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

Re: [sap-acct] Profit Center vs Segment

Posted by Roy B (SAP Financials Expert)
on Jun 30 at 6:55 AM

There is one drawback to using the segment functionality in SAP and that is that a Profit Centre can only belong to one segment. If your profit centres represent product lines and your segments change, it is very difficult to change the segment embedded in the profit centre master record. However, if you use profit centre groups to represent segments rather than putting a segment code into the PC master, it is relatively easy to move a profit centre from one PC group to another if a segment changes its definition. I recently had to advise a client that was considering changing its segments from A and B to D, E and F. With segments in the profit centre masters this would be very difficult but by using profit centre groups it was not difficult at all.

Rgds, Roy

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---------------Original Message---------------
From: usman khalid
Sent: Thursday, June 30, 2011 6:27 AM
Subject: Profit Center vs Segment

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

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