COST CENTER ACCOUNTING

What is standard hierarchy? How many we can maintain?

It is the highest hierarchy among the cost centers, and it is represents all cost centers in a
structured manner. We can use only one standard hierarchy for the controlling area level not
company code level. We can use alternative hierarchy in addition to standard hierarchy.

What is a cost center group?

The cost center group is nothing but group of cost centers which help one to track and control the
cost of a department more effectively.

What is a Activity Type?

Activities are required to perform to convert the raw material from one stage to another stage.

Purpose: To track the activities in terms of activity unit. This is useful for calculating the activity
price calculation.

Explain the cost center planning process?

The major purpose of the cost center planning is to calculate the plan activity price calculation
and to compare the actual cost with the plan costs.

There are two types of planning:

Activity dependent planning and

Activity Independent planning

I. 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.

II. 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.

What is cost center splitting?

Cost center splitting will be used for activity price calculation, in cost center split will specify which
activity, which cost (cost element) is to be consider for activity price calculation. The Cost center
splitting will be used in independent planning.

What is Assessment and Distribution?

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.

What is difference between Assessment and Distribution?

Distribution Assessment

It uses the same primary CE

1. Functionality Both in sender and receiver side
It uses the separate
assessment CE both sender
and receiver side

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

We can allocate only primary cost We can't able see the nature
and not possible to allocate of exp. wise in the receiver
3. Disadvantages
secondary cost. In the receiver side that means it lost the
side the traceability of sender will origin of the CE.
lost.
We can't able to see/track how
much value received or allocated
from other dept. in the receiver
side.

When we use distribution and Assessment?

During the plan data allocation we are using two types of allocation methods.

What basis you have allocated for Distribution?

I have used fixed percentage based on client requirement.

How many distribution cycle, you have created and how many assessment cycles you
have created?
Ans: 3 Distributions,3/2 Assessments, Segments 7 to 8.

How do you link cost center to profit center

In the master data of the Cost Center there is a provision to enter the profit center. This way all
costs which flow to the cost center are also captured in the profit center.

Cost centers are basically created to capture costs eg admin cost center ,canteen cost center etc
Profit centers are created to capture cost and revenue for a particular plant, business unit or
product line.

What is the allocation structure?

Grouping of costs of each line item and another side which secondary cost elements need to use
for transfer the cost.

Can we assign share capital to the cost center?

No, we can’t assign the share capital. It is balance sheet item.

Can we maintain multiple cost centers for single cost element with same profit center?
OKB9-Default account assignment, we can’t make the default multiple cost centers for single cost
element but we can make the default one cost center for single cost element.

We can post by using the same cost element to the different cost centers during the data entry,
without maintain the default values.

From where system picks the activity prices and where we maintain activity price in
system?

The activity prices can be arrived in two ways.

Manually
System Calculated activity prices.

To get the plan activity price through system calculation either we need to maintain cost center
split in activity independent planning that means where specifying in cost center split for which
activity which cost to be consider for activity price calculation.

Incase of activity dependent planning during the cost element planning it self we are planning the
cost center with respective, the system will calculate activity rates based on input & output
planning as per the activity dependent planning. The calculated price it will update in KP26
planning. Based on combination of cost center and activity type which is mentioned in the work
center for the product costing purpose.

Where to assign activity type in cost centers?  OR how to link cost centers & activity
types?

>> There is no direct assignment.  You plan the output for a cost center first in kp26.   Then
you've to plan the value of that cost center which you budget for a period in kp06.   Planned
Activity expenditure / Planned Activity qty gives you planned act rate which you can use to
valuate your activity confirmations in mfg orders.   You can also define your own prices ,but you
have to run the price revaluation if you want to revaluate your actual activity prices.

For stat. key figure what is the significance of sender & receiver cost elements & cost
centers?

>> Stat key fig are not real account assignments.  In simple traditional terms it is the base to
allocate or define proportions with which the cost is allocated.  SKFs are used to calculate the
debit on a receiver object.  These values can be used for assessing common costs which are
used by all the other cost centers.

How SKF works .. Kindly give me T Codes Also.

>> You create & plan SKF.

Create using KK01 & PLAN the parameters of SKF in KP46

What are the GL Accounts we need to maintain cost element category?

All income & expenditure GL A/c’s except WIP & Production variance GL A/c’s we need to
maintain cost element category.
What is indirect activity allocation?

What is direct activity allocation?

How the actual overhead calculation will be calculated?

How do you report revenue in the cost center?