Cost Object Controlling in SAP- A Comprehensive Guide

What is Cost Object Controlling?

Cost object controlling enables you to determine the cost of goods manufactured and sold goods.

In this blog, we collect and analyse planned and actual costs on individual cost objects such as manufacturing orders, sales orders, etc.

Table of Content:

• What can you do with it- The key jobs
• Relevancy Factors
• Uses of Cost Object Controlling
• Integration with Other Modules
• Key Features
• Main Types
• Key Components and their functioning
• Prerequisites to Implement it
• Period End Activities

What can you do with it?

1. Establish Planned Costs – In Preliminary costing, you can determine plan costs for each cost object.
2. Record actual costs for the cost objects– In simultaneous costing, you collect actual purchasing and manufacturing costs.
3. Period-end processing– Here we calculate overhead and work in process (WIP) analyze the cause of variances between planned and actual costs and settle the results.

Read Related: SAP Controlling Interview Questions

Relevancy of Cost Object Controlling

Cost Object Controlling is an area within cost accounting that answers the question –

Which objects incurred costs?

It assigns the costs incurred by your company to units within the company such as-

• Products
• Product groups
• Orders, etc.

These units offer real-time cost management functions that determine the costs of goods manufactured in all your plants.

We can determine the cost of goods manufactured or the cost of goods sold for company activities.

These units enable you to do the following-

1. Calculate planned costs for the planned order quantity on the basis of orders in logistics
2. Calculate the planned costs for customer-specific make-to-order products
3. Collect actual costs for all cost objects
4. Compare actual costs with target costs and with planned costs and analyze variances
5. Determine price floors for products or orders

Further, we can use Cost Object Controlling functions by lot or period.

Also Read: Cost Object Controlling in Make-to-Stock Production

The Cost Object Controlling components supply information for the following business functions:-

1. Price setting and general price policy
2. Inventory Valuation
3. Cost of goods manufactured
4. Profitability Analysis
5. Profit Center accounting

Use of Cost Object Controlling

• Determine whether the actual costs of an order matched or exceeded the planned costs.
• Determine the production variances between actual costs and target costs and whether these occurred
• Decide whether accepting a particular sales order will be profitable or not
• Identify areas in your company where you specifically have low costs, therefore which cost objects you should concentrate on.
• Decide whether it would be more profitable to manufacture in-house or outsource it.
• Determine whether and how the cost of goods manufactured can be reduced.

Integration of Cost Object Controlling with other modules

Before we deploy Cost Object Controlling, we can calculate the planned costs for each product in a cost estimate. We can use different costing methods in Product Cost Planning (CO-PC-PCP) for this purpose,

We can view the data of Cost Object Controlling in the information system for Product Cost Controlling (CO-PC).

When we settle, you can transfer the data of Cost Object Controlling to other areas of the system.

The following are the areas-

1. Actual Costing/Material Ledger (CO-PC-ACT)
2. Financial Accounting (FI)– For purposes such as capitalizing unfinished and finished products and automatically creating reserves.
3. Profitability Analysis (CO-PA) – To analyze the costs by market segment.
4. Profit Center Accounting (CO-PCA) – To analyze the results by profit Center

Features of Cost Object Controlling

All postings of actual data that refer to a cost object result in an immediate debit of the cost object.

The closing activities at the end of the period allow you to do the following:

1. Compile periodic reports on a regular basis
2. Revaluate activities at actual activity prices
3. Allocate overhead using processes cost allocation and by applying overhead rates to cost objects
4. Calculate work in the process (WIP)
5. Determine variances between target costs and actual costs
6. Transfer the data to other objects and components
7. The period-end closing procedure and actual costs at the level of the plant, product group or individual cost objects. The data are always available in real-time.

Types of Cost Object Controlling

1. Product Cost by Order
2. Product Cost by Period
3. Product Cost by Sales Order

Components of Cost Object Controlling

Inventory Valuation

Standard Price- Materials whose price control indicator is set to S are evaluated in Financial Accounting at their standard price.

This is recommended for semi-finished products finished products

The moving average price is shown as the statistical value in the material master record.

Moving Average Price- When materials whose price control indicator is set to V are received from the in-house manufacturing process, they are initially evaluated with a value defined, such as the standard price. When you settle, the material stock account is debited with the variances. This results in a new moving average price.

You can evaluate raw materials with the standard price or the moving average price.

You may wish to check:- SAP FICO Course Details

Actual Costing

We can use the Actual Costing /Material Ledger components to calculate a periodic unit price for the previous period. You can further use this price for statistical purposes or to reevaluate your inventories.

Inventory Costing

If you do not want to use any of the above methods to evaluate your inventories in the Year-end closing, you can use the Product Cost Planning component. It creates inventory cost estimates for determining the cost of goods manufactured for commercial and tax valuation. Subsequently, it uses these cost estimates to evaluate your inventories in the commercial balance sheet or tax balance sheet

Pre-Requisites to implement Cost Object Controlling

1. Before you can use Cost Object Controlling, you need to calculate the planned costs for each product in a cost estimate. For example, Standard cost calculation.
2. Cost object Controlling access master data and transaction data in the PP module, Material Management, Sales & Distribution and Overhead Cost Controlling.
3. You can also view the data of cost object Controlling in the Product Cost Controlling Information system.
4. Complete the configuration of the Actual Costing/Material Ledger.
5. You need a Financial Accounting configuration for purposes such as Capitalizing WIP (unfinished products) and automatically creating reserves.
6. Similarly, you need Profitability Analysis (COPA) to analyse the costs by market segment.
7. Finally, Profit Center Accounting analyzes the results by Profit Center.

All costs of actual data that refer to a cost object result in an immediate debit of the cost object

Related: Interview Questions on SAP Profit Center Accounting

At Period-End Activities

The closing activities at the end of the period allow you to do the following:-

1. Revaluate activities at actual prices.
2. Allocate overhead using template allocation and by defining overhead rates for cost objects.
3. Determine the work in process (the value of unfinished goods)
4. Determine the variance between target costs and actual costs.
5. You can also transfer the calculated data to other objects and application components.
6. Further, you can compile periodic reports regularly.
7. You can analyze planned costs, target costs, actual costs and quantity information at various levels such as the plant, product group or individual cost object. The data is always available in real-time.

Also Read: Closing Activities in SAP S/4HANA Finance

End-Note

If we are working with Product Costing to determine our standard Cost, then Cost object Controlling determines our actual cost and any variances to standard cost.

It is a very important part of SAP Controlling, as it helps you to know:-

• What is to be produced
• When production is take place
• Which capacity is to process the order
• How much are production costs

For an SAP S/4HANA Finance Consultant, it is an integral part of their job role. Similarly, for FICO consultants, knowing Cost object controlling is required. If you are in the learning phase, you should do its configuration in the system to understand how it works in real. Practical knowledge is a must.

To learn Cost Object Controlling: Checkout SAP S/4HANA Finance Course details