Cost center is the area of responsibility where costs are incurred. Cost center represents one of the small units of responsibility within an organization structure. In cost center accounting, operational expenses are captured by three separate master data objects such as cost centers, activity types and statistical key figures. Cost centers are maintained within a hierarchy, which is a representative of the implementing company’s internal reporting / accountability structure. The hierarchy development is central to all cost accounting reporting within the controlling module.
The important functionalities within cost center accounting are the ability to process, allocate quickly through the assessment and distributions. As standard hierarchy plays important role, so all cost centers must be assigned to one standard hierarchy. First, we create cost elements and then we assign the cost elements to cost centers. We can also use different allocation methods for allocating the collected costs of the given cost centers to other controlling objects.
The main areas of cost center accounting
- Organizational structures in cost element and cost center accounting
- Master data in cost element and cost center accounting
- Structuring cost elements and cost centers
- Assignment of costs to cost centers using upstream applications
- Tools for transaction-based postings in cost center accounting
- Periodic allocation methods for costs in cost center accounting
- Planning costs and cost allocations in cost center accounting
- Planning activities and prices for cost centers
- Analyzing costs using the information system
Distribution: This is used for allocation of primary costs to cost centers. The receiver cost center will have the information on primary cost elements. The procedure is similar to periodic reposting.
Assessment: This is used for allocation of costs transferring primary cost and secondary costs from a sending cost center to receiving cost objects.
For further information on Types of Cost Element, refer to my blog.
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By Sareeka Bangar (on behalf of SAP Consulting Team)
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