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Prof. Dr. Olga Popova, OVGU Prof. Dr. Jörg Jablinski, OWL

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1 Prof. Dr. Olga Popova, OVGU Prof. Dr. Jörg Jablinski, OWL
Lecture „Industrial Costing“ SS 2016/2017 Prof. Dr. Olga Popova, OVGU Prof. Dr. Jörg Jablinski, OWL Sämtliche Folien sind urheberrechtlich geschützt und dürfen nur zum internen Gebrauch an der Hochschule OWL verwendet werden. Eine Weitergabe an Dritte, egal in welcher Form, oder eine Vervielfältigung wird untersagt.

2 „Cost center accounting“ (Part 1)
Chapter 4 „Cost center accounting“ (Part 1)

3 Cost center accounting

4 Cost center accounting within financial accounting
1. Cost-type accounting 2. Cost center accounting Cost unit accounting Calculation Statement of operating result

5 Distribution of costs to cost units
Direct costs Overhead costs Cost centers Primary cost distribution Primary cost distribution Internal cost allocation secondary cost distribution Service cost center Main cost center Overhead rates Cost units

6 Tasks of cost center accounting
Distribution of costs to cost centers Determining of overhead rates Allocation of cost centers between cost units Control of profitability

7 Hierarchy levels of cost centers

8 Classification criteria for cost centers
According to functional area According to the type of allocation According to spheres of responsibility According to spatial aspect Division into preliminary cost center (indirect accounting for services) and final cost center (direct accounting for services) takes place Classification of cost centers corresponds to clearly delimited spheres of responsibility Spatial delimited operating sectors belong to one cost center The same or similar work processes belong to one cost center

9 Classification according to functional areas
Cost centers Description and Examples General for example canteen, electricity supply, house equipment, company doctor Recourse centers services connected with purchasing, reception, control, storage, maintenance, issue of materials (for example purchasing department, testing center, storehouse) Production centers operating output of goods (for example grindery, turnery, milling, painting point, installation) Distribution center distribution of goods and services: finished goods stock, sell and sending of finished goods and spare parts, customer services, commercials Administration center administrative activities for example management and it’s stuff sections, accounting, controlling, personal Researching- and development center types of costs, serving for innovations (construction, experiment, laboratory)

10 Classification according to type of allocation

11 Important: Remember! Final cost centers provide activities; that are directly incorporated to a product. However preliminary cost centers pass activities to another cost centers, it means its activities will be allocated to final cost centers indirectly, using assessments.

12 Description of cost centers

13 Allocation of overhead costs

14 Principles of cost center formation

15 Cost allocation sheet

16 Example: Primary distribution of overhead costs
The starting point for distribution of overhead costs in the example company “Feuer” is following simple cost center classification: material, production, distribution and administration. Nonproductive labor costs and salaries will be separated in accord to job description of employees and activity reports. Cost centers Cost types Nonproductive labour costs Salaries Material 8.400,- € 24.000,- € Production ,- € 69.600,- € Administration ,- € Distribution 48.000,- € Non-wage labor costs must be considered accepting social cost rates, which amounts to 65 % for nonproductive labor costs and 40 % for salaries.

17 Example: Primary distribution of overhead costs
Value of auxiliary and operating materials will be determined using purchase invoice and fixed valuation method, it amounts to ,- € and belongs to the cost center “Production”. Electricity- and heating fuel costs amount to ,- € ,- € will be distributed between different sectors, for one thing according to cubic meter (m³) of space, for another thing according to electrical connected values. Distribution formula is: 3 : 100 : 6 : 6 (Material, Production, Administration, Distribution). The sum from formula amounts to To the distribution cost center will be assessed for example ( ,- € : 115) x 6= ,- €. Imputed depreciations: The buildings will be depreciated over 50 years and the machines over 10 years.

18 Example: Primary distribution of overhead costs
Acquisition values of buildings Acquisition values of machines Material ,- € ,- € Production ,- € ,- € Administration ,- € ,- € Distribution ,- € ,- € Imputed interest will be prorated to different cost centers on base of average committed operating capital. Discount rate amounts to 8 % per year. Cost centers Sum Material Production Administration Distribution Operating capital 13.900,- T€ 2.700,- T€ 8.500,- T€ 800,- T€ 1.900,- T€

19 Example: Primary distribution of overhead costs
Area of activity of entrepreneur is connected with following two departments: 80 % of his work is connected with administration and 20 % with distribution (this corresponds to the relation 4:1). Imputed entrepreneurial profit amounts to ,- € per year. Distribution of other costs leads us to following results: Cost types Cost centers Other overhead costs Trips, commercials Insurance, taxes Material 17.800,- € 5.000,- € 24.000,- € Production 59.600,- € 2.000,- € 91.000,- € Administration 50.300,- € ,- € 95.000,- € Distribution 23.300,- € ,- € 15.000,- € Sum ,- € ,- € ,- € Overhead costs of company “Feuer” will be distributed between four main cost centers in the following way:

20 Example: Primary distribution of overhead costs

21 Example: Primary distribution of overhead costs
Imputed depreciations and imputed interest will be calculated for cost allocation sheet in the following way:

22 Types of internal activities

23 Methods of internal cost allocation

24 One-sided exchange of activities according to
direct method

25 One-sided exchange of activities according to
step ladder method

26 Mutual exchange of activities


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