Use Top-Down Distribution in CO-PA to Report Overhead Costs at Lower-Level Characteristics

  • by Sreechakravarty Sistla, Associate 5, Deloitte Consulting India Pvt Ltd.
  • June 15, 2010
Discover top-down distribution functionality and execution in day-to-day operations with two business examples. The first explains the allocation of expenses from cost centers to material groups through profitability analysis (CO-PA) assessment, with material group being a higher-level characteristic. The second explains how to distribute these expenses, posted through CO-PA assessments, from material group to material level. The first example relates to CO-PA assessment and second example is top-down distribution.
Key Concept
Top-down distribution distributes the costs that are posted at higher-level characteristics (such as material groups, customer groups, or divisions) during their initial postings to lower-level characteristics (such as customer or material). An example is overheads assessed to material groups that also need reporting at the product level. The costs can be distributed based on any referenced historical data — plan or actual data. This reference must be available in the profitability analysis (CO-PA) database. The costs are then distributed based on the reference data proportionately to the respective individual characteristics pertaining to high-level characteristics.

Managerial reporting requirements constantly change due to changes in a company’s vision and mission. The reports made available to managers during initial implementations may not adequately provide information that they need for their day-to-day operations and decision making. One such area is overhead costs. Profitability analysis (CO-PA) is one of the most effective tools for reporting revenues and expenses in a multidimensional fashion. It is also an important source of data for other tools such as SAP NetWeaver Business Warehouse. Therefore, the data flow in CO-PA is the key for extracting reports.

The plan and actual overheads are normally posted to CO-PA through assessments and further analysis is done in various management reports. This is normally the case with general administration, sales and distribution, and other similar expenses. Sometimes, it may not be possible to distribute these costs to lower-level characteristics such as materials. It makes more sense to assess higher, group-level characteristics such as material groups. However, management might be interested to know the proportionate amount of overhead attributed to individual characteristics apart from group-level proportions. In other words, managerial reporting sometimes demands reporting overhead allocated at a product level.

Top-down distribution is a standard SAP functionality available from SAP R/3 3.0 onward. There is no specific configuration required to use this feature except that costing-based CO-PA should be activated. Top-down distribution is not possible for account-based CO-PA. This is because the reference base for distribution can only be value fields, and value fields are available only in costing-based CO-PA. The examples used are simulated in SAP ERP Central Component (SAP ECC) 6.0.

Let’s examine the process with a business scenario and an example.

Sreechakravarty Sistla

Sreechakravarty Sistla is a member of The Institute of Chartered Accountants of India. He has nine years of overall experience including four years of SAP FI/CO consulting experience with leading knowledge in product costing and CO-PA. His consulting experience spans the consumer and industrial manufacturing industries. His project exposure includes end-to-end implementations, rollouts, technical upgrades, and application support assignments.

Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person or organization that relies on this publication. As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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