SAP S4 HANA Finance

How to split Cost of goods sold (COGS)

Efficiently Splitting the Cost of Goods Sold with SAP
S/4HANA Cloud, Public Cloud
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Introduction
Many of my customers seek to understand the backend logic of cost of goods sold (COGS) in SAP S/4HANA Cloud, public
edition. The COGS represents the total cost of producing goods and is an essential aspect of business accounting. However,
various purposes require breaking down COGS into its constituent components for profit reporting. In this article, we will
explore how to define settings for posting COGS details to different G/L accounts based on cost components from the
referenced material cost estimate, standard cost estimate, or actual costing.

Utilizing SAP’s Cost Splitting Profile

SAP offers a cost splitting profile (0YA000) that enables you to adapt it to your specific requirements. This profile provides
configuration options to help you efficiently split COGS into different accounts based on various cost components in the
underlying costing sheet.

Configuration Settings
You can adapt the profile through configuration activity, Define Accounts for Splitting the Cost of Goods Sold.
 Configuration Activity – Define Accounts for Splitting the Cost of Goods Sold

The configuration process involves a series of activities:

1. Source Accounts: Identify the COGS accounts for which the cost component split should be performed. All postings to
these accounts qualify for splitting costs.

2. Strategy Sequence: For each source account, establish a priority sequence of strategies to serve as the basis for the split.
The system will attempt to split COGS based on the first priority in the sequence and move on to the next strategy if
necessary.

The following strategy types are available:

1. Released Cost Estimates
2. Upcoming Released Cost Estimates
3. Current Standard Cost Estimate
4. Future Standard Cost Estimate
5. Cost Component Split from Actual Costing (ML)

If you use actual costing and have chosen strategy type 5, select “Split Revalued Consumption with Actual Cost Component
Split” under Source Accounts.
3. Target Accounts: Define accounts for detailed postings of cost components in the relevant cost component structure and
designate one as the default account. Amounts with no specified target account will be aggregated and posted to the default
account.

Prerequisites: A suitable cost component structure is required for COGS splitting.

4. Company Code Settings: Assign cost splitting profiles to company codes or remove assignments if you don’t want COGS
split postings for specific company codes.
Example Scenario
Consider an example where you have defined account 54083000 as the COGS account (transaction key GBB). For a goods
issue with an amount of 301.65 EUR, a journal entry is created using this account:

By applying cost component split settings, an additional journal entry can be created that credits the COGS account and
debits target accounts proportionally based on material cost estimates:
Cost of Good Sold Split with SAP S/4 HANA Finance
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Hello, Friends

I will provide some details on the SAP S/4 HANA Finance “Cost of Good Sold Split” functionality.

In earlier ECC we use one account for the cost of goods sold which get debited at the time sales order delivery and
accounting get recorded with a material price.

Example; Finish Product Material 2000

Screenshot for Material Master,

After delivery accounting will get recorded in FICO as follows,

Cost of goods sold account…. Dr

To Finish Product Stock account… CR

Screenshot for Delivery Accounting,

This account assignment system derives from OBYC setting as per Valuation Class of the Material.

Once Delivery is complete next step will be billing of the sales order

Billing with VPRS Condition,

Screenshot for billing Conditions,

In another hand in COPA COSG value get recorded at the time of billing depend on the internal price condition VPRS.

Screenshot for COPA Document in billing

Now we have completed the sales to billing process in the ECC for understanding the cost of goods sold treatment in ECC.

When we talk about SAP S/4 HANA and its functionality of COGS Split, we have to get some basic details of product costing
as well. In this, we have to think about Cost Component Structure. I am not going to give details about the Cost Component
Structure but basic details like, In structure, we define different type of cost component used during the Production/ Product
costing and Cost get a bifurcated per nature of the expenses/ cost.

SPRO: Controlling > Product Cost Controlling >Product Cost Planning >Basic Settings for Material Costing > Define
Cost Component Structure

Will explain with help of below example,

In the example, Y1 is Cost Comp Str.

Screenshot for type of the Cost Comp Stru Y1

In the source, We have assigned Cost element which gets debited / Consumed at the time Production order/ used in Standard
price calculation, with a different type of cost natures.

Screenshot for type of the Cost Comp Stru

Cost Element Assignment,

Screenshot for Cost Comp Stru,

With this reference will check one Finish Product Standard Cost Estimation,
Material Master: INV_SFIN

Standard Price of material is 1.20 GBP

Screenshot for Material Master

Cost of goods sold is 1.20 GBP calculated in standard Costing and split of the same is shown in itemization,

Screenshot for Product Costing and itemization,

As SAP S/4 HANA gives functionality to map this COGS split at the time of actual delivery and post COGS with split,
Where in ECC earlier only one cost of goods sold is recorded,

To carry out this assignment we need to configure,

SPRO: Financial Accounting (New) > General Ledger Accounting (New) >Periodic Processing

Integration >Materials Management > Define Accounts for Splitting the Cost of Goods Sold

In this configuration, we have to define profile for cost split and assignment with cost comp structure

Screenshot for COGS Split Configuration

In detailed COGS account assignment, we can assign target accounts for each cost component itemization,
Screenshot for Detailed COGS Split Configuration

Once this done, we can assign cost split profile to company code,

Screenshot for Company Code Assignment with COGS Split Profile

Now we will check the sales order delivery for the same Material and Cost Split of COGS,

Sales order created with INV_SFIN material and Qty 1

Screenshot for Sales Order

Now delivery for the same,

Screenshot for sales order delivery,

Once Post good issue posted, system will create material document and accounting document for good issue,

Screenshot for PGI

Here you can find in screenshot there are two accounting documents created for one delivery will go in more details in next
screenshot
 First Document, 4900000054 Accounting document

Screenshot for PGI Accounting Document 1

Normal delivery accounting entry is generated, only difference is system will not use COGS account but will use Inventory
Change of COGS ( its Primary cost type of Account)

Second Document, 4900000055 Accounting document

Screenshot for PGI Accounting Document 2

In second document system has credit Inventory Change of COGS is got credit and debited target account as per cost
component split structure assigned in configuration.

Now in S/4 HANA is using Account Base COPA, Cost of good sold gets recorded to COPA at the time of delivery its self.

Screenshot for PGI Accounting Document with COPA Fields,

As shown in the screenshot at the time split COGS system has posted COPA Characteristics in the same document.

The last step of this process will be Billing which is normal process and accounting get recorded as below screenshot,

Screenshot for Sales Billing,

Cost of Goods Sold Split in Make to Order Scenario
(MTO) with SAP S/4HANA
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Objective
Cost of Goods sold (hereinafter will be known as COGS) also known as “Cost of Sales” and refers to the cost of goods that
are either manufactured or purchased and then sold. COGS is part of income statement and accounted as part of sales
process.

COGS Split is breakdown of single value of cost of a sale-able product into cost components which are relevant to business
for analysis and management reporting. The items that make up costs of goods sold include:

Cost of items intended for resale

Cost of raw materials
Cost of parts used to make a product
Direct labor costs
Overhead costs, like utilities for the manufacturing site
Etc.

This blog explains the various options that are available in SAP S/4HANA to report COGS split information in account-
based COPA environment when Sale Order/item is a cost object in Make to Order (hereinafter will be known as MTO)
production process.

What will you learn from this Blog

Overview of COGS split accounting during Post Goods Issue and later during its periodic revaluation in case of MTO.

Details of possible options which can be leveraged in SAP S/4HANA system to report Actual COGS split in Account based
COPA

Know more about system setup in Account based COPA in SAP S/4HANA environment.

COGS Split Accounting in case of MTO

Make to Order (MTO) is a production process where product is manufactured to meet customer specific demand. To meet the
process requirement in SAP, customer order (sale order/item) is treated as primary cost object to book cost of sales &
revenue and it triggers the production/logistic requirements.

In case of MTO, initially when produced product is delivered to customer, accounting of COGS is done which is at standard
price. Later at month end, relevant variances are loaded on COGS to achieve actual COGS information.

In costing-based COPA, COGS split information is used to update value fields depending on “Valuation Strategy” concept.
While now, in case of Account Based COPA in S/4HANA, instead of value fields, COGS split information is posted to
different GL Accounts depending on “Define Accounts for Splitting the Cost of Goods Sold” concept.
Below are the events when & how COGS split is accounted in account-based COPA in S/4HANA:

Goods delivery to customer (Post Goods Issue – PGI):

Along with conventional PGI accounting document, additional accounting document generated, at standard price | COGS
Split GL Accounts are Cost Elements (hereinafter will be known as CE) and COGS split is booked to Sale Order/item

COGS Revaluation during Periodic Actual Costing (CKMLCP):

Actual Costing is one of the functionalities of Material Ledger which revalues the standard cost of a material based on the
cumulative variances that exist in a period. This revalued cost applied to achieve COGS / Inventory at Actual price.

Thus, as part of periodic actual costing process, variances such as Production variances, Purchase Price variances, Activity
Price variance etc. which are associated to Customer order are reclassified to revalue Customer order COGS and true up its
standard price into actual price |General Ledger Accounts (hereinafter will be known as GL a/c) determined for Actual
Costing task are cost element and COGS revaluation is booked to Sale Order/item

In the given example, total variance is 217.68 made up of 143.68 (Production variance) + 74.00 (Purchase Price variance)
and assumed no produced stock is in hand.

Thus complete 217.68 is considered to revalue the COGS and generated a Closing Document to reclassify the variances and
transfer total variance to COGS Revaluation GL a/c (GBB-COC)

Additional accounting document generated to split variances considered for COGS revaluation | GL a/c determined for actual
cost component split are same which are setup for COGS split posting during PGI. They are cost elements (CE) and COGS
revaluation split is booked to Sale Order/item
Configuration setup for COGS Split
In SAP S/4HANA, limitation of account-based COPA of not being able to split COGS as per cost components is addressed.

With the functionality of “Define Accounts for Splitting the Cost of Goods Sold”, COGS split is populated to different GL
Accounts which are mapped to Cost Components for every Source Account (COGS a/c).

For each Source GL a/c (COGS a/c), different valuation can be assigned which helps in determining cogs split details as per
valuations (Legal/Profit Center/Group)

With Strategy key for each Source GL a/c, a rule can be built to determine cost estimates: Released or Upcoming Released.
Reporting options for Actual COGS split in Account Based COPA
COGS split of MTO, can be reported in account-based COPA either by settling Sale Order/item cost object to COPA or by
using Attributed COPA functionality. These options are explained below along with possible use cases.

Cost Object Settlement:

The settlement process allocates the actual costs/revenue incurred for a general cost object to another receiving objects (such
as a profitability segment) using either GL Account with cost element (CE) category 21 or using original GL Account itself.
In addition to Financial Accounting document having Balance Sheet or Profit/Loss GL a/c, you will find additional
accounting document for Integration of Controlling with Financial Accounting which are posted due to change in Cost
Objects. They are either posted with same Primary GL Accounts or GL Accounts with CE Category 21.

Use Case 1: Both Result Analysis (RA) & Settlement are required to report cost /revenue in COPA

If business case requires cost/revenue recognition as per Result Analysis (hereinafter will be known as RA) task then, RA
setup and Allocation Structure need to be maintained as per cost component split.

Key configuration notes:

 RA Line IDs & RA GL a/c (CE Category: 31) are to be maintained as per different cost components needed for COGS
split explained above.

In this example:

Separate Line IDs & RA GL Accounts are created for each COGS Split GL a/c. For instance: GL a/c 40000028 is for
Material Cost thus mapped to LID “MAT”.

Maintain Assignment Lines in Allocation Structure as per COGS split need and assign Settlement GL a/c (CE Category
:21) by cost components

In this example:

Separate assignments are created for each cost component, for instance: Assignment 20 which is for Material cost, Material
related COGS split GL a/c is assigned as source and separate settlement GL a/c is assigned. Showing below a setup of one of
the assignments
Accounting & Reporting:

Perform RA after Actual Costing task completed

As part of Actual costing task, variances are reclassified to COGS split GL a/c and booked to sale order/item.

In this example, it is shown in Sale order/item account assignment, that both COGS split at standard price and with variances
are clubbed to COGS split GL a/c.
When RA task is performed, all COGS split relevant GL a/c as well as other cost GL a/c which are relevant for capitalization
are considered for Cost/Revenue recognition.

In this example, Revenue recognition is Cost Based thus Revenue in Excess of Billing is getting computed

Perform Sale Order settlement

Each COGS split line, settled from separate RA GL a/c (CE Category :31) to its respective Settlement GL a/c (CE Category
:21) as mentioned in configuration notes above.
1st Accounting Document generated to recognize revenue which is based on RA results.

2nd Accounting Document generated is for FICO integration with Settlement GL Accounts (CE Category :21), as values
transferred from sale order/item account assignment category to PSG account assignment category

GL Account Line item browser report (FAGLL03H) in SAP S/4HANA shows both Primary & Secondary cost elements.
Thus, for this example, COGS split can be seen with COPA characteristics using settlement GL a/c.
When checked in COPA Actual line item Report (KE24), it would show COGS breakdown information which is aligned to
GL a/c line item report

Use Case 2: Result Analysis not required to record to cost/revenue. Direct Settlement to COPA.

If business case doesn’t require cost/revenue recognition as per Result Analysis (RA) task, then only Allocation Structure
needs to be maintained as per cost component split.
Key configuration notes:

Maintain Assignment Lines in Allocation Structure as per cost components needed for COGS split
Maintain “By Cost Element” instead of assigning Settlement Cost Element (CE Category :21) for cost components
assignment lines.

In this example:

Separate assignments are created for each cost component relevant to COGS split. Showing below a setup of one of the
assignments

Accounting & Reporting:

Perform Sale Order settlement

As part of Actual costing task, variances are reclassified to COGS split GL accounts and booked to sale order/item. When
Sale order settlement is performed with feature “By Cost Element”, COGS split information will be available with same set
of COGS split GL accounts along with COPA characteristics

In this example, it is shown in Sale order/item account assignment, that both COGS split at standard price and with variances
are clubbed to COGS split GL a/c.
When the Settlement is performed, all cost line items are transferred from Sale order/item to COPA with same GL Accounts
as sender and receiver

Accounting Document generated for FICO integration with Primary GL Accounts, as values transferred from sale order/item
account assignment category to PSG account assignment category
GL Account Line item browser report (FAGLL03H) will show COGS split with COPA characteristics using Primary GL
accounts.

When checked in COPA Actual line item Report (KE24), it would show COGS breakdown information which is aligned to
GL line item report
Attributed COPA:

It is also termed as Simplified Profitability Analysis which ensures cost and revenue information in COPA is always current
and 100% reconciled with the income statement. COPA characteristics are derived either based on Derivation Rules (like in
case of Cost Center) or Settlement Rule where receiver is Profitability Segment (like in case of Internal Order/Sale Order).
As and when Cost and Revenue are posted, statistically COPA characteristics are updated. Thus, financials with COPA
characteristics are only shown in reports but not available in follow-on process in COPA like Top Down Distribution.

Use Case 3: Both Result Analysis and Settlement are not required

If business case doesn’t require cost/revenue recognition as per Result Analysis (RA) and nor order settlement is part of value
chain, then functionality of Attributed COPA / Simplified COPA available in SAP S/4HANA can be leveraged to report
financials with COPA characteristics.

In the given example, COPA characteristics are derived from SO/item settlement rule and update along with primary posting
like Purchase Price variance during goods receipt, Production variance settlement, Goods Delivery to Customer etc.

Key configuration notes:

Leverage Attributed COPA / Simplified COPA feature and activate it for Sale Order
Retrieve COPA Characteristic information from Settlement Rule

Accounting & Reporting

Purchase Price variance during Good Receipt

COPA characteristics are updated but COPA is not a real cost object. In a GL line browser report, we can notice that field
“Object class” is not assigned with “Profit Analysis” and field “PA Obj CO” is not checked.
 Production order settlement

Attributed COPA updated during production order settlement and variance split which is transferred to sale order/item is
updated with COPA characteristics

Good Delivery to Customer (PGI)

Attributed COPA updated during PGI and COGS split is booked to sale order/item and same time updated with COPA
characteristics
 COGS split Revaluation when periodic Actual Costing task performed

Attributed COPA updated during COGS Revaluation accounted as part of periodic actual costing and actual cost component
split is booked to sale order/item and same time updated with COPA characteristics
SAPS/4 HANA1809 Finance COGS Split
SAP S/4 HANA 1809 – COGS Split
A) Concept: Note 2399030 (Splitting the costs of goods sold in S/4HANA) says
1) COGS Split has been introduced from ‘sFin1.0’
2) Generally, Cost of Goods Sold (COGS) during PGI in a Sales Order is posted
to a single GL account as defined in FI-MM integration for that material
movement.
Dr COGS Account
Cr Inventory Account

3) So, with COGS Split functionality, 2 Accounting entries get generated as

below
1st Entry:
Dr COGS Split Clearing Account 100
Cr Inventory Account 100
2nd Entry:
Dr COGS Direct Material 50
Dr COGS Direct Labor 20
Dr COGS Production Overhead 30
Cr COGS Split Clearing Account 100

B) Configuration:
Path SPRO/Financial Accounting/GL Accounting/Master Data/Periodic
Processing/Integration/Materials Management/Define Accounts
for Splitting the Cost of Goods Sold
Tcode NA

B.1) Create Cost Splitting Profile: Create Cost Splitting Profile (‘New Entries’) in
the combination of Controlling Area & Chart of accounts

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SAP S/4 HANA 1809 Finance COGS Split

B.2) Maintain ‘Source Accounts & Valuation Views’: Create required new entries
for selected ‘Source Account’ (here, for our COGS Clearing Account) with
requested view (i.e. 0-Legal Valuation, 1-Group Valuation, 2-Profit Center
Valuation)

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SAP S/4 HANA 1809 Finance COGS Split

B.3) Create Strategy Sequence: Create ‘strategy sequence’ for the selected
‘Source Account’ as 1 with 1000 & 2 with 1001 as shown below to pick up the
‘COGS Split’ from the ‘standard cost split’ of the material in context.

B.4) Create ‘Target Accounts’: Then, create ‘Target Accounts’ against each
combination of ‘Source Account’ + ‘Cost Component’ (Ex: 101-Direct Material) so
that cost will be split into the required segments

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SAP S/4 HANA 1809 Finance COGS Split

B.5) Maintain ‘Offsetting Accounts’: Maintain ‘Offsetting Accounts’ if needed to

offset the entry of split. Else, leave it blank.

B.6) Define Company Code Settings: Here, you just need to assign ‘Cost Splitting
Profile’ to the required Company Codes with a ‘valid from’ date.

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SAP S/4 HANA 1809 Finance COGS Split

B.7) Define ‘Document Type Mapping’:

C) Cross-checking:
2 FI & 2 CO documents get generated during PGI as discussed above.

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SAP S/4 HANA 1809 Finance COGS Split
st
1 FI Document:
Debit to ‘clearing account’ (like GR/IR account) &
Credit to Finished Goods Inventory account.

2nd FI Document:
Debit to various COGS Split accounts &
Credit to ‘Clearing Account’ (which was debited in 1st document above)

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SAP S/4 HANA 1809 Finance COGS Split

OKTZ (Cost Component structure)

Let’s take ‘COGS Tariff’ component for instance, which is of USD 22.38 and from
this amount comes from 3 GL accounts as configured in ‘Cost Component
Structure’ (as depicted below):

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SAP S/4 HANA 1809 Finance COGS Split
From Cost Estimate display (CK13N),

Similarly, other components too can be cross-checked with the configuration

Ex: COGS-Direct Material component is USD 125
Cost Component Split

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SAP S/4 HANA 1809 Finance COGS Split

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