What is a cost center in sap CO? What is a profit center in sap CO? How a cost center and profit center is different in sap?

What is a cost center in sap CO?
We also use Cost center in tally which is an accounting software, the underlined meaning of cost center is SAP in both the cases but in SAP cost center is created and handled quite differently. First, it is handled under the Controlling Module and it is stored as master data.
Cost center in SAP is an organizational sub unit, it is the sole discretion of the company either it wants to consider a unit a cost center or a profit center.
How a cost center and profit center is different in sap CO?
So now you will ask how profit center is different from a cost center right? And how can you classify an organizational unit as cost center because at the same time it is also generating profit by making sales etc. right? Let me explain.
Consider an example: - you have a company in Illinois, USA but that office will have some expenses let's say warehouse that can be considered a cost center because it is not making any profit, sales office in same company incur cost but at the same time that office is also generating revenue by making sales so this time the same office is considered a profit center.
So, we can say that a profit center's work is complex because it not only incurs cost but also generates profit.
Cost center also maximizes the profit but indirectly, the warehouse house is incurring cost as it maintains the stock of good or raw material but if stock of those goods were not maintained the company would have been shut as company processes the same raw material to make finished goods which generates profit right?
Now your confusion will be the other expanses of the warehouse like electricity, workers, right? Yes, those expanses are also included in a cost center,
consider a real-life example, we go to market and purchase a good for 100 dollar (primary cost element and has direct cost to general ledger accounts) and travel expanse is 4 dollar and 2 dollars (6 dollars is secondary cost element) have been spent for food, so now if you sell the product to someone, will it be less than 106 dollars? no because that is included in that cost center right and this is the underlined concept of cost center and profit center.

Read Also: 
Purchase Order Management in SAP MM View

Popular posts from this blog

Moving Average Price vs Standard Price in SAP Material Master

Moving Average Price vs Standard Price in SAP Material Master It is maintained in the accounting view of the material master and configured in Material Type. see below See the bottom of the below image for price control Consider the Below Scenario to understand the difference: First Purchase Order  Made for 100 Qty at $20/pcs                             Price = 100*20                                      = 2000$ Second Purchase Order  Made for 500 Qty at $10/pcs for the same material                             Price = 500*10                                      = 5000$ Standard Price : It doesn't change with the change in price in new PO, so suppose the standard price maintained in material master was 20$ when 1st goods are received                            total value = total stock * Standard price                                              = 600qty * 20$                                              = 12000$ Moving Average Price : It does ch
Read more

How to Maintain and config Purchase Info Record in SAP

Purchase Info Record in SAP MM SAP Path : SAP Easy Access : Logistics : Materials Management : Purchasing : Master Data : Source List : Maintain T-Code: ME11(Create), ME13(Display), ME12(Change), ME15(Delete) ME1L - Vendor wise PIR Report ME1M - Material Wise PIR Report ME1W - Material Group wise PIR Report ME1P - PO Price History Wise PIR Report ME1E - Quotation History wise PIR Report Related Tables : EINA, EINE Q. What is a Purchase Info Record in SAP? A. Purchase Info Record is information about terms for purchasing a specific material from a vendor. It is  maintained for vendor and material combination and may contain data of  pricing   conditions , over  and underdelivery  limits, planned delivery date of goods and   availability period. Q. What are the Procurement types in info record? A. There are 4 types of PIR Standard - A standard PIR contains information for standard PO. The PIR can be created for material and service with or without master d
Read more

SAP IS RETAIL Promotion Creation

Why Promotions are created?                                      T-Code = WAK1 From a sales perspective, promotion provide retailers a key opportunity to differentiate and position their goods in competitively  aggressive - price environment.  Promotions are run to reduce the existing stock , boost the sale, or test a new products in the market. They are also a useful in boosting the success of a company, particularly when margins are tighter. This component enable articles to be sold at  lower than the standard price. Promotions are planned at company level and the data is sent to the involved stores when the promotion is introduced or announced.  Steps to create Promotions. Open  T-Code WAK1 in SAP Gui Enter the Promotion Type and Press Enter & follow the subsequent steps You might have seen a Discount offer like 50% Upto 100 rs. - That can be done from TCode - OVB2 or from VK12 Additional data m
Read more