SAP is the global leader in the provision of enterprise resource planning (ERP) systems. While SAP is designed to process many business transactions, it also acts as a key source of information for management control. At the centre of its management control functions is a ‘cost centre accounting’ (CCA) subsystem, that, according to the SAP website ‘enables you to check the profitability of individual functional areas and provide decision-making data for management.’

CCA needs to have cost, profit and investment centres defined by the user organization, and is one of the earlier items to be configured in the system.

This is because the CCA links other component of SAP, such as product cost controlling and profitability analysis. According to SAP, using CCA offers several advantages:

•Assigning costs to cost centres lets you determine where costs are incurred within the organization.

•If you plan costs at cost centre level, you can check cost efficiency at the point where costs are incurred.

•If you want to assign overhead costs accurately to individual products, services or market segments, you need to further allocate the costs to those cost centres directly involved in the creation of the products or services. From these cost centres you can then use different methods to assign the activities and costs to the relevant products, services and market segments. The ‘activities’ of cost centres represent ‘internal resources’ for business processes in activity-based costing.

Questions 

1 Can you give an example of how a cost would be captured/recorded and allocated to a cost centre?

2 Do you think cost centre accounting data is useful for budgeting/planning?