SAP Cost Element Basics, You Should Know!

Talking about SAP Controlling one of the basics that you should know is Cost Element (CE).
ce_featured
Accounting seeks to record, classify and present business transactions that satisfy external reporting such as Government and internal reporting for management decision making.

External Reporting and Internal Reporting

SAP Financial Accounting (FI) is for external financial reporting and Controlling (CO) is for internal management reporting. Organizations’ transactions are captured in Financial Accounting , Asset Accounting, Materials Management, Payroll Accounting and Sales and Distribution and the same cost and revenue information flows to Controlling through Cost and Revenue Elements. Thus Cost and Revenue Elements act as cost and revenue classification and provide information on cost flows within the internal reporting SAP Controlling component.

Necessary Data Redundancy

Now take a sip of your coffee, you have a question why this data redundancy, ONE in Financial Accounting and SECOND in Controlling?

This is a necessary redundancy as external and internal reporting have different perspectives.

While the external accounting is for statutory reporting, internal accounting is to facilitate and support management decision making.

Financial Accounting component classify and present costs under functional heads such as Production, Sales and Distribution, Marketing, Research and Development and Administration.

Controlling component analyze costs according to its nature, Fixed and Variable and provide a platform for Planning and Control through Standard Costing and Variance Analysis and Market Analysis through Profitability Analysis.

SAP Cost Elements- Primary & Secondary

Cost and Revenue Elements are divided in to

1. Primary Cost Elements for cost flows from Financial Accounting to Controlling

2. Secondary Cost Elements for cost flows with in Controlling

Further direct posting is possible for primary cost elements while indirect posting happens in secondary cost elements.

More about Primary Cost Element

Primary Cost Elements corresponds to General Ledger Accounts in the Operational Chart of Accounts with one to one relationship. GL account description is the default description for primary cost element.

While grouping Cost Elements internal reporting requirements should be the consideration. So Cost Element Groups can be

  • Personnel Costs
  • Service & Operating Supplies
  • Total Maintenance Costs
  • Miscellaneous Overhead Costs

Depending on the nature of business grouping can vary.

Cost Element Groups

SAP provides for grouping CEs. Cost Element groups are useful in

  • Reports, say reporting for Service & Operating Supplies costs
  • Collective processing, say Planning for Total Maintenance Costs

I have tried to avoid to the extent possible technical information as this post is meant to help every one to understand CE at the macro level.

We will learn more about CE in the next part!

Thank you for your time reading the post. Have you found this article useful in understanding the basics about SAP CO Cost Element? 

Please type your comments …

Thanks again!

Like this content? Sign up for free updates:

9 Comments

  • Jey A

    Reply Reply February 1, 2014

    Hi there,

    You’ve presented this article about CE in a lucid, easy-to-understand way. Kudos.

    Love to see more from you.

    Cheers.

  • Murugesan

    Reply Reply February 1, 2014

    Thank you so much, Jey!

  • Chandra

    Reply Reply February 9, 2014

    Very Useful Thank you

    • Murugesan

      Reply Reply February 9, 2014

      @Chandra, thank you for your support!

  • idreddy

    Reply Reply March 15, 2014

    Hi Murugesan

    CONGRATS

    Great and Good for your efforts and time

    Very precise and easy to Understand the beginners….

    idreddy

    • Murugesan

      Reply Reply March 15, 2014

      Thank you, Reddy!

  • Muhammad Ishtiaq

    Reply Reply May 26, 2017

    wonderful

  • Imran hussain

    Reply Reply July 4, 2017

    Very useful, though I m working in one of the leading manfacturing organisation and prepare monthly MOE report, but this article has cleared my concepts.
    Thanks

  • Gerard

    Reply Reply July 30, 2017

    Finally someone who describes this in a down to earth way.
    Especially stating what the purpose is makes it so much more clear.

Leave A Response

* Denotes Required Field