The correct valuation of costs and allocation to their productive and administrative departments are of vital importance for the performance of financial management.
Theoretical fundament
The costing models are the different procedures used to assign and accumulate the costs of the products and to calculate the periodic result, to control the performance of those responsible for the sections
and to provide relevant information that can be used in continuous short and long-term decision-making.
Cost allocation
This issue about the allocation of costs may become more complicated for some organizations than for others because they must be determined by principles of rationality, causality and operability compared to the activity carried out, actually the costs of materials or raw materials for the In most cases, production is easy to value, the same happens with labor, since each unit of salary can be assigned one to production, so what is most important is the Assignment made to indirect manufacturing costs, since they are not easily attributable and recognizable, these must be set effectively and efficiently, on this largely depends the assessment and decision-making that is made on the administrative task.
Fundamentals:
Indirect Manufacturing Costs are the most difficult to assign to departments, this due to its unstable nature compared to the true value it adds to the final product.
Conventional cost methodologies
- Specific costs: Are those associated exclusively with a center, service or product. Common costs: They are those generated by more than one center, service or product. Joint costs: These are the costs of providing two or more products or services whose outputs cannot be separated.
Cost-volume-benefit model
Examines the relationships between fixed costs, variable costs, quantity and price allows to know the effect of all decisions concerning changes in the structure of fixed and variable costs, decisions that reduce or increase costs, decisions to change prices sales and decisions that increase sales volume and revenue.
The allocation of costs depends on the type of company and the economic activities that are carried out in it, for this reason it is important to implement a costing system that meets the internal and external needs of the organization.
Inductive cost sharing and distribution models
- Model of distribution and distribution of costs from service centers to operating centers Model of distribution and distribution of general production costs to products and / or services Model of joint costs
1. Imputation of the costs of the service centers:
The costs of a product include not only the costs of the production resources linked to the conversion of the raw material, but also the costs of the service centers. The costs of the service centers are produced in the first place to the Operational centers and eventually to the products based on a measure of Output Utilization.
2. Cost system by activities:
The activity cost system aims to establish the set of actions that aim to create business value, through the consumption of alternative resources, based on the analysis and strategic reflection of both the business organization and the launch and exploitation of new products.
3. Joint costs:
They arise when two or more OUTPUTS are generated in a production process, the point at which production is transformed into identifiable Products is known as the "separation point" and the joint costs are the total costs up to that point.
This cost situation occurs when a final product cannot be obtained without simultaneously producing all other joint products.
