SAP CO module works in close integration with SAP FI module to provide supporting information to management for planning, controlling, streamlining business operations and decision making. SAP CO provides components like cost element accounting, cost center accounting, activity-based accounting, internal orders, product cost controlling, profitability analysis and profit center accounting.
Cost element accounting of SAP CO provides details of material cost, personnel cost, energy cost where a corresponding GL account exist in SAP FI and allows the costs to flow to that. But secondary cost elements like material overhead, production overhead, production costs are maintained, created and administered in SAP CO and costs does not flow to FI, these are used in internal cost allocation, settlement transactions, overhead calculations etc. Cost elements are basis of cost accounting which can give details of costs of each account assigned to cost element, accounts like cost center, internal orders, work breakdown structures can be assigned to cost elements for cost and revenue calculations.
Cost center accounting is very crucial for organization to calculate their exact profitability as these are those divisions of any organization which incur cost directly but add to the profit indirectly. Some examples of cost centers are customer support, research and development. SAP CO provides the facility to create and assign cost centers to business areas or functional areas of the organization like marketing, purchase, human resource, finance, facilities, information system, operation, administration and quality. The cost center accounting allows setting up of budgets, it improves visibility of cost centers at various functional areas of organization and helps in effective planning and distribution of costs to other cost objects.
Internal orders sub module of SAP CO module provides calculation of cost to be incurred on the organization by any specific job, service or task. This helps the management in making more correct decisions by reviewing the internal orders activity. Activity based costing is another sub module of SAP CO which can be used with cost centers, profitability analysis and product costing. It serves well in calculating the source of cost to the process driving the cost and provides better cross functional and process oriented view of the cost centers.
Product cost controlling sub module facilitates the management in defining the optimal cost of their product to market, it includes the facilities of planned, actual and target value analysis of the product. It comes with three components these are product cost planning which includes material costing this is further segmented as cost estimates with quantity structure, cost estimates without quantity structure, master data for mixed cost estimates and production lot cost estimates. This sub module also provides options of price updates references and stimulation costing.
Cost object controlling is second component of this sub module which provides calculations of product cost by orders, by sales orders and by periods, intangible goods and services, and CRM service processes. The third component of this sub module is actual costing/material ledger which provides periodic material valuation, actual costing and price changes.
Profitability analysis module of SAP CO provides information about contribution margin of every segment of the organization. Profitability analysis can be done by either account based analysis or cost based analysis. Profit center accounting is another feature of SAP CO module which allows its user to setup profit center as per product lines, geographical locations, functions and production units, and, cost and revenues can be analyzed independently of all the profit centers.