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How to Create Profit Center in Product Cost Planning

Product Cost Planning

The beginning of the product cost planning cycle is cost center planning. The goal of cost center planning is to create activity rates used in product costing, as well as allow for variance analysis and under/over absorption by cost center.

Before explaining details on cost center variance analysis and activity rate calculation, we will start with foundational knowledge of controlling master data. Profit centers, cost centers, cost elements, statistical key figures, and activity rates are key controlling master data required in product costing. An understanding of these components of master data is important as you build your understanding of product cost planning.

Profit Center

Profit center represent an organizational unit in the accounting and controlling modules in SAP. They reflect a management-oriented structure of the
enterprise for the purpose of internal control. Both expense and revenue postings require a profit center in order to build a profitability view by profit
center. Profit center are created for revenue generating areas such as product lines, divisions, regions, or functions.

Profit center postings are generated in parallel to postings made in the controlling module and the results are reviewed in a separate ledger. The configuration for activating profit center accounting can be accessed through transaction OKKP or through the IMG menu path CONTROLLING • GENERAL CONTROLLING • ORGANIZATION • MAINTAIN CONTROLLING AREA.

Profit center is assigned to balance sheet items like assets, payables, receivables, and inventory. Profit center is also assigned to material masters
and cost centers in order to derive a profit center on each posting.

Profit center is created in transaction KE51. They are specific to a controlling area and are extended to relevant company codes in the company code tab. You can also assign profit center to company codes in mass using transaction KE56 

Display profit center diagram

profit-center

A dummy profit center ‘999’ should be created in each company code. The dummy profit center is used as a default profit center when a profit center cannot be determined. The balance in this profit center should be reviewed at month-end and year-end to move any costs that are not assigned properly. Dummy profit center is created in transaction KE59 and the dummy profit center indicator is automatically set on the indicators tab.

Partner profit center is important in profit center consolidations where costs and revenues result from inter or intracompany transactions. Partner profit center is configured to show the sender and receiver relationship between costs. It can be used in postings resulting from cost allocations or purchases where costs are moved from one profit center to another.

Partner profit center can be derived from the supplying object if the sender is in the same SAP version. Derivation rules can also be configured if the supplier is not in the same SAP version using vendor, customer, material, company, etc.

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The person responsible and profit center group are required fields. You can assign profit center to company codes on the company code tab. The address and communication tabs are optional and provide fields for indicating contact information for a profit center owner.

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Profit Center hierarchy

A profit center hierarchy is required for each controlling area. Within a profit center hierarchy, you create profit center groups to combine like profit center for reporting and profit center allocations (if applicable). Typically hierarchy requirements for grouping profit center come from executive leadership.

You can build your hierarchy many levels deep to achieve the level of reporting desired. The profit center group you assign in the profit center master data is the lowest level group above the profit center. The profit center hierarchy can be changed or displayed in transaction KCH6N 

Display profit center hierarchy diagram

profit-center-hierarchy

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