Cost center
Quick answer
Cost centers are master data, organised in a standard hierarchy that mirrors the organisation.
Key takeaways
- A cost center answers "where was this cost incurred?
- A cost center captures where costs occur; a profit center captures responsibility for profit (revenues minus costs) for a business…
- Costs are posted or allocated to cost centers.
- Watch out: Confusing cost centers with profit centers.
What a cost center is
A cost center answers "where was this cost incurred?" It is a responsibility area to which expenses are posted so managers can see and control their spending. Examples: the maintenance department, the finance team, a specific machine group.
How cost centers are used
- Costs are posted or allocated to cost centers.
- Managers monitor actual versus planned costs per cost center.
- Overhead is allocated from cost centers to products or projects.
- Cost-center reporting supports internal management accounting.
Cost center vs profit center
A cost center captures where costs occur; a profit center captures responsibility for profit (revenues minus costs) for a business area. They are complementary CO objects, cost centers for cost control, profit centers for profitability analysis.
Master data and hierarchy
Cost centers are master data, organised in a standard hierarchy that mirrors the organisation. Good cost-center design makes management reporting meaningful; poor design makes it noise.
Common pitfalls
- Confusing cost centers with profit centers.
- Too granular or too coarse a cost-center structure.
- Postings to wrong cost centers distorting management reports.
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Check your understanding
Which statement is true of Cost center?
- A. VA03 is the SAP transaction code for Display Sales Order (SD).
- B. " It is a responsibility area to which expenses are posted so managers can see and control their spending.
- C. Data types define the kind and size of data an ABAP variable holds.
Show answer
B. " It is a responsibility area to which expenses are posted so managers can see and control their spending.
Covered in the “What a cost center is” section of this lesson.
Which of these also applies to Cost center?
- A. Examples: the maintenance department, the finance team, a specific machine group.
- B. Guessing instead of using the reference tools.
- C. Guessing instead of reading the log/dump.
Show answer
A. Examples: the maintenance department, the finance team, a specific machine group.
Covered in the “What a cost center is” section of this lesson.
Which part of the Learn SAP curriculum covers Cost center?
- A. SAP fundamentals
- B. SAP security
- C. SAP installation
Show answer
A. SAP fundamentals
This lesson sits in the SAP fundamentals section of the Learn SAP course.