How does UPA interact with transfer price and impact on COGM and COGS

ChatGPT said:

Excellent follow-up 👍 — this goes right to the heart of Universal Parallel Accounting (UPA): how it interacts with Transfer Pricing (TP) and how that impacts COGM (Cost of Goods Manufactured) and COGS (Cost of Goods Sold).

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🔑 1. Transfer Pricing & UPA

In SAP, Transfer Pricing means valuating transactions in different valuation views:

• Legal Valuation (L): External GAAP/statutory view (with intercompany markup).
• Group Valuation (G): Eliminates intercompany profit (internal margin removed).
• Profit-Center Valuation (P): Shows profit per responsibility unit, even for intracompany flows.

With UPA (S/4HANA 2022+):

• All three valuations are posted simultaneously in ACDOCA.
• No need for separate ledgers or reconciliation.
• Costing, Manufacturing, Settlement, and Reporting are available per valuation view.

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🔑 2. Impact on COGM (Cost of Goods Manufactured)

• In classic (pre-UPA), COGM was always legal valuation only.
• With UPA:
  • Legal COGM = Production cost + markup (if required for transfer price).
  • Group COGM = Pure production cost (no internal profit).
  • Profit-Center COGM = Production cost + transfer margin at profit-center boundary.

👉 Result: For the same production order, you can now see three parallel COGM values.

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🔑 3. Impact on COGS (Cost of Goods Sold)

• COGS recognition also happens in all relevant valuations.
• When goods are sold:
  • Legal COGS = Legal stock value (includes markup if it came from another company).
  • Group COGS = Stock value excluding intercompany profit.
  • Profit-Center COGS = Stock value with intracompany margin re-allocated to profit centers.

👉 This ensures group profitability reporting is not distorted by intercompany margins.

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🔑 4. Example Scenario (UPA + Transfer Pricing)

Case:

• Company A manufactures a product.
• Legal transfer price = 100 (includes 20 markup; true cost = 80).
• Company B sells externally for 150.

Postings in ACDOCA with UPA:

At Company A (Manufacturing & IC Sale):

View	COGM Posted	IC Sales Revenue	IC COGS	Profit
Legal	100	100	100	0
Group	80	80	80	0
PC	80	100	80	20

At Company B (External Sale):

View	External Sales Rev	COGS	Profit
Legal	150	100	50
Group	150	80	70
PC	150	100	50

✅ Impact:

• Legal view: Shows statutory margins (intercompany markup still inside).
• Group view: Eliminates intercompany profit (true group COGS = 80, true profit = 70).
• Profit-center view: Highlights profit at both manufacturing and sales units, useful for internal management.

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🔑 5. Business Benefits

• COGM & COGS aligned across TP views → real-time multi-valuation margin analysis.
• Eliminates manual eliminations in consolidation.
• Better support for multi-tier supply chains (complex IC flows).
• Aligns Product Costing + Transfer Pricing + Profitability Analysis in one place.

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✅ In summary:
UPA makes COGM and COGS multi-dimensional:

• Legal → external statutory view.
• Group → true economic cost (no IC profit).
• Profit-Center → managerial accountability across profit centers.