To be able to follow up on situations when costs could occur, you will have to connect cost types to suitable cost source indicators.
The system contains a fixed number of situations when costs could occur, represented by Cost Types. If for example the company wanted to follow up on labor costs, you might need to consider Shop Order - Labor as a cost type for your company. You must decide which cost source indicators are to be used in different situations. This is done by connecting cost types to cost source indicators through this activity. In the above example, you might consider connecting cost type Shop Order - Labor to the cost source indicator Labor Class.
The next step is to connect the cost source indicators to cost sources (this is done through the activity Define Cost Sources for Cost Source Indicators). Cost sources represent origins of different costs, and cost source indicators are the parameters that control cost sources.
The definition of a cost source indicator in relation to a cost type is set. This will decide the parameters that control cost sources, after you connect cost source indicators to cost sources via activity Define Cost Sources for Cost Source Indicators.
Note: If the inventory valuation method is standard cost (and the cost level is per part), cost source information will not be taken into consideration or displayed in cost detail lines.