what is the use of cost element concept in controlling
The cost element is a classification code and is a mandatory field on the trsansactions that involve costs arising in a company code. It is used to label and differentiate the following costs types:
- Direct cost elements for goods and services procured externally
-indirect(internal) activity cost elements
There may be several cost element types based on a classification of cost elements by use or origin:
- Material Cost Elements
- Settlement costt elements for orders
-Cost elements for internal cost allocations
a cost element is also used to maintain a collection of information in particular, the transaction documents that bear the code of the cost element and have been selected for example for a particular accounting period.
Direct cost elements are maintained in the FI-GL master records. Indirect cost elements have no counterpart in the financial accounts and are maintained exclsively in cost accounting. The cost element concept ensures that each business transaction is posted under a particular cost element in CO is properly assigned to the relevant cost centers, orders, projects, cost objects and so on. Each material issued in MM, each invoice recorded in SD, each external invoice in SD-IV, flow via the FI-GL to the relevant cost object. The expense accounts of the FI-GL are automatically adopted by CO as the proimary cost elements. Additional primary cost elements have to be added to FI to accomodate accruals and other imputed costs. Secondary cost elements are created and managed in CO only. They represent value flows such as Internal cost allocation, surcharge allocation, settlement transactions etc.
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