Cost Elements:

There are two types of cost elements – primary cost elements and secondary
cost elements. The primary cost elements are used to take external postings
(from FI and/or MM) whereas the secondary cost elements can take postings
only within CO and are used mainly for assessments, distributions,
settlements, etc.
You can extend the GL accounts and create primary cost elements.
You can create secondary cost elements ONLY in CO.
To be able to post to a primary cost element, you need to have the
corresponding GL account. Also, you need a cost carrying object such as a
cost center to identify the origin of these costs. Examples of primary cost
elements are material costs and salary costs.
Secondary cost elements are used exclusively in CO to identify internal cost
flows such as assessments, distributions, settlements, etc.
When you analyze revenues in cost controlling, the R/3 system records them
as revenue elements. Revenue elements are primary cost elements.
When you create a cost element, you should assign a cost element category.
This category defines the transactions for which the cost element is valid.

Cost Center Hierarchy:

Cost elements are locations where the costs have occurred. You can set up
cost centers based on functional requirements, geographical locations,
distribution criteria, and/or areas of responsibility.
You create cost center hierarchy (CCH) by combining similar cost centers
into groups. Each node in the CCH represents a node.

Activity Types:
Activity types are tracing factors for cost allocations. Internal activity is
allocated via secondary cost elements.

Statistical Key Figures:

SKFs can be a number of things such as – the number of employees, the
length of telephone calls, the # of PCs, etc.
SKFs act as the tracing factors for periodic transactions such as distributions
or assessments, and for key figure analysis.
We can define SKFs as a fixed value or as a totals value. Fixed values do not
change from period to period, whereas totals value changes every period
(and the total value at the end of the relevant period is considered for cost
allocations purposes).

Time-dependent Master Data

We can also specify time-dependent master data in the master record of the
cost elements, cost centers and activity types. An example would be the
person responsible for the cost center.. we can specify that the person
changes after a specific date and the system will allow us to create 2
database records for the same cost center with 2 different people for these
dates.

Postings to Cost Centers

Cost and revenue postings in CO can trigger subsequent postings. These
subsequent postings can either be true (real) postings or statistical postings.
The true postings get the actual postings whereas the statistical postings
don’t. We use the statistical postings only for informational purposes.
When you specify a cost center in an FI posting (for example, in a vendor
invoice posting), the CO posting is a true posting. The R/3 system transfers
the profit center from the master record of the cost center. THE PROFIT
CENTER ALWAYS GETS THE STATISTICAL POSTINGS.

EXERCISE 1:
 • Create a ‘Miscellaneous’ cost center group. Create 3 cost centers
MISC1, MISC2 and MISC3 and assign them to the ‘Miscellaneous’ group.
Create this group in the present CCH.
• Create 2-3 secondary cost elements. At the end of the period, you
want to move the costs from the MISC1 cost center to the other cost
centers – MISC2 and MISC3. The creation of these secondary cost
elements will facilitate the assessment process.
• Create a miscellaneous GL account to enable miscellaneous postings
such as telephone bill, cable bill, etc from FI. Post a vendor invoice
(FB60) for cable bill in the amount of $5000.00 to the MISC1 cost
center.
• Now, display the balance in the cost center MISC1 to make sure this
transaction was actually posted to the cost center.
• Now, distribute this amount to cost centers MISC2 and MISC3 equally.

EXERCISE 2:
• Post another vendor invoice (FB60) for the telephone bill for the
amount of $300.00 to the MISC1 cost center.
• Display the line balances in the MISC1 cost center to make sure this
transaction was posted properly.
• Create SKF – # of telephones – to be used as a tracing factor to post
the telephone bill to the MISC2 and MISC3 call centers. The SKF value
for MISC2 is 10 and for MISC3 is 20.
• Use the assessment/segment cycle to distribute these costs to the cost
centers in the apt proportions.