized by the Marketing cost center of the
organization. Therefore in this case marketing cost center is
responsible for all the trade fairs costs. All these trade fairs costs are posted to the marketing cost
centers. Now if the management wants an analysis of the cost incurred for each of the trade fair
organized by the marketing cost center how would the marketing manager get this piece of
information across to them? The cost center report
would not give this piece of info Now this is where Internal Order steps in .If you go through all
cost center reports this information is not readily available since all the costs are posted to the
cost center. SAP, therefore rovides the facility of using internal orders which comes in real
handy in such situations. In the above scenario the controlling department would then need to
create an internal order for each of the trade fair organized. The cost incurred for each of the
trade fair will be posted to the internal orders during the month. At the month end, these
costs which are collected in the internal order will be settled from these orders to the marketing
cost center. Thus the controlling person is now in a position to analyze the cost for each of the
trade fair separately. Thus internal order is used to monitor costs for short term events, activities.
It helps in providing more information than that is provided on the cost centers. It can be widely
used for various purposes .
19) How can you default certain items while creation of internal order master data?

You can do so by creating a model order and then update the fields which you want to default in
this model order. Finally attach this model order in the internal order type in the field reference
order. Once the above is done whenever you create an internal order for this order type the field
entries will get copied from the model order.

20) What is the configuration setting for the release of the internal order immediately after
creation?

You have to check the “release immediately” check box in the internal order type.

Product Costing

21) What are the important Terminologies in Product Costing?

Results Analysis Key – This key determines how the Work in Progress is calculated
Cost Components - The break up of the costs which get reflected in the product costing eg.
Material Cost, Labour Cost, Overhead etc
Costing Sheets - This is used to calculate the overhead in Controlling
Costing Variant - For All manufactured products the price control recommended is Standard
Price. To come up with this standard price for the finished good material this material has to be
costed. This is done using Costing Variant. Further questions down below will explain this
concept better.

22) What are the configuration settings maintained in the costing variant?

Costing variant forms the link between the application and Customizing, since all cost estimates
are carried out and saved with reference to a costing variant. The costing variant contains all the
control parameters for costing.
The configuration parameters are maintained for costing type, valuation variants, date control,
and quantity structure control. In costing type we specify which field in the material master
should be updated.
In valuation variant we specify the following:

a) The sequence or order the system should go about accessing prices for the material master
(planned price,
standard price, moving average price etc).
b) It also contains which price should be considered for activity price calculation and.
c) How the system should select BOM and routing.

23) How does SAP go about costing a Product having multiple Bill of materials within it?

SAP first costs the lowest level product, arrives at the cost and then goes and cost the next
highest level and finally arrives at the cost of the final product.

24) What does the concept of cost roll up mean in product costing context?

The purpose of the cost roll up is to include the cost of goods manufactured of all materials in a
multilevel production structure at the topmost level of the BOM(Bill of Material) The costs are
rolled up automatically using the costing levels.
1) The system first calculates the costs for the materials with the lowest costing level and assigns
them to cost components.
2) The materials in the next highest costing level (such as semi finished materials) are then
costed. The costs for the materials costed first are rolled up and become part of the material costs
of the next highest level.

25) What is a settlement profile and why is it needed?

All the costs or revenues which are collected in the Production order or Sales order for example
have to be settled to a receiver at the end of the period. This receiver could be a Gl account, a
cost center, profitability analysis or asset. Also read the question “What is a cost object “ in the
section Controlling. In order to settle the costs of the production order or sales order a settlement
profile is needed. In a settlement profile you define a range of control parameters for settlement.
You must define the settlement profile before you can enter a settlement rule for a sender. The
Settlement Profile is maintained in the Order Type and defaults during creating of order.
.
26) Settlement profile includes:-

1) the retention period for the settlement documents.

2) Valid receivers GL account, cost center, order, WBS element, fixed asset, material,
profitability segment, sales order, cost objects, order items, business process
3) Document type is also attached here
4) Allocation structure and PA transfer structure is also attached to the settlement profile e.g. A1

27) The settlement profile created is then attached to the order type. What is Transfer or
Allocation structure?

The transfer structure is what helps in settling the cost from one cost object to the receiver. It is
maintained in the Settlement profile defined above. The Transfer structure has 2 parts:
a) Source of cost elements you want to settle
b) Target receiver whether it is a Profitability segment or fixed asset or cost center So basically
for settling the costs of a cost object you need to define the Transfer structure where you mention
what are the costs you want to settle and the target receiver for that.
This information you fit it in the settlement profile which contains various other parameters and
this settlement profile is defaulted in the Order type. So every time a order is executed the
relevant settlement rule is stored and at the month end by running the transaction of the
settlement of orders all the cost is passed on to the receiver So to put in simple terms:

a) You define your cost object which could be a production order a sales order for eg
b) You collect costs or revenues for it
c) You determine where you want to pass these costs or revenues to for eg if the sales order is the
cost object all the costs or revenues of a sales order could be passed to Profitability Analysis

28) What do you mean by primary cost component split?

Primary cost split is defined when you create a cost component structure. When you switch on
this setting, the primary cost from the cost center are picked up and assigned to the various cost
components.

29) How do primary costs get picked up from cost center into the cost component
structure?

This is possible when you do a plan activity price calculation from SAP. The primary cost
component structure is assigned to the plan version 0 in Controlling .

30) Is it possible to configure 2 cost component structures for the same product in order to
have 2 different views?

Yes it is possible. We create another cost component structure and assign it to the main cost
component structure. This cost component structure is called Auxiliary cost component structure
which provides another view of the cost component structure.

31) How do you go about configuring for the sales order costing?

The flow is as follows:

Sales order -> Requirement Type-à Requirement Class-> All settings for controlling
In a sales order you have a requirement type .In configuration, the requirement Class is attached
to the requirement type and in this requirement class all configuration settings are maintained for
controlling. In the requirement class we attach the costing variant, we attach the condition type
EK02 where we want the sales order cost to be updated, and the account assignment category. In
the account assignment category we define whether the sales order will carry cost or not. In case
if we do not want to carry cost on the sales order we keep the consumption posting field blank.
We also define here the Results Analysis version which helps to calculate the Results Analysis
for the Sales order if required.

32) There are 2 plants in a company code. First plant is the manufacturing plant and
another plant is the selling plant. Finished goods are manufactured at the manufacturing
plant and transferred to the selling plant. How is standard cost estimate calculated at the
selling plant given the fact that the cost at both the plant should be
the same?

The special procurement type needs to be configured which specifies in which plant the system
is to look up for cost. Here a special procurement key specifying plant 1 (manufacturing plant)
should be configured. This special procurement type must be entered in the costing view or the
MRP view of the Finished good material master record in plant 2. When you cost the finished
good at plant 2, the system will transfer the standard cost estimate from plant 1 to plant 2

33) What is mixed costing in SAP? Give an example to explain.

Mixed costing is required when different processes are used to manufacture the same material.
Mixed costing is required when you have different sources of supply for purchasing the material.
Let us take an example:-

There is a finished good Xylene which can be manufactured by 3 different processes.

The first process uses an old machine and labor. The processing time is 9 hrs to manufacture.
The second process uses a semi-automatic machine and labor. The processing time is 7 hrs to
manufacture.
The third process uses a fully automatic machine and the processing time is 5 hrs.
Thus cost of manufacture for the 3 processes is different. By using Mixed costing you can create
a mixed price for the valuation of this finished good.
34) What configuration needs to done for using Mixed costing?

Quantity Structure type for mixed costing must be configured. Here we specify the time
dependency of the structure type. The following options exist
a) You have no time dependency.
b) It is based on fiscal year
c) It is based on period
This quantity structure type is then assigned to the costing version.

35) Lets say for a product there exists three production versions. Explain the process how
you would go about creating a mixed cost estimate?

The process of creating a Mixed cost estimate would be as follows:-

1) Create procurement alternatives for each of the production version.
2) Define Mixing ratios for the procurement alternatives
3) Select the configured quantity structure type and execute a
material cost estimate based on the costing version.

36) What is Mixing ratios and why are they required to be maintained before creation of
cost estimate?

Mixing ratios are weighting factors assigned to the procurement alternatives. This weighting
factor is obtained from the planning department based on the usage of the procurement
alternatives during the planning year. For e.g.
Procurement alternative 1 (production version 1) 40% will be manufactured
Procurement alternative 2 (production version 2) 35% will be manufactured
Procurement alternative 3 (production version 3) 25% will be manufactured
This % will be maintained as mixing ratios.
Thus when system calculates the mixed cost estimate, system will first cost each of the
production version and then multiply each of the costs with the weighting factors.
Thus
240 (cost of prod. Vers 1) X 40 = 9600
210 (cost of prod. Vers 2) X 35 = 7350
160 (cost of prod vers 3) X 25 = 4000
Mixed costs 17350/100 = 173.5

37) There are Result analysis categories in WIP (Work in Process). What do you mean by
the result analysis category Reserves for unrealized costs?

If you are calculating the work in process at actual costs, the system will create reserves for
unrealized costs if the credit for the production order based on goods receipts is greater than the
debit of the order with actual costs incurred. The Result analysis category RUCR (Reserves for
unrealized cost) would need to be maintained. Normally this is not maintained in most of the
companies.

38) Which is the Result analysis category which is normally maintained for the WIP (Work
in Process) calculation?

The Result analysis category WIPR - Work in process with requirement to capitalize costs is
normally maintained for WIP calculation

39) How do you define a By-product in SAP?

A By-product in SAP is defined as an item with a negative quantity in the Bill of Material. By-
product reduces the cost of the main product. There is no Bill of Material for a By-product.

40) How do you calculate the cost for a By-product in SAP?

The cost for the By-product is the net realizable value. This is manually maintained in the system
for the by-product through transaction code MR21 Price change.
41) How do you define a Co-Product in SAP?

A Co-product (primary product or by-product) is indicated by a tick in the costing view of the
material master. In the BOM all the primary products are represented as an item with negative
quantity. A primary product is also indicated as a co-product in the BOM of the leading
coproduct. For primary products the costs are calculated using the apportionment method, while
for by-products the net realizable value method applies.

42) Is it possible to use Standard SAP Co-product functionality in Repetitive

manufacturing?

No. It is not possible to use the Standard Co-product functionality in repetitive manufacturing

43) How do you got about defining CO-Product functionality in Repetitive manufacturing?

In the Repetitive manufacturing you need to use the Costing BOM for the other co-product.
Through arithmetical calculation you need to maintain the quantities in the costing BOM. This
co-product will be shown as a
negative item in the leading co-product.

44) You get an error while executing a cost estimate which says” Item no 1 (which is a raw
material) is not assigned to the cost component structure? What could be the possible
cause of error in this scenario?

The consumption GL code for the material master is not assigned to the cost component
structure. To find out how you can know which GL code to assign read the next question.
45) In the above scenario how do you know which cost element is being called for?

In this case you need to the use simulation mode OMWB in MM and enter the material code
plant and the movement type 261 (issue against production order). You will see the account
modifier VBR and against
which the GL code is available.

46) You get an error while executing a cost estimate, which says” Item no. 1 (which is a raw
material) is not assigned to the cost component structure? In this case everything is
perfectly configured, what could be the
possible error in this scenario?

In the material master of the raw material the valuation class updated in the accounting view will
be incorrect.

47) Is it possible to calculate standard cost estimate for a past date?

No. It is not possible to calculate standard cost estimate for a past date.

48) What is the difference between a product cost collector and production order?

Both of these are cost objects which collect production costs for manufactured product. Product
cost collector is a single order created for a material. All the costs during the month for that
material is debited to single product cost collector. No costing by lot size is required in case of
product cost collector. The latter is where there are many production orders for a single material
during the month. Costs are collected on each of this production order.
Costing by lot size is the main requirement in case of production orders.
49) What is the meaning of preliminary cost estimate for product cost collector?

Preliminary costing in the product cost by period component calculates the costs for the product
cost collector. In repetitive manufacturing you can create cost estimate for specific production
version.

50) Why is preliminary cost estimate required?

The preliminary cost estimate is required for the following:-

 Confirm the actual activity quantities.
 Valuate work in process
 Calculate production variances in variance calculation
 Valuate the unplanned scrap in variance calculation

51) Is it possible to update the results of the standard cost estimate to other fields such as
commercial price, tax price fields in the accounting view?

Yes. It is possible to update the standard cost estimate to other fields such as commercial price
etc. in accounting view.

52) How do you configure that the results of the standard cost estimate are updated in
other fields other than the standard price?

The price update in the material master is defined in Costing type. This costing type is attached
to the costing variant.

53) What do you mean by Assembly scrap and how is it maintained in SAP?

Assembly scrap is scrap that is expected to occur during the production of a material which is
used as an assembly. If a certain amount of scrap always occurs during the production of an
assembly, the quantities and activities used must be increased by the system so that the required
lot size can be produced. To increase the lot size of an assembly you can enter a percentage,
flatrate assembly scrap in the MRP 1 view of the material master record. This assembly scrap is
reflected in all the subordinate components. The system increases the quantity to be produced by
the calculated scrap quantity. This increases both the materials consumed and the activities
consumed and consequently the cost.

54) How are scrap costs shows in the standard cost estimate?

Scrap costs are assigned to the relevant cost component and can be shown separately for a
material in the costed multilevel BOM.

55) How are scrap variances calculated?

Scrap variance are calculated by valuating the scrap quantities with the amount of the actual
costs less the planned scrap costs.

56) What do you mean by Component scrap and how is it maintained in SAP?

Component scrap is the scrap of a material that is expected to occur during production. When an
assembly is produced with this component, the system has to increase the component quantity to
enable to reach the required lot size. The component scrap can be entered in the BOM item or in
the MRP 4 view of the material master

57) What do you mean by Operation scrap and how is it maintained in SAP?

Operation scrap is a scrap that is expected to occur during production. Operation scrap is used to
reduce the planned input quantities in follow up operations and to calculate the precise amount of
assembly scrap. Operation scrap can be maintained in % in the routing and in the BOM.
58) What are the implications if the operation scrap is maintained in the routing and if it
maintained in the BOM?

If the operation scrap is maintained only in the routing, the costing lot size is reduced by this
percentage. If the operation scrap is maintained in the BOM, the planned input (not the output
quantity) is increased and any assembly scrap is reduced.

59) What is the meaning of additive costs in SAP and why is it required?

Additive costs are used to add costs manually to a material cost estimate when it cannot be
calculated by the system. Examples of such costs are freight charges, insurance costs and stock
transfer costs.

60) What is the configuration required for additive costs?

To include additive costs in the material cost estimate you need to set the indicator “Incl.
additive costs” for each valuation strategy in the valuation variant. Further you also need to set in
the costing variant to include additive
costs.

61) How do you configure split valuation?

The configuration steps involved in split valuation:-

1) Activate split valuation – Configure whether split valuation is allowed for the company code.
2) Determine the valuation categories and valuation types that are allowed for all valuation areas.
3) Allocate the valuation types to the valuation categories
4) Determine the local valuation categories for each valuation area and activate the categories to
be used in your valuation area.
62) What is valuation category and valuation type in split valuation?
In split valuation the material stock is divided according to valuation category and valuation
type.
Valuation category determines how the partial stocks are divided according to which criteria.
The following valuation categories are preset
in the standard SAP R/3 system –
B - Procurement type
H – Origin type
X – Automatic batch valuation

Valuation type describes the characteristic of individual stock.

e.g. EIGEN Inhouse production (SAP standard)
FREMD External procurement (SAP standard)
Valuation types are assigned to valuation categories.

63) What are the steps involved before you run a cost estimate for a split valuated
material?
The following are the steps:-

1) Create procurement alternatives based on the valuation types for the material.
2) Maintain Mixing ratios for the procurement alternatives

64) How do you create a material master with split valuation?

To create a split valuated material master proceed as follows:-

1. First create a valuation header record for the material. Update the Valuation category field on
the accounting screen; leave the Valuation type field blank. In the Price control field, enter V
(moving average price). When you save, the system creates the valuation header record.
2. Then create the material for a valuation type. Call up the same material in creation mode
again. Due to the fact
that a valuation header record exists, the system requires you to enter a valuation type for the
valuation category.

3. Repeat Step two for every valuation type planned.

65) When a standard cost estimate is run for a finished good does SAP calculate cost
estimate for its components such as raw and packing material?

Yes. SAP calculates the cost estimate even for raw and packing material and stores it in the
standard price field for information purposes

66) How do you prevent the system from calculating the cost estimate for raw and packing
material when you run a standard cost estimate for the finished goods?

To prevent the system from calculating cost estimates for raw and packing material, you need to
select the “No costing” checkbox in the costing view of the material master.

67) How is it possible to apply 2 different overhead rates for 2 different finished goods?

It is possible through overhead groups. You configure 2 overhead keys. Define rates for each of
this overhead key. These two overhead keys is then assigned to the two overhead groups. These
overhead groups are
attached in the costing view of the finished goods material master.
 Work in Progress

68) In period 1 there is a WIP posted of 22000 USD in period 2 some further goods issue
are done to the extent of 15000 USD . How will system calculate WIP for period 2?

System will post a delta WIP of 15000 USD in period 2.

69) What is the basic difference in WIP calculation in product cost by order and product
cost by period (repetitive manufacturing)?

Generally in product cost by order, WIP is calculated at actual costs and in product cost by
period WIP is calculated at target costs

70) What are the configuration settings for calculating WIP in SAP?

You define secondary cost elements of type 31 first. You then need to define the Results
Analysis version
This results analysis contains line ids which are basically nothing but break up of costs Next you
define assignments-> here you assign source cost elements to the line ids defined above You also
define the secondary cost elements which are assigned to the line ids. In the end you define the
Finance GL accounts which are debited and credited when a Work in Progress is calculated.
Please refer to the configuration document for more detailed information

71) How does SAP calculate Work in Process (WIP) in product cost by order?

The system first runs through all the production order for the month and checks for the status of
each production order. If the status of the production order is REL (Released) or PREL (Partially
released) and if costs are incurred for that order system calculates WIP for the production order.
The system cancels the WIP for the production order when the status of the order becomes DLV
(delivered) or TECO (Technically complete).
72) There is a production order with order quantity 1000 kgs. During the month 500 kgs of
goods were produced. What will be the system treatment at the month end?

The system will first check the status of the production order. Since the status of the order is not
DLV (Delivered) it will calculate a WIP for the production order.

73) Why does the system not calculate variance for the 500 kgs which has been delivered?

In the product cost by order component the system does not calculate a variance for partially
delivered stock on the production order. Whatever is the balance on the production order is
considered as WIP. In the product cost by period component, system will calculate WIP as well
as variance provided

74) Is the WIP calculated in the product cost by order component at actual costs or
standard costs?

In the product cost by order component the WIP is calculated at actual costs.

75) Is the WIP calculated in the product cost by period component at actual costs or target
costs?

In the product cost by period component the WIP is calculated at target costs.

Material Ledger

76) What precautions have to be taken while switching on the material ledger for a plant?

A material ledger once activated for a plant cannot be switched off. Therefore it is important that
the material ledger be activated carefully for a plant.
77) How do you go about configuring material ledger?

The following are the steps:-

1) Activate Valuation Areas for Material Ledger
2) Assign Currency Types to Material Ledger Type
3) Assign Material Ledger Types to Valuation Area
4) Maintain Number Ranges for Material Ledger Documents
5) Activate Actual costing (whether activity update relevant for price determination)
6) Activate Actual cost component split
7) Customizing settings in OBYC

78) What are the problems faced when a material ledger is activated?

When a material ledger is activated it is imperative that actual costing run has to be done every
month. Actual costing run needs to be done immediately after the new month roll over. After the
actual costing run you cannot post any MM(Materials Management) entry to the previous period.

79) What are the options available while performing revaluation in an actual costing run?

There are 2 options available:-

Revaluation – You can revalue the finished goods stock
Accrual – You can accrue the revaluation gain or loss without actually changing the price in the
material master.

80) What is the configuration setting to be done for posting the accrual in the actual costing
run?

In transaction code OBYC select transaction key LKW and maintain the balance sheet account
for accrual.
81) What are the steps to be taken before you execute an actual costing run?

The following are the steps to be taken:

1.) Execute all the allocation cycles in the cost center accounting module.
2.) Execute actual activity price calculation.
3.) Revalue all the production orders with the actual activity prices. The under or over absorbed
cost on cost centers are passed on to the production order through this step of revaluation of
production orders.
4.) Calculate overheads, do a variance calculation and finally settle the production order.
5.) Finally execute the actual costing run.

82) What happens in an actual costing run?

In actual costing run there is a process of single level price determination and multi level price
determination. The production price difference variances are collected on the material ledger for
each of the finished goods and semi finished goods. During single level price determination the
price difference collected on a single finished product is allocated to consumption. This
allocation to the consumption is not individually allocated to the good issues.
In multi level price determination the price difference is allocated to individual goods issue. The
price differences are passed on to the next level of consumption. The system calculates a
weighted average price for the finished goods and semi finished goods. This weighted average
price is called as the periodic unit price

83) What happens when the revaluation is done in actual costing run for the previous
period?

When revaluation is performed in actual costing for the previous period the price control in the
material master is changed from S to V and the periodic price is updated as the valuation price
for the previous period.
84) What is the importance of the price determination indicator in the material master for
the purpose of actual costing run?

There are 2 price determination indicators in the material master when material ledger is
activated.
They are as follows:-
2 – transaction based
3 – Single level / multi level
In case of material masters having price determination indicator 2 no
actual costing will take place. In case of material masters having price
determination indicator 3 actual costing will take place.

85) What should be the price control for a material master which has a price determination
indicator 3 where material ledger is activated?

In such a case only price control S is possible where the price determination 3 is activated in
material master.

Profitability Analysis

86) Explain the organizational assignment in the PA module?

The operating Concern is the highest node in Profitability Analysis. The operating concern is
assigned to the Controlling Area. Within the operating concern all the transactions of
Profitability Analysis are stored. The operating concern is nothing but a nomenclature for
defining the highest node in PA.
87) What is the functionality of the PA module?

PA module is the most important module when it comes to analyzing the results of the
organization. In this module you basically collect the revenues from the sale order, the costs
from the production order, cost center or internal order and analyze their results.
The interesting part about this module is that when it collects the costs and revenues it also
collects the characteristics associated with the costs and revenues and this is what makes it stand
out So for e.g. using PA module you can find out the following:
Profit of a certain product
Profit of a certain product in a certain region
Profit of a certain product in a certain region by a certain customer
Profit of a certain product in a certain region by a certain sales person and the list can go on in
depth
It is one of the most wonderful modules in the SAP

88) How do you get all those characteristics defined above and how do you analyze them?

To do so while defining Operating concern one has to define Characteristics and Value fields.

89) What are characteristics and Value Fields?

In the operating concern two things are basically defined

a) Characteristics
b) Value Fields
Characteristics are nothing but those aspects on which we want to break down the profit logically
such as customer, region product, product hierarchy, sales person etc Value Fields are nothing
but the values associated with these characteristics
Eg Sales, Raw Material Cost, Labour Cost, Overheads etc
Once you define the characteristics and value fields these values are updated in the table.
90) From where does the characteristics come from?

The characteristics which are defined above basically comes from either the Customer Master or
the Material Master.

91) How does various values( revenues and costs) flow into PA?

The Sales Revenue comes from the Condition Type in SD. We need to map the Condition Type
in SD to the respective value fields in customizing to have the revenue flow into PA. The Cost
comes from Cost estimates which are transferred using the PA transfer structure which we have
covered in the Product costing section.
The various cost components of the cost component structure is assigned to the value field of PA
module and this is how the costs come into PA. Once the actual revenue and the std cost defined
above are captured in PA the variances are also transferred into PA. This way the std cost
variances equal the actual cost. So actual revenue- actual cost helps us determine the profit.

92) How do you configure the assignment of variances from product costing to COPA
module?

The variance categories from product costing along with cost element is to be assigned to the
value fields in COPA

93)Once you have captured all the costs and revenues how do you analyze them?

The costs and revenues which we have captured in the above manner are then analysed by
writing reports using the Report Painter Functionality in SAP.

94) What is characteristic Derivation in Profitability Analysis Module?

Characteristic Derivation is usually used when you want to derive the characteristics . An
example of this could be say you want to derive the first two characteristics of product hierarchy.
In such cases you define characteristic derivation where you maintain the rules, which contain
the table names of the product hierarchy fields and the number of characters to be extracted, and
it also specifies the target characteristic field in PA.

95) What is the basic difference in customizing in Profitability analysis as compared to

other modules?

In PA when we configure the system i.e. creating operating concern, maintain structures no
customizing request is generated. The configuration needs to be transported through a different
transaction called as KE3I.

96) What is the difference between Account based Profitability Analysis and Costing based
Profitability Analysis?

Account based Profitability analysis is a form of Profitability analysis (PA) that uses accounts as
its base and has an account based approach. It uses costs and revenue elements. Costing based
Profitability Analysis is a form of profitability analysis that groups costs and revenues according
to value fields and costing based
valuation approaches. The cost and revenues are shown in value fields.

97) What are the advantages and disadvantages of Account based profitability analysis vis-
à-vis costing based profitability analysis?

The advantage of Account based PA is that it is permanently reconciled with Financial

accounting. The disadvantages are that it is not powerful as the costing based PA, since it uses
accounts to get values. No Contribution margin planning can be done since it cannot access the
standard cost estimate. Further
no variance analysis is readily available. The advantages of the Costing based PA are manifold.
They are as
Follows: -

· Greater Reporting capabilities since lot of characteristics are available for analysis.
· This form of PA accesses the Standard cost estimate of the manufactured product and gives a
split according
to the cost component split (from the product costing module) when the bills are posted.
· Contribution margin can be planned in this module since the system automatically accesses the
standard cost
estimate of the product based on the valuation approaches.
· Variance analysis is ready available here since the variance categories can be individually
mapped to the
value fields.

Disadvantages:-
Since it uses a costing based approach, it does not sometime reconcile with financial accounting.

98)Can both Account based and Costing based Profitability analysis be configured at the
same time?

Yes. It is possible to configure both types of costing based profitability analysis at the same time.

99) What is the advantage of configuring both the type of Profitability analysis together?

The advantage of activating account based profitability analysis along with costing based PA is
that you can easily reconcile costing based profitability analysis to account based profitability
analysis, which means
indirectly reconciling with Financial accounting.
100) Is there any additional configuration required for Account based profitability analysis
as compared to costing based profitability analysis?

No. There are no special configurations required except for activating the account based
profitability analysis while maintaining the operating concern.

101) What is the difference between Profitability analysis and Profit center accounting?

Profitability analysis lets you analyze the profitability of segments of your market according to
products, customers, regions, division. It provides your sales, marketing, planning and
management organizations with
decision support from a market oriented view point. Profit center accounting lets you analyze
profit and loss for profit centers. It makes it possible to evaluate different areas or units within
your company. Profit center can be structured according to region, plants, functions or products
(product ranges).

102) What configuration settings are available to set up valuation using material cost
estimate in costing based profitability analysis?

In Costing based Profitability analysis you define costing keys. A costing key is a set of access
parameters which are used in valuation to determine which data in Product cost planning should
be read. In the costing key you attach the costing variant. In the costing key you specify whether
the system should read the current standard cost estimate, the previous standard cost estimate or
the future standard cost estimate or a saved cost estimate. The configuration settings to determine
this costing key is as follows:-
1) Assign costing keys to the products – Three costing keys can be attached to a single product
for a specific
point of valuation, record type, plan version.
2) Assign costing keys to Material types
3) Assign costing keys to any characteristics – You can use your own strategy to determine the
costing keys. This is through user defined assignment tables.
 Profit Center

103) What is the basic purpose of creating a Profit Center?

The basic purpose of creating a Profit Center is to analyse the revenues and costs for a particular
product line, or a plant or a business unit. Though you can generate balance sheets and profit and
loss accounts per Profit Center still a profit center should basically be used as a tool only for
internal reporting purposes. If legally one has to produce the Balance sheets and Profit and Loss
Accounts for a profit center then it is advisable to create it as a company code instead of a profit
center

104) How does the cost and revenue flow to the Profit Center?

The profit center is stored in the cost center this way the costs flow to the profit center. The profit
center is also stored in material master. This way all sales orders created for the finished product
automatically picks up the profit center from the material master and all the revenues and costs
coming from this sales order for that finished product is passed on to this profit center. A profit
center document is created in addition to the Finance document whenever revenue or
consumption takes place. This document contains the details of the profit center. Once both the
costs and revenues flow to the profit center you can write reports using the Report Painter to get
intelligent analysis. You can also use SAP standard reports

105) Statistical key figures are created in the cost center accounting module. Now the same
statistical key figures are required in the profit center accounting module. Is it required to
maintain the statistical key figure in PCA module?

No. Since the statistical key figures are created in a controlling area. Profit center is a sub
module within controlling area. The statistical key figure is created for the controlling area and
as such is available in profit center accounting module.
106) What are the precautions to be taken while maintaining the 3KEH table for profit
center accounting?

You should not maintain the customer and vendor reconciliation accounts in the 3KEH table.
Further you should also not maintain the special GL accounts in this table. Since we are
transferring the customer and vendor alances to profit center module through separate month
end programs. If the reconciliation’s accounts are maintained here it will result in double posting
in the profit center module.

107) should secondary cost elements be maintained in the 3KEH table?

No. Since here we maintain only those accounts for which the value should flow from FI to
PCA. Secondary cost elements are already defined in the controlling module which will reflect in
the postings in PCA also

108) How can the default settings be maintained for cost elements per company code?

The default settings can be maintained in transaction OKB9. Here we can specify for a company
code, cost element which is the cost center to be defaulted or whether profitability segment is to
be automatically derived. Further we can also maintain whether business area is mandatory or
profit center is mandatory and can maintain the default business areas and profit centers.

109) What are the other important activities in Profit Center?

The assignments of profit center to the cost center and also assignment of profit center to the
material master is what will determine the success of the Profit center posting. If these
assignments are wrongly done then
the profit center postings will not come in properly.
 Period End Closing Activities in Controlling

110) What are the period end closing activities in controlling?

The following are the period end closing activities in Controlling:

 Repost CO Documents that was incorrectly posted

 Run Distribution or Assessment Cycles
 Run the Overhead Calculation in Product Costing
 Run the WIP Calculation in Product Costing
 Run the Variance Calculation in Product Costing
 Run the Settlement Calculation in Product Costing which will post all the
 WIP and variance to Finance and PA.
 Calculate FI Data for Transfer to Profit Center
 Transfer Balance Sheet Items like Receivables, Payables, Assets and Stock
 Run Results Analysis for Sales Order if applicable
 Run Settlement of Sales Orders to PA.