Tue. Jun 2nd, 2020

Organizational Structures in Controlling – SAP FI

7 min read

The integrated R/3 System includes direct connections between the internal accounting, external accounting, and logistics components. This becomes apparent in the relationships between organizational structures. In order to explain these relationships properly, the following overview of organizational structures covers the entire Accounting component and parts of the Logistics component.

Organizational Structures in Financial Accounting

The chart of accounts is a classification structure in Accounting for recording values and value flows in order to guarantee an orderly rendering of accounts. The operational chart of accounts is used by both Financial Accounting and Cost and Revenue Element Accounting. The items in a chart of accounts can simultaneously represent expense or revenue accounts in Financial Accounting and cost or revenue elements in Cost and Revenue Element Accounting.

The company code is the smallest independent unit representing a closed financial accounting system in an organization. This covers postings of all relevant transactions and the creation of all supporting documents required for financial statements required by law, such as balance sheets and profit and loss statements.

The company is an independent unit for which individual consolidation statements can be drawn up according to the relevant commercial law. A company can consist of one or more company codes.

The business area in an organization represents a separate operational or responsibility area assigned value flows posted in Financial Accounting.

Business areas are used primarily in segmented external reports dealing with significant areas of the organization, such as product lines and branch offices, that cross company code boundaries.

OrgStructure_FI

Above Figure explains –  Company Code and Business Area. Business area definitions can cross company code boundaries. R/3 System authorizations ensure that selected company codes and business areas do not accept document postings.

Functional Area

The functional area classifies the expenses of an organization based on the requirements of cost-of-sales accounting in terms of functions such as administration, sales and distribution, marketing, production, and research and development.

Organizational Units in Accounting

The R/3 System carries out cost and revenue element accounting in a single controlling area only. Depending on organizational requirements, the controlling area can consist of one or more company codes. The assignment of multiple company codes to a controlling area can be used to support centralized cost accounting for an entire organization.
Postings relevant to cost accounting contain the cost or revenue element involved and specify the locations and reasons for the costs. To provide this information, which also allocates costs successively to their profitability segments, the R/3 System uses the following account assignment objects:
cost center, order, project, and cost object. The values illustrated by the objects are divided into cost and revenue elements, which correspond to accounts in Financial Accounting.

The controlling area represents a closed system used for cost accounting purposes within an organization.
A controlling area may include one or more company codes that may use different currencies. All company codes in the same controlling area must use the same operational chart of accounts.
All internal allocations refer exclusively to objects in the same controlling area.

OrgStructure_FI_CompCode1

Cost elements are items in a chart of accounts used within a controlling area to classify the consumption of production factors used by an organization.
Revenue elements are items in a chart of accounts used within a controlling area to classify the value of products or services sold by an organization.
The profit center represents an operational area defined within an organization by management for internal monitoring purposes. Profit centers display results for which separate statements can be calculated based on cost-of-sales accounting and period accounting.

A profit center incorporating restricted asset values into calculations of operating profit becomes an investment center. Investment centers are not independent business entities in the R/3 System; they are treated as profit centers, with an indicator determining which fixed and current asset items can be assigned to the investment center.

The cost center represents a separate location of cost incurrence within a controlling area. The definition can be based on functional requirements, allocation criteria, activities or services provided, physical location, and/or area of responsibility.

The activity type defines the various activities produced or supplied by a cost center. Activity inputs from one cost center to other cost centers, orders, or business processes represent utilization of the cost center’s resources. Valuation of the activity quantity takes place with an allocation price calculated on the basis of business or managerial aspects.
A cost center may include one activity type, multiple activity types, or no activity types. Sample activity types in production cost centers would be lathing hours or finished units.
The order describes a simple task within a controlling area. It helps to plan, monitor, and allocate costs based on actions taken in the organization.

Orders are classified according to business or managerial aims:

  • Imputed orders collect offsetting entries for imputed costs from cost centers.
  • ‰Overhead orders deal with overhead arising during completion of a task or measure.
  • Capital investment orders monitor asset investment measures.
  • ‰ QM orders contain costs resulting from tests and corrective measures determined by the Quality Management (QM) component. ‰ Sales orders are used in the distribution and billing of products or services and, for make-to-order production, in the monitoring of costs and revenues.
  • ‰ Maintenance orders monitor maintenance measures.
  • ‰ Production orders are requests for the manufacturing of a material or the providing of a service.
  • ‰ Process orders are similar to production orders. However, they can also include information relevant to process control.
  • ‰ Assembly orders focus on individual, step-by-step requirements for a sales order.
  • ‰ Run schedule headers apply to products that are to be repeatedly, identically manufactured over an extended period.
  • ‰ Orders with revenues are used if no sales order exists or if automatic billing is not possible or not allowed.

The project describes a complex structure of tasks (such as the construction of a ship) within a controlling area. It helps to guide and monitor the schedules, resources, capacities, costs, revenues, and availability of funds.
Project postings are made to WBS elements or to activities.
The activity describes a task or step in a project.
The work breakdown structure (WBS) illustrates the hierarchical organization of a project. WBS elements are the individual hierarchy elements in the work breakdown structure. They describe either concrete tasks or partial tasks which can be subdivided still further.
The cost object is a unit of output in the value-adding process to which costs can be assigned according to cost source. Preliminary costing, simultaneous costing, and final costing are allowed for cost objects.

The following objects from the Logistics components can be used as cost objects:

  • Material
  • ‰Production order, manufacturing order, assembly order, run schedule header, process order, network
  •  Sales order, WBS element.

Immaterial goods and services that do not require logistical handling in the R/3 System use a separate cost object in Controlling.
The business process gathers together sequences of activities within an organization across cost center boundaries. It can be used to structure organizational processes according to function.
The operating concern represents the part of an organization for which the sales market is structured in a uniform manner. Individual sections, defined by a combination of classifications (such as product group, customer group, country, and distribution channel), are used to calculate operating profit by comparing costs and revenues. These sections are termed profitability segments. An operating concern can contain one or more controlling areas.

OrgStructure_FI_operatingConcerns

The profitability segment is the account assignment object used in Profitability Analysis (CO-PA) for calculating operating profit by comparing costs and revenues. The profitability segment is defined by individual combinations of characteristic values.
A user may assign characteristics already available in the R/3 System (such as customer, product, sales organization) or define new characteristics (such as overall size of order) specifically for an organization.
The object class classifies objects in Controlling according to cost controlling categories. The four categories and typical objects belonging to them are:

  • Overhead (cost centers)
  • ‰Production (cost objects)
  • Investment (capital investment order)
  • Profit and sales (profitability segment).

While certain Controlling objects are assigned to one particular object class (for example, costs centers to overhead), other assignments can be made in the object master data (for example, orders and projects).

Organizational Units in Logistics

Several organizational units in Logistics also play key roles in Controlling. Product Cost Controlling (CO-PC) uses valuation areas and plants, while Profitability Analysis (CO-PA) uses sales organizations.
The plant is a facility within an organization that produces materials or provides goods and services. A plant is assigned to a company code.

OrgStructure_FI_Plants

The valuation area defines the organizational levels at which material inventory is priced. When using Product Cost Controlling, the valuation area and the plant are identical because product costing determines the cost of goods manufactured and the plan costs based on the plant.
The sales organization represents a selling unit in the legal sense. Sales organizations can be used for subdivisions of markets, such as northern and southern regions.

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