Profit center:

1. Profit center is an organizational unit in Accounting that reflects a management-

oriented structure of the organization for the purpose of internal control.
2. Profit Center Accounting evaluates the profit or loss of individual, independent areas
within an organization.
3. These areas are responsible for their costs and revenues.

Cost Center:

1. Cost Centers are the organizational units within a controlling area that represents a
location where costs occur.
2. Organizational divisions can be done on the basis of functional, settlement-related,
activity-related, region/section/department related, and/or responsibility-related, to
monitor actual and plan figure standpoints
3. Where cost is captured.
4. A cost center is often a department within a company. The manager and employees of a cost
center are responsible for its costs but are not responsible for revenues or investment decisions.

A manufacturer's cost centers include each of its production departments as well as the
manufacturing service departments such as the maintenance department or quality control
department. Other examples of cost centers include the human resource department, the IT
department, the accounting department, and so on.

Cost centers are not limited to departments. There might be several cost centers within a
department. For example, each assembly line could be a cost center. Even a special machine
could be a cost center.

Cost centers are usually associated with the topic of decentralization, responsibility accounting,
and planning and control.

Internal Order:

1. An internal order is used to accumulate cost for a specific project or task for a specific
time period.
2. An internal order is therefore used for a short period with a specific deadline.
What is the difference between a cost center
and a profit center?
A cost center is a subunit of a company that is responsible only for its costs. Example of
cost centers are the production departments and the service departments within a factory
and administrative departments such as IT and accounting.

A profit center is a subunit of a company that is responsible for revenues and costs. Often
a division of a company is a profit center because it has control over its revenues, costs,
and the resulting profits.

Cost centers and profit centers are usually associated with planning and control in
a decentralized company.

Distribution, Periodic Reposting and Assessment

Distribution

The following information is passed on to the receivers:

The original, primary, cost element is retained.

Sender and receiver information is documented with line items in the CO document

Assessment

The following information is passed on to the receivers:

The original cost elements are grouped together into assessment cost elements (secondary
cost elements).
The original cost elements are not displayed on the receivers.

Sender and receiver information is displayed in the CO document

CO allocations work in the same manner but there are differences regarding
which type of sender is accepted and the way postings are done.
The following should be considered when selecting the method to apply:

1. Senders

Distribution and Assessment will only accept Cost Centers as senders whilst
Reposting will accept all CO objects

2. Posting Method

Distribution and Reposting will only post primary cost elements whilst Assessment will allow
posting of both primary and secondary cost elements.

Also Distribution and Reposting will show the costs in the receiver under the original cost
element whilst Assessment will use an assessment cost element.

DISTRIBUTION CONTAIN PRIMARY COST AND IN ASSESSMENT THE

SECONDARY COST ELEMENT CARRY THE PRIMARY COST

In Distribution we can distribute only Primary cost but in Assessment both primary as well
as secondary cost can be allocate
Performance wise assessment is better since detail line items not written.
Detail drill down is possible in distribution only in assessment only unclean DR and CR
written

Distribution, Periodic Reposting and Assessment

DISTRIBUTION

Distribution was created for transfer primary costs from a sender cost center to receiving
controlling objects. During distribution, only cost centers or business process can be used as
sender.

A distribution receiver can be a cost center, WBS element, internal order, cost object, or a
business process. You can restrict the number of receiver categories in customizing.

Primary Postings (such as, energy costs) are collected on a cost center, and allocated at the
end of the period by means of the user-defined key.

You can only distribute primary costs. During this process, the original cost element
remains the same.
Line items are posted for the sender as well as for the receiver, enabling the allocation to be
recorded exactly.

You can reverse distributions as often as required.

You use the Cycle-Segment method to define sender-receiver relationships.

PERIODIC REPOSTING

Differences between periodic reposting and distribution are due to information content and
performance.

For periodic reposting, no separate credit record is written on the sender for the cost
element in the summary report. Instead, the totals record for the cost element is reduced
on the debit side, which means that the original debit amount can no longer be checked
there ("unclean credit").

However, during distribution, the system writes a totals record for the credit ("clean
credit"). The information on the receiver is the same for periodic reposting and distribution
("clean debit").

Compared with periodic reposting, during distribution, the system also updates the partner
in the totals record for the sender. This means that the partner can be displayed in the
information system on the totals record level.

As fewer totals records are written during periodic reposting, performance is better than
during distribution.

ASSESSMENT

Assessment was created to transfer primary and secondary costs from a sender cost center
to receiving controlling objects.

During assessment, cost center or business processes can be used as senders.

The receivers for an assessment can be a cost center, WBS element, internal order, cost
object, or a business process. You can restrict the number of receiver categories in
customizing.

Primary and secondary posting are allocated at the end of the period by the user-defined
key.

During assessment, the original cost elements are summarized into assessment cost
elements (secondary cost element category = 42). As the system writes fewer total records,
the assessment has a better performance than periodic reposting and distribution.
The system does not display the original cost elements in the receivers. Therefore,
assessment is useful if the cost drilldown for the receiver is not important.

Similar to distribution, the partner is updated in the totals record during distribution
You can reverse assessments as often as required. You use the Cycle-Segment method to
define sender-receiver relationships.

A: Its easiest to demonstrate this by way of an example

Lets say we have three cost elements with the following amounts to be allocated:

A Electricity $2000 B Water $3000 C Canteen Costs $4000

With assessment cycles the system groups all three together and summarizes the balance
of 9000$ onto a separate cost element e.g. D.In order to allocate the costs to a receiving
cost centre. Hence your sender cost element is D in your CO reporting and not A,B,C With
distributions the costs are allocated from the original cost elements. Hence your senders are
A,B,C

What is the difference between Distribution and Assessment?

Distribution uses the original cost element for allocating cost to the sender cost center.
Thus on the receiving cost center we can see the original cost element from the sender
cost center. Distribution only allocates primary cost.
Assessment uses assessment cost element No 43 defined above to allocate cost. Thus
various costs are summarized under a single assessment cost element. In receiver cost
center the original cost breakup from sender is not available. Assessment allocates
both primary as well as secondary cost.

What is an Activity Type?

Activity types classify the activities produced in the cost centers. Examples of Activity
Type could be Machine, Labour, Utilities

Activity type is a unit in a controlling area that classifies the activities performed in a production cost
center. In other words, it can be defined in sap as the output of the cost center.

For example- activity types in production cost centers can be machine hours. Activity types are the
connecting link between the controlling and the production activities.
 The activity type classifies the specific activities that are provided by one or
more cost centers within a company.
If a cost center provides activities for other cost centers, orders, processes, and
so on, then this means that its resources are being used. The costs of these
resources need to be allocated to the receivers of the activity. Activity types
serve as tracing factors for this cost allocation.
In an internal activity allocation, the quantity of the activity, such as the
number of repair hours, is entered into the R/3 System. The system calculates
the associated cost based on the activity price and generates a debit to the
receiver and a credit to the sender for both the quantity and costs. Internal
activity is allocated using secondary cost elements , which are stored in the
master data of the activity types as default values.
You can restrict the use of the activity type to certain types of cost centers by
entering the allowed cost center categories in the activity type master record.
You can enter up to eight allowed cost center categories, or leave the
assignments "unrestricted" by entering an asterisk (*).
The activity type category is used to determine whether, and how and activity
type is entered and allocated. For example, you can allow some activities to be
allocated directly, but specify for others that they are either not allocated, or
allocated indirectly only.

Statistical key figures:

The Statistical Key Figure (SKF) is used as the basis (tracing factor) for making allocations
(assessments/distributions). They are the statistical data such as number of employees, area
in square meters, etc. You will make use of a SKF when you are faced with a situation
where it is not possible to use any other conventional method or measure to arrive at the
share of costs to be allocated to cost centers.

Suppose that you are incurring a monthly expense of USD 5,000 in the cost center
cafeteria, the cost of which needs to be allocated to other cost centers. You can achieve
this by the SKF. Imagine that you want this to be allocated based on the number of
employees working in each of the other cost centers such as administrative office (50
employees) and the factory (200 employees). You will now use the number of employees as
the SKF for allocating the costs.

In SKF allocation, you have the flexibility of using two different SKF Categories;
namely, Total value or Fixed value. You will use fixed values in situations where the SKF
does not change very often, as in the case of the number of employees, area, etc. You will
use total values in situations where the value is expected to change every now and then, as
in the case of power use or water consumption and the like.