bbp co_001_02

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Process CodeBBP_CO_001_02 Business Blueprint

Process Owner: Mr. Anil Jhajharia

Core Team Member:

Mr. MundraMr. Rajesh Agarwal

Prepared by: Mr.Chinmaya Biswal

Title: Controlling Version:2 Date:05.06.2010

Controlling Business Blue Print Document

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Document change control

version document name date author reviewed by

01 Controlling 28.05.2010 Chinmaya Biswal

02 Controlling 05.06.2010 Chinmaya Biswal

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Contents

Business blueprint overview...................................................................................................................... 6

1. Sap controlling overview..................................................................................................................... 7

2. Controlling area........................................................................................................................................ 8

3. Profit centers............................................................................................................................................. 8

4. Cost element accounting................................................................................................................... 12

4.1. Process overview..................................................................................................................................12

5. Cost center accounting....................................................................................................................... 14


5.2. Cost centre master..............................................................................................................................16

5.3. Cost center creation............................................................................................................................17

5.4. Cost center categories.......................................................................................................................17

5.5. Cost centre planning...........................................................................................................................17

6. Internal orders........................................................................................................................................ 22

7. Profit center accounting..................................................................................................................... 27

7.1. Profit center assignment..................................................................................................................27

7.2. Profit center numbering...................................................................................................................29

8. Product costing....................................................................................................................................... 32


8.2. Standard cost estimates...................................................................................................................33

8.3. Cost components..................................................................................................................................33

8.4. Costing with production orders....................................................................................................36

8.5. Settlement of production orders.................................................................................................38

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9. Profitability analysis............................................................................................................................ 46

10. Gaps......................................................................................................................................................... 49

11. Sign-off..............................................................................................................................................................50

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Introduction

Gupta power infrastructure limited is an established name in the manufacturing of conductors and cables. An ISO 9001:2008 certified companies, GPIL over the five decades, through its stringent quality control, customer satisfaction and diversified product mix has reached a growth potential exceeding rs.700 cores in the year 2008-2009.

Its gamut of products includes overhead conductor, ht/it power cables, control cables, instrumentation cables, mining cables, and special cable and PSC poles. GPIL has created its own EPC division for rural electrification work under Biju Gramin Jyoti Yojana and Rajiv Gandhi Vidyuti Karan Yojana in remote areas of Orissa thereby adding to the infrastructure development of the state.

In order to handle customer database and achieve effective sales GPIL broadly classified their customer as government and nongovernment organizations. government organization includes public sector companies like power grid corporation of India, state electrical boards and nongovernment organization includes private sector companies, dealers etc.

GPIL has major sales from government organization trough tender processing, further sales classified in to domestic sale, export sale, free of charge delivery, returns, credit/debit memo. A further export sale is segregated as deemed export, direct export, export through third party & export under ct1.

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Business blueprint overview

This document summarizes the findings of the KPIT consulting team and GPIL team, with respects to sap processes to be implemented at GPIL.

The information was gathered through documents, plant visits, and discussion with core team members.

The purpose of business blueprint document is to prepare to move forward with the implementation of GPIL's sap r/3 system. At the conclusion of the blueprint, the KPIT consultants will determine the sap functionality required to run the GPIL business.

The blueprint presents a summarized perspective of all functional business processes that will be implemented. As such, the blueprint document will serve - from this point forward the dual role of both official project scope as well as system acceptance criteria.

The body of this document describes the organizational structure, master data, requirements given by GPIL and r/3 functional process flows to be implemented.

The blueprint reiterates the r/3 organizational structures that have been identified and will serve as the basis for the initial configuration activities.

The information gathered and documented in the blueprint is sufficient for the team to go forward into the realization phase. However, it is critical that both the KPIT and GPIL team agree on the scope of the project as presented in this document. Acceptance - by both teams - is required to move the project into the next phase.

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1. Sap controlling overviewThis chapter briefly describes the post sap implementation scenario at GPIL. It broadly outlines the mapping and changes of the existing processes, which need to be executed to ensure more efficient, effective and streamlined processes. Some of the changes recommended are driven by sap, while some of the changes are an effort towards a institutionalizing the process or for better control.

Controlling (co) contains all accounting functions necessary for effective controlling. If an organization divides accounting into internal and external viewpoints, co represents the internal accounting perspective, because it provides information for managers’ -those who are inside an organization and are charged with directing and controlling its operations. Co includes cost and revenue accounting.

Co primarily divides the entire process into three basic areas:

Overhead cost controlling - provides tools to answer the question how do we control our overhead costs? Product cost controlling - provides tools to answer the question what is the manufacturing cost of a product? Profitability management - provides tools to answer the question how profitable are individual market segments?

These three processes are closely linked and help in providing comprehensive managerial accounting information without being limited to legal requirements.

The organization and location structure of GPIL needs to be mapped to the organization entities in sap r/3.

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2. Controlling areaA controlling area is an organizational unit within co module. It is used for cost accounting. It is within the controlling area that cost center hierarchies is defined and cost centers are assigned to these. A controlling area may be assigned to one company or too many companies. If you assign a controlling area to many companies then you can do cross-company cost accounting.

However, each company must have the same currency in order to be able to do cross company cost accounting and also same fiscal variant (i.e. same accounting period).

What are the key deciding factors?

Cost accounting method, inventory valuation, cost center structure is different across legal entities. chart of account and fiscal year variant

3. Profit centersProfit center is an organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal control. The main distinction between a profit center and cost center is that, typically, cost centers will have only cost components; profit centers have revenue as well as cost components. Thus reporting can done at profit center level in line the company’s P&L account. The profit center group reports will also represent the plant level P&L a/c. profit centers are created under a controlling area. Cost centers are linked to profit centers. Entries in a profit center and company code are derived through the link to cost center. An entry posted to a cost center will automatically get duplicated in profit center if profit center is attached to a cost center.

What are the key deciding factors?

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profit and loss account and certain balance sheet items for example stocks, receivables, payables and assets are to be reported for management reporting as well as segmental reporting as per the as.

GPIL expectations/ requirements from controlling module:

Actual cost of inventory at each stage in production. example actual cost of conductor/cable in wire drawing stage, stranding stage, insulation stage, armoring stage, sheeting stage, pre finishing stage, etc. Manufacturing cost of conductor and cable. Identification of department wise labor cost, factory overheads, administration overheads, selling and distribution overheads. Control over these costs by way of formal planning and budgetary control system. Identification of material, labor variances at each stage in production process compared to standards and fixing up the responsibility and accountability at each level. customer wise, division wise profitability, machine wise profitability separate cost identification of certain expenses such as telephone, vehicles, insurance claims, indigenous of materials separate identification of maintenance cost Reconciliation of profit/loss as per financial accounts and as per cost accounts. Product costing is required separately for the tenders for quoting the price. Profitability analysis report is required by taking in to consideration of sales orders in hand and also required a report by taking into consideration of future orders i.e. expected orders.

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3.1. Organizational Structure

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4. Cost element accounting4.1. Process overview

Cost element accounting classifies the costs and revenues that are posted to co, and provides the capability for reconciliation of costs in co with the financial accounting (FI) module.

Master data

Cost elements

A cost element describes the nature of cost. It serves the following purposes:

Primary cost elements are GL accounts, which would require a compulsory cost object whenever these accounts are credited or debited.

The cost center / internal order transactions shall be analyzed cost element wise.

Secondary cost elements are used for allocations and settlements. These are not represented by GL accounts in FI. Based on the type of activity allocations, the secondary cost elements shall be set up after the allocation logic is finalized.

GPIL has finalized primary cost elements with the FI requirements for ensuring that the cost break up as required for costing as well as reporting requirements could be obtained through the GL itself. These have been segregated into direct overheads, factory overheads, administrative, selling and distribution overheads so that these could be posted to the relevant cost centers for overhead costs reporting.

Cost element groups

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Cost element groups can serve various purposes. For example, they can be used to create reports or to process several cost elements in one business transaction.

The cost elements are grouped into

Consumption Direct project expenses Factory overheads Administration overheads Sales and distribution overheads Revenue

Cost element creation

Cost element is created in a controlling area Cost elements are time dependant data. Initial cost elements will be

created valid from 01.04.2009 The authorization for creating and changing the cost element master shall

be with the accounts & costing department at head office Cost element code will be externally assigned during creation Cost element categories Primary cost elements have been classified into the following categories: - Primary costs - postings from FI Accrual – provisions in co Sales revenue – postings from SD to profitability analysis Sales deduction - postings from SD to profitability analysis Secondary cost elements have been classified into the following

categories: - Assessment – allocations from cost centers to cost centers Internal settlement - allocations from internal orders to cost centers Internal activity allocation – direct allocations from cost centers to product

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Overhead – indirect allocations from cost centers to product

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5. Cost center accounting

Organisational Structure

For Cost Center

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Admin

Production

ConductorConductor

S & D

Company Code

Business AreaKashipur Plant

Business AreaBarunei Plant

Business AreaRE

Business AreaGummadipoondi

Plant

Account and F

Others Ser

Controlling Area

Cable Conductor

Conducter

Production

S & D

Admin

Account and F

Others Ser

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5.1. Process overview

Controlling provides cost information for management decision-making. It facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization.

As well as documenting actual events, the main task of controlling is planning. Variances will be reported by comparing actual data with plan data.

Primary tasks required for cost center accounting include:

Maintaining cost center, cost element, and activity type master data Planning departmental and area costs by cost element and cost center Processing allocations of costs by means of assessments, distributions,

and overhead cost calculations Monitoring plan versus actual cost expenditures Cost centers and a cost center structure will be created to satisfy the

departmental and organization structure of the company. Numerous cost center groups will be defined

Automated profit center postings Standard sap profit & loss reporting

Standard sap reports will meet GPIL reporting requirements

The cost center accounting component (co-mica-cca) tracks where costs occur in the organization. The cost center is an organizational unit in a controlling area. Cost centers can be defined for each low-level organizational unit that has responsibility for managing costs. As costs are incurred, they are assigned or posted to the appropriate cost center.

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Master data

5.2. Cost centre master

A cost centre represents the location of cost occurrence. It can be set up based on function, geographical location, area of responsibility, activities / service provided or allocation criteria.

The cost centre structure should serve the following purposes:

All reporting requirements which require costs to be displayed separately for a department/ function.

all allocation requirements that require costs to be identified separately and put in separate buckets such that they could be directly picked up for different basis of allocation

The standard hierarchy is the organization structure from the cost controlling point of view.

The cost center hierarchy is classified into: -

Production Maintenance Materials Quality Logistics Projects

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5.3. Cost center creation

Cost center is created in a controlling area and assigned to a company code. Initial cost centers will be created valid from 01.04.2009.the authorization for creating the cost center master shall be with the costing department. Cost center code will be externally assigned at the time of creation. Each cost center will be attached to one profit center.

5.4. Cost center categories

Cost centers have been classified into the following categories: -

A administration B branches C executive D finance and accounts E logistics F maintenance G marketing & sales H materials I repairs J production K project L quality assurance

5.5. Cost centre planning

The objective of overhead planning: -

Cost control through variance analysis

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Calculation of product cost for planning purpose Computation of the budgeted profitability

At present, GPIL does not have formal budgetary control system. We are recommending the following steps for overhead cost planning: -

1) Activity PlanningThe activities of production cost centers such as labor hours and machine hours will be planned at the beginning of the year based on the production plan. The planned activity for labor and machine will be entered manually in the system.

2) Cost PlanningThe individual cost centers must plan the cost to be incurred by them for the planning period. Costs include the labor cost, factory overheads, administration overheads, selling and distribution overheads. The actual overheads will be compared with the plan to calculate the variance.

The planning exercise will be carried out at the beginning of every year.

3) Formula PlanningLabor cost will be planned for cost center based on the average labor cost for each category of employee.

4) Allocation Of Planned CostsThe planned overheads are allocated to the production cost centers. Allocations include primary cost allocations viz. distribution and secondary cost allocations viz. assessments.

5) Planned Activity Price CalculationThe operating rate is calculated based on the planned labor cost and machine cost. This labor rate and machine rate is used in product cost planning to arrive at the planned cost of production.

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Primary postings

When the actual expense is accounted in the fi module, the costs are simultaneously updated from the controlling perspective. In case of depreciation the asset is assigned to a cost center and depreciation is debited to it at the period end.

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Manage cost center accounting

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Begin Process

Maintain Cost centers Master

Data

Maintain Activity types codes/Rates

Master Data

Maintain Cost center/Cost

element plan values

Receive Postings from

Other Modules

A

A

Correct miscoded expenses End Process

Maintain Cost Elements

Primary/Secondary Master

Data

Maintain Assessment

Cycles Secondary

Maintain Distribution

Cycles

Period End Closin

g

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Maintain cost center master data

Create cost center, change, display , delete ,display change

KS01, KS02, KS03, KS04, KS05

Cost center master Data hierarchy Diplay/Mentanance

Create standard hierarchy, display

OKEON

Maintain cost element master data

Create,change,display, delete,display change documents

KL01, KL02, KL03, KL04, KL05

Maintain assessment cycles

Create actual assessment cycle

S_ALR_87005742

Maintain distribution cycles

Create actual distribution cycle

S_ALR_87005757

Maintain cost center/cost element plan values

Change cost element /activity input planning, display

KP06, KP07

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6. Internal orders

Process overview

Internal orders are cost objects within sap the purpose of which is to act as a cost collector to collect costs and analyze them against a budget. The costs can then ultimately be settled to another cost object, a g/l account, etc., depending upon the business process requirement.

GPIL will be using internal orders as cost collectors for the following business processes.

Capital investments Marketing and sales Re projects Vehicles OtherStandard sap reports will meet GPIL reporting requirements

An internal order is an extremely flexible co tool that can be used for a wide variety of purposes to track costs within a controlling area. Internal orders provide capabilities for planning, monitoring, and allocation of costs.

Costs are budgeted for each event / activity and availability check will be activated. Active availability control means that the system prevents the posting of transactions that exceed the budget.

Broadly the internal orders will be classified into

Capital investments Telephone Vehicles Re projects

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Capital expenses order will be created as “statistical” to control the capital budgets.

Vehicles - separate orders will be created for each vehicle wherein the entire vehicle related cost would be accumulated.

Telephones - separate orders will be created for telephones wherein the monthly expense could be posted.

The total cost of telephones and vehicles on account of the above can be accessed by creating internal order groups.

Planning

At the year beginning the internal orders for vehicles and telephone will be created and the planned cost for the year will be entered. Budget availability control will not be used.

Settlement of internal order

At the period end the cost collected in the internal orders will be settled to the cost center.

Decisions:

All locations will use internal orders. All capital purchases and investments will be made using internal orders to allow budgeting, use of availability control to avoid any overruns on capital projects Plant, profit center & functional area will be required to be entered when creating an internal order Release procedure matrix for capital purchases will be implemented in materials management for appropriate approval levels

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For investment orders, asset under construction will be created from the internal order when a new internal order is created Following internal order types will be created in the system: Capital investments

Marketing and sales

Other overhead

Re projects

Vehicles

Maintenance work

Re projects will be configured to allow posting of revenues to the internal order AUC will be maintained through internal order on ‘capital investment’ order. Number ranges are maintained at internal order types, and will be communicated to accounting BPOs. Recommendation on number ranges for internal orders from accounting BPOs – if number ranges could start with same number as cost center category. Internal order numbers will be internally generated by the system ( internal number assignment) AUC clearing account will be used for costs collections on internal orders. Partial settlement from internal orders to AUCs will clear AUC clearing account (P&L account). Settlement rules can be maintained in percentages or amount. Full / final settlement rules will be maintained on internal orders to move AUCs to fixed assets from one or multiple asset classes. AUC clearing account will be defaulted on purchase requisition / purchase order line items based on account assignment for internal order. Following validation rules will be built around internal order / purchase requisitions (purchase orders):

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Note:

If internal order used on purchase requisition (order) is ‘capital investment’ order type, then only ‘AUC clearing account’ will be used on account assignment If internal order used on purchase requisition (order) is not ‘capital investment’ order type, then ‘AUC clearing account’ cannot be used on account assignment.

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Management of internal orders flow

No

Yes

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Begin Process

Create Internal Order

Normal

Or Statisti

cal

Create Settlemen

t Rules

Enter Plan/BudgetVerify data

& Release

Communicate that order is released

Post Activities to Internal

Orders

Review Costs

On Internal Orders

A

ASettle

Internal

Execute Internal Order

Reports

Close Completed

Internal Orders

End Process

Internal Order Reports

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Management of internal orders description

Internal order Create internal order KO01

Internal order Change, display, planning cost elements/activity input change

KO02, KO03, KPF6

Internal order Enter budgets for internal order

KO22

Activity allocation Enter direct activity allocation

KB21N

Activity allocation Display actual cost line items for orders

KOB1

Variance Orders actual/plan/variance

S_ALR_87012993

Actual allocation Orders: actual line items KOB1

Variance Budget/actual/commitments

S_ALR_87013019

Internal order Change internal order KO02

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7. Profit center accounting

Process overview

Profit centers are areas of responsibility within a company for revenues and expenses, as well as certain assets and liabilities in some cases. All profit centers are arranged into a standard hierarchy representing the entire organization.

At the end of each month, the profit and loss statement & balance sheet are reported for the segments as per the segmental reporting.

7.1. Profit center assignment

Profit center is not entered during expenses and revenue transaction it is always derived from the co objects such as cost center, production order.


A profit center is an organizational unit in financial accounting that reflects a management-oriented structure of the organization for the purpose of internal control. Profit centers are organized in a standard hierarchy; however, alternative hierarchies can be established for reporting purpose.

GPIL will have profit centers based on requirements for P&L and B&S statements. Each company will have their own structure of profit centers which will follow the standard naming conventions.

GPIL will populate segment as a required field, so that reporting by segments will also be possible.

GPIL will get the profit and loss statement at the profit center level. Complete balance sheets will also be available for each profit center.

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GPIL will use document splitting functionality to derive profit centers when posting financial documents to create complete financial statements at the profit center level

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7.2. Profit center numbering

GPIL has decided to create and name profit centers by a combination of plant location and the product line. Please refer to the ‘organization structure’ section to see the profit center hierarchy for GPIL. Following profit center numbering convention has been used:

BARUNEI: CAB11 BARUNEI: CON11 KASHIPUR: CAB12 KASHIPUR: CON12 GUMMADIPUNDI: CAB13 GUMMADIPUNDI: CON13 RURAL ELECTRIFICATION: RE14

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Manage profit center accounting process flow

Key decisions:

GPIL will be using integrated PCA with new general ledger

Cable Conductor

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Begin Process

Maintain Profit center

Master data

Plan cost &

Revenue Values

Month End Close

Maintain Substitution

Rules (Maintain MM/CO

Receive Postings

from Other

Planned Cost

Element Upload

(Budget)

End Process

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profit center create profit center group KCH1

Profit center Profit center display , KCH6N

Profit center Create profit center, change ,display ,delete

KE51, KE52, KE53, KE54

Profit center Change standard hierarchy

KCH5N

Profit center Change plan costs/revenue, display

7KE1, 7KE2

Profit center Transfer plan data to PCA 1KE0

Profit center Change KE52

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8. Product costing

8.1. Process overview

Product costing module in sap allows creation and execution of product cost estimates based on parameters and master data objects from materials management, production planning, and controlling modules of sap.

The standard cost estimate attempts to calculate the cost of goods manufactured or cost of goods sold using the quantity structure and valuation structure within the r/3 system and updates the standard price of the product in the material master. The system uses a costing variant, which 6holds the parameters of how the product is to be costed and updated.

The system shows different views of the cost split using the cost component structure and itemization views.

The product cost can be broken up into the following components:

Direct material Direct labor External processing (ovp) Fixed overheads (includes fixed overheads and depreciation overheads) Variable overheads

Standard cost estimate based on the requirements is primarily in line with the GPIL configuration. All materials regardless of whether manufactured in house or procured externally will be valued at standard. Future cost estimates will be rolled out once in every year revaluing their standards.

Current process


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The product costing will cover the following business processes:

Working out cost estimates based on standard bill of material and routings for conductors and cables.

working out the cost of intermediary and finished products WIP valuation Information Requirements

8.2. Standard cost estimates

The standard cost estimates shall be used for the following purposes:-

Valuation of finished products till it is revaluated based on actual costs. Each product shall have a bill of material / routing which shall contain the

standard material requirement and process for production of a standard quantity.

As required, the system shall provide multiple costing runs on the basis of the selection of alternative bill of material / routings without any reference to any specific production order.

Standard cost estimates will be calculated at the beginning of the year for all the semi finished and finished material. The standard cost estimates will be revised every year.

The lot size for standard cost calculations will be decided during realization phase.

8.3. Cost components

Raw material cost

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The BOM contains the standard material for manufacturing an intermediate or finished product. The RM rates will be maintained in planned price 1 in material master for calculation of STD material cost.

Raw material costing for imported material

In case of imported material raw material costing will be carried out, the purchasing info records will be used to arrive at the RM price.

Labor cost

Labor cost based on the planned activity rates and std. hours from operations. The work centers in production are mapped with the cost center in controlling for charging the labor cost.

Example of work center and cost center assignment

Labor cost includes costs such as

Wages - basic / DA Casual wages Bonus Ex- gratia payment Salaries - basic / DA Gratuity House rent allowance Leave salary Leave travel assistance Special allowance P.f. Emp cont P.f. Ad charges

Machine cost

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Machine cost will be calculated based on the planned activity rates and std. hours from operations for conductors and cables.The following cost will be considered for calculation of machine cost in cost center planning.

Electric charges - plant Fuel, oil and gas Depreciation License fees

Direct overheads

Direct overheads will be charged to product based on the planned percentage of material consumption.

Direct overheads include costs such as:

Electricity charges - factory Fuel , oil and gas

Factory overheads

Factory overheads will be charged to product based on the planned percentage of material cost and labor cost. The percentage will be arrived outside sap system and will be entered in sap.

Factory overheads include costs such as:

Lab testing charges Test charges - third party inspection Repairs & maintenance - p & m Inspection - finished goods Inspection - raw materials / stores Depreciation- material handling equipment

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The percentage will be arrived outside sap system and will be entered in sap

Administration overheads

Administration overheads will be charged only final product based on the planned percentage of material cost.

The percentage will be arrived outside sap system and will be entered in sap.

8.4. Costing with production orders

Separate production order will be created for each finished and intermediate stock. Intermediary stock refers to stock that has been produced and is maintained in stock for use in another process.

Planned costing of production orders

When the production order is released, the planned cost is calculated as follows:-

cost component quantity rate value

Material Standard BOM planned price from material master (planned 1)

quantity x rate

Labour cost Standard activities in routing

planned activity price quantity x rate

Machine cost Standard activities in routing

planned activity price quantity x rate

Direct overheads NA planned percentage rates (material consumption)x

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planned %

Factory overheads NA planned percentage rates material + labour cost x planned %

Administration overheads

NA planned percentage rates material cost x planned %

The planned costs will be available for comparison with the actual costs in the production order.

Actual cost in production orders

Material cost

The material costs are calculated simultaneous with the shop floor activities. In case of conductors/cables manufacturing the standard quantity of material will be confirmed in production order. (STD qty*map) will be charged to production order. the difference between the physical quantity and book quantity will be charged to ‘physical verification difference account ‘ or it will be issued to cost object and distributed to production orders in proportion to target qty of material consumed

Labor cost

STD labor hours will be confirmed in all the production orders. The labor cost (planned rate * STD hours) will be charged to production order

Machine cost

In case of conductor/cable production order, STD machine hours will be confirmed. The machine cost (planned rate * STD hours) will be charged to production order.

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Direct overheads, factory overheads, administration overheads

Periodically the actual overheads will be calculated for the production order based on the planned percentage. The production order will be debited with overheads and the overhead cost center will be credited.

Valuation of finished production

On completion of production, the same shall be delivered to stock. The system shall update the quantities of the finished product at the STD rate from the material master.

Work in process

All the production orders will be completed at the period end. The WIP will be calculated only in case of production orders where in the status is “partial complete” i.e. in case of missing parts.

The WIP will be posted in Fi based on the actual cost booked in the order at the period end.

Variance calculation

Variance calculation provides you with the information to take steps to improve your cost situation.

Variances are calculated only on completion of the production order. Therefore the production orders must be completed at the period end. The variance i.e. actual cost collected in production order and std cost of product will be transferred to price difference account in FI and profitability analysis in co.

8.5. Settlement of production orders

All the production orders will be settled at the period end. The variance will be transferred to co-pa and the difference between the actual cost and standard cost

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will be transferred to “price difference account” the contra entry will be shown in “change in stock account”

Actual costing

During settlement at the month end, the system shall determine the stock on hand and accordingly update stock values. The balance amount pertaining to finish goods stock that has already been sold shall be debited to a separate price difference account. This price difference account would be applied for intermediary products also, and therefore, the costing of the finished product containing the intermediary stock is revalued. The inventory will be debited /credited and the “price difference account” will be Dr/ Cr. accordingly.

Summarized analysis of production orders

The actual production orders need to be summarized at the end of the period. The summarization shall be for a plant / material combination. The information required is the actual cost and the variance analysis.

Highlights

Raw materials are valued at standard rate due to NF metal pricing. In-house manufactured intermediary and finished goods are valued at

standard rate with periodic valuation of actual cost. Labor cost at planned rate Direct, factory, administration overheads at planned percentage derived

outside sap system.Product Cost Planning & Estimating Flow

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Begin Process

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Create &

Maintain BOM’s

Create &

Maintain Routings

Mark Cost

Estimate

Maintain Activity

& Overhead Rates

Create Cost

Estimates Release Cost

Estimate

End Process

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Product Cost Planning & Estimating Flow

cost planning maintain activity rates KP26

cost estimate create cost estimate CK11N

costing run edit costing run CK40N

costing run mark cost estimates CK24

costing run release cost estimates CK24

Month End Process – MTO & MTS Production Orders

Month End Process – MTO Sales Orders

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StartChange

WIP Settlement Period

Calculate &

Post WIP

Calculate Variances

for Production

Orders

Settle Production Orders End

StartChange

WIP Settlement

Period

Calculate &

Post WIP & Results Analysis

Settle Sales

Orders End

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Month End Close

Month end work in process

Change and set the period control for work in process

KKAO


Calculate & post WIP for production orders.

KKAO


Calculate variances on production orders

KKS1

Settle production Settle production orders CO88

Calculate & post WIP Calculate & post WIP for sales orders

KKAK

Settle sales Settle sales orders VA88


Change and set the period control for work in process

KKA0


Calculate & post WIP for product cost collectors

KKS5


Calculate variances on product cost collectors

CO88

Key Factors:

The valuation variant to create cost estimates will first look at the planned price 1 field in the costing 2 view of material master, then the purchase info record when calculating new standards for raw materials.

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Standard costs of semi-finished and finished materials will be calculated by exploding the BOM and the routing for the material

Overhead will be applied using costing sheet. Following activity types will be created in the system: Setup Machine Labor Activity rates for cost centers will be calculated outside and maintained

manually in the system Standard costing variant to calculate the standard cost to release and

valuate the inventory Current costing variant to calculate the current standard cost to update

the planned price or tax price field in the material master Combination of actual issues and back flushing will be used for capturing

material consumption on production orders Labor hours confirmations - standard hours (could be back flushed from

routings) for all GPIL locations. GPIL will utilize cost object controlling with production orders with

complete processes configured for work in process calculations, variance analysis and settlements.

Variance calculations / settlements will be scheduled to run every week for analysis

WIP calculations / settlements will be carried out weekly/monthly All production variances will be analyzed and settled to profitability

analysis MR21 (manual price changes) transaction access will be restricted

(recommendation is not to use mr21 transaction). All material standard prices will be based on standard cost rollup.

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Tender price

Quotation price will be decided based on the costing and submits the tender.

Price in quotation is key factor in tender processing, GPIL refers the following points while deciding the quotation price:

Raw material price

Conversion cost

Freight

Financial cost (BG and others)

Advances (with interest or without interest)

Delivery period

Bid validity

Mode of payment (LC or direct)

No of days for payment collection

Other administrative cost

Note: report is required having all the above information for taking the decision on quote price.

Price: firm/variable

Following are the influential factors in taking decision about the price expected to be quoted in the tender for variable order.

Base date Price of raw material Interest on RM (from FG holding date to payment collection). Party’s payment collection time. (terms of payment-for calculation of

interest on raw material)

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For sight LC, interest on raw material is zero and for Usance LC, interest charges are depending on terms and conditions.

Payment terms (LC or direct) If it is LC Usance LC or sight LC

Usance LC, then what is period ( 60 days or 90 days)

Who will bear advance?

Financial cost – bank guarantee cost Advance is given with interest or without interest. Security deposit – bank guarantee – opening fee, interest Commission if GPIL need to give. Delivery period

Apart from above factors other factors need to judge area as follows

A. Other prospective competitor price for that same or similar material.B. Last tender price for same item anywhere in India.C. Last tender for that same product or similar product of that particular

customer/destination.

Similarly for tender business under firm order all above issues should be taken in to consideration except base date. Since the business GPIL is going to get is for firm order price variance does not comes in to picture hence base date is not required.

However delivery period and validity should be referred while taking decision on price.

Following are the influential factors in taking decision about the price expected to be quoted in the tender for firm order.

Price of raw material Manufacturing and administration expenses. Payment terms (LC or direct)

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If it is LC Usance LC or sight LC

Usance LC, then what is period ( 60 days or 90 days)

Who will bear advance?

Advance is given with interest or without interest.

Party’s payment collection time. (terms of payment) Interest on raw material Security deposit is there or not. Commission if GPIL need to give. Delivery period Bid validity Validity for quotation Apart from above factors other factors need to judge are as follows: Other prospective competitor price for that similar item. Last tender price for same item anywhere in India. Last tender for that particular customer.

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9. Profitability analysis

Profitability analysis (co-pa) enables you to evaluate market segments, which can be classified according to products, customers, orders or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin.

The aim of the system is to provide your sales, marketing, product management and corporate planning departments with information to support internal accounting and decision-making.

Two forms of profitability analysis are supported: costing-based and account-based.

Costing-based profitability analysis is the form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches, both of which you can define yourself. It guarantees you access at all times to a complete, short-term profitability report.

Account-based profitability analysis is a form of profitability analysis organized in accounts and using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides you with a profitability report that is permanently reconciled with financial accounting.

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Requirements

Future profitability (business forecast)

Future profitability will be forecasted based on current orders on hand which are not executed and the expected orders which are quotations submitted.

Future profitability

1. Orders on hand ( sales orders)2. Expected orders ( quotation )

Sales orders in hand i.e. Sales orders qty (finished goods) = xxxx Expected orders quantity = qty to be derived from quotations Total required raw material = depending on the BOM, need to arrive the

Rm quantity for the execution of total orders (sales orders +expected orders)

Need to consider the present stock of raw-materials and safety stock to arrive the raw material to be procured.

Raw-materials required to be procured = total raw material required – raw material stock – safety stock.

Raw material price = (raw materials to be procured x current price) Finance cost = LC or BG or FDR charges. Production cost (including the overheads) = arrived from product costing

of the finished goods Miscellaneous expenses = user need to enter the expenses Total expenses = product cost + financial cost + miscellaneous expenses Total revenue= sales qty x price + quotation x price Profit/ loss = difference between total expenses and total revenues. Note: co-pc is not a capable tool to develop report of above requirements

Profitability for the sales order

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For each and every executed sales order, needs to derive production order. And also arrive the actual cost of the production order and include the packaging cost. User has to enter the selling and distribution expenses or needs to default the percentage. Financial cost like LC, BG cost also to be included. Difference between total cost of the sales order and the sales order value determines the profit/loss of the order.

Abap development requirements

Product costing calculation for tender quoting price Product costing for arriving the profitability of the sales order Profitability analysis for the sales order Future profitability report is required for the mentioned period

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10. Gaps Product costing calculation for tender quoting price

Product costing for arriving the profitability of the sales order

Profitability analysis for the sales order

Future profitability report is required for the mentioned period

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11. Sign-off

role name signature dategpil core team member

Mr. Mundra

Mr. Rajesh Agarwal

kpit consulting team member Mr. Chinmaya

Biswalgpil project manager Mr. Kaushik

Upadhyaykpit project manager Mr. Meghnath

Deshpandegpil process owner Mr. Anil Jhajharia

gpil director Mr. Abhishek Gupta

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bbp co_001_02

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