COGS

[Former Member]

Hi Friends,

Could anyone tell me

1. why should we create COGS as a Revenue element with Category 11, when it is a Cost.

2. when we run CK11N, the price that gets updated in Material master, is it COGM or COGS.

3. Conceptually is COGM equal to Goods available for sale (Formula of Goods available for sale=Beginning inventory + Net purchases -ending inventory)

Regards

Soujanya.

[Former Member · Accepted solution]

Dear Soujanya,

1) Generally COGS is an expense. No idea why it is created as revenue element.

2) The COGM is updated in Material Master. As Cost estimate run is to plan & determine the cost of goods manufatured in-house.

3) COGM and COGS are two different accounts. Cost of goods manufactured is not equal to cost of goods sold as sale of a product involves additive costs like advertisment and promotion, marketing and distribution charges etc other than manufacturing costs. COGS includes the purchase price of raw material, as well as the expenses of turning it into a product upto selling the same.

Hence COGM need not necessarily be equal to goods available for sale because all the goods manufactured may not be for the sole purpose of sale.

Hope I am clear.

Regards

Harika

[Former Member]

Hi,

In sales order costing COGS will be a cost element and COGM will also be a cost element.

The reason is in make to order scenario my sales order will be my co object and hence in order to find out the cost of the sales order we need to create COGS as cost element which will flow to my sales order.

and coming back to make to stock scenario my production order is my co object and hence there is no necessity for capturing the cost at sales order hence it(COGS) is not been made as cost element.

Thanks n Regards

N Sathish Kumar

[Former Member]

This message was moderated.

[Former Member]

Adding some information for thought:

Revenues are generally defined as cost element category 11. This enables the integrated transfer of billing documents to CO-PA.

Whether a Cost Element is created for COGS as CE Type 11 or 1 depends on where you are reporting COGS in CO (or in other words where the real posting (not statistical) to a Cost Object goes).

Normally Revenues and COGS are reported in CO in COPA. Therefore a posting will be made in FI (FI Document) and a posting is made in COPA (COPA Document) from the Billing Document release for Revenue and COGS. Thus the real CO Object is a Profitability Segment.

If a Cost Element Type 11 is created for COGS (and Revenue) and COPA is updated the system will post the real posting to COPA and a statistical posting to the Cost Element and whatever CO Object is attached to that Billing Line account determination (e.g. Cost Centre). If no Other CO Cost Object is attached then no CO-OM document is created (i.e. CCTR or IO posting).

Creating Cost Elements with the correct Cost Element Category ensures the Reconciliation Ledger reconciles CO and FI for all real CO posting (i.e. reconciles COPA, CO-OM etc to FI). Note this is true for pre-ECC systems (up to 4.7) as it depends on what you do in ECC as to whether the reconciliation ledger is required.

But why would you post revenues to Cost Centres that are normally used to manage Overheads (CO-OM) if you are using COPA.

All Real Postings in CO modules (COPA, CCA, Internal Orders ect) must reconcile i.e. there cannot be 2 real postings for the same item.

If you use a Cost Element Type 1 then you will not be using COPA and will reflect revenue in CO-OM via a "Revenue" (revenue in name only) Cost Centre.

Note all of the above assumes you are not using accounts based COPA.

[Former Member]

Hi,

Here I'm trying to give some details explanation on the below:

1. why should we create COGS as a Revenue element with Category 11, when it is a Cost.

By right COGS G/L account should not create as Cost element, in your case check your blue print there may be special cause would have driven to do this.

2. when we run CK11N, the price that gets updated in Material master, is it COGM or COGS.

When we run the CK11N system updates the planned cost as standard cost in to material master, In real case to sell there may be some other cost can incur to the same material either manufacture or trade (may some fittings or small maintenance or taking advantage of demand). the total amount can update into COGM account depends on your price control S/V, where as any difference + or - can posted to production or process deference account (this difference + Material available cost makes you real cost of the material), COGS includes sales overheads.

3. Conceptually is COGM equal to Goods available for sale (Formula of Goods available for sale=Beginning inventory + Net purchases -ending inventory)

Conceptual COGM need to consider production or processing expenses such as Wages, Power and other overhead then it makes COGM.

Hope i tried my best.

Thanks

[Former Member]

Hi Vyas,

Thnx for replying.

1. By right COGS G/L account should not create as Cost element, in your case check your blue print there may be special cause would have driven to do this.

In the above sentence you've writtend that COGS GL should not be created as cost element. Could you tell me why?

The reason for the above doubt is:

a. COGS is nothing but the material costOH(Productionselling+any other exp) right. When all these are costs, then why should we NOT create COGS as cost element? (In other words, why should we define COGS as revenue element)

b. apart from that when we issue goods are dispatched to customer, the entry is:

COGS a/c -

---

Dr

To Inventory a/c.

Here, as per the rule we are debitting COGS as it is treated as cost.

In case if we had to consider the same as revenue then we need to credit COGS right, but that doesn't happen and so I'm getting confused.

Could you explain the same with an example possibly.

In fact as per the GL account naming conventions in our company COGS starts with 3 (which represents income, GL no.300010 - COGS Finished Product) and in KA02 it has the Cost element category as 11.

Regards,

Soujanya.

[Former Member]

b. apart from that when we issue goods are dispatched to customer, the entry is:

COGS a/c -

---

Dr

To Inventory a/c.

you answered almost half of ur doubts...

wen the COGS is debited its actually debiting the cost dat was incured eitheir to produce or to procure the material.... the purpose of COGS is to provide the actual cost of the material dat has been sold...

subsequently after the above mentioned accounting entry you may the following entry too

customer a/c -

---

dr

sales a/c -

---

cr

m sure the cost element category 11 has been wrongly asssinged in the cost element master data

hope this is clear

regreds

sayeed

[Former Member]

This message was moderated.

[Former Member]

Hi,

I've come across a point saying that:

Cost of Goods Sold particularly in VAX (made to stock) is not a cost element, whereas the same COGS in VAY (made to order) is a cost element.

Is anyone aware why is it so, that COGS is not a cost element in MADE TO STOCK and the same is a cost element in MADE TO ORDER scenario.

This particular scenario was given as part of CO-PA which says:

Where COPA is active then revenue account (GL) are also cost elements, where COPA is not active then revenue account (GL) should not be made as an cost element.

But in may scenario a cost element is defined as a Revenue element, if somebody has a say on this, plz suggest.

Regards

Soujanya.