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Thursday, April 13, 2017

S4Hana Finance Improvements - Profitability analysis

On the next few posts, I would like to discuss the improvements made as part of S4Hana finance. As the first topic on this series, lets take a look at the improvements made to profitability analysis.

S4Hana finance introduces a new type of profitability analysis called profitability analysis on universal ledger. This new type of profitability analysis is similar to accounting based COPA but includes some of the functionalities that were only available in costing based COPA in previous versions. It has to be noted that costing based COPA is still in play since some of the functionalities such as multiple valuations using COPA costing sheets, user exits etc. are only available in costing based COPA even after the introduction of COPA on universal ledger.

1. Splitting of cost of goods sold by cost components.

This was one of the compelling reasons for the selection of costing base COPA by most of my clients. This is where we could map the cost components of the standard cost of a material to separate value fields in costing based COPA while the accounting based COPA was posted with one cost of goods sold account. But this came with a major draw back where the cost of goods sold was posted in costing based COPA when the customer billing document is posted while the cost of goods sold is recognized in general ledger during post goods issue. This resulted in timing differences between GL reports and costing based COPA reports. Anyone who implemented costing based COPA would agree that this is one of the biggest complaints from the finance teams who try to reconcile costing based COPA reports to their general ledger based P&L.

SAP has given a simple solution as part of S4Hana finance to address this long standing issue.

As a first step we need to create and assign a cost splitting profile to the combination of controlling area and cost component structure. Splitting profile will then be assigned to company codes.

Financial Accounting (New) à General Ledger Accounting (New) à Periodic Processing à Integration  à Materials Management  à Define Accounts for Splitting the Cost of Goods Sold

Then separate GL accounts could be mapped to each cost component and cost of sales account.

Lets see the result of this in the cost of goods sold posting during post goods issue.

As it can be seen above, system have reclassified the cost of goods sold into respective cost components during post goods issue posting.

2. Splitting of production variances by variance category

Another short coming in the traditional accounts based COPA was that we could not analyze production variances by the variance categories since different variance accounts couldn't be mapped by variance category. This was possible in the costing based COPA using PA transfer structure. There were no timing differences between costing based COPA and accounting based COPA for production variance postings since both were updated during production order settlements but having this improvement to be able to map separate GL accounts by variance category is definitely a welcoming addition in SAP.

To activate this we need to define a price differences splitting profile and assign to company codes.

Financial Accounting (New)  à General Ledger Accounting (New)  à Periodic Processing  à Integration  à Materials Management  à Define Accounts for Splitting Price Differences

once the splitting profile is defined, you can map separate GL accounts for each production variance category.

In addition to the two improvements mentioned above, profitability analysis on universal ledger allows three additional unit of measures to be captures during COPA postings

Controlling  à General Controlling  à Additional Quantities  à Define Additional Quantity Fields
SAP provides the BADI "FCO_COEP_QUANTITY" to convert quantities and update universal ledger.

Hope this post helps you guys and please note that this is based on S4Hana finance add-on version 1605 or S4Hana version 1610 and this may change with the future releases.