What is Cost element in SAP Controlling Module

Cost Elements play a very important role in the reconciliation/alignment of costs and postings between Financial Accounting (FI) and Management Accounting/ Controlling (CO). There are different types of cost elements such as Primary Cost Elements, Secondary Cost Elements and Revenue Cost Elements, all of which have a specific purpose. The category set for a Cost Element at the time of the creation will determine the transactions that can utilize the cost element.

They represent expense or revenue GL accounts in the controlling module. Cost elements can be assigned to cost center to accurately appropriate costs. There are few exceptions for GL accounts that should not be created as cost elements. These include result analysis accounts and cost of goods sold accounts.

Due to the integrated nature of SAP Systems there is a requirement to create expense accounts in Financial Accounting with corresponding primary cost elements in Controlling. This ensures that expenses in Financial Accounting and primary costs in Management Accounting can be reconciled.

Primary cost elements

To be able to post a primary cost element, you require an object in Management Accounting (such as a cost center) to identify the origin of the costs. Examples of primary cost elements are material costs and salary costs.

Primary cost elements have a 1:1 relationship with GL accounts. GL postings to P&L accounts in FI also post to a primary cost element in CO. Primary cost elements can be created in transaction KA01 (see Figure 2.5).

Primary cost element categories include:

1: Primary costs/cost-reducing revenues

3: Accrual/deferral per surcharge

4: Accrual/deferral per debit = actual

11: Revenues

12: Sales deduction

22: External settlement


Figure 2.5: Display primary cost element

You can configure the system to automatically create primary cost elements when P&L GL accounts are created through the IMG menu pathCONTROLLING •

COST  ELEMENT ACCOUNTING  • MASTER  DATA  • AUTOMATIC  CREATION  OF  PRIMARY  AND  SECONDARY COST ELEMENTS • MAKE DEFAULT SETTINGS. Then create the batch input session in transaction OKB3 and execute in transaction SM35.

Secondary cost elements

Secondary cost elements are used exclusively in Management Accounting to identify internal cost flows such as assessments or settlements. They do not have corresponding general ledger accounts in Financial Accounting (FI) and are defined in Management Accounting only.

When creating secondary cost elements remember they should be valid from the first day of the current fiscal year through the default ‘Valid to’ date.

Secondary cost elements are “cost carriers” that move data within the CO module. Secondary cost elements are different from primary cost elements because they do not directly tie to GL accounts. They are used for a variety of reasons, including: assessments, activity confirmations, overhead charges, results analysis, project expense and revenue collection, and order settlement. Secondary cost elements are created in transaction KA06 and typically begin with a ‘9’ (see Figure 2.6).


Figure 2.6: Display secondary cost element

Secondary cost element categories are:

 21: Internal settlement

 31: Order/project results analysis

 41: Overhead Rates

 42: Assessment

 43: Internal activity allocation

 50: Project-related incoming orders: Sales revenue

 51: Project-related incoming orders: Other revenue

 52: Project-related incoming orders: Costs

 61: Earned value

Cost element groups

Cost element groups are used to collect cost elements with similar characteristics to simplify reporting and assessments and distributions. Cost elements do not exist in a hierarchy like profit centers and cost centers. This means that you can assign cost elements to multiple groups. Both primary and secondary cost elements can be assigned to cost element groups. Cost element groups are created in transaction KAH1 (see Figure 2.7).

Cost element groups example

You could group together all cost elements related to internal services and create a separate group for external services, in order to analyze them separately in cost center reporting. Cost element groups are also helpful when configuring order settlement parameters. You could configure the system to settle all material, services, and labor costs in separate settlement accounts using groups to indicate the material, services, and labor cost elements.


Figure 2.7: Display cost element groups






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