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In principle, companies in Germany have two options for preparing their income statements: the cost of production method and the cost-of-sales method. On a global scale, however, the cost-of-sales method is the international standard for accounting.
The cost-of-sales method provides an exact overview of the results of individual products/projects and combines financial accounting with management accounting. Based on a complete transparency of the profitability of individual orders and customers, a conscious prioritization of orders can be made. Overall, the cost-of-sales method supports rapid and strategically oriented company growth.
More transparency about value flows in customer projects and in the organization:
Integration of management accounting
Allocation of costs and services according to originator
Direct and detailed allocation of costs to the individual project/cost object
Visibility of individual value flows, e.g. allocations
Effective and proactive portfolio management thanks to the mapping of a complete picture of projects and their profitability:
Direct comparability of individual projects
Simple margin check and easy co-calculation
⇒ Projects/products with high margins can be brought forward if necessary in order to settle projects with low margins that have to be delivered in the same period (business consistency)
More specific statement of the real value of a project
Increased efficiency and higher speed in processes through simplification, standardization and automation:
More efficient processes through standardized accounting channels
Easier direct and thus originator-based attribution of costs based on allocations
Compensation for the matrix-like increase in complexity through automation potential in SAP processes
Visibility of capacity absorption (under/over) in the cost-of-sales method
Better comparability with international competitors through harmonized accounting:
Use of the cost-of-sales method (IFRS) by all companies reporting internationally
Use of the cost of sales method (US GAAP) by all Anglo-Saxon financial closing
Easier determination of benchmarks with the help of the cost-of-sales method also in German GAAP
It’s easier to establish international networks because it’s easier to compare
Inorganic growth, mergers, easier integration of international acquisitions, easier formation and valuation of joint ventures
Determination of the current G/L accounts
Determination of value flows
Transparency about necessary changes in the chart of accounts
Allocation matrix of cost collectors to cost objects
Development of new mapping for reports
Redefinition of the chart of accounts
Restructuring of the reports
Redefinition of the value flows
New chart of accounts that is capable of cost-of-sales method incl. accounts for cost-performance accounting
Installation and documentation of the new value flows
Creation of mapping for new reports
Implementation of the modified chart of accounts
Creation of the new reports
New setup of the value flows
Availability of the new chart of accounts and reports
New, smooth value flow
Identical result from cost-of-sales method and total cost method, but different presentation
Simulation of a closure in the test system
Cross check to the legacy structure
Consistency of the two parallel prepared financial statements
Release of the cost-of-sales method financial statements
Release after successful testing
User training
Optional: Support during a complete closure
No more need for cost-of-sales method closures
Trained employees
Companies that have been using the total cost method so far should consider switching to the cost-of-sales method. This is because the cost-of-sales method is increasingly becoming an important success factor.
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