Maintaining Overhead Cost Controlling Master Records

In this lesson we will introduce the scope of overhead management and the different cost assignment objects which are used to collect overhead costs. We also take a closer look on how cost centers are maintained in the system.

In your manufacturing company you have costs that arise as a direct consequence of producing a product such as purchasing raw materials and the work of people in the production line. However, in addition to these direct product costs, there are additional costs that arise from the normal operations of your business: labor costs for business departments such as finance and marketing, energy and telecommunication costs, costs for running a canteen for your employees. Overhead cost management in SAP S/4HANA provides you with structures, master records, and processes to help you plan, track, assign, allocate, and analyze these costs.

The costing object in SAP S/4HANA that is used to depict permanent areas of responsibility with an identifiable person responsible is the cost center. Typical cost centers of this category are the Finance, Sales, Procurement, Marketing departments and so on. Many times, especially for larger corporations cost centers are hierarchical, so the finance department might be split into accounting, controlling, treasury, and receivables for example. This kind of hierarchical relation is depicted in the system in a tree structured hierarchy, the Cost Center Hierarchy.

In addition to cost centers that depict departments, you can create cost centers for special purposes that aren't strictly speaking mapped to a department. These are used to gather costs that will later be allocated to other cost centers, for example a cost center for the Canteen or for Telecommunications. These cost centers must also be assigned to the cost center hierarchy.

Cost centers define areas of responsibility within the company that collect overhead costs.

Before you can create cost centers, you have to define a Cost Center Hierarchy. This hierarchy is a tree structure that consists of different cost center groups (hierarchy nodes). Every cost center created is assigned to a certain hierarchy node.

Example: In the figure above cost center 30100 - Consulting FI is assigned to hierarchy node H10110 - Marketing & Sales.

How you define the structure is generally up to you. It makes sense to orient yourself by the organizational structure of your company.