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Cost Centre Accounting - Overview

It's all about the costs that organisations spend in their day to day operations. It's also about controlling them by planning well in advance.

Use We use Cost Center Accounting for controlling purposes within your organization. The costs incurred by your organization should be transparent. This requires that all costs be assigned according to their source. However, source-related assignment is especially difficult for overhead costs. Cost Center Accounting lets you analyze the overhead costs according to where they were incurred within the organization.

Dividing an organization into cost centers allows you to follow several goals, depending on the cost accounting method.

Assigning costs to cost centers lets you determine where costs are incurred within the organization.If you plan costs at cost center level, you can check cost efficiency at the point where costs are incurred.If you want to assign overhead costs accurately to individual products, services, or market segments, you need to further allocate the costs to those cost centers directly involved in the creation of the products or services. From these cost centers you can then use different methods to assign the activities and costs to the relevant products, services, and market segments. This enables you to valuate semi-finished and finished products in Product Cost Controlling (CO-PC)

Expense Budget Planning Cost centre planning involves entering plan figures for a particular costs (cost element) and cost centre for a particular planning period. Variances between plan and actual can be analysed using SAP’s standard reporting on real time basis.

Cost centre planning has following objectives:

To plan the structure of the organization’s future operations for a clearly defined time period You should define performance targets and target achievement grades. You must consider the internal and external (market) factors affecting your organization.

To control business methods within the current settlement period This ensures that you keep as closely as possible to the plan. Iterative planning lets you adapt the target performance to reflect any changes in the organizational environment.

To monitor efficiency After completion of the settlement period using plan/actual or target/actual comparisons.

Cost Centre & Cost element planning is done at start of year. This planned data will be entered in SAP. Plan v/s. Actual variance report can be extracted from SAP on real time basis.

Expense budget planning process will be managed at cost elements in local currency. Budget process will be managed in standard SAP transactions.

Actual Cost booking Primary costs can be transferred to Cost Accounting from other components, for example, Materials Management (MM), Asset Accounting (AA) and Payroll Accounting (PY). Or the primary cost can be booked manually within Financial Accounting by entering the Cost Centre manually during entry.

Period End Activities

Assessment and distribution The Assessment/distribution is a period end activity that allocates both primary and secondary costs in the Cost Centre Accounting component (CO-OM-CCA). A cycle needs to be defined for assessment/distribution.

The basic difference in assessment and distribution is given below:

Assessment The original cost elements are combined in secondary (assessment) cost elements. The original cost elements are not displayed on the receivers. Sender and receiver information (sender cost centre, receiver cost centre, and so on) appears in the Controlling (CO) document.

Distribution The original cost element (that is, the primary cost element) is retained. Sender and receiver information (for example, the identities of the sender and receiver cost centre) is documented using line items in the CO document.

A given cycle can contain a number of segments. A segment consists of the following elements:

  • Sender objects whose values to be allocated are computed using the same rules

  • Receiver objects whose allocation bases are computed using the same rules

  • Information about the sender and the receiver is documented in the Controlling document

  • The original cost element is retained in the receiver cost center.

The sender-receiver relationship is defined in a cycle and the followings will be defined in the cycles:

  • Cost centers or cost center groups

  • Cost elements or cost element groups


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