In the concept of management accounting, costs occupy an important place, since in the course of current activities their analysis is mandatory. Conditionally fixed costs are general business expenses, advertising costs , as well as those that are independent of the volume of production. Each organization has this part of the costs, so its study and optimization makes it possible to increase profits.
Why is it necessary to classify costs?
To analyze the costs of the enterprise was easier and more efficient, they are usually classified according to certain criteria. Such a separation allows us to identify their ratio and calculate how much each individual cost item affects the cost of production and the profitability of the business as a whole.
In order for an enterprise’s cost structure to be streamlined, it is necessary to efficiently maintain accounts and link costs to facilities. For this purpose, expenses are classified by similar characteristics. The choice of differentiation determines the object: if it changes, this can lead to a change in the cost category.
Classification Types:
- Subjective. Costs are grouped according to specific characteristics: direct or indirect, constant or variable.
- Objective. In this case, the subjective classification is tied to a specific object.
At each enterprise, costs can be differentiated in different ways, so that the cost structure is clear and understandable. Management accounting allows you to choose the most optimal method. It should be noted that all costs are grouped by type of expenses, cost carriers and the place where they arise.
By types, costs can be divided according to economically homogeneous factors and according to costing items.
Cost carriers are products, types of work or services. This category of expenses is necessary in order to determine the cost of a unit of production.
Costs and their classification depend on the place of occurrence: it can be production shops or other units. It is advisable to group the costs in accounting so that the information is as accessible as possible for cost analysis and determination of a saving strategy.
Costs and their classification
The enterprises distinguish the main types of costs:
- fixed costs;
- conditionally variable costs.
Conditionally fixed costs are those that do not depend on the time period and production volumes. These costs increase with the growth of economic activity, but at a slower pace. In some cases, their growth tends to jump.
Simply put, conditionally fixed costs are those that arise with a sharply increased volume of production, for example, the cost of additional equipment.
Variable costs include expenses associated with the purchase and sale of products. Their value depends on many factors: supplier prices, inflation and others.
Gross costs are calculated as the sum of conditionally variable and conditionally fixed expenses.
To calculate conditionally fixed costs in a cooperated building, the formula should be as follows: it is necessary to add the costs of all enterprises and institutions that are related to the cooperated building.
Internal and external expenses
In relation to the environment, costs are classified into internal and external. The company finances internal costs on its own, and entrusts the care of external costs to other organizations or society as a whole.
The grouping of costs by directions and articles is used to calculate the costs of manufacturing and selling goods or services. To make it more convenient to calculate losses and profits, analyze the cost and set prices, a calculation sheet is compiled. According to the articles, costs are divided depending on what role they play in the enterprise and what needs are used.
Indirect and direct costs
They are divided into indirect or direct costs depending on the method of allocating costs to cost.
Indirect costs are those that are not accrued per unit of output, but accumulate in the accounts. After that, they are included in the cost calculation method. As a rule, indirect costs are taken into account at the places of their occurrence, and then are distributed between types of products. These include the salary of temporary workers or the cost of acquiring additional materials.
Direct costs are calculated on the basis of primary documents for each unit of production. All expenses that relate to a particular product are called direct: the purchase of raw materials and materials, the salary of the main workers, as well as any other material costs. Carrying out the calculation of the object, you must understand that the greater the proportion of direct costs, the more accurately you can calculate the cost per unit of goods.
Technical and economic costs
According to the technical and economic purpose, the costs can be divided as follows:
The main costs are usually attributed to those that are directly related to the production process or the provision of services. These are the costs necessary to carry out production and produce a specific product: the cost of procurement of materials, the cost of electricity, fuel, labor, and so on.
General production and business expenses are considered indirect. They are associated with the maintenance of structural units of the enterprise.
The costs characterizing the activities of the enterprise
To analyze the activities of the enterprise as a whole and evaluate the finished product, the cost structure of the enterprise has the following form: expenses are divided into incoming and expired. Inbox includes acquired funds that are used to make a profit. If over time they lost relevance or were expended, they are transferred to expired costs.
In the asset balance of the input costs can be reflected in the quality of goods, finished goods, stocks or work in progress.
Costs that relate to social or managerial development programs are commonly called discretionary. To get the average unit costs, it is necessary to add the unit fixed and variable costs.
Types of variable costs
Depending on the change in production volumes, variable costs can be divided into types:
- Proportional. These costs are changing at the same rate as the scale of production.
- Progressive. Such costs increase much faster than the growth rate of enterprise activity. This may be due to outages or downtime.
- Degressive. To increase profits and reduce costs, the pace of these costs should exceed the pace of progressive and proportional costs.
Conditionally-variable and conditionally-constant costs are important indicators in any business, therefore, it is necessary to clearly understand the mechanism of their formation.