(03) Cost-Based POC Method 

Use

You can use the cost-based POC method for:

With the cost-based POC method you can:

The POC method is often used in Britain and North America. Because German law does not allow unrealized profits to be reported, the POC method is used in Germany only for internal information purposes.

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 = C(a) / C(p)

C(PA) = POC * C(p) = C(a) / C(p) * C(p) = C(a)

R(PA) = POC * R(p) = C(a) / C(p) * R(p)

The calculated costs are equal to the actual costs. These costs can be passed to CO-PA together with the calculated revenue.

If the actual revenue is greater than the calculated revenue, the system creates a revenue surplus. The revenue surplus is basically a reserve.

If the actual revenue is less than the calculated revenue, the system creates revenue in excess of billings.

The calculated revenue and the revenue surplus can be transferred to FI and EC-PCA when you settle.

Example

You have planned a revenue of USD 200,000 and costs of USD 120,000 for a 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:

You then settle the following:

The following values are reported in CO-PA:

Profitability Analysis

Calculated revenue

33,333

Cost of sales (actual costs)

20,000

Profit

13,333

The income statement shows the following values:

Income Statement

Expense

Revenue

Actual costs 20,000

Actual revenue 0

Profit 13,333

Revenue in excess of billings 33,333

33,333

33,333

Although no revenues have been received, profit has already been capitalized.

Period 02

In period 02 the actual costs increase to 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:

You then settle the following:

The following values are reported in CO-PA:

Profitability Analysis

Calculated revenue

133,333

Cost of sales (actual costs)

80,000

Profit

53,333

The income statement shows the following values:

Income Statement

Expense

Revenue

Actual costs 80,000

Actual revenue 100,000

Profit 53,000

Revenue in excess of billings 33,000

133,000

133,000

Profit is capitalized in the revenue in excess of billings. This results in a profit of USD 53,000.

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 USD 190,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:

You then settle the following:

The following values are reported in CO-PA:

Profitability Analysis

Calculated revenue

150,000

Cost of sales (actual costs)

90,000

Profit

60,000

The income statement shows the following values:

Income Statement

Expense

Revenue

Actual costs 90,000

Actual revenue 190,000

Revenue surplus 40,000

 

Profit 60,000

 

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 total revenue is USD 200,000. The order is now fully delivered and fully invoiced.

In results analysis, the system calculates the following data:

You then settle the following:

The following values are reported in CO-PA:

Profitability Analysis

Calculated revenue

200,000

Cost of sales (actual costs)

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.