Last updated on Nov 24, 2023
There are 7 sub-modules that make SAP CO more effective and beneficial in any organization.
Let’s know them one by one;
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A Cost center is defined as a component of an organization that adds up the cost and profit values indirectly. The best example for Cost center is Marketing and customer services.
A cost center can be further divided into three sub-components they are;
The simple and straightforward method used in an organization is a cost center because it’s easy to measure.
Now we will discuss how does Cost center hierarchy look like;
How to create a cost center?
Now let’s see step by step guide to creating a cost center;
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SAP CO- internal orders
The internal orders in CO monitor the cost and revenue of an organization. The below are the few scenarios where you can make use of internal orders;
SAP CO profit center manages the internal control of an organization. Once you divide your organization into profit centers, that will allow into delegate responsibility to decentralize units and make them a separate company within the profit center. This also calculates the key figures in cost accounting such as ROI (rate of interest) and cash flow etc.
The profit center is a part of the enterprise controlling module and also integrates with the new general ledger accounting.
Key features of profit center:
The profit center accounting usually monitors the internal cost and profit of an organization. The below are the important key features of a profit center;
This profit center allows organizations to analyze the fixed assets and in many cases, they can be used as investment centers.
It also allows you to expand profit centers into investment centers.
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Why does an organization need a profit center?
The main purpose of creating a profit center in any organization is to analyze the total cost of the product line and business units.
With the help of a profit center in CO, you can also generate a profit and loss ledger, and balance sheet maintenance. However, the Profit center is mostly used for internal purposes only.
The key components of Profit center:
The following are the major key components of the profit center;
SAP CO - product costing
The product costing is an important module of SAP CO that is used to find the internal value of the product. The main purpose of adopting product costing in any organization is to know the complete value of the profitability and account management for the production.
While configuring the product costing, you need to be aware of these two things;
The basic thing of product costing is “cost center planning”. The main aim of using cost center planning is to know total dollar billing and the quantities of each product in a plant.
Creation of product costing:
The T-code is used to create product costing is KP06-> then enter the controlling area details.
The cost center planning is done by activity type and cost elements. You can also create the variable and fixed dollar amount.
The product costing window looks like this;
To specify the cost center quantities use the T-code and you can also manually enter the activity rate which is based on a yearly rate.
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SAP CO - Profitability analysis:
SAP controlling profitability analysis helps to analyze the market segments such as products, consumers, sales area, and business area.
SAP CO profitability analysis can be further classified into three categories such as;
Points to remember:
Profit analysis market segments can be of any types like;
Combination of products, orders, or customers.
Strategic business units may be of the sales organization.
Business areas or company’s profit.
Profitability analysis supports two methods such as;
Costing based profitability analysis:
This type of profitability analysis groups the costs and revenues values as per the fields. It also gives the short-term and complete profit values.
Account-based profitability analysis: it is used to define the profitability report within the financial accounting. This is mainly used for gathering information on sales, marketing, corporate planning, and product management.
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The below are the key components of profitability analysis;
Actual posting: this component allows you to transfer the sales order and billing documents from sales and distribution into real-time Controlling profitability analysis. Even with the help of a PA you can also able to transfer costs, cost center, orders, projects, and revenues from direct posting to profitability segments.
Information system: this component allows the business centers to analyze the existing data from a drill-down function in a reporting manner. The purpose of using the drill-down function is to manage the reporting data in a standard hierarchy structure.
Planning: Planning is an essential component of profitability analysis and allows you to create sales and profit plans. The most commonly used one is manual planning, which defines the planning screens for your organization. With the help of manual planning, you can perform tasks like data planning, creating forecasts, and calculating planning.
SAP CO -planning methods:
SAP CO planning strategy enables organizations to plan for the dynamic segments as stated in the packages planned.
There are 2 types of the planning methods available,
Manual planning: this type of planning allows organizations to plan cost information and display them in the profit segments.
Automatic planning: this type of planning allows organizations to make use of methods like a copy, as well as top-down distributions, delete, and planning of profitability segments.
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Enterprise resource planning is a mandatory thing to manage the organization resources, you can take from manpower to financial planning. When it comes to financial planning, SAP CO plays a vital role in managing and controlling the cost, loss, and profits. From this article, you may get a piece of useful information about CO’s different methods, and how to manage cost centers to achieve successful profitable outcomes.
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Kavya works for HKR Trainings institute as a technical writer with diverse experience in many kinds of technology-related content development. She holds a graduate education in the Computer science and Engineering stream. She has cultivated strong technical skills from reading tech blogs and also doing a lot of research related to content. She manages to write great content in many fields like Programming & Frameworks, Enterprise Integration, Web Development, SAP, and Business Process Management (BPM). Connect her on LinkedIn and Twitter.
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