Control cost data to reduce expenses and increase production efficiency.
The main reason to do the Cost Management, or Costing, is to reduce unnecessary and excessive expenses, making the most of productive efficiency.
When the entire process is in an automated system, it is better controlled, with greater precision and ease of reading, since the expenses are offered on lists and monitored. This makes expenses much easier to identify, control, and makes it possible to know if their application is actually generating returns.
There are several methods of appropriation and cost control. Such methods have specific applications and one does not replace the other, but they complement each other.
The two most traditional methods, most frequently used in the manufacturing and commercial industries, are Absorption Costing and Variable Costing.
Here we will discuss these and others that are relevant to the topic.
Let's get started!
Absorption Costing Method
It consists of the appropriation of all production costs, whether variable or fixed, for products prepared under a certain competition regime.
This costing methodology is considered appropriate for the valuation of inventories by Financial Accounting, for the purpose of collecting Balance Sheets and Results, with the purpose of meeting tax and corporate requirements, among others.
By this method, all variable and fixed costs, normally identified as Indirect Production Costs, are an integral part of the costs of the items produced and will be transferred to the inventory of prepared products in accounting.
Variable Costing Method
It considers as the cost of the prepared products only those costs that vary in proportion to the volume of production, that is, the variable costs of production.
Fixed process costs are considered as costs for the period and will be included in the company's income statement.
This method allows us to know the contribution margin of each product or product line, making it possible to manage the production of items with the best margin.
Other methods for management purposes:
Standard Cost System Costing Method
Also called Standard Cost, this concept of Costing for management purposes has the purpose of establishing or simulating the costs of a product based on technical production data and its technical data sheet, such as consumption of raw materials, standard process time, and manufacturing expenses in relation to pre-established parameters.
In addition, Standard Cost is used to determine the sale price, while also considering direct labor expenses, indirect manufacturing costs, administrative and variable sales and financial expenses, including:
- Appropriation of the consumption of raw materials to the costs of the products based on their product engineering;
- Allocation of budgeted or historical expenditures for a given period to auxiliary and productive cost centers;
- Appropriation and distribution of the expenses allocated from auxiliary cost centers to productive cost centers, through rational criteria;
- Appropriation of expenses from productive cost centers to products or services, by determining their expected process cost.
In summary, the standard cost management costing system allows, in addition to calculating the cost itself, it allows simulations aimed at:
- Establish the Standard/Managerial Cost of production;
- Form the sales prices, depending on production costs, administrative expenses, variable sales expenses and desired profit margin;
- Simulate to profitability and profitability of the products, considering the sales price charged in the market, by product, order, customer and representative;
- Simulate to contribution margin of the products, by product, order, customer and representative, based on direct costing;
- Calculate the break-even point depending on the order book and the fixed costs for a given period;
- Evaluate the performance forecast of products, commercial orders, customers, and representatives, based on the costs, expenses, and sales prices charged.
Other methods — for accounting purposes:
Costing Method using the Real Cost System
The Costing method for accounting purposes, called Real Cost of Production, or simply Real Cost, determines production costs assuming the actual actual amounts of expenses in a given period, which are quantified by accrual regime according to the time interval in which they occur, regardless of when they will be paid. In other words, the Real Cost must be calculated based on the consumption of raw materials and actual production times, on a monthly basis, for example.
Main characteristics of Accounting Costing/Real Cost:
- Appropriation, distribution of real consumption of raw materials to product costs;
- Allocation, through accounting entries, of real expenses for a given period to auxiliary and productive cost centers;
- Distribution of expenses allocated from auxiliary cost centers to productive cost centers, using rational criteria;
- Appropriation of expenditures from productive cost centers to products or services, by determining their transformation cost.
As we can see, the database for Real Costing is the movement of materials, from the entry of the raw material to the entry into stock of the final products, through the entire process.
An effective Real Cost system must be able to cost the products in the various phases they are in, considering the specific characteristics and parameters of each phase, to provide a complete, accurate and clear diagnosis to the manager. In addition, it must be able to value inventories, in order to allow them to be evaluated by Financial Accounting, for the purpose of drawing the Balance Sheet and Results, and to meet tax and corporate requirements, among others.
Thus, based on billing, CPVs (costs of products sold), fixed and variable expenses, including taxes and refunds, we arrived at the result for the period, with a mapping of the points with potential for improvement.
In short, Real Costeio should allow us to:
- Value the stocks of raw materials, products under preparation, finished products and warehouse materials;
- Get the real cost of production;
- Accounting stocks valued to meet the company's tax and corporate requirements;
- Demonstrate the result of the exercise (OF).
Conclusion
With the support of all this list of mapped and organized information, the industry achieves maximum productive efficiency, as it reduces expenses and improves business performance, which is reflected in greater competitiveness.
Costing methods make it possible to understand the performance and performance of the most diverse activities, and thus, guide better decision-making, promoting control and solidly substantiating the planning and development of the company's internal and external operations.
Computerized systems must include all variables, concepts and information related to Costs, considering the expertise and specific demands of each business, to ensure the best management of resources and maximum final profitability for each segment.
Thank you, and see you next time!
