BLOG
Let's look at Universal Parallel Accounting with regard to Inventory Accounting and explain the changes in:
Universal Parallel Accounting has two types of parallel valuations for product costing: unconsolidated views (different legal valuations) and a consolidated view (group valuation). The differences are shown in the four UPA Use Cases in Figure 1.
Figure 1 Universal Parallel Accounting Use Cases
With the unconsolidated views, the focus is on valuating materials differently based on corporate and local accounting principles. Typically there is one common accounting principle (such as IFRS) used in all countries and many different accounting principles based on the the local GAAPs in the various countries, and a requirement for actual costing in some countries, such as Brazil. You may already be familiar with this approach if you have worked with the business function “parallel cost of goods manufactured” (FIN_CO_COGM).
The new approach is more extensive since it allows you to carry the same material with multiple legal prices and standard costs and to calculate production variances and contribution margins in each ledger, providing an end-to-end view of product profitability that can vary depending on underlying accounting principles.
With the consolidated view the focus is on achieving a group view for intercompany value flows as distinct from transfer prices used by the affiliated companies as they trade among one another at arm’s length. This approach is also known as group valuation which is different from legal valuation by excluding transfer pricing.
With Universal Parallel Accounting, we introduce a consolidation-like approach in which the intercompany revenues and cost of goods sold (COGS) are eliminated in a separate ledger whenever an intercompany boundary is crossed within the group, such as when a manufacturing company sells to distribution center or the distribution center sells to the selling company who manages the business with the final customer. The “at cost” valuation continues to be supported for the valuation of intercompany goods movements to ensure that profit in inventory is excluded in the group view. Note that profit center valuation is not yet available with Universal Parallel Accounting but is planned for OP2023.
Customers who used group and profit center valuation in the past, stored these additional valuation views in the leading ledger (multi-valuation ledger). The new approach is based on single valuation ledgers, where the unconsolidated views are separated by ledger (as before) and an additional single valuation ledger is enabled for group valuation. Figure 2 provides a schematic view of the new approach, showing two unconsolidated views (or legal valuations) in ledgers 0L and 2L and one consolidated view (or group valuation) in ledger 4G.
If you are not yet using Universal Parallel Accounting, the previous recommendation to use a multi-valuation ledger still applies (see SAP Note: Implementing Transfer Prices). However, with Universal Parallel Accounting, the new ledger for group valuation uses the same accounting principle and fiscal year variant as ledger 0L (previously, Asset Accounting did not support the use of the same accounting principle in multiple ledgers). The ledger settings are delivered as best practice business content, and since Universal Parallel Accounting is only available for greenfield customers, you may find it helpful to use this content when you perform your initial system setup. Be aware also that it is not possible to add additional ledgers once there are accounting entries in the universal journal.
Figure 2 Ledgers in Universal Parallel Accounting
While the need for parallel valuations is likely to drive initial discussions in this area, the other topic of interest for many customers is the ability to use multiple currencies in parallel (see Figure 1). Actual Costing historically supported three currencies, and if you worked with group valuation then currency type 31 (group valuation in group currency) occupied one of the currency columns in the multi-valuation ledger, alongside the column for company code currency and group currency, meaning that international organizations would run out of currencies if they had a requirement for a different functional currency or an index currency in some countries. The universal journal has supported the use of ten currencies since SAP S/4HANA OP1610, but it’s now possible to have up to ten currencies in Actual Costing, allowing you to have a local currency, a group currency, a functional currency, and any other currency needed in the legal ledger and the group valuation currencies in the group ledger. With this approach all currencies are handled consistently in the actual costing run at period close.
Schedule a Call with ERP Corp Consulting Today Click Here
In SAP ERP the currency and valuation profile determined whether the leading currency for group valuation was the controlling area currency (currency type 31) or the local currency (currency type 11).
The leading currency was used to determine which currency would be used to value the intercompany goods transfer in combination with the price condition KW00 and the other currency would be filled using a conversion at the time of posting.
The new approach defines the currencies to be used in the group ledger via the ledger settings and the currency and valuation profile becomes obsolete with Universal Parallel Accounting. Figure 3 shows a sample ledger for group valuation with currency types 11 (local currency) and 31 (group currency) and various additional currencies. In the new approach all currencies are treated equally, allowing you to have a consistent group view in multiple currencies. In other words, an intercompany goods movement will be valued using all currencies active in the group valuation ledger, rather than converting from the leading currency. Note that currency type 20 is no longer supported.
Figure 3 Currency Settings for Group Valuation Ledger
Let’s discuss the different types of prices available in SAP S/4HANA. Since the material ledger is automatically active, you can manage a different material price for the same material (group price and legal price). You can also enter different planned prices, commercial prices, or tax prices for the same material, but it is not possible to have different legal prices for the same material without Universal Parallel Accounting.
With the activation of Universal Parallel Accounting, you can use different material prices as the initial valuation of the goods movements in each ledger and to provide a basis for variance calculation in Production Accounting and the calculation of contribution margins in Margin Analysis. To support the link to the ledger and additional new functions, Universal Parallel Accounting requires the introduction of a new material price table FMLT_PRICE. Figure 4 shows the new Change Material Prices app, with the new price types (STDPR, INVPR, FUTURE, and so on) and the selection by ledger (see header).
Figure 4 Change Material Prices app
The ability to manage ledger-specific material prices applies to both raw materials and trading goods, where the purchase price may be impacted by additional costs for freight and duty, and to finished goods, where the cost of goods manufactured may be impacted by the different assumptions behind the asset values reflected in the activity prices and overhead rates.
It is also possible to update using the material price update API and by excel upload, as shown in Figure 5, where you can either update prices ledger-by-ledger or to all ledgers.
Figure 5 Upload Material Inventory Prices App
This variety is not yet reflected in all classic GUI transactions. If you use transactions MM01-3 to look at your material prices you will only see the legal view in the leading ledger in the Accounting View. By contrast, Material Price Analysis (transaction CKM3N) shows all goods movements and settlements with respect to the ledger, as we see in Figure 6, where we are viewing the goods movements and price changes for material FG228 in ledger 4G. You can use the Curr-/Valuation field to tab through the ledgers and the various currencies configured for these ledgers, allowing material price analysis in up to ten currencies.
Figure 6 Material Price Analysis (Transaction CKM3N) in Group Valuation Ledger
Let's now look at how to create the standard costs that are used as the initial inventory valuation when goods movements are posted. Figure 7 shows the Manage Material Valuations app and the contents of the Standard Cost Estimates tab. Here we see that the standard costs are also stored with respect to a ledger. In the legal ledgers, two approaches are possible. You can either create one standard cost estimate using an existing costing variant that has no reference to a ledger and use it to update both legal ledgers or you can use the new costing variants, P00L which updates ledger 0L and P02L, which updates ledger 2L (or equivalent) if there are significant differences between the two accounting approaches. The cost estimate for group valuation continues to be a separate cost estimate because it supports a different valuation approach (the full BOM explosion is shown in the cost estimate, and the cost components are rolled up across all company codes as before), but now the costing type links the group cost estimate with the group valuation ledger (4G).
Figure 7 Current Material Valuation – Standard Cost Estimates
The ability to create multiple cost estimates for the same material is not new. You could always represent the different assumptions behind your cost estimate (standard costs, forecast, and so on) using different costing variants. What changes is the link to the ledger in the costing type so that you can update the material prices in the correct ledger when you release the cost estimate. Figure 8 shows the existing costing variants (PPC1, PYC1 and PYC2 in this example), which will update the same costs into multiple ledgers and the new costing variants with different costing types per ledger (P00L, P02L, P03L).
Figure 8 Sample Costing Variants
With Universal Parallel Accounting you’ll see the ledger in the costing data and valuation data tabs of the standard cost estimate (transactions CK11N and CK13N) and in the costing run (transaction CK40N). Note that this assignment means that you can treat the costing runs differently depending on the purpose of each ledger, performing local cost estimates company code by company code but creating group cost estimates with a world-wide costing run. Material cost estimates continue to be calculated and stored in the controlling area currency and object currency and are translated into the additional currencies defined for the ledger on release.
As well as creating separate cost estimates for each ledger, you’ll need to mark and release (transaction CK24) the various cost estimates separately for each ledger as shown in Figure 9, where we have linked the company code, the ledger and the costing variant prior to releasing the cost estimates. Releasing a standard cost estimate results in a revaluation of any inventory on hand for that material and produces a journal entry for the revaluation. These standard cost estimates will be accessed to determine the ledger-specific variances on the production orders and the ledger-specific cost of goods sold for the deliveries to the customer. To find out more about how production variances are calculated in the new approach, please refer to Shuge Guo‘s blog: Production Accounting for Universal Parallel Accounting
Figure 9 Marking and Releasing Cost Estimates (transaction CK24)
If you work in a make-to-order environment, the best practice scope item includes new costing variants for the costing of sales orders that follow the same basic principle, the difference being that all inventories are handled as valuated sales order stock which can only be issued to the sales order that triggered the production process. Alternatively, you can create your own costing variants and link the costing types to your ledgers manually.
In an intercompany scenario, the revenues from the intercompany invoice and the cost of goods sold from the intercompany delivery will be posted in all ledgers (the cost of goods sold are ledger-dependent). In the legal ledger, the cost of goods sold are considered arm’s length trading and recognized in the delivering company. However, in the group valuation ledger an elimination posting is made that removes the intercompany cost of goods sold and posts to a valuation clearing account, as shown in Figure 10. Similarly, when the intercompany invoice is made from the delivering company to the selling company, the revenue is recognized in the delivering company in the legal ledger, but an additional elimination posting is made in the group valuation ledger that removes the intercompany revenue to a valuation clearing account.
Figure 10 Group Valuation with Elimination of Intercompany Business in Delivering Company
As the goods are moved from the delivering company to the selling company, the goods movement is valued with the group standard costs calculated using the group standard cost estimate and again stored in the group valuation ledger (4G), as shown in Figure 11. There is no elimination as such, since the group standard costs used to value the goods movement do not include intercompany profit. This replaces the SAP ERP approach where price condition KW00 was used to value the intercompany stock transfer with the group standard costs.
Figure 11 Group Valuation with At Cost Valuation of Intercompany Goods Movement
A full description of the new options for intercompany sales and stock transfers is beyond the scope of this article. To find out more about the new approach, please refer to Gerhard Welker blog: Advanced Intercompany Sales and Stock Transfer
If you work with Actual Costing, there are three scenarios to consider for Universal Parallel Accounting:
1. You only use Actual Costing in those locations that require it and thus need to perform a costing run only in those company codes where the local GAAP requires actual costs.
2. You are in an industry that uses Actual Costing in all locations and need to create costing runs to cover all ledger/company code combinations.
3. You want to run Actual Costing in combination with group valuation, and thus need to ensure that actual costing is active in all company codes associated with the ledger.
The costing run (transaction CKMLCP) is created with reference to a run template (see Figure 12) that contains the link to the ledger, the associated company codes and determines whether the run applies to a single period or year-to-date. This choice will also affect how you calculate actual activity rates – period-by-period or cumulatively over the year.
Since the templates are ledger-specific, you might only create a template for those countries with a requirement for actual costing according to their local GAAP or create templates for all ledgers. The entries in the Company Code Assignment tab will ensure that the costing run covers all plants in the selected company code (it is not possible to deselect plants in a company code). Since the costing run can be run separately for each ledger, you can perform the group valuation run independently of the legal run(s).
Figure 12 Template for Costing Run
The costing run shown in Figure 13 references the run template to determine the relevant ledger, company code(s) and whether the costs apply to a single period or the year-to-date. As we saw in Product Cost Planning you will be calculating actual costs and updating the inventory and cost of goods sold values for each ledger separately. If you perform a costing run for the purposes of group valuation, the ledger includes all company codes in the controlling area, and you’ll need to set up the costing run to include all plants in those company codes.
Note that you will no longer need to work with a separate alternative valuation run to deliver a different legal valuation or cumulate local periodic runs for the purposes of group valuation or year-to-date calculations since the ledger alone determines the purpose and scope of the costing run and each costing run is independent of the others.
Figure 13 Ledger-Specific Costing Run for Actual Costing
Figure 14 provides an overview of the balance sheet valuation functions supported in the past and in combination with Universal Parallel Accounting. The balance sheet valuation programs do not support group valuation.
Figure 14 Balance Sheet Valuation Methods
With Universal Parallel Accounting the tax and commercial prices in the material master are removed and the various balance sheet options are represented as valuation alternatives as shown in Figure 15, where we see the methods (lowest value by market price (LVMP), lowest value by movement rate (LVMR), inventory balance sheet value (IBSV), lowest value by range of coverage (LVRC), and so on) and the link between the valuation alternative and the ledger.
Figure 15 Valuation Alternatives app
The ledger is included in the Adjust Balance Sheet Accounts – Delta Posting app (transaction MRN9N) where the results of the various calculations are used to make balance sheet adjustments at year-end, as shown in Figure 16.
Figure 16 – Adjust Balance Sheet Accounts
Finally, the results of the balance sheet valuation can be displayed in the Inventory Balance Sheet Valuations app, as shown in Figure 17. Notice the fields Valuation Alternative and Ledger in the selection screen.
Figure 17 Inventory Balance Sheet Valuations app
This approach simplifies the abilities of a company to handle the requirements of different accounting principles in inventory management and removes the need for manual work to reflect the different approaches to deal with different material prices, standard costs, actual costs, and balance sheet requirements.
Since this is the first release of Universal Parallel Accounting, it is important to compare the delivered scope with that required for your project, since functions that aren’t supported are not available in the SAP Easy Menu if the business function for universal parallel accounting is active. This means that you won’t find transactions to create material cost estimates without quantity structure or alternative valuation runs in such systems.
Universal Parallel Accounting is activated using a business function. For more details, please refer to the documentation: Business Function: Universal Parallel Accounting
For a full list of restrictions, refer to SAP Note 3191636: Universal Parallel Accounting – Scope Information
This blog coincides with the release of SAP S/4HANA OP2022. This approach was introduced earlier in the cloud and I described the impact on the legal valuation in my previous blog: Inventory Accounting for Universal Parallel Accounting in SAP S/4HANA Cloud 2105. It is planned to offer the functions for group valuation described here to greenfield cloud customers in CE2308 via the scope item 5W2.
Automatic account assignment allows you to enter a default cost center per cost element within a plant with Transaction OKB9.
A cost estimate calculates the plan cost to manufacture a product or purchase a component. It determines material costs by multiplying BOM quantities by the standard price, labor costs by multiplying operation standard quantities by plan activity price, and overhead values by costing sheet configuration.
The costing lot size in the Costing 1 view determines the quantity cost estimate calculations are based on. The costing lot size should be set as close as possible to actual purchase and production quantities to reduce lot size variance.
A goods issue is the movement (removal) of goods or materials from inventory to manufacturing or to a customer. When goods are issued, it reduces the number of stock in the warehouse.
It is a goods movement that is used to post goods received from external vendors or from in-plant production. All goods receipts result in an increase of stock in the warehouse.
An internal order monitors costs and revenue of an organization for short- to medium-term jobs. You can carry out planning at a cost element and detailed level, and you can carry out budgeting at an overall level with availability control.
A profit center receives postings made in parallel to cost centers and other master data such as orders. Profit Center Accounting (PCA) is a separate ledger that enables reporting from a profit center point of view. You normally create profit centers based on areas in a company that generate revenue and have a responsible manager assigned.
If PCA is active, you will receive a warning message if you do not specify a profit center, and all unassigned postings are made to a dummy profit center. You activate profit center accounting with configuration Transaction OKKP, which maintains the controlling area.
A purchasing info record stores all of the information relevant to the procurement of a material from a vendor. It contains the Purchase Price field, which the standard cost estimate searches for when determining the purchase price.
A scheduling agreement is a longer-term purchase arrangement with a vendor covering the supply of materials according to predetermined conditions. These apply for a predefined period and a total purchase quantity.
A standard hierarchy represents your company structure. A standard hierarchy is guaranteed to contain all cost centers or profit centers because a mandatory field in cost and profit center master data is a standard hierarchy node.
The standard price in the Costing 2 view determines the inventory valuation price if price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.
You can apply surcharges to material prices and activity prices in order to take into account increases or decreases in item prices over time when calculating the lifecycle costs for a project.
Target costs are plan costs adjusted by the delivered quantity. For example, if the quantity delivered to inventory is 50% of the plan quantity, target costs are calculated as 50% of the plan costs.
A material master contains all of the information required to manage a material. Information is stored in views, and each view corresponds to a department or area of business responsibility. Views conveniently group information together for users in different departments, for example, sales and purchasing.
An origin group separately identifies materials assigned to the same cost element, allowing them to be assigned to separate cost components. The origin group can also determine the calculation base for overhead in costing sheets.
The Price control field in the Costing 2 view determines whether inventory is valuated at standard or moving average price.
The price unit is the number of units to which the price refers. You can increase the accuracy of the price by increasing the price unit. To determine the unit price, divide the price by the price unit.
Process orders are used for the production of materials or provide services in a certain quantity and on a certain date. They allow resource planning, process order management control, and account assignment and order settlement rules to be specified.
A procurement alternative represents one of a number of different ways of procuring a material. You can control the level of detail in which the procurement alternatives are represented through the controlling level. Depending on the processing category, there are single-level and multilevel procurement alternatives. For example, a purchase order is single-level procurement, while production is multilevel procurement.
A production order is used for discrete manufacturing. A BOM and routing are copied from master data to the order. A sequence of operations is supplied by the routing, which describes how to carry out work-steps.
An operation can refer to a work center at which it is to be performed. An operation contains planned activities required to carry out the operation. Costs are based on the material components and activity price multiplied by a standard value.
Product drilldown reports allow you to slice and dice data based on characteristics such as product group, material, plant, cost component, and period. Product drilldown reports are based on predefined summarization levels and are relatively simple to setup and run.
Production variance is a type of variance calculation based on the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity delivered to inventory. You calculate production variance with target cost version 1. Production variances are for information only and are not relevant for settlement.
A production version determines which alternative BOM is used together with which task list/master recipe to produce a material or create a master production schedule. For one material, you can have several production versions for various validity periods and lot-size ranges.
When raw materials are valued at the standard price, a purchase price variance will post during goods receipt if the goods receipt or invoice price is different from the material standard price.
Costing-based profitability analysis enables you to evaluate market segments, which can be classified according to products, customers, orders (or any combination of these), or strategic business units, such as sales organizations or business areas concerning your company’s profit or contribution margin.
SAP Profit Center is a management-oriented organizational unit used for internal controlling purposes. Segmenting a company into profit centers allows us to analyze and delegate responsibility to decentralized units.
A purchasing info record stores all the information relevant to the procurement of a material from a vendor. It contains the Purchase Price field, which the standard cost estimate searches for when determining the purchase price.
Raw materials are always procured externally and then processed. A material master record of this type contains purchasing data but not sales.
A routing is a list of tasks containing standard activity times required to perform operations to build an assembly. Routings, together with planned activity prices, provide cost estimates with the information necessary to calculate labor and activity costs of products.
Sales and operations planning (SOP) allows you to enter a sales plan, convert it to a production plan, and transfer the plan to long-term planning.
S&OP is slowly being replaced by SAP Integrated Business Planning for Supply Chain (SAP IBP), which supports all S&OP features. S&OP is intended as a bridge or interim solution, which allows you a smooth transition from SAP ERP to on-premise SAP S/4HANA and SAP IBP. See SAP Note 2268064 for details.
SAP Fiori is a web-based interface that can be used in place of the SAP GUI. SAP Fiori apps access the Universal Journal directly, taking advantage of additional fields like the work center and operation for improved variance reporting.
Work in process (WIP) and variances are transferred to Financial Accounting, Profit Center Accounting (PCA), and Profitability Analysis (CO-PA) during settlement. Variance categories can also be transferred to value fields in CO-PA.
A settlement profile contains the parameters necessary to create a settlement rule for manufacturing orders and product cost collectors and is contained in the order type.
A settlement rule determines which portions of a sender’s costs are allocated to which receivers. A settlement rule is contained in a manufacturing order or product cost collector header data.
You need setup time to prepare equipment and machinery for the production of assemblies, and that preparation is generally the same regardless of the quantity produced. Setup time spread over a smaller production quantity increases the unit cost.
The process of recording actual costs for cost objects, such as manufacturing orders and product cost collectors in cost object controlling, is called simultaneous costing. Costs typically include goods issues, receipts to and from an order, activity confirmations, and external service costs.
Source cost elements identify costs that debit objects, such as manufacturing orders and product cost collectors.
A source list is a list of available sources of supply for a material, which indicates the periods during which procurement is possible. Usually, a source list is a list of quotations for a material from different vendors.
You can specify a preferred vendor by selecting a fixed source of supply indicator. If you do not select this indicator for any source, a cost estimate will choose the lowest cost source as the cost of the component. You can also indicate which sources are relevant to MRP.
The standard price in the Costing 2 view determines the inventory valuation price when price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.
You supply component parts to an external vendor who manufactures the complete assembly. The vendor has previously supplied a quotation, which is entered in a purchasing info record with a category of subcontracting.
Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.
The efficiency and speed of the SAP HANA in-memory database allowed the introduction of the Universal Journal single line-item tables ACDOCA (actual) and ACDOCP (plan). The Universal Journal allows all postings from the previous financial and controlling components to be combined in single items. The many benefits include the development of real-time accounting. In this book, we discuss both period-end and event-based processing.
The valuation class in the Costing 2 view determines which general ledger accounts are updated as a result of inventory movement or settlement.
The valuation date determines which material and activity prices are selected when you create a cost estimate. Purchasing info records can contain different vendor-quoted prices for different dates. Different plan activity rates can be entered per fiscal period.
The valuation grouping code allows you to assign the same general ledger account assignments across several plants with Transaction OMWD to minimize your work.
The grouping code can represent one or a group of plants.
You use valuation types in the split valuation process, which enables the same material in a plant to have different valuations based on criteria such as batch. You assign valuation types to each valuation category, which specify the individual characteristics that exist for that valuation category. For example, you can valuate stocks of a material produced in-house separately from stocks of the same material purchased externally from vendors. You then select procurement type as the valuation category and internal and external as the valuation types.
The valuation variant is a costing variant component that allows different search strategies for materials, activity types, subcontracting, and external processing. For example, the search strategy for purchased and raw materials typically searches first for a price from the purchasing info record.
Valuation Variant for Scrap and WIP
This valuation variant allows a choice of cost estimates to valuate scrap and WIP in a WIP at target scenario. If the structure of a routing is changed after a costing run, WIP can still be valued with the valuation variant for scrap and WIP resulting in a more accurate WIP valuation.
In the context of multiple valuation and transfer prices, you can define the following views:
– Legal valuation view
– Group valuation view
– Profit center valuation view
Operations are carried out at work centers representing; for example, machines, production lines, or employees. Work center master data contains a mandatory cost center field. A work center can only be linked to one cost center, while a cost center can be linked to many work centers.
Work in process (WIP) represents production costs of incomplete assemblies. For balance sheet accounts to accurately reflect company assets at period end, WIP costs are moved temporarily to WIP balance sheet and profit and loss accounts. WIP is canceled during period-end processing following delivery of assemblies to inventory.
For the latest updates
Janet Salmon is the Chief Product Owner for Management Accounting at SAP AG. Janet is known to many SAP Financials professionals for her writings on Controlling and related subjects in SAP Financials Expert. She recently published her first book for SAP PRESS Controlling with SAP – Practical Guide. Janet has overseen many SAP Controlling functionality product developments both as a Product and Solution Manager. Most recently she spearheaded changes to the user interfaces within Controlling and data transfer from Controlling to SAP HANA.
Comments