Unit 1

Overview of Management Accounting

Unit Overview

This unit discusses the general tasks of Management Accounting and gives an overview of its
components. It shows how the Management Accounting components are interrelated and how
they interact with other SAP applications.

Lesson: General Tasks of Management Accounting

Lesson Overview
This lesson describes the differences between management accounting and financial
accounting in SAP solutions. It describes the different major components of Management
Accounting and shows how they interact and how financial data flows between them and other
components of the SAP system.

Business Example
Your initial focus is to gain an understanding of the purpose of Management Accounting and
how it works with Financial Accounting to provide financial and controlling information.

Financial versus Management Accounting

Accounting includes many different functions and business processes. The SAP system
architecture consists of specialized accounting components that serve various accounting
functions.

Financial Supply Chain Management (previously referred to as Treasury) concentrates on

functions such as cash management, treasury management (for instance, funds, foreign
exchange, derivatives, and securities), loans, and market risk management. Financial
Accounting mainly involves the general ledger (G/L), processing receivables and payables,
and asset accounting.

Investment Management supports planning, investment, and finance processes for capital
investment measures.
Management Accounting (previously referred to as Controlling) offers many tools that can
be used to prepare operating data for business analysis and management decisions.

The main components of Management Accounting are used for different tasks and types of
analysis:
1. Classify costs and reconcile data
2. Control overhead costs and allocate costs
3. Evaluate the cost of goods or services
4. Analyze profit
5. Analyze success of individual profit centers

Lesson: Overview of Management Accounting Components

Lesson Overview
This lesson briefly introduces the Management Accounting components and the elements, such
as cost elements, cost centers and internal orders, that are used in management accounting. You
will also learn how activity-based costing is used in Management Accounting.

Business Example
Management of an enterprise requires different tools for different situations. You want to
review the Management Accounting components to see which tool is suited for a particular
analysis purpose.

Main Components of Management Accounting

The following Management Accounting components can be grouped according to their purpose
as shown in the previous lesson:
1. Classify costs and reconcile data
2. Control and allocate overhead costs
3. Evaluate the cost of goods or services
4. Analyze profit and success

Classifying Costs and Reconciling Data

Cost and Revenue Element Accounting (CO-OM-CEL) is part of Overhead Cost Controlling.
It provides a structure for assigning Management Accounting data by classifying transaction
items, which are posted to a corresponding controlling object (for example, a cost center or an
internal order) depending on their cost or revenue element.

Controlling and Allocating Costs

Overhead Cost Controlling has two components, Cost Center Accounting and Cost and
Revenue Element Accounting. Each addresses certain aspects of analyzing and controlling
overhead costs. Overhead costs are costs that cannot be assigned directly to cost objects (for
example, production orders).

Evaluating the Cost of Goods or Services

Product Cost Accounting is concerned with all aspects of planning the cost of producing
products or services, as well as tracking and analyzing the actual costs. Product Cost
Accounting consists of the following components:
 Product Cost Planning
 Cost Object Controlling
 Actual Costing and Material Ledger

A profit center is a management-oriented organizational unit used for internal controlling

purposes. If you divide your enterprise into profit centers, you can analyze the areas of
responsibility and delegate responsibility to distributed units, which then become companies
within the company. Profit Center Accounting enables you to set up your profit centers
according to products (product lines, divisions), geographical factors (regions, offices, or
production sites), or functions (production, sales).

Lesson: Integration Within Management Accounting and with Other SAP Applications

Lesson Overview
This lesson uses cost allocations to show the interaction among the Management Accounting
components and describes how Management Accounting interacts with other SAP applications
in the mySAP ERP solution, such as Procurement and Logistics Execution, Production, and
Sales and Service. You will see how Management Accounting draws its strength from an
integrated view of all relevant data from objects such as sales orders that bear revenues or costs.
Business Example
Before you can implement Management Accounting successfully, you need to understand the
flow of costs that have a direct impact on Management Accounting.

Flow of Values Within Management Accounting

Costs incurred in one part of the enterprise are often passed on to a different part of the
enterprise. For example, you can pass on overhead costs from administrative cost centers to
production cost centers. Overhead costs are then passed on to production processes. These
direct services and processes are assigned together with the direct material consumption to
specific orders for specific products and services that are then made available to the customer.

If you purchase non-stock material, an expense is posted to the Financial Accounting general
ledger via the G/L account. At the same time, the expense is posted as costs to the appropriate
cost center using a primary cost element. The costs from this cost center can then be passed on
to a production cost center later as overhead costs using a secondary cost element. It is not
appropriate to represent this secondary cost flow for the overhead costs in Financial
Accounting.

Flow of Values with Other SAP Applications

Data created in other SAP applications can have a direct influence on Management Accounting.
For example, if a non- stock item is purchased, an expense is posted to the general ledger. This
expense is also posted as costs to a cost center or other Management Accounting object for
which the item was purchased. That cost center's costs can be passed on later as overhead to a
production cost center, or elsewhere in Management Accounting.