COST CENTRE

PURPOSE:

Ascertain

Analysis

generate Report

For decision Making

 To know the variance (comparison b/n actual Vs plan)

 Plan activity price calculation
 To apply the plan rate to product costing.

Cost center: where the costs are incurred that location is called cost center. Cost centre is an
area for which cost is to be ascertained, used for the purpose of cost control and cost analysis.

 The cost center category is an indicator in the cost centre master data, which specifies
the category for the cost center.

cost centre category enable you to assign the same characteristics to similar cost centre

Ex: you can allow particular activity types only for particular cost centre. This is useful to prevent
production activities from being posted to administrative cost centre by mistake.

A.TYPE:

To convert raw material to another stage we need to perform some activities that
activities are called/measure as an activity type.

purpose:

 The activity types are used for tracking the activities and also to record the time spent for
each activity.
 To charge the direct OH to the product based on time spent on each product.
 Activity price calculation.

SKF: It is the basis for allocating the costs from one cost object to another cost object.

Ex: Telephone
 COST CENTRE PLANNING

 The main purpose of planning is comparison purpose(i.e., actual vs. plan ) so we can get
the variance
 For plan activity price calculation (KSPI)

There are two types of planning:

Activity dependent planning and

Activity Independent planning

Activity dependent planning:

Here we will do the cost center planning in the combination of cost center, cost element and
activity type for those cost centers where activity types are involved.

Here the concept of cost center is not required because the activity types are already assigned to cost
elements in the planning it self.

Activity Independent planning:

Here we will do cost center planning independent of activity types. Here the concept of cost center
split is required

Here the planning is done in the combination of below.

1. Cost center planning/Cost center input planning (Planning between cost center and cost
elements) – We will do this for all cost centers.
2. Activity planning/Cost center output planning (Planning between cost center and activity
types) – We will do this only for production cost centers where activity types are involved.

Cost center split: In case of activity independent planning, at the time of plan activity price calculation the
system does not know for which activities it should consider which cost elements costs. So in cost center
split we will specify the cost elements/groups against activity types.

Allocation is the transferring of costs from one cost center to other cost center.

There are two types of allocation methods.

1. Distribution
2 Assessment

I. Distribution
Here we can allocate only primary cost elements and we call it as primary distribution. It uses the
same primary cost element both in sender side and receiver side. So we can able to see the expenditure
cost element wise on receiver side but the traceability of sender will be lost.

II. Assessment
Here we can allocate both primary cost elements and secondary cost elements and we can call it as
secondary distribution. It uses the separate assessment cost element both in sender and receiver side.
In the sender side the total cost will be shown under assessment cost element as a credit. In receiver side
also it will be shown under assessment cost element separately without disturbing the original cost
elements.

But the disadvantage is in receiver side we cannot able to see the nature of expenditure i.e. it lost the
origin of cost element.

Distribution Assessment

It uses the same primary CE .Both in It uses the separate assessment

1. Functionality sender and receiver side CE both sender and receiver side

We can able to see nature of exp. We can allocate both primary and
2. Advantages wise, nothing but CE wise both sender secondary cost.
and receiver side
We can track the sender in the
receiver side

We can allocate only primary cost and We can't able see the nature of
not possible to allocate secondary exp. wise in the receiver side that
cost. In the receiver side the means it lost the origin of the CE.
3. Disadvantages traceability of sender will lost.

We can't able to see/track how much

value received or allocated from other
dept. in the receiver side.