The Cuban economy has undergone profound changes in recent years, which have required improvement in all management and planning mechanisms as well as the application of techniques that allow making the right decisions at the right time, in order to give the right optimal use of available resources and obtain the maximum economic and financial efficiency.
In this work we have carried out the application of a methodological procedure that promotes the design of the cost system as one of the techniques that makes it possible to obtain accounting information that facilitates the registration and control of the materials, labor and financial resources used in the production process of the activities selected in this case: the Cantera “Luis Raposo” and Arenera “Malabé” production center, belonging to the Construction Materials Company; Apart from the methodological procedure, a series of models and analyzes are proposed that facilitate the understanding of the proposed theoretical aspects.
The conclusions and recommendations as a result of the research are widely applicable in those activities that have characteristics related to the company under study.
Introduction
To be able to compete in today's business environment, companies require information on the costs and total profitability of the business that allows them to make strategic and operational decisions in the right way; This type of information serves as the basis for the top management and management of a company to seek to maximize business performance.
There are companies that have obtained important benefits derived from an adequate implementation of a cost system; There are also others that due to poor project management have not been able to reduce costs, increase profits, improve performance or make any changes, in which cost planning has played a passive role by not mobilizing existing productive reserves.
The Construction Materials Company does not consistently apply the necessary techniques for the correct use of cost as an instrument in decision-making, which is why we select the Cantera "Luis Raposo" and Arenera "production centers within its organizational structure. Malabé ”to apply the procedures that allow it to design a cost system that responds to its technological characteristics.
Development
Accounting is called by the various authors as: the art, science, technique, interpretation and methods used to systematically record the transactions that affect the economic activity of a company or organization.
In the case that concerns us: Cost Accounting is one of the most important concepts in the economy, it is the branch of general accounting that synthesizes and records the costs of the manufacturing, service and commercial centers of a company, with in order that the results of each one of them can be measured, controlled and interpreted, through obtaining unit and total costs in progressive degrees of analysis and correlation.
If we analyze the objectives and characteristics of this concept we would observe that it gives us the possibility of: evaluating the efficiency in terms of the use of material, financial and labor resources used in the activity, to determine the prices of the products or services; Analyzing expenses and their behavior according to their classification, the period of analysis and costing of the products, facilitates the assessment of possible decisions and above all the reduction or minimization of costs.
This complex activity merits the application of a set of techniques and procedures that make it possible to quantify the economic sacrifice incurred to generate income or manufacture inventories and which in turn regulate the registration, control, analysis of material, labor and financial resources in the process. of production; We call this the Cost System.
As we stated in our introduction, the Construction Materials Company focuses its activities on the production of materials aimed at developing the architectural plan of the city, as well as the construction of houses for the population and the workers themselves, constructions for other organizations and for the tourism sector; Furthermore, as a way to seek other sources of financing, the company provides transportation and construction services to third parties, it also exports Aridos and Concresac through the MATCO trading company.
In order to carry out its activity, it has several production centers, among which are: Cantera "Luis Raposo" and Arenera "Malabé", which were chosen to apply the Methodological Procedure to design the cost system that allows them to truthfully carry out costing of its products and services provided.
The Methodological Procedure proposed for these activities consists of the following steps:
- Decide the cost system to be established.
The importance of this step lies in knowing the main activities and requirements of the technological process as well as the periodicity of the cost calculation.
When carrying out the study of the process in the chosen centers, we found that:
- “Luis Raposo” quarry: it is dedicated to the extraction and crushing of the La Inagua deposit to obtain as products: Crushed Stone and Artificial Sand in different fractions:
63-38 mm (
Macadam) 39-19 mm (Gravel)
19-10 mm (Gravel)
10-5 mm (Granite)
5.0-15 mm (Washed Sand)
- Arenera “Malabé”: is dedicated to the extraction of the Malabé deposit to obtain as products: Crushed Stone and Artificial Sand with the following fractions:
19-10 mm (Gravel)
10-5 mm (Granite)
5.0-15 mm (Washed Sand)
These products are used in the construction of industrial works, homes, roads, etc. In general, the stages of the technological process in both centers are as follows:
- Loading and transportation of the raw material Quality control of the raw material in the deposit Crushing, classification, washing and regrinding The raw material is obtained through the following phases: Shredding, Uncovering, Drilling, Blasting, Extraction and Loading and Transportation.
For all the above, it follows that the proposed cost system is per process, but since several products are obtained from the same raw material and manufacturing process that are not identifiable to a certain point of the production stage, their characteristic is of joint production.
- Establish the main cost control accounts
To ensure the proper recording of accounting operations, the fundamental accounts should be used for the detailed analysis of their activities in terms of cost; they would be:
Production in Process: It comprises the amount of the expenses incurred directly to the production carried out by the centers of the fundamental activity, expenses of the auxiliary productions, the indirect expenses transferred as well as the losses due to defective production. The balance of this account must reflect the real cost of the productions to be finished and its analysis would be as follows:
700- Production in Process
701- Initial balance 702-
Direct Production
Expenses 703- Indirect Production
Expenses 704- Transfer to Finished Production
705- Others
Indirect Production Expenses: Includes the amount of expenses incurred in activities associated with production not identifiable with the product, decreases due to returns to the warehouse of unconsumed materials and the transfer of these expenses to the corresponding production account. Your analysis would be:
731- Indirect Production
Expenses 710- Depreciation
711- Equipment Maintenance and Repair
Workshop
712- Indirect Workshop Expenses 713- Transfer to Production in Process.
714- Others
Cost of Sales: Registers the cost of finished products corresponding to sales for this concept, in addition to the costs of semi-finished and sold products. Your analysis would be:
810- Cost of Production Sold
810- At Default Cost
820- Variation between Actual and Default Cost
Finished Production: Includes the amount of the production of finished goods, passed through quality controls and delivered to the finished goods warehouse, in addition to those stocks considered idle. Your analysis would be:
189- Finished Production
110- Balance at the beginning of the year
120- Production received at Default Cost
130- Sales
140- Adjustment by counting
- Perform the classification of expenses.
Its essence lies in grouping all costs into various categories or principles in order to meet management's costing and control needs. In this case we propose the use of the following:
- According to the function they incur:
Production: Limestone, sand, river gravel and other fundamental materials such as: explosives, detonators, transportation and transmission belts, etc.
Distribution and Sales: Tires, Cameras, Batteries, spare parts, others, etc.
General and Administration: Telephone, Electric Power, Quality Supervision, etc.
- Regarding the volume of activity:
Variables: Limestone, sand, river gravel, other fundamental materials, fuels, fats, oils, and others.
Fixed: Wages, wages and salaries (indirect), depreciation and amortization of fixed assets.
- According to its identification with some cost units:
Direct: Limestone, Sand and River Gravel, Water, electricity and others.
Indirect: Spare parts, Oils and Lubricants, Salaries, Wages and Salaries (Indirect), etc.
- Due to its economic nature:
Elements: To be able to measure income and set the price of products, with adequate regulation of resources, organization of activity and introduction of new technologies.
- By its degree of control:
Controllable: Consumption of fats and oils, fuels, spare parts, energy, etc.
Non-controllable: Salary, wages and salaries, 12.5% of social security, 25% of the workforce, Depreciation and Amortization of tangible fixed assets and others.
- Establish areas of responsibility. -
To achieve an adequate level of decentralization of economic activities and greater control of the use of available resources, it is necessary to design a system that makes it possible to accumulate and report the costs incurred in the different areas that participate in the production process in such a way that their performance can be evaluated. It is then proposed that, due to their characteristics, they be classified as cost centers:
01- “Luis Raposo” quarry
02- “Malabé” Sandbank
In these centers, to evaluate the results obtained and therefore the performance of their leaders, they must have a prepared budget that allows them to compare the real results with those projected and evaluate the deficiencies by adopting the corresponding measures.
- Prepare the cost sheets.
This phase is technically necessary, since it gives us the possibility to predetermine the results of each product to be elaborated, control the resources used and by comparing the variations obtained, adopt the measures that eliminate the deficiencies.
- Establish models and records for cost control.
For the instrumentation of the cost system, it is necessary to create models and records that avoid distortions regarding the information that is processed, which will be used in subsequent analyzes. Taking into account those already established by the National Accounting System, we also propose to this entity the following:
Indirect Expenses Distribution Sheet: Allows you to distribute all the indirect expenses among the different products that are produced using the direct salaries that are reflected in the payroll distribution sheet as the distribution base.
Analysis sheet of the real cost and the predetermined cost: It plays a fundamental role in making decisions regarding the possible variations that must be detected, looking for their causes in each expense item in the cost card.
Registration of Finished Production: It allows registering the productions that went to the finished products warehouse. It would serve to execute the monthly voucher of the decrease in production in process and the accounting control of the finished ones.
Determination of unit and total profits: This model is prepared with the objective of once the joint cost has been assigned to the individual products, to know the profits that are obtained in each of them according to the costing method used.
- Determine the cost of production.
As is known, the cost of production is represented by the sum of all expenses of all kinds, both labor, material and financial, expressed in monetary form, which are used in production and constitutes a tool for economic control and decision-making. decisions; then this step will allow to know in a quantitative way the use of the resources made available to the company by each department in process that intervenes in the elaboration of the product; The quality of the information used will determine the variations that originate in the period and the adoption of corrective measures.
In this case, to evaluate the cost in the selected centers, a perpetual accumulation system must be established that allows the calculation of the unit cost and the continuous obtaining of information about inventories, the cost of finished items and the low cost of sale. a selective process cost system. We will then analyze the following:
Due to the characteristics of the technological process, Joint Products originate, which are defined as:
Individual products that each have a more or less significant sale value; therefore, their joint costs must be assigned to each product in order to determine the final inventories in process, those of finished articles, the cost of sale and the gross profit. To carry out this assignment we propose to use the Relative Value of Sales or Market method, which favors the distribution of costs considering the income capacity generated by the joint products, in this case Gravel, Granite and Washed Sand (first class); These products are identified as such when they arrive at the Vibrating Screen (this represents the point of separation of the production process), and the calculation of the apportionment ratio to assign the joint costs would be the result of dividing:The hypothetical total market value of each joint product divided by the hypothetical total value of all joint products.
This ratio is multiplied by the joint cost, which would be represented by the sum of: Direct Materials, Direct Labor and Indirect Manufacturing Costs, of the finished products to execute the assignment. It is convenient to point out that in this process it is important to know whether or not there is an additional process and whether the sale price of the products is known at the point of separation or at the end of the process; In this case, the Washed Sand requires passing through a Screw Washer to be washed and drained (additional process) before being transported to the Storage Hopper; then the total cost of this product would be the sum of the costs assigned in the separation point plus the cost added in the additional process.
Another aspect to take into account in the analysis of the cost of production is the existence of By-products as a consequence of the technological process of the main products or of the preparation of raw materials or waste resulting from the processing of joint products; in the centers analyzed would be by-products:
Quarry "Luis Raposo" Sandbank "Malabé"
- Limestone Powder - Natural Sand Stone Base - Sifted Sand Rajón - Clay Powder (Recebo)
Limestone Powder and Clay Powder are sold in the same condition as they were produced, as they do not allow for further processing; while the Rajón, the Stone Base and the Natural Sand can be subjected to additional processes. Sales for these concepts must appear in the Income Statement as Other Income. In addition to this, the granulations of less than 9 mm called Earth Material are considered waste, which have no sale value and must be charged to the control of Indirect Manufacturing Expenses.
As is known, the allocation of joint costs for administrative decision-making is not highly recommended, however, it is necessary to determine the income, calculate the unit cost of the products and prepare the financial statements. This decision making will generally be based on:
Production Decisions: The centers analyzed elaborate their products in different quantities, so the decisions will be made taking into account the individual product that generates the highest income when compared with its total costs. Based on the study carried out, the company is proposed to base itself on the income generated by the production of Gravel, since it is the product that emerges in greater quantity and its sales income is relevant.
Pricing decisions: The method that is proposed to assign the joint costs in the analyzed centers, presupposes the existence of a relationship between the sale price and costs, therefore it is common that a change in the sale price of a product affects the number of units to be produced and, in turn, costs and vice versa. Therefore, setting the price of products should be based on: inter-industry competition, supplies in stock, market conditions and other considerations to achieve the best price-volume combination in a given period of time in order to maximize sales. utilities. These are the aspects that are proposed to the company for decision making.
Additional Processing Decisions: This decision depends on whether the Incremental Revenue is greater than the Incremental Cost; therefore you must consider whether to sell your products after the point of separation or to process beyond the joint costs that is:
- If the revenue earned from the additional process is greater than the additional cost, the product must be processed after the joint costs. If the additional cost from the added process is greater than the additional revenue earned, it must be sold at the point of separation.
After an analysis carried out in the selected centers, it is proposed to the company to maintain the additional process of washing and draining the sand as the income is greater than the costs.
These aspects at the end of each month would facilitate the analysis of costs, also applying other procedures such as: comparing the real cost of production with the predetermined cost, determining the possible deviations and the causes that originated them, including the search for negative factors that influence the economic efficiency of the production centers, the objectivity of this analysis depends on knowing if the expenses correspond to the accounting period, if they are historical, predetermined or standard; whether or not they are associated with the product, whether or not they involved cash outflow, etc.
With the use of the documents and models that record and control the cost, explained above, you will be able to carry out a deep and detailed analysis of the behavior of costs in each of the elements, highlighting the relevant data for decision making.
The classification of costs into: direct and indirect, will allow knowing the extent to which these can be assigned to the final product. As well as the analysis of fixed and variable costs, it will allow the correct use of the productive capacity of the centers, as well as the influence of these in the results of the period.
If in the Cantera “Luis Raposo” and Arenera “Malabé” centers everything explained in this work is correctly applied, then you will be in a position to determine the level of efficiency of your production and the magnitude of the resources expended in the production process. to use this information as an effective instrument in decision-making, in the process of directing and planning activities.
Conclusions
For everything analyzed in the development of the work we can conclude that:
Decision-making is nothing more than a category of the Scientific Directorate, where there are alternatives for action and selection of the best course, in order to obtain specific objectives, therefore the cost; It must help the management in a more or less successful way to decide which is the best way to follow before a certain line of work that enables it: to maximize the economy and achieve efficiency and effectiveness in its economic activities, therein lies the importance of the Procedure Proposed methodology that makes it possible to carry out the Design of a Cost System not only to the centers selected in this work but for all production and service activities that require the use and control of material, financial and labor resources to comply with their proposed economic objectives.
Bibliography
- Amat, Oriol, Soldevila, Pilar “Accounting and Cost Management. Barcelona. Management 2000 Editions Caro, Roberto. "Basic elements of industrial costs". Macchi 1999 Edition Horngreen, Charles, T, Foster, George. "Cost Accounting in Business Management". Uteha Edition. Mexico. 1990 Jiménez, Carlos Manuel. "Costs for entrepreneurs." Macchi editions. Buenos Aires. 1999.
