The objective of this research work is to improve the current production cost system of a Graphic Company, through the future application of the proposal of a process cost system.
Likewise, cost sheets are proposed that must be used in the company under study to make management decisions about the resources used for each type of product.
Criteria are exposed on the waste that occurs in the production process on some cost elements that are used in the manufacture of various products. During the development of the research, factors that influenced the efficiency of the use of resources in the production process were detected, making an analysis of them after each cost sheet was prepared.
Likewise, bibliography related to the topic of traditional Cost Systems was addressed, since the system implemented by the company is by work order and the one proposed is also a traditional cost system.
Conceptual Theoretical Framework
Introduction
The development of Management Accounting is a prevailing need in today's business world. Managers seek to improve the methods to determine the cost of their products, for this reason, this chapter will address issues related to: a) Evolution of Management Accounting; b) Traditional Cost Systems; c) Differences between the Traditional Cost Systems and, d) The need to change towards a cost system that allows the resources that are consumed in the production process to be managed more efficiently by preparing cost sheets.
Management Accounting Evolution
The implementation of cost systems was initially based solely on the expenditures made by people, it is believed that in ancient times, Middle Eastern civilizations took the first steps in managing costs.
In the earliest industries known as vineyard production, book printing, and steel mills, procedures were applied that resembled a cost system and mediated in part the use of resources for the production of material goods.
In some industries in various European countries between the years 1485 and 1509 rudimentary cost systems began to be used that bear some similarity to current cost systems.
According to studies, some books were kept where the costs for the treatment of products were recorded, these books compiled the memories of the production and could be considered as the current cost manuals.
In Italy it is thought that bookkeeping arose by the double entry method, since as this is a region with a lot of commercial influence, the first accounting texts were written for merchants since the manufacturing process was in the hands of some few artisans linked to associations and therefore subject to the rules of their guilds. At this stage, the accounting called Partida Doble was created, whose author was Lucas Paccioli.
With crafts, accounting boomed due to the growth of capitalists and the increase in private land. This raised the need for control over the raw materials assigned to the artisan, who occupied his workplace.
As the market and forms of production grew, the use of accounting as a method of measuring the profits of merchants, producers, manufacturers and all those who had to do with mercantilism increased, for example in England, calculation became indispensable of costs, due to the competition existing between the wool producers of the cities and the villages at the end of the 14th century.
In 1557, winemakers began to use something they called production costs, understanding as such what today would be materials and labor. French publisher Christopher Plantin established in Antwerp in the 16th century, used different accounts for various kinds of imported papers and others for book printing. It is also claimed that its accounting records included an account for each book in print until the costs were transferred to another inventory account for sale.
The objective of accounting at that time was to render a report of accounts without differentiating between income and costs without contributing to the setting of sales prices or determining the net result of operations.
During the sixteenth century and until the middle of the seventeenth century, cost accounting experienced a serious recess.
However, in 1776 the emergence of the Industrial Revolution led to the birth of large factories. It went from artisanal to industrial production, creating the need to exercise greater control over materials and labor and over the new element of cost that machines and equipment originated. The mechanics of the Industrial Revolution caused the displacement of labor and the disappearance of small artisans. All of the above growth created an environment conducive to further development of cost accounting.
This revolutionary process in the industry led authors such as Taylor to introduce the term process management, therefore, as early as the following year, that is, in 1777, a first description was made of the costs of production by processes based on a company manufacturer of linen yarn stockings. It showed how the cost of the finished product can be calculated by means of a series of accounts for double entry that took in quantities and values for each stage of the production process.
In 1778, auxiliary books began to be used in all the elements that had an impact on the cost of products, such as wages, work materials and delivery dates. Fruit of the development of the chemical industry is the appearance of the concept of joint cost in 1800, although the Industrial Revolution originated in England, France was initially more concerned with promoting cost accounting.
At this stage, Anselmo Payen was the first to incorporate the concepts of depreciation, rent and interest for the first time in a cost system.
A French glassmaker M. GORDARD published an industrial accounting treaty in 1827 highlighting the need to determine the price of raw materials compared at different prices.
In the last three decades of the 19th century, England was the country that was mainly concerned with theorizing about costs. This is how between 1828 and 1839 Carlos Babbge published a book highlighting the need for factories to establish an accounting department that is responsible for monitoring compliance with working hours. In the late 19th century, author Henry Metcalfe published his first book, which he called manufacturing costs.
The greatest development of cost accounting took place between 1890 and 1915. In this period, the basic structure of cost accounting was designed and cost records were integrated into general accounts in countries such as England and the United States and contributed concepts such as: a) establishments for procedures for the distribution of indirect manufacturing costs; b) adaptation of reports and records for internal and external users; c) valuation of inventories and, d) estimation of materials and labor costs.
Until now, cost accounting exercised control over production costs and recorded its information based on historical data, but when general accounting and cost accounting were integrated between 1900 and 1910, it became dependent on the former.
Accounting was beginning to be understood as a planning tool which demanded the need to create ways to anticipate simple historical economic facts, as a result of this the emergence of predetermined costs between 1920 and 1930 when the North American Federico Taylor began to experiment standard costs at the steel company Bethlem Steel Co.
There is evidence to confirm that the predetermined costs were used in 1928 by the American company WESTINGHOUSE before being spread by large companies in the American union. These costs made it possible to have data before starting production, then comes the depression of the 1930s, during which industrialized countries had to make considerable efforts to protect their capital.
After the depression, great preponderance begins to be given to different cost systems and budgets as a key tool in managing organizations. Among the reasons that evidenced the new boom in cost accounting were:
- The development of the railways. The value of the fixed assets used by the companies that gave rise to the need to control indirect costs. The size and complexity of the companies and therefore the administrative difficulties they faced The need to have a reliable tool that allows them to set sale prices.
In 1953, the American Littelton, in view of the growth of fixed assets, defined the need to amortize them through consumption rates on manufactured products as indirect costs. In 1955, the concept of comptrollership arose as a means of controlling the production and financial activities of organizations and five years later, the concept of administrative accounting as a tool for the analysis of manufacturing costs and as a basic instrument for the decision-making process. of decisions.
Before 1980, large industrial companies considered their cost accumulation procedures to be trade secrets, since the financial information system did not include the databases and files of cost accounting.
Unquestionably, this translated into stagnation for cost accounting in relation to other branches of accounting, until its application was found to produce benefits. This is how in 1981 the North American Jhonson highlighted the importance of cost accounting and cost systems as a key tool to provide management information on production, which implied the existence of useful cost files for adequate pricing. in competitive markets.
At the end of the 20th century, there was a notable proliferation of scientific contributions focused on the investigation of new cost models, more in line with the current information requirements of organizations. Most of these works coincide in pointing out a spectacular modification of the characteristics of the economic environment and at the same time a growth in the cost management techniques used by companies. In this way, new management models emerged, among which the Activity Based Costs (ABC) management model stands out.
The application of the Activity Based Cost System at present is still ephemeral if the level of application is compared with other management tools such as: Quality Costs, Balanced Scorecard, Management Control, etc.
The world, society, organizations, individuals and the environment tend to change rapidly, which is why all the issues and questions that accompany these systems have to be coupled to the rhythm of the rules of the new social, productive and business order..
The allocation of indirect costs to the different cost objectives, especially the final objective that are the finished products, is without a doubt the most important problem to be solved by any cost system. In addition, it is an inescapable problem because the organization needs to have reliable, timely and as accurate information as possible about the cost of its products, for correct decision-making.
The cost calculation model for companies is of utmost importance, since these are the ones that determine the viability of the business, those that mostly determine the degree of productivity and efficiency in the use of resources, therefore, a model of Cost cannot be based solely on assigning costs on a certain factor, which for the business order may be insignificant or not very representative of what it actually symbolizes.
The ABC boom begins in the 1980s, due to increases in irrelevancies in traditional accounting methods.
Traditional methods were designed between 1870 - 1920 and at that time the industry depended mainly on the work of man. The indirect costs in the companies were generally low compared to today.
Some authors such as: Amat, Armenteros, Balada, Bastidas, Baujín, Bescos, Caldera, Castelló, Garbey, Lizcano, Pérez, Ripoll and, Vega, have somehow referred in Congresses and articles published to the improvement of the ABC system in the Indirect cost treatment in the 90's and until today. In this sense, ABC is treated as one of the most important management systems for decision making.
The difference between traditional costing and ABC can be summarized in three fundamental aspects:
- In traditional costing, cost objects are assumed to consume resources but in the ABC system cost objects are assumed to consume activities. Traditional costing uses volume allocation of bases, while ABC uses cost drivers to different levels, giving greater importance at present to the working time used in the execution of the activities carried out in the company. Traditional costing is oriented according to the structure of an organization while ABC is oriented towards processes.
Activity-Based Costing in common sense is a systemic method of planning, control and management. This method is cause and effect to assign the cost of activities, services, clients or any cost object.
The ABC system assigns costs based on two fundamental principles: a) activities consume resources and b) products consume activities. This philosophy allows better decisions to be made regarding: processes, activities and products or services.
Traditional methods assign costs based on direct labor, material costs, income or other simple methods, which limits important decision-making on those activities that generate value for the final product.
As a result, traditional methods tend to cost high-volume products, services, and customers.
In the development of the work, it will be possible to see how it is possible to improve a cost-per-process system by linking said system with some elements of the ABC management system.
The following section will then deal with traditional cost systems, as the cost per process system is part of traditional systems.
Traditional Cost Systems
In the history of Cost Accounting, as has been well demonstrated in the literature, there are two major Cost Systems: Cost System for Work Orders and Cost System for Process. Both systems are considered traditional cost systems, however, they have particularities that make them differentiate for decision-making.
In relation to these particularities, the following can be given as examples: a) the cost-per-orders system uses five models to control the resources consumed by each work order or customer's order and the cost-per-process system uses a production cost report type format; b) the cost-per-order system is accounted for by each work order and the cost-per-process system is accounted for by departments or cost centers; c) The work order cost system directly satisfies the tastes and specifications of customers, however, the cost per process system has a continuous production process in such a way that it does not take into account the direct tastes and specifications. of customers about the products they demand.
Considering that the cost per process system is more useful for decision-making, this research will try to justify how it can be more useful for decision-making once the cost sheets of the company under study have been prepared.
The cost per process system traditionally can determine its costs through the following cost methods: historical cost method, cost per absorption method and variable cost method.
The historical cost method is based on the experience of the accountant and on the degree of knowledge he has about the production process. However, the variable costing method charges the product for all costs incurred throughout the process, that is, the cost of direct materials, direct labor, and indirect manufacturing costs (fixed and variable). In this same sense, the variable costing method assigns the product the direct material cost, the direct labor cost and only the variable indirect cost, determined the fixed cost as a period cost.
Analyzing the types of costing methods, it can be stated that precisely the method related to variable cost is the one that most closely approximates current management systems and costs, therefore, they are more precise for decision-making and based on this argument in the next epigraphs.
However, it is necessary to argue that traditional cost systems can improve their information if they include in their analyzes the management of each of the processes that intervene in the production process. Therefore, next in the next section will address the fundamental issues in relation to the Cost per Process System.
Nature and characteristics of a Process Cost System.
The design of a cost accumulation system must be compatible with the nature and type of operations carried out in the companies, be they productive or services. Related to this research, we proceed to change from a work order cost system to a cost per process system.
Process costing is a system of accumulation, recording and control of production costs by department or cost center. Knowing as a department, which is a main functional division in a factory or company where manufacturing or production processes are carried out.
When there are two or more processes that are executed in a department, it may be convenient to divide the departmental unit into cost centers for their registration, control and accumulation.
For example, in the company under study, the following are considered as cost centers:
- Design.Photomechanical.Printing.Finishing, etc.
The allocation of costs in a department is only an intermediate step, the ultimate objective is to determine the total unit cost in order to determine income. Currently, determining the management of processes and then calculating the cost of products is a priority.
During a certain period some units will be started, but not all will be finished at the end of the day, considering the production as the final inventory of the process. Consequently, each department determines what part of the costs incurred in the department can be attributed to the units in process and what part to the finished ones.
Some characteristics of the cost per process system make it different from other traditional systems, for example:
Process costing addresses the flow of units across multiple operations or departments, adding more additional costs as they go. The unit costs of each department are based on the relationship between the costs incurred in a period of time and the units completed in the same period.
A process cost system has the following characteristics:
- Costs are accumulated and recorded by department or cost center. Each department has its own work in process account in the general ledger. This account is charged with the process costs incurred in the department. Equivalent units are used to determine work in process in terms of units completed at the end of a period. Unit costs are determined by department in each period. The finished units and their corresponding costs are transferred to the next department or finished items. By the time units leave the last department in the process, total period costs have been accumulated and can be used to determine the unit cost of finished items. The total and unit costs of each department are periodically added,analyzed and calculated through the use of production reports.
The material, labor, and manufacturing overhead costs produced in each department are charged to separate work-in-process accounts. When the units are finished in one department, they are transferred to the next department in the process accompanied by their corresponding costs.
The finished unit in one department becomes the raw material of the next one until they become finished items. Unit cost generally increases when items flow through departments.
Its main objectives are:
- Explain the accounting treatment of normal and abnormal losses.Determine normal and abnormal loss and abnormal profit accounts when there is no work in progress closure.Calculate the value of work in progress. Complete production and abnormal loss using weighted average and PEPS. Recognize that normal losses should be charged only on the amount of units that have passed the inspection point. Determine differences between the costs per unit necessary for the valuation of inventories, taking decisions and performance reporting for cost control.
A process costing system is used to compute the costs of a product for a mass or a current production system. Product costs can be determined by adding the average unit costs for each operation periodically, to measure benefits and inventory valuation it is necessary to value the work in progress, which has accumulated for each sequence of activities. At each stage of the production process it can be valued by conversion into equivalent units and applying the average cost per unit of product to the operation.
In the process of industrial production costs it moves from one process to the other until the final completion occurs, each production department performs some part of the total operation and transfers its completed production to the next department, where it becomes the input for processing. additional. The completed production of the last department is transferred to the finished product inventory.
The cost accrual procedure follows the production flow, control accounts are established for each process, and direct manufacturing costs and overhead are allocated to each process. The cost when transferred from process to process becomes cumulative as a production procedure and the addition of last department costs determines the total cost.
Some aspects are important to consider in the Cost per Process System, which are discussed below:
NORMAL AND ABNORMAL LOSSES
Safe losses that are inherent in the production process and cannot be eliminated, these losses occur under efficient operating conditions called normal losses. There are also some losses that are not expected to occur under efficient operating conditions, these losses are not an inherent part of the production process, they are called abnormal losses.
Normal and abnormal losses require different accounting treatment, abnormal loss is treated separately as a characteristic cost outside of profit and loss at the end of the period.
In other words, normal losses are a proportion calculated through different periods and are absorbed by production, while abnormal losses are paid for separately in the process.
COST ELEMENTS WITH DIFFERENT DEGREES OF COMPLETION
The different elements of the cost can have different degrees of completion, when they are transferred from one process to another they are 100% complete, while the work in process has been in transformation, since its component elements have not come out of said process.
The materials that are introduced at the beginning of the process and the conversion costs are applied throughout the process, the closing of the work in process is estimated.
It is established that the normal loss should be considered as part of the cost of normal production. However, it is necessary to focus on the stage of the process in which the loss has occurred in order to determine to what extent some of the losses are also charged to the final inventory of the process. If the loss occurs near the end of the process, or is discovered at the inspection point, it should be charged with the cost of the loss, alternatively the loss could be assumed to have occurred at a specific point at the beginning of the process.
Generally, it is assumed that the normal loss takes place in the part of completion where the inspection occurs, it will not be loaded with the final inventory of the process.
Where abnormal losses are incurred the correct procedure is to produce the reported normal unit cost but with the addition of separate columns for loss units, one for normal losses and one for abnormal. Normal loss should therefore be valued at cost per unit of normal sales.
COSTS CONTROL
Regarding cost control, it is necessary to be sure that the current costs are included in a compliance report, they are the costs incurred for the current period only and do not include some costs that are and come from previous years.
The objective of cost control is to compare the current cost of the current period with the budgeted cost for the equivalent units produced during that period. The equivalent units produced during the current period are calculated by deducting equivalent units produced during the previous period from the total number of equivalent units, that is, the costs of the current current period should be compared with the budgeted cost for the production of the current period.
For the external reports of the products, it is necessary that the inventory valuation include a proration of the joint production costs, as well as some additional attribution to the cost of the sale process.
METHODS OF PROPORTIONING JOINT COSTS TO JOINT PRODUCTS
If total production for a particular period was sold, the problem of allocating joint product costs may not exist. Inventory valuation may not be necessary and profit calculation may simply require deduction of total cost from total sales, however inventories are in stock at the end of the period, prorating product costs is necessary.
The methods that can be used to prorate are as follows:
- Assumed methods to measure benefits received from the cost of the joint product by the individual products based on physical measures such as weight, volume, etc. With this method, the costs are a simple apportionment of cost in proportion. Each product is assumed to receive similar benefits from the joint cost and before carrying this portion of the total cost proportion. Assumed methods to measure the ability to absorb joint costs based on apportionment of joint costs relative to the market values of the products. products or sales valuation. When the sales valuation method is used, joint costs are allocated in joint costs in proportion to the estimated sale value of production, at higher sales prices, higher costs.
After analyzing all the previous arguments, some of the definitions related to process management should be discussed below.
1.4 Characterization of management by process
A process can be defined as a set of activities linked together that, starting from one or more inputs, transforms them, generating an output (result).
The activities of any organization can be conceived as members of a given process. In this way, when a client requests a service at the GEOCUBA Graphic Company, processes are being activated, the results of which must be aimed at satisfying said demand.
From this point of view, any organization can be considered as a system of processes, more or less related to each other, in which a good part of the inputs will be generated by internal suppliers, and whose results will often be directed towards internal clients.
This situation will mean that the scope and scope of the processes is not homogeneous, and must be defined in each case when it is approached from one of the different strategies of process management. This means that, sometimes, it is not so evident where a process begins and ends, and it is necessary to establish a delimitation for operational, management and process control purposes.
A process can be carried out by a single person, or within the same department. However, the most complex ones flow in the organization through different functional areas and departments, which are involved in it to a greater or lesser extent.
The fact that different departments intervene in a process makes it difficult to control and manage it, diluting the responsibility that those departments have for it. In a word, each area will be responsible for the set of activities it carries out, but the responsibility and commitment to the entire process will tend not to be taken by anyone in particular.
Obviously, the functional organization is not going to be eliminated. An organization has precisely the division and specialization of work, as well as the coordination of its different activities, as a basic characteristic, but a vision of the same focused on its processes allows the best development of the same, as well as the possibility of focusing on the receivers of the output of these processes, that is to say in the clients. For this reason, perhaps process management is a key element in Quality Management.
Some characteristics stand out in process management, the objectives being the main characteristic:
- Increase efficiency. Reduce costs. Improve quality. Shorten times and thus reduce production and service delivery times.
These objectives are usually approached selectively, but they can also be undertaken jointly given the relationship between them. For example, if times are shortened, quality is likely to improve.
In addition, other characteristics are present in process management that give it a personality well differentiated from other strategies and that suppose, in some cases, radically new points of view with respect to traditional ones. Among them we can mention the following:
- Identification and documentation. Typically in organizations, processes are not identified and, therefore, are not documented or delimited. As explained above, processes flow through different departments and positions in the functional organization, which are not usually perceived in their entirety and as differentiated and, in many cases, interrelated sets. Definition of objectives. The description and operational definition of the objectives is an activity of management. The feature of the approach at hand is to explicitly define those goals in terms of the customer. This will allow the processes to be oriented towards Quality, that is, towards the satisfaction of needs and expectations.Specification of those responsible for the processes. As the activities of a process are usually distributed among different functional areas, it is usual for no one to be responsible for it, nor for its final results.
Process management introduces the essential figure of process owner. The owner of the process is a person who participates in its activities. This person will be ultimately responsible, having control over it from the beginning to the end. This role is usually assigned to a manager or manager. The process owner can delegate this leadership to a team or someone else who has important knowledge about the process. In this case, it is vital that the owner of the process is informed of the actions and decisions that affect the process, since responsibility is not delegated. Reduction of stages and times. There is generally a substantial difference between process and cycle times. Process management affects cycle times, and the reduction of stages, so that the total process time decreases.Simplification. Trying to reduce the number of people and departments involved in a simplification exercise characteristic of this management strategy. Reduction and elimination of activities without added value. It is common to find that a good part of the activities of a process do not contribute anything to the final result. They may be control activities, duplicated or, simply, carried out because they arose, for some reason more or less operational in principle, but which have not justified their presence at present. Process management questions these activities, allowing those that are strictly necessary to last, such as those that are essential for evaluating the process or those that must be carried out in compliance with current legislation and regulations.
Reduce bureaucracy.
- Expansion of staff roles and responsibilities. Often it is necessary to provide more functions and greater responsibility to the personnel involved in the process, as a means of reducing stages and shortening cycle times. The implementation of these changes strongly affects the personnel, so it must be carefully carried out to reduce the resistance that may occur in the people involved.
Inclusion of value-added activities. That they increase the satisfaction of the client of the process.
Process modeling
Often systems (sets of processes and sub-processes integrated in an organization) are difficult to understand, extensive, complex and confusing; with multiple points of contact with each other and with a good number of functional areas, departments and positions involved. A model can provide an opportunity to organize and document information about a system.
But what is a model? A model is a representation of a complex reality. Modeling is developing a description as accurate as possible of a system and the activities carried out in it.
When a process is modeled, with the help of a graphical representation (process diagram), the interrelationships between different activities can be easily appreciated, analyze each activity, define the points of contact with other processes, as well as identify the sub-processes involved. At the same time, existing problems can be clearly revealed by giving the opportunity to start improvement actions.
To diagram is to establish a visual representation of the processes and subprocesses, which allows obtaining preliminary information about their amplitude, their times and those of their activities.
The graphic representation facilitates the analysis, one of whose objectives is the decomposition of work processes into discrete activities. It also makes possible the distinction between those that provide added value from those that do not, that is, they do not directly provide anything to the client of the process or the desired result. In this last sense, it is necessary to make a precision, since not all activities that do not provide added value must be unnecessary; These may be support activities and may be required to make management and control functions more effective, for security reasons or for regulatory and legislative reasons.
Diagramming is an activity closely linked to modeling a process, which is itself an essential component of process management.
Process Maps An approach that defines the organization as a system of interrelated processes. The process map encourages the organization to have a vision beyond its geographical and functional limits, showing how its activities are related to external customers, suppliers and stakeholders. Such "maps" provide an opportunity to improve coordination between key elements of the organization. They also provide an opportunity to distinguish between key, strategic and support processes, constituting the first step in selecting the processes on which to act.
Process Documentation: A structured method that uses a precise manual to understand the context and details of key processes. Whenever a process is going to be redesigned or improved, its documentation is essential as a starting point. Typically in organizations, processes are not identified and, therefore, are not documented or delimited. The processes flow through different departments and positions in the functional organization, which are not usually perceived in their entirety and as differentiated and, in many cases, interrelated sets.
Process teams: The configuration, training and facilitation of process teams is essential for the management of processes and their orientation towards the customer. The teams must be led by the "process owner", and must develop review and control systems.
Redesign and improvement of processes: The analysis of a process can lead to redesign actions to increase efficiency, reduce costs, improve quality and shorten times by reducing production and delivery times for the product or service.
Management indicators: Process Management will imply having a table of indicators referring to quality and other significant parameters. This is the way in which the organization can truly know, control and improve its management.
1.5 Theoretical aspects related to Cost Sheets
The cost sheet is used to record the expenses generated by the development of products and the provision of information services provided by the Institute of Information on Science and Technology of the Ministry of Science, Technology and the Environment.
Some of its components can be summarized in:
- Raw materials and materials: consumption of productive material, office supplies, others, surcharges and discounts. Auxiliary materials: for maintenance, cleaning and cleaning, parts and spare parts, others, surcharges and discounts. Fuels: special gasoline, regular gasoline, diesel and lubricants.Energy: consumption of electricity and other types of energy.Wages: staff salaries and paid rest.Social security: contribution to social security and social security payments.Amortization.Other monetary expenses are: personnel allowances, food, telephony expenses, e-mail expenses, postal mail expenses, access to databases, acquisition of literature, document reproduction service, translation services, printing services, design services, editing services, repairs currents,advertising expenses, supplies for gastronomy, transport services and travel expenses
Heading is an economic concept associated with cost. It includes the expenses of the elements that are part of the cost, in order to identify them with the place where they originate. They make it possible to calculate the total and unit cost, whether planned or real, allowing the cost sheet to be prepared.
The formation of the raw materials and materials items, as well as wages and social security, is carried out from the accumulated expenses in the corresponding elements or sub-elements, within the direct cost centers.
The formation of the items of indirect production costs and general management expenses are obtained as a result of the distribution between the direct centers of the expenses accumulated in the indirect centers of the same name, except the item of maintenance and operation of equipment, It is formed by the expenses assigned to the direct cost centers, from the distribution of the accumulated in the maintenance and repair cost center, which also includes the accumulated depreciation in the indirect cost centers of the productive areas.
The aspects dealt with by the aforementioned authors correspond to a fairly traditional cost system, considering that current cost accounting is directed towards better management levels, and therefore, it gives a different treatment to fixed indirect costs, these being considered as period costs.
In the next chapter, aspects such as: characteristics of the company under study, production cost report format for the company under study and the cost sheets that were prepared to facilitate the execution of the proposed cost system will be addressed. for the company in the near future.
- Proposed Report on the Cost-per-Process System for a Graphics Company. Preparation of Cost Sheets.
This section addresses aspects related to the proposal of the Cost System for processes and the presentation of the Cost Sheets prepared for some of the products.
2.1 Proposal for the Production Cost report for the company under study
Considering that the Graphic Company wants to change its cost system, a study of the production cost report that is currently used in it was carried out. In this sense, it was approved to change the current Cost System for Work Orders for a Cost System for Process and even when both systems are traditional, it will be taken into account in the new proposal only to include in the cost of production the direct materials, the hand direct labor and variable indirect production costs, that is, in such a way that the information obtained is more reliable for decision-making.
In this sense, it is proposed that the cost of production report be structured in four fundamental parts.
Sections of the Cost System by Process
Figure 1. Sections of the Cost System by Process. Source: self made
The quantity section will show the quantity of materials entering and leaving each of the selected cost centers. Therefore, in order to carry out this production cost report, it was necessary to determine the different cost centers in the Graphics Company, which are explained later in this section.
The equivalent production section deals with determining the units that are finished and transferred plus those units that are in process and that will be considered as finished units to later estimate the unit cost of the same. Perhaps this is the most important section, since it estimates the materials that continue in the process and which have already been completed and go to other cost centers to continue adding materials and labor until its completion phase.
The costs to be accounted for section constitutes the section that calculates the unit cost for each of the selected cost centers and uses the total costs of the resources used and the equivalent production obtained in the previous section as information.
The accounting costs section allows knowing the total production cost of each of the cost centers.
It is important to note that the finished production from one cost center may constitute an initial raw material in the next cost center.
After explaining the sections that make up the cost of production report, we proceed to present the structure of said cost report.
GRAPHIC COMPANY
PRODUCTION COST REPORT COST CENTER: DESIGN
DATE:
Additional costs:
Direct Material: x
Direct labor: x
Indirect production costs: x
- Quantity Section:
Materials that start the process xx
Units transferred to the next cost center xx
Final materials in process xx xx
- Equivalent Production Section:
Direct Materials Conversion Costs
Units finished and transferred
to the next cost center xxxx xxxx
Final units in process:
Completion percent of:
Raw materials and labor xx
Indirect manufacturing costs xx xx
Total Production Equivalent xxxx xxxx
- Accounting Costs Section:
Total costs / Production = Unit Cost
Cost center costs
Units added to production
Adjusted units and unit cost
Costs added by cost center:
Direct material
Direct labor
Indirect manufacturing cost
Total costs to account
- Accounting Costs Section:
Transferred to the next cost center (units * equivalent unit cost)
Final Inventory of Work in Process:
Previous cost center cost (units * cost of previous cost center)
Direct material (units * equivalent unit cost *% of completion)
Direct labor (units * equivalent unit cost *% of completion)
Indirect costs (units * equivalent unit cost *% of completion)
Total costs accounted for
The report's proposal is affordable for all types of productive companies, since it is a general and simple format. It can be used by middle and university level specialists. This format is designed to be used in Excel as a computer tool that can be used on any machine without complex requirements.
The way of accounting for the cost determined by the cost per process system is simpler than that used in the cost system for work orders, since it is not accounted for by type of order. In this sense, it is accounted for by cost center as shown in the following table.
| Detail | Should | To have |
| Work in process inventory, within design cost | x | |
| Materials inventory | x | |
| Payroll payable | x | |
| Indirect costs applied | x | |
| Recording the added costs to the design cost center | ||
| Work in process inventory, photomechanical cost center | x | |
| Work in process inventory, cost center design | x | |
| Transfer to the photomechanical cost center the costs incurred in the design cost center. |
Table 1. Record of operations in the cost per process system. Source: self made
Once the way in which the calculation of the cost of the different cost centers can be accounted for is known, the next section proceeds to present the cost sheets prepared for the different products offered.
2.2 Proposal of Product Cost Sheets
The cost sheet is used to know in advance the cost that must be incurred in the elaboration of a specific product. The essential elements that compose it are: direct material, direct labor and indirect manufacturing costs. It is important to note that the data obtained from the cost sheet is an estimate of what can actually be obtained from the production process.
The cost sheets should be updated as long as any component of the product changes, be it from the material point of view, price, direct labor, etc.
Before preparing the cost sheet, it is important to know in detail the activities carried out in each cost center, since the various products pass through them. In this sense, the cost centers are described as follows:
Design:
When the OP production order is received), the technologist (order coordinator) delivers the OP to the designer, who is responsible for recording it in the work order settlement and design release book and reflects the analysis of the requirements for In accordance with what was requested with the client, as well as the complexities of the design, type and quantity of colors, areas of pla and also characteristics of the work. Verify that in the case of designs delivered on magnetic media, they correspond to the programs available on the computer equipment and that they do not contain errors.
The technologist decides who will be the designer who places the order, according to the complexities of the work, the knowledge and heritage of the same. Explains the characteristics of the work, according to the data of the OP, as well as the deadlines for delivery of the work to the photomechanical department.
Photomechanical:
To this process comes the original design in a polyester which is placed or inverted in an acrylic or (transparent plastic) which is placed on top of a presensitized aluminum plate and this is placed in a pass press which is exposed To light, this image is reflected on the plate after going through a chemical process of developing and fixing.
Printing: Inherent activity → print
The technological process of printing OFF set, is based on obtaining printed sheets (with illustrations or not) by means of the use of presensitized poly-metallic plates through photomechanical means. According to the OFF set technology, these images of the plate are first transmitted to the rubber blanket, located in the blanket cylinder of the printing machine, and from there they go to the paper or cardboard, carrying out the process of reproducing the images. themselves.
Paper feeding operation:
It is the operation by means of which the printing equipment is supplied with the paper. In this case, the initial object of the process is the sheets of paper or cardboard cut square, to the thread and with the measures according to the indications of the technological letter.
Termination process:
It is the process in which all productions are reviewed, eliminating inadmissible defects that degrade the quality of the finished product.
- Binding → Binding the different types of books, magazines, brochures. Glue → Here all kinds of blocks are glued. Collated → In this process several copies are collated to form the blocks. Bartack → Here the different books, magazines, brochures are closed.
- Packed → It is when the package is retracted to be taken to the finished products warehouse.
Guillotine:
It is the process by which the 70 * 100 sheet of paper is converted to the format indicated by the production order according to the printing machine in which the work is to be carried out.
Below is an example of how the cost sheets were produced. that the Graphic Company needs, related to each of the products that they offer to their different clients. The products offered have prices that are designed for the national currency and for the convertible currency.
| KILLING GRAPH | ||||||
| COST SHEET | ||||||
| Product Name: Supplemental Work Survey | ||||||
| Cost Elements | Quantity | Price | Total | |||
| Direct material: | ||||||
| Carbonless Paper: | ||||||
| White | one | 0.091 | 0.011 | |||
| Yellow | one | 0.095 | 0.011 | |||
| Glue | 0.0001 | 3.63 | 0.000363 | |||
| White Gray Cardboard | one | 0.176993 | 0.01966589 | |||
| Ink (black) | one | 0.00235 | 0.00235 | |||
| Total direct material cost | 0.04437889 | |||||
| Direct labor: | ||||||
| designer | one | 0.47 | 0.47 | |||
| printer | one | 0.0005 | 0.0005 | |||
| guillotine | one | 0.03 | 0.03 | |||
| termination process | one | 0.14 | 0.14 | |||
| Total cost of direct labor | 0.6405 | |||||
| Indirect costs | ||||||
| Electric power | 8h | 0.64 | 0.6144 | |||
| Electric power | 16h | 0.24 | 0.4608 | |||
| Scotch tape | 12cm | 1.84 | 0.0736 | |||
| Isopropyl alcohol | 0.01 | 2.18 | 0.0218 | |||
| Wetting Roller Cleaner | 0.25 | 4.13 | 1.0325 | |||
| Tow | 1.25 | 3.33 | 4.1625 | |||
| Print barrel | one | 0.0792 | 0.0792 | |||
| Paper | one | 0.01525 | 0.01525 | |||
| Multi-purpose printing grease | 0.11 | one | 0.11 | |||
| Printing circulation oil | 0.16 | 0.98 | 0.1525 | |||
| Hand cleaner paste | 0.25 | 3.97 | 0.9925 | |||
| Total indirect costs | 7.71505 | |||||
| Total Product Cost: | 8,39992889 | |||||
As can be seen in the cost sheet above, the employees who participate in the entire production process must make an effort to reduce indirect production costs, with the tow and roller cleaner the ones that most raise the cost of the final product.
In the cost card of the watch card, other products than those indicated above influence the increase in the cost of production, these are: polyester and water from the source. The tow and the wet roller cleaner also play a role.
Some materials differ in size which lowers the cost of it a little. However, it is important to know that the substantial difference in cost is perceptible when determining the cost of production and considering the volume of production.
It has been seen that the expenditure of water from the source and from tow is the same in various products and this should be reviewed, since the products differ from each other and therefore consumption should not be the same.
It can really be seen that the costs that vary are the direct ones, as is logical, however, each employee must make an effort to reduce the indirect costs on all those who do not identify themselves so easily with the product. For example: In certain cost centers through which the product transits, electricity consumption can be reduced, especially in unnecessarily lit lamps. Also, you can save on the consumption of the tow, as a tow can be used repeatedly.
It is important to consider in the determination of the cost of the product the time it takes to prepare it, thus controlling in detail the cost closest to the reality of the process.
As can be seen in the previous cost sheet, the cost of the tow remains the same for the different products, however, if the tow in actual practice is used for three days, then the monthly cost decreases to $ 33.3. Therefore, the analysis cannot be absolute for the different cost elements of the tab.
Conclusions
- The bibliography consulted confirms that a cost system for work orders can be replaced by a cost system per process. However, it is neither possible nor convenient to do the reverse. To determine the cost calculation of cost centers, an important tool to use is the cost tabs. The cost tabs must consider the three cost elements of a product and It is possible to analyze only the inclusion of variable indirect costs and treat fixed costs as period costs. The cost sheets should be discussed with the workers, as they are the only ones that can decrease the costs of certain resources that are used in the production process., mainly those referring to indirect costs. Indirect costs are those that most increase the cost of production, therefore,a correct selection of the rate to be used must be made to assign them to the cost center.
recommendations
- The Graphic Company must put into practice the cost sheets proposed in this investigation. The cost of production must be analyzed based on the results provided by the cost sheet, since it allows reducing in practice certain costs that make the production process more expensive. The distribution of indirect costs should be done considering the activities carried out in each cost center to avoid distortions in the information on the cost of production for decision-making. It is important to consider the time spent on production in each one of cost centers. This allows the accuracy of cost information to be more reliable. Allocation rates should be used that reflect the reality of the process and the execution of activities.
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