CO-PA Profitability Analysis

CO-PA Profitability Analysis is a drilldown report which allows slice & dice multi-dimensional sales profitability analysis by variety of analytical segment (which is called Characteristics) such as market / region, product group, customer group, customer hierarchy, product hierarchy, profit center etc.., most of those characteristics can be filled in by standard SAP functionality i.e. customer master or material master.
By making Distribution Channel as a characteristic, CO-PA enables more flexible analysis. Distribution channel is filled in when sales order is created. User can differentiate distribution channel if they need to take separate analysis (such as between wholesale / retail, goods sale / commission sale / service sale etc..) without maintaining master data. (The customer & material master maintenance hassle caused by multiple distribution channels can be solved by VOR1 (IMG Sales and Distribution > Master Data > Define Common Distribution Channels).)
CO-PA allows to take in non SAP standard data by using External Data Transfer, but the major benefit of CO-PA is that it has close relation with the SAP SD module. SD profitability data is automatically sent forward and stored within the same system. In fact, SAP SD module without CO-PA Profitability Analysis is like air without oxygen. It is pointless using SAP without it.
Overhead cost allocation based on sale is possible by CO-PA, which is not possible in the cost center accounting.
Gross Profit report is possible by sales order base (as a forecast, in addition to billing base actual) by using cost-based CO-PA.CO-PA is especially important since it is the only module that shows financial figures which is appropriate in terms of cost-revenue perspective. For this reason, BW(BI) is taking data from CO-PA at many projects. BW(BI) consultants are sometimes setting up CO-PA without FI/CO consultants' knowing. CO-PA captures cost of goods sold (COGS) and revenue at billing (FI release) at the same time (cost-based CO-PA). This becomes important when there is timing difference between shipment and customer acceptance. COGS should not be recognized, but FI module automatically creates COGS entry at shipment, while revenue entry will not be created until billing (or FI release). Such case happens when for example customer will not accept payment unless they finish quality inspection, or for example when goods delivery takes months because goods are sent across by ocean etc..It is especially delicate to customize the copa infosource to map to your specific operating concern. This seems to be easier since ECC6.0 Enh pack 4 (auto generated).
For this point, CO-PA (cost-based) does not reconcile with FI. But this is the whole point of CO-PA, and this makes CO-PA essential. Account-based CO-PA is more close to FI module in this point. Account-based CO-PA is added later on, and it could be that it is simply for comparison purpose with the cost-based. Cost-based CO-PA is used more often.
When CO-PA is used in conjunction with CO-PC Product Cost, it is even more outstanding. If fixed cost and variable cost in CO-PC cost component are appropriately assigned to CO-PA value fields, Break-Even-Point analysis is possible, not to mention contribution margin or Gross Profit analyses. Consider that BEP analysis or GP analysis are possible by detailed level such as market / region, product group, customer group etc..
This makes no wonder. CO-PC is for COGM and inventory. CO-PA is for COGS. What do you do without CO-PA when you use CO-PC? It’s a set functionality. This doesn’t necessary mean CO-PA is only for manufacturing business, though.
Conservative finance/sales managers are reluctant to implement SAP R/3 sometimes because they are frightened to expose financial figures of harsh reality. Needless to say it helps boosting agile corporate decision-making, and this is where Top-down decision to implement SAP R/3 is necessary. Those managers will never encourage R/3. SAP R/3 realizes this BEP analysis even for manufacturing company. No other ERP software has realized such functionality yet. Even today R/3 is this revolutionary if CO-PA is properly used.
Role of capturing COGS-Sale figures is even more eminent in the cases of sales order costing or Resource Related Billing, and variant configurable materials with PS module or PM/CS module. (Equipment master of PM/CS is also a must to learn.) After determining WIP by Result Analysis, CO-PA is the only module that displays cost-revenue-wise correct financial figures. PS is necessary for heavy industry or large organization, variant configurable materials are also handy for large manufacturer or sales company. RRB is usable to non-manufacturing industry. RRB is indispensable for IT industry or consulting companies. The importance of CO-PA will be proven if used with these.
Production Cost Variance analysis is possible by assigning variance categories to different COPA value fields in the customizing. There are projects who had to develop production variance reports because they kicked COPA out of the scope without ever considering SAP standard functionality. Why do you cripple standard SAP functionality, simply because you are ignorant of anything more than CCA Cost Center Accounting or PCA Profit Center Accounting? Naturally it takes time to apprehend overall SAP functionality. This is where experience makes difference, which makes no wonder.
Settling production variances to COPA raises one issue. Variances originated from WIP or Finished Goods at month end all go to COPA i.e. COGS. Actual Costing by using ML Material Ledger solves this issue for the most part. Variance reallocation whose origin is unknown is only made to COGS and FG, not made to WIP. This is something SAP should have rectified long time ago. They made excuses that they didn't have enough resource to do that, developing BW, SEM-BCS, or New G/L on the other hand. Realtime consolidation became impossible in SEM-BCS, and New G/L isn't adding much of new functionality other than parallel fiscal year variants, in a practical sense. What SAP does is, they spent all their resource and effort in only revising the same functionality using the new technology, but nothing much was made possible from an accounting point of view.
ML can also be used to reflect transfer pricing or group valuations with specific buckets into copa value fields.Actual cost component split is also possible with ML, but you have to plan well in advance lest you use up value fields.COPA can also handle planning and actual/plan reporting. it has a built in forecasting engine (planning framework) and can handle top down or bottom up planning (using different versions, as well as plan allocations and distributions from Cost centers.A FI/MM interface allows you to post to specific COPA value fields for FI or MM based transactions (overheads or non-trade specific charges that impact the product profitability) such as trade show expenses etc.).
Configuration of CO-PA can sometimes be a bit of hassle. But it is far easier, cheaper and quicker than building infocube in BW(BI) from the scratch. If you know what you do with BW(BI), in many projects they take data from CO-PA table. Then why bother creating additional work of building BW(BI)?
Training course of CO-PA is just 5 days. Competent consultant should not spare such small investment. You will see there is more to learn about it in addition to that.
SAP is whimsical and they sometimes exclude CO-PA, CO-PC from the academy curriculum. They are not eager to keep trainees to have the right understanding of how to use their product. This is why many FI/CO consultants are ignorant of CO-PA and CO-PC, and only an experienced consultant knows its necessity.
CO-PA is a must for experienced FI/CO consultant.
One point which has to be added is, keep Segment Level Characteristics as little as possible.
I sometimes hear users linked too many characteristics, and completely ruined CO-PA database. If you look in their config, they link 5 customer hierarchies, 6 user-defined product hierarchies on top of standard product hierarchy, material code, sales rep in the sales order line level, and 4 other user-defined derivation segments as Segment Level Characteristics. Now their CO-PA table doesn't respond other than short dump in 3 years usage.
SAP clearly explains and dissuades from just adding sales order as segment level, and it is always a struggle. Whatever they were thinking in adding 45 segment levels.
It was once a controversy. Data segregation from program logic, data normalization and elimination of duplicate entries. That gave birth to SQL database which SAP is running on. Now SAP users don't know such history, and repeat the same failure.
They have corporate reshuffling and need to revise product lineup, then maintain product hierarchy. Why adding segment levels every time you have reshuffling?
No matter how you have new tool, there's no end. It's not tool itself. It's people who is twisting the case.
Successful usage would be product hierarchy 1, and maybe 2. If characteristic is configured, segment data is stored at that level. You can download the segment data, this may be a remedy. Data feeding and presentation in BW maybe another way.

*Article plucked from it.toolbox.com