Cost centers: accounting, organization, grouping

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

One of the main tasks of any accounting in the enterprise is the calculation of the cost of one unit of manufactured products. It is she who influences the adoption of major management decisions. The success of the company's activities directly depends on its formation, since expenses affect the size of the selling price, and cost data are fundamental in managing current business processes and making managerial decisions. This article focuses on the types of costs, their accounting systems and how to allocate them to the cost price.

Important definitions and terms

Cost allocation - allocation of costs incurred to specific facilities.

Cost Objects - an accounting unit that generates expenses that affect the cost of products, investments, services, works.

Cost centers are an organizational unit. It can be a workshop, a section - a unit that accumulates and systematizes information about costs and general expenses.

Calculation principles

To calculate the cost of products, use the method of its calculation. In this case, several methods are used: with the inclusion of only variable costs (direct costing), taking into account all costs, or using established standard costs.

For the convenience of calculation and more correct decision-making in management accounting, the classification of production costs by two types of objects is used. This process is carried out in stages. At the beginning, the costs are grouped according to the place of occurrence, then they are posted to the cost unit or specific products. Let's take a closer look at the initial stage.

Types of responsibility centers

As already noted, the cost center (responsibility center) is a structural unit of the company. Each such center incurs certain costs and contributes to the production of the final product or service.

The costs of each cost center are controlled and measured by the responsible person. But the contribution to the final product is sometimes difficult to determine. For example, it is impossible to determine the income from the activities of the accounting department of an enterprise. Thus, not all divisions of the firm that measure profits and expenses can participate in the distribution of income. Based on the possibility of generating and distributing profits, the cost centers of production and other enterprises are divided into centers of costs, income (profit) and investments (investments). Let's take a closer look at each of them.

Expense Centers

In these centers cost centering is usually the main focus. There is no income control here. Such a center can be a production shop, a robotic workplace, a team or a site. His main task is to reduce costs as much as possible.

Profit Centers

It's not just spending records anymore. The head of the center, by comparing the costs incurred and the income received, determines the profit. The main objective of this cost center is to achieve as much profit as possible.

Investment Centers

In these centers, not only the income received, the expenses incurred, the final profit are controlled, but also the distribution of this profit, for example, an investment in the company's assets. Such centers are usually quite large - these are branches, out-of-town divisions of the company, subsidiaries.

Classification of responsibility centers

Based on the principle of participation in the economic activities of the company and the production functions performed, the classification of cost centers implies the allocation of the following types of centers.

The center responsible for procurement plans the volume of purchases of materials and other inventories, keeps records of them, controls storage and expenditure for production purposes.

The Production Responsibility Center keeps records, controls and plans the costs of manufacturing products. The mission of this placethe occurrence of costs is also the structuring of the company's assortment, control of production volume, cost and quality of the final product.

Sales Center (responsibility for implementation) keeps track of and planning the costs of implementation. It controls such performance indicators as the volume of products sold, their structure, the profitability of finished products in the context of various product groups, as well as revenue. These structural units may also be called revenue centers.

Control centers are not directly involved in the production process, but are an integral part of financial and economic activities and important structural units of the company. These include planning departments, accounting departments, management accounting service. It takes into account and controls the costs of its own functioning and evaluates the effectiveness of work.

Activities

The main function of the responsible centers is to organize cost accounting by origin. This is done by comparing the actual costs incurred with the planned figures calculated in the estimate, which serves as a kind of economic plan for each cost center. It is expediently drawn up taking into account only those costs that are controlled by this center.

The use of so-called flexible (or variable) estimates is topical, when planned costs can be compared and modified in accordance with the actual volume of output and production. Whereinwhen recalculated by place of origin, costs are grouped into fixed or unchanging, variable and partially variable.

Variable costs are adjusted for the actual production value when refining costs. Partially variable costs are adjusted for the actual change in production volume, taking into account the dependence of these costs on its size. Fixed costs are not adjusted when refining costs according to the estimate.

Activity Report

The results and analysis of the ratio of incurred and planned costs are reflected by the responsible persons of the centers in the reports on the execution of approved estimates. Such a report is generated in the form of a table, which indicates the types of costs for which this center is responsible, control indicators are entered, and deviations are calculated.

Conditions for efficient operation

Efficiency of the cost accounting system by their places of origin in order to manage the expenses and profits of the organization can be achieved if several conditions are met:

1. Realistic, production-based selection of responsible centers.
2. Formation of estimates for a specific cost center, which is designed to stimulate their maximum reduction.
3. Correct and adequate selection of the list of costs actually controlled by a particular center.
4. Competent choice of responsible persons who will be entrusted with the authority to control costs.
5. The presence of a close relationship between reports and activities in general in variouscost centers.
6. Coexistence of cost center accounting with a common production accounting system.

Cost Center Accounting

As already noted, a center is a type of cost center, which can be any organizational unit that can control its own costs. This paragraph also provides for the organization of rationing and planning of expenses incurred and the determination of a person responsible for accounting and reporting.

Determination of cost centers is carried out by management depending on the objectives and the overall structure of the economic entity. Keep in mind, however, that as the number of centers increases, so does the degree of cost control, but so does the cost of maintaining cost centers.

Once cost centers have been identified, only those costs that are within the responsibility of that unit are estimated for each cost center.

Direct production costs should be accounted for on the basis of primary accounting data. Indirect costs are divided in the estimate into those belonging to this center and distributed from others.

For the most successful identification of cost centers, accounting activities in them, and reporting, it is recommended to use methodological recommendations published by industry.

Accounting in profitable centers

Profit centers are those divisions of the firm that are responsible and can influence not onlyexpenses, but also participate in the formation and distribution of income. This is, for example, a workshop, a sales department, an organization as a whole.

The main reporting document of such centers is a profit statement, which is formed depending on the profit indicator used: net, from sales, before tax or gross.

Instead of profit reports, revenue centers may provide margin reports. In this case, fixed costs are divided into indirect and direct, taking into account the specifics of the manufacturing process. Then marginal income is determined by the difference between sales revenue and the amount of variable expenses. To specify accounting indicators, residual income is also determined, which is formed from the difference between marginal income and fixed costs.

Accounting by investment centers

Investment centers are the largest structural units - subsidiaries and branches. Their reporting is generally accepted financial statements, including a statement of results. At the same time, when comparing the performance of individual investment centers, the parent organization is focused not only on profit indicators, but also on the specifics of production, the volume of assets, and the size of the activity as a whole. Therefore, when evaluating the activities of investment centers, indicators of profitability and value added are used.

Problems of accounting for costs, their distribution, competent allocation of their places of occurrence, the impact of total costs on the cost of the finished product are one of the most important areasbusiness management. Depending on the specifics of the activities of the organization, various methods of cost accounting can be applied. The choice of method is usually the responsibility of the parent organization or the head of the firm.