Re: [sap-acct] Profit Center vs Segment

Posted by VidhyaDhar (User-friendly SAP FI Consultant)
on Jun 30 at 8:19 AM
Hi

Let me add my two cents

Reporting is mandatorily done at company code level.

However, additional reporting is also possible at cost center, profit center
and segement levels also.

Cost centers are created time centrically and company code centrically and
can be used for reporting.

Profit centers are created time centrically but can get data from multiple
cost centers and from across many company codes.


In other words, data from multiple ( company code wpecific ) cost centers
can be reduced to flow into fewer profit centers ( which are not company
code centric). Data from multiple profit centers can be reduced to flow
into fewer segments ( geographic or productline segments which are not
company code cenric.)


According to various statutory requirements segments are becoming mandatory
( 10% above of reporting figures have to be separately reported). Logically
total reporting figures may not require more than 10 segments


Therefore , Data can flow from Many cost centers into Fewer Profit
centers and again into Fewer segments.

You capture the profit center into the cost center and the segment into a
profit center.
( Cost center contains a profit center and the profit center in turn
contains a segment ( Does it not sound like a game of dominoes? You hit the
cost center which triggers a profit center and which in turn triggers a
segment ). Can you see that additional reporting is rendered easier thus?

Regards

VidhyaDhar

---------------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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