Cost Calculations

As part of month-end processing, the JVA Cost Calculations process is executed to apply different types of overhead costs as well as payroll burden costs to expenses booked to the JVA company's joint ventures during the period.

The availability of cost calculation types is determined by the JVA company's region, which is defined on the JVA Company Global Data screen. International region companies apply only parent company overhead to expenses, but US and Canadian region companies apply various types of overheaad calculations, each involving a different formula or rate. It is only necessary to configure the cost calculations objects that will be used in your JVA company.

Since the types of overheads that can be applied to joint venture expenses are defined in the joint operating agreement contract, JVA cost calculations rules and rates are assigned on the JOA.

In this step of configuring your JVA company, you should define the following elements that will be used by cost calculation processing:

Cost elements to which Drilling payroll burden expenses will be applied (US region)

Rules for stepped rate cost calculations (all regions)

Key figures for drilling and producing (US region)

Sets that define the range of accounts to be excluded from cost calculations (all regions)

Stepped Rate Rules Companies in different regions use stepped rate rules to calculate costs for several different types of overhead. International region companies use stepped rate rules to apply parent company overhead costs. Canadian region companies define stepped rate rules for the following types of overhead costs: Exploration Construction Drilling

US region companies define stepped rate rules for the following types of overhead costs: Major construction overhead (MCO) Catastrophe overhead

These stepped rate rules for various types of overheads are applied to expenses booked to WBS elements. The type of overhead rule that applies to expenses booked to a WBS is determined by the JV overhead type assigned to the JVA cost object type that is in turn assigned to the WBS. The specific rule for a particular overhead type is assigned on the JOA. The rule will be applied to expenses booked to WBS's with an appropriate JVA cost object/overhead type designation that belong to JV's in the JOA. The stepped rate rules for the JVA company are defined on the JV Stepped Rate Rules screen. These rules can then be assigned for a particular overhead type on JOA's in the company. Requirements Before defining the stepped rate cost calculation rules for the JVA company, you should define the cost object types ( project/WBS elements, cost centers, and internal orders) for the company. If the JV overhead type assigned to the cost object type indicates a type of overhead to which stepped rate rules are applied, expenses booked to WBS elements to which the cost object type is assigned will be subjected to the stepped rate rule designated on the JOA. Before processing cost calculations, you must define the G/L accounts for the following automatic posting processes that govern cost calculation processing for stepped rate overheads. For international region companies these processes consist of: Process Description JIE International Overhead Expense Account JIO International Overhead Offset Account

For US region companies these processes consist of: Process Description J6E Construction Overhead (MCO) Expense Account J6O Construction Overhead (MCO) Offset Account J9E Catastrophe Overhead Expense Account J9O Catastrophe Overhead Offset Account For Canadian region companies, these processes consist of: Process Description J7E Exploration Overhead Expense Account J7O Exploration Overhead Offset Account J6E Construction Overhead (MCO) Expense Account J6O Construction Overhead (MCO) Offset Account J8E Capital Drilling Overhead Expense - Canada J8O Capital Drilling Overhead Offset -Canada Standard settings For stepped rate rules, the initial threshold functions differently from subsequent thresholds. When actual expenses exceed the first threshold set for a rule, the rate set for that threshold is applied to the entire amount of the actual expenses. An example follows: Objective: Apply 10% overhead to entire amount when expenses exceed $25,000 No 1 Threshold 25000 Rate 10

Actual Expenses: $26,000 Cost Calculation Overhead: 10% of $26,000 or $2600 For subsequent thresholds, the rate defined for each threshold applies to the amount that exceeds the current threshold but falls short of the next threshold, if there is one. If you wish to apply a single threshold with a stepped rate rule and want the rate to apply only to the expense amount that exceeds the threshold, you must set two thresholds. The first threshold should be

set just short of the threshold that should trigger the rate and itself have a rate of 0. The second threshold should be set at the amount that should trigger the rate. An example follows: Objective: Apply 10% overhead only to the amount that exceeds $25,000 No 1 2 Threshold 24999 25000 0 10 Rate

Actual Expenses: $26,000 Cost Calculation Overhead: 10% of ($26,000-$25000)= $100 Activities Defining stepped rate cost calculation rules for the JVA company is a two-step process: 1. Assign a name, time frame, and description to the new rule 2. Define a series of thresholds and rates that are triggered by them Setting up Stepped Rate Rules You can perform the first task involved in defining stepped rate cost calculation rules by selecting New entries and then entering the following information on the JV Stepped Rate Rules screen: In the StpRl field, enter the name of the new rule. In the TFrame field, enter the time frame (current period, year to date, inception to date) for selecting expense data to which the new rule will be applied. In the Description field, enter a description of the new rule. Assigning Thresholds and Rates To assign a series of thresholds and the rates to be triggered by those thresholds for the new rule, select the new rule on the JV Stepped Rate Rules screen and then select Stepped rate thresholds. On the JV Stepped Rate Thresholds screen, select New entries and enter the following information: In the No field, enter a number that represents the place in the series of thresholds in which the threshold will be applied.

In the Threshold Amount field, enter the amount of the threshold. The rate defined for the threshold will be applied to all amounts that exceed the threshold and fall short of the next threshold.

In the Rate field, enter the percentage rate to be applied to the total expenses that meet the selection criteria for the rule and threshold.

Non-Operated Ventures Non-operated venture processing facilitates integrated handling of incoming, non-operatedinvoices with SAP accounts payable functions. You can record these invoices online. Inaddition, cash call features are available for non-operated ventures at the venture andproject level non-operated on billing
In a non-operated on-billing venture, the company running JVA sells part of its non-operated share of the venture to third parties. The company running JVA distributes portions of the billings it receives from the venture operator to the partners in its non-operating share, in effect acting as an operator toward these third party partners.

Cash Calls
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Purpose
Cash calls are requests for payment for anticipated future capital and operating expenditures, sent by joint venture operators to non-operating partners. Most joint operating agreements (JOAs) include a provision that allows the operator to issue cash calls to non-operating partners. When the company running SAP Joint Venture Accounting (JVA) operates a venture, that company issues operated cash calls to its non-operating partners. When the company running SAP JVA is a non-operating partner in a venture, that company receives non-operated cash calls from the operator of the venture.

Operated Cash Calls Operated cash calls are requests to the non-operating partners of joint ventures for payment of expenses before they are incurred. The transactions are posted as two equal and opposite open items to a partner account. The items are posted with two different Special G/L Entry Indicators ( SEI). Although the items update the same partner account, they update different general ledger accounts which are identified via the SEI. The open item is cleared when cash is received from the partner. An operator can also post a cash call to itself. The entries produced by this type of cash call are posted as memo entries (representing both cash requested and cash received) directly to the billing ledger. The cash received is posted on the assumption that an appropriate transfer will be made from the operator bank account to the joint venture bank.

Non-Operated Cash Calls Non-operated cash calls are requests for payment of prospective expenses received from an operator of a venture in which the company running SAP JVA is a non-operating partner. The transactions are posted as two open items to an operator vendor account. Like operated cash calls, the items are posted

with two different SEIs, which update the same partner account, but different general ledger accounts. One open item is cleared with a cash payment to the operator. The other item is cleared manually in the non-operating company s system with actual expenditures received in a non-operated bill from the operator.

Cutback
Non-Operated On-Billing Ventures Usually cutback is run for ventures for which the company is the operator, but cutback can also assign expenses to partners for non-operated on-billing ventures. In a non-operated on-billing venture, the company for which cutback is being run has sold portions of its non-operating partnership share of the venture to others. When cutback is run for such ventures, expenses that the venture operator assigned to the company are apportioned to these partners in the companys share, based on their equity holding.

Result
Cutback posts its output directly to other SAP JVA ledgers or to other system ledgers, such as SAP FI.

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