Main function of Cost Accounting
Transcript
Main function of Cost Accounting
Misurazione e Controllo della Performance Industriale Main function of Cost Accounting Supply to Management, at all appropriate levels, • individual product cost data • with consistent and uniform calculation needed for the day-to-day running and control of the business and for the formulation of Strategic and Operating Plan, Reviews and Forecasts UniBicocca – Scuola di Dottorato di Scienze 1 Misurazione e Controllo della Performance Industriale Cost Accounting has to supply the basic data required for: Measuring the costs and/or profitability of specific process, products, group of products, markets… Optimization of the use of resources and maximization of the results Investment appraisal of proposed new projects, and the calculation of subsequent actual returns Continuous control of the Actual operating results through the Budgetary Control System which measures the variances from Standard Costs UniBicocca – Scuola di Dottorato di Scienze 2 Misurazione e Controllo della Performance Industriale The Cost analysis of a tyre size is made up of the separate semi-manufactured products and the subsequent production stages, divided into : • Materials • Labour • Expenses UniBicocca – Scuola di Dottorato di Scienze 3 Misurazione e Controllo della Performance Industriale SPECIFICATION COST CENTER MATERIALS LABOUR & EXPENSES UniBicocca – Scuola di Dottorato di Scienze 4 Misurazione e Controllo della Performance Industriale Costs Components are sub divided in “Variable” & “Fixed” according to whether their value is subject to particular variability or not, in relation to the volumes of production (sales). UniBicocca – Scuola di Dottorato di Scienze 5 Misurazione e Controllo della Performance Industriale The Variable Cost items are charged analitically and in a differentiated way to the single sizes. ...Example: Direct Materials Variable Labour Variable Expenses UniBicocca – Scuola di Dottorato di Scienze 6 Misurazione e Controllo della Performance Industriale The Fixed Cost items are allocated in an analytical or generic way to the single sizes according to which are brought about by, and related to the type and quantity of tyres produced. ...Example: Depreciation Salaries Indirect Fixed Labour Direct Fixed Expenses Indirect or General Fixed Expenses UniBicocca – Scuola di Dottorato di Scienze 7 Misurazione e Controllo della Performance Industriale Variable Costs Item #1 Materials UniBicocca – Scuola di Dottorato di Scienze 8 Misurazione e Controllo della Performance Industriale The Materials are sub-divided in : DIRECT MATERIALS Strictly corresponding to those foreseen by the product specification PRODUCTION CONSUMABLES Materials which wear out during the production cycle. These are used only in the production departments. UniBicocca – Scuola di Dottorato di Scienze 9 Misurazione e Controllo della Performance Industriale MAINTENANCE MATERIALS These are specially used and wear out during normal maintenance in both the production service departments. They are used only by the Maintenance personnel. The “Maintenance Material” item includes also any possible services carried out by outside firms. INDIRECT MATERIALS All Other Materials used in any Department (production, services, workshop, offices, ...) Electricity, Gas, Oil and other Fuels, used in production are included in the energy cost calculation UniBicocca – Scuola di Dottorato di Scienze 10 Misurazione e Controllo della Performance Industriale The amount of Materials in the Cost calculation is given by : Purchasing - Raw Material Prices R & D Dept. - Product Specification Industrial / Quality Dept. - Scrap (in %) Industrial / Technical Dept. - Allowances (in %) Sales Dept. - Market Demand Industrial Dept. - Capacity Industrial Dept. - Plant Calendar UNITARY NEED OF RAW MATERIAL FINISHED PRODUCT BASE VOLUME X RAW MATERIAL COST The charge concerning losses, scrap, allowances...is appropriately considered as a distinct analysis item, thus offering a greater possibility of analysis and control UniBicocca – Scuola di Dottorato di Scienze 11 Misurazione e Controllo della Performance Industriale Variable Costs Item #2 Labour UniBicocca – Scuola di Dottorato di Scienze 12 Misurazione e Controllo della Performance Industriale Basically the “LABOUR” is sub divided in: Direct Labour Indirect Labour UniBicocca – Scuola di Dottorato di Scienze 13 Misurazione e Controllo della Performance Industriale Distinction between direct and indirect labour Direct Labour: This is employed in the production departments for carrying out the production cycle phases of semi-manufactured products and finished products Indirect Labour: All Labour except direct labour The Direct labour is measured by process stage and is charged analitically by separate item. The Indirect Labour is included as an expense item in the departments to which it belongs, following the same charging principle. UniBicocca – Scuola di Dottorato di Scienze 14 Misurazione e Controllo della Performance Industriale Indirect Labour • in Production departments • In maintenace • In power supply plants (boiler house…) • In quality • In cleaning • In offices and services • In warehouse • … UniBicocca – Scuola di Dottorato di Scienze 15 Misurazione e Controllo della Performance Industriale The amount of Labour in the Cost calculation is given by : R & D Dept. - Process Specification Industrial / Controlling Dept. - Minutes from Cost Analysis (**) Industrial Dept. - Finished Product Volume TOTAL NEED OF MINUTES (N° OF PEOPLE) Personnel Dep.t - Base Salary Working hours per person Extraordinary Hours Average Absenteisme.... X COST PER MINUTE LABOUR COST (**) MINUTES FROM COST ANALYSIS INDUSTRIAL DEPT. - Technical Minutes INDUSTRIAL DEPT. - Productivity Controlling / Ind. Dept. - Size change time Machine Downtime UniBicocca – Scuola di Dottorato di Scienze 16 Misurazione e Controllo della Performance Industriale Variable Costs Item #3 Expenses UniBicocca – Scuola di Dottorato di Scienze 17 Misurazione e Controllo della Performance Industriale Expenses Costs which, in addition to materials transformed into final products and to direct labour, are incurred by the centres and offices of the entire organization. UniBicocca – Scuola di Dottorato di Scienze 18 Misurazione e Controllo della Performance Industriale The first sub-division of the Expenses concerns their variability with the volume and type of production. From such a viewpoint expenses are subdivided into : VARIABLE EXPENSES FIXED EXPENSES Every element of cost, and therefore also of expenses, are attributed in the analysis of Product Cost in a different way, depending on wheather it represents a component whose cost varies with type of article and quantity produced. UniBicocca – Scuola di Dottorato di Scienze 19 Misurazione e Controllo della Performance Industriale Variable Expenses A cost heading is variable whenever it varies with variation in product type and volume. The variable cost of a unit produced tends therefore to remain constant with variation in the quantities produced. The main items of variable cost are the materials and direct labour. With regards to the expenses, in practice, whilst some expenses vary in line with the volume (e.g. Consumption of steam, electricity, ...), others vary only for limited intervals of variation in volume (maintenance, production consumables,...) UniBicocca – Scuola di Dottorato di Scienze 20 Misurazione e Controllo della Performance Industriale Fixed Expenses Not in proportion to the production volumes of a period (for example one year) Depreciation of machinary Cleaning Canteen Security Rents Telephone, Stationary UniBicocca – Scuola di Dottorato di Scienze 21 Misurazione e Controllo della Performance Industriale Cost Centre Accounting Profit & Loss Service Centres Administration R&D Production Centres Functional Centres Commercial Distribution Materials Direct Labour •Indirect Labour •Variable Expense •Fixed Labour •Salaries •Fixed Expenses COST OF SALES Product Cost UniBicocca – Scuola di Dottorato di Scienze 22 Misurazione e Controllo della Performance Industriale PRODUCT SPECIFICATION RAW MATERIAL UNITARY PRICE PRODUCT COST PROCESS SPECIFICATION UniBicocca – Scuola di Dottorato di Scienze COST CENTER RATE 23 Misurazione e Controllo della Performance Industriale Raw Material Depreciation + Fixed Labour Variable Labour + + Variable Expenses Fixed Expenses = = Variable COST of PRODUCTION + Fixed COST of PRODUCTION UniBicocca – Scuola di Dottorato di Scienze Total Cost = of Production 24 Misurazione e Controllo della Performance Industriale PRODUCT COSTING MUST BE HOMOGENEUS COMPARABLE COHERENT BENCHMARKING IMPROVE THE BUSINESS UniBicocca – Scuola di Dottorato di Scienze 25 Misurazione e Controllo della Performance Industriale Standard Cost Represents the Forecast Average Cost for the Following year - REALISTICALLY ACHIEVABLE for the Production of the foreseen BASIC VOLUME, under NORMAL CONDITIONS of availability and use of the factors, taking into account the PROGRAMMES AND PLANS OF ACTION on which the estimate is based UniBicocca – Scuola di Dottorato di Scienze 26 Misurazione e Controllo della Performance Industriale The variances analysis can helping us in understanding: • What’s happened in the factory (industrial result) • Critical Area and Risks • Weakness & Opportunities UniBicocca – Scuola di Dottorato di Scienze 27 Misurazione e Controllo della Performance Industriale VOLUME MIX INDUSTRIAL VARIANCES PRICE EFFICIENCY UniBicocca – Scuola di Dottorato di Scienze 28