BLOG
Welcome to the latest SAP S/4HANA edition of this groundbreaking SAP book.
The first edition in 2007 was the first-ever book on SAP Controlling (CO), which explains SAP CO in an easy-to-understand way and has continued to be popular and attract positive reader feedback and comments from our SAP Controlling community.
The 2nd edition was released in 2011 with a revised and improved layout, and new content based on SAP ERP 6.0, continued as a best-seller, and has remained in the SAP Press catalog.
To completely transform the book to the latest SAP S/4HANA version, I asked Janet Salmon, Chief Product Owner of Management Accounting at SAP SE, to co-author with me. We've included S/4HANA version 2021 screenshots and content throughout the book, and S/4HANA version 2022 in the new chapter 7 on event-based processing, SAP Fiori Apps and the future direction of SAP S/4HANA.
Chapter 7 discusses new options for variance analysis delivered with SAP S/4HANA Cloud when you use scope item 3F0 (Event-Based Production Cost Posting) and SAP S/4HANA 2022, with the business function for universal parallel accounting.
We're excited to have our book published with SAP Press on Jan 26, 2023.
Please find a chapter-by-chapter review of the updated contents and structure in this blog.
We provide an overview of the planning process to set the baseline for variance analysis.
Figure 1 Sales and Operations Planning
We look at sales and operations planning (S&OP) as shown in Figure 1. We also examine long-term planning to determine the raw materials to be purchased and the available manufacturing capacity to be reserved.
We look at cost center planning and how to combine the planned expenses and activity usage with setting the plan activity rates for activities.
We introduce master data, explaining the material master, BOM, routing, and work center to create cost estimates as shown in Figure 2.
We present the role of the costing sheet in determining the overhead to be applied to your raw materials and manufacturing activities. We also discuss configuration settings for the cost components and the costing variant.
Figure 2 Cost Estimate BOM and Routing
We then provide instructions for creating and releasing a cost estimate to set the standard price for a single material. We introduce the costing run to develop the standard costs for all materials in a plant. Where multiple production options exist for a material, we explain how to use a mixed cost estimate to combine different production or procurement alternatives to deliver one standard cost.
We introduce the Universal Journal and its impact on primary and secondary costs. We walk through the steps on the shop floor such as production order and process order activity confirmation and component goods issue that result in actual postings as shown in Figure 3.
One of the fundamental changes in SAP S/4HANA is that the work center and operation are now part of the data structure for variance analysis.
Figure 3 Production Order Actual Costs During Goods Issue
We introduce two new critical SAP Fiori apps:
We explain how to configure SAP S/4HANA to calculate production variances and the variance categories to demonstrate their impact, including cost center and purchase price variance PPV.
We include detailed examples to help you easily understand period-end processing including overhead, Work in Process WIP, variance calculation and settlement.
Figure 4 Variance Splitting Profile
We explain actual costing and how it rolls up purchase and production variances through the value chain as shown in Figure 4.
We walk through scrap calculation.
Figure 5 Component Scrap Increases Component Input Quantity
We explain the types of scrap, including Assembly Scrap, Component Scrap, and Operation Scrap, and their interaction as shown in Figure 5.
We explain the impact of production variances on product profitability and walk through the options to analyze data in detail.
Figure 6 Standard Cost Center Reporting
We look at standard reports in detail including Cost Center Reporting as shown in Figure 6.
We explore both classic reports and tools and SAP Fiori apps.
We show how SAP is moving away from calculating production variances at period-end toward a new approach that sees the production variances calculated with every final goods receipt, known as event-based variance analysis as shown in Figure 7.
Figure 7 Event-Based Production Cost Cycle
Chapter 7 explains scrap and mixed price variances.
Chapters 1 to 6 are written and illustrated based on an on-premise SAP S/4HANA 2021 system.
Chapter 7 discusses new options for variance analysis delivered with SAP S/4HANA Cloud when you use scope item 3F0 (Event-Based Production Cost Posting) and SAP S/4HANA 2022, with the business function for universal parallel accounting.
If you have any questions, please: Contact Us
A bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs, and purchasing info records allow cost estimates to calculate material costs of assemblies.
A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period end.
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 by costing sheet configuration.
A costing run is a collective processing of cost estimates, which you maintain with Transaction CK40N.
The costing variant contains information on how a cost estimate calculates the standard price. For example, it determines if either the purchasing info record price is used for purchased materials, or an estimated price is manually entered in the Planned price 1 field of the Costing 2 view.
As of SAP S/4HANA release 2022, event-based processing is available, where goods movements and confirmations represent events that trigger the calculation of overhead according to the costing sheet. Then, depending on the status of the order, this triggers either the posting of a journal entry for the work in process (WIP) or the cancellation of any existing WIP and the calculation of production variances.
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.
Long-term planning allows you to enter medium- to longer-term production plans, and simulate future production requirements with long-term MRP. You can determine future purchasing requirements for vendor RFQs, update purchasing info records, and transfer planned activity requirements to cost center accounting.
Master data is information that stays relatively constant over long periods of time. For example, purchasing info records contain vendor information such as a business name, which usually doesn’t change.
A material master contains all 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.
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.
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.
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.
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.
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.
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.
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.
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
John Jordan is Lead SAP Controlling Consultant at ERP Corp. We improve your SAP Material Ledger, Profitability Analysis, and Controlling experience and prepare you for SAP S/4HANA. Contact John at jjordan@erpcorp.com
Comments