Professional Documents
Culture Documents
Version 1.0
JulyApril 20076
Page 1 of 25
Project STARK SSS project
________________ ________________
Mr. Girish Ketkar Mr. Ketan Pendse
Finance Department Core Team
TKII TKII
________________ ________________
Mr. Dhananjay Joshi Mr.
IBM Team Manager Controlling
IBM IBM
Page 2 of 25
Project STARK SSS project
Document Control:
Process
Owner :
Target Readership
Project Management
Project Team
Procurement Process Owners
Functional Heads
Page 3 of 25
Project STARK SSS project
Table of Contents
Page 4 of 25
Project STARK SSS project
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
Page 5 of 25
Project STARK SSS project
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.
Page 6 of 25
Project STARK SSS project
Page 7 of 25
Project STARK SSS project
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:
Page 8 of 25
Project STARK SSS project
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 centreMother Department level
such as Boiler, Sugar, MHE, Cement, Polysius, Manufacturing, Services
& CommonFinance etc.
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.
Page 9 of 25
Project STARK SSS project
the activities, the system records quantities that are measured in activity
units (e.g. hours, man month). Activity quantities are valuated using a
price (allocation price).
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
Page 10 of 25
Project STARK SSS project
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.
Page 11 of 25
Project STARK SSS project
For example in In TKII context, for the 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
Printing and FI The Cost will be booked to the cost centre for all Division
Stationary
Telephone and FI The Cost will be booked to the cost centre for all Division
Communication
Travelling and FI The Cost will be booked to the cost centre for all Division
Conveyance and project related travel expenses will be directly booked
to the Projects.
Page 12 of 25
Project STARK SSS project
General FI The Cost will be booked to the common cost centre for all
Expenses Division
Depreciation FI Automatic calculation and allocation of depreciation from
the Fixed Assets module based on the Books depreciation
area. Depreciation from FI would be reposted Cost Centre
wise if needed in CO.
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
Page 13 of 25
Project STARK SSS project
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.
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:
Page 14 of 25
Project STARK SSS project
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.
In TKII all the costs booked to the Common cost centres will be allocated to
the Divisionwise profit centre wise Cost Centres on relevant basis (SKF).
The following table lists down the basis for allocation of all the costs:
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
Page 15 of 25
Project STARK SSS project
Page 16 of 25
Project STARK SSS project
Page 17 of 25
Project STARK SSS project
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.
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
Page 18 of 25
Project STARK SSS project
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
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.
Page 19 of 25
Project STARK SSS project
1 Material
2 Production - Pimpri
5 Design overheads
6 Civil overheads
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
Page 20 of 25
Project STARK SSS project
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.
C. Interface
2. None
E. Configuration
Controlling Area
Cost Centre Standard Hierarchy
Page 21 of 25
Project STARK SSS project
F. Reporting Requirement
Page 22 of 25
Project STARK SSS project
G. As-Is Reference
COM/CO/Overhead Calculation/02 Overhead Calculation
COM/FI/G/L Planning/01 General Ledger Planning
H. Authorization
Page 23 of 25
Project STARK SSS project
Page 24 of 25
Project STARK SSS project
Page 25 of 25