How to Use SAP CO to Track Your Cost of Goods Sold

Businesses today understand that effective cost management is crucial for maintaining profitability and sustainable growth. Organizations across industries rely on robust financial management systems. These systems help them to track and analyze their expenses.

One such system is SAP CO (Controlling). It is an integral part of the SAP ERP (Enterprise Resource Planning) suite.

This article will explore how SAP CO can be leveraged to track the cost of goods sold (COGS). The system is instrumental in enabling businesses to make informed decisions and optimize their operations.

Understanding Cost of Goods Sold (COGS)

Before we delve into the specifics of using SAP CO, it’s essential to grasp the concept of COGS. COGS can be defined as the direct costs incurred in producing or acquiring goods that are sold to customers. It typically includes costs such as raw materials, direct labor, and manufacturing overheads. It is important for companies to accurately track COGS. The primary reason is that it is vital for determining the true cost of goods sold and calculating gross profit.

Cost of Goods Sold

Using SAP CO for COGS Tracking

SAP CO offers comprehensive functionalities to manage and monitor COGS effectively. In this section, we shall be taking a close look at the step-by-step guide on how to utilize SAP CO for tracking your COGS:

Set up the Controlling Area:

  • In this step, we must define the controlling area within SAP CO to represent the organizational structure for cost accounting.
  • This is followed by configuring the necessary settings. The settings include currency, fiscal year variant, and other parameters. These parameters may vary as per the business requirements.

Define Cost Elements:

  • This step requires us to create cost elements in SAP CO to represent various types of costs.
  • Next, we must assign appropriate GL (General Ledger) accounts to each cost element. This way we can ensure accurate tracking and posting of costs.

Define Cost Centers:

  • This step is about establishing cost centers in SAP CO. This is done to capture costs within specific areas of the organization.
  • Here, we are required to assign cost elements to relevant cost centers. This step facilitates associating costs with specific activities or departments.

Configure Costing Sheets:

  • This step involves defining costing sheets in SAP CO. The significance of this is to determine how costs are allocated across different cost objects. Other cost objects could be products or production orders.
  • Also, here we must specify the allocation bases. These include factors such as labor hours or machine hours, to distribute costs accurately.

Assign Cost Centers to Costing Sheets:

  • Assigning cost centers to the appropriate costing sheets is the next step. This step ensures that costs incurred by different cost centers are distributed correctly.

Execute Product Costing:

  • The sixth step is to utilize SAP CO’s product costing functionality to determine the cost of goods sold for each product or product group.
  • Companies must consider factors like direct material costs, labor costs, and overheads while calculating product costs.

Track Actual Costs:

  • Periodically update the actual costs in SAP CO by posting relevant transactions. These could include goods receipts, production orders, and payroll expenses.
  • The system automatically records these costs against the assigned cost centers and cost elements.

Analyze COGS:

  • Generate standard reports or create custom reports in SAP CO to analyze the COGS.
  • Monitor the contribution margins, cost variances, and other key performance indicators. This is done to identify areas of improvement and cost-saving opportunities.

Benefits of Using SAP CO for COGS Tracking

Implementing SAP CO for COGS tracking offers several advantages for businesses. Let’s take a closer look at the major benefits:

  • Accurate Cost Allocation: SAP CO enables precise allocation of costs to relevant cost centers and cost elements. This accuracy ensures that direct and indirect costs associated with COGS are appropriately assigned. Accurate cost allocation facilitates reliable COGS tracking, leading to better decision-making and improved financial control.
  • Integration with Other SAP Modules: SAP CO integrates with other SAP modules like SAP MM (Materials Management) and SAP SD (Sales and Distribution). This integration allows for the automatic transfer of relevant COGS data from procurement and sales processes into SAP CO. By consolidating data from multiple modules, businesses gain a holistic view of COGS, This facilitates accurate cost analysis.
  • Real-time Data Availability: SAP CO provides real-time data updates. This ensures that COGS information is always up to date. This real-time availability of data allows businesses to monitor COGS on an ongoing basis. Real-time data empowers businesses to address issues promptly and take corrective actions to optimize COGS and profitability.
  • Detailed Cost Analysis: SAP CO offers a wide range of reporting and analysis tools to examine COGS data comprehensively. Businesses can generate reports at different levels. These reports enable businesses to identify cost drivers, assess cost variances, and gain insights into factors impacting COGS.
  • Variance Analysis and Performance Evaluation: SAP CO facilitates variance analysis by comparing actual COGS with planned or standard costs. This analysis helps businesses identify discrepancies and deviations. Performance evaluation aids in identifying trends, benchmarking performance, and improving cost control.
  • Activity-Based Costing (ABC): SAP CO supports Activity-Based Costing, which assigns costs based on the activities that drive them. ABC provides a more accurate allocation of indirect costs by considering the consumption of activities.
  • Enhanced Cost Transparency: SAP CO enhances cost transparency. It achieves this by providing detailed insights into the components contributing to COGS.


Yes, SAP CO is designed to track COGS for both manufacturing and trading businesses. For manufacturing businesses, SAP CO captures and analyzes costs incurred in the production process. For trading businesses, SAP CO integrates with modules like SAP MM and SAP SD to capture the cost of purchasing goods for resale and the associated expenses. This integration enables businesses to track the cost of goods purchased and sold.

SAP CO offers several features that can help optimize COGS.

real-time data availability

proactively addressing cost fluctuations

detailed cost analysis

Additionally, SAP CO supports activity-based costing. This facilitates businesses to identify activities that contribute to high COGS and optimize resource allocation.

Author Bio


Rupal Agarwal

Chief Strategy Officer
Dr. Rupal’s “Everything is possible” attitude helps achieve the impossible. Dr. Rupal Agarwal has worked with 300+ companies from various sectors, since 2012, to custom-build SOPs, push their limits and improve performance efficiency. Rupal & her team have remarkable success stories of helping companies scale 10X with business process standardization.

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