Cost Center in SAP (Cost Center Accounting) – Detailed Overview

What is Cost Center in SAP?

Cost Center in SAP reflect the organizational structure of a company and displays the areas of responsibility. The cost center structure is very important because it defines the basis for other modules and overhead reporting.

How to activate Cost Center Accounting in SAP

Before using Cost Center Accounting, we need to activate it in Controlling Area. Transaction Code OKKP or IMG. Then, follow the below steps:-

• Open the Activate Components/Control Indicators folder on the left side of the screen.
• In the Activate Components Selection, choose Component Active from the Cost Center field.
• If you select the account assignment: activity type (AA: Activity Type) checkbox, the system allows you to assign costs directly to the activity type of a cost center.

This is advantageous if you have more than one activity type assigned to a cost center and want to use automated activity price calculation.

What is Cost Center Master Data

Cost center represents an area of responsibility, that is an organizational unit within an organization. We have to assign all cost centers to a cost center category to create cost center Master Data. We use the cost center categories in activity planning and default specific characteristics when creating a cost center.

IMG => Controlling => Cost Center Accounting => Master Data => Cost Center => Define Cost Center Categories.

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How to create Cost Center Master Data?

After you have checked the cost center categories and adjusted them to meet your requirements, you can finally create a cost center. To do this go to Transaction KS01 or follow the menu path

Accounting => Controlling => Cost Center Accounting => Master Data => Cost center => Individual Processing

We create Cost centers by controlling areas and having a validity date. We can’t assign a number range to the cost center, but it has proven useful to start the cost center with the company code number followed by a sequential number.

This consequently, allows the user to easily identify the cost center of a specific company code within the controlling area. Further, enter the number of the cost center you want to create and adjust the validity date.

In the Basic Data Tab, we need to maintain a name and a description for the cost center in the Name Section. This then creates a cost center for Utility.

Read Related: SAP Controlling Interview Questions

Important Fields of Cost Center Master

We can enter the user who is responsible for controlling this cost center.

User Responsible

We can enter the user who is responsible for controlling this cost center. By pressing (F4) we can search for users in the system. This field is not mandatory.

Person Responsible

The person responsible is a mandatory field and there is no input help. In this field, we enter the person that is responsible for the budget and the actual costs on this cost center.

Department

We can assign the cost center a department. This is not a mandatory field and there is no input help.

Cost Center Category

The cost center category is a mandatory field that defaults some characteristics of the cost center. We can use it in activity-type planning.

Hierarchy Area

We need to assign every Cost Center to a hierarchical area. We can enter either the top-notch of the hierarchy or a sub-notch of the cost center hierarchy. The system changes the assignment automatically in this field if we move the cost center to another notch in the hierarchy.

Company Code

We must assign all cost centers to a company code.

Business Area

The Business area is an organizational unit within the Financial Accounting module. SAP recommends no longer using the Business area and instead using profit centers and segments. However, if you want to use the business area, you need to activate the scenario FIN_GSBER in your leading ledger.

Related: Scenarios in SAP General Ledger

Functional Area

The Functional area is an organizational element used to display the P & L statement in cost of sales accounting.

Currency

The currency is defaulted by the controlling area currency. In general, the system maintains a cost center in the company code currency. We can change the currency only at the beginning of the fiscal year.

Profit Center and its connection with Cost Center in SAP

Sometimes we activate Profit Center Accounting scenario in the Financial Accounting module. Or we use classic Profit Center Accounting. In that case, the system expects an entry in the Profit Center field. However, if we don’t assign a profit center to the cost center, the system executes a warning message.

Cost Center Standard Hierarchies

We must define a cost center standard hierarchy for the controlling area when we activate cost center Accounting. The standard hierarchy is equivalent to a cost center group that contains all cost centers within the controlling area. It can also have multiple cost center groups and represent the structure of the company.

Cost Center Groups

We can create Cost Center groups to display cost centers in different structures by going to Transaction Code KSH1. These groups can be up to 15 characters long. Special characters are not allowed.

SAP HANA in Cost Center Accounting

SAP S4 HANA Finance offers new line item reports in Cost Center Accounting when activating the corresponding accelerator scenario.

You may be interested in: SAP S4 HANA Finance Training

Conclusion

Since with the Cost Center Accounting in SAP, you can analyse the overhead costs of the organisation, it gives you a complete hold over cost management and defines a balanced approach towards the company’s cost. Along with providing a broad overview, it also helps to analyse the profitability of each functional area and a more accurate decision making.

It is the job of an SAP FICO consultant that handles the cost center accounting in SAP. So the consultant must know the SAP Management Accounting part very well to handle the cost center perfectly. Further, As it is closely connected with the profit center part as well, so a knowledge of that as well is highly recommended for efficient working.

If we compare ECC vs. S4 HANA, there is no difference in functionality for the Cost center in SAP in both. Hence, an SAP S4 HANA Finance consultant also is expected to have a similar kind of knowledge of Cost centers. So learning it is equally important for S4 HANA Finance consultants as well as for SAP FICO consultants.

Learn: How to get a job in SAP FICO?