Classification of production costs

The basis for managing the cost of production and the costs of the enterprise is their economically justified classification. The more features of the classification of an object are highlighted, the higher the degree of its study and control. The costs of production and sale of products are grouped according to various criteria. The most common are the grouping of costs by economic elements and costing items.

Grouping costs by economic elements. The essence of this grouping is to combine costs on the basis of economic homogeneity, which is determined by the functional differences in the main production factors: living labor, objects of labor, means of labor, and others.

An economic element is usually called a primary homogeneous type of cost for ordinary activities, which at the organization level cannot be decomposed into its component parts. For example, the cost of purchased electricity cannot be decomposed from the buyer into such components as the costs of embodied and living labor (costs of fuel and other material resources, labor costs, depreciation, etc.), therefore, the costs of purchasing electricity from outside are reflected as one element ” material costs. If the organization itself generates electricity, then the costs of its generation are made up of the costs of consumed fuel, labor costs, depreciation of used equipment and other expenses.

The grouping of costs by economic elements is determined by PBU 10/99 “Organization’s expenses” and provides for the mandatory allocation of five cost elements:

1) material costs;

2) labor costs;

3) deductions for social needs;

4) depreciation;

5) other expenses.

However, the presence of the “ other costs” element means the possibility of highlighting additional elements, for example, services of third parties, travel expenses, taxes and fees, etc.

The economic element “Material costs” includes:

– the cost of raw materials, basic materials (excluding returnable waste);

– the cost of purchased semi-finished products, components of finished products and services of cooperative enterprises;

– purchased materials used in the process of manufacturing products to ensure a normal technological process (auxiliary materials for technological purposes) or spent on other production and economic needs (for the maintenance, current repair and operation of equipment, buildings, structures and other fixed assets), as well as the cost of spare parts for the repair of equipment, the wear and tear of tools, fixtures, dies, overalls and other low-value items;

– the cost of purchasing all types of fuel used for technological purposes (for foundries, forges, thermal and other shops), for the production of all types of energy (electric, thermal, compressed air, cold, oxygen, etc.) for heating buildings, factory transport (locomotives, cars, tractors, etc.), etc.;

– the cost of all types of purchased energy spent on technological (electric smelting, electric welding, electrolysis, heat treatment, galvanic work, electrochemical metal processing, wood drying, etc.), energy, motor and other industrial and production and economic needs of the enterprise. Costs for the production of energy generated by the enterprise itself, as well as for the transformation and transmission of purchased energy to the place of its consumption, are included in the corresponding cost elements.

The element “material costs” includes all costs for the purchase of raw materials, materials, purchased products, semi-finished products, fuel and energy and delivery to the central warehouses of the enterprise by third-party transport. The costs associated with their delivery by industrial transport and the personnel of the enterprise are subject to inclusion in the relevant elements of production costs (material costs, labor costs, social contributions, depreciation and other costs).

The element “Costs of labor” reflects the basic and additional wages of all industrial and production personnel of the enterprise, including bonuses paid from the payroll, and wages of non-listed employees related to the main activity.

The element “Deductions for social needs” reflects contributions to off-budget social funds from the total amount of wages included in the element “Costs of labor”.

The “Depreciation” element includes the amount of depreciation deductions from the value of fixed assets for both industrial and non-production purposes, as well as depreciation deductions from the value of intangible assets.

The element “Other costs” includes all costs that cannot be attributed to any of the economic cost elements listed above. In particular, other costs may include travel expenses, lifting, rent, taxes and fees, scholarships for employees of the enterprise, remuneration for rationalization proposals, payment for services provided by third-party transport, payment for communication services, payment to third-party organizations for fire, paramilitary and guard security, expenses for organized recruitment of workers, deductions to various funds, expenses for warranty service and warranty repairs, etc.

Earlier in mechanical engineering, a more detailed grouping of costs by economic elements was used, which can still be used to solve various management problems. Instead of one element of material costs , five corresponding cost elements were distinguished in it. Here is the grouping:

1) raw materials and basic materials (excluding returnable waste);

2) products, semi-finished products and services of cooperative enterprises;

3) auxiliary materials;

4) fuel side;

5) energy from outside;

6) basic and additional wages;

7) social insurance contributions;

8) depreciation of fixed assets;

9) other expenses.

Grouping costs by economic elements allows you to determine and analyze the structure of the current costs of the enterprise. To conduct such an analysis, it is necessary to calculate the share of each element in the total cost. Depending on the cost structure, production can be divided into material-intensive (high share of material costs), energy-intensive (high share of energy costs), labor-intensive (high share of labor costs), capital-intensive (high share of depreciation).

Based on information on costs in the context of economic elements, it is possible to calculate such qualitative indicators of the organization’s activities as material intensity, energy intensity, wage intensity (labor intensity), capital intensity of products. Such information is needed by enterprise managers for effective cost management.

Grouping by economic elements is mainly used for cost estimates and cost control. However, it does not provide a solution to other cost management problems. In particular, it is in no way connected with the intended purpose of costs, does not provide a link between costs and results (correspondence of income and expenses), therefore it does not allow calculating the cost of a unit of production and determining costs by responsibility centers (structural divisions) of the organization. For these purposes, the costs of production and sale of products are grouped according to costing items .

Grouping costs by costing items. The essence of this grouping is to combine costs for their intended purpose. The fact is that the same type of cost can have a different purpose. For example, fuel can be used for technological purposes (smelting iron in a cupola) or for space heating. Wages can be accrued to workers for the manufacture of products, for the repair and maintenance of equipment, or employees of workshops and plant management for the performance of their functions.

The list (nomenclature) of cost items is determined by industry guidelines for planning, accounting and costing products. So, in mechanical engineering, the following typical nomenclature of costing articles is used:

1) raw materials and materials;

2) purchased components, semi-finished products and services of an industrial nature from outside;

3) returnable waste (subtracted);

4) fuel and energy for technological purposes;

5) basic wages of production workers;

6) additional wages of production workers;

7) deductions for social insurance from the wages of production workers;

8) expenses for the preparation and development of production;

9) expenses for the maintenance and operation of equipment;

10) depreciation of special-purpose tools and fixtures and other special expenses;

11) shop expenses.

The sum of the costs for these items forms the shop cost of production.

12) general factory expenses;

13) losses from marriage;

14) other production expenses.

The sum of the costs for all previous items is the production cost of production. At the production cost, finished products are transferred to the warehouse and reflected in the debit of account 43 “Finished products”.

15) non-production (commercial) expenses.

The total amount of costs for all items is the full , or commercial, cost of production. It is calculated only when products are sold and is reflected in the debit of account 90 “Sales”.

This standard nomenclature of costing items has a recommendatory value for enterprises. Enterprises in the process of calculating the cost of production can increase or decrease the number of articles, as well as change their name. So, for example, at enterprises with a significant share of transportation and procurement costs, it is advisable to single out the latter from the items of material costs into a separate item.

Consider the composition of the costs included in the calculation items.

The item “Raw materials” includes the costs of raw materials and materials that form the basis of manufactured products or are necessary components in its manufacture (main materials), as well as the costs of auxiliary materials used for technological purposes.

The article “Purchased components, semi-finished products and services of an industrial nature from outside” takes into account the costs of acquiring finished products and semi-finished products that require additional labor costs for their processing or assembly when completing manufactured products. The same item also includes the costs of purchasing blanks and parts in a rough or processed form, as well as payment for partial processing and finishing of semi-finished products and products produced by other enterprises.

From the costs of raw materials and materials included in the cost of production, the cost of returnable waste is excluded. Recyclable production waste is understood as the remains of raw materials, materials or semi-finished products formed in the process of converting the source material into finished products, which have completely or partially lost the consumer qualities of the source material. They can be consumed by the enterprise itself or sold to the side.

The article “Fuel and energy for technological purposes” includes the costs of all types of fuel and energy directly consumed in the production process, both received from outside and generated by the enterprises themselves.

The cost item “Basic wages of production workers” takes into account the basic wages of both production workers and engineering and technical workers directly related to the manufacture of products.

The article “Additional wages of production workers” takes into account payments provided for by labor legislation or collective agreements for time not worked at work (non-attendance): payment for regular and additional holidays, compensation for unused vacation, payment for time related to the performance of state and public duties, payment of remuneration for long service, etc.

The article “Deductions for social insurance” includes contributions for social insurance according to established norms from the sum of the basic and additional wages of production workers.

The costs included in the item “Expenses for the preparation and development of production” include:

– expenses for the development of new enterprises, industries, workshops and units (start-up costs);

– the costs of preparing and mastering the production of new types of products and new technological processes (the range of items of these costs is given in Appendix 1);

– other one-time costs, the list of which depends on the industry specifics of enterprises and types of production.

The item “Expenses for the maintenance and operation of equipment” includes the costs of maintenance, depreciation and current repairs of production and handling equipment, workshop transport, jobs, as well as depreciation, wear and tear and the cost of restoring tools and fixtures. The nomenclature of cost items for the maintenance and operation of equipment is given in Appendix 2.

The article “Depreciation of special-purpose tools and devices and other special expenses” is intended to highlight the costs of manufacturing, purchasing and repairing special tools and devices that can only be used in the manufacture of certain products. In mechanical engineering, special purpose tools and devices include: models, chill molds, flasks, dies, molds, as well as various special tools (cutting, measuring, auxiliary).

The article “Shop expenses” includes: wages of the shop management apparatus; depreciation and costs for the maintenance and current repair of buildings, structures and general shop equipment; the costs of experiments, research, rationalization and invention of a workshop nature; costs for labor protection measures; other expenses of workshops related to the management and maintenance of production. The composition of the actual workshop costs includes losses from downtime, from damage to material assets during storage in workshops, as well as other unproductive costs and losses. The nomenclature of items of workshop expenses is given in Appendix 3.

The article “General factory expenses” includes costs associated with the management of the enterprise and the organization of production in general: wages of the plant management personnel with social security contributions, travel and lifting expenses when moving employees, for business trips and the maintenance of cars, office, printing, postal, telegraph and telephone expenses, depreciation, maintenance and current repairs of buildings, structures and equipment for general plant purposes, expenses for organized recruitment of labor, for training, taxes, fees and deductions, expenses for the protection of the enterprise and other expenses of a general economic nature. The composition of actual expenses also includes losses from damage and shortage of raw materials, materials, semi-finished products and finished products in factory warehouses and other unproductive losses. The nomenclature of items of general factory expenses is given in Appendix 4.

The article “Losses from marriage” includes the cost of finally rejected products (products, semi-finished products), the cost of materials, parts damaged during equipment setup in excess of the established norms, as well as the costs of correcting defects and the costs of warranty repairs exceeding the established norms.

The item “Other production costs” includes the costs of warranty service and repair of products and other costs that are not related to any of the above items of production costs.

The article “Non-production expenses” takes into account the following types of expenses for the sale of products:

a) the cost of tare and packaging of products in warehouses of finished products;

b) expenses for the delivery of products to the station (pier) of departure, loading into wagons, ships, cars and other vehicles;

c) other expenses associated with the sale of products. The nomenclature of items of non-production (commercial) expenses is given in Appendix 5.

The ratio of cost items and economic cost elements is presented in the summary of production costs (Table 1), from which it can be seen that there is no direct connection between them. So, material costs are not only related to 1-4 costing items, but are also included in the costs accounted for under items 8-14. Articles 5 and 6 take into account the wages of production workers, the wages of other categories of personnel are included in articles 8-14. Depreciation is contained in 9 – 14 costing items.

Grouping costs by management objectives. Traditional cost groupings according to economic elements and costing items correspond to certain functions in planning, cost accounting and product costing systems. But for effective cost management, other groupings are also necessary, depending on the target setting and the corresponding direction of accounting. In this case, the direction of accounting is understood as an area of activity where separate, purposeful accounting of costs is necessary. The directions of cost accounting are determined by information consumers (managers).

Table 1. Summary of production costs for the year, thousand rubles

Calculation cost items Economic elements of costs Total costs in % of the total
Material costs Labor costs Deductions for social needs Depreciation Other costs
1. Raw materials 2.65
2. Returnable waste (deductible) -0.01
3. Purchased components, semi-finished products and production services from outside 5.96
4. Fuel and energy for technological purposes 0.03
5. Basic wages of production workers 18.84
6. Additional wages for production workers 2.07
7. Social security contributions for production workers 5.44
8. Costs for preparation and development of production 0.03
9. Expenses for the maintenance and operation of equipment 15.56
10. Depreciation of tools and devices for the intended purpose 0.70
11. Shop expenses 14.56
12. Factory overhead 33.99
13. Loss from marriage 0.07
14. Other operating expenses 0.01
Total cost of production 100.00
In % of total 9.59 33.87 8.81 25.75 21.98 100.00

The main areas of cost accounting in the enterprise management system are:

1) calculation of the cost of production;

2) economic justification of management decisions and planning of the enterprise;

3) control and regulation of economic activity.

Each of the selected accounting areas requires detailing and appropriate cost groupings. Let’s look at these groups in more detail.

So, for the first direction of accounting – calculation of the cost of production – in addition to the two main groupings (according to economic elements and costing items), costs are divided according to the following criteria.

1. In connection with the production process, the costs of the enterprise are divided into pre-production, production and non-production. Pre-production costs are incurred before the production process. These are one-time preparatory costs of a capital nature (capital investments), as well as deferred costs associated with the development of new industries, installations and units (start-up costs), with the preparation and development of the production of new types of products and new technological processes, other one-time costs due to industry the specifics of enterprises and industries.

Production includes costs directly or indirectly associated with the manufacturing process. They include: 1) direct material costs; 2) direct labor costs; 3) overhead costs. Alternatively, operating costs may also include general business expenses. Production costs are used to calculate the production cost of products and estimate stocks of finished products.

Non-manufacturing costs are associated with the management of the enterprise and with the process of selling products. These include sales (commercial) costs incurred after the production process, and, as an option, management (general) costs.

Production and non-manufacturing costs together form the total cost of production.

2. Production costs according to the economic role in the manufacture of products are divided into basic (technological) and overhead (economic and managerial). The main costs are directly related to the technological processes of manufacturing products. These include the costs of raw materials and materials, purchased components and semi-finished products, fuel and energy for technological purposes, the cost of wages for production workers, the maintenance and operation of equipment, compensation for the wear of tools and devices for special purposes. The technological cost of production is calculated according to the main costs.

Overhead costs are associated with the management and maintenance of production. Depending on the place of origin, they are divided into general production , due to the need to maintain production and management at the shop level, and general economic, related to the organization of production and enterprise management as a whole. Overhead also includes unproductive expenses and losses.

The division of costs into main and invoices does not depend on the choice of calculation objects. It is completely determined by whether any costs are related to the technological processes of production or not.

3 . According to the methods of attribution to the cost of costing objects , costs are divided into direct and indirect. Direct (individual) costs are directly related to the manufacture of specific types of products. Already at the time of their occurrence, it is known what types of products they relate to, therefore, such costs are included in the cost price in a direct way (based on primary documents) at rates or actual consumption. Direct costs include direct material costs and direct labor costs. In mechanical engineering , direct material costs are taken into account under the following costing items: “Raw materials”, “Returnable waste” , “Purchased components, semi-finished products and services of an industrial nature from outside”, “Fuel and energy for technological purposes”.

Direct labor costs are taken into account under the article “Basic wages of production workers” . Conventionally, direct labor costs also include the additional wages of production workers and deductions for social needs, calculated as a percentage of the sum of the basic and additional wages of production workers.

Indirect (general) costs are called, the connection of which at the time of their occurrence with the manufacture of certain types of products cannot be directly established for one of three reasons:

1) it is almost impossible to do;

2) it is difficult, time-consuming and therefore expensive;

3) the management of the enterprise decided not to consider any costs as direct.

In mechanical engineering, indirect costs include costs accounted for under the items “Costs for the maintenance and operation of equipment”, “Shop costs”, “General factory costs”. A significant proportion of indirect costs is contained in the calculation items “Expenses for the preparation and development of production”, “Losses from marriage”, “Other production costs” and “Non-production costs”. Some of the costs in the last articles are direct.

Indirect costs are common to the enterprise or its structural divisions, therefore, they are first collected at the places of their occurrence, and then included in the cost of individual types of products in proportion to the selected base using coefficients. In most industries, the basic wages of production workers are used as the basis for allocating indirect costs. In some machine-building enterprises with single-piece and small-scale production, a more accurate method of allocating indirect costs is used in proportion to the sum of the basic wages of production workers and the costs of maintaining and operating equipment, which, in turn, are included in the cost of individual types of products on the basis of estimated rates.

In some large Western companies, other, even more accurate, methods of distributing indirect costs are used, first by functions in proportion to cost drivers, which are understood as cost drivers, and then by calculation objects (types of products, works, services).

It should be noted that since the distribution of indirect costs between types of products depends entirely on the choice of distribution base, it is practically impossible to calculate the exact total, or even production, cost of production, and often it is not necessary. The greater the proportion of direct costs in the cost of the object of calculation, the more accurate its cost.

The main (technological) costs at machine-building enterprises are attributed to the objects of calculation mainly directly, and overheads (economic and managerial) – in proportion to the chosen base. However, it is impossible to completely identify technological costs with direct ones, and economic and administrative costs with indirect ones. In industries where one type of product or service is produced, all production costs are direct, and in industries where several different types of products are simultaneously obtained from one feedstock, all costs will be indirect.

This indicates that, in contrast to the division of costs into fixed and overhead, their division into direct and indirect is relative and mobile. It depends entirely on the choice of calculation objects. If the costing objects are enlarged (for example, groups of homogeneous products), then there will be more direct costs, and less indirect costs. If we disaggregate the objects of calculation (we divide the group into separate products or their modifications), then direct costs will become much less, and indirect costs, on the contrary, more.

4. According to the degree of homogeneity (by composition) , simple and complex costs are distinguished. Simple costs are homogeneous in economic content, therefore they are also called single-element costs. These are, for example, such costing items as “Raw materials”, “Purchased components, semi-finished products and services of an industrial nature from outside”, “Fuel and energy for technological purposes” , which represent one economic element – material costs; “Salary of production workers (basic and additional)” , which is the cost of labor; “Deductions for social insurance” – deductions for social needs.

Complex costs consist of several economic elements. For example, the article “Losses from marriage” includes the entire set of cost elements necessary for the manufacture of products. Complex costs also include costs for the preparation and development of production, costs for the maintenance and operation of equipment, workshop, general factory, other production and non-production costs.

5. According to the frequency of occurrence and write-off , current and one-time costs are distinguished. This grouping is necessary for the distribution of costs by accounting periods (by months) when they are included in the cost of production.

Current costs include costs that have a frequency of less than a month and generate income in the reporting period. They are included in the cost in the same accounting period in which they actually arise.

Non-recurring costs include one-time costs and costs incurred with a frequency of more than a month. One-time costs ensure the production process for a long time. Single character have capital investments associated with the creation of non-current assets; costs for the development of new enterprises, workshops, productions and units put into operation (start-up costs); as well as the costs of preparing and mastering the production of new types of products. Such costs do not generate income in the reporting period and are called deferred or deferred. They are accounted for as non-current assets and deferred expenses and are included in the cost of production in installments in subsequent accounting periods when they generate income.

Expenses for paying holidays, for carrying out repairs of fixed assets are made with a frequency of more than a month, unevenly throughout the year. If such costs are included in the cost of production in the same accounting periods in which they arise, then this will cause significant fluctuations in the value of the cost of production by months. So, for example, in the summer months, which account for the bulk (peak) of vacations of employees of the enterprise, the cost of production will unreasonably increase, and in winter, on the contrary, it will decrease. To evenly distribute such costs by months, reserve funds for their financing are created. Allocations to reserve funds are included in production costs and expenses evenly throughout the year, regardless of the time of actual occurrence of such costs. Since the inclusion of such costs in expenses occurs, as a rule, before their actual occurrence, they are called forthcoming.

The regulation on accounting and financial reporting in the Russian Federation, approved by order of the Ministry of Finance of the Russian Federation of July 29, 1998 No. 34n, determines the intended purpose of reserves for future expenses. At machine-building enterprises, they can be created:

– for the forthcoming payment of vacations to employees;

– for the payment of annual remuneration for the length of service;

– for the payment of remuneration based on the results of work for the year;

– for the repair of fixed assets;

– for warranty repair and warranty service;

– to cover other unforeseen expenses and other purposes.

Thus, the total amount of production costs in each period is made up of current costs and a part of one-time costs attributed to products in amounts determined using special calculations. The production costs of each period are divided into a part related to work in progress, and a part that forms the cost of finished products.

The second direction of cost accounting is the economic justification of management decisions and planning . Since plans and management decisions are always directed to the future, management needs information about expected income and expenses, which, as a rule, depend on the volume of the enterprise’s activities. In this regard, first of all, it is necessary to group costs according to the degree of their dependence on changes in the volume of output. On this basis, all costs of the enterprise can be attributed either to fixed or to variable costs.

In the process of making managerial decisions, it is often necessary to compare several alternative options in order to choose the best one. The indicators of the compared options can be divided into two groups: some indicators remain unchanged for all options, others vary depending on the options. When choosing the best solution, it is advisable to compare only the indicators of the second group. These key figures include relevant costs and receipts. They should be taken into account when justifying managerial decisions.

Relevant , or differentiated, are costs, the amount of which depends on this decision. These include incremental, avoidable and opportunity costs.

Depending on the scope of the plan , costs are divided into planned and unplanned.

For the third direction of accounting – control and regulation of economic activity – costs are primarily distributed according to their places of origin and responsibility centers.

As a rule, products in the course of their manufacture go through a series of successive stages in various departments of the enterprise. With information about the cost of production, it is impossible to determine how costs are distributed between individual production units. This problem can be solved by linking costs and revenues with the actions of those responsible for spending resources. This approach is called responsibility center accounting.

It is more expedient to control the expenditure of production resources by cost centers , which can be jobs, production plants, units, laboratories, departments and services of plant management, production structural divisions of the enterprise. Accounting should provide for the relationship of expenses and incomes with the actions of the heads of departments responsible for spending resources. Such structural units are called responsibility centers.

The costs assigned to a certain responsibility center, the amount of which depends on the actions of its managers, are called controlled, or adjustable . Costs that the manager of this center cannot influence are called uncontrollable (unregulated).

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