When computing the COGM I don't understand why, in the Direct Labour, we need to remove the RSC and only take into account the TCS and use it for both P&L by function and by FA in order to get the other values. In my resoning I thought that when we're working with the P&L by Function, when computing the COGM in order to get to the COGS, the direct labour included only the TCS; and by FA the direct labour only included the RSC.
Hello Matilda,
The concept of COGM makes sense when we're looking at things from a perspective of Management Accounting. When preparing a P&L by function, the DL that you include in COGM (which will be then reflected in the COGS) will include social charges with the TSC rate. Personnel wages included in Selling Costs or Administrative Costs will also include social charges at the TSC rate.
When preparing a P&L according to FA, we don't report things the same way, in a sense that we have a specific line for Personnel costs, for example. Those personnel costs will include social charges at the RSC rate.
I hope this explanation is helpful, but if you're having questions with this topic on a specific exercise you are free to ask.
The concept of COGM makes sense when we're looking at things from a perspective of Management Accounting. When preparing a P&L by function, the DL that you include in COGM (which will be then reflected in the COGS) will include social charges with the TSC rate. Personnel wages included in Selling Costs or Administrative Costs will also include social charges at the TSC rate.
When preparing a P&L according to FA, we don't report things the same way, in a sense that we have a specific line for Personnel costs, for example. Those personnel costs will include social charges at the RSC rate.
I hope this explanation is helpful, but if you're having questions with this topic on a specific exercise you are free to ask.