Definition of Internal Order

Internal orders are cost objects in Controlling-Overhead Management. These cost objects are
intended to be used as “temporary cost collectors” for short-term projects or events in the
organization. They are not as structured or permanent as cost centers. There is no standard
hierarchy for internal orders; however, they can be grouped to meet individual requirements.

As business transactions are posted to internal orders, we can analyze that activity in real time by
using reports in the information system. From a single report, we can branch to additional reports
and accounting documents, as well as view the source document.

At the end of a period, amounts can be allocated from orders to other cost objects by the settlement
process. Settlement may be quite simple (to one receiver), or more complex (using extended
settlement to allocate to multiple receivers using several tracing factors). Periodic reposting can
also be used to allocate cost from internal orders using, for example, statistical key figures. Internal
orders can also be used as statistical cost objects. In this case, there is no further allocation or
settlement.

Use of Internal Order

Internal orders describe individual jobs within a controlling area. Orders support action-oriented
planning, monitoring, and allocation of costs. You can use internal orders to:

 Monitor internal jobs settled to cost centers (overhead orders)

 Monitor internal jobs settled to fixed assets (investment orders)
 Offsetting postings of accrued costs calculated in CO (accrual orders)
 Display the cost controlling parts of Sales and Distribution customer not affect the core
business of the company (orders with revenues)
Cost Allocation with and without internal order
We can use overhead orders for detailed controlling for a particular object or activity. All costs
related to this object or activity are assigned to the relevant order. We can use orders as internal
cost objects.

For example if the company participate in 2 trade fair to target new clients.

Without Orders, we post costs for the two trade fairs directly to the cost center responsible for
supporting these events. As external costs and internal activities have the same cost elements on
the same cost center, we cannot easily determine which event created which costs. This means that
we cannot make any further analyses for comparison purposes.

As with Orders, each event receives its own overhead order, the costs are collected separately. The
settlement function allocates the order costs to the cost center responsible for supporting the trade
fairs, which provides you with the organizational view of the costs. This enables us to analyze and
compare the results of the trade fairs, even after the settlement has been made.

Advantages of Internal Order

Internal orders have an advantage over cost centers in that we can plan, budget, and use availability
control. This allows us to monitor spending for these projects or events by comparing spending to
plan, as well as limiting spending against a budget. Think of this as plan equals funds approved
and budget equals funds appropriated. These are often different values.

Internal orders again differ from cost centers in their ability to collect cost and revenue and to
utilize results analysis to determine profitability.
Example of Internal order
Let’s consider an example. Many organizations host special events like promotions or marketing
exhibitions. Let’s assume that ABC Company has a marketing department which is organizing a
promotion event for a new product launch. Most expenses for this event will be booked as a cost
under ABC Company’s marketing department cost center. Also, the sales team will provide sales
demos at the event and will book their expenses to the sales department cost center. How can we
provide a report to ABC Company’s management about all the marketing costs incurred just for
this event?

A cost center report includes all of a department’s costs for the period. It would be very difficult
to differentiate the costs for this event, across multiple departments, from other costs those
departments has incurred. Instead, create an internal order and record the event costs to the order
as a temporary cost collector. Costs collected on the internal order for the event are settled to their
respective cost centers at month-end or year-end.

Real and Statistical Order

Each internal order in SAP must be identified as one of the following SAP internal order types:

1. Real Order
2. Statistical Order

The main use cases for each order type are related to cost capturing and reporting. A real order
denotes an actual cost posting to the internal order, while a statistical order will only hold the cost
information for reporting purposes.

1. Statistical internal orders

are used to collect costs for reporting purposes only. Costs collected in a statistical order cannot
be allocated to other cost objects as they are posted to a cost center straightaway. This type of
internal order is used to monitor costs and, in some instances, revenues for an organization. We
use the statistical order to evaluate costs which cannot be itemized in detail in cost element or cost
center accounting.

Example Scenario: “Cost Center” ABC has several short-term activities going on, including a
“Special Project” XYZ. Funding for all activities comes from Cost Center ABC’s budget. Director
of the Cost Center wants to track and report on revenues and expenses incurred towards the Special
Project XYZ.

We will set up Cost Center ABC and Statistical Internal Order XYZ in SAP-CO.

When expense postings for Special Project XYZ occur, they are charged to Cost Center
“ABC” and Secondary Internal Order “XYZ” simultaneously. For all other postings, only
Cost Center ABC is charged.

Costs incurred for the Special Project XYZ are responsibility of the Cost Center ABC;
however,

Management Reports clearly identify all revenues and expenses associated with Special Project
“XYZ”. No further settlement of cost expenses occurs.

2. Real Order

All transactions related to primary costs are posted in a real order. Real order costs do not post to
a cost center straight away but get settled at the end of the period to relevant cost objects.

All transactions related to primary costs are posted to real orders. At the end of the period, all the
actual costs captured in the internal order get settled in the form of allocation to relevant cost
objects.

As an example, let’s assume ABC Company organizes a marketing event over a two-month period.
The following costs are incurred for the event:

To capture and segregate the costs related to the event, ABC Company creates an internal order as
a real order that will eventually be settled to the marketing cost center. As the costs are incurred,
however, the real internal order captures the costs, while the cost center is not affected. At the end
of the second month of the event, the total cost of 7200 is settled from internal order to the
marketing cost center. Alternatively, ABC Company may elect to settle the incurred costs each
month-end, and may allocate to multiple cost objects.

Thus, real order postings form part of the transactional balance in the CO module by transferring
primary costs from other SAP modules to a cost object during settlement.

Internal Order with Revenue

Internal Order Master Data
An internal order must be created as the primary master data element to capture project or overhead
management costs through internal order accounting. In the following sections, we walk through
the components of SAP internal order master data. They are as follows:

 Order Type
 Order Categories
 Number Range Assignment

1. Order Type
An Order Type must be assigned before an Internal Order can be created. The Order Type controls
Internal Order numbering, security and field displays.

SAP internal order master data creation begins with the specification of order type. Internal order
types are client-dependent attributes which represent various events or activities like product
promotion or asset under construction and can be shared amongst controlling areas. Order types
store various control parameters and defaults in the internal order master record and classify
internal orders by usage which can be either real or statistical.

As an example, let’s assume an organization wants to construct a building over a period of time.
Certainly, there will be costs involved for the construction of the building. If the company needs
to track and report on these costs separately, then an internal order should be set up. Thus, the
organization will create an order type called AUC for asset under construction. They will create
an internal order with this order type to capture all the cost incurred during the asset build.
 2. Order Categories
Each order type is assigned an order category. Order categories determine the technical
characteristics of the order. They specify which type of transaction is used to post the order and
are used for many different types of postings. SAP has several predefined order categories,
including one for internal orders.

3. Number Range Assignment

Finally, we need to assign a number range to this order type. Each SAP internal order master
data record must be uniquely identified with an order number. This number comes from a
number range group based on the order type. Order types may have their own number range or
share with other order types.

There are two types of number range intervals:

1. Internal – The number is assigned sequentially from the assigned number range
2. External – A number is assigned by the user when creating the order

https://www.erpcorp.com/sap-controlling-blog/what-is-an-sap-internal-order

https://erproof.com/co/sap-co-training/sap-internal-order-master-data/

https://www.guru99.com/all-about-internal-order.html

https://erproof.com/co/sap-co-training/sap-internal-orders/

https://erproof.com/co/sap-co-training/sap-internal-order-types/