The calculation of production costs in production is determined for various purposes, one of which is pricing. This value is very important for the enterprise, because accurately shows the total amount of money spent on the production of a product. In the future, it is used to assign the most effective price when selling products. Thus, analysis of the cost indicator will not allow the organization to become unprofitable and uncompetitive due to high pricing policy. How to correctly determine the cost of a product (service) and what cost items should be included in the calculations so that the result is truthful?
Essence and types of cost
To manufacture one unit of a product, an enterprise spends a certain amount of money on the purchase of materials (raw materials), energy, machines, fuel, employees, taxes, sales, etc. All these expenses ultimately give a total indicator of the funds spent, which is called the cost of 1 piece of product.
Each enterprise in practice calculates this value for planning production and accounting for the finished commodity mass two ways:
- by economic elements of costs (cost of all products);
- calculate costing items per unit of product.
All funds that were spent on the manufacture of products before the finished products were delivered to the warehouse ultimately show the net factory cost. But they still need to be implemented, which also requires costs. Therefore, to obtain full cost
you still need to add sales costs to them. These could be, for example, transport costs, the salary of loaders or cranes who participated in the shipment and delivery of products to the customer.
Calculation methods product costs allow you to see what money is spent directly in the workshop and then at the exit of the product from the plant as a whole for delivery to the customer. Cost indicators are important for accounting and analysis at each stage.
Based on these requirements and ideas, there are such types of cost:
- workshop;
- production;
- full;
- individual;
- industry average.
Each calculation allows you to analyze all stages of production. Thus, it is possible to determine where costs can be reduced, avoiding unnecessary overspending on the production of commercial products.
When determining the cost units of goods costs are grouped into a general calculation of items. Indicators for each position are tabulated for individual types of expenses and summarized.
Structure of this indicator
Industrial production differs in its specificity of products (provision of services), which influence the cost structure. Different directions are characterized by their special costs for main production, which prevail over others. Therefore, they are primarily paid attention to when trying to reduce costs in order to increase.
Each indicator that is included in the calculations has its own percentage share. All expenses are grouped by item in general structure cost. Cost items show a percentage of the total. This clarifies which ones are priority or additional production costs.
Per share cost indicator influenced by a variety of factors:
- location of production;
- application of achievements of the scientific and technological process;
- inflation;
- concentration of production;
- change interest rate bank loan, etc.
Therefore, there is no constant cost price even for manufacturers of identical products. And you need to monitor it very scrupulously, otherwise you can bankrupt the enterprise. Grade production costs specified in the costing items will allow you to timely reduce the costs of producing commercial products and make a greater profit.
In the calculations of enterprises, the calculation method of estimating the cost of products, semi-finished products, and services prevails. Calculations are carried out per unit of commodity mass, which is manufactured at an industrial facility. For example, 1 kW/h of electricity supply, 1 ton of rolled metal, 1 t-km of cargo transportation, etc. The calculation unit must necessarily comply with standard standards of measurement in physical terms.
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Classification of expenses
Production of products consists of using raw materials, technical devices, attracting service personnel directly involved in production activities and additional materials, mechanisms and persons serving and managing the enterprise. Based on this, cost items are used differently in costing. Only direct costs can be included, for example, when calculating shop costs.
First, for convenience, expenses are classified according to similar criteria and combined into groups. This grouping allows you to accurately calculate the indicator of production costs related to one economic component of the cost.
That's why expenses are pooled into separate classes based on the following similar properties:
- according to the principles of economic homogeneity;
- type of products;
- methods of adding individual goods to the cost price;
- depending on the place of origin;
- intended purposes;
- quantitative component in production volumes;
- etc.
Cost items are classified according to general characteristics to identify a specific object or location of costs.
Classification is made according to economic criteria of homogeneity for calculating costs per unit of manufactured products:
This list of economic elements is the same for calculating costs in all industries, which makes it possible to compare the structure of costs for the manufacture of goods.
Example of calculations
To determine the funds spent on manufacturing products, you need to use one of two methods:
- based on cost calculation;
- using production cost estimates.
Usually calculations are carried out for a quarter, half a year, or a year.
Calculation of the cost of manufactured products for any period can be performed according to these instructions:
Calculation example cost of plastic pipes at the manufacturing plant for 1000 m of products and determine the selling price for 1 m of goods:
- We determine how much money was spent according to paragraphs 4, 5 and 6 of the source data:
- 2000x40/100= 800 rubles – transferred to funds based on wages;
- 2000x10/100 = 200 rubles - general production expenses;
- 2000x20/100 = 400 rubles - general business expenses;
- The production cost for the manufacture of 1000 m of pipe consists of the sum of the cost indicators in paragraphs 1-6:
3000+1500+2000+800+200+400= 7900 rub. - Cost indicators for product sales
7900x5/100 = 395 rub. - So, the total cost of 1000 m of plastic pipes will be equal to the sum of production costs and sales costs
7900 + 395 = 8295 RUR
According to the amount received, the total cost of 1 m of plastic pipe will be equal to 8 rubles. 30 kopecks - The selling price of pipe per 1 m, taking into account the profitability of the enterprise, will be:
8.3+ (8.3x15/100) = 9.5 rub. - The company's markup (profit from the sale of 1 m of pipe) is:
8.3x15/100 = 1.2 rub.
Formula and procedure for calculations
Calculation of total cost(PST) should be determined using the following formula:
PST = MO+MV+PF+TR+A+E+ZO+ZD+OSS+CR+ZR+NR+RS,
Expense items are determined separately for each type of product and then summed up. The resulting amount will show the costs incurred by production in the manufacture and sale of a certain product from the finished goods warehouse. This indicator will be the total cost per unit of production, to which profit is then added and the selling price of the product is obtained.
Balance calculation procedure
It is important for an enterprise to obtain an indicator cost of goods sold to identify the profitability of manufactured products. You can understand how much profit was received from each ruble invested in production using the formula for calculating the balance of the cost of goods sold.
Eat two types of calculations, which use:
- Profit from the sale of sold products;
To calculate the profitability indicator, two cost parameters are also used: direct and general production (indirect). Direct costs include costs for materials, equipment and wages of workers that are directly related to the manufacture of products. Indirect costs are cash, spent on equipment repairs, fuels and lubricants, salaries of management personnel, etc., but not directly involved in the creation of goods. To analyze net income from the sale of manufactured products, you do not need to take into account indirect costs.
On commercial enterprises carried out two main calculation options budget for direct costs of raw materials:
- normative;
- analytical.
Where cost estimates for the manufacture of products are prepared using the standard method, the cost indicator is calculated more accurately, but takes longer. For large volumes of manufactured products, it is more acceptable than for companies with small production. The analytical method allows you to determine the cost of production much faster, but the error will be greater. In small enterprises it is used more often. Regardless of how the direct costs of production are calculated, they will be needed further to determine the amount of net profit.
So, when calculating the base, direct costs are taken and additional ones are not included, which makes it possible to more accurately assess the profitability of the manufactured product separately. You will receive the total direct costs of manufacturing products for a certain period. From this amount you need to subtract the amount of unfinished semi-finished products. Thus, an indicator will be obtained that reflects how much money was invested in the manufacture of products during the billing period. This will be the cost of products manufactured and delivered to the warehouse.
To determine the cost of goods sold, you need to know the balances of finished products in the warehouse at the beginning and end of the month. The cost of an individual product is often calculated to determine how profitable it is to produce.
Cost calculation formula products sold from warehouse per month looks like this:
PSA = OGPf at the beginning of the month + GGPf – OGPf at the end of the month,
- OGPf at the beginning of the month - the balance of finished products in the warehouse at the beginning of the reporting month;
- PGPf – products produced per month at actual cost;
- OGPf at the end of the month – balance at the end of the month.
The resulting cost of goods sold is used in calculations to determine profitability. To do this, it is identified in percentage: profit is divided by the cost of goods sold and multiplied by 100. Profitability indicators are compared for each item of manufactured goods and analyzed what is profitable to manufacture further in production and what needs to be excluded from production.
The definition of the concept of product cost and methods for calculating it are discussed in the following video:
20. Product cost: essence, types, indicators. Costing methods
Cost price– monetary expression of costs for production and sales of products.
Depending on the stages of cost formation, the following types of cost are distinguished: workshop, production and commercial or full.
Calculation classification of costs per unit of production:
Raw materials
Returnable waste (subtracted)
Purchased semi-finished products and production services third party organizations and enterprises
Fuel and energy for technological needs.
Transport and procurement costs.
Total material costs
Wages of production workers (basic and additional)
Contributions for social needs.
Expenses for preparation and development of production.
General production expenses
General expenses
Other production costs
Production cost
Business expenses
Non-production expenses.
Full cost of production
Shop cost includes costs associated with production technology, as well as costs for organizing and managing production.
Production cost is the sum of the workshop cost and the costs of managing the enterprise and organizing production for the enterprise as a whole.
Commercial or full cost is the sum of production costs and non-production costs associated with the sale of products.
Based on the nature of the calculation, a distinction is made between planned and reported (actual) cost of production.
The planned cost is the amount of costs per unit of production that the enterprise expects to have in the planning period. The calculation of planned cost is based on progressive standards for labor costs, materials, depreciation of fixed assets, management costs, as well as the adopted technology and organization of production and the planned quantity of products.
Reported cost is determined based on accounting data on the quantity of products received and the actual costs of its production.
Depending on the place of formation, the cost is distinguished:
individual - which is characterized by the costs that have developed at a separate enterprise,
zonal - which is characterized by costs prevailing on average for the zone,
industry – which is characterized by the average costs for the country’s industry.
The main cost indicators at the enterprise are:
Cost of commercial products
Cost of comparable products
Cost of goods sold
Unit cost
Costs per 1 rub. commercial (sold) products
Methods for calculating product costs.
By calculation we mean the calculation of the cost of a unit of production (work, services), and costing is a document in which this calculation is drawn up. The object of calculation is the type of product (work, service), per unit of which the cost is determined. Objects can be finished products, an order, services, a unit, a part, etc. A costing unit is a measure of the object being calculated (tons, pieces, meters, etc.). Costing for a product (work, services) is compiled according to cost items.
Costing is aimed at:
ensure the determination of the cost of the product (work, service) and all commercial products;
create a basis for determining prices;
promote the implementation of the savings regime, the opening and use of reserves.
Calculation presupposes the presence of well-established regulatory management and accounting.
Basic calculation methods:
Direct counting (simple) - the cost per unit of production is determined by dividing the cost of all products by the number of products.
Calculation and analytical – based on the standard calculation of homogeneous costs and indirect distribution of complex costs.
Normative – based on norms and standards for the use of all resources.
Parametric – applicable for calculating the cost of products of the same type, but of different quality.
Varietal – determines the cost of production of individual varieties, numbers (yarn), articles (shoes).
Transverse (phase-by-phase) - used in mass production industries under homogeneous conditions technological process and successive processing stages.
Cost elimination methods, coefficient and combined are based on determining the total cost of processing the feedstock and its subsequent redistribution to the resulting products. These methods are used in complex industries, that is, in those where several different types of products are obtained from one source raw material in a single technological process. Complex industries include: oil refining, coke-chemical, processing, meat and dairy production. Here, total costs cannot be directly attributed to a specific type of product; they are distributed indirectly.
7. Cost Elimination Method consists in the fact that of all products obtained through complex processing of raw materials, one type is considered the main one, the rest are purchased (by-products). By-products are valued at the current selling prices of the enterprise, or at the prices of replaced raw materials.
This method has significant disadvantages:
The division into main and by-products is conditional.
With a large range of by-products, the costs of manufacturing the main product can be underestimated
This method stimulates the production of by-products that are sold at high prices (this is one of the reasons that you can find the entire periodic table in our dumps).
8. When coefficient method(cost distribution method) - all costs are distributed between the received products in proportion to economically justified coefficients. In this case, one of the products is taken as a conventional unit, and the rest are equated to it according to a conversion factor that takes into account any attribute.
The production costs per unit of each type of product are calculated in the following sequence:
All production output is calculated in conventional units
Costs per conventional production unit are determined by dividing all costs of production in conventional units
The production costs of each type of product are calculated by multiplying the costs per conventional unit by its corresponding conventional coefficient.
9. Combined method combines the first two. The essence comes down to this:
Most of the products that are classified as basic are identified;
By-products are excluded from total costs as a percentage of the processing costs of all raw materials;
The remaining amount of costs is distributed according to the coefficients.
Calculation of the cost of specific types of products (works, services), accounting and control are the basis for organizing commercial calculations. There are standard, planned and reporting calculations. Standard costing is the cost of a product, calculated on the basis of technically sound norms and standards for the consumption of living and material labor on a certain date. Planned costing can be equal to, higher or lower than standard costing, because in the planning period, the consumption rates of living and embodied labor may be higher or lower than those that were taken into account at the stage of developing standard calculations. Planned costing is developed, as a rule, for a year, and in some cases for a quarter.
Reporting costing is prepared based on data accounting for analysis and comparison of planned and reporting data.
Costing for the product is compiled according to cost items. In this case, direct costs (materials, wages, etc.) are determined based on standards and prices for resources. Maintenance and management costs are included in accordance with estimates and the accepted methodology for their distribution (proportional to wages, etc.). General business expenses are determined in proportion to expenses for wages. Social security contributions are set according to the tariff. Equipment maintenance costs are determined in proportion to wages.
Cost calculations must be carried out in production and trade. It is the cost that determines the tax base, and different approaches can significantly change profit figures. Application optimal methods cost calculation will help to competently maintain the accounting records of the enterprise.
Cost calculation methods
Calculating costs is a non-trivial task, and for many years economists have been struggling to find the most optimal formula for correct accounting of the flow of funds and understanding how much manufactured products cost. Currently, completely new production methods are emerging, where the old methods of calculating costs no longer show adequate results and cannot be used.
The traditional definition of cost states that this is all the cash costs of an enterprise for the production and sale of products. However, some economists believe that it is not necessary to count expenses such as labor or rent of premises into the cost price. Motivating this decision is that the company will bear these costs even if there is no production.
Currently, the most common methods for calculating product costs are:
- transverse,
- custom,
- simple or process-based,
- normative,
- FIFO.
These methods have become widespread in Russia. Such methods as standard-cost, direct-cost, just in time, target-cost, kaizen-cost and other types are actively used abroad.
For cost calculation you need to choose the most suitable methods for your company, because each of them takes into account various individual production features that arise only under certain conditions. The method for calculating product costs used in the energy sector, for example, at power plants, cannot be adequately applied at enterprises in the chemical industry. And for manufacturers of small-scale products, the third method must be used.
In general, a simple one-step method is used to calculate cost. It is calculated as the ratio of all costs for a period to the number of units produced during this period:
where C is the calculated cost,
Z – all costs for a certain period,
X – number of units produced.
If an enterprise has the opportunity to separate production and non-production costs, then a simple two-step method is used to calculate the cost of manufactured products:
C = Zpr / Xgp + Znepr / Xrp,
where Zpr is the cost of production of goods;
Хгп - the total number of units of manufactured and ready-to-sale products produced during the period;
Znepr - costs for the period that are not directly related to the production of products;
Khrp - total number units of products that were sold during the period.
Transient cost calculation method
The name of this method comes from the production method, when raw materials are processed into the final product through several intermediate stages - reprocessing. This method is used in mass large-scale production and is typical for enterprises in the chemical and textile industries, metallurgy, oil refining industry and others. Raw materials entering the plant go through several stages of transformation, each time remaining a semi-finished product. A long production chain with several intermediate results is formed. The number of such redistributions depends on the production process. The specificity of a semi-finished product is that it can also be an independent unit, ready for sale. For example, in the textile industry, a thread can be an independent product, or it can be used to produce fabric. Fabric can be an independent product, or it can be used to produce clothing or household items.
To calculate the cost, use unfinished and semi-finished products cost accounting . In the first case, accounting for production costs is carried out in physical terms, without recording on the accounts within one processing stage and without items of expenses for these manipulations. The cost of raw materials is included only in the production of the first stage.
In the second case, the cost is determined in the accounting accounts for each transfer to a new processing site. This method is suitable for those industries that use semi-finished products not only for their own production, but also for sale.
Order-by-order method of cost calculation
As the name suggests, this method is used when producing products in small batches to order in accordance with technical specifications or in the production of small batches of complex products for the needs of shipbuilding, mechanical engineering and other high-tech sectors of the national economy. Here the object of accounting becomes the production order itself, where all production costs are taken into account within the costing items for orders. Costs that arise indirectly are taken into account where they arise and are included in the cost of production after the order is completed, when the full actual cost of production is calculated. All this is done by maintaining special cost cards within one “Work in Progress” account. After completing the work, all cards are closed, and then, using a simple calculation, all received expenses are divided by the number of products produced. As a result, data is obtained on the individual cost of each product.
Per-processor cost calculation method
This method is used in the case of mass continuous production with virtually no unfinished technical processes. These are mainly enterprises in the energy sector, transport, and mining industries. They have short production cycles, uniform characteristics and a limited range of products. The cost price is calculated simply - the entire amount of costs is divided by the volume of products or goods produced over a certain period. This is one of the most simple methods cost calculation. In some cases, enterprises may use two-level costing when it is possible to separate production costs from non-production. Production costs are attributed to all manufactured products, and non-production costs are attributed to sold products; such costs are considered period costs.
Normative method
In the case where mass, serial production of various and technologically complex products is carried out, the standard method of calculating costs is used. This applies to enterprises in the metalworking, clothing, engineering, shoe industries, furniture production and other similar areas.
The cost calculation method is based on a technical justification for the cost of resources to produce a unit of product or service. Resources include working hours, raw materials, financial resources. The norms characterize the level of the production site in technical and organizational terms; deviations from the norm allow us to see the overuse of resources or their savings. Ideally, enterprises strive to set minimum resource consumption values to obtain one unit of output.
The normative method provides for correction of calculation; for these purposes, constant operational accounting of deviations of actual costs from standard costs is maintained. These changes are analyzed, the causes and degree of their influence are determined, and new calculations are introduced taking into account the changes that have emerged.
FIFO
The FIFO (First In, First Out) method refers to the accounting of inventories when they are filled with identical goods arriving at different times at different prices. These include various current assets - raw materials, semi-finished products, finished products, etc. When writing off inventories, the first to be retired are those units of goods that arrived at the warehouse first, selling something like a conveyor. This method allows you to quickly and easily record the remaining inventory, which is especially important when accounting for perishable materials. However, when using it, the cost of incoming materials increases by the percentage of inflation. As a result, this leads to an overestimation of the financial results of the enterprise and, as a consequence, an incorrect assessment of the company’s work, which may have an inadequate impact on the development of a business development strategy as a whole. In addition, overstatement of financial results leads to an increase in the tax burden.
Previously, the LIFO (Last In, First Out) calculation method was quite common. Since 2015, this method has not been used in tax accounting. The accounting method provided that the first to be removed from accounting are those inventory items that were the last to be registered. Due to rising prices, such calculations led to inflated costs and a decrease in the value of warehouse balances. With such accounting, the actual movement of warehouse balances was practically not taken into account; their stocks were assessed at the cost of purchases of the first batches. In addition, it was assumed that the goods could be offered for sale regardless of the date of acquisition.
Foreign methods of cost calculation
Standard- costing. The progenitor of the standard accounting method, which is used in Russia. This method is common in enterprises in countries with developed economies, where prices for resources are stable and the range of products produced in production remains the same for a long time. Here, a preliminary determination of consumption rates for basic materials is also carried out, as well as depreciation, rent, wages of main and auxiliary workers, and costs of selling products. Similarly, with the standard accounting method, deviations of actual costs from normalized ones are recorded. Then financial results are generated and analyzed, after which a decision is made to make changes to the standards.
Direct- costing. This cost calculation model allows not only to calculate production costs, but also to obtain information sufficient to make operational decisions. management decisions. The idea of direct-cost is based on the division of costs into direct, indirect, variable and fixed. For the purpose of calculating costs, direct variable costs are mainly used. Indirect costs are attributed to the reporting period in which they arose. In general, variable costs are attributed to the cost of production, fixed costs are attributed to the operation of the enterprise as a whole; these costs are then written off from the company’s total profit. Direct-cost also allows you to determine the break-even point of an enterprise. This relationship of parameters allows you to influence margins based on price and production volume.
Just- in- time. The Japanese approach to determining cost, which can be defined as “just in time”. According to this method, everything is manufactured in production at the moment when it is needed and not earlier. In this way, the company removes excess products and reduces the cost of maintaining warehouses, reduces the volume of defects, and the necessary raw materials are delivered at the time of direct use in production. In general, this approach requires exceptional discipline and clear operation of the entire supply chain. The approach is based on the quality, availability and overall cost of products, even at the expense of purchase prices.
Target- costing. Another Japanese method that has found its application in innovative areas of production - automotive, mechanical engineering, electronics and computer technology. The Japanese decided to use the formula “price - profit = cost”. Conventionally, a car is developed for no more than 1000 yen, the planned profit is subtracted from this price, and everything else should become the cost of the car. If at the stage of car development it is understood that the values obtained by the formula are not maintained, then the car will not be produced.
Kaizen- costing. This method also originated in Japan and is often used with target-costing. It aims to reduce costs during the production of a product, allowing a difference of up to 10% between the estimate and the target cost. Thus, kaizen-costing, as it were, “squeezes” the cost into set values through continuous improvement, improvement and savings at all stages of the production process. This is called a kaizen problem and the company’s employees are involved in solving it. It is determined both for each product and for the entire enterprise as a whole.
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Product cost is an important indicator of enterprise activity. The choice of method for calculating costs and distributing costs may be one of the key factors in the correctness of management decisions.
Costing(cost calculation)– This is the determination of costs in monetary (monetary) form for the production of a unit or group of units of products or for certain types of production. It allows you to determine the actual or planned cost of an object or product and is the basis for their assessment.
Plannedcost price – this is the estimated average cost of products or work performed for the planning period (year, quarter). It is made up of consumption rates for raw materials, materials, fuel, energy, labor costs, equipment use and cost rates for organizing production maintenance. These expenditure rates are average for the planning period. A type of planned cost is estimated. It is compiled for one-time (individual) products or work.
Actualcost price calculated based on actual data on production costs.
The concept of costs, expenses and expenses. Cost classification
Costs – These are the total expenses of an organization associated with the performance of certain operations. They are:
explicit (calculated) – actual costs expressed in monetary terms for the acquisition of resources for production and product sales, works, services;
imputed (alternative) - lost profits of the organization that could have been obtained by choosing alternative options for carrying out its financial and economic activities.
Costs – These are obvious costs for the organization. Expenses - this is the actual decrease (use) of resources or an increase in the organization's debt obligations.
Costs become expenses the moment they are actually used in production.
Enterprise costs are classified in several ways depending on the types of accounting (see table).
Methods of cost accounting and cost calculation
In Russia today, several methods of cost accounting and cost calculation are used, among which the most common are:
transverse;
custom;
process-by-process (simple);
normative.
Transverse method
The method is used in mass production with sequential processing of raw materials (oil refining, metallurgy, chemical, textile industry, etc.), which is carried out in several completed stages (phases, processing stages). It is used if, after completing each of them, the result is not a product, but a semi-finished product. It can be used both in-house and sold externally.
The essence of the method is that direct production costs are formed (reflected in accounting) not by type of product, but by redistribution. The production cost of each processing stage is calculated separately (even if we are talking about the production of several types). Indirect costs are distributed in proportion to the established bases.
The incremental method of cost accounting and calculation of product costs can be:
unfinished – when transferring a part between processing stages, only the quantity is transferred, without cost;
semi-finished - the cost is calculated for each stage of production of the product.
Custom method
This method is used in individual and small-scale production of individual batches of complex products (shipbuilding, mechanical engineering) or when products are manufactured in accordance with customer specifications. The accounting object is a separate production order.
The essence of this method is that direct main production costs are taken into account in the context of costing items for production orders. The remaining costs are accounted for where they arise and are included in the cost of orders through distribution. Until an order is completed, all production costs that relate to it are considered work in progress.
Upon completion of the work, the individual cost per unit of production (order) is determined.
Process method
The method is used in industries with a limited range of products and where there is no or little work in progress (in the mining industry, power plants, etc.).
Direct and indirect costs are taken into account according to costing items for the entire output of finished products. The average cost per unit of production is determined by dividing the sum of all costs for the reporting period by the number of finished products produced in the period.
The advantage of this system is that it requires fewer business transactions. However, the accuracy of the obtained cost of an individual product is low.
Normative method
This method is used in manufacturing industries with mass and serial production of diverse and complex products (mechanical engineering, metalworking, clothing, footwear, furniture production and others).
Norm – These are the minimum costs required to produce products of a given quality. This is a scientifically based indicator that expresses the measure of labor, time, material and financial resources required for the production of a particular product.
Standard – a norm characterizing the estimated need in kind or value, expressed in absolute or relative terms.
Inventory standard – the optimal size of inventory, ensuring uninterrupted sale of goods at a minimum cost.
Standard calculation – the amount of costs that an enterprise will spend per unit of output, taking into account norms and standards on an item-by-item basis.
The essence of the method is as follows:
Certain types of production costs are taken into account according to current standards provided for by standard calculations.
Separately, they keep operational records of deviations of actual costs from current standards, indicating the location of the deviations, the reasons and those responsible for their formation; take into account changes made to current cost standards as a result of the implementation of organizational and technical measures, and determine the impact of these changes on the cost of production.
Deviations are determined by documentation or using inventory.
Product cost is an important economic indicator that reflects the efficiency of production activities. Therefore, it is so important to be able to correctly carry out calculations and draw informed conclusions. Let us consider in more detail the main types and methods of calculation.
The essence
Costing is the process of grouping all costs associated with the manufacture of products into economic elements. This is a way of calculating expenses in monetary terms. The main methods of calculation: boiler, cross-cut and custom. All other methods of calculating cost are a combination of the methods listed above. The choice of one payment method or another depends on the industry specifics of the organization’s activities.
No less important issue is also the choice of calculation object. It depends on the entire system of management and analytical accounting, for example, on dividing costs into direct and indirect. Calculation objects are expressed in:
- natural units of measurement (pieces, kg, m, etc.);
- conditionally natural parameters, which are calculated by the quantity of a product type, the properties of which are reduced to the basic parameters;
- conventional units are used to measure goods consisting of several types; one of the types for some criterion is taken as a unit, and for the rest a calculation coefficient is established;
- cost units;
- time units (for example, machine hour);
- units of work (for example, tonne-kilometre).
Calculation tasks
They are as follows:
- competent justification of calculation objects;
- accurate and reasonable accounting of all expenses;
- accounting for the volume and quality of manufactured products;
- control over the use of resources, compliance with the approved amounts of maintenance and administrative expenses;
- determining the results of departments’ work to reduce costs;
- identification of production reserves.
Principles
Methods for calculating production costs are a set of reflections on the costs of manufacturing products, which can be used to determine a specific type of work, or its unit. The choice of one or another calculation method depends on the nature of the manufacturing process. The use of calculation methods intended for single-production organizations at enterprises producing non-uniform goods distorts data on the profitability of products and “spreads” costs. When calculating the costs of industrial production, costs for work in progress at the end of the year are excluded from the amount of expenses.
Cost calculation methods allow you to:
- study the process of formation of the cost of specific types of goods;
- compare actual costs with planned ones;
- compare production costs for a specific type of product with costs for competitors’ products;
- justify prices for products;
- make decisions on the manufacture of cost-effective products.
Expense items
The total cost of manufacturing products includes costs for:
- purchase of raw materials and materials;
- purchase of fuel, including for technological purposes;
- workers' wages and social benefits;
- general production and business expenses;
- other production costs;
- business expenses.
The first five expense items are production costs. Selling expenses reflect the amount of costs for selling goods. These are the costs of packaging, advertising, storage, and transportation. The sum of all listed expense items constitutes the full cost.
Types of expenses
The classification of cost accounting methods involves dividing costs into groups. Direct costs are associated with the manufacturing process of the product itself. These are the first three expense items listed. Indirect costs are distributed to the cost of products through certain coefficients or percentages.
These two groups of expenses can differ greatly depending on the specifics of the activity. In monoproduction, direct costs include absolutely all costs, since the result is the production of one product. But in chemical industry, where a range of other substances are obtained from one raw material, all costs are indirect.
Variables per unit of production are also distinguished. The second group includes expenses, the amount of which practically does not change when the volume of product output fluctuates. Most often these are general production and business expenses. All costs, the volume of which increases with production growth, are classified as variable. This includes the amount of funds allocated for the purchase of raw materials, fuel, and salaries with accruals. The specific list of cost items depends on the specifics of the activity.
Boiler (simple) method
This is not the most popular calculation method, since it allows you to display information about the amount of costs for the entire production process. This calculation method is used by single-product enterprises, for example, in the coal mining industry. In such organizations there is no need for analytical accounting. The cost is calculated by dividing the total cost by the volume of production (in the example considered, the number of tons of coal).
Custom method
In this method, the object of calculations is a specific production order. The cost of production is determined by dividing the sum of accumulated costs by the number of units of goods manufactured. The fundamental feature of this method is the calculation of costs and financial results for each order. Overhead costs are taken into account in proportion to the allocation base.
The custom costing method is used for single or small-scale production, in which the manufacturing process lasts longer than the reporting period. For example, in machine-building plants where high-power excavators are created, or in the military-industrial complex, where processing processes predominate and products that are rarely repeated are manufactured. It is acceptable to use this calculation scheme in the manufacture of complex or products with a long production cycle.
Cost accounting is carried out in the context of final products (completed orders) or intermediate products (parts, assemblies). It depends on the complexity of the order. The first option is used if the object is products with a short production cycle. Then all expenses are included in the cost. If we are talking about the manufacture of intermediate products, then the cost is determined by dividing the amount of costs for the order by the number of identical products.
Process-based costing method
This method It is used in enterprises of the extractive (coal, gas, mining, oil, logging, etc.) industries, in the energy sector, and in the processing industries. All of the above organizations are characterized by mass type production, not long production cycle, limited product range, one unit of measurement, absence or insignificant volume of work in progress. As a result, manufactured products are simultaneously objects of accounting and calculation. Cost accounting is carried out throughout the production cycle and at a specific stage. At the end of the process, all costs are divided by the number of units produced. This is how the cost is calculated.
Transverse method
Based on the name of this method, it is clear that the object of calculations is the process, the result of which is the release of intermediate or final products. This calculation method is used in mass production, where products are manufactured by processing raw materials at several successive stages. Some product elements may only pass a certain number of limits and be released as intermediate products. Required condition is step by step process production, broken down into repeating operations.
A feature of this method is the formation of expenses for each completed process or for a specific time period. The cost is calculated by dividing the amount of expenses accumulated during a process or period of time by the quantity of products manufactured. The sum of the production costs of each part is the cost of finished products. Direct costs are calculated by redistribution. To differentiate costs between semi-finished products and GP for each order, WIP balances at the end of the month are estimated.
The cross-cutting method of calculation is very material-intensive. Therefore, accounting must be organized in such a way as to control the use of raw materials in production. Most often, for these purposes, the yield of semi-finished products, defects and waste is calculated.
Normative method
This method provides for a preliminary calculation of the cost for each product based on current estimates. The latter are recalculated in each period. The costs of norms and deviations are highlighted separately, with the reasons for the latter being identified. Cost is calculated as the sum of standard costs, changes in these standards and deviations. The standard calculation method allows you to calculate the cost before the end of the month. All costs are allocated to responsibility centers and compared with actual costs.
ABC method
Calculation algorithm:
- The entire process of organization is divided into operations, for example, placing an order, operating equipment, changeover, quality control of semi-finished products, transportation, etc. The more complex the organization of work, the more more features should be highlighted. Overhead costs are identified with activities.
- Each job is assigned a separate cost item and its unit of measurement. In this case, two rules must be observed: ease of obtaining data, the degree of correspondence of the obtained cost figures with their actual purpose. For example, the number of orders concluded for the supply of raw materials can be measured by the number of signed contracts.
- The cost of a cost unit is estimated by dividing the amount of expenses for an operation by the quantity of the corresponding operation.
- The cost of work is calculated. The amount of costs per unit of production is multiplied by their number by type.
That is, the object of accounting is a separate operation, and the object of calculation is the type of work.
Choice
Methods are part of the process of organizing production, accounting and document flow in an enterprise. The choice of one or another calculation method depends on the characteristics of the enterprise: industry, type of products, labor productivity, etc. In practice, all these calculation methods can be used simultaneously. You can calculate the cost of orders using the show method or the incremental method using raw material consumption rates. The chosen method should be specified in the accounting policy order.
Example
The company produces three types of products. It is necessary to develop a planned cost price if it is known that the monthly production volume is: for product A = 300 pcs., product B = 580 pcs., product C = 420 pcs.
Whatever calculation method is chosen, it is necessary to determine the amount of cost per unit of product (Table 1).
Indicator | Volume of expenses |
|||
Material D (price 0.5 rub./kg), kg/unit, | ||||
Material E (price 0.9 rub./kg), kg/unit. | ||||
Work time consumption, h/unit. | ||||
Wage tariff, rub./hour | ||||
Table 2 presents indirect costs.
Cost item (rub. per month) | Place of origin |
||||
Production | Implementation | Administration | |||
Wages and social contributions | |||||
Electricity costs | |||||
OS repair | |||||
Stationery | |||||
Transportation | |||||
We will calculate the amount of expenses using various costing methods.
Option 1
Let's determine the amount of direct costs for each product based on the data in Table 1:
Product A: (1*0.5+2*0.9)*300 = 690 rub./month.
Product B: (2*0.5+4*0.9)*580 = 690 rub./month.
Product C: (3*0.5+3*0.9)*420 = 690 rub./month.
The total amount of direct costs is 4702 rubles/month.
Let's calculate the amount of labor costs for each type of product per month. To do this, you need to multiply the labor intensity, tariff rate and production volume:
Product A: 3*4*300 = 3600 rub./month.
Product B: 2*3*580 = 3480 rub./month.
Product C: 1*2.5*420 = 1050 rub./month.
The total cost is 8130 rubles.
The next stage is direct costing, i.e. calculating the amount of direct expenses.
Cost item | Product A | Product B | Product C |
Direct material costs | |||
Salary and social contributions | |||
Main direct costs | |||
Production volume | |||
The amount of expenses for the entire production volume | |||
Let us determine the amount of indirect costs per unit of product:
- Production: 1270/1300 = 0.98 rub./unit.
- Sales: 1530/1300 = 1.18 rubles/unit.
- Administrative: 1186/1300 = 0.91 rub./unit.
Based on the calculations presented earlier, we determine the cost of manufacturing products:
Cost item | Product A | Product B | Product C |
Direct costs per unit | |||
Labor costs | |||
Direct costing | |||
Indirect costs | |||
Sales costs | |||
Administrative expenses | |||
Full cost | |||
This costing example is based on calculating costs by dividing costs into direct and indirect.
Option 2
Let's consider an example of costing in which indirect costs are distributed depending on the complexity of the production process.
The calculation of direct costs has already been carried out in the previous example. Let's calculate the total complexity of the process:
Product A: 3*300=900 hours.
Product B: 2*580=1160 hours.
Product C: 1*420=420 hours.
Let us determine the distribution rates of indirect costs by dividing the amount of costs by the volume of production:
- production: 1270/2480 = 0.51
- sales: 1530/2480 = 0.62
- administrative: 1186/2480 = 0.48
Let's determine indirect costs by multiplying the labor intensity of a unit of product by the previously calculated accrual rate.
Indicator | Indirect costs, rub.\ units. |
||
Product A | Product B | Product C |
|
Labor intensity | |||
Production costs (rate - 0.51) | |||
Selling costs (rate - 0.62) | |||
Administrative costs (rate - 0.48) | |||
Based on the calculations presented earlier, we determine the cost of production:
Cost item | Product A | Product B | Product C |
Direct costs per unit | |||
Labor costs | |||
Direct costing | |||
Indirect costs | |||
Production cost | |||
Sales costs | |||
Administrative expenses | |||
Full cost | |||
Profitability
Production profit is the income that remains from revenue after deducting all expenses. If prices for goods are set regulated, then this indicator depends on the manufacturer’s strategy.
IN modern conditions objects of direct regulation at the legislative level are prices for gas for monopolists, electricity, freight railway transport, important for life medicines. From the outside local authorities authorities are subject to direct regulation of a wider range of goods. It is determined depending on social tension in the region and budgetary capabilities.
If prices are set freely, then the amount of profit is calculated according to the rate of return.
Example
Per thousand units of products includes:
- Raw materials and materials - 3 thousand rubles.
- Fuel, including for production purposes - 1.5 thousand rubles.
- The workers' salary is 2 thousand rubles.
- Charges on salaries - 40%.
- Production costs - 10% of salary.
- Household expenses - 20% of salary.
- Transportation and packaging - 5% of the cost.
At the first stage, we calculate the amount of indirect costs per 1000 units of products:
- salary accruals: 2000 * 0.04 = 800 rubles;
- production costs: 2000 * 0.01 = 200 rubles;
- business expenses: 2000 * 0.02 = 400 rubles.
The cost is calculated as the sum of expenses for all expense items, except for transportation costs: 3+1.5+2+0.8+0.2+0.4=7.9 (thousand rubles).
Packaging costs: 7.9*0.05/100 = 0.395 thousand rubles.
Total cost: 7.9 + 0.395 = 8.295 thousand rubles; including per unit of product: 8.3 rubles.
Let's assume that the profit per unit of product is set at 15%. Then the price is: 8.3 * 1.15 = 9.55 rubles.
Margin method
An equally important indicator of production efficiency is marginal profit. It is calculated by enterprises in order to optimize production - selecting an assortment with greater profitability. When the equipment is fully loaded, costing should be done with profit maximization in mind.
The essence of the method is to divide costs into production and sales costs, constant and variable. Direct costs are those that change in proportion to the growth in the volume of services provided. Therefore, the cost is calculated only within the limits of variable costs. The main advantage of this method is that the limited cost simplifies the accounting and control of expenses.
Marginal income is the excess of sales income over indirect costs:
MD = Price - Variable costs.
Example
Let's calculate the marginal profit for the manufacture of product A, the price of which is 160 thousand rubles, variable costs- 120 thousand rubles. For simplicity of calculations, we accept the condition that when demand changes, the amount fixed costs equal to 1 million rubles.
Indicator | Sales volume at a given production level, thousand rubles. |
|||
Variable costs | ||||
Marginal profit | ||||
Fixed costs | ||||
The change in marginal profit is calculated as follows:
Increase in production volume by 5 tons: (55-50)*(160-120) = 200 thousand rubles;
Reducing production volume by 10 tons: (40-50)*(160-120) = -400 thousand rubles.
For enterprises that use semi-finished products in production, it is necessary to take into account that the cost of materials and manufacturing work in the cost of the final product is determined by all costs. All contingent costs are recognized in the reporting period and remain outside of marginal costs.
It is also necessary to take into account the limitations in the use of this method. This will avoid mistakes in planning. The decision to increase the production of profitable products and reduce the production of unprofitable types of products should be based not only on calculations. Plans for the development of the product range in the future, increasing production capacity in order to meet demand, improving the cost management system - all these factors in assessing the business are no less important.