Costs are classified according to their purpose. In theory and in practice, their clear distinction acts as a determining factor in the effectiveness of the work. At all stages of management, cost grouping is carried out, the cost of goods is created. Along with this, the corresponding sources of revenue are determined. Consider further what constitutes the current costs of the enterprise.
Cost classification
Expenses of an economic entity are divided into three categories. In particular, they distinguish:
- Costs for the production and sale of products. They make up the running costs of the organization. They are covered from the profit received from the sale of products through the circulation of working capital.
- The cost of updating and expanding production. Typically, such costs are one-time and amount to large enough amounts. Due to them, equipment, technologies are improved, the authorized capital is increased. They include capital investments in fixed assets, the formation of additional labor resources for the production of new products, the costs of maintenance, etc. These costs are financed from special sources. These, in particular, include a depreciation fund, issue of shares, loans, profits and so on.
- Costs for housing, social, cultural and other needs. These costs are not directly related to production. Their financing is carried out from special funds. They are formed from the distributed profit.
Directly with the production and marketing of products associated with capital and current costs. They affect the activities of an economic entity in different ways, but are equally important for achieving goals.
Current expenses
Expenses of this category make up the largest share of all costs of the subject. They include funds aimed at material support, financing of fixed assets, labor remuneration, and so on. Current costs are returned at the end of the product release and marketing cycle and are included in revenue.
Accounting objectives
Current operating costs are reflected in accounting documents. The key objectives of cost accounting are:
- Cost and profit control.
- Ensuring performance and cost savings.
- Creation of credentials for the analysis and management decisions.
- Ensuring the reliability, timeliness and completeness of information.
- Proper tax assessment.
Principles
Ongoing costs are recognized on the basis of a number of basic provisions. First of all, the reflection of information should correspond to the goals of improving the activity of the subject. To ensure comparability of different costs, a unified nomenclature of articles is being developed. It provides an opportunity to cover various operating costs. The production of products, their marketing, the acquisition of materials, raw materials, etc., are thus reflected using uniform designations that are understandable to all departments. The nomenclature of articles is also used in the distribution of costs by classification groups.
Analysis
Each economic entity must evaluate the effectiveness of current costs. The assessment is carried out in terms of rationality and the availability of opportunities for savings in this and the coming periods. Current costs will be optimal if they contribute to the improvement of the final result - a continuous increase in turnover and profits. To implement this task it is necessary:
- Estimate the amount of costs in the amount and percent relative to revenue and profit for the past period. Compare the results with the indicators of other entities (especially competitors), as well as the value of costs for the industry and the region as a whole.
- To study the costs of individual articles. In percentage and in total, establish their share in total current expenses for the period, evaluate the dynamics of this share.
- To establish reserves of savings in the cost items separately, to determine how to use them.
Variable and fixed costs
This classification is of great practical importance. Variable operating costs decrease or increase in proportion to the volume of output. They provide the acquisition of materials and raw materials, energy consumption, transportation, trade and commission and other costs. Fixed current costs do not depend on the dynamics of production volume. This category includes depreciation, interest on a loan, rent, utilities, administrative costs, and so on. There is also a separate category of conditionally constant (variable) costs. Their change is not directly proportional to the volume of output.
Indirect and direct current costs
Unit costs can be calculated using the absorption method. It involves the addition of all production costs. Information on the cost price serves as the basis for determining the size of work in progress, financial result, volume of inventory. It allows you to analyze the profitability of individual products, their groups, as well as the performance of units. In accordance with the results, a decision is made on the appropriateness of the subsequent release or work. The cost indicator is also used in the pricing process, especially in determining the regulated cost.
Application features
Previously, the absorption method was quite widespread in a planned economy. With its help, management decisions were made with a full load of capacities and the absence of price competition. Currently, the situation has changed. In particular, the capacity utilization of an enterprise is determined by the demand for products. He, in turn, is largely dependent on price. Determine the cost at a given volume of production is possible only at the end of the reporting period. Meanwhile, the manager needs this indicator already at the stage of assortment planning.
Cons of the method
From the above it follows that the absence of a connection between the size of costs and the volume of production is a key drawback of the calculation by complete absorption. In addition, the following disadvantages can be distinguished:
- The need to apply the basis for the distribution of indirect costs by type of product. The selection criteria for the latter are very vague. The set of valid bases is quite limited.
- In connection with the distribution of indirect costs of products, profit will be affected by changes in stocks of finished products in warehouses. With the accumulation of volumes of illiquid goods, an economic entity will receive an increase in its estimated value.
The above disadvantages can be completely avoided by applying the method of separation of costs into fixed and variable. In this case, only the latter will be included in the inventory value. At the same time, fixed costs are included in expenses of the period. As a result, profit is deduced from depending on changes in the volume of stocks.
Cost structure
The costs that form the cost are divided depending on the economic content into:
- Material.
- Remuneration of labor.
- Depreciation amortization.
- Contributions to the social. needs.
- Other costs.
The structure of these groups depends on various factors. In particular, it is influenced by the nature of the products and materials and raw materials used, the technical level, forms of organization, location of production, conditions of supply and sale of goods.
Material costs
In all economic sectors, these costs make up the bulk of the cost. Inventories include semi-finished products, raw materials, energy, fuel and so on. Some of these objects are being processed or assembled. This, in particular, applies to semi-finished products and materials purchased from third parties. The allocation of energy and fuel as part of resources is determined by their national economic importance. The material costs also include the costs of packaging, containers, spare parts, tools. The assessment of resources is based on the purchase price (excluding VAT), premiums, commissions to foreign trade, supply and intermediary entities, customs duties and a number of other indicators. The material cost excludes the cost of residues of coolants, semi-finished products, raw materials that are formed in the process of manufacturing products and partially or completely lose their consumer properties and, therefore, cannot be used further.
Salary
The cost of it reflects the participation of living labor in the formation of cost. These costs include the salary of the main staff, as well as employees who are not in the state, but are involved in the production of products. Remuneration consists of:
- Salary, which is charged at tariff rates, piecework rates, official salaries according to the calculation system adopted by the company.
- Cost of products issued in kind.
- Surcharges and allowances.
- High Performance Award .
- Payment of additional and regular vacation days.
- Cost of services provided for free.
- One-time rewards for length of service.
- Bonuses for work in the Far North.
- Other costs.
Other items
Contributions to the social. Needs are a form of redistribution of national profits to finance social needs. Funds are allocated to the corresponding extrabudgetary funds and have a special purpose. Depreciation is included in cost in amounts that are calculated in accordance with the carrying amount of property, plant and equipment and existing rates. Depreciation is accrued both on own properties and on leased ones (unless otherwise specified in the agreement). Other expenses include a variety of expenses. These include, in particular, fees and taxes, contributions to funds, insurance premiums, environmental pollution payments, interest on credit, representation and travel expenses, certification related fees, rationalization fees, inventions, etc. .