Chapter 1:

Business process: Collection of activities that takes some input (from one or more business
functions) and creates an output that is of value to the customer.
• E.g.: 1) Operations - ship and deliver/ 2) Marketing -sales order, process in the
sale of personal cellphones (look at the company from customer’s perspective)

Business functions: activities specific to a function area of operation. E.g.: paying bills, customer
support

Enterprise Resource Planning (ERP) programs: Core software used by companies to

coordinate information in every area of business

Information system (IS): Computers, people, procedures, and software that store, organize, and
deliver information
• Information systems maintain relationships between all functional areas and
processes
• It captures, processes, and stores data to provide information needed for decision
making
•
Integrated information systems: Systems in which functional areas share data

Resources:
• Resource: people, material and equipment (input)
• Resources/inputs are transformed into goods
• Data should be up to date and accurate (page 5 chap 1)

ERP software allows all functional areas to share a common database

– Allows accurate, real-time information to be available

Better integration leads to: (sharing data between and within functional areas)
- Improvement in communication, workflow and success of company
- Customer satisfaction
- Efficient/effective business processes (+ productivity and -cost)
- Better control of the organization

Functional areas of operation: broad categories of business activities

 Marketing and sales (MS)
o Developing product
o Determine pricing (need information from SCM + AF – to know the costs)
o Promoting products
o Placing products
o Taking customer order
o Helping create sales forecast: Analyses that attempt to predict the future sales of
a product
o Needs info from all functional areas
o Inputs for MS:
 Customer data
  Product availability and Order status (SCM)
 Sales trend data (AF)
 Per-unit cost (SCM and AF)
 Legal requirement and job info (HR)
o Outputs from MS:
 Sales strategies
 Product pricing (SCM)
 Employment needs (HR)
 Order Data (AF and SCM)

 Supply chain management (SCM)

o Making the product/service (manufacturing/production)
o Buying raw materials
o Production planning (using sales forecasts from MS) – Raw material and
packaging
o Efficient: (if we have accurate info)
 Low inventory levels, saving money
 RM and packaging are ordered when needed
o Outputs from SCM:
 Production and shipment – What? (MS)
 Resources used (AF)
 Employment needs (HR)
o Inputs for SCM:
 Cost analysis (AF)
 Sales forecast and Order data (MS)
 Hiring info (HR)

 Accounting and finance (AF)

o Recording raw data about transactions (sales, RM purchases, payroll, receipt of
cash from customers)
o Raw data: Numbers collected from sales, manufacturing and other operations,
without any manipulation, calculation, or arrangement for presentation
o Data in this area are used for MS and SCM to production plan, budget, sales
forecast (sales record)
o Companies financial position
o Financial reports
o AR and AP
 Human resources (HR)
o Recruit, train, evaluate and compensate employees
o Uses sales forecasts and actual sales to plan personnel needs
o HR needs to know how much can the company afford (who to hire)
o Send payroll and benefit expenses to AF

Chapter 2:
ERP programs help organizations manage company-wide business processes using a common
database, which holds a very large amount of data
Redundancy of information → Lack of integration - need integration in the system
Silos: each dept has its own stack, works separately
It might be efficient for each functional area (separately) but once we’re talking the company as a
whole, data must be shared and integrated.

Un-integrated consequence:
 Customer dissatisfaction
 Cost and time (one department will print the data and then the other dept will have to re-
enter the data again to use it)
 Data entry error
 Inaccurate information sharing - Data can be added to the system with different names -
Variance depending on each dept

Current ERP systems evolved as a result of three things:

(1) the advancement of the hardware and software technology (computing power, memory, and
communications) needed to support the system,
 1960s: Mainframe computers: not powerful enough to provide integrated, real-time data
 19060s-19070s: Intel employee (Moore): the capability of computer hardware were
doubling every 24 months.At the same time, computer software were also increasing in
the capability- increase in the number of transistors in one chip
 1970s: relational database software (store, retrieve and analyse large volumes of data)
 1980s: spreadsheet software - complex business analyses
(2) the development of a vision of integrated information systems, and
 Client server architecture: groups of computers connected to one another within a single
physical location (central computer-local computer)
 Scalability means that the capacity of a piece of equipment can be increased by adding
new hardware
 Database management system (DBMS): The software that holds that data in an organized
fashion, and that allows for the easy retrieval of data, is the
 Final element required for the development of ERP software was understanding and
acceptance from the business community
 From simple inventory-tracking systems to material requirements planning (MRP)
software
 Electronic data interchange (EDI) : Direct computer-to-computer exchange of standard
business documents (handle the purchasing process electronically)

(3) the reengineering of companies to shift from a functional focus to a business-process focus.

Example of un-integrated system (effect of projecting sales):

 Overproduction of a certain product might mean your company is stuck with a product
for which there is a diminishing market due to style changes or changes in seasonal
demand. → warehouse expense
 Underproduction of a certain product might result in product not being ready for a
promised delivery date, leading to unhappy customers and, possibly, cancelled orders.
Solution would be more labour→ overtime paying → more expenses
The functional model (exchange of information between operating groups is handled by top
management, every department send info to top management) led to top-heavy and overstaffed
organizations incapable of reacting quickly to change.
Solution: process oriented company (the flow of information and management activity is
“horizontal” across functions, in line with the flow of materials and products). Adv: flexibility
and rapid decision.
 • Fraud could not be assigned to specific person. Law was created to substantiate internal
controls on all information (we know who has done what, we can track) SAX
SARBANES-OXLEY ACT

SAP’s goal was to develop a standard software product that could be configured to meet the
needs of each company. + wanted data available in real time + users to work on a computer
screen rather than voluminous printed output
Software modules are individual programs that can be purchased, installed, and run separately,
but all of the modules extract data from a common database.
In open architecture, third-party software companies are encouraged to develop add-on software
products that can be integrated with existing software. Open architecture also makes it easy for
companies to integrate their hardware products.
To save memory, programmers in the 1970s and 1980s typically wrote programs that only used
two digits to identify a year.
SAP competitors: PeopleSoft and Oracle. PeopleSoft started out offering software for human
resources and payroll accounting.  SAP had to step up their game in HR modules. Oracle ended
buying PeopleSoft. Oracle: acquisition : Peoplesoft, Siebel (CRM), Sun Microsystem
(manufacturer of computer hardware and software – JAVA).
their systems integration costs go down while system performance, reliability, and security go up.
Every ERP vendor has strengths in certain areas. But in general, the functions are very similar.
Latest versions of ERP systems by SAP and other companies allow all business areas to access
the same database, eliminating redundant data and communications lags. ERP system allows data
to be entered once, and then used throughout the organization.
Workflow (WF) module: set of tools that can be used to automate any of the activities in SAP
ERP; Good for preparing customer invoices.
A company’s level of data integration is highest when the company uses one vendor to supply all
its ERP modules SAP began to develop models of how certain industries’ business processes
should be managed. It was mostly for large companies. Then they started targeting small business
customers. (Microsoft dominates the market)
Like all technology, ERP software and related products are constantly changing. Thus, the
challenge for a company is not only to evaluate an ERP vendor’s current product offerings, but
also to assess its development strategies and product plans.
Benefits of ERP:
- ERP allows easier global integration. (Across international borders)
- ERP integrates people and data while eliminating the need to update and repair
many separate computer systems.
- ERP allows management to actually manage operations, not just monitor them.
(There is no analysis coz the manager already has the info/data provided by the
ERP system. Data is ready to be used on improving processes right away)
- ERP can reduce costs and improve operational efficiency.

Configuration issue: Companies need to be careful about how much custom programming they
include in their implementations, or they could find they have simply re-created their existing
information systems in a new software package instead of gaining the benefits of improved,
integrated business processes.
he return on an ERP investment can be measured and interpreted in many ways:
• Because ERP eliminates redundant effort and duplicated data, it can generate savings in
operations expense. And because an ERP system can help a company produce goods and
services more quickly, more sales can be generated every month.
 • In some instances, a company that does not implement an ERP system might be forced
out of business by competitors that have an ERP system—how do you calculate the
monetary advantage of remaining in business?
• A smoothly running ERP system can save a company’s personnel, suppliers, distributors,
and customers much frustration—a benefit that is real, but difficult to quantify.
• Because both cost savings and increased revenue occur over many years, it is difficult to
put an exact dollar figure to the amount accrued from the original ERP investment.
• Because ERP implementations take time, there may be other business factors affecting
the company’s costs and profitability, making it difficult to isolate the impact of the ERP
system alone.
• ERP systems provide real-time data, allowing companies to improve external customer
communications, which can improve customer relationships and increase sales.
An ERP system’s ROI can be difficult to calculate because of the many intangible costs and
benefits previously mentioned.
Why do some companies have more success with ERP than others?
- Problems in core business processes
- Didn’t do proper analysis of during the planning and implementation phase
- Inefficient training
- Management issues
Modules: build one area after the other. Not strictly all together at the same time (flexibility)
Summary
o The speed and power of computing hardware increased exponentially, while cost and
size decreased.
o Early client-server architecture provided the conceptual framework for multiple users
sharing common data.
o Increasingly sophisticated software facilitated integration, especially in two areas:
Accounting and Finance and material requirements planning.
o As businesses grew in size, and the business environment became more complex and
competitive, business managers began to demand more efficient and competitive
information systems.
o SAP AG produced a complex, modular ERP program called R/3. The software could
integrate a company’s entire business by using a common database that linked all
operations, allowing real-time data sharing and streamlined operations.
o SAP R/3, now called SAP ERP, is modular software offering modules for Sales and
Distribution, Materials Management, Production Planning, Quality Management, and
other areas.
o ERP software is expensive to purchase and time consuming to implement, and it
requires significant employee training—but the payoffs can be spectacular. For some
companies, however, the ROI may not be immediate or even calculable.
o Not easy to measure customer satisfaction increase.
o Time for implementation
o Training
o Customization might be hard as it has a specific language. It's not very
flexible. Customization has to be minimized.
o Experts anticipate that ERP’s future focus will be on applications for mobile devices
and providing instant access to large volumes of data.

Chapter 3:

Sales and distribution:

ERP system uses a common database it can minimize data entry errors and provide accurate
information in real time to all users.

The electronic evidence of a transaction in SAP ERP is called a “document.”

SAP ERP defines up to six events for any sale:

Presales activities

- An inquiry is simply a statement of prices, with no guarantee implied

- Marketing: A company can maintain customer data in the ERP system and
generate mailing lists based on specific customer characteristics, which enhances
targeted marketing efforts
Sales order processing

- Critical sales order processing steps include recording the items to be purchased,
determining the selling price, and recording the order quantities.
- Credit check happens.

Inventory sourcing

- Check inventory and date(schedule- to deliver) availability

- available-to-promise (ATP) check includes the expected shipping time, taking
into account weekends and holidays.
- system (automated) can recommend an increase in planned production if a
shortfall is expected
Delivery

- Delivery means releasing the documents that the warehouse uses to pick, pack,
and ship orders
- ERP helps this process to efficient (groups the shipping items that have
similarities together)

Billing

- creates an invoice by copying the sales order data into the invoice document.

Payment

- Debits the cash account, and credits (reduces) the customer’s account balance
- electronic sales order doc

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

­ when a sales order clerk has to find a customer in the SAP ERP system, he or she can
click in the Sold-To Party field to display a search icon and then click the search icon to
open the search window shown (using different criteria
­ Master data are data that remain fairly stable, such as customer name and address.
­ previously when a customer wanted to know when an order could be delivered, the sales
clerk had to make a series of phone calls. In the SAP ERP system, this process is handled
 automatically. How? The system performs a check on both inventory and production, and
it takes into account the time required for shipping. If cannot meet requested date, it will
provides three alternatives to meet such date.
­ When the sales order is ready to be processed by the warehouse, a delivery document
will be created with its own unique document number, which the system will link to the
sales order document.
­ Documents are linked together electronically. The linked set of document numbers
related toa sales order, also known as the audit trail, is called the document flow in SAP
ERP. (shows the documents +numbers with the status+ double click to show details of
that document)
­ With an unintegrated information system, researching the invoice would require checking
more than one information system and perhaps searching paper records as well.
Discount pricing:

 The system can enforce limits on the size of discounts to keep salespeople from offering
unprofitable or unapproved discounts.
 To accommodate the various ways that companies offer price discounts, SAP has
developed a control mechanism it calls the condition technique

Integration of sales and accounting:

 ERP systems integrate Accounting with all business processes, so when a sales order is
recorded, the related accounting data are updated automatically.
 Because the accounting documents are created automatically with the sales order, the
Accounting Department is using the same data as the Sales Department, which results in
up-to-date and accurate information.
CRM

 Customer relationship management (CRM) software can help companies streamline

their interactions with customers to ensure a consistent message.
 An ERP system offers a company an added benefit beyond systems integration:vast and
complete quantities of data available for analysis.
 CRM is that any employee in contact with the customer should have access to all
information about the company’s past interactions with the customer.
Core CRM activities:

In general, CRM software supports the following activities and tools:

 1 to 1 marketing- tailor products, promotions, pricing based on customer buying habits…

 Sales force automation (SFA) - forecast customer needs (based on history transactions)
Also called lead management software
 Sales campaign management—This software feature lets a company organize a
marketing campaign and compile its results automatically.
 Marketing encyclopedias—This feature serves as a database of promotional literature
about products.
 Call center automation—When customers call a company to get assistance with a
company’s products, representatives can query a knowledge management database
containing information about the product.
CRM tools in SAP:

­ Contact management tools – database of personal contact information

­ Sales activity manager: This tool supports a strategic and organized approach to sales
activity planning + make sure that follow-up activities are accomplished.

Why have a separate CRM system than the ERP?

An advantage of this approach is that the planning and analysis performed in the CRM system do
not interfere with the performance of the ERP system, which primarily processes large volumes
of business transactions.

- Not only CRM facilitate a company’s interactions with its customers, but also enables the
company to analyze the customer data and best serve the customer.

Data mining is the statistical and logical analysis of large sets of transaction data, looking for
patterns that can aid decision-making and improve customer sales and service.

SAP’s Business Warehouse (BW) is a flexible system for the reporting and analysis of
transactional data that makes use of data mining techniques.

The Advanced Planner and Optimizer (APO) is a component of SAP’s Supply Chain
Management (SCM) system that supports efficient planning of the supply chain

SAP’s approach to CRM is to provide a set of tools to manage the three basic task areas, or jobs,
related to customers: marketing, sales, and service.  Cultivation of the customer relationship.
This cultivation goes through four phases, as defined by SAP:

­ Prospecting,
o a potential new customer (or potential new business opportunity with an existing
customer) is evaluated, and development activities (emails, sales calls, mailings,
etc.) are planned to develop the prospective business. Marketing tasks
predominate in this phase
­ Acquiring,
o Salespeople develop business prospects into customers. Marketing is still the
critical task, but the sales tasks (processing inquiries, quotes, and eventually sales
orders) become increasingly important in this phase.
­ Servicing
o Sales tasks are still important, but service tasks (including technical support,
warranty work, product returns, fixing quality problems, and complaint handling)
are critical to maintaining customer satisfaction.
­ Retaining
o The rate at which prospects become customers is quite low; thus, a critical part of
the process is retaining customers
o It is much easier to retain a good customer than to finda new one (making sure
that customers are satisfied – in terms of product, service, delivery, quality,
price…)
Benefits of CRM:

• Lower costs—CRM can lead to operational efficiencies, such as better response times in
call center operations and better use of sales force time, which lower costs.
 • Higher revenue—Segmenting customers leads to better selling opportunities and revenue
increases.

• Improved strategy and performance measurement— With a CRM system in place,

management can think about different performance measures; for example, should
salespeople be rewarded for exceeding sales quotas

• Make-to-stock—Items are made for inventory (the “stock”) in anticipation of sales

orders; most consumer products (for example, cameras, canned corn, and books) are
made this way.

• Make-to-order—Items are produced to fill specific customer orders; companies usually

take this approach when producing items that are too expensive to keep in stock or items
that are made or configured to customer specifications. Examples of make-to-order items
are airplanes and large industrial equipment.

• Assemble-to-order—Items are produced using a combination of make-to-stock and make-

to-order processes; the final product is assembled for a specific order from a selection of
make-to-stock components. Personal computers are a typical assemble-to-order product.

• Production planners aggregate products into product groups to reduce the number of
variables they must consider when developing a production plan.

inventory, called safety stock, is planned so if sales demand exceeds the forecast by no
more than 100 cases, sales can be met without altering the production plan.

rough-cut planning A common term in manufacturing for aggregate planning.

vertical integration The extent to which a company produces the components and
assemblies used in the products it manufactures

If the sales forecast requires more than 90 percent capacity, Fitter management can
choose from among the following alternatives to develop a production plan:

• Fitter might choose not to meet all the forecasted sales demand, or it might reduce
promotional activities to decrease sales.

• To increase capacity, Fitter might plan to use overtime production. Doing that, however,
would increase labor cost per unit.

• Inventory levels could be built up in earlier months, when sales levels are lower, to
reduce the capacity requirements in later months. Doing that, however, would increase
inventory-holding costs and increase the risk that NRG bars held in inventory might pass
their expiration date before being sold by retailers.

____________________________________
• To find the right balance, management might try a hybrid approach to the capacity
problem: reduce sales promotions slightly, increase production in earlier months, and
plan for some overtime production.

In the CO module, profit goals for the company can be set, which can then be used to
estimate the sales levels needed to meet the profit goals

The output of the demand management process is the master production schedule
(MPS), which is the production plan for all finished goods.

master production schedule is also an input to the materials requirements planning

process, which determines what raw materials to order to support the production
schedule.

the master production schedule is an input in the detailed scheduling process, which
determines which bars the company should make and when it should make them.

Materials requirements planning (MRP) is the process that determines the quantity and
timing of the production or purchase of subassemblies and raw materials required to
support the master production schedule.

The bill of material (BOM) is a list of the materials (including quantities) needed to
make a product.

The BOM can be used to calculate how much of each raw material is required to produce
a finished product.

Lead time is the cumulative time required for the supplier to receive and process the
order, take the material out of stock, package it, load it on a truck, and deliver it to the
manufacturer

Lot sizing refers to the process of determining production quantities (for raw materials
produced in-house) and order quantities (for purchased items)

A planned order is one that has not been placed with the supplier but will need to be
placed to prevent Production from running out of materials

Purchase orders (POItem), planned orders (PldOrd), and dependent requirements

(DepReq)

Purchase requisition, which is a request to Purchasing to create a purchase order

Capacity The amount of an item that can be produced.

One of the important steps in creating a purchase order is choosing the best vendor to
supply the material. Source Overview screen, which provides access to information that
can help the Purchasing employee selectthe vendor. (you can the price for each vendor,
rating, evaluation)

In detailed scheduling, a detailed plan of what is to be produced needs to be developed,

considering machine capacity and available labor.
 Production Run: A group of similar or related goods that is produced by using a particular
group of manufacturing procedures, processes or conditions.

The production run length requires a balance between setup costs and holding costs to
minimize total costs to the company. Longer production runs mean that fewer machine
setups are required, reducing production costs and increasing the effective capacity of the
equipment.

Repetitive manufacturing environments typically have production lines that are

switched from one product to another similar product.

Accounting needs to know what Manufacturing has produced and what resources were
used in producing those products, to determine which products, if any, are producing a
profit—and then provide information for management to determine how to increase
profits.

Working with suppliers in this way cuts down on paperwork and response times. It allows
all parties to eliminate from the supply chain costs that do not add value to the product
(such as inventory, overtime, changeovers, and spoilage), while simultaneously
improving customer service.

Supply chain describes all the activities that occur between the growing or mining of raw
materials and the appearance of finished products on the store shelf.

In an integrated system, all players can react fast to a change in demand (especially if it’s
a sudden increase done by Oprah Effect.

Metrics (performance measurement) show the effects of better supply chain management:

Cash-to- cash cycle time. This term refers to the time between paying for raw materials
and collecting cash from the customer

Supply chain management costs. These costs include the cost of buying and handling
inventory, processing orders, and supporting a company’s information systems. Good is
lower (it’s a percentage of the sales)

Initial fill rate is the percentage of an order that the supplier provided in the first
shipment. Another metric is initial order lead-time, which is the time needed for the
supplier to fill the order. on-time performance. This measurement tracks how often the
supplier met agreed-upon delivery dates.

Chapter 5:

Financial accounting consists of documenting all the transactions of a company that have an
impact on the financial state of the organization and then using those documented transactions to
create reports (financial statement) for investors and external parties and agencies.

A balance sheet (is a summary of account balances) provides an overview of a company’s

financial health at a point in time, a key consideration for a company’s creditors and investors.
Assets, liabilities and shareholders equity
The income statement, or profit and loss (P&L) statement, shows the company’s revenue and
expenses and the profit or loss for a period of time (typically a quarter or a year).

Profitability is important to creditors and investors. It is also important information for

managers in charge of day-to-day operations

Close its books,” which means that balances for temporary or nominal accounts (such as
revenue, expense, gain, and loss) are transferred to the retained earnings account. Closing
entries are made to transfer the balances and establish zero balances for the nominal
accounts.

ERP advantage: Accounting staff do not need to assemble data from different
systems because all of the required data are contained in a centralized system. +
the ability to quickly display data at different levels of detail + allows the user to
create financial statement variants, which are financial statements in other
formats, prepared to suit the needs of different users

Managerial accounting deals with determining the costs and profitability of a company’s
activities. The goal of managerial accounting is to provide managers with detailed information for
making informed decisions, creating budgets, determining the profitability of a particular product,
sales region, or marketing campaign

Managerial accounting produces information that managers use to control a company’s day-to-
day activities and to develop long-term plans for operations, marketing, personnel needs,
repayment of debt, and other management issues.

“keep the books,” that is, maintain records of all financial transactions.

Unintegrated system problem: data sharing, real time data, communication, cost, wrong data

SAP: the Materials Management module would see the transfer event as an increase in finished
goods inventory available for shipment; the Accounting module would see the event as an
increase in the monetary value of the finished goods inventory.

Advantage: With ERP, everyone uses the same database to record operating data. This database is
then used to generate management reports, produce financial statements, and create budgets.

Company’s accounts are kept in a record called the general ledger.

Many SAP ERP modules cause transaction data to be entered into the general ledger:

• Sales and Distribution (SD)—The SD module records a sale and then creates an
accounts receivable entry (a general ledger document that indicates a customer owes
money for the goods received by the customer).

• Materials Management (MM)—The MM module controls purchasing and records

inventory changes. The receipt of goods from a purchase order creates an accounts
payable entry in the general ledger, which indicates the company has an obligation to pay
for goods it has received. Whenever material moves into or out of inventory (purchased
materials arrive from the vendor, raw materials are taken out of inventory to support
 production, or finished goods go from production to inventory), general ledger accounts
are affected.

• Financial Accounting (FI)—The FI module manages the accounts receivable and

accounts payable items created in the SD and MM modules, respectively. The FI module
is also where the general ledger accounts are closed at the end of a fiscal period (quarter
or year), and it is used to generate financial statements.

• Controlling (CO)—The CO module tracks the costs associated with producing products.
To make a profit, a company must have an accurate picture of its product costs so it can
make correct decisions about product pricing and promotions, as well as capital
investments.

• Human Resources (HR)—The HR module manages the recruiting, hiring,

compensation, termination, and severance of employees; the HR module also manages
benefits and generates the payroll.

• Asset Management (AM)—The AM module manages fixed-asset purchases (plant and

machinery) and the related depreciation.

Credit management requires a balance between granting sufficient credit to support sales and
ensuring the company does not lose too much money by granting credit to customers who end up
defaulting on their credit obligations. Solution: sellers manage this relationship by setting a limit
on how much money a customer can owe at any one time, and then monitoring that limit as new
orders come in and payments are received. But in order to know the customer credit: sales
representative needs to have access to up-to-date accounts receivable balances for all customers.

A company can configure any number of credit-check options in the SAP ERP system,
including when to check a customer’s credit (for instance, at order creation, at creation of
the delivery document, or at the goods issue) and who to notify when an order would
cause a customer to exceed its credit limit (for instance, the sales clerk or credit
management personnel).

Reaction C means that if the order being saved will cause the customer to exceed its
credit limit, the system will issue a warning indicating the amount by which the order
exceeds the credit limit.

The advantage of using SAP ERP to manage credit is that the process is automated and
the data are available in real time.

Transaction: When making a sale on credit, the seller makes an entry on the books to
increase the accounts receivable and sales balances

There are three main reasons for inaccurate or incomplete data: inconsistent record keeping,
inaccurate inventory costing systems, and problems consolidating data from subsidiaries.

Inconsistent record keeping

each person recording at a different time, error in recording wrong reports

Inaccurate inventory costing systems

A manufactured item’s cost has three elements: (1) the cost of raw materials, (2) the cost
of labor employed directly in the production of the item, and (3) all other costs, which are
typically called overhead (Manufacturing overhead costs include factory utilities,
general factory labor (such as custodians or security guards), factory managers’ salaries,
storage, insurance, and other manufacturing-related costs.- indirect cost: difficult to
associate with a specific product or a batch of specific products)

Materials and labor are often called direct costs (they can be estimated fairly accurately)

Transaction: sale (decrease in inventory by the amount sold)

The differences between actual costs and standard costs are called cost variances. These
variances are calculated by comparing actual expenses for material, labor, utilities, rent,
and so on, with predicted standard costs.

unit costs can be computed using different overhead allocation bases, allowing an analyst
to play “what if” with product profitability decisions

A product cost variant is basically the procedure for developing a product cost analysis;
many variants (version) can be created for different planning requirements. SAP then
create a product cost estimate.

In activity based costing: Accountants identify activities associated with overhead cost
generation, and they keep records on the costs and on the activities. The activities are
viewed as causes (drivers) of the overhead costs. +Tries to assign costs more precisely to
individual products, activity-based costing tries to avoid rough allocation procedures. A
company using activity-based costing can determine which products have the highest
profit margin

Example: storage cost is different for two different product (cost is different,
price and profit)

Activity-based costing requires more bookkeeping than traditional costing

methods because a company must do activity-based costing in addition to
traditional costing, and because activity-based costing requires a company to
keep track of instances of activities, not just the costs.

ERP systems in the accounting field also help shorten the time for making
decisions and improve that decision making. On the negative side, the
respondents thought the ERP systems were overly complex and took too long to
implement.

Problems consolidating data from subsidiaries.

Problem to close accounts when the company has different stores, branches… its not just
taking the sum of all accounts (cash of all for eg)

Problem: Accounts stated in another country’s currency must be converted to U.S. dollars
(in the case of a U.S. parent company), and transactions between a company and its
subsidiaries must be eliminated from the accounts.
 Currency translation, which is the process of converting account balances expressed in
one currency into balances expressed in another currency.

A complicating factor is that exchange rates fluctuate daily; however, an ERP

system can be configured to access daily exchange rates and translate daily
transactions automatically.

intercompany transactions: Transactions that occur between a parent company and one
of its subsidiaries (does not represent any transfer of funds into or out of the company)

Management reporting with ERP

With an ERP system, a vast amount of information is available for reporting purposes.
management-reporting and analysis tools available with ERP:

­ Data flows/Data access: all transactions in all functional areas of a company are posted in
a centralized database – in one book (for all areas)
­ Document flow: gets its own unique document number that allows quick access to the
data + determines the status of that doc
o drill down refers to the ability to view the details behind a summary of
information. By clicking on order number  products ordered, quantity, customer
name
­ Built-In Management-Reporting and Analysis Tools
o accounting employees can query the records to produce standard reports as well
as answer ad hoc questions.
o An ad hoc question is one that is spontaneous.
o ERP provides the Sales Information System (SIS) tool for analyzing sales data
and the Logistics Information System (LIS) tool for analyzing production and
logistics (shipping) questions. Both the SIS and the LIS come embedded with
SAP ERP and use special summary tables to improve reporting efficiency.
o the ability to analyze data without reducing system performance by creating
Business Warehouse (BW) products. A BW system is a completely separate
information system that extracts data from the ERP system.
o Detailed records re maintained in a separate system so the ERP system
performance is not affected
o

The Sarbanes-Oxley Act is designed to encourage top management accountability in firms that
are publicly traded in the United States.

- top executives involved in corporate scandals claim that they were unaware of abuses
occurring at their company

- title 9: requires a statement signed by the chief executive officer and chief financial
officer, certifying that the financial statement complies with the SEC rules

- Title II of the act addresses auditor independence. Among other things, this section of
the act limits the nonaudit services that an auditor can provide to an audit client

- Title IV of the act covers enhanced financial disclosures, and it specifies more stringent
requirements for financial reporting.
 - Section 404 of Title IV requires that a public company’s annual report contain
management’s internal control report. The control report must outline management’s
responsibility for establishing and maintaining adequate internal control over financial
reporting, and it must also assess the effectiveness of the company’s internal control
structure and procedures.

- Section 409 of Title IV addresses the timeliness of reports,

ERP: An integrated information system provides the tools to implement internal

controls, as long as the system is configured and managed correctly.
ERP systems make it difficult to hide fraudulent dealings, and perhaps Enron’s
problems would have been more obvious to stakeholders of the company

ERP systems can prevent corporate fraud and abuse.

1. Archiving: the software offers very few ways to delete items. In the menus you see create,
display, or change but barely see remove. This permanently stored data, or archive, allows
auditors to reconstruct the company’s financial position at any point in the past. It would be
very hard to detect the fraud and probably impossible to find out who committed it, because
the records would no longer exist. ERP also keeps track of when data are created or changed
2. User Authorization: Another way that an ERP system can prevent employee theft is through
user authorizations and separation of duties. Different levels of authorization management
(based on their role/job)
3. Tolerance group: are preset limits that define transaction limits.(can set limits on the size of
transaction an employee can process.)
4. Financial transparency: document flow (see details)/ makes it easier for auditors to confirm
the integrity of the reports. E.g: From this screen even more details can be displayed. With a
few mouse clicks, an auditor could move from a summary statement of the general ledger
account to screens showing the details related to an employee in the Research and
Development Department taking 50 pounds of oats from inventory for product development.

- Another regulation, put forth by the SEC in 2009, is the Interactive Data to Improve Financial
Reporting rule, which requires the gradual implementation of XBRL tags in financial reporting
documents.

Extensible Business Reporting Language (XBRL) is a standards-based language for the

electronic communication of business and financial data.

For financial reporting, XBRL provides an identifying, computer-readable tag for each item of
financial data.

XBRL is a subset of Extensible Markup Language (XML), the new programming language of
the Internet

HTML specifies only how your data will look (by assigning text styles, coloring, placement of
graphics, and so on)

Benefits:
 1) Reports written in XBRL are processed faster because the imbedded tags directly relate to a
database, and XBRL financial reports can more easily be 2) validated electronically and then 3)
compared to other reports. More importantly, investors and other interested parties are concerned
with 4) transparency in reporting. To assess the risk of a given investment, the investor must
understand the financial aspects of the investment. If a report is obscure or hiding information,
then the risk is not easily assessed. XBRL results in more transparency of reporting.

ERP systems can accept data in XML and XBRL format.

• managing master data such as materials data, customer data, vendor data, and so
on, a company must also transfer transaction data, which includes sales orders and
purchase orders,
CA@135