Conceptual Delimitation of costs, Expenses and Bending Calculation Systems. Empirical Study: The Costing System in the Electrical Lighting Industry

Transcription

1 Journal of Business Management and Economics 06: 02 February (2018). Contents lists available at JOURNAL OF BUSINESS MANAGEMENT AND ECONOMICS Home page: Conceptual Delimitation of costs, Expenses and Bending Calculation Systems. Empirical Study: The Costing System in the Electrical Lighting Industry Mihaela (Ștefan) Hint, Doctoral School, Faculty of Sciences, 1 Decembrie 1918 University, Alba Iulia, Romania. DOI: Abstract: The purpose of this article is to highlight both costs and expenditures as economic indicators with which we can quantify the preparation of the decision-making process at the level of general management in an economic entity, but also the theory of systems because any economic agent itself represents a system and all consumption Of goods or services spent inside or outside the system can be considered sacrifices that the economic agent undertakes in order to obtain better results and see the possibility in which it can be used in the lighting equipment industry. The article analyses the concept of cost, expense and costing systems based on the literature, from the moment of the presentation of the management accounting to the present. The careful examination of the specialized literature shows that the specialized papers refer to the role and objectives of the management accounting according to the internal requirements of the economic entities, without being able to give an exact definition: unitary and acknowledged. In order to correlate the literature with the accounting results I chose to exemplify the implementation of the costing system in the electric lighting industry, within the economic entity of Electromax S.R.L. The accounting system that applies to economic entities depends on the objectives they set and the information management requirement. In the practice of economic entities, there are two accounting systems, namely: an integrated accounting system and a non-integrated, self-contained accounting system. The organization of a cost accounting system is closely linked to financial accounting, providing information on expenditure and revenue. In fact, there is the question of reporting internal flows that allow costs and results to emerge. For economic entities in the lighting equipment industry, the cost accounting autonomy compared to financial accounting generally implies reconciliation in the results of the two accounts because each accounting calculates a result. In principle, the two results are not equal, but in reality they must be equal. JEL Classification: M41 Key words: Costs, expenses; Cost accounting systems; managerial accounting; analysis of results; lighting industry. INTRODUCTION Managing an entity means, on the one hand, knowing the current activity and intervening with operative decisions in its direction, and on the other hand, prefiguring the future evolution and elaborating forecasts that will outline the prospective development directions of that entity ' (BriciuS., Management accounting, Theoretical and practical aspects, Economic Publishing House, Bucharest 2006, pg.9) Any economic entity will follow its actions so that the effects can overcome the effort so that the final result obtained is profitable. The general cost concept is a relatively recent date, it has emerged in the practice of economic entities and in the nineteenth-century accounting work as a result of the industrial revolution, but it has been used in a relatively narrower manner since the 17th century. Not only the industrial revolution led to the generation of this concept but also the competition between the economic entities led to its development in a significant manner. Cost "can be considered as any regrouping of accounting expenses that is relevant to affect the decision making in the economic entity, or to control the part or the whole of the organization". (M.Ristea, L.Possler, K. Ebbeken, Costing and Cost Management, Teora Publishing House, Bucharest,2000). RESEARCH METHODOLOGY Typically, research is made up of four parts: revision of the literature; The development of theories; Testing theories and reflecting and integrating notions. Taking into account the topic we approached, the research covered both a theoretical approach and a practical, applied approach. In the first stage, the research aimed at presenting a synthesis of the existing literature in the field, and in this regard we focused our research work on documentation on costing systems within the economic entities in the lighting equipment industry., We have a duty to approach a strictly qualitative research, but we have come to the conclusion that such research would limit the relevance and validity of research approaches and results, and have expanded research methods and quantitative methods. Among the research methods we used during the work we mention: document analysis, comparative method, observation and case study. 7

2 REVISION OF SPECIALIZED LITERATURE In economic theory, cost is defined as the portion of the sale price of an economic asset that can offset the costs that economic entities bear to produce and sell that good, and in traditional management accounting it is stated that the cost is the value of labour consumption alive and materialized, which is carried out in order to obtain a product, work or service at a given moment and which takes the form of all the production and sales expenses incurred by the entrepreneurs. If we take into account the provisions of the international accounting references, as well as the OMFP 1826/2003, it is necessary to determine only three categories of costs related to the economic activity of the economic entities, namely: in the supply-acquisition phase, in phase d, the cost represents an expense or an amount of associated expenses recognized by a consumed resource, place of business, output or management period. Costs are of particular importance in the literature, which has led to the conclusion that we cannot give it a unitary definition because its different forms serve the need to inform economic entities in different contexts. Costs are recorded at all organizational levels of an economic entity, and their measurement, attribution and control is accounted for by management accounting.in the management of economic entities, the use of the cost is an action of prime interest in the current market economy marked by globalization and with it the competitive increase. THEORETICAL FUNDAMENTALS AND CONCEPTUAL DELIMITATIONS OF CONSUMPTIONS, COSTS AND MANUFACTURING EXPENSES According to the distribution method in the cost of products, works or services, production costs are grouped into direct expenses and indirect costs (Călin O., Man M., Nedelcu M.V., Managerial Accounting, Didactic and Pedagogical Publishing House, Bucharest, 2008, p.16):indirect costs are detailed in the common costs of production and general administration expenses; Direct expenses are the basic expenses because they are attributable to the main activity object of the economic entity and can be totally affected without making a preliminary calculation for a product or activity. Within an economic entity, we can identify the following direct costs: Consumption of raw materials and materials related to the production process; Expenditure on inventory items related to economic activity; Expenditure on the transport and supply of raw materials and materials for basic activity; Expenditure on packaging used in the core business of the entity; Expenditure on the remuneration of direct productive staff; The expenses representing the depreciation value of the fixed assets used in the core business. The largest share in the total expenditure is spent on raw materials and materials related to the production process, followed by direct labour productivity. Indirect costs are common to many products or activities. The allocation of indirect costs to the cost of the product or the cost of an activity should be used as a basis for allocation to them, for example: electricity expenses insurance costs, equipment depreciation costs, staff salaries, etc. Depending on the target cost target, we can determine the direct or indirect nature of an expense as follows: Depending on the cost behaviour in relation to production: Variable costs; Fix costs. Depending on the above classifications we can divide the costs into: variable and direct costs; variable and indirect costs; fixed and direct costs; fixed and indirect costs: Direct Indirect Variable Raw materials required to manufacture the product X Electricity consumption for the machine used for manufacturing X, Y, Z products Fixed Damping of a piece of equipment used in the manufacture of a single product Rental or storage depot for X, Y, Z products Expenditure distribution by economic destinations: Product costs; General administration costs; General outlay costs. Cost breakdown by cost structure: Complete cost; Variable cost; Specific cost; Production cost; The full cost includes both production costs and general administration and sales costs, we can say that it meets the classic definition of cost. The variable cost comprises all the variable costs in relation Figure. No.1 Example of direct and indirect direct and indirect costs to the volume of production, the importance of this cost being given by the fact that the sales price of the product must at least cover its expenses. To highlight the benefits of a variable cost assessment we will present the following example where an economic entity Electromax manufactures and markets three types of products: Apollo II, Signalling beacon and CISA safety lighting: Table No.1 Calculation of full costs over the reference period to determine a product result: Apollo II Signalling CISA Total beacon Quantity sold Fiscal value The full cost (1,050) (1.150) (600) (2.800) Analytical result (50) Profitability -5% 42,5% 76% 6,7% Source: Own projection 8

3 The specific cost includes both the variable costs and the fixed costs that will be allocated to the products. Since the variable cost method is not significant, it is only if they are a majority, it is necessary to calculate the specific cost, thus obtaining two margins: one on the variable cost and one on the specific cost that will be the basis for the decision making (Iulia Jianu, Assessment, Presentation and Performance Analysis of the Enterprise, CECCAR Publishing House, Bucharest, 2007, pag.474) Fiscal value Variable cost Marginon variable cost Fixeddirect expenditure Specificost margin Fixedindirect costs Analyticalresult The cost of production is calculated in the management accounting and then used by the financial accounting for stock valuation. It includes the following: the cost of purchasing raw materials and consumables including transport charges and other charges for their purchase; direct production costs; indirect production costs, both fixed and variable; Other costs necessary to achieve the production process; Lending costs attributable to long-term construction or production under the alternative treatment it allows The following items should not be included in the cost of production( IAS 2 Inventories ); material losses, labour losses and other costs related to production; Storage costs except for those that are part of the production process; General administration expenses that do not participate in non-production stocks; Selling expenses. Depending on the relevance of the costs for decisionmaking: (Iulia Jianu, Evaluation, Presentation and Performance Analysis of the Enterprise, CECCAR Publishing House, Bucharest, 2007, pp ) Marginal cost; Differential cost; Opportunity cost; Lost cost; Hidden cost; Controllable cost; The target cost; Cost of related products. The organization of a cost accounting system is closely linked to financial accounting, providing information on expenditure and revenue. In fact, there is the question of reporting internal flows that allow costs and results to emerge (Chirața Caraiani, Mihaela Dumitrana-Coordinators- Management Accounting & Management Control,2nd Edition, University Publishing House, Bucharest 2008, pg.49).the integrated cost accounting system operates a single set of accounts that can be used to answer both the cost and general information needs, i.e. the cost accounting records are integrated with those of financial accounting. Income and expense accounts expire while information is depleted to determine earnings and results. All transactions relating to costs are recorded in the accounts by highlighting the nature of the event and at the end of the period the current production is transferred as follows: Table No Presentation of the registration of an integrated accounting system Accounting operations Purchase of raw materials for storage Purchase of raw materials without storage Consumption of raw materials and consumables Salary costs Other direct expenses Third-party service provision for production Imputation of costs incurred on product costs Imputation of costs incurred outside production on full cost Getting finished products Products sold Sales Closing Income Accounts Closing the cost-sales account Highlighting direct expenses that have not been absorbed Highlighting indirect costs that have not been absorbed Accounting records D Raw Materials C Providers C Suppliers C Raw Materials D Indirect costs C Supplies C Payroll D Indirect costs C Suppliers D Indirect costs C Suppliers C Indirect Manufacturing Expenses D Cost of sales C Indirect administration and disposal costs D Finished Products C Production in progress D Cost of sales C Finished Products D Clients C Revenue D Revenue C Profit and loss C Cost of sales C Indirect costs D Indirect costs C Profit and loss Non-integrated accounting system of expenditure This implies the existence of two accounting systems: a system of financial accounting and a system for calculating costs and cost accounting. Basic cost calculation accounts are in Class 9 of the General Accounting Plan and are divided into three groups: Group 90 Internal Settlements Includes the link between financial accounting and cost accounting; Group 92 Calculation accounts Includes basic accounts for grouping expenditures by destination for the purpose of calculating auxiliary cost categories; Group 93 Cost of production Brings together stocks of finished goods stocks and production in progress. Here are the details of the accounts: 9

4 901 Internal settlement of expenses Justification of costs for: finished products production in progress production cost Reflects the cost picture in cost accounting by nature and destination 922 Expenditure on ancillary activity Allocation and distribution of indirect production costs Distribution to benefit recipients 923 Indirect Production Expenses Allocation and distribution of indirect costs related to the manufacturing process Absorption in the cost of products, works and services Costs that are not imputable to the products 902 Internal payments on the production obtained Actual cost of products Standard cost Deviation(+) Transfer D 903- takes over the difference with which it will correct the standard cost at the end of the period. Account 902 is used to record deviations. Production in progress at the beginning of the period; Expenditures for the period: direct and indirect (assignment - imputation assignment 921 Basic activity expenditure Production in progress at the end of the period Effective cost = PIC îp+ Period expenditures PIC sf.period Account 921 serves to record cost per product, order or process, etc. 924 General administrative expenses / 925 Expenditure on disposal Allocation and allocation of costs outside production Absorption in the cost of the period 931 Cost of obtained production Standard cost of manufactured products Justification of standard cost in financial accounting 933 Cost of production in progress Cost of production in progress at the end of the period Cost justification in financial accounting 903 Internal settlements on price differences Deviation (+) Justification of differences (+) Below we present the cost accounting model: Tabel No.3.29 Accounting model for recording the cost calculation Accounting operations Accounting records Production in progress at the beginning of the period D 921 or D 933 D 921 C 933 Consumption of materials direct indirect wages direct indirect D 921 D 922, 923, 924, 925 D 921 D 922, 923, 924,925 10

5 Other direct expenses D 921 Other indirect costs D 922, 923, 924, 925 Division of auxiliary sections D 921, 923, 924,925 C 922 Absorption of indirect costs in the cost of the products required D 921 C 923 Recording the cost of the period D 901 C 924, 925 Obtaining finite products at standard cost D 931 C 902 Settlement of actual cost of finished products D 902 C 921 Record production in progress at the end of the period D 933 C 921 Record the difference between effective cost and standard cost D 903 black or red C 902 black or red Cost justification D 901 C 931, 903, 933 CASE STUDY ON THE IMPLEMENTATION OF THE COSTING SYSTEM WITHIN THE ECONOMIC ENTITIES IN THE LIGHTING EQUIPMENT INDUSTRY. Next we will present the costing system within the economic entity SC ELECTROMAX SRL, which has as main activity the production of lighting equipment, for one month of calculation (April 2017), know the following information: Initial balances situation: the situation of the initial balances and Transactions that took place during April The recording of transactions in the two variants of accounting organization, both in an integrated system and in an autonomous system, but also correlation of the results from the two accounts at the end of the period knowing the following data: UM Capital Capital premium Tangible assets Depreciation of tangible assets Customers SC Bank Accounts Providers Stocks: Raw materials Prod. in progress Finished product TOTAL UM Transactions that took place during April 2017 are as follows: Raw material purchase Payment of services rendered by third parties Registration of wages for the month of 04/ Sales on credit Receipts from customers

6 Payments made to suppliers Damping recording: - Machinery and equipment - Office equipment - Means of transport Auxiliary materials purchase Auto parts purchase Registration of vouchers granted by suppliers Recording customer accounts Consumption of raw materials Raw materials not found in the inventory 4752 Indirect costs absorbed in the cost of the product ,60 The cost of production of finished products Cost of sold production Standard cost finished products We present the accounting of integrated accounting system: Purchase of raw materials D Raw materials C Providers Recording Direct Payments C Banks accounts Wages related to month 04/2017 DE Expenditure on direct sales D Expenditure gen. Adm. D Expenditure on disposal C Payments with salaries , ,60 Sales on credit D Clients C Revenue Customer receipts D Accounts at banks C Customers Provider payments D Suppliers C Accounts at the banki Amortization D Indirect Manufacturing Expenses C General administration expenses D Expenditure on disposal C Amortization of tangible assets Purchasing consumables D Indirect Manufacturing Expenses D General administration expenses C Suppliers Consumption of spare parts Indirect production costs D Expenditure on disposal C Suppliers Registration of vouchers received from suppliers D Suppliers C Income from discounts Recording customer accounts D Expenses with discounts C Customers

7 Consumption of raw materials C Raw materials including stocks Raw materials found minus inventory D Stock differences Raw materials Absorption of indirect costs C Indirect Production Expenses , ,60 Getting finished products at the cost of production C Finished products Cost of sold products D Cost of sales C Finished Products Period cost C General administration expenses C Selling Costs , ,40 Transfer cost sales C Cost of sales Transfer sales D Sales C Profit and loss Recording differences resulting from indirect production sub-absorption D Differences to be imported C Indirect Manufacturing Expenses Differential transfer recording C Differences to be imported Record transfer of received receipts D Income from discounts C Profit and loss Record transfer of granted discounts C Expenditure on discounts Recording the loss transfer C Losses from discounts TOTAL , ,60 Registration of transactions related to 04/2017 in the autonomous accounting system: Fiscal Accounting Initial sold for current production Raw material purchase % , ,28 Highlighting wages , , 437 Registration of service purchases % , ,80 Management accounting = % = , , =

8 Record sales operations on credit % Record the discharge = Recording customer receipts = Record supplier payments = Record amortization = Record spare parts % , ,40 Record purchase of consumable material % , ,40 % = % = % = Record discounts from venders = Record discounts for customers = Record raw material consumption = = Record inventory shortcomings = 4752 Deviation indirect costs = , = 7040 Registration of finished products at the cost of production = = Effective cost settlement = Production under construction at the end of the period = ,60 Recording of price differences = Record receipt of costs and differences = = Record cost justification % , , Recording sales differences =

9 Closing Income and Expenses % % , , Cost calculation in management accounting: Result = Selling price Complete cost Result = ( ,40) = ,40 = ,60. Next we will record reconciliation of the results: Management accounting (profit) = ,690 of which: Customer discounts Expenditure sub-absorption Discounts received from suppliers Account Result ,60 CONCLUSIONS AND PERSPECTIVES OF THE RESEARCH Following these records, we can conclude the following: Direct costs are recorded in the current production account; Indirect costs of manufacturing and non-production costs are accounted for over the period in the flow of accounts Indirect Manufacturing Expenses, Indirect Administration Expenses and Indirect Selling Expenses; At the end of the month these accounts are credited with the absorption of production costs or full costs. Any debit or credit balances will be transferred directly to the profit and loss account. The production cost is shown in the Current Production account and is debited with the direct expenses and indirect costs taken from the Indirect Manufacturing Expenses account. The account is credited with the cost of the products obtained and is debited with the balance of the non-produced output. The full cost is calculated using the Sales Cost account which is charged with the cost of production of both sold and non-production products, and is credited with the cost transfer to the profit and loss account; Financial profit will be calculated from cost benefit adjusted for costs and revenue remaining unrecorded in the calculation of costs and results. The autonomy of cost accounting compared to financial accounting generally requires reconciliation in the results of the two accounts because each accounting calculates a result. In principle, the two results are not equal, but in reality they must be equal. The differences are due to the following causes: there may be inconsistent expenses and income; There may be additional costs or the calculation methods applied in the two accounts are different for the calculation of an expense. Reconciliations on extra cost accounting may be: Income included only in financial accounts; Expenditure included in the accounting records; Additional differences in expenditure in management accounting; Additional differences to revenue included only in financial accounts; Extra gaps resulting from inventory valuation and minus differences through the absorption of indirect costs. Reconciliations on minus cost accounting may be: Income included only in the management accounting; Expenditure included in management accounts only; Extra revenue recorded in management accounting; Additional differences in expenditure in financial accounting; Minus differences resulting from inventory valuation and sub-frontloading of indirect costs. For reconciliations to be equal, the profit or loss of management accounting should be equal to profit or loss with management accounting. Draw = Profit / Loss of Financial Accounting. We propose that as an alternative to entities in the lighting equipment industry a paradigmous system for the costs by which cost accounting can be achieved by bypassing the system of accounts and by using simple dual-entry tables, this alternative allows for the determination of costs and reconciliations with financial accounting records, A system of tabular situations in accordance with the requirements of specialized and general management, starting from the specifics of the economic organization. REFERENCES [1]. BriciuS.,Managementaccounting, Theoretical and practical aspects, Economic Publishing House, Bucharest 2006, pg.9) [2]. Briciu S., Sas F., The Crisis And The Cost Management, AnnalesUniversitatisApulensis Series Oeconomica, Facultatea de Ştiinţe, Universitatea 1 Decembrie 1918 Alba Iulia, vol. 1(11), 2009 [3]. ChirațaCaraiani, MihaelaDumitrana-Coordinators- Management Accounting & Management Control,2nd Edition, University Publishing House, Bucharest 2008, pg.49 [4]. Călin O., Man M., Nedelcu M.V., Managerial Accounting, Didactic and Pedagogical Publishing House, Bucharest, 2008, p.16 15

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