Where to start calculating production costs. How to calculate production costs

Hello! Today we’ll talk about the cost of services, its calculation and formation. Any businessman whose enterprise specializes in providing services must set real competitive prices for their services. In order to do this, it is necessary to calculate the actual cost of services, because it is this indicator that affects pricing. Let's figure out together what is hidden under the term “cost” and how it is determined.

What is the cost of services - a general concept

By determining the cost, you can... There are several types of cost. It is determined individually for each enterprise. If the company produces products, then it is calculated. If the goods are services, then the cost of services is calculated.

For a better understanding, let's give examples. If the company is engaged in the production of soft toys, then the cost of the toy is calculated. If we consider a transport company that is engaged in transportation, then it is calculated cost of transport services.

Cost of services - this is the sum of all costs, expressed in monetary terms, that the enterprise incurred to provide the service.

This qualitative indicator is used to determine the efficiency of the enterprise and its financial condition. It depends on the type of services provided.

For example, if we consider a hairdressing salon and an outsourcing company that specializes in providing accounting services, then cost of services sold the first organization will be higher than that of the second. This is due to the fact that providing hairdressing services requires more consumables, tools, etc. than an outsourcing company.

Types/types of cost of services and its structure

There are several types of cost.

• Full cost of services- this is the ratio of all costs of the enterprise to the entire volume of production. That is, general production indicators are taken into account.
• Maximum cost of services– this is the cost of each individual service.

• cost by costing items;
• cost by cost elements.

What does the cost of enterprise services consist of?

Cost of services provided- This is the totality of all costs of the enterprise. They are divided into the following types:

1. Direct – salaries to employees who are directly involved in the process of providing services.
2. Indirect – wages to company managers.
3. Constant – depreciation charges. They do not depend on the volume of services provided.
4. Variables are the costs of purchasing materials.

Let's consider all types costs of providing services using a simple example. If you are the owner of a wedding agency and organize celebrations, then you bear direct costs when you pay wages to toastmasters, musicians, and wedding coordinators. Indirect - this is your salary. You incur fixed costs when you pay for rent, utilities, taxes, etc. By decorating restaurants with fresh flowers and other wedding paraphernalia, you incur variable costs.

How to calculate the cost of services - calculation

There are several ways to calculate the cost of services. To do this, you need to clearly understand that certain materials and material assets are required to provide services. The cost of a service consists of the cost of materials and the cost of performing work to provide services.

We have compiled a small plan with which you can calculate the cost of services. When making calculations, the following must be taken into account:

1. Expenses related to tax deductions and business activities;
2. Capital and current costs;
3. Material costs;
4. Payment of wages to employees;
5. Social Security contributions;
6. Depreciation deductions;
7. Other expenses.

When determining the cost of services, it is necessary to take into account the materials that are used to perform the work. If the process is not labor-intensive and does not require a large amount of materials, then you can sum up all the costs and derive the cost.

If the work requires the availability of a large amount of materials, you can draw up a separate estimate for the client. Prices for all materials will be listed there. A separate amount will be assigned for the provision of the service.

Let's look at these principles with examples.

If you are engaged in tutoring, then you need to have several books and notebooks for work. The cost of paid services will consist of expenses for literature and office supplies. When drawing up a price list for your services, you simply include the cost of materials in the price for the client. So you count standard cost of services.

The second example will concern a cleaning company. Before concluding an agreement, the entire list of services that will be provided to him is discussed with the client. In this case, the cost of all detergents and equipment can be included in a separate price list. The customer will pay separately for materials and separately for personnel work.

Calculation of the cost of work and services

Let's give an example of calculating the cost of eyelash extension services.

1. For the extension procedure you will need special artificial hairs. We determine the cost of artificial eyelashes that will be required per person. If the price of a package of single artificial hairs is 4,000 rubles, there are 4,000 pieces in a package, and an average of 100 lashes are required per client, from here you can calculate the cost of the hairs. We divide the packaging price by the volume and multiply by the number of customers.
2. It is impossible to increase the volume and length of eyelashes using extensions without special glue. It is also necessary to calculate the amount of this material per client. Glue with a volume of 5 ml costs 3,500 rubles. Approximately 0.2 ml is required per client. Having this data, we make a calculation. We divide the total cost of glue by its volume and multiply by the amount of material for one person.
3. For this not very complicated procedure, you do not need to have special equipment; one disposable brush will be enough. These brushes are sold in a set of 50 pieces. The cost of the set is 500 rubles. From here we calculate the cost of one brush. To do this, divide the cost of the set by the number of brushes and multiply by the number of brushes needed for one procedure.
4. Another material you will need is medical adhesive tape. It is sold in rolls of 6 meters. The cost of such a tape is 400 rubles, and 10 cm is needed for one procedure. We calculate: we divide the total cost of the tape by the volume of the roll and multiply it by the amount of material for one client.
5. We sum up all the expenses and as a result we get cost of sales of services.

For clarity and better understanding, let’s calculate the cost of services using an example:

The example given is very simple. It does not take into account the cost of renting premises, taxes, the foreman’s salary, utility bills, etc. This calculation will be reliable if you work for yourself and provide services at home. At the same time, do not spend money on an advertising campaign.

Conclusion

Determining the cost of services This is one of the main tasks of an entrepreneur. Correct calculation will allow you to formulate a real price and prevent or. Determining the cost of a service is easy. It is enough to sum up absolutely all the expenses that the company incurs when providing the service.

In order for a business to generate income and develop, it is necessary to keep strict records of costs when providing services and try to reduce costs. To do this, use the article about. Thanks to this, costs will decrease and profits will increase.

It is impossible to sum up the results of activities and make important decisions for the company without calculating important indicators. Such as the cost of production. When analyzing it, different expense items are used: fixed and variable costs, direct and indirect.

 

Product cost is the basis for calculating operational efficiency. It is involved in determining margin, profit, revenue, return on sales, depreciation and other economic indicators and represents the amount of the enterprise’s expenses for the production of goods. Different categories of expenses can be included: raw materials, wages, packaging, delivery to the buyer, etc.

What's included?

The cost includes expenses for:

• manufacturing of products (raw materials, energy, containers);
• maintenance of fixed assets (equipment, production workshop);
• sale of goods (packaging, sorting, delivery to the buyer).

Exactly what expenses need to be included depends on the product itself and the method of its sale.

Table 1. Types of product costs

	Production of hand-made jewelry at home with sale	Production of reconstituted juice for sale in stores
Purchase of raw materials and materials for production
Customs costs
Workers' wages
Transportation costs (delivery of raw materials, relocation)	(sending orders)
Depreciation
Other costs
Product packaging
Delivery of goods to the point of sale or buyer
Warehousing costs

Thus, the cost structure completely depends on the product, the method and conditions of its sale. Products can be sold for sale, then you need to include expenses for the return of unsold balances. You should not discount the percentage of defects that may occur during production and sales. Perishable products have a shorter shelf life, so the costs of selling them may be higher (additional advertising, for example).

Costs can be direct or indirect. By direct we mean such expenses, the size of which depends on the batch (for example, raw materials). Indirect ones are not directly related to the volume of production (salaries of management personnel). Also, costs are divided into fixed (they are always present in the same volume) and variable (depending on production volume).

Also, the total costs depend on the type of cost:

• workshop (only production costs);
• production (all target costs);
• full (all manufacturer costs for production and sales).

More details about the varieties can be seen in the video:

What costs should be included is decided by each enterprise independently. There is no universal option. This indicator will subsequently be used to calculate the efficiency of financial and economic activities, and it can also support important decisions.

Calculation example

Let's calculate the cost of one knitted hat and a batch of knitted hats in a workshop with one working knitting machine (actual data was used, but planned data can also be used).

Initial data:

• There is 1 machine in the workshop and 1 person is servicing it;
• during the season, 300 hats are produced per month;
• Yarn consumption per product is 150 g;
• accessories are not used.

Table 2. Calculation using the example of knitting production (300 ed.)

Fixed costs
Renting premises
Management costs
Employee salary
Contributions to funds
Communal payments
Variable costs
Raw materials (yarn)
Delivery to stores

The cost of one hat is 347 rubles, and the cost of a batch of 300 pieces. - 103,950 rub.

The structure of expenses is dominated by fixed costs (67%).

The main share of expenses is on raw materials (28%). A smaller share belongs to the delivery of products to stores (2%) and utility bills (2%).

It is best to analyze production costs over time. This will allow you to identify changes in the structure, understand which costs have decreased and which have increased, and also track seasonal fluctuations.

Table 3. Expenses by month

Expense item	By month
Fixed costs
Depreciation of equipment (knitting machine)
Renting premises
Management costs
Employee salary
Contributions to funds
Communal payments
Variable costs
Raw materials (yarn)
Delivery to stores

The reduction in variable costs is due to seasonal demand for goods. Accordingly, fewer products are produced during the summer months, so production costs per batch are lower. Fixed costs remain almost unchanged.

In the example above, the cost of production was calculated based on all costs incurred by the enterprise. There is another approach that takes into account only variable costs depending on the batch size.

Which method to use depends on the product itself and the production situation. The decision to launch a new line, which should become a “lifeline” for the enterprise, is best made knowing the full cost of production, taking into account fixed costs. However, in a successfully operating company, this method may not be appropriate. In any case, each production has its own way of calculating the cost and determining the expenses that will be included in it.

Product costing is the calculation of the sum of all production costs in monetary terms. The method of calculation depends on what costs are taken into account. See examples of calculations using absorbed and direct cost methods. Download the cost accounting and costing methodology.

Cost can be called the cornerstone of business decision-making, so an example of its calculation will be useful to a very wide range of users within the company:

• marketers - when determining prices for products;
• commercial director to make decisions on the range and launch of new products;
• production managers - when analyzing cost deviations in order to identify reserves for increasing efficiency;
• financial managers to determine organizational performance;
• top managers – when distributing bonuses and bonuses.

Costing: Definition and Technique

The cost of a product is a monetary assessment of the resources spent on its production, such as raw materials, human resources, etc. It can be calculated for the whole company, production division or workshop, or for an individual product. For some companies, calculations of the cost of an order, technological stage, or unit are relevant.

The figure shows the main accounting items for calculating costs.

In accounting includes the articles presented in the figure.

Drawing.

For trading or companies providing services, the plan of cost items for calculating costs will differ slightly - there may not be an item “raw materials”, almost certainly there will be no items “Returnable waste” and “Losses from defects”, “Business expenses” may be considered as “General production” and so on.

Types of cost for calculation

When assessing actual cost production or services provided during the reporting period, actual expenses incurred for the needs of core activities are taken into account. It is not difficult to assume that both productive and justified expenditures of resources, as well as unproductive ones, can be included in the calculation. The effectiveness of the costs incurred can only be assessed by comparing the results obtained with the standard or planned ones.

Standard calculation of product costs represents the monetary expression of historically established production technology. In order to the current achievable standard cost should be used, that is, the standards for which correspond to the effective operation of the existing equipment. It takes into account the real level of equipment failure, the usual level of downtime and defects. If the equipment is new and statistics on its operation have not yet been developed, use the standards of the supplier company or ask the engineering company serving you. To assess efficiency, it is necessary to calculate the cost of actually produced products or services according to standards. In this case, we will clearly see deviations in production from technology.

Planned is based on planned output values. When calculating the planned cost, both standards and data from the previous period can be used. In practice, this value is often calculated in order to make a calculation based on the results of the period.

How to Calculate Direct Manufacturing Cost of Products Using Excel

If you need to calculate the direct production cost of products, use a ready-made calculation model in Excel. The CFO System solution will tell you how to adapt the model to the specifics of the company: create directories, adjust the methodology for attributing direct costs to production costs.

Unit cost calculation

The main question is: what company costs should be included in the cost price when calculating per unit of production?

The calculation method depends on the answer to this question:

• If we take into account all production costs, we use the full cost method for calculation. Another name is the absorption costing method;
• if we take into account only direct costs, then we calculate the truncated (not full) cost using the direct costing method.

Let's take a closer look at both of these methods.

Costing using the absorption costing method

When using the absorbed cost method, direct and indirect costs, that is, all costs related to production processes, are included in the cost of production (these are accounts 20 and 25 of RAS). General business expenses (account 26 of RAS) are allocated to the sale of products and are not distributed to final products.

Direct costs do not require additional transformations when transferred to products, while to allocate overhead costs, the cost allocation method is used based on the distribution base. One of the following criteria is selected as the base:

• labor of production workers (man-hours);
• operation of capital equipment (machine hours);
• volume of products produced (in units);
• wage fund for production workers;
• revenue from product sales;
• direct costs allocated to the product, etc.

A good practice is to pre-allocate costs to production cost centers, and only then transfer costs per unit of production in proportion to the distribution base. In this case, different cost centers can use their own distribution base.

Example of absorption costing

The company produces two products "A" and "B". The production volume was 1,000 pcs. per month of product “A” and 200 pcs. product “B” (Table 1).

Table 1. An example of calculating product costs using the absorbed cost method (rub.)

Product/cost item
Materials
Workshop lighting
Workshop heating
Business expenses
Full self
Only a few	238 (238 000: 1000)	629 (125 800: 200)

Costing using the direct cost method

According to the alternative method - direct costing - when calculating production costs, you need to take into account only those costs that are directly related to production. The idea behind the direct costing approach is that the production manager controls only those costs that relate to production.

Example of calculation using direct costing method

In our example, we need to remove commercial expenses from the cost of products. Then for product “A” it will be 234 rubles, and “B” - 599 rubles (Table 2).

Table 2. Sample calculation of product costs using the direct costing method (RUB)

The situation is vital - the marketing department and sales department of a large enterprise can generate expenses disproportionate to the cost of production, which will lead to losses, and when choosing the direction of cost optimization, to erroneous decisions.

In a long period - from a year - all costs are variable and it can be stated that it is impossible to operate production without commercial and other overhead costs .

How to avoid mistakes in direct costing

Errors in actual costs result in the risk of setting unprofitable prices for products or abandoning a profitable line of business. This solution will help determine whether the enterprise calculates direct costs correctly, and will also tell you how to adjust the calculation rules.

Applied methods for calculating product costs

A number of applied costing methods are also used in practice:

• process-by-process method. When using it, the cost of each process involved in the production process is calculated. This is a very powerful tool for reformatting production processes. An enlarged version of the process method can be considered the cross-distribution method in the raw materials industries.
• the custom method is the only effective method for cases where production is of a one-off custom nature, when each order is unique and the cost calculation is made based on negotiations with the client about the final cost of the order.

For financial reporting under both RAS and IFRS, the full cost accounting method is used.

Approaches to management cost accounting and calculation of product costs

Features of the functioning of the enterprise, management tasks and management accounting

Features of setting up management accounting, identifying and eliminating deficiencies

Despite the fact that the methodological foundations of management accounting are the same for all industries and companies, its implementation at a particular enterprise often has its own specifics. Let's consider approaches to managerial cost accounting and calculation of product costs used in a real machine-building enterprise with the following specifics: production of two main types of products (large-sized equipment) and the execution of minor orders, the presence of several separate production sites.

The constant interest in the topic of management accounting is explainable: even within the same industry, enterprises may differ in the peculiarities of their functioning and management’s needs for analytical information, and therefore the objects of accounting, approaches to its organization and the structure of reporting forms will be individual in each specific case.

Management analysis of the financial results of a company, including calculation of product costs, requires the study of all stages of the production process (stages of attracting, executing and transferring orders), the functional purpose of structural units (shops, departments) and their relationships, existing information flows and approaches to accounting accounting of information.

Scope of activity of the enterprise and the task set

The main activity of the enterprise is the production of two types of equipment. The administration of the enterprise set the task, within the framework of management accounting, to develop a methodology for determining the cost of certain types of products (actual and planned) and forming a reasonable offer price to customers.

Two types of manufactured equipment (product No. 1 and product No. 2 or equipment No. 1 and equipment No. 2) differ in their functional purpose. However, there are general production features: the equipment is large-sized and manufactured to order over a long period of time (production with a long technological cycle), some orders are unique in nature and require preliminary development by specialists from the design and technological departments of the organization.

In addition to the production of unique and standard equipment, other work is periodically performed on one-time orders that do not require much time and participation of designers.

When participating in tenders for the development and production of equipment, the company in a number of cases indicates the price and cost of executing the order, without estimating the upcoming costs. Competitive requirements for the order executor include, among other things, the upper limit of cost and deadlines for completing the work. The company sets the offer price based on the maximum cost specified by the customer, lowering it to a level that will ensure receipt of the order. Taking into account the set price and the desired rate of profit, the planned cost of the order is calculated using the “reverse” method.

Management information must provide reasonable cost estimates to enable economically viable proposals to be accepted.

Features of the production and organizational structure of the enterprise

The organization operates at three production sites located separately in different areas of the region. The structure and specialization of the sites is presented in the diagram.

Orders for the manufacture of equipment No. 1 and No. 2 are attracted centrally. For both types of products, there are both unique and standard orders, but due to the functional purpose, products No. 1 are mostly unique products, products No. 2 are mostly standard.

Design and technological documentation for specific orders is developed by specialists from the design and technological departments located in a separate building of the central site.

Equipment is manufactured in specialized workshops. Equipment production workshops No. 1 are concentrated on the central site. The production of equipment No. 2 is geographically separate, with the exception of the component manufacturing workshop, which is part of the structure of the central site, but performs work for both productions.

To fulfill orders, significant material resources are required. This cannot be done without cooperation - the manufacture of a number of equipment units or certain processing of materials by third-party enterprises.

The supply and cooperation departments located on the territory of the central site are responsible for the material support of the production process and the involvement of third-party contractors.

Site No. 3 is used as auxiliary facilities to support the operation of sites No. 1 and No. 2, as well as as a place for preliminary and acceptance testing of equipment.

During periods free from major work, the administration of site No. 3 independently attracts additional orders, which are short-lived and are completed without the participation of other sites. The percentage of time that production facilities No. 3 is occupied with the fulfillment of main and additional orders is 85% and 15%, respectively.

Approaches to management cost accounting and calculation of product costs

Approach 1. Accounting object

The main object of accounting and management accounting in the production of single products (works, services) and products with a long production cycle is the order. Accordingly, cost accounting is carried out using the order method.

Sources of information for cost analysis are primary accounting documents: time sheets and distribution of wages by orders, reports on the use of materials, statements of shop and general expenses.

In order for the source data to meet the needs of management analysis, the approaches to recording primary information and the rules for its transfer within the enterprise were adjusted (see “Information support for management accounting”).

General business expenses, which, according to the company’s accounting rules, are written off in full to the financial result of the period (Debit of account 90 “Sales” Credit of account 26 “General expenses”), in management analysis are subject to distribution among individual products.

To formulate a reasonable price for offering products and assess the actual profitability of completed orders, a complete distribution of costs is carried out.

Approach 2. Direct costs

To determine the cost of individual types of products, production costs, taking into account the characteristics of the production process, are classified element by element into direct or indirect.

The direct costs of a separate type of product (separate order) include:

• costs of materials used to complete the order, including:

Raw materials and materials;

Purchased products;

Energy and water;

• expenses for work performed by third parties;
• transportation costs for moving between sites and delivery to the customer;
• labor costs for employees directly involved in the creation of products, including:

Designers, technologists, production workers;

Personnel engaged to work under civil contracts, including contract agreements;

• insurance premiums;
• contributions for insurance against accidents at work;
• expenses for business trips as part of work under the contract.

The listed costs are variable, with the exception of travel expenses during the execution of the order, as well as the cost of remuneration of designers, technologists and production workers (with corresponding insurance premiums), which are almost entirely a fixed amount (salaries).

The accounting system at the enterprise allows you to identify labor costs for designers, technologists and production workers with a specific type of product - sheets of working time and distribution of wages for orders are generated.

Direct costs are recorded not only at the main production areas No. 1 and No. 2, but also at the auxiliary site No. 3. In particular, documents are drawn up for energy and process water consumption during testing, and the following data is recorded:

• stand power, operating time and cost of 1 kWh;
• water supply time, consumption per hour and cost of 1 thousand m3.

Approach 3. Indirect costs

When analyzing indirect costs, the following are taken into account:

• the fixed costs of some workshops are directly related to the production of only equipment No. 1 or only equipment No. 2 (see diagram), therefore the production costs of products No. 1 and No. 2 must fully include the corresponding direct fixed costs;
• the work of the workshop for the manufacture of components of the central site is associated with the manufacture of two main types of products and is not related to the execution of additional orders of site No. 3, therefore the fixed costs of this workshop should be distributed only between the main products;
• employees of the design and technology departments participate in the execution of main orders and are not involved in additional work on the third site, therefore the fixed costs of the design department should be attributed to the cost of only the main types of products;
• Generally related to the fulfillment of all categories of orders are the fixed costs of site No. 3, as well as the fixed costs of management, supply and cooperation.

In this regard, management considered it appropriate to determine the percentage of indirect costs in the cost of products individually for products No. 1, No. 2 and additional orders.

The basis for distributing the fixed costs of those capacities that are involved in the production of several types of products (component manufacturing workshop, site No. 3) is the loading time of the capacities in the manufacture of a specific type of product.

At the same time, we proceeded from the economic logic and capabilities of the organization’s primary accounting: the more time a production workshop is busy manufacturing a certain type of product, the larger part of the costs of maintaining the workshop (lighting, heating, repairs) should be recouped by these products.

The start and end times of individual operations when completing each order are recorded in the primary accounting documents.

Fixed costs of the design and technology departments are distributed to production No. 1 and No. 2 in proportion to the areas occupied by the departments that generate documentation for the first or second production.

At the same time, we proceeded from the fact that the larger part of the design body is allocated for the development of products of a certain type, the greater the share of fixed costs for maintaining the body it makes sense to include in the cost of this product. We studied the floor plans of the design building and determined which total areas were assigned (occupied) to product developers No. 1, and which to product developers No. 2.

Approach 4. Allocation of indirect costs to main and additional orders

Despite the fact that the fixed costs of management and supply are associated with the operation of the enterprise as a whole, management considered it rational not to attribute them to additional orders attracted and carried out by site No. 3, but to distribute them exclusively among the main types of products.

Additional orders are attracted only after the completion of work under the main contracts, the amount of income from additional work is insignificant (the load with additional work is about 15% of the operating time of site No. 3; the share of income from such work does not exceed 5% of the enterprise’s revenue).

The company must make a profit from its core areas of work, and additional one-time contracts can be considered as a “bonus” to the financial result. Therefore, the fixed costs of management and supply must be fully included in the cost of the main types of products and compensated by income from their sales.

When considering management costs and fixed costs of the supply department, their relationship with production No. 1 and No. 2 was studied, for example, in terms of the amount of time for organizing and controlling processes, for drawing up and recording documents, etc. Conclusion: both areas of production require approximately equal efforts management and supply, therefore the fixed costs of these services can be distributed equally between production.

The fixed costs of the cooperation department are evenly distributed between the main productions, since the work of the department is associated only with the production of equipment No. 1 and No. 2 and is not required when fulfilling additional orders.

The distribution of fixed costs of the supply and cooperation departments in proportion to the number of requests for materials and contractor work was not approved by the company’s specialists, since when executing various orders, requests for material support differ in their parameters and require unequal efforts of the supply service (as well as the cooperation service).

The approved approach to the distribution of indirect costs is presented in table. 1.

Approach 5. Base for distribution of indirect costs by product

Direct labor costs were chosen as the basis for the distribution of indirect costs for individual types of products.

This approach is embedded in both types of accounting - accounting and management - and is due to the fact that:

• the product manufacturing process requires significant personnel participation;
• the share of labor costs for key personnel in the total amount of production costs is large.

Note that in recent years, enterprises have been moving away from using direct labor as the basis for allocating overhead costs (process automation has led to direct labor ceasing to be an objective cost driver), so the question has been raised about revising the basis for allocating indirect costs in management accounting.

The following arguments were given in favor of the fact that the approach adopted by the company does not require changes and allows one to fairly objectively associate indirect costs with individual orders (products):

the higher the complexity and the longer the manufacturing time of the product, the higher the intensity of use of funds, therefore, most of the indirect costs should be included in the cost of the product. The complexity and time required to create a product directly affect the amount of direct labor costs (through the number and qualifications of designers, technologists and production workers involved in fulfilling the order);

Some contracts only imply the design development of equipment in accordance with customer requirements, and therefore do not result in material costs. Also, the subject of an order agreement may be the author’s support of equipment during its operation, and this is associated with the use of the enterprise’s labor resources.

As a result, the distribution of indirect costs was maintained in proportion to direct labor costs.

Table 1

Classification of fixed costs and distribution of indirect costs of the enterprise, thousand rubles.

Fixed costs of the enterprise	Sum	Main orders		Additional orders
		Production of products No. 1	Production of products No. 2
1. Direct fixed costs included in the cost of certain types of products
Labor costs for key personnel (designers, production technologists)
Insurance premiums
2. Indirect fixed costs to be distributed among individual types of products
Fixed costs directly related to the production of products No. 1 and No. 2
Fixed costs of production shops No. 1 (central site)
Fixed costs of workshops and product production departments No. 2: all fixed costs of site No. 2
Fixed costs associated with several areas of activity
Fixed costs of the workshop for the production of components for products No. 1 and No. 2 (central site)	Distribution base	Lead time
Fixed costs of site No. 3	Distribution base	Lead time
Fixed costs of the design building of site No. 1 (design and technology departments)	Distribution base	Areas of departments involved in creating documentation for the first or second production
Fixed costs of the administrative buildings of site No. 1: fixed costs of management, supplies, cooperation	Distribution base
Total indirect costs

It is advisable to consider the information in Table. 1 together with the diagram and subsection “Indirect costs”.

In table 1 the following list of fixed costs is highlighted:

• AUP salary;
• insurance premiums;
• depreciation;
• public utilities;
• repair;
• inventory and materials;
• services of third parties not related to the execution of orders (equipment maintenance, etc.);
• taxes, except income tax (property, land, transport), etc.

These costs are recorded for:

• production workshops (including associated production, storage and administrative premises);
• each production site;
• design building and management buildings located on the central site.

Labor costs for key personnel are included in direct costs.

The approach to the distribution of workshop and general expenses of an enterprise with separate areas is similar to that used for any company with several structural divisions. Regarding the preparation of initial information, it is necessary to pay attention to the redistribution of fixed costs between sites within the framework of accounting.

Production sites, separated from each other geographically and functionally, maintain separate records. For accounting calculations between them, the “Intra-business settlements” account is used.

An agreement was concluded between the central site and site No. 2 on the transfer of a fixed amount of expenses for the maintenance of administrative and management personnel from the central site to site No. 2. The amount is periodically reviewed and approved in the agreement.

Site No. 3, performing work within the framework of orders for the manufacture of equipment No. 1 and No. 2, indicates for the corresponding sites the amount of direct costs for the work performed and part of its overhead costs.

Tax amounts are calculated and paid centrally. Every month, the necessary acts are drawn up for the amounts of expenses transferred between sites.

For management purposes, it is necessary to record and use in calculations fixed costs at the places of their actual occurrence before accounting redistribution between sites. The exception is property, transport and land taxes, which must be determined individually for each site and taken into account as part of their fixed costs.

Price formation

The methodology for calculating the reasonable supply price of products (the cost of order fulfillment) did not raise significant questions; its key components are shown in table. 2. The attention of specialists was focused on substantiating the information for calculations.

table 2

Main components of calculating the product supply price

No.	Indicators	Values, thousand rubles.
	Direct costs 1
	Including labor costs for key personnel
	Indirect costs (clause 2.1 × clause 1.1) 2
	Percentage of indirect costs in relation to labor costs of key personnel
	Product cost (item 1 + item 2)
	Profit (item 3 × 16%), (clause 3 × [((1 + clause 4.2) × (1 - clause 4.3) / (1 - clause 4.3 - clause 4.1)) - 1] 3
	Required profitability of sales (Net profit / Price without VAT)
	Percentage of financial expenses in relation to the cost of production (to paragraph 3)
	Income tax rate
	Price without VAT (item 3 + item 4)
	VAT amount (clause 5 × 18%)
	Price including VAT (item 5 + item 6)

When making calculations, the following must be taken into account:

1. The elements of direct costs are listed above (see Direct Costs).

If an order is received for the manufacture of unique equipment and it is necessary to carry out calculations in a short time, difficulties may arise in determining direct costs, which are explained by the lack of similar products and corresponding calculations. In such cases, the designers and technologists of the enterprise evaluate the complexity and material consumption of the upcoming work, and conduct a comparative analysis of the new project with similar completed orders.

As a result of this comparison, the coefficients that must be applied when recalculating direct costs are determined by expert means.

For example, the basis for estimating labor costs for design is the assignment of main equipment units to groups formed taking into account two factors: complexity and novelty.

Each group has normalizing coefficients to obtain the final indicator of labor costs required to develop a specific unit. This methodology is recorded in the document on labor costs for design development.

Based on the calculations carried out by the designers, the technology department carries out similar work - it estimates the labor costs for the development of technological processes, as well as the labor costs and material costs of production.

In such complex cases, the final cost of the contract is adjusted at the development and production stages by concluding additional agreements with the customer.

Data received from the design and technology departments on labor costs, materials and components, expressed in natural units, are accepted in monetary terms in the economic planning department.

2. The percentage of indirect costs established for the corresponding production is used (Table 1). The example shows the calculation of the price of equipment unit No. 1, so a coefficient of 222% is applied.

Fixed costs are planned on the basis of actual values ​​for the previous reporting year and planned growth rates of individual cost elements.

Utility costs are determined taking into account the growth indices of the cost of energy, water, heating - announced by resource suppliers or calculated over time based on actual data for several previous periods.

The amount of depreciation charges is adjusted taking into account the cost of acquired non-current assets.

Property and land taxes are recalculated when tax rates and the tax base change.

As a result, using the methodology outlined in table. 1, the planned percentage of indirect costs as part of the cost of production is determined.

3. Profit as part of the product price is calculated in a standard way - the cost is multiplied by the rate of return established by the enterprise.

It is necessary to determine the rate of return that will ensure the return on sales (Net Profit / Revenue) at the level of 10%.

And to do this, it is necessary to take into account the possible financial expenses of the enterprise and mandatory income tax.

The financial results report for the previous year allows you to determine the actual ratio of financial and production expenses of the enterprise:

[Interest payable / (Cost of sales + Selling expenses + Administrative expenses)].

For the enterprise in question, this value = 1.5%.

With a required return on sales of 10%, financial expenses of 1.5% of the cost of production and an income tax rate of 20%, we determine the required rate of profit:

1. Net profit / Revenue = 10%.

2. Numerator of the formula: Net profit = (Revenue - Product cost - Financial expenses) × (1 - Profit tax rate) = (Revenue - Product cost - 1.5% × Product cost) × (1 - 20%).

3. Denominator of the formula: Revenue = Cost of production + Profit.

4. Substituting expressions 2 and 3 into formula 1, we obtain the calculation of the rate of profit in relation to production costs:

[((1 + 1.5%) × (1 - 20%) / (1 - 20% - 10%)) - 1] = 16%.

The same calculation in decimal values ​​= [((1 + 0.015) × 0.8 / 0.7) - 1] = 0.16.

5. Checking the profitability of sales at an estimated price of 301,189 thousand rubles. without VAT:

((301,189 - 259,646 - 1.5% × 259,646) × (1 - 20%)) / 301,189 = 10%.

Advantages and Disadvantages of Cost Accounting

The management analysis technique is only a tool for assessing and planning the company’s performance. The accuracy of the information obtained with its help, i.e., its usefulness for decision-making, depends on the quality and timeliness of obtaining the initial data.

To assess the possibility of correctly correlating production costs with individual types of products, the company's existing forms of primary documents, rules for document flow and interaction of services, and information processing technology were studied.

As a result, shortcomings of the existing cost accounting system were identified, which reduce the accuracy and efficiency of management calculations, and ways to improve the situation were proposed.

Features of the existing cost accounting system that make sense to maintain in the future:

• Products created under an order agreement can be created in stages (design and technological development of the product, direct production) and represent a complex of finished products (they are indicated in the specifications for the contracts).

In this regard, cost accounting within the framework of the order contract is carried out for individual stages of work and products that are complete structures.

In order to be able to identify costs by independent stages of work and specific products, special details are provided in the primary documentation: where costs arise, the accompanying documents indicate not only the number of the order agreement, but also the name of the product for which the materials or work are intended.

Such accompanying documents include invoice requirements for the transfer of materials to production, wage distribution sheets for orders, work completion certificates from third-party organizations.

This approach makes it possible to determine not only the cost of the order as a whole for the completion of the work, but also the cost of the main components of the order as it is executed.

• A significant component of production costs and the basis for the distribution of indirect costs are the costs of paying key personnel. The existing accounting system makes it possible to link labor costs for designers, technologists and production workers with the execution of a specific order.

The time spent on performing individual production operations and the performers of the work are indicated in orders drawn up by departments (design, technology) and production shops.

Based on these orders, economists create statements about the actual use of working time and determine the total labor costs for each of the orders being completed. Information is transmitted to the economic planning department, and then to the accounting department.

Disadvantages of the existing cost accounting system that require optimization:

• The actual labor costs for the production of certain types of products are not determined quite correctly. When drawing up work orders, labor costs for each operation are indicated based on the standards specified in the technological data sheets of the products. Notes on actual time spent are not provided and are not made. Deviations from technological standards (if more or less time was spent on manufacturing the product) are not taken into account. With this approach, the actual cost of production is determined unreliably.

The standards applied in the development of technological documentation deserve special attention. To recognize standards as objective, it is worth checking them regularly; If deviations occur, correct them.

The situation is similar with the recognition of material costs: production departments draw up reports on materials consumed based on the standards laid down in the technological documentation.

The supply department transfers materials to production units within the scope of established technological standards. If production requires more materials than established by the standard, additional transfer of resources is agreed upon with the technology department, which promptly makes adjustments to the documentation.

However, if the actual consumption of resources turned out to be less than the standard, the reporting of the materials used indicates expenses in the amount of the established standard; There is no recognition of operations to return excess raw materials to the warehouse.

• Accounting for materials in storage areas is organized using software that is not integrated into the 1C system.

When an invoice is received from a supplier, the materials are received by an employee of the supply department in his accounting program, after which the invoice is transferred to the accounting department and the receipt is recorded in the accounting accounts (the accounting department independently generates an incoming order), i.e. the accounting function is duplicated.

Since the company does not have a unified database on the movement of materials, the names of inventory items are not always unified. The procurement department transfers resources to production based on manually filled invoice requirements. The invoices are transferred to the economic planning department, which marks which of the executed orders this write-off of materials should be attributed to. Next, the invoice requests are sent to the accounting department, where the corresponding entries are made in the accounting accounts. It can be difficult for accounting specialists to reconcile the nomenclature issued for production, indicated in the invoices, with the nomenclature of materials recorded in 1C upon their receipt, due to the use of non-identical names in the documents.

This state of affairs does not ensure the necessary completeness and timeliness of recording transactions in accounting and increases labor costs for accounting work.

Creating a workplace with the 1C program in the supply department will allow you to enter the necessary data into the database on the day of actual receipt of materials, generate receipt orders, and automatically generate entries in accounting and tax accounting.

• A clear procedure for the intra-company movement of documents received from third-party organizations performing work in full or partial cooperation has not been worked out: acts of completed work are received by the accounting department, bypassing the economic planning department. As a result, costs may not be generated in a timely manner, or the economic planning department may not receive information about such costs.

To eliminate the listed shortcomings of the process of recognition and transfer of information, we decided:

• automate accounting (equip additional 1C workstations and adapt the program within the company’s production departments);
• approve clear regulations for the transfer of documents to the PEO and accounting department.

Increasing the accuracy and timeliness of cost accounting at the point of origin will provide a more equitable assessment of production costs.

conclusions

The presented experience of a machine-building enterprise in organizing management cost calculations may be useful for companies in other industries that have similar management tasks and production features.

At the same time, the methodology chosen by the enterprise cannot be recommended as a template, since other companies may have individual ideas about the relationship of indirect costs with the execution of various orders, as well as their own characteristics of the organizational and production structure, requiring specific accounting decisions.

In any case, the custom accounting method is associated with such difficulties as:

• high labor intensity of work;
• a certain subjectivity regarding the distribution of indirect costs;
• difficulty in predicting direct costs when producing unique orders.

In this regard, at the initial stage of work on organizing management accounting, it is necessary to carefully study:

• tasks set by management;
• the company’s existing forms of primary documents, procedures for transferring and processing information, in order to find out to what extent the company’s existing cost accounting system allows them to be identified with the types of goods, works, and services produced;
• the volume of necessary organizational changes and the company’s readiness (in personnel and financial terms) to implement these changes.

In cases permitted by applicable regulations and rules, accounting methods can be brought into conformity with the standards adopted for management purposes. This will minimize efforts to process primary information and bring together financial and management reporting data, but will require a one-time retrospective restatement of financial statements due to changes in accounting policies.