05 Financial performance 2024 consolidated financial statements Note 6 OPERATING ITEMS 6.1 Expenses by nature ACCOUNTING POLICIES Cost of sales Cost of sales for the Group's manufacturing activities comprises the costs of manufacturing products and the cost of goods purchased for resale. It includes the purchase cost of raw materials, production costs directly related to the manufactured products and all production overheads, based on the normal capacity of manufacturing facilities. Production overheads include depreciation of property, plant and equipment, amortization of intangible assets relating to production and write-downs of inventories. Cost of sales also includes a relevant portion of general overheads to the extent that they are directly attributable to bringing the manufactured products to their present location and condition. For non-manufacturing activities, especially customer services, cost of sales includes all the costs incurred to produce, administer or execute a service delivered in the distribution network. Cost of sales for these activities mainly comprises employee benefits expense, depreciation of facilities and equipment, energy costs and the cost of acquiring and processing the data needed to produce the service. Research and development expenses Research costs cannot be capitalized. Development costs are capitalized as intangible assets when the conditions relating to the commercial and technical feasibility of the project, the ability to allocate the costs reliably and the probability of generating future economic benefits are fulfilled. Development costs are reviewed annually in order to determine whether the criteria for recognition as intangible assets are met. The following segment operating costs are allocated by function to the appropriate expense headings in the income statement: (in € millions) 2024 2023 Raw materials and consumables used and changes in finished product inventories (9,468) (10,684) Employee benefit costs (7,603) (7,397) Transportation of goods (1,370) (1,485) Depreciation and amortization(1) (1,983) (1,917) Other expenses (3,390) (3,288) EXPENSES BY NATURE (23,814) (24,771) (1) Excluding amortization of trademarks and customer relationships acquired through business combinations. 6.2 Segment other income and expenses Segment other income and expenses are recognized in the income statement as follows: (in € millions) 2024 2023 Share-based payments – current service cost (note 8) (34) (30) Employee share ownership plan cost (note 8) (68) - Other income/(expenses) 12 (44) SEGMENT OTHER INCOME AND EXPENSES (90) (74) 371 2024 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN
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