Introduction to Managerial Accounting (CO)

1. Introduction to Managerial Accounting (CO)

2. Lecture Overview

3. Managerial Accounting (Defn.) • Managerial Accounting – also termed Controlling – is designed to collect transactional data that provides a foundation for preparing internal reports that support decision-making within the enterprise • We look at: • Cost centers • Profit centers • Budgets

4. Controlling Area (Defn.) • A self-contained organizational unit by which revenues and expenses are analyzed • The highest (top) organizational unit in CO • May include multiple company codes • Thus, we can analyze costs across companies • Track where revenue and costs are incurred • (cost sender) • Assign those costs to other objects • (cost receiver)

5. Controlling Area (Global Bike) Global Bike Client Operating Concern Global Concern Controlling North America Controlling Europe Controlling Area Company Code Global Bike Inc. Global Bike Germany GmbH Global Bike Chart of Accounts Chart of Accounts

6. Controlling Area (Setup) • Use the IMG to configure

7. Profit Center (Defn.) • Responsible for revenue generation and cost control • Evaluated on profit or return on investment by • Region • Function • Product • And others

8. Cost Center (Defn.) • Responsible for cost containment • Identify by location, type of activity, responsibility • Copy center • IT • Maintenance

9. Internal Order (Defn.) • These are temporary cost centers used to monitor a one-time or short-term events • Monitoring Objects • Conference • Trade show • Company picnic • Productive orders • Build a new assembly line (something that can be capitalized)

10. Internal Order (Types) • These are the defaults but you can add more

11. Internal Order (Assignment) • Can be assigned to a plant, business area, functional area

12. Internal Order (Configuring) • To use CO-OPA (internal order accounting) it must be activated (transaction OKKP)

13. Internal Order (Details) • Internal orders must be ultimately settled to another internal order or a cost center • Use them so as not to bloat the cost center hierarchy

14. Revenue Element (Defn.) • A one-to-one linkage between GL revenue accounts and CO revenue elements • Data is transferred from FI to CO • I’ll focus on costs in this lecture but revenue works similarly.

15. Cost Elements (Primary) • Originated in the GL and transferred to CO • Primary costs elements always map to a GL account • Primary cost element numbers are the same as their GL account number • We can do default assignment to a cost center

16. Cost Elements (Secondary) • Use for allocations and settlements between cost centers • Secondary cost elements do not map to FI accounts

17. Cost Elements (Illustration) Managerial Accounting (CO) Financial Accounting (FI) Aggregated Cost Elements General Ledger Accounts Income Statement Balance Sheet Secondary Cost Elements Primary Cost Elements Expense Accounts Revenue Accounts

18. Statistical Key Figures • Designed to support internal cost allocations • For example, the copy center might allocate costs to the departments that use the center Copy Center Activity (20 Hours) 6 Hours Executive Offices 10 Hours Maintenance Department 4 Hours IT Department

19. Debit Credit Debit Credit 1,500 Posting Primary Cost Elements • When we post a transaction,we can assign it to a cost element Financial Accounting (FI) Supplies Expense Cash 1,500 Managerial Accounting (CO) Primary Cost Element Cost Center A

20. Debit Credit Debit Credit 1,500 Posting Secondary Cost Elements Financial Accounting (FI) Supplies Expense Cash 1,500 Managerial Accounting (CO) Secondary Cost Element Cost Center A CC 1 CC 2

21. Allocating Costs • Distribution is used to allocate primary cost elements • We have a receiver of cost (where the cost is incurred) • And a sender of costs (where the cost is allocated) • Assessment is used to allocate secondary cost elements

22. Allocating Costs (Distribution)

23. Allocating Costs Assessment