Direct count method and its planning

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

Profit is considered a key indicator of socio-economic growth. Its planning must be justified. It can be for the short term or the long term. In the first case, the direct counting method is considered the simplest. Let's take a closer look at it.

General information

Enterprise plans profit from sales:

• products, including non-commercial nature, and services;
• fixed assets;
• other property and rights in rem.

In addition, revenues from payment for work performed, services rendered, as well as income (loss) from non-operating business transactions are forecasted.

Used in planning:

1. Direct counting method.
2. Combined settlement.
3. Analytical method.

Planning Meaning

Reasonable from an economic point of view, forecasting the volume of profits allows you to correctly assess the financial capabilities of the enterprise, determine the amount of deductions to the budget, the amount of resources for expanding reproduction andincentives for employees. The effectiveness of the dividend policy of a joint-stock company also depends on the volume of proceeds.

Currently, there is no clear regulation of methods for planning and forecasting financial results. However, they are described in some detail in the trade literature.

The direct counting method and the analytical method are considered to be the traditional methods of income planning. With few restrictions, many enterprises use them.

How to calculate profit using the direct count method?

This technique is based on the following. The quantity of sold goods (sales volume) for a separate nomenclature item is multiplied by the cost of sales and unit cost. The difference between these indicators is the projected amount of income.

When determining the cost of incomparable products, planned unit cost estimates are taken into account. The formulas for the direct count method are:

P=V - W or P=P1 + Fri - P2, in which:

• profit – P;
• sales proceeds at wholesale cost – B;
• total cost of production – G;
• profit in the balance of unsold goods at the beginning and end of the period - P1, P2;
• profit from marketable products - Fri.

The total cost includes the cost of goods sold, services, works, administrative and commercial costs.

When using the direct counting method, the determination of income from marketable products is carried out inin accordance with the production plan for the detailed nomenclature, estimates of commercial and management costs, planned cost estimates for each product.

Calculation features

When planning profits using the direct account method, receipts in carry-over balances of finished goods are calculated according to their totality. They are accounted for at notional production cost. Accordingly, when planning profits using the direct account method, the difference between the value of input and output balances in selling prices and at production costs is calculated.

Administrative and commercial costs are conditionally transferred to the release of goods.

According to the direct account method, receipts can be calculated using the production cost and the profitability indicator (cost for the last quarter of the reporting and planning periods).

Nuances

Accounting for sold products is made on an accrual basis. The actual movement of funds for shipped goods does not coincide with the material flow.

When using the direct count method, it is important to establish the actual receipt of income. In this regard, when calculating receipts in the balance of unsold products, it is advisable to include, in addition to the balance in the warehouse, shipped but not paid deliveries.

Flaws

Methodically, the method of direct counting is very simple. However, in the presence of a large number of product names, its labor intensity increases significantly. For calculation you need:

1. Define assortment byall nomenclature positions.
2. Create cost estimates for all comparable products.
3. Calculate planned cost and contract prices for incomparable products. This, in turn, will require the preparation of a production estimate for all elements.
4. Set selling prices for manufactured products.

One of the significant drawbacks of the method is the inability to identify factors that affect the amount of profit in the forecast period.

Conclusions

The direct account method is not suitable for annual and long-term revenue planning. Currently, it is mainly used for short-term forecasting, while prices, wages, and other circumstances remain unchanged.

Working capital ratio

Each enterprise independently decides on the rationing of funds for individual facilities and identifying the total need for them for the planned period. At the same time, the organization establishes methods of calculation and frequency of forecasting.

When rationing, it is advisable to adhere to general calculation approaches. Traditionally, the norm is determined by:

• in days - for raw materials, fuel, basic materials, finished products, work in progress;
• in rubles or percentages - for containers, spare parts, household equipment, workwear.

One-day consumption of materials and raw materials, as well as the release of goods is calculated according to forecast indicators for the fourth quarter of the planned period. A year is 360 days, a quarter is 90, and a month is 30.

The standard of working capital is called the estimated cost value, reflecting the minimum capital that the company must have permanently. It can be private and public. In the first case, we are talking about the standards for individual articles and objects of working capital. The sum of private standards forms a general one.

Rationing methods: direct counting method

It is considered the most accurate, but, however, the most time-consuming. To use it, you need knowledge of methods for calculating norms in days.

Rationing consists of the following steps:

1. Inventory development by inventory type.
2. Calculation of private standards.
3. Calculation of the general standard.

To determine the need for working capital using the direct account method, you must set the stock indicator in days, then determine the one-day need. To do this, the total volume for the fourth quarter is divided by 90.

To determine the stock of work in progress, the cost of the object is taken into account, for finished products, the production cost of the goods is used.

The stock of raw materials and materials is determined by multiplying the one-day requirement by the stock rate in days.

Analytical methods

They are used in long-term (enlarged) forecasting, in the formation of estimates for business plans in industries characterized by a wide range of goods. In addition, analytical methods are applied as a supplement to the direct counting method.

Basis for calculationmay perform:

1. Costs per 1 thousand rubles. marketable products.
2. Complex of reporting indicators of the enterprise.
3. Basic profitability.

If the calculation uses the cost of 1 thousand rubles. marketable products, income is planned for the entire output of comparable and incomparable products.

The following formula is used for this:

P \u003d T x (1000 - W) / 1000, in which:

• gross profit – R;
• commodity products at selling prices – Т;
• expenses (in rubles per 1000 rubles) – Z.

Let's consider an example. Let's say:

• Product output at selling prices in the forecast period will amount to 300 million rubles;
• costs per 1 thousand rubles. amount to 900 rubles.

Gross Profit:

• for 1 thousand rubles. products - 1000 - 900 \u003d 100 rubles;
• for the entire issue - 300 x 100 / 1000=30 million rubles

To determine the total proceeds from sales, the result is adjusted for the change in profit on carry-over stock of finished goods.

Underlying profitability

When using this ratio, the ratio of gross product margin to cost price is adjusted for expected changes in the forecast year.

To compare with the planned period, the expected receipts for the reporting year are adjusted for changes in value. Profit is calculated separately:

• for incomparable products;
• in carryover unsolditems;
• from sales in the forecast year.

Calculation based on comparable products

For its implementation, an analysis of the impact on profit of changes in individual factors is carried out. Attention paid to:

• product cost;
• quality and product range;
• sales prices.

The calculation is made in stages:

1. Profit is calculated for comparable products based on basic profitability. For comparability, all products of the planned year are recalculated for the cost price for the reporting period in accordance with the stipulated change.
2. The impact of changes in cost on profit is determined. To do this, a comparison of the indicator of the planned and reporting periods is made. The difference is the amount of loss or profit from changes in cost.
3. The impact of changes in the assortment is determined. The average level of profitability is calculated based on the structure of the output of goods in the reporting and planning years. The resulting difference reflects the deviation of the indicator due to changes in the assortment.
4. The quality impact is calculated. In this case, the grade factor is used. The specific weight for each variety in the total production volume is determined, as well as the ratio of prices of individual varieties. The cost of the 1st is taken as 100%, the 2nd is calculated to the price of the 1st in %.
5. Determination of the impact of changes in selling prices. For this, commercial products are identified for which a new value has been introduced. Calculationinfluence is carried out by multiplying the realization prices by the change.
6. Calculation of profit on carry-over balances of unsold items. The cost is multiplied by the profitability of the goods of the reporting and forecast periods.
7. Calculation of profit from sales. Gross income is determined taking into account the influence of the above factors and profit on carry-over balances of unsold products; management and selling costs are included.
8. Calculate receipts for incomparable products. It is carried out by the direct method: the cost price is deducted from the selling price. If prices have not been set, the calculation is based on the average level of profitability.
9. Determining the total operating income. It is carried out by adding up profits for incomparable and comparable products.

Extra

In practice, the combined method of profit planning is used quite often. It contains elements of the two methods discussed above.

The essence of it is as follows. Determination of the cost of production in the prices of the forecast year and at the cost of the reporting period is carried out by the method of direct counting. The influence of factors on the planned income is calculated according to the analytical method.

Getting a lot of profit allows you to determine the efficiency of production. However, by itself, it does not characterize the level of performance of the enterprise. To do this, you need to calculate the profitability indicator.