cost transfer

[Former Member]

Hello Friends,

Some say its not right to say primary cost element value is transferred to secondary cost element. and it should be described as primary cost is transferred to secondary cost. But technically, is it not that the values are reflected in the cost elements? And isn't primary cost = primary cost element? how to discriminate between primary cost, cost object and element?

Appreciate if online help answers are not cut-n-pasted here. I appreciate answers from 'your own words'.

I sense that I am missing some subtleties in cost concepts. Please enlighten.

Thanks. Will award when question is answered completely.

Cheers

Markus

[Former Member]

Hi,

<b>Primary Cost Elements</b>: Primary Cost Elements are GL Accounts in Controlling Module. Unless a GL Account is created in FI we cannot create a Cost Element in Controlling. When Controlling Module is implemented (say Cost Center Accounting, Internal Orders etc) it is necessary to create Primary Cost Elements.

<b>Secondary Cost Elements</b>: Secondary Cost Elements are used only in Controlling Module. It is not mandatory that Secondary Cost Elements are to be created. If functions like allocation (Assessment) are not used in Controlling and only Cost Centers are used then it is not required to create Secondary Cost Elements.

A secondary Cost Element can be created only if there is no corresponding GL Acount is created. If you want to create Secondary Cost Element 900000, there should not be a GL Account 900000.

Secondary Cost Elements are used as a media to transfer from one cost object to another cost object. Let us take an example of Assessment. In this example the Costs incurred for Cafetaria in a factory are all booked to a common cost center as and when the expenses are incurred and during month end process, the costs are allocated to different cost centers based on number of employees in each cost center.

In this example the Costs are booked to Cost Element (Primary) 410000 and the Cost Center is CC1000. The total Costs incurred are $6,000.

At month end this needs to be allocated to Cost Center A1, A2 and A3 in the ratio of 50%, 30% and 20%. Secondary Cost Element used is 900000. When Assessment is done the following entry will be posted:

Cost Element Cost Center Amount

900000 A1 $3,0000 Debit

900000 A2 $1,800 Debit

900000 A3 $1,200 Debit

900000 CC1000 $6,000 Credit.

From the above you can note that secondary cost element 900000 is used as a bridge to transfer costs to different cost cenetrs. We can still track the Costs in CC1000 using primary Cost element.

Thanks

Murali.

[Former Member]

Hello Murali,

Thanks.

Given that Sec cost element is a media for transfer, you seem to be saying costs are stored in cost objects. But secondary cost element is used to show the value of credit and debit?

but secondary cost element also stores the cost. so why is it said that sec cost element does not store the cost?

regards

Markus