---
title: Basic Concepts of Cost Components in SAP S/4HANA Finance
description: Explore the concepts of cost components in SAP S/4HANA Finance (material, labor, and overhead), and learn about cost estimates and cost component rollups.
---

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# [Basic Concepts of Cost Components in SAP S/4HANA Finance](https://blog.sap-press.com/basic-concepts-of-cost-components-in-sap-s4hana-finance)

 Written by [SAP PRESS](https://blog.sap-press.com/author/sap-press) | Oct 24, 2024 1:00:00 PM

*Cost components* group costs of similar type by account and cost element. The three basic cost components are listed below.

- Material
- Labor
- Overhead

You can break down these basic cost components in [SAP S/4HANA Finance](https://learning.sap-press.com/sap-s4hana-finance) into a maximum of 120 components as needed. The origin group in the **Costing 1** view allows you to report at a more detailed level than cost elements, so you might use this to separate different types of material costs. You also have the option of reporting on fixed and variable costs as separate cost components, so you might use this to create separate components for fixed labor costs and variable labor costs. In this blog post, we’ll focus on the basic concepts of cost components.

 

**Note: Actual vs Plan Cost Components:** Actual and plan cost components are based on the same configuration.

 

## Cost Estimates

You view plan cost components in a cost estimate. You can find cost estimates to display with Transaction S\_P99\_41000111 or by following the menu path **Accounting >** **Controlling >** **Product Cost Controlling >** **Product Cost Planning >** **Information System >** **Object List >** **For Material >** **Analyze/Compare Material Cost Estimates**.

 

A cost estimate defaults to the **Itemization** view, as shown in this figure.

**Itemization** displays a list of costs by **Resource**, **Item Cat.** (item category) and **Cost Element**. Item category defines cost origin, internal activity (**E**), material (**M**), and overhead (**G**) in this example. Each item category is linked with a cost component; for example, we could choose to define a material cost component by assigning cost element **400005** when configuring cost components.

 

You can change the **Itemization** view to a **Cost Component** view by either double-clicking **Cost of Goods Manufactured** at the top of the previous figure, or by using the menu path **Costs >** **Display Cost Components**. You’ll see the screen displayed here.

 

 

The **Raw Material** cost of **139.23** is the sum of the three material items in the **Itemization** view from earlier.

 

## Cost Component Rollup

In multilevel costing structures, the cost component split provides information about the cost of the original components rolled up to assemblies.

 

A cost estimate created for a finished good or subassembly first navigates to the lowest-level BOM components via the procurement type in the **MRP 2** view. It then rolls up the individual material cost components through subassemblies to the finished product, keeping the structure of the cost components consistent during the process. This provides you with transparency to the material cost of multilevel structures and differs from the account assignment that you see in financial accounting, where the general ledger account used to record the goods movement changes with the valuation class of the associated material. To allow you to navigate through the costs of different levels, the **Costing Structure** displays by default on the left of a cost estimate, as shown in this figure.

 

Double-click on a calculator icon in the **Costing Structure** on the left to display the cost estimate details on the right.

 

There are two fundamentally different types of cost component split:

- **Cost of goods manufactured:** The *costs of goods manufactured* shows the raw materials, machine, labor, and overhead costs needed to produce the material and is built up in accordance with the cost elements for the various cost postings.
- **Primary cost component split:** The *primary cost component split* is a different way of looking at the machine and labor costs and shows the primary costs used to supply these activities, such as energy, depreciation, steam, water, and so on, alongside raw material costs and overhead.

Editor’s note: This post has been adapted from a section of the book *[Product Cost Controlling with SAP S/4HANA](https://www.sap-press.com/product-cost-controlling-with-sap-s4hana_5832/?utm_source=sappressblog&utm_medium=referral&utm_campaign=Blogs&utm_term=2534_chapter6&utm_content=2534)* by John Jordan and Janet Salmon.

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