DESIGN DOCUMENT CO PROFITABILTY ANALYSIS AUTHOR/APPROVER

Date Document Version Document Revision Description Role (Author/Approver) Author/Approver Name

TABLE OF CONTENTS
1.OVERVIEW.....................................................................................................1 2.ASSUMPTIONS...............................................................................................2 3. KEY DECISIONS.............................................................................................2 4.DESIGN DETAILS............................................................................................3 4.1MASTER DATA.......................................................................................................................................4 4.2.PLANNING...........................................................................................................................................10 4.3.ACTUAL DATA.....................................................................................................................................11 4.4.ASSESSMENTS....................................................................................................................................14 4.5.PROCESS DESCRIPTION......................................................................................................................14 4.6.VALUATION.........................................................................................................................................14 4.7.INFORMATION SYSTEMS......................................................................................................................16 4.8.RECONCILIATIONS...............................................................................................................................18

1. OVERVIEW
<The purpose of this document is to provide information in support of creating design documents. Each client project team should enhance and modify this document according to specific business design requirements. This overview section should include the purpose, scope, target audience, responsibilities etc.> SAPs CO-PA (Profitability Analysis Module) will support the need to analyze profitability by market segment. These segments are defined using characteristics. Some are predefined by SAP (i.e., Company Code, Profit Center, Material Number), others are manually defined (i.e., Product Hierarchy, Customer Hierarchy). For the transfer of the actual and plan data from other modules (sales, production, etc.), standard SAP can be used. The following illustration gives an overview of profitability analysis.

Sales

Area

Customer Region Sales Office

Product

Quantity Sales revenue Customer discount Sales commission Direct sales costs Net revenue Direct material costs Variable production costs Contribution margin I Materialoverhead costs Fixed production costs Contribution margin II Variances Contribution margin III Overhead costs Operating profit

Reporting Dimensions
Answers Profit analysis Market segments

Revenue
Pro fi t

Cost

s Lo

Basic concept of CO-PA:

Country Sales rep.

Characteristics Sales region Product Product group customer Cust. grp

Values North Prod1 Compressor Cust1 Public sector UK Miller

REGION

. RP G T. S CU Compr.

N Chiller PRODUCT GRP Revenues Sales, discounts and returns COGS

Profitability segment

Value fields Revenues 800 Sales, discounts and returns 100 COGS 650

2. ASSUMPTIONS
<This document is intended for the purpose of communicating and recording system design and configuration decisions. As a result, it should not be considered as an educational tool to be referenced in place of formal SAP R/3 training. If further clarification is required on specific SAP terminology, refer to the on-line system documentation.> The module CO-PA is used to collect and deliver data for the Business Warehouse (BW). Main focus is the financial reporting (Hyperion report.) The other modules (sales, production, general ledger, etc.) provide the data, which is required for the reports.

3. KEY DECISIONS
<Initial key decisions may be listed to assist the creator of this document in making decisions on how the system and/or processes will support the design document. The following key decisions will most likely be removed and/or replaced with client specific key decision information made in support of the this document. > Costing based vs. Account based CO-PA. The most major decision to be made in a CO-PA implementation is the selection of costing based versus account based CO-PA implementation methods. Account based CO-PA uses actual Cost elements as performance measures. In that sense it can be thought of as a special ledger with a flexible selection of fields and characteristics to report on. The disadvantage of costing based CO-PA is its inflexibility in terms of creating user defined performance measures. The advantage of it is the ease of reconciliation with FI and PCA. Costing based CO-PA uses flexible, user defined value fields as performance measures . These value fields can be a one to one or many to one match with cost elements. They can also be declared to match a pricing condition in SD, which indirectly represents a group of accounts in accounting. Users can also create value fields that do not correspond to any real accounts or cost elements , and are used for internal analysis and reporting purposes only. Value fields can even be more detailed than accounts, in

a one to many correspondence scenario (For example splitting of fixed and variable parts of costs in the same account into different value fields). In short, Costing based CO-PA gives much more flexibility to the user than account based. The downside is the difficulty of reconciliation with accounting reports, and the fact that the chart of accounts level of detail can typically not be replicated in a value field structure (SAP limits the number of value fields used) It is also possible to use both account and costing based methods in parallel. The content of the Operating Concern. The Operating concern defines the set of characteristics and (in costing based CO-PA) value fields that are used for market segmentation and reporting. A contribution margin scheme to be used in the profitability analysis. This will define the income statement structure to be used in profitability reporting. Users can create alternative schemes for analysis purposes Whether actual sales and sales deductions will be shown for CO-PA reporting. SAP has the ability to show estimated or actual deductions. This is done through the standard CO-PA functionality to post incoming orders as well as billing documents to CO-PA to estimate the future sales landscape. (mentioned in the first bullet.).(This is mentioned in the second bullet) (Mentioned in the second bullet)Standard cost (S-Price) from the product costing module will be the valuation for delivery out of stock activity. One operating concern used in the global set up for CO-PA. This is the highest reporting level within COPA. Whether standard warranty, discount or commission provisions or other accruals will be built as a factor of revenue or other measures and actual charges will be posted against these accruals. In short, the management of accruals on the balance sheet may be handled (estimated) in CO-PA. The source of data feeding each line of the contribution margin scheme within SAP.

4. DESIGN DETAILS
<The design document records the decisions and reasoning behind configuration and should show how the system will be configured. It contains some high-level configuration values if known. In the following section, explain what is being configured and why. List configuration values (if known) by using bullet points, tables and/or body text. This document is not intended to list business processes or process diagrams. For these documents, see additional documents available (with the document type of Detail Process Description ). You do not have to show all configuration
values in the Design Document, that is the purpose of the Configuration Guide (another document type), which may also contain configuration instructions if required by the client. >

R/3 Costing based Profitability Analysis is based on a customer-designed structure of so-called value fields, in which users can separate costs according to fixed and variable components of general overhead, sales, administration, customer service, marketing and so on. From SD to CO-PA:

Users can define profitability segments needed to analyze for their business. The profitability segments are user defined combinations of characteristics, such as product groups, sales areas, orders and so on. The system automatically assigns revenues, cost and sales deductions to individual profitability segments when the business transactions (sales orders, invoices) are processed in the system. R/3 ensures that the reports generated contain all the relevant business transactions , and that management information is consistent and complete. This is accomplished thorough the assignment of sales condition types to value fields in CO-PA configuration Users can allocate costs to profitability segments manually, for example to assess specific overhead costs. Users can also define key figures and performance measures, such as contribution margin, and have these calculated automatically by the system. The report layouts can be defined quickly and easily, and offer a maximum of flexibility. The information is displayed in spreadsheet form, and can be reformatted at any time. Profitability analysis is also an important tool for planning and forecasting. Users can plan their sales and cost data by accounting period or by week. They can also use formulas to link between revenues with sales quantities, and forecast data using seasonal or probabilistic models. Planning in profitability analysis is also integrated with Sales and Operational Planning. Users can release budgets and transfer data to Production Planning with just a few mouse clicks.

4.1 Master Data

4.1.1 Characteristics Characteristics represent the levels at which it is possible to create and analyze actual and plan data. There are two types of characteristics: Standard characteristics, which are automatically predefined in SAP. These include the product number, company code, customer number, and country. User-defined characteristics, which can be created to provide additional client specific information.

To derive values for these characteristics, it is necessary to create derivation rules or table lookup rules unless they are readily available in the sender application (For example, in SD data flow to CO-PA, fields on the billing document, such as sales org, sales group, customer, etc. are readily available to the CO-PA line item if such fields are selected as CO-PA characteristics in the operating concern). Characteristic derivation makes it possible for the system to automatically derive unknown characteristic values (especially for user-defined characteristics) if these are dependent on characteristics whose values are known. The following characteristics are typical examples of required fields for reporting and/or planning:

Area
Product View Customer View Market/Country View Other

Characteristics
Product number Product hierarchy (all available levels) Franchise, Brand, Product Category, Product Group Plant Material type Customer number Account group (3rd party, Inter company, Intra group) Commission sale Customer group 1 (Market code) Profit center Country Region Posting period Legal entity/company code Order type Record type Item Category Cost center Use (sales order)

Most characteristics already exist in other R/3 applications and it is possible to pick them up from SAP tables. Derivation rules / table lookups have to be defined. 4.1.2. Fixed characteristics: Company code Profit center Material number Customer (Possible party roles: sold-to party, shipped-to-party, and payer) Country Region District (State or County) Sales office Branch Distribution channel (Equipment, Service, Contracting, Parts, Marine) Division (YRG, UPG, ESG, Inter company) (Sales person) open action item Characteristic Values For the characteristic values, companies may choose to use the existing master data tables in SAP.

Company Specific Characteristics: Product hierarchy Customer hierarchy/group Vendor source (plant)

The following table gives an example of user-defined characteristics: Characteristic

WW001 WW002 WW003 WW004 WW005 WW006 WW007 WW008 WW009 WW010 WW011 WW012 WW013 WW014 WW015 SKU International Product Segment Indication Minor Product Group (Brand) Therapeutic Group Therapeutic Class Major Product Group Sub-Franchise Franchise World Wide Franchise Region Sales Customer NTC IND Customer

Description

4.1.3.

Derivation Rules

The following are examples of derivation rules: Automatically from the system: profit center (from material master, plant view) and company code (from the accounting transaction). From the sales order: material number, customer, country, region, district, sales office, distribution channel, division and sales person. From material master data: product hierarchy. From customer master data: customer hierarchy. Derivation rule from sales offices: Branch. Vendor source will be derived from material master data, plant or vendor number.

4.1.4.

Value Fields

(This statement is misleading) For each row of the contribution margin scheme there has to be at least one value field. Values fields are the fields that contain the currency amounts and quantities in CO-PA. There are two types of value fields: Value fields that contain amounts in currencies (amount fields). Value fields that contain quantities (quantity fields).

Value fields that are used frequently are predefined in the standard R/3 System. These include fields for revenue, sales quantity, freight, and others. In the following areas, value fields will be necessary to display performance figures for profitability segments: Area
Sales quantity Gross sales Discount, rebate, freight, commission, packaging, Transport insurance COGS manufactured products COGS merchandise COSS Other corporate COGS

Value Fields
Sales Quantity Equivalent Units (Sales Quantity X Unit Per Vial) Revenue fields Fields assigned to SD-conditions, SD-Interface Fields for calculated values in CO-PA Cost component fields Cost of goods field Cost of services sold Global Manufacturing Standard (Full Standard Cost) Global Manufacturing Standard less Markup Manufacturing Conversion Standard Cost Revenue fields, cost fields

Settlement orders Sales orders (Make to order manufacturing) Direct postings from FI Manual postings

Fields for direct posted primary costs Liability fields for rebate, rebate in kind, allowance, commission

CO-PA will not perform any inter company and intra group profit elimination. (I think it is misleading.) The following table gives some examples of the source of value fields. Source
SD

Description
Billing Document (Sales and Service Order)

Value Fields
Quantity Sales Revenues Sales Deductions Costs of Goods Sold Variable Cost of Goods Mfd Fixed Cost of Goods Mfd Bonuses Freight Costs

CO-PC FI

Cost Estimate (Standard Price) General Ledger Posting

Source
CO-OM Cost Center Internal Order

Description

Value Fields
Sales and Administration Costs Marketing Costs Variances Contracting, project revenue , project costs Costed Discounts Costed Bonuses

PS CO-PA

WBS Element Network Operation Additional Costs

The following table gives an example of user-defined value fields: Value Field
VV001 VV002 VV003 VV004 VV005 VV006 VV007 VV008 VV009 VV010 VV011 VV012 VV013 VV015 VV016 VV017 VV018 VV019 VV020 VV021 VV022 VV023 VV024 VV025 VV026 VV027 VV028 Gross Sales Spillover (OBI Only) ???? Rebates Non-government Chargebacks Cash Discounts Other NTS Medicaid Government Chargebacks Other Revenue Intco Sales Standard Cost Manufacturing Variances Inventory Adjustments Royalty Expense Interco COGS Carrying Cost Freight Total Comp Salary Direct Benefits Salary Indirect Benefits Salary Total Comp Wage Direct Benefits Wage Indirect Benefits Wage Travel Exp General Business Meals Entertainment External Training Courses

Description
Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value

Type

Value Field
VV029 VV031 VV032 VV033 VV034 VV035 VV036 VV037 VV038 VV039 VV040 VV041 VV042 VV043 VV044 VV045 VV046 VV047 VV048 VV049 VV050 VV051 VV052 VV053 VV054 VV055 VV056 VV057 VV058 VV059 VV060 VV061 VV062 VV063 VV064 VV065 Automobile Expense Petty Cash Expenditure Employee Moving Recruiting Costs

Description
Internal Training Courses Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value Value

Type

Other Exp Related To Emp Act Departmental Supplies Work Order Supplies Prod Development Supplies Equip Prch Non IM Equip Prch IM Mechanical Stock Supplies Equip Rental Non IM Equip Rental IM Process Space Rental Telephone,Telex & Telegraph Utilities Building & Grounds R&M Equip&Parts Non IM R&M Equip&Parts IM R&M Waste Removal Moving & Alteration Project Maintenance Bank & Credit Card Fees Misc Postage Misc Insurance Oth Prch Goods & Services External Legal Services External Audit Fees EB Selling Expense R&D Marketing Management Marketing Expense Other Income EB Other Expenses EB CurrGain/LossTransact

Value Field
VV066 VV067 VV068 VV069 VV070 VV071 VV072 VV073 Allocated Corp Exp BT

Description
CarryCostRec&InvBTOffset Value Value Value Value Value Qty Qty Value

Type

Profit Sharing for JV BT Interest Income BT EB Interest Expense BT EB Top-down Distribution Units Taxes

4.2. Planning
CO-PA allows planning at detailed levels such as product and customer. The planning will consist of sales quantities, revenues, cost of goods and profit margin. The system will be used to transfer planned sales quantities from Sales and Operations Planning (S&OP) to CO-PA. The following are examples of business requirements: Revenue and Cost is planned at the SKU level by month for each combination of: o o Legal Entity Source (legal entity that ships the product and receives the legal revenue). Market/Franchise (Market/Franchise that receives management revenue).

The global requirement for planning is to plan values for: 1. Sales Quantity (Units) 2. Equivalent Units 3. Conversion Factor 4. Revenue 5. Average Selling Price 6. Local Standard Cost (Future Price) Input Input Calculated (1 / 2) Input or Calculated (Price * Quantity) Input Derived from Material Master

The following additional value fields will be planned based on local requirements: o o o Freight / Insurance Packaging for shipment Royalties

The following diagram depicts the process transfer from plan data into CO-PA:

CO PA CO CCA CO OPA SOP Cost Center Plan (OH) Internal Order (OH) Planned Planned Quantity Quantity Project plan plan Project Assessment
Costs Costs

Settlement

Costs Costs Quantity + Average price (one internal, internal, one external cust .) on product group and LELE-level or manuallymanually-> Revenue . S -Price or average percentage of GM on product group and LELE-level = COGS Revenue and costs

Transfer

PS

Settlement

CS

Contract plan/ service plan

Settlement

Revenue

and costs

Manual Planning if necessary

Copy, revalue and use top down distributions as planning aids. The copy function can be used for data transfer to CO-PA. Revaluation and top down distribution functions use predefined percentages and factors to re-state a plan.

4.3. Actual Data

The following tables provide examples of value flows. This next table is too obviously a copy and paste from an equipment manufacturer (I bet it was synopsis ) I am not going to touch it now, let me know if you want me to come up with something more generic all together.

Value Field

Data Source
Delivery out of stock: Condition from the sales order Make-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXX Contracting: Settlement of the WBS, results analysis cost element for the revenues XXXX Service/Repair: Settlement of the service order or contract, primary or results analysis cost element for the revenues Parts: Condition from the sales order Direct Posting for revenue adjustments Delivery out of stock: Condition from the sales order Make-to-order sales orders: Settlement of the sales order result analysis cost element for the revenues XXXX Contracting: Settlement of the WBS, results analysis cost element for the revenues XXXX Service/Repair: Settlement of the service order or contract, primary or results analysis cost element for the revenues Parts: Condition from the sales order

Sales - Equipment Sales Service / Parts Total Sales - Outside

Sales - Intercompany Total Sales

Std cost of Outside Sales (incl. deduction + sales costs like freight, packaging)

Delivery out of stock: S-Price or V-Price Make-to-order sales orders: Settlement of the sales order result analysis cost element for the all costs Contracting: Settlement of the WBS, results analysis cost element for all costs Service/Repair: Settlement of the service order or contract, primary or results analysis cost element for all costs Parts: S-Price or V-Price Direct posting for adjustments Delivery out of stock: S-Price or V-Price Make-to-order sales orders: Settlement of the sales order result analysis cost element for the all costs Contracting: Settlement of the WBS, results analysis cost element for all costs Service/Repair: Settlement of the service order or contract, primary or results analysis cost element for all costs Parts: S-Price or V-Price

Cost Intercompany Total Cost of Sales - STD Margin at STD

Value Field
Service overhead Direct Charges

Data Source
Allocationof all service overheadcost centers (Not included in the rates of the service engineers) Direct posting from FI, Cost center assessment Delivery out ofstock: Cost Center assessement Make-to-order sales orders: Settlement of the sales order result analysis cost element for the all costs Contracting: Settlementof the WBS, results analysis cost element for all costs Service/Repair: Settlementof the service order or contract, primary or results analysis cost element for all costs Parts: S-Price or V-Price Settlementfrom the productionorders, direct posting and cost center assessment for contracting engineer

Warranty Expense

Total variances OperatingFX Total Other Costs Total Cost of Sales Margin at Actual Engineer Expense Selling Expense AdministrativeExpense IntangiblesAmortization Other Income/Expenses OperatingExpenses Affiliates EBIT

Allocation of all service office cost centers (Variance between actual costs and credited hours) Direct posting from FI

Allocationof all engineeringcost centers (Balance between costs and possible credited hours) without capitalization of intangiblefixed assets and project system settlement Allocationof all sales and marketing costcenters (balance between actual costs and credited hours), credit memo (UPG) + bad debt reserve (direct posting) Allocationof all admin cost centers + direct posting Direct Posting from FI Royalty,gain/loss fixed assets, commission income, Direct Posting or cost center assessment Direct posting

To get this information from other modules to CO-PA we use the following methods: 1. Settlement of make-to-order sales orders, service orders/contracts and projects (Work break down structure = WBS):

To get the revenue and the COGS from the monthly results analysis, the result analysis cost elements have to be linked to the appropriate value field (revenue internal/external or COGS internal/external). Warranty estimated and actual will be assigned to a separate value field estimated or actual. 2. Set-up data transfer from the make-to-stock sales revenues during the invoice process. Transfer with a link of the conditions in the sales order with the appropriate value field (revenue internal/external, COGS internal/external, etc.). Automated transfer of the data with each invoice valuated with the standard cost (S-Price) of this product. 3. Settlement of variances from production orders. After the monthly variance calculation the variances will be settled to CO-PA. Therefore the variance categories (price variance, quantity variance etc.) have to be assigned to the value field variances. 4. Assessment cycles for allocation of the cost center costs. The last step in the period end process of cost center accounting is the assessment of the overhead costs to CO-PA. In an assessment cycle it has to be defined which sender (which cost center or cost center group and which cost element or cost element group) is assigned to which profitability segment. E.g. for the cost centers of the sales offices, the information sales office in the characteristic is necessary to get the P&L of each sales office. 5. Settlement of the internal orders. To get the costs and potential revenues of the internal orders, which are not settled to a cost center, a month end settlement has to be run. The cost elements have to be linked to the appropriate value field here as well. 6. Direct posting from the General Ledger with the profitability segment as cost object. With data entry on special GL accounts (these accounts have to be defined after finishing the chart of accounts) the controlling object is the profitability segment as a combination of the characteristic values. These costs do not appear on cost centers or internal orders. They are only visible in CO-PA and profit center accounting. 4.3.1. Transferring Billing Documents Online Transferring billing documents from the SAP Sales and Distribution (SD) module simultaneously to FI, CO-PCA and CO-PA. The billing documents provide the base data for populating the value fields in CO-PA. The system must transfer billing documents from SAP SD simultaneously to FI, CO-PCA and CO-PA. I dont understand what this means Transferring Incoming Sales Orders Online Valuate incoming sales orders (as expected revenues) and transfer them from SD to CO-PA in order to obtain an early estimate of anticipated profits and to get information about the expected loss on pending orders. By analyzing this data, users can obtain early contribution margins for business segments. The system must transfer sales incoming orders from the SD module to Profitability Analysis. Consideration - Transferring of incoming orders will only apply to legal entities/sales organizations that will be implementing the SD module. 4.3.2. Settlement of Service Orders Sales Orders will be used for Service Sales in some cases. These service sales orders will be used to collect both revenues and costs associated with the service. For period end closing and reporting purposes it is essential to settle these sales orders to profitability segments. The costs/revenues will be settled to cost elements as specified in the settlement structure of the order. The system must be able to settle revenues and costs from service orders to specific cost elements. These cost elements will be linked value fields in Profitability Analysis. 4.3.3. Direct and manual postings By using the post document function in FI to assign sales deductions and costs directly to profitability segments (e.g. customers, products) in CO-PA it is possible to post sales deductions or actual costs that are first accrued at the end of the period for the purposes of estimating profits to the appropriate profitability segments at a later point

in time. This makes it possible to compare your anticipated costs with the final actual costs. Both of these can be displayed in profitability reports. A requirement would be the ability to post to a profitability segment when entering an FI document for the following GL accounts. Revenue accounts that allow manual postings (e.g. liabilities for allowance, rebate, rebate in kind, commission). COGS at Standard accounts that allow manual postings.

Consideration - Revenue and COGS at standard accounts that allow manual posting must be assigned to a field status group that requires postings to profitability segments.

4.4. Assessments
Assessments are used to transfer cost center costs at the end of the period to Profitability Analysis. Assessments move costs using secondary cost elements meaning these allocations are only reflected in the Controlling Module, not in the general ledger in the Financial Module. Assessments are broken down into cycles. An Assessment Cycle is a collection of rules for cost allocation. A given cycle can contain a number of segments. 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.

The sender-receiver relationships defined in a cycle are processed iteratively. Iteration processing is generally used when a sender object is also a receiver object. The cycle processing continues iteratively (repeatedly) until the sender/receiver object is fully credited. This can increase the amount of time needed to process the cycle. If users want to process hierarchies separately, they must define a cycle for each level of the hierarchy. Then they process the cycles in succession.

4.5. Process Description

4.5.1. Global Settings One operating concern will be created, costing-based. Data is stored and can be reported in 2 currencies: Company code currency Operating concern currency (currency = US$).

All Controlling areas assigned to an operating concern will have the same fiscal year variant. In defining the data structure, assign all required characteristics and values to the operating concern. These characteristics are now valid for all operating concerns. Harmonized global decision and maintenance of the characteristics and values is necessary. Avoid frequent changes because of impact on the table structure.

4.6. Valuation
Valuation can be used for the invoice process of standard products with standard costs (S-Price). During the invoicing, the revenue and sales quantity will be posted to CO-PA. At the same time, the valuation will add the calculated standard costs (split by material, labor, overhead) to the appropriate revenue. The use of further possible valuation e.g. imputed commissions will be decided in the specific deployments. Valuation enables companies to calculate cost of goods manufactured/sold, as well as anticipated costs and sales deductions. These valuations can be used in Profitability Analysis for actual postings as well as for planning purposes. The following are examples of valuation requirements: 1. Valuation of Cost of Goods sold for manufactured products:

Product cost estimate will be used to determine the cost of goods. The cost will be transferred to Profitability Analysis and assigned to value fields based on the cost component split and will use the current standard cost estimate. All other sites: the standard cost stored in the material master will be used to determine the cost of goods sold.

2. Valuation of Cost of Goods Sold for merchandise/services (trading goods, raw materials, packaging materials). For all sites the standard cost stored in the material master will be used to determine the cost of goods sold. 3. Valuation of rebate, commission, royalties, freight: Will use conditions in CO-PA to calculate anticipated business costs that are not yet known at the time a sales invoice is processed. These conditions will be defined as either fixed rates for percentages. 4. Valuation of management standard costs: Will use conditions in CO-PA to record the following management standards for corporate analysis purposes: Global Manufacturing Standard Global Manufacturing Standard less Plasma Markup Manufacturing Conversion Standard Global Manufacturing Plasma Capacity

5. Plan Valuation for Cost of Goods: Future Price from Material Master. For all saleable produced products, a standard cost estimate has to be established. Use standard cost accounting for manufactured products.

4.7. Information Systems

The diagram listed below illustrates typical controlling area tasks report option and questions.

Overhead Cost Controlling

Which expenses are also costs?

How can we reduce our

overhead costs?

- Are the areas of

responsibility effective?

Profit Center Accounting

How efficient are my enterprise areas (profit centers)

Product Cost Controlling

How high are the costs - of a product? - of a manufacturing order? - of a project? How profitable are
individual market segments?

Cost Element Accounting

Profitability Analysis

How effective are the sales

organizations?

4.7.1.

Reporting and Analysis

Companies require a management tool for the purpose of sales reporting and analysis. It has to support the analysis and controlling of the profitability of market segment structures according to the following parameters: Market/Franchise/Profit Center. Product/Product hierarchy. Customer. Country.

It must also allow summarization of these parameters by organizational units, for example summarization by legal entity/company code. The goal of this reporting and analysis tool is to provide the sales, marketing, planning, and management organizations with decision-support from a market-oriented point of view. Specifically, the tool should provide profit margin analysis (Revenue, Cost of Goods at Standard, Margin). The most important benefit of CO-PA is the flexible analyzing structure. The CO-PA information system is an online reporting tool. It allows evaluating the data collected in profitability analysis. The system will be used to analyze data using any of the characteristics in the CO-PA system. When using the dynamic drilldown facility, management can draw on any important business ratios (so-called key figures). They can display several profitability segments for any key figure, or several key figures for any profitability segment. Companies may require the ability to: 1. Display sales / contribution margin / performance figures on different levels. 2. Navigate through a multidimensional "data cube" (drilldown or switching hierarchies). 3. Report in local (company code currency) and global (USD) currency. 4. Answer ad hoc inquiries according to sales key figures. 5. Run reports that compare actual fiscal year data. 6. Run reports that compare budget/forecast versions.

7. Run reports that compare budget/forecast versions for actual. 8. Generate an intercompany profit report per article/package and country/market code. 9. Evaluate expected losses on pending orders. 10. Depreciations to the realized selling price. 11. Determine commission for products sold. 12. Run weekly sales report by product/market. Considerations Conversion of data from the missing periods January March for YXXXX. Reporting requirements are met. Work with costing based profitability analysis. Sales reporting will be done based on standard costs. Revenue accounts will need to be created in CO as cost elements with type 11 or 12 (amendments in current controlling and FI account field status necessary). 4.8.2. Contribution Margin

The following illustrations are examples of a Contribution Margin scheme:

Value Field
Sales Equipment Sales Service/Parts Sales - Contracting Total Sales - Outside (incl. Deductions and freight revenue) Sales - Intercompany Total Sales Std cost of Outside Sales ( incl. sales costs like freight only if invoiced (recoverable) to customer, packaging) Cost Intercompany Total Cost of Sales - STD Margin at STD Service overhead Direct Charges (freight costs not billed to the customer non-recoverable) Warranty Expense Variances Operating FX Total Other Costs Total Cost of Sales Margin at Actual Engineering Expense Selling Expense AdministrativeExpense Intangibles Amortisation Other Income/Expenses Operating Expenses

Value Field

Product / Customer Revenue Cost of sales std Margin at std Warranty Variances Service OH/FX Margin at Actual Engineering Selling Admin EBIT X X X X (X)

Operating Income Affiliate Sales Office EBIT

Profit Center X X X X X X X X

Company Code X X X X X X X X X X X

X X X X (X)

X X X

4.8. Reconciliations
To verify the correctness of performance figures, valuation and data in Profitability Analysis it is required to reconcile the posted totals with total results in financial accounting and PCA on an aggregated monthly level. Financial analysts will perform this reconciliation based on SAP reports and their own analysis. It may be required to reconcile COPA to SD, FI and PCA in the following areas: Sales (gross and net) accounts with value fields gross sales by company code and market. COGS (standard costs) from financial accounts with value fields COGS (cost components) for manufactured products and value field COGS for merchandise by company code and market.