IPM 450 Final

Explain the data in the material master that are relevant to the purchasing process.

- Basic data - material number, weight, dimensions, unit of measure etc. Relevant for all processes that use the material (not only procurement) - Financial data - valuation currency, valuation class (g/l accounts associated with material), price control (method used to value materials) - Purchasing data - purchasing group, goods receipt processing time, delivery tolerances - Plant data/storage - Containers, shelf-life, environmental conditions, handling instructions.

Explain the key organizational levels relevant to the purchasing process

- Client: highest organization level representing entire business enterprise - Company code: Subsidiary of client, separate legal entity and primary organizational element for financial accounting - Plant: location where goods are received (in procurement context) - Storage location: places within plant where materials are kept until they are needed

Explain the rationale for the ERP Implementation in the KEDA case

- Competition within the industry - Institutional pressure from Chineses government agencies - Material management deficiencies in existing processes - Legacy systems issues

Explain the difference between the various types of purchasing organizations

- Enterprise level (aka cross company code) - when purchasing jurisdiction does not cross geographic / national boundaries - Company level (cross plant) - companies exist within separate countries with distinct laws, taxes and business practices - Plant level (plant specific) - when vendors primarily serve a local geographic area. Knowledge of local practices and conditions facilitates more favorable agreements.

What are the main differences between financial accounting and management accounting?

- External vs internal users - Historical vs hist/fwd looking data - compliance requirements - flexibility

Two types of overhead management

- Factory overhead: Directly related to production (but not attributable to a product) - Other overhead: Not directly related to production but incurred in other departments that support the overall goals of the organization

Explain the data in the vendor master that are relevant to the purchasing process

- General data - vendor address, name, phone number etc. (client level) - Accounting data - tax related, bank data, payment terms and methods (company level) - Purchasing data - terms related to price determination, creating and communicating purchase orders, verifying invoices etc. (purchasing organization)

Explain the four goods movements discussed. How are goods movements related to movement types?

- Goods receipt: receipt of materials into storage, which results in an increase in inventory quantity - Goods issue: when goods are removed from storage - Stock transfer: move goods from one location to another within the organization - Transfer posting: change a material status or type Movement types provide the specifics related to goods movement (information such as what information must be provided when executing the movement (e.g., storage location); which G/L accounts will be updated (e.g., finished goods inventory) and how the stock quantity will be affected (e.g. increase or decrease).

Define and explain the two types of cost elements

- Primary cost elements are associated with general ledger accounts and are used to transfer data between financial accounting and management accounting - Secondary cost elements are not associated with G/L accounts and are used to transfer data within management accounting

Explain the three key processes in management accounting

- Product costing: costs of creating a product or delivering a service - Overhead Management: Track and allocate overhead costs with a goal of cost containment - Profitability accounting: Assess and evaluate the profitability of various parts of the enterprise

What are the stock types or statuses based on the usability of materials? What is the significance of these statuses?

- Unrestricted use: can be used in any manner that mgt feels will benefit the enterprise - Quality inspection: require inspection before they can be released - Blocked Stock: unusable - Stock in transit: materials that are being moved from one plant to another

What is the role of account assignment categories in purchasing?

Account assignment categories determines whether an item is to be assigned to an auxiliary account (cost center, sales order etc) and which account assignment details are required for them

Explain account determination rules.

Account determination is the final step in automatic account determination and account determination rules define the specific procedures for determining the G/L accounts.

Differences between activity type and statistical key figure? how is this data used?

Activity types- define the work or activity performed by a cost center - used in conjunction with activity amounts for internal activity allocations. Statistical key figures- Serve as the basis for internal allocations (distributions or allocations) - used as the allocation criteria for periodic allocations.

What is the purpose of account category reference?

An account category reference serves as a link between valuation class (a grouping of materials that have the same account determination... that is, all materials that are associated with the same G/L account are assigned to the same valuation class) and material type.

Explain how costs flow from financial accounting to management accounting

Costs flow from financial to management accounting through cost elements. Cost elements are master data in management accounting that are used to transfer costs between financial accounting and management accounting and within management accounting.

Explain the formula for cost of goods manufactured

Costs of goods manufactured = Direct material costs + Direct labor costs + Indirect costs Indirect costs aka factory overhead

What are the two plant parameters required for procurement, and what are their functions?

Create SLoc automatically - automatically creates storage location data when the first goods receipt is recorded into the storage location. The second parameter is to set the delivery complete indicator in the purchase order at the time of goods receipt. Delivery is assumed to be complete when the quantity received matches the purchase order quantity, within tolerance. This parameter specifies that the system should automatically set this indicator. After this indicator is set, the ERP system will not permit any goods receipts for the purchase order.

Explain the assessment and the distribution techniques of periodic allocation

Distribution - Primary cost elements only - Costs are not aggregated - Transferred to receiving object using the same cost element. Ex. supplies to supplies. Electricity to electricity - Identity of cost elements remains the same as the receiving object Assessment - Primary and Secondary cost elements - Costs are aggregated (cost elements combined) into a new element called a secondary cost element - Transferred to receiving object using a secondary cost element that groups multiple cost elements. Ex. Electricity and water to Utilities - Identity of cost elements is lost once received by the receiving object

Explain the outcomes of the invoice verification step of the procurement process

Financial impact on G/L (impacts sub-ledger account (vendor) and corresponding reconciliation account in G/L (Accounts payable reconciliation) Invoice document created Purchase order history updated Material master updated (if pricing change based on moving average)

Explain the outcomes of the goods receipt step of the procurement process.

Financial impact, update to purchase order and material master

How is account determination different when purchasing stock items and consumable items?

For stock items the account determination process is automatic and based on data contained in material master, particularly valuation class. When a company purchases materials for consumption, the transaction must identify the account assignment object to be charged for the purchases as well as the G/L accounts to be debited or credited

Describe, with examples, the data in the three segments of a customer master. What is the purpose of a customer-material info record? Provide examples of the types of data it contains.

General - valid for all of a client's sales areas and company codes (e.g. customer name, address, and account number. Accounting - specific to a company code and include data such as payment terms and the reconciliation account in the g/l. Sales area data - pertinent to a specific sales area and relate to the sales, shipping, billing, and partner functions (e.g., sales office, preferred delivering plant, delivery tolerances etc.) This is the fulfillment equivalent of a purchasing information record. It contains data that are specific to one customer and one material. As in the case of procurement, data in the info record are more specific than similar data in either the customer or the material master. Data examples include: Customer material number, preferences related to shipping, etc.

Which steps in the procurement process have an impact on financial accounting?

Goods Receipt (inventory and accounts payable) Payment processing (accounts payable and bank account)

During which step in the procurement process are material documents created? Why?

Goods receipt. It is the point at which there is actual movement of goods

What is the function of the factory calendar? why is it important?

Identifies an organization's working days and holidays. Only using working days in scheduling actives related to procurement

Explain differences between periodic activity allocation and internal activity allocation

In periodic allocation, costs are accumulated over a period of time, such as a month or a quarter. At the end of the period, they costs are allocated to other objects In internal activity allocation no initial accumulation of costs occurs. Rather costs are allocated from a cost center to other controlling objects based on work or activity performed by the cost center. Cost are allocated when they are incurred, not at the end of the period

What are the key activities involves in settlement, and how are they executed?

Settlement is the technique used to transfer costs from an internal order to other controlling objects or to G/L accounts. Settlement Rules: how costs accumulated in the internal order will be allocated. Each allocation is defined in a distribution rule which specifies: 1. the receiver- responsible party and category (i.e. cost center, G/L accounts ) 2. an amount- using percentage or equivalence number 3. Timing of settlement- Periodic (accumulated costs are settles at the end of each period) and Full (the costs are settled once; specifically at the end of the life of the order

Explain primary purpose of internal order accounting

Internal order accounting is used to manage temporary costs that are typically associated with an activity that has a finite life. 3 highlighted in the chapter: Construction, marketing, company picnic

What are item categories in purchasing? Explain how each of the following item categories impacts the purchasing process: consignment process, third-party item, subcontracting item.

Item categories determine which process steps and data are needed when a company purchases materials or services. - Consignment: vendor is only paid when the company sells or uses the materials (no invoice) - Third party item: No goods receipt as the company has outsourced its procurement to a third party (purchase and resell without directly handling product) - Subcontracting: Includes a second shipment to a vendor for additional processing

What is a three way match? What documents are involved in a 3 way match?

Its a comparison of details shown in purchase order, goods receipt and invoice

Explain the relationship between the master data and organizational data in the fulfillment process

Master data are defined for specific organization levels. For example, general sales data are defined for specific distribution chains. If a company wants to sell material using this chain, then it must define the data for the right sales organization - distribution channel combination.

Describe the two options available for price control in material master data

Moving average price (purchased materials) Standard price (in house)

Cost center groups

are a subset of the standard hierarchy and are a collection of cost centers that are associated by various criteria

Describe the issues that KEDA faced in each of the following implementation stages and how they were addressed in this case

i. Identification of Need- Understanding system requirements ii. Vendor Selection- Choosing the right vendor whose products and services would be closely aligned with Keda's business processes and requirements iii. Process redesign- Changing business processes to match system functionality (They were not going to be customizing the product) iv. System implementation- User resistance to the collocation work scheme v. System testing and user training- Time and resources needed vi. System rollout- Unsupportive staff bypassing the system; Business disruptions, production delays

Cost centers

organizational units within a controlling area that represents clearly demarcated locations for costs to be incurred

How many real postings and statistical postings can a single transaction generate?

up to 4 controlling objects can be specified in a posting, but only one real object is permitted. The other three will be designated as statistical postings

What is a credit control area? Explain the difference between a centralized and decentralized model of credit control areas.

A credit control area is an organizational level that is responsible for customer credit. Centralized - a single credit control area manages credit for customers across all company codes in the enterprise. Decentralized - has multiple credit control areas (e.g. one for US operations and another for European)

What is a distribution chain? How is it relevant to the fulfillment process?

A distribution chain is a unique combination of a sales organization and distribution channel that reflects how a sales organization distributes its products and services (e.g. in figure 3 on p. 131 UE00 - WH could represent one chain and UW00-WH could represent another). It is relevant to the fulfillment process in that some master data, such as material master and pricing conditions, are maintained at the distribution chain level.

What is a material document? List some key data included in a material document.

A material document records data related to a goods movement such as receipt of goods from a vendor. Key data: Header (date, created by, document number); Item detail (Quantity, Location, movement type)

A purchase requisition can result in multiple purchase orders, and multiple requisitions can be combined into one purchase order. Explain the circumstances when these two scenarios are possible. Provide examples.

A purchase requisition can result in multiple purchase orders when the requisition includes multiple parts that are different vendors. Multiple requisitions can result in one purchase order if the source of supply is the same for all requisition items.

Explain the difference between a tax code and a tax rate.

A tax code in SAP is a two digit alphanumeric code which stores different tax conditions (defined in tax procedure) and corresponding tax percentage. Normally tax code is created at national level but in few countries like USA, different areas have different tax authority and each tax authority decides its own tax percentage. Hence applicable tax percentage (tax rate) depends upon which tax authority the business transaction belongs to. Tax rate is the tax percentage which is to be applied on tax base amount to arrive at tax amount.

Explain automatic account determination.

Automatic account determination ensures that, as the process steps are completed, the ERP system automatically determines the appropriate G/L accounts, and it posts debit or credit entries to these accounts based on the posting key.

Define controlling objects and identify some examples

Controlling objects are objects in management accounting that can receive and accumulate costs and, in some cases allocate costs to other objects. Examples: cost centers, internal orders and production orders

Describe the common views needed in a material master for trading goods.

Basic data (e.g. material number, description, weight, dimensions, unit of measure) Purchasing data - these are defined for specific plants. Includes purchasing group, under and over delivery tolerances. Storage data - specify the environmental conditions (e.g. temp and humidity) that are required to safely store materials as well as the shelf life of the materials. Accounting data - valuation class, price control, moving average price, quantity, and value.

How is pricing determined in the fulfillment process? Provide examples of data relevant to pricing.

Pricing is determined by evaluating whether specific conditions are applicable to the sales order. For example, how is the gross price determined? Is a discount applicable based on the quantity of materials purchased? Is there an additional shipping charge based on the distance the materials have to be shipped? The net price is calculated by adding or subtracting charges based on the applicable pricing conditions.

What are conditions used for?

Conditions (similar to purchasing info record, but based on overall agreements and contracts in place with vendors)

Explain the difference among controlling area currency, object currency and transaction currency

Controlling area currency- Currency used for mgt accounting - Centralized: controlling area can be different - Decentralized: controlling area = company code Object currency- Currency used for controlling objects - Decentralized: object currency can be different from company code currency - Centralized: can be different only of the controlling area currency is the same as company code Transaction Currency - Currency in which controlling transactions are posted

What are the pros and cons of the decentralized and centralized models of cost accounting?

Controlling area same a company code= more flexibility, tailored to meet the specific needs of the constituency i.e. one controlling area will be assigned to one company code Cross company code cost accounting= easier to configure and easier to analyze. i.e. more than one company code will be assigned to a controlling area

List and describe at least 3 dimensions of organizational culture that played a role in the KEDA case

Organization culture is an important consideration for any implementation effort. Technical expertise alone would not have been sufficient for the KEDA implementation. Some areas of culture that should be understood include: - Level of individualism - Structure of Authority - Uncertainty Tolerance - Norms on exercise of power (e.g. are tough and assertive behaviors more valued than more deliberative/ democratic processes?)

Explain the relationship between organizational levels and master data in purchasing?

Organizational levels help specify where the goods that are to be produced are coming from or where they are going. Master data are used to account for the value of the goods and services that are being purchased as well as for controlling purposes to ensure the process is managed efficiently.

Identify and explain the four tolerance limits associated with the procurement process.

Purchase Order Tolerance - Two tolerance keys are defined for purchase order tolerances. Tolerance key PE defines the purchase price tolerance and tolerance key SE determines the maximum permitted discount. Good Receipt Tolerance - When a goods receipt from a vendor is recorded in the system, it is possible that the quantity received is different from the quantity ordered. Goods receipt tolerance defines acceptable deviations from the initial order. Vendor Invoice Variance - During invoice verification data in the invoice, goods receipt, and purchase order are compared. Specifically, the quantities in all three documents and the values in the purchase order and invoice must match for the invoice to be accepted. However, these numbers do not always match perfectly. Tolerance limits can be configured into the ERP system to address these situations (there are more than a dozen tolerance keys that are predefined in the SAP ERP system to address these variances). Vendor payment tolerance - In the final step of the procurement process, the company makes a payment to the vendor. It is not unusual for minor differences to occur between the invoice amount and the payment amount. A tolerance limit can be specified for this difference. Moreover, this limit can be specified for each vendor.

What are purchasing information records? What is their role in the purchasing process?

Purchasing information record- relates a specific vendor to a particular material or material group Companies use data from the purchasing info record as default values when creating a purchase order for a specific vendor/material combination

Explain the difference between a real object and a statistical object

Real controlling objects can receive real or true posting that are included in the account balance of the object. Statistical controlling objects are additional postings that are provided for informational or reporting purposes and are not included in the account balances for the controlling object.

Briefly describe the steps in the procurement process. What are some possible variations to this process?

Requirements Determination - Determine Source of Supply - Vendor Selection and Evaluation - Purchase Order Processing - Goods receipt - Invoice Verification - Payment Processing Variations: - Different Triggers (Fulfillment, production, materials planning) - Skip Source of supply step

Explain the relationships among the following organizational levels: sales organization, distribution channel, division, and sales area.

SO - responsible for the sale and distribution of goods and services for a particular geographical area DC - the means by which a company delivers its goods and services to its customers (e.g., wholesale, retail and online) Division - groups together products with similar characteristics. Each division represents a different product line Sales Area - a combination of one sales organization, one distribution channel, and one division (I've left out an explanation of the relationship as it should be relatively straightforward to depict these relationships based on the definitions of these terms)

What are the different paths from a purchase requisition to a purchase order? What determines which path is selected?

Same as above, but with a third option that a more informal process such as a telephonic quote (no formal quote is entered into the system). The path is determined by whether or not the source of supply is known (or whether or not the organization has a pre-existing relationship with the vendor).

Explain how the steps in the fulfillment process impact the g/l accounts

The accounting process is triggered when a goods issue is recorded in the system. At this point the inventory accounts of the materials shipped are credited and the cost of goods sold account is debited · When the billing step is completed, accounts receivable reconciliation and sales revenue accounts in the G/L are updated. The accounts receivable account is debited by the amount of the invoice and the sales revenue account is credited by the same amount. · When payment is received the bank account is debited and the customer account is credited by the same amount. Because the customer account is a sub-ledger account, the corresponding reconciliation account, accounts receivable, is also automatically credited.

What is the credit management master record? How is it related to the customer master record?

The credit management master record is an extension of the customer master record that includes data relevant to managing credit for customers.

Briefly describe the credit management process. Which steps of the fulfillment process are relevant to credit management?

The credit management process is used to determine whether a customer should be granted credit to purchase and receive goods prior to payment. It is pertinent to the following stages of the fulfillment process: (1) when the sales order is created or changed, (2) when the delivery is authorized (delivery document created) or changed, and when the post goods issue is performed during shipping.

What is the primary enterprise structure that we focus on in managerial accounting configuration?

The key enterprise structure element in controlling is controlling area. Controlling area: is the basic organizational unit in Management accounting. A controlling area is a closed entity used for cost accounting. You can allocate costs only within a controlling area. These allocations cannot affect objects in other controlling areas.

Discuss the options for selecting material valuation levels and the reasons for selecting each one

The material valuation level specifies the enterprise structure level at which material prices and valuation of materials are established. Two options are available: 1. The plant 2. Company code Plant - a company chooses plant-level valuation if it wishes to value materials differently in each plant. If a company wishes to utilize the production planning or product costing capabilities of an ERP system, then it must set the valuation level to the plant level, because these techniques are plant specific. Company Code - material price and valuation for materials must be the same value for all plants within that company code.

What is the purpose of number ranges in management accounting?

They help to identify specific management accounting documents, internal orders and settlement documents.

What is a delivery document? What is the significance of a delivery document in purchasing?

This is the packing list that identifies the materials included in the delivery and the purchase order. It verifies that delivery matches what was ordered.

What is meant by source of supply determination? What are the different ways of identifying a source of supply?

This is the process of selecting the vendor of the materials that move been requisitioned. 1. Select from an established source list 2. generate a RFQ to several potential vendors and then select vendor based on quotes

Standard hierarchy

Tree structure representing all costs centers belonging to a controlling area from a controlling perspective. It is the cost center group that contains all cost centers and represents the entire business organization

How do companies manage payments that are less than the amount of the invoice?

Two scenarios: (1) If difference is insignificant then the difference is charged off or written off using an appropriate g/l account, and the invoice is considered paid. (2) When the difference falls outside tolerance limits it is typically handled a partial payment (payment is posted to the customer account, and the original invoice item remains open) or as a residual item (where the original item is closed and a new item for the balance is posted to the customer account).