The production activity of any enterprise is associated with the implementation of various costs. They are an indicator of past and future abilities of involving economic resources in all production processes in the interests of achieving the ultimate goal. One of the main types of such expenses is material costs. Their planning is the process of setting goals for the entire organization and for its individual divisions. Goals are set in the form of production tasks and the provision of funds intended for their implementation.
Material costs are the largest element of production costs, the proportion of which often amounts to 90% of the total cost. The smallest share of these expenses was noted only in the extractive industries. Material costs are very heterogeneous. These include the costs of materials and raw materials (excluding recyclable waste). Their cost includes payment of brokerage and intermediary services, commission fees. The entire cost of materials and raw materials is included in the cost without VAT.
Material costs include the cost of:
- purchased materials, raw materials;
- services and work performed by third-party organizations or structural units of the enterprise itself;
- semi-finished products, various components requiring additional processing (raw materials and materials that have gone through some processing stages but have not become finished products are purchased semi-finished products);
- natural mineral raw materials and resources in terms of deductions for exploration and expenses for restoration work;
- purchased fuel used in the technological process, and for production and energy needs of the enterprise;
- loss of material assets (according to the norms of natural loss).
All materials and raw materials are released into production only in accordance with the consumption norms established by the enterprise. On a monthly basis, based on production programs and standards for each type of product and workshop (unit), the need for raw materials is calculated. This amount may change with changing conditions of production.
The enterprises separately take into account direct material costs, which include the costs of materials and raw materials (they become part of the product, so their cost directly relates to certain finished products). The magnitude of these costs is not always calculated by multiplying the natural indicators used for production. In some cases, these figures are too large. Such materials are classified as auxiliary. These costs are attributed to the company to indirect material costs, which are included in general production costs. Each enterprise, based on its specifics, independently decides which materials are primary and which are auxiliary.
Material costs are controlled by four main methods: documentation (drawn up by separate documents), party cutting (distribution of materials and raw materials according to the registration card - a cutting sheet), batch control and accounting (formation of batches of materials and raw materials according to uniform technological parameters), inventory (inventory of material residues and raw materials).
In some industries, the distribution of materials and raw materials by type of marketable products is carried out directly. In a number of industries, they are correlated according to product groups; therefore, they are classified using the indirect normative or coefficient method. Material costs are estimated according to the specific conditions of economic activity.