Cost accounting theory
1. INTRODUCTION
During our academic cycle of 2003 we have discovered great tools for our academic and professional training, more specifically in the area of costs where we have known important factors within the area of production and in general of the economic entity.
Throughout this period, we were able to distinguish the difference between a production process where cost accounting is involved and the great information and control deficiency generated by an entity that does not use such an important tool.
For this reason and adding the great utility that research provides, I have directed this work in order to provide synthesized information and generate concern not only to the undergraduate student but also to the common reader. This research seeks to minimize the complexity of the subject in order for anyone after developing a short reading to discover what cost accounting is, the difference between financial accounting and this, its classifications and applications that suffer within the process production carried out mainly by production orders.
Also with the following reading it is expected to satisfy in a relevant proportion the thirst for knowledge that arises from the dynamic researcher who is interested in learning about the development of innovative techniques applied to production, basically generated in companies in the manufacturing sector and that base development of its social purpose not only in mass production of articles but also in its orderly and systematic process of carrying out its production.
Therefore, I invite our readers not to be discouraged by reading this short introduction, but on the contrary, examine in detail the content compiled in these few pages and (which of course surely) stimulate themselves by investigating the subject more thoroughly. background with tools such as the Internet, reference books and interviews with personnel specialized in the subject of costs.
2. OBJECTIVES
3. THEORETICAL FRAMEWORK
3.1. COST ACCOUNTING
3.1.2. Evolution of Costs
To have a more global idea of what production costs mean, let's look at some central ideas of what these are and how they have been considered throughout history with different schools of thought.
Cost accounting has its main origin around the years of 1494 with the industrial revolution, there the need for the development of a financial accounting system increased. Manufacturing changed from home production to large industries, which required monetary investment from various individuals or banks. This large external investment and the evolution of a corporate form of business meant that the management of the entity was in the hands of other people. This is why the financial statements and the inclusion of an external audit took on relevant importance in the community of financial information to third parties, the accounting of development costs in an environment characterized by an increase in mechanization and standardization,These particularities help to understand the fundamental basis of the classification of manufacturing costs.
But manufacturing costs obtained their main development between 1880 and 1925 * there was a tendency to tracing by the administration of the product costing and with this the important decision making, between the 50s and 60s the need increased In order to more accurately trace the origin of the profit, obviously involving the costs incurred in generating said ruble, the decades after the Second World War were characterized by an accelerated increase in production, which for accountants generated needs that were covered with the implementation of cost accounting deriving important trends such as total understanding with the business and its environment, the implementation of techniques at the forefront of corporate changes and constant updating.
3.2. SOME CONSIDERATIONS THROUGH HISTORY
Classics and previous schools
They consider costs from the point of view of the economy of a country as a whole.
They affirm that the wealth of nations is determined by the work of all its inhabitants and not by that of a single class. Work is the real measure of the exchange value of all goods. When there is division of labor, the market determines the price and when it covers the costs of production it will influence the decision of the goods to be produced.
The classics, when the laws of the market act, the price tends to reduce, which is slightly higher than the production costs, when the market price falls below that natural price there is a loss.
David Ricardo, classical school. His theory of value was that of work, studying the possibilities of goods capable of increasing with human activity, the value changes in proportion to the work you have.
Neoclassical, from them economic contributions are made to accounting.
Mercantilists, can be found concepts related to cost and price, divided into two components:
The costs (determined before the sale) and the profit obtained in the market (subject to market laws).
Quesnay, argues that agriculture is the only true source of wealth capable of yielding a surplus over costs. Unlike agricultural production and consumption, he calls it net product, the rest as unproductive.
Cost is the sum of the efforts represented by the work, which a person must submit to satisfy their needs.
Marshall, is the approach that interests the most from private companies. It raises the way in which the time factor affects the formation of the cost structure, in the short term the fixed factors prevail, and the variables raw materials, salaries and auxiliaries, in the long term the entire scale of variable costs.
The efforts of all the different kinds of labor that have direct or indirect participation in the production required to save the capital used in it are called the real cost of production, and the sums of money to be paid for all these efforts are called the monetary cost of production.
Barones, in the Cham school, the curve of total fixed and variable costs is distinguished and developed, as the volume of production increases and the behavior with the income curve determines the areas of loss and profit.
Von Wieser, opportunity cost, equals abandoned earnings.
Devenport, opportunity cost the entrepreneur calculates his costs in order to reach a decision regarding the product that will best be produced *.
4. COST ACCOUNTING AND FINANCIAL ACCOUNTING
| Financial Accounting | Cost accounting | |
| Performance area | Registers the operations that link the company with third parties, suppliers, Cl., Etc. Financial accounting refers to the business as a whole. | Registers operations referring to the purely internal management of the company. |
| Registry operability | It is externalized on the occasion of verifying a fact with permutative acts, modification of the equity equation in its relationship with the entity or third parties. | It is externalized by means of the record at the moment in which facts related to the manufacture of products are verified from when they are inputs to PT. |
| Goal pursued | Determine the results of the exercise of the entire company as a whole and its impact on equity, exposing its variations. | Determine TC and Cu of products, processes, functions or centers, enable planning and better control of operations. |
| Criteria on which it is based | Accounting criteria followed from one period to another. | Internal cost accounting system, it depends on each company and information it needs. |
| Destination of the information it produces | For management, shareholders and third parties. | For management only. |
| Types of data they reveal | Produces synthetic or non-analyzed data on all its components. The information it provides is not that fast. It is aimed at people outside the internal activity of the company. Reports on the economic and financial situation of the company. | It provides analytical data, shows them by product, processes, functions or centers, later synthesized they go to financial accounting for registration. The information it produces is faster than the patrimonial. |
| Types of accounts you use | Referred to costs, they are synthetic or control and are carried to the highest principal. | Exclusively for cost analysis, they take senior assistants, some are checked in accounts of the principal. |
| Quality of the information | It reveals global costs of a historical nature. | Historical patrimonial costs and standard or OP costs |
| Legal regime | It is mandatory. According to GAAP | It is optional. |
5. CONCEPTUAL FRAMEWORK
5.1 DEFINITION
5.2 COST ACCOUNTING
Cost accounting is a branch of general accounting that synthesizes and records the costs of the manufacturing, service and commercial centers of a company so that the results of each of them can be measured, controlled and interpreted through obtaining unit and total costs.
5.3 PRODUCTION COSTS
Production costs can be defined as the value of the set of goods and efforts, which has been incurred or will be incurred, that manufacturing centers must consume to obtain a finished product in a condition to be delivered to the commercial sector.
This only groups the costs originated in the industrial sector, manufacturing centers and the due portion of the service departments that corresponds to them to recover. They cease to be such from the entrance door of the finished products warehouse, where the commercial area begins.
The cost of the product that is chosen to be manufactured will be given by that of that other displaced product, when opportunity costs are used.
Accounting point of view, cost is the sum of values, quantifiable in money that represent consumption of factors of production disbursed to carry out the management act whose cost is concerned.
Its main purposes are: contribute to the control of operations and facilitate decision-making.
It constitutes a means to plan and conduct business properly, operating them at levels that provide adequate profitability.
5.3.1 CHARACTERISTICS:
• It is analytical because it is raised on segments of a company and not on its total
• Predicts the future, while reflecting events that have occurred
• In the movements of your accounts mainly the units
• Only records internal operations
• Facilitates the preparation of reports for efficient business management
• Its accounting periods are shorter than those of general accounting
• Both generally accepted accounting standards (GAAP) and standards set by the company (normal production volume) are respected
• Its underlying idea is cost minimization.
5.4 CLASSIFICATION OF COSTS
The most common ways of accounting for each cost are:
1. according to accounting periods
2. according to the function they perform
3. according to its nature
4. depending on the way it is attributed to the product units
5. according to its type of variability
5.5 COST ELEMENTS
5.5.1 Raw Material:
It groups together all those physical elements that it is essential to consume during the process of making an article, its accessories and its packaging. This on the condition that such consumption is reflected in the volume of elements used through a certain and normally constant relationship with that of production. All those materials that do not meet this condition are included in manufacturing charges or indirect manufacturing costs.
5.5.2 Labor:
It represents the value of the work done by the operators who contributed directly and indirectly to the raw material transformation process.
5.5.3 Manufacturing charges or Indirect Costs:
They are all the costs that a center needs to incur in order to achieve its goals, costs that, with exceptions, must be absorbed by the total production of the operating center with a view to a final allocation to those, which cannot be made except through certain accounting devices, which will be described later.
5.5.4 Functions:
Serve as a database to set sales prices and to establish marketing policies. It is essential that every company knows, in advance of the delivery of its products, what are the prices that, while compromising its adequate profits in relation to the capital invested in the operation, allow it to achieve the objectives set by the management.
• Facilitate decision making.
• Allow the valuation of inventories, make possible the correct valuation of the Warehouse of Finished Products and of the articles in the manufacturing process.
• Controlling the efficiency of operations, enables you to discover excessive costs in less time, without waiting for the completion of annual balances.
• Contribute to the planning and management control of the company, that is, formulate feasible plans to be finalized and subsequently verify if they were fulfilled.
6. COSTING BY PRODUCTION ORDERS
Now having a clear concept about the scope of the variables used within cost accounting, we will see a brief description of the cost process for specific orders or production orders.
Basically we have two classes of cost systems characterized by the costing unit and by the mode of production, which are:
- Production order costs. Process costs.
In this work we will focus on the cost part for orders.
In this system, the cost unit is generally a group or batch of the same products. The manufacture of each batch is undertaken by means of a production order. Batches are accumulated for each production order separately, and obtaining the costs is a simple division of the total costs of each order by the number of units produced in each order.
6.1 CHARACTERISTICS OF THE COST BY ORDER.
The use of this system is conditioned by the characteristics of production; It is only suitable when the products that are manufactured, either for warehouse or against order, are identifiable at all times as belonging to a specific production order. The different production orders start and end on any date within the accounting period and the equipment is used to manufacture the various orders where the small number of articles does not justify a series production.
6.1.1 ACCOUNTING OF MATERIALS.
Accounting for materials is divided into two sections:
- Purchase of materials Use of materials.
Purchase of materials: raw materials and supplies used in production are requested through the purchasing department. These materials are kept in the materials warehouse, under the control of an employee, and delivered upon submission of an appropriately approved request.
Use of materials: the next step in the manufacturing process is to obtain the necessary raw materials from the materials warehouse. There is a source document for the consumption of materials in a work order system: "The requisition of materials." Any delivery of materials by the clerk in charge must be supported by a materials requisition approved by the production manager or department supervisor. Each material requisition shows the work order number, department number, quantities and descriptions of the materials requested, the unit cost and total cost are also displayed.
When materials are direct, a journal entry is made to record the addition of materials to work-in-process inventory.
When there are indirect materials, they are charged to a manufacturing overhead control account.
6.1.2 LABOR ACCOUNTING.
There are two source documents for labor in a job costing system: "A time card and a job ticket." On a daily basis, employees insert time cards into a time control clock when they arrive, when they leave, and when they return from lunch, when they take a break and when they leave work. This procedure mechanically provides a record of the total hours worked each day by each employee and thus provides a reliable source for the calculation and recording of payroll. The sum of the cost of labor and the hours used in the various work orders must equal the total cost of labor and total hours of labor for the period. At regular intervals the time cards are summarized to record the payroll,and job tickets to upload to work-in-process inventory or manufacturing overhead control.
6.1.3 ACCOUNTING OF INDIRECT MANUFACTURING COSTS.
There is a source document for the calculation of manufacturing overhead in a work order costing system: "the sheet of manufacturing overhead by department." The distribution of manufacturing overhead costs for work orders will be based on a "predetermined rate" of manufacturing overhead. These rates are expressed in terms of direct labor hours, machine hours, etc. When manufacturing overhead is not accumulated across the factory for distribution to various departments, each department will typically have a different rate.
Default rate, the predetermined rate is a factor used to distribute the estimated indirect costs during the production process, it should be noted as already said before that this rate is calculated before starting production and its result is expressed in pesos ($), quantities (#), or percentages (%) which are multiplied by the level of production carried out in order to apply the portion of the indirect manufacturing costs generated by the support departments to the production departments, its calculation is pretty straightforward:
…………………………… Budgeted Manufacturing Load
Default Rate = -------------–
……………………………. Budgeted Base
……………………………. (# H. MOD)
……………………………… (# H. MACHINE)
……………………………… (# UNITS PRODUCED)
6.1.4 DEPARTMENTALIZATION.
If the company is of a certain magnitude and especially when the manufacturing process requires several different operations, it is advisable to record and accumulate manufacturing costs by departments. In this way, the company can not only cost each production order with greater precision, but can also hold the different departments responsible for the costs they incur, which in turn allows them to control costs. In small industrial companies and relatively uncomplicated manufacturing processes they can be considered as a single production department.
The first step in relation to the departmentalization of costs is to establish the departments that must be recognized in the cost system, this implies deciding not only the number of production departments that there will be, but also the number of service departments to be They are going to have
• Material handling.
• Storage of materials.
• Purchase and receipt of materials.
• QA.
• Production control
• Industrial engineering
• Personal services
• Maintenance of plants and machines.
• Medical services.
• Factory accounting
• Plant protection
• General factory supervision
• Energy generation.
Determining the different types of services to provide in a factory is usually an easy task, but it is not easy to determine how these different services should be departmentalized. There are criteria for classifying these departments.
• The similarity of one service to another.
• The relative cost of providing the service.
• The supervisor responsible for at least the controllable costs of providing the service.
6.2 COST ACCOUNTING PROCEDURE BY ORDER.
The procedure is divided into three parts: before the accounting period, during the accounting period, at the end of the accounting period.
6.2.1 PROCEDURES BEFORE THE ACCOUNTING PERIOD.
First step: establishment of departments.
The number and type of production and services department to be taken into account in the new cost accounting system are established.
Second Step: budget of manufacturing costs generated.
General manufacturing costs are calculated or budgeted for the new accounting period.
First, the company must make a list of the different general manufacturing costs that are expected to be incurred, then the company must try to calculate the cost of each one with, based on the level of budgeted production, the budget formulas for each type of costs and forecasts of price changes that may be incurred.
Third step: Calculation of indirect costs to the departments.
It consists of dividing the indirect costs between the different departments. For example, in the case of electricity, water, it is difficult to know how much each department consumes, so this total cost for electricity is distributed among the existing departments. This procedure is generally called proration.
Step four: transfer costs from service departments to production.
All the general manufacturing costs must be distributed to the production departments, this is because the products that are manufactured pass only through the production departments but nevertheless they must be charged with all the general manufacturing costs; not simply those directly assignable to the production departments, but also those incurred by the service departments.
Fifth step: calculation of the default rates for the production departments.
After the service departments have been closed and all the calculated overhead costs have been charged to the production departments, the company must calculate a predetermined overhead rate for each of the production departments. Rates are calculated by dividing the total budgeted overhead costs for each department after distribution of the service departments by the budgeted level of operations (NPI) or budgeted amount that is calculated for the period in each production department.
6.2.2 PROCEDURE DURING THE ACCOUNTING PERIOD.
Step One: Posting Actual Overhead Costs.
In a non-departmentalized costing system, all actual overhead costs are charged to an account titled Manufacturing Overhead - Control, and further to an auxiliary record according to the particular type of overhead. This same procedure is also used when companies are departmentalized. Whenever an actual overhead cost is incurred, the general accounting department charges it to overhead manufacturing-control costs. Furthermore, the particular type of cost incurred is also recorded in an auxiliary record; But when the system is departmentalized, the auxiliary registry is also departmentalized. Therefore, the accounting for actual overhead costs is exactly the same whether the system is departmentalized or not.
The departmentalized general cost auxiliary record may be maintained by the general accounting department, but is often maintained by the cost department. With a departmentalized system there will be as many sheets in the auxiliary register as there will be departments. Whenever a real general cost is incurred and charged to general manufacturing-control costs, it is also recorded in the auxiliary in the corresponding department sheet.
If the charge is for indirect materials, for example, it is recorded on the department sheet that is specified in the requisition, if it is indirect labor, it is recorded on the sheet of the particular department which refers to the charge of the hand. indirect. If it is a general cost that cannot be directly related to a particular department, it is distributed, then, to the different sheets of each department on the same basis that the respective total cost calculated before starting the accounting period was distributed.
Through this procedure, all general costs are departmentalized each time they are registered, which means that at the end of the year, the total charge to control general manufacturing costs during the year will not only be detailed by type of cost, but also distributed by departments.
6.2.3 ACCOUNTING OF APPLICABLE GENERAL COSTS.
6.2.4 DEPARTMENT OF COST ACCOUNTING.
As of the beginning of the period, the cost department will charge the general costs to the cost sheets of each production order, in the event that the system is departmentalized, according to the general cost rates by departments that the company calculated before the beginning of the year. With three production departments, each cost sheet will contain three separate sections for applied overhead costs and depending on the number of departments that work in a given week on a production order, there may be one, two or three cost cases applied that week to the respective cost sheets.
6.2.5 DEPARTMENT OF GENERAL ACCOUNTING.
In a non-departmentalized cost system, each time the cost accounting department applied the general costs to the different cost sheets, the general accounting department recorded the respective total debiting inventory - work in progress (General manufacturing costs) and accrediting general manufacturing costs applied. With a departmentalized system, much the same procedure is followed. Each week as the cost department applies the general costs to the different cost sheets, the respective total is charged to inventory - Work in progress (General manufacturing costs); but instead of crediting the total to a single applied manufacturing overhead account,A general manufacturing cost account is opened for each of the production departments and the amounts credited to them are the totals that are applied departmentally to the cost sheets for each week. Because all the figures recorded in the cost sheets must be reflected in total in the ledger, through a journal entry.
This procedure is followed throughout the year. The total of general costs applied by the cost department to the cost sheets, is charged by the general accounting department to inventory, goods in process (General manufacturing costs). The way in which these applied overhead costs are distributed by department is recorded in the offsetting credits to the different applied overhead manufacturing costs accounts. Consequently, at the end of the year, the accounts of general manufacturing costs applied to the major will contain the total general costs applied to each department during the year.
6.2.6 PROCEDURE AT THE END OF THE ACCOUNTING PERIOD.
At the end of the year, all the real general costs incurred during the year will have been recorded in total in the general manufacturing costs - control account. They will also be detailed by type of cost and distributed departmentally in the auxiliary register of general costs. Meanwhile, all the general costs applied to the cost sheets during the year will have been registered departmentally in the three accounts of general manufacturing costs applied. So what the company must do is calculate the variations in general costs and proceed to their accounting, closing the accounts of real general costs (CIF- control) and applied (CIF- applied) and then proceed to the closing of the variations.
6.2.7 ACCOUNTING AND CLOSING OF VARIATIONS.
Variations are accounted for using a journal entry that closes (zeroes) the actual and applied overhead costs. Then the variations are closed against cost of products sold, through the entry. All companies must have an auxiliary where the variations are recorded in a discriminate manner and by department
6.2.8 CLOSING STAGE OF THE PERIOD.
The financial objective of cost accounting consists of obtaining the unit cost of the manufactured products, in order to pay for the inventories that will appear in the balance sheet and determines the cost of the products sold that allows the preparation of the Loss Statement and Earnings and therefore the determination of the profit or loss in the respective period.
At the closing stage of the period, what is obtained are the gains or losses during said period. It is the general accounting department that is in charge of this information, but it is the cost department that provides all the necessary information, these are the cost sheets which detail the costs of the orders as they are manufactured.
6.2.9 PROCEDURE FOR THE CLOSING OF THE PERIOD.
When the production order is completed, the cost department is notified to proceed with its settlement. This is done:
Totaling the three columns (MD, MOD and CIF) of the respective cost sheet.
Adding the totals of the three columns to get the total cost of the production order.
Dividing the cost by the number of units manufactured; to obtain the cost of each of them.
The cost department then informs the general ledger about the total production order that has been completed and also the finished goods warehouse about the total cost and unit cost of the goods when they go to the finished goods warehouse.
The cost sheet is then moved to the completed orders file.
When a production order is completed and its units go to the finished products warehouse, general accounting proceeds to make the next entry, with the information received from cost accounting.
Inventory - finished goods $$$$$$
Inventory - products in process $$$$$$
With this entry the costs of the completed order are transferred to the appropriate inventory account. In this way the balance that remains in the inventory account - products in process. It matches the total accumulated costs in the cost sheets that are in the file of orders in process.
If a production order is made to order, it is possible that when it is finished it is delivered directly to the customer without going through the warehouse. In this case, the debit of the previous entry would not be to inventory - finished products, but to cost of products sold or cost of sales.
However, even if the products do not physically pass through the warehouse, it is advisable, for control reasons, to pass them through the inventory account - finished products.
If the finished production order was made for inventory, the units are put into storage. The warehouseman will receive notice from the cost department. On the total and unit cost of the products received. So everything that general accounting charges to inventory - finished products, is recorded in detail by the warehouseman.
The last phase is the sale of the manufactured products. The accounting entries required at this time depend on whether the units sold come from finished goods inventory or whether they are made-to-order units that are delivered to the customer after completion.
6.3 UNITS FROM THE INVENTORY.
Upon receipt of the sales order, the finished products warehouseman will pack the items specifying for dispatch, then will count the delivery, recording the number of units sold, their unit cost. The storekeeper will then notify the general accounting department of the total cost of the products that have been sold.
The general accounting department will have two entries to make regarding the sale: one to record the amount of the sale and another to record the cost of products sold. For example:
Accounts Receivable $ 1,000,000
Sales $ 1,000,000.
Cost of products sold $ 2,500,000
Finished product inventory $ 2,500,000.
The above entries are the two typical entries to record a sale. The first entry charges the customer for the amount of the sale, while recording the gross income from the sale. The second entry reduces the inventory control account - finished products by the cost of the products sold, while charging said cost to "Cost of products sold". Both the sales account and the "costs of products sold" account are temporary accounts and are closed against a Profit and Loss summary at the end of the accounting period.
Units sold directly after completion.
If the products are delivered directly to the customer after completion, the entry would be:
Accounts x Collect $ 1,000,000
Sales $ 1.00,000.
Cost of Products Sold $ 2,500,000
Inventory of Products in Process $ 2,500,000
6.4 PRODUCTION DEPARTMENT.
A production department can perhaps be defined as an operating unit (made up of men and machines) that participate in the actual manufacture of the finished product. In some companies the production departments can be clearly distinguished.
For example, an initial department that designs and produces the raw material patterns, a second that cuts what it receives from the first department, and a third department that finishes the units. There are three operations and three separate locations in the factory, so there are three production departments.
6.5 SERVICE DEPARTMENT.
Just as no factory can operate without the production department, in turn these cannot operate without the assistance of the service department.
Although they are not directly connected with the manufacture of the product, however, the service departments provide those kinds of indirect assistance or service essential for the factory to fulfill its mission. The following is a partial list of services that a company's service departments might provide.
7 SOME OF THE ACCOUNTS THAT ARE MANAGED TODAY IN OUR COMMERCIAL PUC *
Almost in general, the cost accounts have the same designation, although their code may vary according to the PUC used in the company, however, if the purpose is the same, for illustration purposes let's see its dynamics according to the General Accounting Office of the Nation:
7.1 CLASS 7
| CLASS | GROUP | BILL | ||
| 7 | ||||
| PRODUCTION COSTS | ||||
7.1.1 DESCRIPTION
Under this denomination are grouped the representative accounts of the positions directly associated with the production of goods or the provision of services, from which a public entity obtains its income, in development of its state mission.
Also included are the costs of those goods and services provided free of charge, or whose income does not cover costs, as well as goods produced by the public entity, for consumption or internal use.
In the case of the production of goods that will be consumed or used directly by the public entity, once the production process has concluded, they must be reclassified to the Expenses, Deferred Charges, Property, plant and equipment accounts or to the corresponding asset, without being It is necessary to register them in the account «Inventory of finished products».
The concepts that are part of the production cost are the following:
Raw material: Includes the cost of the elements that have to undergo a transformation process and become a final or intermediate good. The counterpart corresponds to subaccount 151201 - Raw materials.
Materials: In the production of goods, it includes the cost of the elements that are physically integrated into the product, capable of being measured in cost units. It also includes the packaging materials necessary for production. The counterpart corresponds to subaccounts 151701 - Materials for the production of goods and 151601 - Containers and packaging.
In the case of the production of services, it includes those elements that are consumed directly in the provision of the same. The counterpart corresponds to the subaccounts of account 1518 - Materials for the provision of services.
General: Corresponds to the costs incurred by a public entity, which are not physically identified in the product, but are necessary in production, such as: maintenance, repairs, public services, leases, among others. The counterpart corresponds to the subaccounts of accounts 2401 - Acquisition of domestic goods and services, 2406 - Acquisition of goods and services from abroad, 2425 - Creditors and 5897 - Costs and expenses to be distributed.
Wages and salaries: Corresponds to the remuneration, in kind or in cash, that a public entity recognizes to the people who participate, directly or indirectly, in the production processes of goods or the provision of services. The counterpart corresponds to the subaccounts of account 2505 - Salaries and social benefits and 2715 - Provision for social benefits.
Imputed contributions: It is made up of the benefits that are recognized directly by the public entity, and not through the social security system, to the people who participate in the process of production of goods or provision of services, such as: pensions, disabilities, family allowance, compensation, medical expenses and drugs, aid and funeral services. The counterpart corresponds to the sub-accounts that make up the accounts: 2505 - Salaries and social benefits, 2510 - Pensions payable, 2720 - Provision for pensions and 2721 - Provision for pension bonds.
Effective contributions: They are those paid by the public entity through social security systems (health, pensions and professional risks), family compensation funds, among others, in order to guarantee benefits to those who participate, directly or indirectly, in the process of producing goods or providing services. The counterpart corresponds to the respective subaccounts that make up account 2425 - Creditors.
Contributions on the payroll: It comprises the expenditures that, according to the law, the public entity must make to the ICBF, SENA, ESAP and Industrial Schools and technical institutes, based on the payroll of those who participate, directly or indirectly, in the process production of goods and services. The counterpart corresponds to the respective subaccounts of account 2425 - Creditors.
Depreciation: Gradual decrease in the operational capacity of the properties, plant and equipment used in the production process, as a result of use, expressed in monetary terms, based on the value of the goods and the estimated useful life. The compensation corresponds to the subaccounts that make up account 1685 - Accumulated depreciation (CR).
Amortization: Gradual decrease in amortizable resources, due to their extinction, during the time they contribute to production. The counterpart corresponds to the subaccounts of accounts 1686 - Accumulated amortization (CR), 1835 - Accumulated amortization of investments in renewable natural resources in operation (CR) and 1845 - Accumulated amortization of investments in non-renewable natural resources in operation. (CR)
Taxes: Taxes in which the property subject to the tax is directly related to the production of goods or the provision of services, such as: Property, Vehicles and Contribution for valuation. The counterpart corresponds to the subaccounts of account 2440 - Taxes, contributions and fees payable.
The previously listed cost concepts correspond to the subaccounts of each of the accounts that make up the groups of this class.
The detail at the auxiliary level, with the exception of raw materials and materials, must correspond to the breakdown presented by the following expense accounts: 5101 - Wages and salaries, 5102 - Imputed contributions, 5103 - Actual contributions, 5104 - Contributions on payroll, 5111 - General, 5120 - Taxes, contributions and fees, 5330 - Depreciation of property, plant and equipment, 5331 - Depreciation of assets acquired in «leasing», 5340 - Amortization of property, plant and equipment, 5342 - Amortization of investments of natural resources in operation and 5343 - Amortization of non-renewable natural resources in operation. The foregoing must be understood with respect to those concepts that constitute cost of production in accordance with the state mandate of each public entity.
Royalties: Monetary compensation paid to the nation, departments, municipalities, ports and the national royalty fund, settled on the exploitation of non-renewable natural resources. The counterpart corresponds to subaccount 244010 - royalties.
Transfer of costs (CR): In order to maintain the accumulated information of production costs during the accounting period, the update will be made in the inventory or in the cost of sales, as appropriate, crediting this subaccount for each of the accounts that make up the different groups.
In the case of the production of goods, the balances of the accounts that make up this class will be transferred to the inventory of finished products at the end of production, by using the subaccount "Transfer of costs (CR)". In turn, and for the purpose of presenting the information, the costs corresponding to the production that is in process, will be reclassified periodically on the accounting information reporting dates, to the account "Inventory of products in process" by using, likewise, of the subaccount «Transfer of costs (CR)».
On the other hand, in the case of the provision of services, the balance of the costs will be transferred directly to the cost of sales accounts through the sub-account "Transfer of costs (CR)", in the understanding that the production of the service it is simultaneous to the exchange; since at the time of concluding its production, the services are supplied to consumers.
At the end of the accounting period, the sub-accounts of a debit nature will be canceled against the sub-account “Transfer of costs (CR)”.
8. EXAMPLE ANNEX
Within our research we have decided to illustrate with a real example of a Colombian company the process that costs meet from their entry to the materials warehouse until the arrival of the finished product inventories for their final sale to the public, for this we rely on a visit made to this company and in the attached working papers as we will see below.
8.1 GENERAL INFORMATION OF THE COMPANY
8.2 DESCRIPTION OF THE COMPANY
The company selected to carry out the production cost accounting study is the graphic arts plasticizing and finishing company "PLASTIFIRAPIDO LTDA", located in the city of Bogotá, Colombia, which I request not to mention its real name in order to protect its internal processes and keep them as an industry secret, this company specializes in the lamination of articles such as packing notebooks and other articles that require this service.
The company on which we rely for this research mostly carries out its work at the specific request of its clients, this means that it is estimated that the manufactured goods remain very little in the finished product warehouse and therefore in the warehouse. finished product inventory account (MAXIMUM 1 DAY), it is also important to clarify that said company, when carrying out its work according to the specifications of the clients, work by specific production orders.
8.3 PROCESS
"PLASTIFIRAPIDO LTDA", maintains its production process as most companies with these characteristics do, a materials warehouse is maintained where supplies are maintained by an operator who, by internal request of the production department, made through a Material requisition provides all raw materials to the production plant.
These materials upon entering the production plant are recorded directly in the PRODUCTION COSTS control account, where they are assigned by the Industrial Engineer and supervisory personnel of the process to each production order through a source document called PRODUCTION ORDER # XX
It is important to clarify that this document is only handled by the supervisors and approved by the Industrial Engineer of the plant.
Also within this order, the work to be carried out is exactly recorded, all the necessary inputs to be used in the process, the materials, the hours of work used by the personnel, the name of the operators and in general all the variables that affect the manufacture of said production order, which is sent to the cost department in order to report the incidents and impact on said process.
In this process, a report is attached with the amounts used of material not prorated even to the production order (CIF) that fulfill their assignment as we will see below.
The cost department in turn is in charge of a previous estimate made by departments, of the company's operating costs in favor of the manufacture of its production, it is established before starting with the development of the production order in which expenses will be incurred and of these which are converted into costs, that is, which of these and in what proportion should be applied to production through an estimated apportionment and primary allocation and then secondary allocation to production orders as we will see later.
Once the OP is in the cost department, the rest of the assignments are made to the specific order, such as the costs of the departments, the application of the CIF and the apportionment of the production support departments in order to establish with accuracy of the cost of that work order.
This information is combined with the general accounting department indicating the sub. or on the application of indirect manufacturing costs, finishing the work by the cost department in order to establish the exact price of the manufacture of the production elements.
This value is taken to the Inventory - finished product account and to the cost of sale account for accounting purposes of the preparation of the income statement, the CIF-CONTROL account is crossed between the estimated values and the real values in which it was affected the preparation of the work order and then its balance is crossed against the cost of sales account if the merchandise has already been sold or if it has not been sold against the finished product inventory account in order to leave it in zero at the end of the period accountant.
Regarding the work tickets of each employee, they simply mark on the control clock of the plant the time of entry and the time of exit from the plant including their hours and time of rest (lunch, snack, etc.), these tickets are collected and analyzed by the cost department where they are crossed against each production order and it is possible to establish the time actually worked in the development of said orders, the excess of time between the work schedule and the hours used in production It is considered by the cost department as idle time and it is an indirect manufacturing load which is applied in this way to the specific order
The data collected at the end of the period is delivered to the management of the company in order for it to analyze the production situation and make decisions about it.
This power is important since the management of the company needs to obtain real data almost weekly on the state of the company, such as production, inventory balances, set competitive prices for its products, expand or decrease the range of products offered, see the viability of this, establish the productivity of its employees etc.
9. CONCLUSIONS
Cost accounting is an amplified phase of the general or financial accounting of an industrial or manufacturing entity, which quickly provides management with data related to the costs of producing or selling each item, facilitating the preparation of a series of reports of the which are the basis for management decisions, since a good cost accounting system is not only limited to the accounting function, but also to control costs, which refers to the best way to use resources.
With this study, we have learned how to quantify the costs, expenses and sales of the products in manufacture, with the information provided by the plasticizing and finishing company of graphic arts "PLASTIFIRAPIDO LTDA", which was analyzed and where a good profitability.
During the development of this work we have been able to verify how accurate our knowledge is in terms of cost accounting, and finding such an organized company in the required field.
We hope with this work to show the reality of a company, which arose from the effort and work of many.
We believe that this company has a very good cost system, since we managed to obtain real and concrete information.
10. RECOMMENDATIONS AND OBSERVATIONS
The clock card should have more control, since people register their entry and exit, but it is not taken into account if they were actually working in the specific order in which it is noted
A well-executed income and expense plan is required
It should be borne in mind that the company works every day 24 hours for three shifts, this can generate fatigue and the productive potential of the employee may be diminished despite the fact that this policy is established in order to deliver the jobs faster, it should be evaluated
Although it is not a valid recommendation in the cost process, we recommend expanding the physical plant and human resources
It would be convenient for the cost process of the company "PLASTIFIRAPIDO LTDA" to be audited, since at present this is not done and some erroneous manipulation by staff may be generated
Taking into account that the co-assisting company in carrying out this research "PLASTIFIRAPIDO LTDA" has a rather complex cost structure, it is difficult to fully understand the process since we are people outside the company and collaboration is sometimes difficult due to time factors, however we believe that within the research it was possible to illustrate in detail the process carried out by this and it is a special contribution to students and staff in general
11. BIBILIOGRAPHY
COST ACCOUNTING BOOK, THIRD EDITION, Author MACGRAW-HILL. 1,999
BOOK ADMINISTRATION OF COSTS: ACCOUNTING AND CONTROL, Author DON R. HANSEN AND MARYANNE M. MOWEN. 1,999
BOOK COSTS AND COSTING METHODS, Author ALBERTO ALVAREZ CARDONA AND BLANCA EUGENIA SANCHEZ ZAPATA, JULY 1998
RESEARCH METHODOLOGY BOOK.- ROBERTO SAMPIERI & COAUTORES.- MC. GRAW HILL, SECOND EDITION 1998
POLIMENI BOOK AND OTHER AUTHORS. COST ACCOUNTING, CONCEPTS AND APPLICATIONS FOR MANAGING DECISION MAKING.
COST ACCOUNTING Analysis and Control, GORDON SHILLINGLAW
DOCUMENTS SOURCES VISITED COMPANY
Websites.
WWW.LAFACU.COM
WWW.GOOGLE.COM.CO
WWW.CONTADURIA.GOV.CO
WWW.UNISALLE.EDU.CO
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