Introduction to Managerial

Accounting (CO)

Slide 2

Lecture Overview

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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

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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)

Slide 5

Controlling Area (Global Bike)

Global Bike Chart of Accounts

Global Bike Client

CompanyCode

Chart ofAccounts

Global Concern OperatingConcern

Global Bike Inc. Global Bike Germany GmbH

Controlling North America

Controlling Europe

ControllingArea

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Controlling Area (Setup) Use the IMG to configure

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Profit Center (Defn.) Responsible for revenue generation and

cost control Evaluated on profit or return on

investment by Region Function Product And others

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Cost Center (Defn.) Responsible for cost containment Identify by location, type of activity,

responsibility Copy center IT Maintenance

Slide 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)

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Internal Order (Types) These are the defaults but you can add

more

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Internal Order (Assignment) Can be assigned to a plant, business

area, functional area

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Internal Order (Configuring) To use CO-OPA (internal order

accounting) it must be activated (transaction OKKP)

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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

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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.

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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

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Cost Elements (Secondary) Use for allocations and settlements

between cost centers Secondary cost elements do not map to

FI accounts

Slide 17

Cost Elements (Illustration)

FinancialAccounting

(FI)

General Ledger Accounts

RevenueAccounts

BalanceSheet

Income Statement

ExpenseAccounts

ManagerialAccounting

(CO)

Aggregated Cost Elements

Primary CostElements

Secondary CostElements

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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 CenterActivity

(20 Hours)10 Hours

6 Hours

4 Hours

Executive Offices

MaintenanceDepartment

IT Department

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Posting Primary Cost Elements When we post

a transaction,we can assign it to a cost element

Primary Cost Element

Debit Credit

1,500

Cost CenterA

Debit Credit

1,500

Supplies Expense Cash

Financial Accounting (FI)

Managerial Accounting (CO)

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Posting Secondary Cost Elements

Secondary Cost Element

CC 1CC 2

Debit Credit

1,500

Cost CenterA

Debit Credit

1,500

Supplies Expense Cash

Financial Accounting (FI)

Managerial Accounting (CO)

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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

Slide 22

Allocating Costs (Distribution)

Slide 23

Allocating Costs Assessment