2.2.1.2. Cost estimation system
Cost estimating is the process of calculating detailed costs for the coming period, in order to mobilize and maximize the use of resources according to the set goals. There are two types of budgets: static budgets and flexible budgets. Static budgets are cost estimates for a planned level of activity. In reality, the planned level of activity rarely coincides with the actual level of activity, so the data of static budgets are rarely used for comparison and cost control, but are only used in planning. Flexible budgets are cost estimates for many possible levels of activity. Therefore, flexible budgets are very useful for comparing actual data and budgeted data at different levels of activity to control the activities that occur.
The production and business activities of an enterprise include many closely related processes such as purchasing, storage, production and consumption. Periodically, the enterprise conducts a general budget which includes a set of detailed budgets for all processes of the enterprise's production and business activities. In which, an important budget is the Production and Business Cost Budget which includes the following types: Direct material cost budget, Direct labor cost budget, General production cost budget, Sales cost budget, Business management cost budget, Cost of goods sold budget. These budgets are all prepared on the basis of meeting consumption and production needs during the period.
Cost estimation method
Businesses can use empirical statistical methods or ratio methods to develop cost estimates.
The empirical statistical method uses actual costs collected from previous periods as a basis for estimating the total cost estimate for the current period. Using this method requires assessing the similarity of the activities being compared to adjust the cost estimates. The cost estimate process is conducted from the general to the specific, so it is also called the top-down estimate method. The advantage of this method is that it is quick to implement but is often less accurate than bottom-up estimate methods.
The ratio method is a method of estimating each job, based on the resources used and the allocation rate of the resources consumed for that job. For example, the allocation rate for direct material costs is 100%. The total cost estimate is made from the cost estimate for each specific job. Therefore, this method is also called the bottom-up estimating method. The results of this method are often accurate and reliable.
However, the author believes that no matter which method is used, the preparation of production and business cost estimates begins with the synthesis of implementation information such as the implementation status of the previous year's budget, standard norms... combined with current information such as the business plan of the enterprise, prices of input factors, production area, fluctuations in supply and demand of output products on the market... on that basis, a complete production and business cost estimate system will be established.
Organize a database system to make cost estimates
To organize the cost estimate information system, the estimate making process must be carried out according to a certain procedure starting from collecting input information to classifying, arranging and finally synthesizing according to each indicator according to management requirements.
Collecting input information for cost estimates is understood as determining the database system used to make cost estimates for the planning period. The purpose of collecting input information is to form a complete data set for orienting and forecasting the business's production and business activities in the planning period as a basis for making estimates. This information is provided from many different departments in the enterprise such as the technical department, the market department, the business strategy department, etc. The quality of the input information collection work will determine the accuracy and usefulness of the estimates made.
The database system for cost estimation includes:
The objectives of the planning period such as: sales policy, product development, market share targets, human resource needs,...
Report on the implementation of cost estimates of the previous period
Objective factors such as tax policies, import and export quotas
import, exchange rate, government support policies for enterprises
Information on forecasting business activities for this period such as expected revenue growth, percentage increase in advertising and marketing expenses, raw material reserve ratio, expected loan capital, etc.
The budget department is the place to receive and process the above data to establish and provide information on norms and estimates in the planning period.
Organize the establishment of a cost estimate reporting system
According to the determined period, the enterprise conducts the preparation of production and business cost estimates including a set of detailed estimates for the stages from purchasing, production to consumption. The sequence of preparing cost estimates in different enterprises may not be exactly the same, but in order to have cost estimates that are well-founded and highly consistent, the estimates should be prepared from the grassroots level up for the following reasons:
One is: All levels of management of the enterprise participate in the budgeting process, so they will be responsible for the implementation process.
Second: Cost estimates built by departments and directly related to department operations are often accurate, highly reliable, and therefore feasible.
Third, because they are involved in the budgeting process, departmental managers will be more proactive in implementing plans and will have a higher chance of completing the plan.
Middle management
Diagram 2.4 describes the cost estimate preparation process in a business:
Board of Directors
Middle management
Departmental management
Departmental management
Departmental management
Departmental management
Figure 2.4: Sequence of cost estimation from the base
The annual production and business budget system of an enterprise includes separate but interrelated budgets. The cost budgets are part of the overall system. The cost budgets all depend on the consumption budget. This is the basis for orienting production output and is also the basis for estimating sales costs and business management costs in the planning period.
Figure 2.5 shows the overall budget of the enterprise.
CPNCTT Estimate
CPSXC estimate
Inventory budget
Production budget
Estimated raw material costs
Cost of goods sold budget
Money Budget
Financial Statement Forecast
Consumption budget
Sales and administration cost estimates
Diagram 2.5: Cost estimates in the overall production and business budgeting system
Figure 2.5 shows that the consumption budget is a factor that affects the entire chain of building the enterprise's cost budget. However, there is a two-way relationship between the sales and management cost budget and the consumption budget because these costs will depend on the consumption level and vice versa, the consumption level will partly depend on the costs that the enterprise must spend on advertising and promotion.
2.2.2. Organization of cost management system implementation
Actual cost information (also known as historical information) is a source of cost information obtained from economic events that have occurred in the operation.
Business operations of the enterprise.
The cost information provided by management accounting is information related to actual costs incurred by cost type, total cost and is detailed by item, department, and target according to the manager's requirements.
The cost information provided by management accounting emphasizes the responsibility of managers at all levels of management (focusing on low-level management such as teams, production workshops or management and service departments - where costs directly arise) to link the responsibility of managers to costs incurred through the form of cost information provided according to cost centers (cost sources).
To collect, process and reflect the implementation information system, cost accounting applies accounting methods such as voucher method, account method, balance synthesis method, etc. through organizing the cost accounting voucher system, organizing the determination of costs for cost-bearing objects according to the characteristics of the enterprise's production organization and organizing the implementation cost reporting system.
2.2.2.1. Organizing the cost accounting voucher system
When cost-generating activities are performed, the initial information collection organization is understood as determining the types of documents and the document circulation process to monitor the movement of assets and capital sources associated with the cost generation. As presented above, costs are the monetary expression of the resources consumed by the enterprise for the production and business process. Therefore, costs incurred are always associated with the process of asset consumption or increasing sources of liabilities. Considering the economic content of costs, that is, according to the resources consumed, is the basis for determining the types of documents incurred, including: (1) Documents reflecting the costs of raw materials, tools and equipment, (2) Documents reflecting labor costs, (3) Documents reflecting fixed asset costs, (4) Documents reflecting the costs of purchased services, (5) Documents reflecting other monetary costs, (6) Documents reflecting production results. To enhance cost management as well as to provide specific information for the cost management accounting system,
In addition to the available content on the voucher template, businesses can design additional detailed information about economic transactions. For example, the object of cost generation,...
2.2.2.2. Organization of production cost information system
One of the important objectives of a cost information system supporting the production process is to manage the details of the costs incurred. The details of costs provide important control information (such as the differences between standard costs and actual costs) and the requirements for this information also vary depending on the characteristics of the production organization of the enterprise. Manufacturing enterprises often require information on production costs in two forms: job costing systems and process costing systems.
Order costing information system
The order costing information system helps track costs of raw materials, labor, and general manufacturing costs for each order or product group and is applied to businesses that carry out individual orders according to customer requirements. The cost subject is the order. An order can be a separate product or a number of different products. The products made can be unique and non-repeating. Cost accounts will be opened and tracked for each order. The cost of each product unit of each individual job is calculated by dividing the total cost of the order by the number of products in that order [5,276]. Each order uses a work in progress account. Thus, depending on the number of orders made, how many work in progress accounts are in the accounting system. The Finished Goods account includes many cost lines transferred from the work in progress accounts of each order.
The cost circulation cycle through accounts is shown in Appendix 04.
Order cost accounting process: Includes 6 steps as follows:
- Step 1, determine the CP subject is the orders. In case there are many
Orders are executed in parallel, each order uses a separate record. The main content of the record is to list all costs incurred for the execution of the order.
- Step 2: Determine direct costs to execute the order. Note that the classification of costs as direct or indirect must be done from the stage of cost estimation for the order.
- Step 3: Identify indirect costs to fulfill orders and collect them into pending allocation accounts.
- Step 4: Determine the cost allocation criteria. This is the factor linking indirect costs and cost-bearing objects. This factor can be financial factors (main material costs, direct labor costs) or non-financial factors (product output, number of working hours, number of machine hours, etc.)
- Step 5: Calculate the indirect cost allocation level and the indirect cost value allocated to the cost-bearing object according to the formula:
Indirect cost allocation level
next =
Total indirect costs Total CP allocation criteria
(2.2)
Indirect cost value allocated to cost objects
= Indirect cost allocation level
Cost allocation criteria of cost-bearing objects
(2.3)
There are as many cost allocation criteria as there are cost allocation levels.
- Step 6: Summarize all direct and indirect costs into cost objects, completing the cost calculation for the order.
During the order fulfillment process, order-related costs are recognized as three types of costs over the stages:
- Main material cost collects data from material delivery notes related to orders.
- Direct labor costs are collected from timesheets related to orders.
- Manufacturing overhead is the indirect costs allocated to the order.
The sequence of cost accounting process by order is summarized in diagram 2.6:
Order
Production order
Cost aggregation | Export bill of materials whether |
Labor tracking form | |
Indirect cost allocation level next |
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Order CP Record
Diagram 2.6: Sequence of cost accounting process by order
Process costing information system
The process costing information system is applied to enterprises that produce repetitive products with the same number of products in a production process. Cost accounts will be opened for each technological line, workshop and the cost of a product is determined by allocating costs to the same product block. Each production department uses a work in progress account. Therefore, the number of work in progress accounts depends on the number of production departments (workshops, technological lines). The Finished Products account has only one cost line transferred from the work in progress account of the last department [5, 283].
The cost circulation cycle through accounts is shown in Appendix 05.
Production Cost Report Implementation Process: follow these 4 steps:
Step 1: First, determine the cost accounting objects which are the products produced by the enterprise. Then, determine the actual output flow (including finished products and unfinished products).
Step 2: From the actual output flow, calculate the equivalent quantity of products based on the completion level of the SPDD. There are two methods to determine the equivalent quantity of products: the weighted average method and the first-in, first-out method.
According to the weighted average method, the quantity of SPDD at the beginning of the period is considered complete and does not need to be converted, only the quantity of SPDD at the end of the period needs to be converted.