Asian Social Science; Vol. 11, No. 11; 2015 ISSN 1911-2017 E-ISSN 1911-2025 Published by Canadian Center of Science and Education Management Accounting of Production verheads by Grous of Equiment Sokolov A. Y. 1 & Sungatullina L. B. 1 1 Kazan Federal University, Institute of Management, Economics and Finance, Kazan, 420008, Russia Corresondence: Sokolov A. Y., Kazan Federal University, Institute of Management, Economics and Finance, Kazan, 420008, Russia. el: 7-917-399-2244. E-mail: Sokolov-kzn@bk.ru Received: March 19, 2015 Acceted: March 31, 2015 nline Published: Aril 30, 2015 doi:10.5539/ass.v11n11379 URL: htt://dx.doi.org/10.5539/ass.v11n11379 Abstract he aer discusses the current trend of managerial accounting develoment accounting of roduction overheads in industrial enterrises by grous of equiment. he definition of work center or grou of equiment is given, the technique for determining the unit indirect costs is suggested. he recommendations can hel determine more accurately the cost of the roduct, calculate the non-financial measurement, lan the work of management, engineering, service and roduction deartments, exercise tight control of costs. Keywords: overheads, costs, cost center, management accounting, analysis, costing, cost estimation, cost reduction 1. Introduction Cost information is generated and submitted to executives until the management decision is made (information suort of the decision), and after the decision was taken (outcome measurement of the decision made). he effectiveness of managers oeration deends largely on how costs and results are accounted, lanned and analyzed. Nowadays, there is also a need to integrate elements of different methods of generating costs and benefits information of economic entities (ABC, D-ABC, lean accounting, JI accounting, etc.) in order to solve the strategic and mid-term goals. verhead costs or exenses in roduction servicing, management and marketing, can, by calculation or through the cost objects, be absorbed by resonsibility centers or secific roducts without forming a real foundation of the latter. Work centers in industrial enterrises are increasingly becoming grous of equiment. his can be automated roduct lines when arts rocessing oerations are carried out on several machines or multifunction roduction equiment that allows all oerations for rocessing the workiece on one machine. Using the multifunction equiment in the contemorary economy is intended to solve a number of roblems. Firstly, it is the roblem of roduction under conditions of demand and suly fluctuations. As it is known, it is unrofitable to start roduction lines for manufacturing small volumes of roducts. Secondly, it is the roblem of reducing the rocessing time of roduct arts. hus, the work center (WC) may be a grou of equiment involved in the roduction rocess continuously since the start of rocessing of a roduct on the first machine (inut) and till the end of rocessing on the last one (outut). If rocessing the roduct is interruted, for examle, on the 6th machine (out of 14), and then after oeration in another deartment it returns to the 6 th machine, it is necessary to identify two work centers, the first of which includes six machines, and the second - eight. Each work center must be encoded (code division, grou of equiment). Work centers can be major (the equiment on which the roduct is made directly) and suort (machines which serve the roduction rocess: ums, valves, benches, etc.). Such division affects the whole scheme of costs allocation in the organization and enables to determine roduct cost more accurately. 2. Method he aim of the study is to exlore otions for accounting overheads in industrial lants. Problems of overheads accounting are studied in researches by Datar S., Kekre S., Mukhoadyay., Svaan E. (1991), Kulikova L. I. (2015), Maiga A. S., Jacobs F. A. (2007), Peden A., Baker J. J. (2002), Savory P. (2010), ang S., Gao Y., Qian F., Wang D. (2013), Zheng Y., Chen M., Yao X., Zhang J. (2010). yes of equiment vary in cost of urchasing and, consequently, the value of dereciation costs, maintenance costs and the cost of arts rocessing. his fact should be taken into account in calculating overheads allocation. 379
Utility costs for roduction equiment, dereciation costs and the costs of reair and maintenance of equiment can be distributed in roortion to the machine hours in the total sum. It is advisable to select a searate grou of overheads accounted for by unused and underutilized manufacturing equiment (Figure 1). Variable costs (electricity, variable maintenance costs) and fixed costs (dereciation, the cost of major reairs) Fixed costs (dereciation, the cost of major reairs) ime used ime use ime unused ime unused Loaded equiment (WC) Underloaded equiment (WC) Unused equiment (WC) Unit costs Machine load on the basis of information about the minimum cost of work center (equiment grou) Figure 1. Cost accounting attributable to loaded, underloaded and unused machines It is advisable to calculate the standard value of roduction defining its variable and constant comonent within the grou of equiment and searate distribution of fixed costs which are accounted for by the used and unused time between roducts. 3. Result We will consider the case when the main grou of equiment is not fully loaded (or artially loaded), variable and fixed roduction overheads are correlated to the roducts manufactured in roortion to the time of equiment oeration, which is divided into loaded, artially loaded and unloaded. he formula for determining the roduction overhead costs takes the following form: o 2 2 q М 1 2 = M where 3 4 5 ( ) 3 4 5 Т ТМ, (1) 3 4 5 ТМ Т o - standard overheads er unit of roduct manufactured in the WC (equiment grou), monetary units; 1 - standard variable overhead costs (including electricity costs, maintenance costs) of the main grou of equiment (er month), monetary units; - standard fixed overhead costs (including dereciation and the cost of major reairs) of the main grou of 2 equiment (er month), monetary units; 3 - standard oerating costs for the maintenance of suort equiment (the cost of tools and devices, dereciation of suort equiment and vehicles, etc.) (er month), monetary units; 380
4 -standard oerating costs (costs of major reairs, dereciation) attributable to unused equiment (er month), monetary units; 5 - standard costs of roduction management (labor costs), dereciation of buildings, etc. (er month), monetary units; - regular working time fund (machine load taking into account the roduction volume lanned) in this main work center (er month), in machine hours. It is defined as the roduct of standard time by unit of roduct ( t ) and the lanned roduction volume of these items; М - regular working time fund (maximum otential machine load) in the main grou of equiment (er month), in hours. It is defined as the roduct of maximum oerating time (for examle, 8 hours er day) by the number of working days, taking into account the shift-working (number of shifts); М - the sum of regular working time fund (maximum otential machine load) in all major grous of equiment or WC at the roduction deartment (er month), in hours; - the sum of regular working time fund (machine load taking into account the roduction volume lanned) in all major grous of equiment or work centers at the deartment (er month), in hours; t - standard time er unit of roduct (arts) in this grou of equiment or WC, machine-hours er unit; q - standard outut of roducts in the given grou of equiment, units. As a result, the following costs are formed: the cost of time used in a working center (WC); the cost of unused time within the WC; the used caacity cost (cost of maintaining suort equiment and other costs of division or deartment attributable to the time used); the costs of unused caacity: the cost of maintaining suort equiment and other exenses of roduction deartment attributable to the time not used. Meanwhile, fixed costs of unused time is a reserve to reduce costs (action to load machines in full and this grou of costs will tend to zero). We will assume that there are five working centers (WC) or grous of equiment in the division, three of which are not fully loaded (WC1, WC2, WC3), the fourth is loaded fully (WC4), the fifth is not intended to be used in this eriod (WC5). Product (or art of the roduct) A is manufactured in WC1. Production oerating costs of WC1 amounted to 16,000 monetary units. f these, variable costs (electricity costs and maintenance costs which may be used deending on the use intensity of the machine) amounted to 7,200 monetary units ( 1 ). Standard working time fund of equiment of WC1 (maximum otential machine load) - 1,600 hours ( М ), standard working time fund of equiment of WC1 (machine load taking into account the roduction volume lanned) amounted to hours ( ), standard manufacturing time er unit of roduct in WC - 0.4 hours ( t ), hence the lanned roduction volume of roducts - 2,400 (: 0.4). Standard oerating costs are indirect in relation to the WC1: the cost of maintaining suort equiment - 6000 monetary units; ( 3 ) (maintains all oerating work centers), roduction costs attributable to unused equiment (WC5) - 3000 monetary units ( 4 ), general sho exenses - 18,000 monetary units ( 5 ). he total otential maximum loading of all five WC (it should be remembered that WC5is not used) - 9000 hours ( М ), the total loading of the machines with the total lanned roduction of all five WC is hours. As the maximum otential loading of WC1 does not coincide with the loading of WC1 which is calculated taking into account the lanned volume of roduction, the calculation of roduction overhead costs er unit of WC1 will be as follows: o 8800 8800 0,4 2400 7200 8800 1600 = 0,4 0,4 0, 4 1600 6000 3000 18000 ( 6000 3000 18000) 6000 3000 18000 9000 0,4 0, 4 = 9000 3,0 2,2* 1,47 1,2 0,8 = 8,67 monetary units er unit 381
hese fixed costs are the cost of time used. he same calculation of the distribution of fixed costs can be erformed in another way: to determine the ercentage of machine load - 60% ( hours: 1600 hrs.), to determine gross fixed costs of caacity used - 5280 monetary units (8800 monetary units 60%: 100), to determine the fixed costs er 1 hour of caacity used - 5.5 monetary units er hour. (5280 monetary units: hrs.) and to determine the fixed costs attributable to the caacities used er unit of outut 2.2 monetary units (5.5 den. U 0,4 hour er unit of roduct). he greater is the ercentage of equiment underloading, the greater is the costs value attributable to inderloaded equiment and, consequently, the cost of roduction. If the cost of maintaining suort equiment can be divided into variable and fixed, the share of these costs in total manufacturing overhead costs is significant and suort equiment serves the main grous of equiment in the sho, then the earlier resented scheme of costs distribution can become comlicated. o find a variable and constant comonent, the methods of correlation analysis can be used. Let us consider the merits of the otion resented. Firstly, the reserves of costs reduction are designated. In our examle, this value is 2.27 monetary units (1.47 0.8) or 26,2% (2,27: 8,67 100%) of the total manufacturing overhead costs er unit of roduct. In other words, if to load the idle caacity of equiment grou to the maximum, then the cost of roduction will decrease. Since all calculations are carried out rior to the beginning of the reorting eriod (month), it is ossible to make changes in the distribution of orders across the enterrise, determining what machines will make which roducts. Secondly, cost of roduction is more accurately determined. If it is necessary, one can also use coefficients which take into account the comlexity of the work on different grous of machines and thus to imrove the calculations accuracy of the roducts costs. hirdly, the resented calculation scheme of standard overheads enable to determine the variable overhead costs of roduction in a articular WC (equiment grou), as well as variable overhead costs attributable to one machine hour oeration of this equiment. In our examle, the value of these costs amounted to 3 monetary units er unit of roduct or 7.5 monetary units er 1 machine-hour. If it is technically ossible, the first thing should be to load the least cost intensive equiment (the criterion is variable maintenance costs). As standard overhead costs, you can use the actual costs of the revious eriod, adjusted by the amount of costs to be reduced. he rincile of continuous cost reduction should be alied. In our oinion, to distribute the constant art of costs, analytical rate discussed reviously can be used. However, due to objective circumstances (demand or other reasons) it is not always ossible to load the available caacity to the maximum. In such cases it is advisable to determine the actual maximum otential machine load. he formula for determining the cost of the roduct under consideration takes the following form: o = 1 Т ТМ M 2 M r M 2 M M M r ( ) ТМr Т 3 4 5 ( 3 4 5 ) ТМ Т Т ТМ ТМr ( ) 3 4 5 ТМ, Т 2 (2) where М r - standard working time fund (the actual maximum otential machine load) in this main WC (er month) in hours; ТМ r - the sum of standard working time fund (the actual maximum otential machine load) in all major WC in the division (er month) in hours. 382
Let us suose the actual maximum otential machine load of WC was 1560 hours. otal real otential maximum machine load of all five WC is 8100 hours. Let us calculate the standard overheads er unit in the WC1: o 7200 = 0,4 1560 1600 1560 0,4 8800 0,4 8800 0,4 8800 1600 1600 1600 9000 8100 0,4 9000 0,4 9000 ( 6000 3000 18000) 8100 9000 ( 6000 3000 18000) 0,4 ( 6000 3000 18000) = 3,0 2,2 1,38 0,09 1,2 0,6 0,2 = 8,67 monetary units er unit Consequently, the head of the cost center will be resonsible for the reduction of unit costs (finding ways to increase machine load) in the amount of 1.98 monetary units (0,6 1,38) or 22,8% (1,98: 8,67 100%). It should be noted that the secial control (detailed cost calculation, deviations, etc.) is given to that grou of roducts which generates a rofit target (to do this, Pareto analysis should be carried out). 4. Conclusion hus, the main objectives of management accountants who organizes management accounting of costs in the context of the WC are determining activities whose costs are to be analyzed for their otimization, choosing the otion for secified allowances, generation of analytical information about the standard and actual costs in the context of the WC (including determination of secific quantities of costs attributable to unused caacity), variance analysis of costs in the rocess of determining the standard costs; deviations of actual costs from target (standard) values using roduction volume indexes which are universal for the roduction of several tyes, articiation together with engineers (rocess engineers, mechanical engineers, etc.) in the develoment of an otimal rogram for loading WC which allows to reduce the costs of non-financial accounting measurement (loss, outut, roduct quality indicators, the ercentage of machine load, the roduction cycle, etc.). he aroach resented in the article allows to create scenarios of suosed changes in the structure of outut and sales of roducts (for examle, the increase in the roduction of one roduct at the exense of another in order to minimize the funds involved in the turnover while increasing rofits). References Aletkin, P. A. (2014). International financial reorting standards imlementation into the Russian accounting system. Mediterranean Journal of Social Sciences, 5(24), 33-37. htt://dx.doi.org/10.5901/mjss.2014. v5n2433 Datar, S., Kekre, S., Mukhoadyay,., & Svaan, E. (1991). verloaded overheads: Activity-based cost analysis of material handling in cell manufacturing. Journal of erations Management, 10(1), 119-137. htt://dx.doi.org/10.1016/0272-6963(91)90038-y Kulikova, L. I., Sokolov, A. Y., & Ivanovskaya, A. V. (2015). Aroaches to ariffs Formation for Ethylene by Pielines ransortation. Mediterranean Journal of Social Sciences, 6(1), 416-420. htt://dx.doi.org/10.5901/mjss.2015.v6n1s3416 Kulikova, L. I., Sokolov, A. Y., Ivanovskaya, A. V., & Akhmedzyanova, F. N. (2015). Aroaches to erations Accounting Regarding Mortgage of the Enterrise as a Proerty Comlex. Mediterranean Journal of Social Sciences, 6(1), 411-415. htt://dx.doi.org/10.5901/mjss.2015.v6n1s3411 Maiga, A. S., & Jacobs, F. A. (2007). Activity-Based Cost Management and Manufacturing, erational and Financial Performance: A Structural Equation Modeling Aroach. Advances in Management Accounting, 16, 217-260. htt://dx.doi.org/10.1016/s1474-7871(07)16008-1 Peden, A., & Baker, J. J. (2002). Allocating hysicians' overhead costs to services: An econometric/accounting-activity based-aroach. Journal of Health Care Finance, 29(1), 57-75. Savory, P. (2010). Estimation of cellular manufacturing cost comonents using simulation and activity-based costing. Journal of Industrial Engineering and Management, 3(1), 68-86. htt://dx.doi.org/10.3926/jiem. 2010.v3n1.68-86 383
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