Lesson 3 of 5
Revenue and COGS flow
10 min
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Margin analysis is only as good as the values that reach it. The main flows are the ones that happen every day in order-to-cash: goods issue posts cost of goods sold, billing posts revenue and sales deductions. Period-end adds production variances, settled orders and allocated overhead. Each flow must carry the market segment.
- Sales orderCharacteristics derived: customer, product, sales area, customer group
- Goods issueCOGS line at standard cost, with the order item's market segment
- COGS splitAdditional lines move COGS to one account per cost component
- BillingRevenue and deduction lines with the same market segment
- Period-endVariances, settlements and overhead allocations add the rest
A sale to Great Lakes Fleet Services
In June, Maria's team ships 200 alternators CMC-ALT-100 from plant 1710 to Great Lakes Fleet Services at the USD 240 list price, in four orders of 50. The first is sales order 1000457: outbound delivery 80001234 posts COGS of 50 × USD 150 = USD 7,500, and invoice 90001877 posts revenue of USD 12,000, a margin of USD 4,500. For the month as a whole, the goods issues post cost of goods sold at the standard cost of USD 150, that is USD 30,000, and the line carries the market segment derived from the sales order item. The four billing documents post revenue of USD 48,000 with the same market segment. Neither document needs anyone to type a characteristic.
| Document | Account | Amount (USD) | Market segment |
|---|---|---|---|
| Goods issue | Cost of goods sold | 30,000.00 debit | Great Lakes Fleet Services, CMC-ALT-100, 1710/10/00 |
| Goods issue | Finished goods inventory | 30,000.00 credit | n/a (balance sheet) |
| Billing | Revenue | 48,000.00 credit | Same market segment |
| Billing | Customer receivable | 48,000.00 debit | n/a (open item) |
Journal entry lines for the sale (simplified, without tax).
Splitting cost of goods sold by component
A single COGS line says "USD 30,000". Dan wants material, labor, machine and overhead. SAP S/4HANA can split COGS by the cost component split of the standard cost estimate. In Customizing (Define Accounts for Splitting the Cost of Goods Sold) you create a splitting profile, name the source COGS account, choose a strategy such as the current standard cost estimate, and assign one target G/L account per cost component. The goods issue still posts to the COGS account first; additional lines then move the amount to the component accounts.
| Cost component | Per unit (USD) | 200 units (USD) | Target account |
|---|---|---|---|
| Material | 80.00 | 16,000.00 | COGS - material |
| Material overhead | 8.00 | 1,600.00 | COGS - material overhead |
| Labor | 26.00 | 5,200.00 | COGS - labor |
| Machine | 24.00 | 4,800.00 | COGS - machine |
| Production overhead | 12.00 | 2,400.00 | COGS - production overhead |
| Total | 150.00 | 30,000.00 | Source COGS account nets to zero |
Variances, settlements and overhead
Production variances explain why actual production cost differed from standard. In margin analysis, SAP's learning material describes splitting them by variance category with the Customizing activity Define Accounts for Splitting Price Differences, so the income statement shows causes such as price or quantity variances on separate accounts. Internal orders, such as a marketing campaign, can be settled to a market segment. Remaining overhead on cost centers can be allocated to market segments at period-end so the margin report reaches an operating result.
What would you do?
After go-live, the margin report shows CMC-ALT-100 sales to Great Lakes Fleet Services with revenue but no cost of goods sold in July. What is the most likely cause?
- Goods issue posts COGS and billing posts revenue, both with the market segment from the sales order item.
- COGS can be split by cost component into separate G/L accounts.
- Variances can be split by category; orders can settle and overhead can be allocated to market segments.
- COGS at goods issue and revenue at billing create timing differences around period-end.
Check your understanding · not graded
Lesson check
1. Where does a goods issue for a sales order get its market segment?
2. What does the COGS split need for each cost component?
3. Which Customizing activity splits production variances by category for margin analysis?
4. 200 units at a standard of USD 150 with a material component of USD 80 per unit. What is the COGS material amount?