Cost Element

A cost element corresponds to a cost relevant item in the chart of accounts. Cost elements
are defined as either primary or secondary. Every Profit and Loss GL account that needs to
be controlled has to be defined as a cost element in SAP. Just as in FI General Ledger
Accounts exist, in Controlling we have Cost element.

Primary Cost Elements

Primary Cost Elements are those which are created from FI general Ledger Accounts and
impact the financial accounts eg. Travelling expenses, consumption account infect any Profit
and Loss GL account.

Secondary Cost Elements

Secondary Cost Elements are those which are created only in controlling and do not affect
the financials of the company. It is used for internal reporting only. The postings to these
accounts do not affect the Profit or Loss of the company.

Cost Center

A cost center is an organizational unit or department (sales, services, IT, finance, marketing,
engineering, and so on) that is used to allocate the cost of a business activity to an existing
budget.

What is the purpose of a cost center?

A cost center is a function within an organization that does not directly add to profit but still
costs money to operate, such as the accounting, HR, or IT departments. The main use of a
cost center is to track actual expenses for comparison to the budget.

What is Overheads means?

A part of the overheads (= money that a business spends on buildings, equipment, etc.) that
is related directly to producing a particular product or providing a particular service: Direct
overheads should be calculated in addition to direct labor costs.