Difference Between Primary and Secondary Cost Element
Explain the difference between primary and secondary
cost element? With an example.
Primary cost elements are like materail costs, personnel costs, energy
costs... where a corresponding GL account exists in FI..to allow costs to
flow...
Secondary cost elements are like production costs, material overheads,
production overheads, they can be created and administered in only CO. These
are used in internal cost allocation, overhead calculation, settlement
transactions., it does not flow to FI...
General - Cost Element
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Basically, cost element are carriers of costs.
Primary Cost Element
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When cost element carriers cost between FI and CO they are
called Primary, the link is established GL A/c = Cost element(Primary). A
question may arise as to whether all GL accounts are cost element, it again
depends upon the business requirement, where COPA is active then revenue account
(GL) are also cost elements, where COPA is not active then revenue account (GL)
should not be made as an cost element.
Example....
Again cost of goods sold particularly in VAX (make to
stock) is not an cost element, where the same COGS in VAY (make to order) is a
cost element. Price Difference account should not be made as cost element.
Entry while booking expenses
Travel Expenses A/c - with Cost Centre Dr. Rs.YY
(will be a GL A/c and cost element) - entries flows to CO
thru FI
To Cash A/c Cr. Rs.YY
Secondary Cost Element
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When cost element carries cost with in CO, then they are
called secondary cost element.
Example.... - Take Product Costing
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On manufacture of the goods the cost of the above product
(production order) is arrived at accumulating material cost + operational cost +
overheads (%), additive cost if any.
The cost of operation is accumulated in cost centre be
it production / production service / service cost centres, while booking FI
entries.
Those operational cost has to be allocated to
production order based on operational activities carried on and its cost
involved in it. Those operation activities in CO are termed as activity types
and has to link the same in KP26 with rates and cost centre (ie., sender cost
centre and receiver production order).
In order to find the production order cost, the
allocation of cost from sender cost centre to production order for the
operational activities carried on and its cost associated with it, have to be
loaded, hence in CO the cost centre allocate that portion of operational cost to
production order, and this cost is carried by a cost element (since there are no
FI involvement and entries are flowing within CO by crediting sender cost centre
and debiting receiver production order a cost element has to be created.... say
"Operational Cost - Activity" the entry will be
Operational Cost - Activity (Production Order) Dr Rs.XX
To Operational Cost - Activity (Cost Centre) Cr Rs.XX
The entries are with in CO. And the cost element created
is secondary since it does not has an link with GL Account in FI
correspondingly.
In CO the production order and cost centre are co
object including but not limited to.
