Production costs. Cost budget

Concept and types of production costs

Production costs include those parts that are closely related to the company's main production.

That is, these are direct costs that go into creating products, and the costs of auxiliary areas that support the main production, and costs indirectly related to the production process, as well as losses due to defects.

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As for the types of the phenomenon under study, the following are distinguished:

Labor remuneration;
Raw materials and material costs;
Depreciation deductions;
Payment for services of third-party companies;
Tax deductions;
Other.

Composition and structure of production costs

For competent accounting, in-depth analysis and high-quality planning of production costs, various classifications are used.

The most popular among them are two – by elements and by costing items.

The first option - element-by-element - involves dividing costs into groups based on their economic essence. At the same time, the places where costs arise and the directions of their use are not taken into account.

In the element-by-element classification, the following types of costs are distinguished:

Materials and raw materials;
Salaries;
Depreciation;
Others.

The costing grouping just involves taking into account costs by location of their occurrence, which makes it possible to calculate the cost of each product in companies characterized by a wide range of products.

Enterprises usually use the following list of costing items:

Materials (excluding returnable waste).
Labor remuneration of production personnel.
Payments for social needs.
Costs for the maintenance, use and maintenance of production machines.
General production costs.
Losses due to marriage.
General expenses.
Business expenses.

All these items together form the total cost of the product, and points 1-7 – its production cost.

Element-by-element cost classification

As mentioned above, element-by-element classification involves the allocation of cost items in accordance with the economic essence of these expenses. A complete list of such expenses is also presented in the previous paragraph. Let's take a closer look at the contents of the most significant items on the list.

Material costs

This group of costs includes funds paid for:

Purchase of materials and raw materials that are an integral part of manufactured products or necessary to ensure the process of their production;
Purchase of packaging materials;
Purchase of semi-finished products and spare parts, which are then subjected to installation and other processing methods;
Remuneration of contractors hired for production purposes;
Payment for fuel and energy resources received from suppliers used for production.

Important!
The amount of returnable waste is subtracted from the amount of material costs. These include resources that are underutilized in production and suitable for further exploitation for technological purposes. Although, perhaps, their initial consumer properties change somewhat. Accordingly, returnable waste is valued differently - not always at the price of the original materials.

Contributions for social needs

This article takes into account deductions at the current rates from the wage fund to state funds: Social Insurance Fund, Pension Fund, Employment Fund. The specific amount of this part of the costs, accordingly, depends on two factors:

The amount of rates applicable to a company in a particular field of activity;
The size of the organization's salary fund.

Depreciation of fixed assets

This reflects the amounts of depreciation charges calculated based on the goal of fully restoring the cost of equipment used during production. The amount of these expenses depends on the depreciation method chosen for the relevant objects, the cost of the objects themselves, their useful life and depreciation rates.

Typical grouping of costs by costing items

This grouping involves accounting for expenses by place of origin and destination.

With its help, the cost of production is determined both for workshops and for the company as a whole. A typical list of costing items is given above. It can be modified depending on the scope of the company. Let's take a closer look at the main points of the grouping.

Raw materials and supplies, purchased products, semi-finished products, fuel and energy for technological purposes

The title of the article speaks for itself. This takes into account the material costs needed to produce a specific product. Returnable waste is deducted.

Labor costs for production workers

In the calculation grouping of costs, this item is included in several items at once: this is the remuneration of the main production personnel, and part of general and general production costs, and a component of the costs of operating and maintaining equipment.

Contributions for social needs

This is also a complex item, as it includes the costs of paying obligatory contributions to state funds, which are charged from the wage fund. And employee remuneration, as mentioned in the previous paragraph, is an element included in the structure of several costing items at once.

Expenses for the maintenance and operation of machinery and equipment

This includes costs such as:

Maintenance of equipment and mechanisms;
Repair of machines, machine tools, vehicles, tools;
Depreciation charges calculated for fixed assets;
Wear and tear of "low value".

General production expenses

This is a complex item consisting of costs of various economic content. What they have in common is that they belong to ordinary activities, and their main purpose is to service the main and auxiliary production areas of the company.

General production costs, for example, include:

Expenses for maintenance of equipment and mechanisms;
Salary of service personnel;
Payments to landlords;
Supporting materials;
Lighting/heating costs;
Depreciation deductions;
Insurance of objects used in production, etc.

This article also includes non-production costs - for example, losses during downtime, payment of shortages.

Losses from marriage

It is customary to consider defective products if their quality characteristics do not meet accepted standards, as a result of which they cannot be used for their intended purpose.

The article under consideration includes the cost of units of products finally recognized as defective, as well as the amount of damaged materials and the cost of correcting the defect.

General running costs

This comprehensive article brings together costs related to the management of the company and the organization of the reproduction process itself. This, in particular, includes such elements as expenses for the maintenance of the AUP, maintenance of premises and mechanisms for general business purposes, as well as certain types of material costs (for example, office supplies), etc.

Business expenses

These are the costs of financing loading and unloading activities, costs associated with the storage and sale of goods, costs of marketing campaigns and other costs related to pre-sale preparation and sale of products. The article is complex in nature, it includes costs that differ in economic nature: these are materials, and salaries of the relevant categories of personnel, and the costs of operating certain types of non-current assets.

Production costs. Cost budget

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Production costs are materialized costs and are included in the cost of production. They include: direct material costs, direct labor costs, and general production costs.

● Direct material costs

These costs are reflected in inventories of materials, work in progress, and finished products (goods) in the organization’s warehouse. They are incoming, subject to inventory, and are assets of the organization that should bring benefits in future reporting periods. In management accounting they are called “inventory-intensive”.

Direct material costs are the costs of raw materials and basic materials, their cost is directly transferred to certain types of products. They are variables, their value changes in direct proportion to the volume of production.

If the cost of materials cannot be directly attributed to a specific type of product, then these materials are accounted for as auxiliary materials, classified as indirect material costs and included in general production costs. Each organization, based on the specifics of the production process, independently decides which materials to classify as basic and which to include as auxiliary.

● Direct labor costs

Direct labor costs include all costs of paying labor directly involved in the manufacture of products. These include wages for machine operators and key workers. Direct labor costs are variable; their value changes in direct proportion to production volume.

Labor costs for shop management personnel (foremen, managers, technologists), support personnel cannot be directly attributed to a specific type of product, therefore they are indirect (indirect), therefore they are considered as general production costs. The division of labor costs into direct and indirect depends on the specific situation. For example, additional wages for key workers and payment for overtime work are usually classified as indirect costs.

● General production expenses.

General production costs arise in production units - sections, workshops, production facilities, and processing areas. They are closely related directly to production. These include general workshop costs for organization, maintenance and production management.

General production expenses are divided into the following groups:

1) costs of maintaining and operating equipment:

— depreciation of equipment and vehicles;

— routine maintenance and repair of equipment;

— energy costs for equipment;

— services of auxiliary production for maintenance of equipment and workplaces;

— wages and social contributions for workers servicing equipment;

— expenses for in-plant transportation of materials, semi-finished products, finished products;

— wear of the MBP; other expenses associated with the use of equipment;

2) general shop management costs (production management costs; costs associated with the preparation and organization of production; maintenance of the management apparatus of production units; depreciation of buildings, structures, production equipment; maintenance and repair of buildings, structures, equipment; costs of ensuring normal working conditions ; costs of career guidance and training).

Their main features are:

· complex nature (reflect all economic elements of costs);

· are planned and taken into account at the places of their occurrence;

· controlled by the budget-estimate method;

· distributed indirectly between types of finished products and work in progress;

· these expenses are first distributed among production departments according to the decision of the accountant. The indicator that most closely matches the overhead costs of each production unit is selected as the distribution base. The distribution base remains unchanged over a long period of time.

In practice, the following is taken as the distribution base:

a) working time of production workers (man-hours) - reflects the costs of direct labor;

b) wages of production workers, if they occupy a larger share in general production costs;

c) machine hours, if processing time takes up a large proportion;

d) direct costs, if the cost of basic materials and the basic wages of production workers makes up a large share;

e) cost of basic materials;

f) the volume of products produced in physical or value terms, if the division produces one type of product, without taking into account the labor intensity of products produced by different divisions;

g) standard rates, calculated for the enterprise as a whole, or for each division separately (used in cases where the divisions spend the same time on all work).

General production costs can be either conditionally variable or constant.

Conventionally, variable general production expenses are:

· expenditures of energy resources necessary to drive production equipment, machines, and mechanisms;

· expenses for routine maintenance of equipment and workplaces;

The size of these costs largely depends on the volume of production.

Other manufacturing overhead costs are fixed. These include: rent, insurance premiums, depreciation, etc.

Direct labor costs and general production costs form a group of added costs: DOBZ = PRT + GEN

Independent work on the topic

Prepare a written message according to your option ( option – first letter of last name ):

Option	Message subject
A, P	Economic significance of objects of market relations
B, R	Subject of market relations
B, C	Types of competition
G, T	Conditions for the emergence of a market
D, U	Economic isolation of commodity producers
E, F	Market functions
F, X	Market structures
Z, C	Monopolistic competition
I, H	Oligopoly
K, Sh	Theories of commodity value
L, Ш	Price and non-price factors of demand change
M, E	Non-profit organization
N, Yu	commercial organization
Oh I	Production costs

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Direct and indirect costs of production of products

The classification of production costs is not limited to element-by-element and calculation groupings. There are other types of characteristics - for example, expenses are often divided into types depending on the method of attributing certain product items to direct and indirect costs.

Direct costs directly correlate with the size of products produced or with the time spent on their production. There are three groups of such expenses:

Direct material - payment for resources, which subsequently become an integral part of manufactured products;
Direct labor - remuneration of personnel directly involved in the production of one or another type of product;
Direct overheads - the resources on which these funds are spent do not become a structural part of the released product, but this type of costs still directly depends on the volume of output (this may be payment for electricity necessary for the operation of workshop equipment).

Indirect costs are more general in nature. Their dependence on the quantity of goods produced is very conditional (an increase in production volume to a certain level does not affect them in any way). Indirect costs are also divided into three groups:

Indirect material - payment for by-products not used directly for the manufacture of products, but necessary for organizing the production process itself (various lubricants, office supplies, etc.);
Indirect labor - remuneration for the work of auxiliary workers, office staff, storekeepers, employees servicing machines and equipment, etc.; This also includes losses from downtime and overtime work for key personnel;
Indirect overheads – maintenance of the AUP, rental payments, expenses for the development of innovations, etc.

If direct costs are directly attributed to the cost of certain types of products, then indirect costs need to be distributed proportionally to some base. Typically this is the salary of production employees, but there are other options.

List of cost items for core activities

In the form of a table, we present the classification of costs, which are established by grouping expenses by item based on such principles as:

Grouping principle	Expense item
Period of occurrence and write-off of costs	Past expenses; Current period expenses; Future expenses
Degree of participation in the main production process	Direct production costs; Indirect production costs
Change in production volume	Conditionally fixed expenses; Conditionally variable expenses.
Depending on the degree of influence on the final result	Regulated costs; Unregulated costs
To calculate the cost	Shop costs; Expenses of auxiliary production; General production costs; Management costs; Expenses are intended for marketing and sales of goods

Important!!! Expense items in accounting must be fixed in the internal documents of the enterprise. This must either be an order on accounting policy, or a separate order must be issued for the formation of cost items in accounting. All cost items in accounting must be communicated to all areas of the enterprise in order for accounting to be correct.

It is also possible to draw a relationship between groupings of cost elements and cost items. Let's present this in table form:

Grouping by cost elements	Cost items in accounting
Grouping by cost elements	Direct costs	Indirect costs
Material costs	Materials required for production; Fuel and fuel; Electricity costs in production; Semi-finished products of our own production	Auxiliary materials for production; Costs of special clothing required for production workers
Salary	Wages for employees who work in the main workshop;	Salaries of auxiliary workers, as well as heads of workshops and sections
Social insurance	Accrual to the wage fund for employees of the main workshop	Accrual to the wage fund of general production personnel
Depreciation of fixed assets	Depreciation of fixed assets that are used in the main production	Depreciation of fixed assets that are not involved in the main production
Administrative expenses	Materials that are intended for management; Expenses for fuel and lubricants; Remuneration and deductions from management employees
Expenses are for marketing and sales	Materials needed for marketing and sales; Energy costs; Costs for fuel and lubricants; Remuneration and deductions from marketing and sales employees; Expenses associated with product promotion, such as promotions, advertising.
other expenses

Analysis of the production cost structure using an example

Analysis of the cost structure allows you to see which resources are consumed in the greatest quantities during the operation of the company. If these are materials, then production is considered material-intensive, if the main share in the cost structure belongs to wages - labor-intensive.

The cost structure is a list of the ratios of individual types of costs to their total amount. This point is largely determined by the industry in which the company operates.

Analysis of the structure involves comparing the shares of the main types of costs over time. The goal is to identify the causes of changes, study their impact on the efficiency of the company, and also search for reserves for reasonable cost reduction.

Example. Data on expenses of EURASIA LLC for two years are shown in the table.

Indicator name	Last year		This year
Indicator name	Amount, t.r.	Specific gravity. %	Amount, t.r.	Specific gravity, %
Output	468 410	–	327 195	–
Spending	288 023	100	220 140	100
Of them:
Material costs:	136 007	47,22	90 275	41
raw materials	129 384	44,92	82 943	37,68
fuel	3 068	1,06	4 722	2,14
energy	3 555	1,24	2 610	1,18
Salary	82 245	28,56	73 100	33,21
Contributions for social needs	38 138	13,24	35 100	15,95
Depreciation	972	0,34	865	0,39
Other expenses	30 661	10,64	20 800	9,45

The table shows that in the reporting year there was a decrease in the amount of costs. This is largely due to a reduction in production output. Perhaps this moment was also influenced by measures to reduce the cost of manufactured products.

In both periods under review, the greatest weight in costs is occupied by material costs and wages. The share of labor costs increased (from 28.56% to 33.21%). The share of material costs, on the contrary, decreased. Accordingly, first of all, one should look for reserves for reducing costs precisely by salary items.

An increase in the weight of depreciation charges signals a decrease in capital productivity. An increase in the share of other costs indicates changes in their composition: for example, an increase in bank interest on loans, an increase in tax rates, a change in rental rates, etc.

Product costs, period costs

This classification is very important from the point of view of management accounting, since it is the only one used in Western countries, where many of the management accounting methods used today were developed, and such a classification is usually required in both management and financial accounting.

Figure 2. Classification of costs in management accounting

Product costs (production costs) are considered only those costs that should be included in the cost of production, at which it should be accounted for in workshops and warehouses, and if it remains unsold, reflected in the balance sheet. These are “inventory-intensive” costs directly related to the manufacture of products and, therefore, subject to accounting as part of its cost.

In practice, this category of costs includes:

raw materials and basic materials;
remuneration of personnel involved in the production of specific types of products;
general production costs (production overhead), including: auxiliary materials and components; indirect labor costs (salaries of support workers and repairmen, additional payments for overtime, vacation pay, etc.); other expenses - maintenance of workshop buildings, depreciation and insurance of workshop property, etc.

Period costs (periodic expenses) include those types of costs, the size of which does not depend on production volumes, but rather on the duration of the period. In practice, they are presented in two articles:

commercial expenses – expenses associated with sales and deliveries of products (goods, works, services);
general and administrative expenses are the costs of managing the enterprise as a whole (in Russian practice they are called “general business expenses”).

Such costs are not included in the cost of finished products, because they are not directly related to the production process, therefore they are always attributed to the period during which they were produced, and are never attributed to the balances of finished products.

When applying this classification, the full cost of products sold is formed in the following order.

Figure 3. Formation of cost in classical management accounting

If we apply this classification to domestic practice, guided by the Russian Chart of Accounts, it is necessary to organize cost accounting as follows:

1) in terms of product costs:

direct material and labor costs are collected directly on account 20 “Main production” (according to subaccounts and analytical accounts for each type of product, work, service);
General production expenses during the reporting period are collected in a separate account (according to the Russian Chart of Accounts, account 25 “General production expenses” is used for these purposes), and at the end of the period they are distributed and written off to account 20 “Main production” (by type of product, work, service );
as a result, all costs recorded on the debit of account 20 “Main production” for a certain period represent total production costs, which may relate to manufactured products, forming the production cost of finished products (or to work performed, services provided, forming their cost accordingly), or may relate to work in progress balances, if any;

2) in terms of period costs:

one must proceed from the postulate that periodic expenses are always attributed to the month, quarter or year during which they were incurred, that is, at the end of the period they are completely written off to reduce the financial result (profit), and they are never attributed to the balance of finished products on warehouse and work in progress;
This means that they must be collected in accounts designated for these purposes (in Russia these are accounts 26 “General business expenses” and 44 “Sales expenses”), and at the end of each month the entire amount of expenses collected for the month must be written off from the credit of these accounts to the debit of the account 90 "Sales".

Please note that this option is permitted by current Russian legislation (in particular, PBU 10/99 “Organizational Expenses” and the Instructions for the Application of the Chart of Accounts). So every manager and accountant can implement this methodology into the practice of their organization.

However, in Russia, unlike IFRS and the accounting requirements of many foreign countries, this is not the only permitted option.

Thus, account 44 “Sales expenses” in Russian practice may not be closed completely “month to month”; depending on the accounting policy of the organization, a carryover debit balance may be formed on this account - for example, in terms of costs for packaging and transportation of shipped products, if it has not yet become the property of the buyer, or in terms of transportation costs in trade organizations (if part of the goods remained unsold at the end of the month).

And we can close account 26 “General business expenses” not to account 90 “Sales”, but to account 20 “Main production” (as well as 23 “Auxiliary production” and 29 “Service production and farms”, if their products, work and services are sold externally). It was this option that was used until the early nineties, and it was not canceled or completely replaced by a new option using account 90 “Sales”.

The logic of this application of the 26th account, which involves the inclusion of general business expenses in the cost of specific types of manufactured products, works, services (including for the purpose of estimating the balances of unsold products), is based on the traditional approach, according to which in domestic practice, production costs and Today, in addition to material costs, labor costs and general production expenses, many also include general business expenses (and, accordingly, non-production costs include the costs of selling products, as well as maintaining social facilities).

With this approach, the meaning put into the concept of “production cost” also changes:

a Western accountant or manager views this type of cost as the sum of “product costs”, and in his view management costs cannot be included in production costs;
In domestic practice, to this day, there are often not two (production and full), but three types of cost - shop, production and full, while:
shop cost is considered to be precisely the amount of “product costs” (that is, in our country shop cost is what Western experts call production cost);
Production cost in Russia is often understood as the sum of shop cost and general business expenses, that is, in addition to “product costs” (direct and general production expenses), it also includes management expenses, which Western experts clearly classify as “period costs”, subject to accounting only in full cost and never included in production costs;
the concept of the full cost of goods sold is conceptually the same in both systems, although its value, other things being equal, may not coincide (if there are balances of unsold products, because then for a Russian accountant, part of the management costs may “settle” in the balance sheet in the value of the balances of finished products, and For a Western accountant, the entire amount of management expenses will be attributed month to month to the reduction of profits).

Assessment of the implementation of planned targets and the dynamics of the cost of commercial products

Analysis of production costs includes activities aimed at assessing achievements against planned indicators and studying the dynamics of product costs.

Actual cost of production

When analyzing the actual cost of production, three main indicators are usually used:

Z0 – unit cost of goods for the previous year;
Z1 – cost of the same unit of goods in the current year;
Zpl is the planned cost of this unit of production.

Example. At the plant, the cost of manufacturing one object according to the plan should be 150 thousand rubles, but the actual costs this year amounted to 159 thousand rubles, and in the previous year - 155 thousand rubles. A total of 150 such products were manufactured, while 200 were planned.

Let's calculate a number of analytical indices.

Plan index = Zpl/ Z0 = 150/155 = 0.97 = 97%

That is, it is planned to reduce expenses by 3%.

Plan execution index = Z1/ Zpl = 159/150 = 1.06 = 106%

That is, the above-plan cost increase was 6%.

Dynamics index = Z1/ Z0 = 159/155 = 1.0258 = 102.58%

That is, the actual increase in costs was 2.58%

It turns out that with a planned reduction in the cost of the facility by 3%, it increased by 2.58%. The actual amount of overspending for the entire number of objects (150 in the example) was:

(Z1 – Z0)*Q1 = (159 – 155)*150 = 600 thousand rubles.

The reduction in actual cost is calculated using the following formula:

(Z1* Q1/ Z0* Q1)*100 – 100 = 102.58 – 100 = 2.58%

Costs did not decrease, but increased by 2.58%, the task was not completed.

Absolute amount of actual cost

The absolute amount of actual savings is calculated as follows:

Z0* Q1 – Z1* Q1

If we take the figures from the example above, then the absolute amount of actual savings was: 155*150 – 159*150 = – 600

Cost of finished products

All costs collected in the debit of account 20 form the cost of finished products. When releasing finished products to the warehouse, reflect the cost on the credit of this account in correspondence with the finished product accounts. At the same time, the procedure for accounting for the output of finished products for each stage, order, process depends not only on the method of accounting for production costs, but also on the options for its assessment:

at standard cost using account 40 “Output of products (works, services)”. In this case, the standard cost is indicated in the debit of account 43 “Finished products”, and account 40 is used to reflect the actual cost;

at standard cost without using account 40 “Output of products (works, services)”. In this case, the debit and credit of account 43 of the sub-account “Finished products at standard cost” reflect the standard cost, and at the end of the month, the excess of the actual cost over the standard is written off in the debit of account 43 of the sub-account “Deviations of the actual cost of finished products from the standard”;

at actual cost, that is, without using account 40 “Output of products (works, services).” In this case, the actual cost is indicated in the debit of account 43 “Finished products”.

When using the standard cost accounting method, form the cost of products, works or services as follows. Determine the cost norms for each type of manufactured product in advance. Involve production technology services for this. Based on these data, make a standard calculation. During production, keep costs within established limits.

Separately, keep operational records of deviations of actual expenses from current standards and changes. Do not forget to indicate the places and reasons for deviations. At the end of the month, write off all deviations as financial results. If there are significant volumes of work in progress and insignificant output of finished goods, distribute the deviations. Thus, form the actual cost.

This procedure follows from paragraph 9 of PBU 10/99 and the Instructions for the chart of accounts.

Regardless of the method of calculating costs, at the end of the month, account 43 “Finished Products” must reflect the actual cost of all manufactured products.

Collect all direct and indirect expenses during the month on account 20 “Main production”. The part of the costs that relates to the cost of finished products, as they are transferred to the warehouse, is written off to account 43.

That part of the costs that is not included in the cost of finished products (debit balance of account 20 at the end of the month) is the cost of work in progress.

For more information on valuing work-in-process balances, see How to Determine the Value of Work-in-Process Inventory.