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 (05) Quantity-Based POC Method Locate this document in the navigation structure

Use

You can use the quantity-based POC method for:

  • Sales orders

  • Projects

  • Internal orders with revenue, service orders with revenue, maintenance orders with revenue

With the quantity-based POC method you can:

  • Determine the revenue affecting net income on the basis of the actual quantity This enables you to report a profit before any revenue has actually been received.

  • Determine the costs affecting net income

  • Determine the revenue in excess of billings

  • Determine the capitalized costs

  • Determine the reserves for unrealized costs

  • Determine revenue surplus

  • Report unrealized profits

You use the Base Quantity field in Customizing for the valuation method to control which quantities are used in the calculation. With sales orders, you can use the billing quantity or the delivery quantity as a basis for the actual quantity. The planned quantity then equals the quantity in the sales order item.

The POC method is often used in Britain and North America. Since 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, revenues, and quantities.

Choose a results analysis method in simplified Customizing for Product Cost by Sales Order under   Period-End Closing   Results Analysis   Valuation Method   .

Features

POC = Q(a) / Q(p)

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

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

If actual costs are greater than the costs affecting net income, the system creates capitalized costs.

If actual costs are less than the costs affecting net income, the system creates reserves for unrealized costs.

If actual revenue is less than the revenue affecting net income, the system creates revenue in excess of billings.

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

Revenue affecting net income and costs affecting net income can be settled to CO-PA.

Capitalized costs, reserves for unrealized costs, revenue in excess of billings, and revenue surplus can be transferred to FI and EC-PCA when you settle.

Example

You have planned revenue of USD 200,000 and costs of USD 120,000 for a sales order. The planned order quantity is 100 units. The base quantity is the invoiced quantity.

Period 01

In period 01 you have actual costs of USD 20,000. You have not billed the customer. In results analysis, the system calculates the following data:

  • No costs affecting net income

  • No revenue affecting net income

  • Capitalized costs using the formula: Capitalized Costs = Actual Costs – Cost of Sales (= costs affecting net income)

You then settle the capitalized costs to FI and EC-PCA.

The following values are reported in CO-PA:

Profitability Analysis

Revenue

0

Cost of sales

0

Profit

0

The income statement shows the following values:

Income Statement

Expense

Revenue

Actual costs 20,000

Capitalized costs 20,000

Profit 0

 

20,000

20,000

Period 02

In period 02 actual costs increase to USD 80,000. You deliver to your customer and send him a milestone invoice for USD 100,000. The invoiced quantity is 40 units. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:

  • Revenue affecting net income of USD 80,000

  • Costs affecting net income of USD 48,000

  • Capitalized costs of USD 32,000

  • Surplus revenue of USD 20,000

You then settle the following:

  • The revenue affecting net income to CO-PA together with the costs affecting net income

  • The change in the capitalized costs and the revenue surplus to FI and EC-PCA

The following values are reported in CO-PA:

Profitability Analysis

Revenue

80,000

Cost of sales

48,000

Profit

32,000

The income statement shows the following values:

Income Statement

Expense

Revenue

Actual costs 80,000

Actual revenue 100,000

Revenue surplus 20,000

Capitalized costs 32,000

Profit 32,000

 

132,000

132,000

Period 03

In period 03 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. Total revenue is USD 190,000. The total invoiced quantity is 80 units. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:

  • Costs affecting net income of USD 96,000

  • Revenue affecting net income of USD 160,000

  • Reserves for unrealized costs of USD 6,000

  • Surplus revenue of USD 30,000

  • No capitalized costs The capitalized costs calculated in the prior period are canceled in period 03.

You then settle the following:

  • The change in the revenue affecting net income and in the costs affecting net income to CO-PA

  • The change in the revenue surplus, 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

Revenue

160,000

Cost of sales

96,000

Profit

64,000

The income statement shows the following values:

Income Statement

Expense

Revenue

Actual costs 90,000

Actual revenue 190,000

Revenue surplus 30,000

 

Reserves for unrealized costs 6,000

 

Profit 64,000

 

190,000

190,000

Period 04

In period 04 actual costs increase to USD 130,000. You deliver the remaining goods and send the customer the final invoice for USD 10,000. Total revenue is USD 200,000. The total invoiced quantity is 100 units. The order is now fully delivered and fully invoiced.

In results analysis, the system calculates the following data:

  • Costs affecting net income of USD 130,000

  • Revenue affecting net income of USD 200,000

You then settle the following:

  • The change in the revenue affecting net income and in the costs affecting net income to CO-PA

  • The cancellation of the revenue surplus and of the reserves for unrealized costs to FI and EC-PCA

The following values are reported in CO-PA:

Profitability Analysis

Revenue

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.