What Are Cost Centers in SAP S/4HANA?

The cost center is an important area of responsibility in the company and plays a key role as master data.

The cost center is the level at which the period costs are assigned, budget responsibility set, and the cost center manager is accountable for ensuring the correct spend. It’s also where the service is provided to fulfill the corporate purpose.

Now, let’s take a closer look at how the cost center is embedded in the value flow before we discuss the master data attributes and hierarchical organization.

Integration of the Cost Center into Other Applications

When you look again at the controlling value flow shown in the figure below, you can see that the cost center is where costs are collected and a service is provided. This value flow is ensured by integrating the cost center into the master data, where the costs are incurred and the service is provided. The cost center is then assigned to the employee master.

In SAP Fiori (there is no SAP GUI equivalent), you can access the employee fact sheet (see figure below) by searching in Employee and entering the employee name.

There can be different Employments defined for an employee in different periods. The employment is assigned to a cost center—here, it’s cost center 10101902.

The assignment of an employee to a cost center ensures that the periodic salary expenses are posted to the assigned cost center. On the output side of the cost center, the cost center is credited with the service confirmation of an employee, and this will be triggered by any time confirmation of an employee.

The cost center is assigned to the work center in production, and you can access the work center with transactions for creating (Transaction CR01), changing (Transaction CR02), and displaying (Transaction CR03) the data. The work center is in turn included in the routing, which defines the production steps used to produce a manufactured product. If a service is provided at the work center, then this leads to a credit of the assigned cost center.

The cost center is assigned to the fixed asset master, and you can access it via the Manage Fixed Asset app (SAP Fiori ID F1684) shown in this figure or via Transactions AS01 to AS03.

In the Time-Dependent Data section, you can assign the cost center. The Profit Center and Segment are derived from the cost center.

With the periodic depreciation run, the depreciation is posted to the assigned cost center.

Cost Center Master

You can access the cost center master via Transactions KS01/KS02 and KS03, which you use to create, change, or display the cost center. Alternatively, you can access it via the Manage Cost Centers app (SAP Fiori ID F1443).

Let’s look at an example. You start by executing Transaction KS02 and entering Cost Center “10101902,” which will take you to the Change Cost Center: Basic Screen (shown below).

Now, let’s go through the specific attributes.

At the top of the Basic data tab, you’ll see Valid From and To dates; the cost center master data elements are time dependent. You can create time slices for a cost center for specific attributes, and you can define the attributes for which this is supported in Customizing by following menu path Controlling > Cost Center Accounting > Master Data > Cost Centers > Define Time-Based Fields for Cost Centers. A use case could be that you change the assignment to a Profit Center from one period to another or change the Person Responsible. The User Responsible, Person Responsible, and Department are attributes of the cost center that do not control any functionality but can be shown in cost center reporting.

With the Cost Center Category, you can classify the cost centers, though there are controls enabled by default. You define the categories and their default parameters in the IMG by following menu path Controlling > Cost Center Accounting > Master Data > Cost Centers > Cost Center Categories. Every cost center must be assigned to a cost center group: the Hierarchy area (shown earlier), which is part of the standard hierarchy. The standard hierarchy is defined per controlling area, and as mentioned, this is to ensure that every cost center is assigned in this special hierarchy. Then, you must assign a cost center to a Company Code. You can’t define a cost center across company codes; all postings to a cost center are assigned to the assigned company code, but a cost center can receive allocations from another company code or can allocate costs to another company code.

The Business Area is a financial organizational unit that you can define in IMG, and like the profit center, it represents an area of accountability. Because SAP now focuses on profit centers and not on business areas, we won’t cover business areas any further in this book.

You can assign each cost center to a Functional Area; this allows you to classify costs posted to the cost center by functions. In this example, all costs debited and credited to this cost center will be attributed to the Consulting/Services functional area.

The Currency field reflects the company code currency. It’s derived when you assign the company code, and you can’t change it.

If profit center accounting is active, you must enter a Profit Center as well. To allow a breakdown of the company P&L according to internal areas of responsibility, you need to assign a profit center to all cost objects. As a result, you need to assign cost centers to profit centers too.

The next tab in the cost center master, the Control tab, shows the business transaction controls (see next figure).

By flagging Record Quantity, you enable the quantity to be registered for postings to the cost center that carry a quantity. An example is a goods issue from stock to the cost center.

Then, you have the following options to Lock the cost center for single business transactions:

• For Actual primary costs
• For actual secondary costs ( secondary costs)
• For Actual revenues

You have the same three types of locks for cost center planning, and you can lock commitments, too.

In the Templates tab, you can activate template allocations and overhead rates by assigning costing sheets. However, this isn’t widely used.

In the History tab, you can see when the cost center is created and the change documents for the cost center master.

Cost Center Hierarchies

For grouping of cost centers, there are cost center groups available, as shown in the next figure. They come into use in these cases:

• In Customizing, you’ll see them in places where you want to define a rule for a group of cost centers and you don’t want to list all of them individually. Examples are the different periodic cost allocations, where you want to address a group of cost centers as the sender or receiver of an allocation cycle.
• If you want to get your cost center data for a group of cost centers, you can add a cost center group as a parameter when you start the report.
• You can also build hierarchies on these cost center groups. Thus, you can show flexible subtotals for your cost center areas in your cost center report.

You can create, edit, and change cost center groups with Transactions KSH1, KSH2, and KSH3. Now, let’s take a look at this process in the system.

First, you start Transaction KSH2 (Change of Cost Center Group) and enter Cost Center Group “1010.” Then, you press (Enter), and that will take you to the Change Cost Center Group: Structure screen shown here.

There, you’ll see here a hierarchy for the center in Germany, with areas of accountability to which the single cost centers are assigned. You can then enhance this hierarchy in the following ways:

• You can add additional groups. To do so, you mark the group and select Same Level or Lower Level.
• You can assign additional cost centers. To do so, you mark the group and select Cost Center.

You can also change the standard hierarchy with Transaction OKEON.

Editor’s note: This post has been adapted from a section of the book Controlling with SAP S/4HANA: Business User Guide by Janet Salmon and Stefan Walz. Janet is the chief product owner for management accounting at SAP SE and has accompanied many developments to the controlling components of SAP ERP Financials as both a product and a solution manager. Stefan is the chief business process architect for SAP S/4HANA financials at SAP.

This post was originally published 11/2025.