Integration of Cost Object Controlling 
The application component Cost Object Controlling is integrated with a number of other application components including external accounting, further components in Controlling, and components in logistics such as Production Planning (PP) and Materials Management (MM). The integration of Cost Object Controlling in the SAP system is illustrated in the following using the example of a manufacturing company.
Cost Object Controlling receives a wide range of data from these application components and also sends data to these components.
Data Used by Cost Object Controlling
Legend | |
|---|---|
CO-PA | Profitability Analysis |
CO-PC-ACT | Actual Costing/Material Ledger |
CO-PC-PCP | Product Cost Planning |
CO-PC-OBJ | Cost Object Controlling |
CO-OM | Overhead Management Includes CO-OM-CCA (Cost Center Accounting) and CO-OM-ABC (Activity-Based Costing) |
EC-PCA | Profit Center Accounting |
CO | Controlling |
FI | Financial Accounting |
MM | Materials Management |
PP | Production Planning |
Direct costs are costs that can be traced directly to specific cost objects. Direct costs are posted using primary cost elements. This means that these cost elements have matching expense accounts in Financial Accounting. A posting to an expense account therefore results in a cost that can be traced directly to a specific cost object.
An example of a direct cost is a direct materials cost. When a raw material or semifinished product is withdrawn from inventory to be used in manufacturing a finished product, a posting is generated to expense accounts in Financial Accounting. You enter material withdrawals (goods issues) in the application component Materials Management (MM). The direct materials costs are allocated to the cost object.
Note
The system can also access this data during the planning stage. Cost estimates at the material level are created in the application component Product Cost Planning. Preliminary cost estimates for cost objects are created in the application component Cost Object Controlling (see also:Sequence of Steps in Cost Object Controlling: Scenario ).
Indirect costs are costs that cannot be assigned directly to particular cost objects. An example of an indirect cost is the cost of electricity for a machine that produces different products.
Indirect costs are usually first allocated from Financial Accounting to cost centers.
Cost centers are areas that perform defined activities for other cost centers or cost objects. These activities are valued and updated using secondary cost elements, which is a cost element that does not have a matching expense account in Financial Accounting. Secondary costs are therefore valuated consumptions of internal activities.
Note
Sometimes cost centers also assign direct costs to cost objects. This is to enable monitoring of cost center costs. The direct production costs are allocated from the cost centers to the cost objects.
In the SAP system, indirect costs can be allocated to cost objects with a number of different methods:
Internal activity allocation
Internal activity allocation credits the cost center and debits the cost object. Internal activity allocation can be started manually in the menu of Cost Center Accounting or Cost Object Controlling. You can also start internal activity allocations through other business transactions. This means that the system automatically generates internal activity allocations when operations are confirmed in Production Planning (PP).
You can also link the PP confirmation to a goods movement in MM. When the confirmation is entered in PP, the system can generate a goods issue in MM in addition to the internal activity allocation. Confirmations in PP then cause a posting in FI in addition to the activity allocation in Cost Center Accounting (CO-OM-CCA). In repetitive manufacturing, you can also start activity allocations through goods receipt postings.
Overhead rates
Overhead allocation credits the cost center and debits the cost object. You perform overhead allocation in the period-end closing process of Cost Object Controlling. You can allocate processes manually or through automatic process allocation. Processes can be charged with primary and secondary costs.
Allocation of process costs
Allocation of process costs credits the process and debits the cost object. Automatic process allocation is started by template allocation and is performed in the period-end closing of Cost Object Controlling. Template allocation also enables you to allocate activity types. The cost center is credited and the cost object is debited. Cost objects can also be debited by repostings.
NoteEven if you don’t implement the entire range of activity-based costing functions (CO-OM-ABC), you can still use templates to allocate overhead.
See also:
End of the note.
Primary and secondary costs are allocated to cost objects under the cost element of the secondary or primary cost, including the origin if desired (such as the material number and plant). You can view and analyze costs on cost objects at any time.
Data Generated by Cost Object Controlling
* Only supported in Product Cost by Sales Order
Legend | |
|---|---|
CO-PA | Profitability Analysis |
CO-PC-ACT | Actual Costing/Material Ledger |
EC-PCA | Profit Center Accounting |
Functions in other application components can generate data in Cost Object Controlling and in other application components. For example, when a finished product is transferred to inventory, you enter a goods receipt in MM. This goods receipt generates postings in FI, which credits the cost object. The inventory level in FI is increased. You can also automatically create this goods receipt when you confirm in PP.
Note
Semifinished products and finished products should be valuated at the standard price (see also: Basic Decisions in Cost Object Controlling). If the price control indicator in the master record for semifinished and finished products is set to S (standard price), this has the following effects:
The materials are valuated at the standard price when they are transferred to inventory.
The total inventory value is therefore the quantity of material in inventory multiplied by the standard price.
The materials are withdrawn at standard price when you enter a goods issue.
The standard price is usually calculated in a standard cost estimate for the material that you have created in the application component Product Cost Planning.
In some cases, costs may be incurred for a material before all of the planned quantity has been produced. This means that an expense is recorded in FI that reduces the profit, even though this expense is part of the value-added process. To account for this, the value of work in process can be calculated during the period-end closing process in Cost Object Controlling and settled to FI. This settlement debits the work-in-process inventory account and credits the work-in-process inventory change account. Because the profit in Profit Center Accounting (EC-PCA) is usually calculated using period accounting, the work in process can also be transferred into EC-PCA.
Reserves (such as for unrealized costs) also can be transferred to FI and EC-PCA.
See also:
Work in Process in Product Cost by Period
Work in Process in Product Cost by Order
Settlement in Product Cost by Order or Period
Differences on the cost object between the debit (posting of actual costs) and credit (delivery of finished products to inventory) also are transferred to FI. Settlement ensures that the actual costs are reported in FI. Settlement can also transfer the price difference to EC-PCA and Actual Costing/Material Ledger. This amount is also settled to Profitability Analysis (CO-PA), usually broken down into variance categories.
See also: Variance Calculation
Note
Not all costs in cost accounting have corresponding expense postings in Financial Accounting. Cost accounting often uses what are called imputed costs. There are different types of imputed costs:
Costs for which there is a different expense amount in financial accounting. These are called valuation differences. Example: imputed depreciation charges based on the replacement value.
Costs for which there is no corresponding expense in financial accounting. These are called additional costs. An example of an additional cost is imputed rent for factory premises owned by your company.
A cost that is the same as the expense posted in financial accounting is called a basic cost.
Imputed costs are often one of the reasons the inventory values calculated in Product Cost Controlling are not used for valuation purposes in the annual balance sheet.
For information on balance sheet valuation, see Inventory Costing
In Profitability Analysis (CO-PA), costs and revenues can be analyzed at the market segment level (such as for a particular product group in a particular region). In make-to-stock environments, in sales-order-related production with a valuated sales order stock, and in engineer-to-order environments with a valuated project stock, the revenues and the standard cost of goods manufactured of sales are transferred to CO-PA when the customer is invoiced. The standard cost of goods manufactured is calculated in the application component Product Cost Controlling. The cost component split (the breakdown into cost components) of the standard costs can be viewed in CO-PA. The purpose of CO-PA is to determine contribution margins. This is done by comparing the revenues against the standard costs and against other costs as well. Therefore you settle the variances to CO-PA as well. When you settle the cost objects, you can transfer the variances (broken down into variance categories) to the value fields of CO-PA. In Product Cost by Sales Order, you can also calculate additional results analysis data that can be settled to CO-PA.
See also:
For information on valuated sales order stocks, refer to the section Valuated Sales Order Stock.
For information on calculating results analysis data that can be transferred to CO-PA (such as reserves), refer to the section Results Analysis
For information on engineer-to-order environments, refer to the documentation Project System.
For information on the limitations involved with nonvaluated sales order stocks, refer to the section Special Case: Nonvaluated Sales Order Stock
If you don’t want to valuate your inventories at standard cost during the year, or if the laws in your country do not allow you to do so, you can valuate your inventories at actual cost by activating the application component Actual Costing/Material Ledger (CO-PC-ACT). In this case, the price differences are settled to CO-PC-ACT as well, and are used there to determine the periodic unit price.