Sap Accounting: RE: [sap-acct] Profit Center vs Segment

RE: [sap-acct] Profit Center vs Segment

Posted by usmankhalid_sapfico_consultant
on Jun 30 at 6:26 AM

Dear Sitiariyani,

Segment is higher in organization level you can easily understand the difference between them through this example

Let's suppose your company selling 02 product Bikes and Cars these are the profit centers and theses 02 products were sold in 03 cities (segement)

Bikes Car

Karachi xxx xxx

Lahore xxx xxx

Faisalabad xxx xxx

Segmental reporting can be made by:
? Division.
? Product or product line.
? Sales territory.
? Service center.
? Sales Person.
? Store or branch office.
? Domestic or foreign operations.

SEGMENTAL INCOME STATEMENT

Karachi

Total CompanyBIKESCARS
Sales
$ 150,000$ 90,000$ 60,000
Less: Variable costs:

Manufacturing
40,00030,00010,000
Selling and admin.
20,00014,0006,000
Total variable costs
60,00044,00016,000
Contribution margin
$90,000$46,000$44,000
Less: Direct fixed costs
70,00043,00027,000
Divisional segment margin
$20,000$3,000$17,000
Less: Unallocated common fixed costs
$10,000
Net income
$10,000

Faisalabad

Division 2CarsBikes
Sales
$60,000$20,000$40,000
Less: Variable costs

Manufacturing
10,0005,0005,000
Selling and administrative
6,0002,0004,000
Total variable costs16,0007,0009,000
Contribution margin
$44,000$13,000$31,000
Less: Direct fixed cost
26,5009,50017,000
Product line margin
$17,500$3,500$14,000
Less: Unallocated common fixed costs
$500

Divisional segment margin
$17,000

The segment margin is the best measure of the profitability of a segment. Unallocated fixed costs are common to the segments being evaluated and should be left unallocated in order not to distort the performance results of segments. Note: Segment manager performance is based on all costs directly controllable by the segment manager. All variable costs ordinarily meet the criteria for both measures. The difference usually arises because a fixed cost is directly attributable to a segment but is not controllable by the manager. For example, a profit center manager may have no control over fixed costs of the segment. In a nutshell, control of costs accounts for the major difference between segment manager performance and segment performance

I think u can understand easily

Thanks with Regards

usman khalid

sap fico cosultant @siemens karachi, Pakistan

---------------Original Message---------------
From: siti ariyani
Sent: Sunday, June 12, 2011 8:57 PM
Subject: Profit Center vs Segment

Hi,

We are upgrading from 4.6C to ECC6, what I read we can generate Balance Sheet and Income Statement using Profit Center Accounting and Segment. I would like to know what is the difference between Profit Center and Segment, which one is higher in organization level? And how is the relationship between them?

Our Company have Branch and Business Unit, each Business Unit can have many Branch, each Branch can have many BU.
In what level we should define the profit center or segment?

Regards,
Aniek

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