Basics of Cost Element Accounting and Cost Center Accounting

Accounts in the Chart of Accounts, which are Profit and Loss Account type, would be primary cost elements. All types of cost elements i.e. primary and secondary cost elements will be created in controlling.

Primary cost elements will be taken from revenue and expense General Ledger accounts. Secondary cost elements will be created based on the requirements of activity types & settlement rules calculations.

Number of such accounts is being decided upon along with the finalization of the chart of accounts – reporting needs would largely drive this.

Cost elements would be grouped together for reporting purposes. Grouping also created for collating expenses for the activity types, making overhead pools

While making a posting in any module, the primary cost element carries the expenses to controlling module and keeps it in a cost object that is assigned while making the original posting.

Then the secondary cost element is used to take the expenses from one cost object to another. Secondary elements are created and used in controlling module where as primary are used to carry the expenses from different module to controlling module.

Cost Center Accounting in SAP

Cost center in SAP is designed to be of 7 digits. Naming convention of cost center master is the most important thing that one should look in the planning phase of cost center creation.

The CCA module within Controlling provides the means for assigning planned and actual costs incurred to areas of cost responsibility within an organization. The cost center hierarchy is defined considering the organization structure as well as responsibility accounting, expenses flow, locations etc. 

If a manager wants to know how much it costs to run his department for a month, this module will be able to provide the answer. In addition, the variance between planned and actual will be available through reports for various combinations and exceptions.

Example of Booking Costs

Booking of Depreciation

Depreciation will be posted to Cost Centers through Asset Accounting module on performing depreciation run. Each Asset master will be assigned to a Cost center which will be a base for the system to compute and post depreciation cost center wise.

Booking of Salaries and Wages

Salaries and Wages will be booked to cost centers. Each employee will be assigned to a CostCenter. This assignment is time-based. Based on the cost center assignment, the salaries and wages of employees will be posted to respective cost centers.