The cost centre is the most basic container for cost in CO. It represents where cost was incurred, and in most implementations maps onto the organisational chart.
What a cost centre represents
A cost centre represents responsibility. Costs incurred by general administration go to the administration cost centre; costs on a production line go to that line. The design should make it clear who owns each cost.
The master record holds a name, a person responsible, a validity period, a cost centre category, and the company code and profit centre it belongs to. Create with KS01, change with KS02, display with KS03.
| Category | Meaning | Example |
|---|---|---|
| Production | Directly involved in manufacturing | Assembly line, machining |
| Service | Supporting production | Maintenance, quality control |
| Administration | Overhead functions | HR, finance, general affairs |
| Sales | Selling activity | Branch offices, marketing |
The standard hierarchy
Every cost centre sits somewhere in the standard hierarchy โ a single tree per controlling area that contains all of them without exception.
The hierarchy usually mirrors the organisation: the company at the root, then divisions, departments and sections, with individual cost centres as leaves. When a report shows the cost of a whole division, this hierarchy is what it aggregates over.
How cost arrives
Cost reaches a cost centre by three main routes.
- From FI: specifying a cost centre when posting to an expense account feeds the amount into CO. This is the basic route.
- From MM: goods issued from stock are consumed against a cost centre.
- From within CO: cost allocated from another cost centre, covered below.
Distribution versus assessment
At period end, cost incurred by support functions is charged to the departments that consumed it. There are two methods, and they are frequently confused.
| Aspect | Distribution | Assessment |
|---|---|---|
| Cost element used | The original primary cost element | A secondary cost element |
| Cost breakdown | Preserved by expense type | Lost; collapsed into one line |
| How the receiver sees it | Electricity, supplies, and so on | A single aggregated line such as "overhead allocation" |
| Transaction | KSV5 | KSU5 |
| Suited to | Cases where the breakdown must survive | Cases where only the total matters |
Distribution keeps the original expense types, so the receiving department can still see how much of the charge was electricity. Assessment collapses several types into one secondary cost element: information is lost, but processing is lighter.
Tracing factors
What decides how much goes where is the tracing factor, defined in cycles and segments that specify sender, receiver and basis of apportionment.
- Fixed percentages: split by a set ratio, suitable where the proportion is stable โ administration by headcount, for example.
- Fixed amounts: specify the amount directly.
- Statistical key figures: apportion by a real measure such as floor area, headcount or power consumption, which tracks reality more closely.
- Receiver actuals: apportion in proportion to costs already incurred on the receiving side.
Statistical key figures are entered per period with KB31N. Figures that barely change, such as headcount, can be defined as fixed values that carry forward automatically.