Costs - this is undoubtedly an important category in any organization, but before you start using it, you should decide what it is. Costs - this is a write-off of funds for production needs in a certain period of time.
The essence and classification of costs are closely related, therefore, knowing the nature of costs, it is easier to understand its classification. It is important to distinguish between such concepts as “costs”, “costs” and “costs”. All three concepts are different in essence. Costs differ from costs in that they are directly related to production, while costs can both be tied to it and be relatively free. For example, in the case when raw materials are purchased and immediately sent to the production process - this is both costs and expenses.
If the raw material is purchased in stock, then this is only an expense, there was a write-off of funds, that is, their reduction, but the production process is idle. In this case, we cannot talk about costs.
If the raw materials came from the warehouse to the processing plant, but were purchased in the previous period, then we are talking about costs, not expenses, since the raw materials have already been paid for, but only now its cost, together with other costs, will be transferred to the cost of production.
Costs are not necessarily associated with the production process, they also include other write-offs of funds, so there should be no confusion in the use of concepts.
Classification of costs in management accounting occupies a key place, because in accordance with it you can manage this category in different ways, that is, look for the most effective way of organizing activities.
So, there is a classification of costs for direct and indirect. The composition and classification of costs on this basis involves their separation depending on the attitude to the product. Direct costs relate solely to the production of this product, while indirect costs are distributed among all.
For example, an enterprise produces sweets and cookies. Direct costs for sweets are chocolate, sugar, electricity, labor costs for the production of sweets. Direct costs for cookies are sugar, flour, eggs, electricity, labor costs for the production of cookies. But where is the delivery, the cost of managing staff or transporting products to sales locations? These will be indirect costs. It is difficult to divide them between the two types of products, so they are taken into account by their sum, that is, by the total cost.
Classification of costs in management accounting contains fixed and variable costs. This separation involves accounting costs that are always necessary for the production of products and which can be varied.
For example, the fixed costs for Type A sweets include chocolate, peanuts, and nougat. Without any ingredient, the candy will cease to be type A. This will be a constant cost. Variables include advertising for the promotion of Type A sweets or labor costs for their production. Although the latter should be said that it is often difficult to establish variable costs, therefore, the concept of conditionally variable costs, which have a percentage of relatively constant, is introduced. That is, labor costs can be 30% constant and 70% variable. Each enterprise determines such values independently.
It should be noted that the classification of costs in management accounting is not limited to this. There are costs at responsibility centers, at places of origin, and others. There are many criteria for separation, with the significance of such a division on the face.
Classification of costs in management accounting allows you to more effectively manage the activities of the organization, apply various techniques that make it possible to reduce costs, and therefore increase profits.