Under/over absorption

[Former Member]

Dear experts,

We did cost center assessment and COPA assessment. But our financial profit is not matching with COPA profit. We considered all the cost elements except Increase/decrease of WIP, Inc/dec of FG and COGS. Actually the difference between Finacial profit and COPA profit should be under or over absorption. But that amount is not matching with under/over absorption in cost centers(diff between debits and credits in cost centers after excluding assessment cost elements and COGS elements). Vast difference it is showing. How to match this financial profit and COPA profit. Please help me.

Regards

Jay

[Former Member]

Please run the report S_ALR_87013611 fro your standard hierarchy of cost centers. Look at the overall under/over absorption. Now expand the variation per each group on the side pane and see if you see something fishy with any of the cost center groups.If you do see if you can drill down and see the cause of any extraordinary amount.

All the best

Thanks

Naveen

[Former Member]

Hi,

Could you please let me know which method of COPA are you using, Account based or Costing Based?

[Former Member]

We are using costing based COPA only

[Former Member]

Please respond anybody else

[Former Member]

Hi,

If you are using Costing based PA, then the net profit as per FI will not match as per PA.

The reason being, production variances are posted to COPA based on production, but profitability is based on billing. There will surely be a gap.

You need to settle with that.

[Former Member]

IF Costing based COPA was set up properly, it WILL balance to FI. However, because it is set up differently for each implementation it is difficult to give exact guidance. The following generic should help: Divide COPA reports into section, and reconcile each section to FI GL Accounts: Revenue (usually via condition types), Revenue deduction, (usually also via condition types), CoGS at standard (usually via Standard Cost Estimate), CoGS adjustments (I.e. purchase price variance, production variance, production cost centre over/under recovery, any other CoGS adjustments made), and lastly overhead assessment (usually via assessment cycles) There may also be direct postings from FI, and settlements from other cost objects like WBS, Internal Order.

[Former Member]

Dear Sir,

Thank you for your immediate response. But the differednce between FI and PA profit is showing more than 3 crores. But actually this much amount of production variance difference should not be there for billed quantity and produced quantity. I have done assessment for all the cost elements posted to cost centers except those Inc/dec of FG and WIP and COGS. So how can I proceed now? Client is not accepting the analysis whatever u are telling.

[Former Member]

Hi,

Is the difference what you are getting tying up with the increase / decrease in FG, SFG, WIP and the production variances, material price variances, material revaluation variances, etc..

[Former Member]

Sorry if I gave the wrong impression - COPA can and should reconcile, and it is the support person's responsibility to make sure that it does. You need to take the categories I have given you, and reconcile COPA and FI category by categary, GL Account by value field

[Former Member]

Dear Sir,

My revenues and revenue deductions are exactly matching with G/L balances. Regarding the prime cost, total of all the consumptions, production costs are exactly matching with COGS accounts in Financials. Production variance and purchase variance also exactly matching. Regarding to the Overheads, what ever posted in cost centers I reposted to COPA through assessment. Eventhough I am not able to match COPA profit to FI profit. Plz help me.

[Former Member]

Please respond anydbody else

[Former Member]

Hi Piet,

I would need some inputs regarding matching of FI vs Costing Based COPA reports on the following issues:

1. Costing based COPA reports are normally build on Billing.

1.a How would production variances be mapped against qty billed.

1.b How would production variances related to SFG be mapped against FG qty billed.

1.c How would material purchase related price variances be mapped against FG qty billed.

1.d How would material valuation related price variances be mapped against FG qty billed.

2. There would be certain incomes or expenses which may not be allocable at all to the product for determining its contribution. I presume, here we can build some logic for allocation.

But the prime concern is issue no.1, for which, I have at least not been in a position to arrive at a logic.

Would appreciate, if you can suggest on the above issues.

Thanks in advance.

[Former Member]

1. The trading account is based on billing information. This is not possible for period based COGS entries, or for overheads.

2. Do not invent rules for allocation to product, if there is no "natural" way of allocating costs to the lower level characteristics.

[Former Member]

Hi JayJay,

Hope you don't mind if I use this thread to ask you a question. How were you able to show your consumption and other production costs in COPA? I assume that when you partially confirm the prod orders, there would be some postings for consumption and/or production costs. Moreover, when you confirm does it generate a COPA document?

I have set up valuation strategies but its not working for me and don't know how to proceed from there. BTW, are you using product cost by order?

Hoping for your kind feedback.

Regards,

Thess

[Former Member]

Hi Thess,

COPA is a profitability analysis tool, so it was designed to analyse the trasing account, i.e. revenue, cogs and gross profit.

Consumption and production costs should not be posted to COPA, they should get posted to a production cost object. That production cost object gets settled to stock in the balance sheet. And then when the product is sold, the sale will update COPA with the revenue and the COGS, per the charactersitics that you have set up, usually customer, product at a minimun.

At month-end, your production variances, your purchase price variances and your overhead recovery variances are posted to COPA, but without the detailed characteristics that is available for sales information.

And then optionally, you can assess your other overheads from CCA to COPA as well, to give you a complete income statement in COPA. (WHICH BALANCES WITH FI!!)

[Former Member]

Hello Piet,

Thank you so much for the advice. I was able to show the Sales and COGs part in COPA and needs to just finetune the report to balance it with FI. I just have a separate reqt to show material and production costs in COPA. Based on your response, it looks like the report/analysis of material costs and production costs (plan/target vs actual) should be in another module (CO-PC?).

Regards,

Thess

[Former Member]

It depends what your business is, but for most discrete/ process oriented manufacturing requirements, CO-PC is the answer.

CO-CCA was designed to answer the question: "Who is responsible for the overhead costs incurred by the company."

CO-PC was designed to answer the question: "What does it cost me to manufacture this material.?" "What should it have cost me?" Why didn't it cost me that much?"

CO-PA was designed to answer the question: "Which are my profitable products/ product lines?", "which are my profitable customers?"

If you try to answer a different question to what the tool was designed to do, you will sooner or later run into problems.

[Former Member]

Thanks, Piet.