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BUSINESS ECONOMICS Costs_1 Costs and their Classification

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BUSINESS ECONOMICS Costs_1 Costs and their Classification
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  11/27/20111 BUSINESS ECONOMICSCosts_1 Costs and their Classification  Cost is a measurement, in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services.  Classification of Costs is the arrangement of the items of costs intological groups.  Items should be classified by one characteristic for a specific purpose without ambiguity.  Scheme of classification should be such that every item of cost can be classified.  11/27/20112 Costclassificationby nature •Concentrationof costs into homogenous groups connectedwiththeactivitiesofvariousproductionfactors;•itanswersthequestion-  what was consumed  ;•basic costtypesare • consumptionofrawmaterialsandmaterial, fuelsandenergy, • depreciationandamortization, • labour andotherpersonnelcosts(wages, salaries, commissions, insurance), • financialcosts(insurance, paidinterests, charges), • costsofexternalservices(repairs, rent, freight). Typesof costsExamples of cost items Operating expenses on sold goodsproduction consumption –consumption of materialand energy, servicespersonnel expenses –wages and salaries,renumeration of  board members, social security expenses and health insurance, other social expenses taxes and fees (having the natureof operating costs) –property tax, road tax, etc. (not income tax)depreciations of intangible and tangible assetsnet book valueof disposals of fixed assets and materialscreation of reserves and adjustments of operating costs other operating expenses Financial financial expensesincome tax on ordinary income Extraordinery  extraordinary expensesincome tax on extraordinaryincome  11/27/20113 Costclassificationby placeandresponsibility  Itanswersthequestion  where the costs arisen and who is responsible for its rise ;  itisthebasis fortheclassificationofcostsaccordingto departmentsofenterprise;  departmentsto whichare assignedcostsby responsibilityare calledcentres;  a centre canbejust such a divisionoforganizationalstructureofbusiness • thathaverestrictedactivityforwhichitispossibleto identifycosts, •  whereispossibleto identifyservicestransferedto othercentres, •  whereexista clearmethodofevaluationofcentre services(by usingtransfer prices). Costclassificationby placeandresponsibility o according to size and complexity of production the costs are divided into several levels o the first level is reperesented by the costs of productive activity and the costs of non-productive activity  󰁐󰁲󰁯󰁤󰁵󰁣󰁴󰁩󰁯󰁮󰁐󰁲󰁯󰁤󰁵󰁣󰁴󰁩󰁯󰁮󰁣󰁯󰁳󰁴󰁳󰁣󰁯󰁳󰁴󰁳 󰁔󰁥󰁣󰁨󰁮󰁯󰁬󰁯󰁧󰁩󰁣󰁡󰁬 󰁔󰁥󰁣󰁨󰁮󰁯󰁬󰁯󰁧󰁩󰁣󰁡󰁬 󰁣󰁯󰁳󰁴󰁳󰁣󰁯󰁳󰁴󰁳 󰁃󰁯󰁳󰁴 󰁃󰁯󰁳󰁴 󰁯󰁦 󰁯󰁦 󰁯󰁰󰁥󰁲󰁡󰁴󰁩󰁯󰁮󰁯󰁰󰁥󰁲󰁡󰁴󰁩󰁯󰁮 󰁡󰁮󰁤 󰁡󰁮󰁤  󰁭󰁡󰁮󰁡󰁧󰁥󰁭󰁥󰁮󰁴 󰁭󰁡󰁮󰁡󰁧󰁥󰁭󰁥󰁮󰁴  󰁉󰁮󰁤󰁩󰁶󰁩󰁤󰁵󰁡󰁬 󰁉󰁮󰁤󰁩󰁶󰁩󰁤󰁵󰁡󰁬󰁣󰁯󰁳󰁴󰁳󰁣󰁯󰁳󰁴󰁳 󰁏󰁶󰁥󰁲󰁨󰁥󰁡󰁤 󰁏󰁶󰁥󰁲󰁨󰁥󰁡󰁤󰁣󰁯󰁳󰁴󰁳󰁣󰁯󰁳󰁴󰁳  11/27/20114 Costingclassificationofcosts(by relationto costcentre) •Itanswersthequestion  on „what“ were the costs spent  ;•it is crucial for business-it enables to identify profitability(profit) ofindividualproductsandto managetheproductstructure;•itestimatesthesizeofthecostper unit ofoutput= cost unit (costobject)  particulatoutput–service(product, rawproduct, operation) thatisassessedby unit ofmeasure(e.g. quantity–pcs, weight–kg, lenght–m, area -sqm 2 , time–hrs); •wedistinguishtwomaingroups 1. directcosts –directlyrelatedto a particularoutput, 2. indirectcosts –relatedto more kindsofoutputsandprovideproductionandoperationofthecompanyas a whole. Costclassificationby dependence on outputvolume (by behaviour) •importantclassificationfora numberof managerialdesicions;•costsare dividedinto   variable –dependenton changesin thevolume ofoutput,  fixed –independent ofchangesin thevolume of output. •Itisusedjust forshortterm. In thelongterm fixedcostsdo not exist.  11/27/20115 Variable costs  arisein connectionwithdivisibleeconomicresources,  withvariableproductionfactors–itslevelcanbechangedin a shortperiod;  in a certainperiod theyare changingin depenceon thechangein theoutputvolume;  usuallywecandistinguishthreebasic types  proportional –itsabsolutelevelchangesin directproportionto thechangein theoutputvolume duringtheperiod (shareper unit ofoutputvolume isconstant),  under-proportional –duringtheperiod theygrow with the growth of the outputvolume more slowly than the outputvolume(shareper unit ofoutputvolume withthegrowthoftheoutputvolume decreases),  over-proportional –duringtheperiod theygrow fasterthanthe outputvolume(shareper unit ofoutputvolume  withthegrowthoftheoutputvolume increases). Variable costs include •Individualcosts,•variablepart oftheoverheads  theconsumptionofoverheadmaterialimmediately relatedto theoutputvolume,  theconsumptionofenergyfortechnologicalpurposes,  indirectwagesimmediatelyrelatedto theoutput volume andwithitconnectedhealthandsocialinsurance,  themaintenanceimmediatelyrelatedto theoutput volume,  licence chargespaidby thenumberofproducedpieces,  commission, discounts, rebates.
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