CO CCA

A cost center is often a department within a company. The manager and employees of a cost center are responsible for its costs but are not responsible for revenues or investment decisions.

A manufacturer’s cost centers include each of its production departments as well as the manufacturing service departments such as the maintenance department or quality control department. Other examples of cost centers include the human resource department, the IT department, the accounting department, and so on.

Cost centers are not limited to departments. There might be several cost centers within a department. For example, each assembly line could be a cost center. Even a special machine could be a cost center.

Cost centers are usually associated with the topic of decentralization, responsibility accounting, and planning and control.

Cost Center Accounting for controlling purposes within the organization. The costs incurred by  organization should be transparent. This enables us to check the profitability of individual functional areas and provide decision-making data for management. 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 us to  analyze the overhead costs according to where they were incurred within the organization.

Cost center	Recording costs with reference to plan values
Profit centers	Calculating operating results
Investment centers	Calculating Return On Investment In the SAP system you can create an investment center in the Profit Center Accounting component (EC-PCA). You do this by assigning balance sheet items to a profit center.

Features of Cost Centre

Entering actual costs

Primary costs can be transferred to Cost Accounting from other components, for example, Materials Management (MM), Asset Accounting (AA), Payroll Accounting (PY).

Additional costs and outlay costs are recorded using the accrual method.

Allocating actual costs

We can use various methods to further allocate the actual costs we have recorded, according to the source.  The system distinguishes between transaction-based allocations, which occur within one period, and period-based allocations, which occur at period end.

Planning activities and costs

We can use planning to define organizational targets and carry out regular cost-effectiveness checks. Variances can be calculated by comparing the actual costs and activities with the plan values. These variances serve as a control signal, which helps us to correct business processes, when required.

We  can plan costs and activities to determine allocation (activity) prices.

Allocating plan costs

All actual allocations that occur for cost centers can also be planned (for example, distribution, assessment, indirect activity allocation).

Entering plan and actual statistical key figures

Statistical key figures are used as the basis for the indirect allocation methods, as well as for evaluations in the information system (for example, employees, telephones).

Activity Accounting

Activity Accounting uses the activity produced by a cost center as the tracing factor for the costs. You can use activities to measure the operating rate or the rate of capacity utilization for a cost center. The target costs of the cost center refer to the activity output.

Depending on the source of the costs, the activities of a cost center are divided into various activity types (for example, for the Work center cost center: Repair hours or Assembly hours.

Information system

The information system provides tools with which you can analyze the cost flows that have occurred in our organization. We can carry out standard recurring evaluations; and create special reports for unique tasks or situations.

Implementation

Cost Center Accounting (CO-OM-CCA) is often used in the first phase of implementation, together with the main areas of Financial Accounting (General Ledger (FI-GL), Assets Payable (FI-AP), Assets Receivable (FI-AR)) and Overhead Orders (CO-OM-OPA).

You can also implement Cost Center Accounting without Financial Accounting. Some settings, however, such as chart of accounts, company code, must be made in Financial Accounting.

Integration

The costs of each cost-accounting-relevant business transaction portrayed in the system through can be assigned through Cost and Revenue Element Accounting (CO-OM-CEL) to an account assignment object in the Controlling component (CO). For overhead costs this can be cost centers, internal orders, business processes, or overhead projects.

Recording and assigning overhead costs allows you to control costs and prepare information for the subsequent areas of Cost Accounting.

You can use the methods of activity allocation, assessment or distribution to further allocate costs, for example, to internal orders (CO-OM-OPA), projects (PS), cost objects (CO-PC) or market segments (CO-PA).

• Cost Center Accounting is utilized to collect and report operating activity within an organizational unit.
• A cost center is essentially a department within the company.
• Cost centers represent a distinct and separate accounting unit and may be organized by area of responsibility, location, or activity-related aspects.
• Each cost center is assigned to the Controlling Area CAOI.
• Cost centers can be structured into multiple alternate hierarchies, according to organizational/functional aspects .
• The cost center is the lowest level of the hierarchy – expenses are rolled up to superior levels .
• Cost Center Accounting covered in detail in the AOI Cost Center training course .