Cost accounting - Cost center accounting

Cost center accounting represents the second stage of managerial accounting. Learn from our article how to carry out cost center accounting step by step.

Function and Structure of Cost Type Accounting

Direct costs (e.g., wood in furniture manufacturing) can be assigned directly to a cost object (product or service) according to the definition. Indirect costs (e.g., rent of the production building), on the other hand, can only be allocated to cost objects through cost center accounting.

Thus, cost center accounting is integrated between cost type accounting and cost object accounting, and answers the question of where and for which services the indirect costs have occurred. Its central function is to allocate the indirect costs to the places of origin (cost centers) – thus attributing them in a causally appropriate manner. As a result of the distribution, indirect cost overhead rates can be calculated, which are then charged to the individual cost objects within the framework of cost object accounting.

However, cost center accounting is not only used for calculating the costs of individual products and services, but can also be used for managing and controlling cost centers by illustrating their costs over time or in comparison with other cost centers.

Implementation of Cost Accounting‍

1. Identification of indirect costs from cost type accounting: The cost type accounting determines which costs have occurred when and in what amount. There are numerous ways to structure the costs. For the subsequent cost center accounting, at least a distinction between direct and indirect costs is necessary.‍
2. Creation of a cost accounting sheet (BAB): The cost accounting sheet is the core of the entire cost accounting. In tabular form, in a first step, the direct and indirect costs are listed and the former are directly allocated to the appropriate cost objects.‍
3. Distribution of indirect costs to cost centers using allocation keys: In a second step, the indirect costs are divided among individual cost centers. For example: The rental costs are divided in thirds among manufacturing, storage, and administration.‍
4. Adding up the indirect costs of each cost center: In a third step, the allocated indirect costs of each cost center are summed up. As a result, it is known how much expense each cost center incurs.‍
5. Calculation of indirect cost overhead rates for each cost center: In a final step, the costs of the individual cost centers are allocated to the products and services using a distribution key. A possible distribution key is the ratio of direct costs. For example: Product A incurs direct material costs of 1000, Product B only 500. The remaining material costs (indirect costs) of 300 can be distributed in the same ratio (200:100), so that Product A has total material costs of 1200 and Product B of 600.
   

• Further information
   
• Calculate offer for fiduciary