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Overheads(cogm and cogs) diff impact on material consumption in financials


Our Material consumption contains

1)Issues to production-Debit

2)COGM                    -Credit

3)COGS                    -Debit

Suppose each Material Cost is Rs.50/- and 3 items has been issued.

Material consumption a/c dr     150     -p&l

Inventory a/c                    cr      150     b/s

(Being 3 qty issued to production order)

Once the goods is produced

Inventory FG                    dr          180     b/s    

COGM                              cr          180     p&l

(3 qty of FG is produced and contains 30 Rs value addition which is rs.10/- overheads per each)

When the goods is sold for 2 qty

COGS                              Dr     120     p&l

Inventory FG                    CR     120    b/s

(2 Qty sold out of the 3 qty produced)

Now the Material consumption a/c will be

Material consumption against sales -COGM+COGS=90 (150-180+120) which is supposed to be Rs.100(50 Unit Rm cost*2 qty sold)

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1 Answer

  • Jan 07, 2015 at 07:01 AM

    Hi Rama Krishna,

    Your material consumption will be Rs.100. If you look at the above costs in your P&L. They will come as shown below.

                    Expenses                                     Income

    Material consumption         150                   COGM           180            

    COGS                               120                   Revenue         120 

    Overheads                           30 

                                           --------                                     ----------

                                              300                                       300 

                                          ----------                                     ----------

    The over head will charge based on your labour or material cost or some other base. So these expenses are already booked completed. You have to charge proportionate share for the FG from it.

    Regards,

    Mukthar 

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