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.
Before using Cost Center Accounting, we need to activate it in Controlling Area. Transaction Code OKKP or IMG. Then, follow the below steps:-
This is advantageous if you have more than one activity type assigned to a cost center and want to use automated activity price calculation.
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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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.
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We can enter the user who is responsible for controlling this cost center.
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.
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.
We can assign the cost center a department. This is not a mandatory field and there is no input help.
The cost center category is a mandatory field that defaults some characteristics of the cost center. We can use it in activity-type planning.
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.
We must assign all cost centers to a company code.
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
The Functional area is an organizational element used to display the P & L statement in cost of sales accounting.
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.
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.
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.
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 S4 HANA Finance offers new line item reports in Cost Center Accounting when activating the corresponding accelerator scenario.
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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.
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