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SAP Internal Order Budget

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How to Create an SAP Internal Order Budget

By John Jordan

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An internal order budget, or approved funds, are maintained at either an overall or annual level.

You activate availability control, which can issue warning or error messages based on defined tolerances. Let's look at how you create an internal order budget and activate availability control.

 

 

You maintain a budget profile with Transaction OKOB or via IMG menu path:

  Controlling • Internal Orders • Budgeting and Availability Control

 

Double-click a budget profile to display the screen shown in Figure 1.

Idea 12 001

Figure 1 Internal Order Budget Profile

 

Activation Type 1 indicates Automatic activation of availablity control during budget allocation.

If the Overall checkbox is selected, availability control checks against the overall budget. If it isn't selected, availaiblity control checks against the annual budget.

Availability control works with controlling area currency, unless you select the Object Currency checkbox. You can assign the budget profile to an internal order type with Transaction KOAB or via the first menu path.

You maintain availability control tolerances via the following IMG menu path:

 Controlling • Internal Orders • Budgeting and Availability Control • Define Tolerance Limits for Availibility Control

Left-click then right-click in an action field, select posible entries to display the screen shown in Figure 2.

Idea 12 002

Figure 2 Availability Control Tolerance Limits

 

The action field defines the messages and emails the system will send at specific degrees of budget overrun. In this example, when the budget is nearly consumed at 95%, a warning is issued with an automatic email to the persons responsible. Specify a budget manager with Transaction OK14, or the system will issue an error message. With a budget overrun at 105%, an error message is issued. 

 

You enter an order budget with Transaction KO22 or via menu path:

Accounting • Controlling • Internal Orders • Budgeting • Original Budget

You can enter a budget as shown in the example shown in Figure 3.

Idea 12 003

Figure 3 Change Original Budget Annual Overview

 

The overall budget can be greater than the sum of the annual budgets, but cannot be smaller. The assigned amount of 95,000.00 is due to a manual journal entry and appears in an annual Budget row, because the Overall checkbox in the budget profile in Figure 1 is not selected.

The Planned Total Version 0 amount of 100,000.00 is the original budget. The current budget of 120,000.00 is greater because a budget supplement of 20,000.00 was posted with Transaction KO24 shown in Figure 4.

Internal Order001
Figure 4 Internal Order Budget Sumplement

 

 

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Glossary

 

Activity Input Planning

Just as cost centers can provide planned output services based on activity quantities with Transaction KP26, you can plan cost center activity input quantities from other cost centers with activity input planning using Transaction KP06.

Activity Type

An activity type identifies activities provided by a cost center to manufacturing
orders. The secondary type general ledger account associated with an activity type identifies the activity costs on cost center and detailed reports.

Actual Costing

Actual costing determines what portion of the variance is debited to the next-highest level using material consumption. All purchasing and manufacturing difference postings are allocated upward through the BOM to assemblies and finished goods. Variances can be rolled up over multiple production levels and company codes to the finished product.

Actual Costs

Actual costs debit a product cost collector or manufacturing order during business transactions, for example, general ledger account postings, inventory goods movements, internal activity allocations, and overhead calculation.

Allocation Structure

An allocation structure allocates the costs incurred for a sender by cost element or cost element group, and it is used for settlement and assessment. An assignment maps a source cost element group to a settlement general ledger account.

Alternative Bill of Materials

There can be multiple methods of manufacturing an assembly, and many possible bills of materials (BOMs). The alternative BOM allows you to identify one BOM in a BOM group.

Availability control

Availability control enables you to control costs actively by issuing warnings and error messages when costs are incurred.

Controlling Area Currency

You use the controlling area currency for cost accounting. You specify the controlling area currency when defining the controlling area in customizing for Controlling . You can assign more than one company code with different currencies to a controlling area.

Cost Center

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.

Cost Component

A cost component identifies costs of similar types, such as material, labor, and overhead costs by grouping together cost elements in the cost component structure.

Cost Component Group

Cost component groups allow you to display cost components in standard reports. In the simplest implementation, you create a cost component group for each cost component and assign each group to a corresponding cost component. You assign cost component groups as columns in cost estimate list reports and costed multilevel BOMs.

Cost Component Split

The cost component split is the combination of cost components that makes up the total cost of a material. For example, if you need to view three cost components (material, labor, and overhead) for your reporting requirements, the combination of these three cost components represents the cost component split.

Cost Component Structure

You define which cost components make up a cost component split by assigning them to a cost component structure. Within the cost component structure, you assign cost elements and origin groups to cost components.

Cost Component View

Each cost component is assigned to a cost component view. When you display a cost estimate, you can choose a cost component view, which filters the cost components displayed in the cost estimate.

Cost Element

Cost elements are included as part of a general ledger account. Primary cost elements identify external costs, while secondary cost elements identify costs allocated within controlling, such as activity allocations from cost centers to manufacturing orders.

Cost Estimate  

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.

Costed Multilevel BOM

A costed multilevel BOM is a hierarchical overview of the values of all items of a costed material according to the material’s costed quantity structure (BOM and routing). You display a costed multilevel BOM on the left side of a cost estimate screen. You can also view a costed multilevel BOM separately with Transaction CK86_99.

Costing BOM

Costing BOMs are assigned a BOM usage of costing and are usually copied from BOMs with a usage of production. You can make adjustments to costing BOMs if you require them to be different from production BOMs. With system-supplied settings, standard cost estimates search for costing BOMs before production BOMs.

Costing Lot Size

The costing lot size should be set as close as possible to actual purchase or production quantities to reduce lot size variance. Unfavorable variances may result if you create a production order for a quantity that is less than the costing lot size. You need setup time to prepare equipment and machinery for 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. This also applies to externally procured items because vendors typically quote higher unit prices for smaller quantities.

Costing Run

A costing run is a collective processing of cost estimates, which you maintain with Transaction CK40N.

Costing Sheet

A costing sheet summarizes the rules for allocating overhead from cost centers for cost estimates, product cost collectors, and manufacturing orders. The components of a costing sheet include the calculation base (group of cost elements), overhead rate (percentage rate applied to base), and credit key (cost center receiving credit).

Costing Type

The costing type determines if the cost estimate can update the standard price.

Costing Variant

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.

Currency Type

The currency type identifies the role of the currency such as local or global.

Demand Management

Demand management involves planning requirement quantities and dates for assemblies, as well as defining the strategy for planning and producing/procuring a finished product.

Dependent Requirements

Dependent requirements are caused by higher-level dependent and independent requirements when running MRP. Independent requirements, created by sales orders or manually planned independent requirement entries in demand management, determine lower-level dependent material requirements.

Detailed Reports

Detailed reports display cost element details of manufacturing orders and product cost collectors. You can drill down on cost elements to display line-item reports during variance analysis.

Distribution Rule

You maintain distribution rules in settlement rules in manufacturing orders and product cost collectors.

Event-Based Processing

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.

External Processing

External processing of a manufacturing order operation is performed by an external vendor. This is distinct from subcontracting, which involves sending material parts to an external vendor who manufactures the complete assembly via a purchase order.

Goods Issue

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.

GR/IR

GR/IR is the SAP process to execute the three-way match- purchase order, Material Receipt, as well as vendor invoice. You use a clearing account to record the offset of the Goods Receipt (GR) and Invoice Receipt (IR) postings. As soon as completely processed, the postings in the cleaning account balance.

Internal Order

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 budgeting at an overall level  with availability control.

 

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Long-Term Planning

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.

Margin Analysis

Margin Analysis is the refined version of Account-based COPA. The Universal Journal combines financial and managerial accounting and directly records all dimensions, including custom fields. Margin Analysis provides consistent financial information without any reconciliation needs along with a financial audit trail. All innovations developed for the Universal Journal are immediately available within Margin Analysis. A consistent approach ensures common usage of ledgers, currencies, valuations, predictions, and simulations, as well as their availability in planning and reporting.

Master Data

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.

Material Master

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.

Process Order

A process order is a manufacturing order that is used in process industries. A master recipe and materials list are copied from master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work-step that defines the detail of one part of the production process using a primary resource.
In process manufacturing, only phases are costed not operations. A phase is assigned to a subordinate operation and contains standard values for activities, which are used to determine dates, capacity requirements, and costs.

Internal Order 

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 or annual level or with availability control.

Object Currency

Each object in Controlling, such as a cost center or internal order, may use a separate currency specified in its master data. When you create an object in CO, the default object currency is the currency of the company code to which the object is assigned. You can specify a different object currency only if the controlling area currency is the same as the company code currency. There is an object currency for the sender and an object currency for the receiver.

Process Order

A process order is a manufacturing order that is used in process industries. A master recipe and materials list are copied from master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work-step that defines the detail of one part of the production process using a primary resource.
In process manufacturing, only phases are costed not operations. A phase is assigned to a subordinate operation and contains standard values for activities, which are used to determine dates, capacity requirements, and costs.

Procurement Alternative

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 Order

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

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

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.

Production Version

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.

Purchase Price Variance

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.

Profitability Analysis

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.

Profit Center

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.

Purchasing Info Record

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

Raw materials are always procured externally and then processed. A material master record of this type contains purchasing data but not sales.

Routing

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

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

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.

Settlement

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.

Settlement Profile

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.

Settlement Rule

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.

Setup Time

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.

Simultaneous Costing

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 Element

Source cost elements identify costs that debit objects, such as manufacturing orders and product cost collectors.

Source List

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.

Standard Price

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.

Subcontracting

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 Factor

Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.

Universal Journal

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.

Valuation Class

The valuation class in the Costing 2 view determines which general ledger accounts are updated as a result of inventory movement or settlement.

Valuation Date

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.

Valuation Grouping Code

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.

Valuation Type

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.

Valuation Variant

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.

Valuation View

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

Work Center

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

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.

 

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