Calculate Actual Costs Across Multiple Company Codes Using a New Business Function in SAP Enhancement Package 5 for SAP ERP 6.0

  • by Janet Salmon, Product Manager, SAP AG
  • December 1, 2010
The material ledger records the flow of goods from the initial purchase of the raw material to the final sale of the finished product. It assigns any price differences incurred during purchasing and production to the product sold — or at least it does provided that the goods flow remains within a single company code. Until SAP enhancement package 5 for SAP ERP 6.0, a material sold to another company in the same group was treated as an externally procured material. Instead of the actual costs for the material purchased being transferred to the affiliated company, only the material price was recorded in the material ledger. Learn how to record both the legal view (in which the purchased good is treated as an external purchase for legal reporting purposes) and the group view (in which the actual costs for the purchased good are passed on to the other company and split into their cost components for group reporting purposes) and how to capture the intercompany markups in your cost component split.
Key Concept
In group valuation, actual costs are recorded as if they were incurred within a single entity. They are recorded without the profit markups that are charged when the individual companies buy and sell goods from one another as if they were not related (sometimes called arm’s length trading). This view is used for corporate decision making and controlling and allows organizations to see the actual costs broken down into their cost components (e.g., raw materials, energy, labor, overhead, and freight) across all units. The legal valuation, on the other hand, records the intercompany transactions as sales and purchases by each unit that must be reported to the appropriate jurisdiction for tax purposes.

In today’s global supply chains, it is common for several plants to be involved in manufacturing a single product and for these plants to belong to different legal entities. It’s also common for organizations to have a central distribution center that is being supplied by multiple plants that belong to different legal entities. From a group accounting point of view, you should treat the flow of goods between the plants and distribution center as a single flow, as if the goods were simply moving around the same factory. From a legal accounting point of view, however, the flow is broken because goods are being sold by the one plant to the other plant or distribution center. In this case, the one plant bills the other plant for the goods delivered and generally adds a profit mark-up.

While this business situation is common, companies have only recently started to explore the potential of group costing within SAP ERP. One reason is that in their early implementations, organizations made decisions that constrained their ability to use this function. One constraint is that group costing can only take place within a single controlling area. In many early SAP ERP implementations, organizations set their controlling areas at more or less the same level as their company codes, meaning that they could not view the whole supply chain in managerial accounting (CO) but only that part of the chain that was within each controlling area. Now, many organizations are using landscape transformation services to migrate to a single controlling area.

Another constraint was that the internal invoice that handled the billing between the two companies had to be created using electronic data interchange (EDI). This was partly a technical issue because transaction MIRO does not support the group valuation, but is also a people issue because the accounting clerk processing the invoice should see only the legal valuation (sales price) and not the group valuation (cost of goods manufactured).

Now organizations have matured sufficiently and have automated their billing processes to replace manual processes with EDI. And, of course, there was the functional gap in the process: The material ledger did not account for group valuation for actual costs, but treated goods purchased from affiliated companies as if they were externally procured goods. This gap has been closed in SAP enhancement package 5 for SAP ERP 6.0 using the business function Cross-Company Code Stock Transfer & Actual Costing (LOG_MM_SIT). I will show you how to set up group costing and walk you through the steps involved. I’ll start with preparatory steps before making any postings and then show you the demo steps in the material ledger.

Janet Salmon

Janet Salmon joined SAP in 1992. After six months of training on R/2, she began work as a translator, becoming a technical writer for the Product Costing area in 1993. As English speakers with a grasp of German costing methodologies were rare in the early 1990s, she began to hold classes and became a product manager for the Product Costing area in 1996, helping numerous international organizations set up Product Costing. More recently, she has worked on CO content for SAP NetWeaver Business Warehouse, Financial Analytics, and role-based portals. She is currently chief product owner for management accounting. She lives in Speyer, Germany, with her husband and two children.

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4/4/2013 10:15:27 PM
Vinod Ramchandani

Very Good Article !!

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