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We have implemented SAP in our company recently. previously we will not show COGS in our P&L but in SAP system is showing COGS and COGM in P&L. what is the reason? P&L will show RM consumption, Labour,OH COGS also include RM,labour and OH.Please anybody explain....

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  • Posted on Jul 10, 2020 at 07:49 PM

    A production process starts with spending resources like raw materials, labour, utilities, etc. These costs then need to be allocated to inventory. The costs on the cost accounts are not reduced during allocation to inventory. Instead, there is a separate P&L account which is used to take the production costs out of P&L: Dr Inventory / Cr P&L "credit in cost" from increase of inventory. The periodic production costs on the cost accounts remains untouched.

    However, SAP stores the information about how much of that total credit was coming from raw materials, labour, utilities etc. in Material Ledger cost components. When the goods are sold, the cost of goods issued for delivery can be split into those original cost components again. I.e. it is possible to know how much raw materials, labour, utilities, etc. were used to produce those goods.

    The costs on the original cost accounts are the full costs of production in the current period. Cost components within the cost of goods sold are costs allocated to the products in the periods when those goods were produced.

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