Overhead costing is used to manage costs that cannot be assigned directly to an end product. In overhead costing, you focus on organizational responsibility (cost centers) and temporary activities (internal orders).
Cost Center Accounting is used to structure your organization in such a way that any overhead costs incurred can be assigned to exactly one area of responsibility. An area of responsibility is represented by a cost center. A cost center is an organizational unit dedicated to a specific function within the organization (e.g. financial accounting, general management, purchasing etc.). Typically, a number of people is assigned to a cost center (e.g. all employees working in the accounting department), and a cost center has exactly one responsible person (the cost center manager). Cost centers are allocated in a hierarchy in order to represent the organizational structure.
Cost Center Hierarchy
There are many different ways to design the cost center hierarchy for an organization; this usually depends on the industry the company is in (for example, a manufacturing company has different departmens from a service organization), and on the internal reporting structure. Some companies are divided into functions (e.g. accounting, sales, logistics etc. ), some are structured according to the product portfolio, and others geographically.
In SAP ERP, cost centers are aligned hierarchically by groups. Each group can contain any number of cost centers, as well as sub-groups. The complete organizational structure for a company, containing all cost centers within the organization, is called the standard hierarchy. To maintain the standard hierarchy in SAP ERP, you use transaction OKEON. In this maintenance transaction, you can enter, change and delete groups and create cost centers.