Changes in the business world in the mid-1970s, triggered by global competition and technological innovations, have led to surprising innovations in the use of financial and non-financial information in organizations. The new environment requires more precise information on costs and how to proceed in terms of activities, processes, products, services and customers of the organization
In the last decade a lot has been heard and written about the value and potential -as a management tool- of the activity costing system -ABC, from the English "Activity Based Costing" -, as well as business management by activity, ABM, from the English "Activity Based Management". Initially, ABC was used to improve the costing of products being manufactured, but more recently they advocate a more universal use of ABC.
With the ABC method, the costs of the resources (inputs) used are attributed to activities, instead of to production cost centers, and, additionally, structurally different factors from the traditional ones are used to assign costs to the different activities.
The support that ABC provides for managerial decisions is the biggest difference from traditional systems.
Although in our country there is still a not very high number of concrete cases of application of this relatively new tool, the achievements that in other countries have been achieved with its use -in terms of rationalization of costs, productivity and, consequently, of competitiveness - justify that determined and vigorous companies -and not necessarily the largest- undertake efforts in this regard.
Many people wonder about the utility that using the Activity Costing System can provide them, since despite not having it, they have been able to manage their company. However, one of the possibilities that the application of this method brings is that it allows making decisions aimed at achieving objectives, which is why it is proposed that its application will help direct the business towards the situation of success that has always been desired..
In the "Doñáneli" bakery, the applied method does not allow it to be clear and precise which area or areas are deteriorating its activity. The application of this will allow the Board of Directors of the unit to determine the areas or cost centers that affect the deterioration of the cost of production and thus take the corresponding measures to improve the profitability of the entity.
Taking into account the above, it is because of what the scientific research system raises:
Problem: Does the application of Activity Costing contribute to providing information for efficient management in the Doñaneli bakery?
Research Object: Cost Accounting Process.
Objective: Design and apply a procedure based on the activities for the determination of the production cost, in such a way that it contributes to perfect the efficient management in the Doñaneli Bakery.
Specific objectives or investigative tasks:
- Critically analyze the state of cost and management accounting. Diagnose the situation of the registration and analysis of costs in the "Doñaneli" Unit. Propose the procedure to be used for the application of the cost based on activities. Evaluate the procedure proposed for the application. activity-based cost.
Hypothesis : If a procedure based on Cost per Activities is designed, it contributes to perfecting the information for efficient Management in the Doñaneli Bakery.
Research Justification:
The implementation of a Cost by Activities System provides the Organization with the possibility of achieving a better decision-making process, since it allows determining which activities should be carried out, how much it costs to carry out said activity, why the Organization needs to carry out these activities and finally, what part or quantity of each activity should be attributed to products, services and customers.
The practical significance is that there is a procedure applicable to Bakeries - Confectioneries for the comprehensive analysis of costs that allows adequate planning, control and decision-making.
To fulfill the tasks formulated in the development of the research, the following Research Methods were used:
- Historical and Logical: To analyze the antecedents of the Costing Policy carried out by the entity and the influence of the application of Activity Costing in the training of accounting personnel for correct decision making. Analysis and Synthesis: As a general method, they are used throughout the investigation, especially when delving into the problem, when shaping the idea to defend and studying the different deductive ideas. Induction and Deduction: As general methods they are used throughout the investigation, especially when determining the proposal aimed at strengthening the application of the proposed System, thereby contributing to the increase in business Management, by determining the causes and effects that cover certain areas in the deterioration of the Production Cost.
Development
Theoretical Foundation.
Studies carried out by different economists express the concept of Cost Accounting taking into account the following criteria. According to WB Lawrence.
It is an orderly procedure for using the principles of General Accounting to record the operating expenses of a company, in such a way that the accounts that are kept in relation to production and sale can be used to determine production and distribution costs, unit or total, manufactured products or services provided and the various functions of the company to achieve economic, efficient and profitable exploitation. Indeed, cost accounting provides detailed information on disbursements, provides reports on expenses, inventories, cost of sales, sales and profits for each class of product .
Traditional costing systems consist of two stages in the cost allocation process. First, operating expenses are transferred -accumulated- in cost pools, to later be attributed to each of those resulting from the production process. For this second step, the systems most used so far use volume factors, such as hours of labor and / or machines, purchased materials or inputs, units of finished products produced, and so on.
These procedures often produce distortions, when support or indirect resources are not used in proportion to the number of resulting units produced. In these cases there are imprecise measurements of the costs of the support activities "used" by each of the finished products.
Cost System for Activities.
It is a new methodological model to determine the cost of a product or a service, which, like the previous ones, aims to assign direct costs and distribute indirect costs; but through the cost inducers that generate it, identifying them with the activities necessary to produce the product.
Activity-based Costing Systems provide more accurate cost information about business processes and activities and the products, services, and customers that these processes serve. ABC systems focus on the activities of the organization as the basis for analyzing cost behavior, linking the cost in resource of the organization to the activities and business processes carried out through these resources. Activity cost drivers allocate activity costs to products, services, and customers.
The ABC System, in general, must be implemented in an entity when:
- Indirect manufacturing costs make up an important part of total costs There is a year-over-year growth in indirect costs There is a high volume of fixed costs Indirect costs have been attributed to products on an arbitrary basis. It has a high range of products with different manufacturing processes, so it is very difficult to know the proportion of indirect costs of each product.
In a simpler way, the ABC model defines the process as a set of interrelated activities, characterized by inputs and outputs, aimed at obtaining a specific result as a result of the value provided by each of the activities carried out in the different stages of this process. Once the applicability of costing is demonstrated, it is necessary to manage and budget by activities, so it is considered appropriate to follow the following process classification criteria:
- Strategic or managerial processes: aimed at defining and controlling the goals of the company, its policies and strategies. These processes are managed directly by senior management as a whole. Operational or key processes: aimed at carrying out the actions that allow the development of policies and strategies defined for the company to provide a service to customers. These processes are carried out by functional managers, who must have the cooperation of other directors and their human teams Support or support processes: they are not directly linked to the actions to develop policies, but their performance directly influences the level of operational processes.
The activity-based costing philosophy is built on the principle that the activity is the cause that determines the incurrence in costs and that the products consume activities, for this reason, the ABC highlights the need to manage the activities, instead of managing costs. Essentially, each component of indirect costs is caused by some activity, that is why the ABC principle is that each product should be charged for the part of the component in which it participates, based on the proportion it causes in that activity.
From this principle, the analyzes carried out on ABC place the emphasis on the activities, highlighting the following features of this philosophy:
- Managing achievements, what is done more than what is spent. It means the need to control activities more than resources, trying to satisfy the needs of customers as much as possible. They will be the ones who really determine what activities we have to carry out Analyze activities as integral parts of a business process and not in isolation Eliminate activities that do not add value to the organization, instead of improving what is really suppressible. Activities must be framed within a global action plan. Support, commit and seek the consensus of those directly involved in the execution of the activities, since they are the ones who really find possibilities for improvement and differentiation in the activities they usually carry out.Maintain a goal of permanent improvement in the development of activities, and the presumption that there is always a way to improve the performance of activities.
Exercise.
Set of actions or tasks that generate costs, aimed at obtaining a product to satisfy the needs of customers.
It is important to differentiate activities from tasks. In principle, an activity is made up of a set of tasks and to make the cost system operational, it is essential to select activities that bring together a set of tasks. A significant difference between activity and task is that the former is aimed at generating an output, while the latter is a necessary step for the completion of the activity.
Cost Drivers
They are the factors that significantly influence the execution of an activity, revealing the causes for which the costs are produced.
It is a factor used to measure how a cost is incurred, allowing the incorporation of the costs of the activities to the cost of the products.
The link between activities and cost objects, such as products, services and customers, is achieved using cost drivers of activities. An activity cost driver is a quantitative measure of the result of an activity.
There are three different types of activity cost drivers to choose from: Transaction, duration, and intensity.
- Transaction drivers count the frequencies with which an activity is performed. Used when all the results require essentially the same demands on the activity. Duration inducers represent the amount of time required to review an activity. Intensity inducers take direct charge of the resources used each time an activity is performed.
Requirements for the selection of inductors.
- Easy to observe Easy to measure Representative of the usual functions performed by the department or area Constant over a specific period of time
Total cost:
By definition, the total costs incurred in the operation of a company during a given period are quantified by adding its fixed and variable costs, expressing this relationship as indicated below:
total costs = fixed costs + variable costs
Unit cost:
If the company's total costs are equal to Fixed Costs plus Variable, it is not difficult to assume that the total unit cost is equal to the sum of the unit fixed cost plus the unit variable cost.
total unit cost = unit fixed cost + unit variable cost
Estimating the total unit cost is very important, because it consists of the quotation that is usually made to establish the sale price of the item that is produced. They are generally estimated before the production and delivery of products takes place. This is why they are known as standard costs.
The total unit or standard costs are those that must be made under normal conditions of manufacture of the product. They are of outstanding importance in the production planning process and in the control process, since they imply normative conduct and indicate what the effort should be used to achieve what should be the company's production purposes.
Total unit costs will depend on:
- The cost of raw materials The yield of raw materials The cost of wages The efficiency of labor The benefits of productive specialization The budget of expenses.
The estimation of the unit cost allows the entrepreneur to prepare operating budgets of the company, as well as to establish the tentative production program.
Knowing the total unit cost allows me to develop my pricing policy, without risking losses.
And it tells us what it costs to produce an item in our company.
Gross Profit or Loss:
It is determined by subtracting the Net Sales, the Sales Costs. When the cost of what is sold is greater than the value of the net sales, the result will be the loss in sales or gross loss.
The work has been structured in three chapters. The first refers to the authorial and bibliographic treatment of Management and Cost Accounting up to the cost of activities. In the second chapter, a characterization of production, its antecedents and evolution is carried out; Likewise, the unit under study is described and the situation of the recording of costs in it is diagnosed. In the third chapter, the methodological procedures for the comprehensive analysis of costs are proposed and it is validated.
Characterization of the Company.
The Bakery - Sweet Shop "Doñaneli" located in Francisco Varona s / ne / Menocal y Edificios. Las Tunas, belonging to the Cubalse Corporation, was founded in 1995, its Mission and Vision are the following:
Mission: To ensure the satisfaction of consumer demand, through a wide and varied assortment of gastronomic products and services. High competitive level in the market that guarantees the comfort and elegance that is expected and identifies your good taste.
Vision: To be a leading gastronomic complex in Las Tunas, for having the highest level of responses to consumer expectations through the largest, most updated and best assortment of product lines that is constantly growing and diversifying and ensuring the best comfort and excellent conditions for your purchases.
It has a workforce of 67 workers, broken down as follows:
| Leader | 4 |
| Services | 29 |
| Workers | 22 |
| Technicians | 8 |
| Administrative | 4 |
We proceed to design a Cost System for Activities, using the information at the end of April of this year, which is detailed in Annex Nº 1.
Deficiency.
As there is no Cost Accounting System, it is difficult for the administrative process, especially in planning, control and decision making, to be unable to provide information related to production costs, in a timely and systematic manner. The information provided by cost accounting (production cost reports from various areas) will be used to estimate production and its requirements, and at the same time establish comparison patterns for administrative control purposes.
One of the elements of the cost of production is made up of the indirect manufacturing costs, which have certain characteristics, such as the impossibility of being easily identified and quantified on the cost object, in addition they involve a great variety of costs and some of them are only known after a period of time. All these characteristics prevent the precise calculation of the costs of each product.
Given solutions.
- It is possible to design a Cost by Activities System (ABC), managing to distribute the indirect costs to each of the activities proposed. Activities were defined and classified. Activities were standardized. Cost items were identified. Cost drivers The total cost was calculated.
Conclusions
The design of an activity-based system provides a clearer and more convenient framework for obtaining a much more precise cause-effect relationship between absorption bases and costs.
It can be said that the method of activities determines an innovation in terms of precision and flexibility with which cost analysis can be carried out..
The elaborated design allows a better allocation of indirect costs to products and / or services, in addition to allowing better control and reduction of these, provides more information on the activities carried out by the entity.
recommendations
In order to remedy the deficiencies observed and analyzed in this investigation, it is recommended to apply the ABC Cost System, since it is compatible with the nature of the activities carried out in this company.
The Board of Directors must carry out courses and workshops on the ABC Cost System procedure, they must be aware of the importance of having an adequate accounting system as a means of information and that in addition to general or financial accounting it is necessary to keep an accounting cost.
Bibliography :
- Robert S. Kaplan and Robin Cooper. "Cost and Effect: How to use ABC, ABM and ABB to improve management, processes and profitability." Ediciones de Gestión 2000, SA Barcelona, 1999.ARMENTEROS DIAZ MARTA: »Cost systems in Cuba, we must get up to date.ARMENTEROS DIAZ MARTA and VEGA FALCON VLADIMIR:» Historical Evolution of Management Accounting in Cuba, Cuba, 2000. GARBEY CHACON NORGE: «Activity-Based Costing: A proposal for its application in Cuban Hospitality», Thesis in Option to the Academic Title of Master in Tourism Management, Santiago de Cuba, 2001.
Electronic literature consulted
- http://www.cibernet.com http://www.gestiopolis.com http://www.monografias.com http://books.google.com.cu/ http://www.elprisma.com/ http: //www.ucm.es/ http://www.itescam.edu.mx/ http://www.ilustrados.com/
