CO assessment terminology

[Former Member]

Hello Friends,

CO assessment:

In layman terms, what is a Primary Cost and what is deemed a Secondary Cost?

Also, how do you distinguish them apart? Why the word primary and secondary?

Also, how do you differentiate the meanings of Primary/Secondary cost from Primary/Secondary cost element?

I promise to award for all replies.

regards

Markus

[Former Member · Accepted solution]

hi,

If a GL Account is to be analysed in the CO module, then it needs to be defined as a Cost Element.

Integration of FI & CO takes place thru Cost Element. Costs flow from FI into CO thru Cost Elements.

If you have specified a GL Account as a Cost Element then you need to assign a Cost Object to the Cost element.

Primary Cost elements originate outside the organization i.e. these are Paid to Outsiders.

Secondary Cost elements are carriers of costs within the Organization for e.g. Allocation Cost elements. These are defined for use within the CO module.

Primary cost elements are used in the Distribution method of allocation while Secondary cost elements are used in the Assessment & Activity allocation methods of Cost allocation.

Primary Cost elements are of the category ‘1’ for Costs and ‘11’ for Revenue.

Secondary cost elements are of the category ‘42’ for Assessment and ‘43’ for Activity allocation.

There is a close relation between Cost object and cost element.

Cost object answers the question where the cost is incurred and Cost element answers the question what costs are incurred.

assign points if useful.

regards,

[sridevi_p]

hI,

<b>Primary Cost:</b> As the name suggest, these are main cost involved in the activties of the business. E.g. in case of manufacturing industry, material & labour cost, power etc will be considered as primary cost

<b>Secondary Cost:</b> The cost that supports running of the business. They are not actually used in running of manufacturing unit. E.g. Rent of the unit , repairs to the building. These are part of the business, but not related to the manufacturing process as such

These secondary cost are often assigned to respective departments be distrubution.

Cost elements are in a layman terms, represent the p&L account of FI. Each expenses has a cost element associated with it.

Regards,

Sridevi

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[Former Member]

Hello Markus,

Adding on to what Suresh has said,

Primary costs- They are those costs that arise from the consumption of goods and services supplied to the organization from external (as opposed to internal) sources. Normally these costs originate in FI.Example of primary costs could be Labor costs,External services,Material costs.

Secondary costs- Secondary costs are often incurred during the production of cost center activity. This is because a cost center must often take activity from other cost centers to produce its own activity.

Examples could be the various overhead costs.

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Cost Elements-Cost element are carriers of costs.

Primary cost elemants-Primary cost elements are like materail costs, personnel costs, energy costs... where a corresponding GL account exists in FI..to allow costs to flow.In other words, costs which have been originally created in FI would be primary costs. They flow from FI to CO only through Primary cost elements.

Secondary cost element- Cost element that is used to allocate costs for internal activities.Secondary cost elements do not correspond to any G/L account in Financial Accounting. They are used only in Controlling and consequently cannot be defined in FI as an account.

Hope I had been able to help you. please assign points.

Rgds

Manish

[Former Member]

Hello

As you are aware in SAP apart from so many other modules, Financial Accounting and Controlling are two Finance related modules.

Normally costs originate in FI. A company can prepare financial statements from these records.

But, the management would be interested not just in recording but planning, measuring and budgeting and adopt cost control methods.

For this they set to flow the data from FI to Co also.

Costs which have been originally created in FI would be primary costs. They flow from FI to CO only through Primary cost elements.

Costs which are internal to CO are secondary costs and these are manipulated to look at a scenario which the management desires. For this flow within CO, secondary cost elements are created.

Thanks

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