CLASSIFICATION OF COSTS AT AUTOMOBILE OPERATING COMPANIES Kalonov M.B., PhD in Economics

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1 CLASSIFICATION OF COSTS AT AUTOMOBILE OPERATING COMPANIES Kalonov M.B., PhD in Economics Abstract. This article is devoted to the consideration of issues of costs at automobile operating companies and scientific and theoretical approaches on their classification. In addition, the author of the article has developed relevant proposals and recommendations. Key words. automobile (motor) transport, automobile operating companies, costs, fixed costs, variable costs. Introduction. It is well-known fact, that in all economic entities of our republic costs are divided into groups on the basis of the Provision On the procedure for creating structure of costs on manufacturing and sales of goods (works, services) and financial results. According to this Regulation, all costs are classified into costs included in the prime-cost and costs which are not included in the prime-cost. Costs included in the prime-cost include labour costs and social insurance payments, depreciation of fixed assets and intangible assets, as well as other expenses related to production (Regulation, 1999). From the theoretical point of view, regular production costs should be included in the prime-cost, however, in practice there are excessive consumption of raw materials and consumable materials, fuel and spare parts. Like all other areas, determining the prime-cost of services and its accurate organization is crucially important at automobile operating companies. Thus, in this regard it is necessary to conduct comprehensive researches aimed at prime-cost formation at automobile operating companies and carrying out accounting of the relevant costs. In our opinion, more comprehensive study of costs, in particular, costs constituting the prime-cost of services, is very important due to the peculiarities of automobile operating companies. Thus it is crucial to accurately and precisely determine the reasons of costs emergence at any legal entities as well as the role of the responsibility centers in this process. Accurate determination of the reasons of costs emergence ensures acquiring economic efficiency, as well as adequate, reliable and timely implementation of accounting activities at the companies. Therefore, this research is devoted to the consideration of individual cases on the emergence of costs related to the general and automobile operating companies. Literature review. In her research, Beloborodova V.A. has studied the object of cost accounting, the place of their emergence (enterprise, company, production workshop, department and etc.). In addition, she has paid a particular attention to the type of separately considered product as the object for calculation (Belobrodova, 1989). Professor B.A.Khasanov has the following opinion regarding this issue: In our view, the main peculiarity which differentiates the Centres for expenditure is that it makes complicated to achieve single approach of the operations performed and sophisticated equipment used at the 26

2 production workshops. Large production workshops of modern companies and relevant expenditures are not limited by the single targeted direction (Khasanov, 2003). From the point of view of Professor S.B.Kodirkhonov, The origin of costs emergences includes production workshops, sites, divisions, production crews and other structural units within the company. The term Centers for expenditures implies the initial production and service units. However, Responsibility centers are defined as the groups formed by responsible persons and economic subdivisions engaged in oversight of planned and normative costs with the aim of reducing prime-cost and ensuring profitability and cost-effectiveness (Kodirkhonov, 1993). The main aim of carrying out cost accounting at automobile operating companies facilitates supervision over accurate determination of prime-cost of the services, provision of their transparency and adequate spending. As Professor K.B. Urazov states Different units of calculation are used to determine the cost of works performed (services rendered) by motor vehicles. For example, the prime-cost calculation for trucks by their types is based on a 1 hour of work, 1 ton of cargo or 1 ton per kilometer. A unit for calculating the prime-cost for passenger carrying motor vehicles by their types is represented by 1 hour of work, 1 passenger or 1 person per kilometer. Automobile operating companies can perform prime-cost estimates by these units of calculations based on the standard prime-cost, planned prime-cost or actual prime-cost methods. The selected method should be reflected in the accounting policy of the automobile operating company (Urazov and Vakhidov, 2011). In the opinion of P.S.Bezrukikh, the reasons for the costs emergence are production workshops, departments, divisions and so on (Bezrukikh, 1974). V.A.Beloborodova has also expressed the point of view that the object of the cost accounting is the place of their emergence (enterprise, company production workshop, department etc.), and the object of the calculations is a separate product (Beloborodova, 1982). According to the opinion of Professor Khasanov Center for expenditures is a subdivision of a company which is responsible only for the targeted expenditure (production workshop, design office, etc.) (Khasanov and Xashimov). In general, the main purpose of cost accounting by the places of their emergence is their management and establishing an accurate accounting. In our opinion, cost management is the use of procedures, requirements, principles and methods that are based on awareness how to efficiently manage company resources and maximize the benefits. One of the main aims of the cost management is to control, assess, group and establish proper accounting of costs by means of using modern methods and techniques. Definitely, 27

3 methods for assessment and grouping of costs are connected with the peculiarities of the accounting policy and production technologies at any economic entity in the process of the effective cost management. The main aim of the accounting of prime-cost of services is adequate and timely determination of the actual costs, as well as ensuring oversight over the efficient use of labour, tangible and other types of resources. In addition, every company tries to do its best to sell its products at the best and most convenient price to get as much profit as possible. The cost of transport products is created by the laws and regularities inherent in all material production sectors. The service is based on the labour and movement of all employees engaged in the services of motor vehicle transport and labour costs incurred in the operating process. Therefore, the reduction of expenditures is a key factor in raising the profitability and cost-effectiveness of the companies. Moreover, efficient managing, grouping and accounting of costs at automobile operating facilitate improvement of the quality of services and reduction of the prime-cost of services. There is a distinctive feature of cost accounting for automobile operating companies which makes it different from the overall accounting system. In the opinion of the Professor K.B.Urazov, The nature of the works performed (services rendered) with the help of motor vehicles is that all expenditures made on the works performed or services rendered during the reported period are admitted as the prime-cost of this reporting period and are written off the accounting. In compliance with the procedures adopted in the Republic of Uzbekistan, by the technique of calculating the costs on works performed (services rendered) by motor vehicles must be recognized and reflected on the basis of the principle of their significance and compliance with the revenues and expenditures during the reporting period (Urazov, 2011). In the process of its performance, automobile operating companies intend not only sell their services at a favourable price, but also reduce the cost of production and sales in transport services. If the first source of the company s revenue growth is mainly related to the external conditions, the second source is dependent on the company itself, more precisely, the efficiency of organizing the service process and the sales level of transport services. Techniques for accurate cost management have been developed on the basis of specific technological features of any network. In addition, there are also peculiarities of the cost structure for cargo transportation and passenger carriage. From the theoretical point of view production costs are divided into direct and indirect costs. The major part of production costs are represented by direct costs. Their scientifically- 28

4 based classification is significant when calculating direct costs for automobile operating companies. In foreign researches there are a number of scientific papers presenting opinions of economists on the grouping of costs at automobile operating companies. In particular, Kudelskaya A., Belozertseva N. represent the opinion, that at automobile operating companies costs are classified into fixed costs and variable costs (Kudelskaya and Belozertseva, 2017). In this regard, from the point of view of Kudelskaya A. and Belozertseva N., the costs of maintaining permanent buildings and facilities, wages of administrative staff, postal and telegraph telephone services, as well as paying taxes and other compulsory payments are included in the fixed costs at automobile operating companies. In their opinion, fixed costs are calculated as 1 motor vehicle/hour. On the contrary, variable costs include expenses on the fuel, vehicle lubricants, vehicle tires, maintenance, depreciation and repair of motor vehicles. Variable costs change in accordance with the impact of the traffic of motor vehicles. Russian economist Kalinina T.B has also stated that costs at automobile operating companies are divided into fixed and variable costs. However, complementing the opinion of other authors, she has provided more comprehensive definition of the structure of costs at automobile operating companies. That is, the fixed costs of automobile operating companies also include the costs associated with managing the company and depreciation costs that are not connected with the vehicle s traffic time (Kalinina, 2013). Variable costs include expenditures on fuel for motor vehicles, vehicle tires, maintenance, depreciation and repairing, which are proportional to vehicle s traffic. Yefimenko A.G. and Yefimenko V.P. classify the costs at automobile operating companies into variable costs and conventionally fixed costs (Yefimenko and Yefimenko, 2003). The authors believe that variable costs at the automobile operating companies include drivers wages, wages of part-time employees, petroleum production cost, maintenance and repairing costs as well as and vehicle depreciation. Thus variable costs are not connected with the volume of transportation. As for conventionally fixed costs they include monthly salaries of the mechanic, garage manager, accountants engaged in motor operating companies, and social expenditures incurred, as well as expenses on establishing and managing a car park. A researcher Likhacheva considers the costs related to the cargo carriage at automobile operating companies to be formally classified into fixed costs and variable costs (Likhacheva, 2017). 29

5 From the point of view of the researcher Likhacheva, fixed costs include the costs which are not referred to the travelled distance, or haulage. Formally the author refers wages of drivers and inherent social expenditures to the fixed costs. Changeable costs on the distance travelled are considered to be variable costs of the motor vehicles. These variable costs include expenditures on fuel and lubricants, maintenance and repairing costs, vehicle depreciation costs depending on travelled distance. Domestic scientists-economists have also conducted researches on the issues of cost accounting and cost classification. In particular, scientific papers of Professors Holbekov R., Khasanov B., Khoshimov A., Pardayev A. should be mentioned in this regard. However, in the researches of these scientists the grouping of cost on the production volume is considered either on the basis of the relation of motor vehicles to other branches. In particular, Professor R.O. Holbekov supposes that according to the production volume costs are divided into conventionally fixed or variable costs. Moreover, he has proposed the following classification: according to the participation in the producing goods costs are divided into direct and indirect; according to the role of the economic performance production costs and incurred costs; according to the result obtained efficient and inefficient costs; according to the planning standard and non-standard costs; according to the emergence period past period costs, current costs and future costs; according to the allocation of the funds of economic entities controllable costs and uncontrollable costs. It should be noted, that adding the word conventional to the direct and indirect costs is considered to be a relatively new tradition in the economic theory. In the opinion of R.O. Holbekov, it is not appropriate to specify one type of cost as strictly direct or indirect as in reliance on the cause of these costs emergence they can be both direct and indirect. For example, if the expenditures on wages occur in the basic production, they are considered to be direct costs, and if they emerge in the general production process, they are referred to as indirect costs. As for efficient costs, they include costs on raw and consumable materials, amortization costs and costs incurred in the process of creating financial results. Furthermore, the majority of the researchers in their scientific papers have referred the costs related to the traffic performance of motor vehicles to the variable costs as they tend to change, and the costs which are not about the traffic performance to the fixed, i.e. permanent costs. The classification of costs at automobile operating companies into conventionally fixed and conventionally variable is carried out with the account of the economic efficiency achieved due to the influence of technical and economic factors. Such calculations are performed to 30

6 determine the future planned prime-cost of the services based on the actual prime-cost. However, the application of such calculations is not always cost-effective. Conclusion. With the account of the opinions of scientists and economists, as well as peculiarities of the automobile operating companies of our republic, from our point of view, the costs should be classified into conventionally fixed and variable costs. Fixed costs include costs that are not directly related to the travelled distance or accomplished works. In particular, they include depreciation costs, travelling costs, payments on the license and other compulsory payments, wages which are not directly concerned the traveled distance and volume of works accomplished, for example, wages of drivers and busmen. Variable costs include the costs subject to change due to the distance travelled or works accomplished. Such costs include the costs of fuel and lubricants, maintenance and repairing, as well as depreciation costs calculated with the account of travelled distance due to the depreciation determined standard. In our opinion, any costs can be changed under certain conditions. In addition, costs can also be changed depending on the type of service rendered. For example, at automobile operating companies wages of employees engaged in gasoline carriers are included in the fixed costs because these costs are considered not to be referred to the distance travelled. However, the increase of the number of motor vehicles causes the necessity to employ additional labour force and rise of the inherent costs. Thus, from our point of view, costs can alter under accepting certain conditions. Reference: 1. Regulation (1999), Regulation of the Cabinet of Ministers of the Republic of Uzbekistan 54 On the procedure for creating structure of expenditures on manufacturing and sales of goods (works, services) and financial results as of February 5, Belobrodova V.A., Checheta A.P., Stabinskiy V.T., et al. (1989) Calculation of production prime-cost in the industry: Textbook. М.: Finance and Statistics. 3. Khasanov B.A. (2003). Management accounting: theory and methodology. Тashkent: Moliya. 4. Kodirkhonov S.B. (1993). Accounting at industrial enterprises. Tashkent: Uzbekistan. 5. Urazov K.B., Vakhidov S.V. (2011). Accounting peculiarities at other sectors. Тashkent:Adib. 6. Bezrukikh P.S. (1974). Accounting and calculation of the production prime-cost. М.: Finance. 7. Beloborodova V.A. (1982). Accounting with the foundations of economic analysis. М.: Finance and statistics. 31

7 8. Kudelskaya A., Belozertseva N. (2017). XII International Student Scientific-Practical Conference. 9. Kalinina T.B. (2013). Cost accounting and calculation of the production prime-cost at automobile operating companies// Accounting and Statistics. 4(101). 10. Yefimenko A.G., Yefimenko V.P. (2003). Cost management ay automobile operating companies. Improving Management. 11. Likhacheva V.Ye. (2017). Ways of reducing costs at automobile operating companies. XLVI Student s International Scientific-Practical Conference The Youth Scientific Forum: Social and Economic Studies. М.: «МTSNO», 6(46). 32