What is costing-based CO-PA?

Free Book Excerpt: Introduction to Reconciling SAP CO-PA to the General Ledger by Paul Ovigele

Costing-based CO-PA is the form of CO-PA that groups costs and revenues into value fields. The groupings of these cost and revenue items into value fields can be accomplished in a variety of ways depending on the source of the data.

In fact, it is this inconsistent mapping of various SAP objects into CO-PA value fields that is one of the key reasons why the reconciliation of costing-based CO-PA with the general ledger is not very straightforward. As we all know, most accountants think in terms of general ledger accounts and if you give them a report, they will never feel satisfied until they are successfully able to reconcile the numbers back to the general ledger. This trait (which I believe is fully justified) causes a lot of angst with other members of the organization because it means that every report that contains financial information needs to be scrutinized and verified before it is accepted by the finance team. The value fields that are available in costing-based CO-PA take the place of general ledger accounts, therefore it is very important that the mappings to these value fields are well-defined and that there are no gaps in the setup process.

Advantages and disadvantages of costing-based CO-PA

The advantages of costing-based CO-PA are as follows:

• Cost component split: In costing-based CO-PA you can split the cost estimate of a product or service into its originating cost components. This means that, for example, if a product cost is $10 per unit and you sold 5 units of the product, instead of the cost of sales in CO-PA being shown as $50, you can break it down into its different elements of cost such as: Raw Materials – $12; Packaging – $8; Freight – $5; Labor – $15; Overhead – $10. This provides a more accurate understanding of the components of cost that are significantly affecting your contribution margin.
• Classification of production variances into their different categories: Production variances occur when the components that have been issued in a production order (i.e. raw materials, labor, overhead, etc.) vary from the standard cost of the finished product. These variances can occur due to several factors that took place during production. SAP categorizes them as follows: input price variance, input quantity variance, resource usage variance, scrap variance, output price variance, output quantity variance, mixed price variance, and remaining variance. These categories help you to further explain why the variances occur. In costing-based CO-PA you can map variances to separate value fields and use them in profitability reports. Therefore, instead of seeing your production variance as a single amount, you get a more detailed analysis of why the variance occurred and can take measures to mitigate these variances or, modify the standard cost accordingly.
• Better visibility of contribution margin as fixed and variable costs can be broken out: Most businesses like to separate their product costs into their fixed and variable components. The reason for this is that variable costs are directly related to production activity (such as labor, direct overheads, etc.), while fixed costs are incurred regardless of production activity (such as indirect overheads, corporate services, etc.). In costing-based CO-PA, you can map variable and fixed costs to separate value fields and analyze the contribution margin that is generated by various changes in sales units and the financial impact of certain sales and marketing strategies.

The disadvantages of costing-based CO-PA are as follows:

• Difficult to setup: As mentioned previously, costing-based CO-PA requires mapping several objects to value fields. However, this setup process is not contained in a single configuration transaction or table. Depending on the source data that you are mapping to CO-PA, you will need to use a different transaction to implement the configuration settings. Additionally, you need to carefully plan the source data that needs to be pulled into CO-PA and where it comes from in order to decide which tables the derivation rules should be based on. It is also pretty easy to omit a specific setting if you have not thoroughly mapped out all the scenarios of data flows into CO-PA.
• Not easy to reconcile to the general ledger: This issue is perhaps the biggest disadvantage of CO-PA and is one of the main reasons (along with speed) that more companies are not utilizing this functionality, even when it has been set up in their system.

SAP HANA addresses speed but not reconciliation

The speed issue is being addressed with new SAP technologies such as HANA, however, the reconciliation issue is still yet to be addressed, hence the need for this book!
As costing-based CO-PA uses value fields and the value fields are not always directly related to a single general ledger account, any discrepancies between CO-PA and the general ledger are very difficult to unravel.

Keep reading in Reconciling SAP CO-PA to the General Ledger by Paul Ovigele.

Paul Ovigele is the Founder & CEO of ERPfixers. He has worked as an SAP consultant since 1997. He has delivered numerous training sessions, spoken at major SAP conferences around the world and written 2 bestselling SAP books. Having identified an imbalance in SAP consulting over the past decades, Paul founded ERPfixers to help clients access quality, skilled and immediate solutions for their most pressing SAP issues. Learn more about http://www.erpfixers.com/.