(01) Revenue-Based Method with Profit Realization 
Use
You can use the revenue-based method with profit realization for:
Sales orders
Projects
Internal orders with revenue, service orders with revenue, maintenance orders with revenue
Revenue-based results analysis allows you to:
Create reserves for unrealized costs
Create reserves for imminent losses
Use milestone billing
Show interim profits
Profit realization is understood to mean showing interim profits. Interim profits arise when the revenue in a period is greater than the cost of sales and the difference is shown as a profit even though further revenues and costs are expected.
Prerequisites
You have planned costs and revenues.
Choose a results analysis method in simplified Customizing for
Product Cost by Sales Order
under
Period-End Closing
Results Analysis
Valuation Method
.
Features
POC = R(a) / R(p)
C(PA) = COS * C(p) = R(a) / R(p) * C(p)
R(PA) = COS * R(p) = R(a) / R(p) * R(p) = R(a)
The revenue affecting net income equals the actual revenue. It can be allocated to CO-PA together with the cost of sales (costs affecting net income).
If the actual costs are greater than the costs affecting net income, the system creates capitalized costs (WIP).
If the actual costs are less than the costs affecting net income, the system creates reserves for unrealized costs.
Inventory values and reserves for unrealized costs can be transferred to FI and EC-PCA when you settle.
The cost of sales is zero as long as your actual revenue up to the results analysis period is zero. The capitalized costs then equal the actual costs incurred up to the results analysis period. Earnings are only calculated when revenues have been received.
Example
You have planned revenues of USD 200,000 and costs of USD 120,000 for your sales order.
Period 01
In period 01 you have actual costs of USD 20,000 but no revenues. In results analysis, the system calculates the following data:
Capitalized costs in the amount of the actual costs (USD 20,000)
Revenue of USD 0
Cost of sales of USD 0
You then settle the capitalized costs to FI and EC-PCA. No line item is generated for CO-PA.
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
0 |
Cost of sales |
0 |
Result |
0 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 20,000 |
Inventory increase Capitalized costs 20,000 |
20,000 |
20,000 |
Period 02
In period 02 the actual costs increase by USD 60,000 and now total USD 80,000. You deliver to your customer and send him a milestone invoice for USD 100,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:
Cost of sales of USD 60,000 using the formula: Costs Affecting Net Income = Actual Revenue / Planned Revenue * Planned Costs
Capitalized costs of USD 20,000 using the formula: Capitalized Costs = Actual Costs – Costs Affecting Net Income if Actual Costs > Costs Affecting Net Income
Revenue affecting net income of USD 100,000
You then settle the following:
The cost of sales to CO-PA
The revenues to CO-PA
The change in the capitalized costs to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
100,000 |
Cost of sales |
60,000 |
Profit |
40,000 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 80,000 |
Actual revenue 100,000 |
Profit 40,000 |
Inventory increase Capitalized costs 20,000 |
120,000 |
120,000 |
If you are using the revenue-based method with profit realization, the system creates an income surplus in Financial Accounting of USD 40,000 that has not been realized on the market in the full amount. If you don’t want to report this surplus, you can use the revenue-based method without profit realization .
Period 03
In period 03 the actual costs increase to USD 90,000. You deliver a second amount to your customer and send him a second milestone billing for USD 90,000. The total revenue is now USD 190,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:
Cost of sales of USD 114,000 using the formula: Costs Affecting Net Income = Actual Revenue / Planned Revenue * Planned Costs
Reserves for unrealized costs of USD 24,000 using the formula: Reserves for Unrealized Costs = Costs Affecting Net Income – Actual Costs if Actual Costs < Costs Affecting Net Income
The system cancels the capitalized costs of USD 20,000. The system creates reserves for unrealized costs in the amount of USD 24,000.
Revenue affecting net income of USD 190,000
You then settle the following:
The change in the cost of sales to CO-PA
The change in the revenues to CO-PA
The change in the capitalized costs and the reserves for unrealized costs to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
190,000 |
Cost of sales |
114,000 |
Profit |
76,000 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 90,000 |
Actual revenue 190,000 |
Reserves for unrealized costs 24,000 |
|
Profit 76,000 |
|
190,000 |
190,000 |
Period 04
In period 04 the actual costs increase to USD 130,000. You deliver the remaining goods and send the customer the final invoice for USD 10,000. The order is now fully delivered and fully invoiced.
In results analysis, the system calculates the following:
Cost of sales of USD 130,000
Since the actual costs exceed the planned costs, the system sets the cost of sales to the value of the actual costs.
No reserves for unrealized costs. The existing reserves are canceled.
Revenue affecting net income of USD 200,000
You then settle the following:
The change in the cost of sales to CO-PA
The change in the revenues to CO-PA
The cancellation of the reserves to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
200,000 |
Cost of sales |
130,000 |
Profit |
70,000 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 130,000 |
Actual revenue 200,000 |
Profit 70,000 |
|
200,000 |
200,000 |
The order has a total profit of USD 70,000.