Describing the Cost Center Scenario


After completing this lesson, you will be able to:

  • Outline the cost center scenario

The Cost Center Scenario - Embedded in the Cost Accounting System


To comply with management reporting in Overhead Cost Accounting, there is sometimes a need to create reports for the cost center managers that are not covered by the delivered business content.

Which reports and key figures required by the Cost Center Management can be referred to as the underlying cost accounting system?

In the public cloud edition of the SAP S/4HANA system, rigid standard costing is delivered, whereas flexible standard costing and marginal costing are often used in industry companies.

If a cost center manager wants to report target costs and cost center variances regarding variance categories, there is no delivered functionality available in any of the content queries of the public cloud edition of the SAP S/4HANA system.

For such cases, you have to set up Analytical Queries for the cost center managers that contain target costs and variance categories.

To be able to do the setup, you need to understand the reporting architecture of SAP S/4HANA as a first step.

Getting into the different types of CDS Views as a basis for reporting and understanding which type to use is also important.

In this context you also need to get into tools like the View Browser and the Query Browser.

The main focus is to get practical knowledge about the creation of reports, called Analytical Queries in order to be able to fulfill the business requirements.

 Positioning of the Cost Accounting System used in this course

Standard Costing

The typical characteristic of standard costing is that independent of the actual costs of previous periods for the upcoming planning periods.

Standard costing requires that the value structure (prices for material, external activities, and so on) is compared with a corresponding quantity structure in the form of material quantities and activity quantities.

The result of multiplying quantity and costs calculated for a price are not transferred to variable (employment-dependent) and fixed (employment-independent) costs.

Internal activity allocation is based on a full cost rate (total activity price).

In fixed standard costing, the plan price is calculated for activity allocation by dividing the activity-based planned costs and the planned activity quantity.

It can be determined whether the actual costs match the allocated fixed plan costs or whether variances occur.

Valuation of the Standard Costing

A separation of cost variances according to different categories (causes of variance)is not possible when using full costs.

Utility companies that work with long-term price specifications (predefined prices) and with relatively constant input quantities can, if necessary, meet their requirements for a cost accounting system with rigid standard costing fulfilled.

However, this cost accounting system is not sufficient for companies with a high proportion of variable cost elements, which have to pay attention to the economic viability of their cost centers under hard conditions for competition this cost accounting system is not sufficient.

Flexible Standard Costing

Flexible standard costing is based on a split into fixed and variable costs. This assignment results from the combination of cost center, activity type, and G/L Account of type Cost Element.

The employment of a cost center results from the activity quantities of the cost center.

The planned employment corresponds to the total of planned activity quantities, the actual employment corresponds to the total of allocated actual activity quantities. The following applies:

Capacity utilization level = actual employment / planned employment

The fixed planned costs of a cost center are costs of operating readiness and are therefore also to be planned for an employment of zero hours.

In particular, depreciation costs for fixed assets, rents, imputed interest, preventive maintenance, salaries, and personnel costs for scheduled activities are to be planned as fixed costs.

Variable planned costs in a cost center are not incurred until the actual activity quantity is allocated. These are, for example, direct material costs and direct labor costs. Certain cost elements are sometimes incurred as fixed costs and partly as variable costs, for example, Energy costs.

Target costs are now the actual costs expected for a utilization level (actual costs that are acceptable from a business point of view and indicate cost efficiency of the cost center) and result from:

Target costs = fixed plan costs + variable plan costs * capacity utilization level

Fixed plan costs are equal with fixed target costs.

If the actual activity quantity of the cost center is zero, the variable target costs are also zero. 

On the basis of fixed and variable costs, it is possible to differentiate the cost variances according to individual variance categories. The input factors of a cost center result in a price variance due to a difference in factor prices.

E. g. the prices for material (price variance in the procurement costs for material) or prices for purchased activities did change between planning and actual posting.

Consumption variances occur if the actual consumption quantities differ from the planned consumption quantities.

On the activity side of a cost center, you can differentiate between the employment variance and the output price variance of the activities delivered to other cost centers.

The employment variance results from the multiplication of the Capacity Utilization Level with the plan fixed cost.

Example: If the capacity utilization level is 80%, only 80% of the fixed planned costs could be allocated using activity allocation. 20% of the fixed planned costs are employment variances.

The output price variance is as follows:

The plan price of the activity type is the result of dividing the plan costs by the plan activity.

An actual price of the activity type is calculated by dividing the actual costs by the allocated activity quantity.

The difference between the actual price and the plan price is the output price variance.

Valuation of Flexible Standard Costing

Flexible standard costing is a more efficient cost accounting system than rigid standard costing.

Since the target/actual variance is the basis of the variance analysis, individual variance categories can be calculated and examined for their cause.

However, in addition to the costs, you must also enter quantities (for example, activity quantities, material quantities, and so on). For production enterprises, only flexible standard costing provides the required explanatory power. 

The business scenario we will describe in the following aims for reporting actual, target, and plan data as well as for reporting variance categories that will be set up with the help of the Embedded Analytical Queries tool of SAP S/4HANA.

Cost center planning is used to define plan figures for costs, activities, prices, or statistical key figures at the cost center level for a specific planning period.

Variances can be determined by comparing the actual events with the planning.

You can use the planning of costs and activity quantities to determine transfer prices (prices). You use these prices to evaluate the internal activities during the current period, that is, before the costs are known.

In the following planning scenario, the required activity quantities of the cost center and the planned costs to be expected for this are planned. 

Cost center BIKEA-### has planned costs for fiscal year 2025 of about EUR 200,000 with a planned quantity of about 20,000 pieces for material consumption. This results in a planned price for the material of EUR 10 per unit.


Cost center BIKEA-### only offers one activity type, which is PR-###. This means that the fixed plan amounts don‘t have to be split in order to be assigned to the activity type!

Furthermore, the same cost center has planned 1000 hours for its activity PR-### in 2025. The price per hour for this activity is EUR 150.

Actual costs are also incurred for the resources that the cost center requires for the activity output when the cost centers are performed. This is usually done using the integration of corresponding logistics postings into Financial (FI).

The postings can also be made directly in the general ledger using a general journal entry.

Either way, the following account assignment logic applies: For each FI document item, only one CO object can be assigned to an actual account, that is, with an effect on net income.

Other statistical account assignments, such as profit centers, are possible.

The account assignment affecting net income to a cost center is only possible with costs, not with revenues.

In the following business scenario, actual material costs are assigned to the cost center.

It is important that, in addition to the costs, the actual material quantities are also entered during posting.

This is the only way to calculate the variance categories quantity variance and price variance separately.

The actual price for the actual account assignment of material costs results from the division of the actual costs by the actual material quantity entered at the same time. 

Another actual posting of the cost center scenario is actual activity allocation.

For an event-based allocation, the plan cost rate of the cost center activity type is always used.

It is possible to calculate an actual cost rate from the division of actual costs and actual allocated activity, but only in period-end closing, not in a process-related posting during the fiscal month. 


In 2025, the same cost center has a debit posting for material consumption of about EUR 180,000 and 9000 pieces, which leads to an actual price for the material of EUR 20 per piece. This actual price can be compared with the planned price as part of the variance calculation. Additionally, the cost center allocated 500 hours of activity type PR-### to cost center BIKEB-###. The calculated actual times are the basis for determining the so-called target costs, which are explained in the following lesson.

Log in to track your progress & complete quizzes