Professional Documents
Culture Documents
Version 1.0
July 2007
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Project STARK
________________ ________________
Mr. Girish Ketkar Mr. Ketan Pendse
Finance Department Core Team
TKII TKII
________________
Mr. Dhananjay Joshi
IBM Team
IBM
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Document Control:
Process
Owner :
Target Readership
Project Management
Project Team
Procurement Process Owners
Functional Heads
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Table of Contents
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Dividing an organization into cost centres will allow TKII to achieve several
goals, depending on the cost accounting method.
Assigning costs to cost centres will let us determine where costs are
incurred within the organization.
If the costs are planned at cost centre level, cost efficiency can
be checked at the point where costs are incurred Important for
TKII since planning may not be at cost centre level currently for all
costs
If overhead costs are to be assigned accurately to individual products,
services, or market segments, it is required to further allocate the
costs to those cost centres directly involved in the creation of the
products or services. From these cost centres then different methods
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will be used to assign the activities and costs to the relevant products,
services, and market segments.
Cost Element Accounting classifies the costs and revenues that are posted to
CO (Controlling module). A cost element describes the nature of cost. A cost
element corresponds to a cost-relevant item in the chart of accounts. The
cost elements can be distinguished into primary cost and revenue elements
and secondary cost elements.
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In TKII, the cost centres will be created department wise and will be
grouped function wise for each location such as
In TKII, the cost centre code will be of 8 characters. The coding logic for cost
centres is as below:
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In TKII the Standard Hierarchy will be TKII. The levels in the hierarchy will
be as follows:
1st level will represent the cost at company code level such as TKII.
2nd level will represent the cost at Corporate, TKII(TKF) & POL India
3rd level will represent the cost at profit centre level such as Boiler,
Sugar, MHE, Cement, Polysius, Manufacturing, Services & Common.
4th level will represent the cost at actual department level
Separate groups will be created at function group level such as project
execution, selling, design, etc.
The Cost centres can be grouped together into decision, control, and
responsibility units. SAP provides facility to create multiple cost centre group
to cater the management requirement. Further cost centre groups can be
created as per reporting requirements.
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units (e.g. hours, man month). Activity quantities are valuated using a
price (allocation price).
In TKII context, activity type will be created for fitting, welding, machining,
design & engineers, draftsman, project execution, Quality assurance &
electrical instrumention. Separate rate will be calculated for salary (normal
and overtime) & overheads. The Salary & other expenses will be planned in
the cost centre & the rate will be calculated through the system.
At month end, actual activity rate will be calculated & posted into the system
& Revaluation will be done for Projects.
Statistical Key Figures are the figures which describe cost centres, activity
types, order, profit centres etc. SKF can be used as basis for internal
allocation such as distribution & assessment.
SKF can be defined as Total value or Fixed value. SKF defined as fixed values
are valid as of the posting period, and in all subsequent posting periods of
the fiscal year. SKF defined as Totals values are valid only in the posting
period in which they are entered.
Statistical key figures such as number of employees in each cost can be used
to determine ratios in cost and as an allocation base for assessments and
distributions (e.g.:- canteen costs are allocated to individual cost in the
company).
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Distributing the cost from common cost centre to function specific cost
centres. Example Design , Civil, Erection etc. This cost will be used for
calculation of overhead rate in SAP.
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used to compare the actual costs of the previous period with the actual
costs of the current period.
In TKII context for cost booking below given rule will be followed to book
cost to a CO object
1. first to WBS element if possible for example all direct costs like
Freight outward, Commission, Royalty, Engineering fees etc
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In TKII, manual allocation of cost from one cost centre to another will be
avoided.
Reposting is generally used for allocation of primary cost, for example, in the
case of telephone, while booking the original cost in FI , the cumulative
amount maybe be posted in one cost centre only. Later, the reposting
functionality could be used to allocate the telephone cost to different cost
centre based on the place of origin of the cost.
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Reposting line items enables to adjust posting errors of costs and revenues.
Reposting line items corresponds to a reversal posting on the sender object.
This is because the system takes the debit/credit indicator from the line item
and updates it immediately for the sender and receiver account assignment
objects. Repost line items can be done in two steps:
This transaction will debit the Cost Centre related to the project against
which the employee has booked his time in the time sheet in the same
proportion & credit the cost centre to which one is assigned.
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In TKII all the costs booked to the Common cost centres will be allocated to
the profit centre wise Cost Centres on relevant basis (SKF).
For example following is the list of common cost centres and its indicative
allocation basis
Sr. Cost Description Basis (SKF)
No. Centre
1 5203 Watch & Ward Number of employees
2 5204 Canteen production Same as above
3 5302 Workshop electrical maintainence Number of employees
(proposed to use number
of electric power points)
4 7001 House keeping Number of employees
5 7002 Garage Number of employees
6 7003 Printing room Number of employees
(except production
employees)
7 7007 Civil Maintenance Number of employees
(except production
employees)
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After this, reposting is used to adjust any values that are incorrect or had
been posted to allocation cost centres for reasons of simplification. Then the
primary costs are distributed according to their source. The primary costs
can now be used as the basis for the accrual calculation of valuation
differences and additional costs.
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the correct sequence so that the costs are not allocated the cost centre
which is already allocated.
In TKII context, the assessment cycle will be used to transfer the common
cost such as infosystem, HR, purchase etc to profitability analysis whereas
the Distribution cycle will be used to transfer the project related cost from
cost centre to respective Project.
1.1.4.3 Variances
After allocation, the variances of the actual costs from the planned costs can
be analyzed. These variances lead to cost centre under- or over-absorption.
The variances of the cost centres, the costs of the sales and distribution and
the administration cost centres are transferred to Profitability Analysis (CO-
PA). In CO-PA, the overhead costs can be assigned to any level of the
contribution margin scheme. This is the final step in actual cost accounting.
In Controlling module GL code wise and cost centre wise plans will be
maintained. Planning versions will be created for different fiscal year plans.
1. distribution cycles
2. assessment cycles
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SAP standard reports of cost centre accounting can be used for GL and
cost centre plan. Separate functionality of planning aids is available in
SAP under controlling module. Planning aids functionality helps in future
period planning using past period plan / actual data.
The costs collected at the cost centre are allocated as overheads to the
projects by applying the specific overhead rates. The basis for absorption
of overheads can either be the amount of particular direct costs such as
direct material costs, it can be a sales turnover or it can be actual labor
hours booked against defined activities.
1 Material
2 Production - Pimpri
5 Design overheads
6 Civil overheads
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7 Erection overheads
A. Integration Points
MM-CCA
1. At the time of creation of account assigned Purchase requisition,
Purchase order & contract, appropriate Project or the Cost centre
should be used.
FI-CCA
1. At the time of booking of expenses in FI the relevant cost
centre/Project will also be mentioned to facilitate the correct posting
B. Performance Measures
A. Allocation of all the direct and indirect costs to the Division units
strictly based on the guidelines given in the Manual
B. Matching of Total Expenses as per financial statements with that as
per management reports.
C. Ensure that all the reports required today for accounting,
management, corporate and analyst reporting is getting generated
after implementation of the CO module. These reports should
automatically get emailed to the intended recipients. (A list of all
such reports is attached with this document)
D. Automation of detailed variance analysis of all costs (Actual vs.
Planned/ Estimated). This is required for explanation of MIS
effectively.
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C. Interface
2. None
E. Configuration
Controlling Area
Cost Centre Standard Hierarchy
F. Reporting Requirement
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G. As-Is Reference
COM/CO/Overhead Calculation/02 Overhead Calculation
COM/FI/G/L Planning/01 General Ledger Planning
H. Authorization
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