Direct costing method
Posted: Sun Jan 19, 2025 4:08 am
The method of accounting for direct (variable) costs is one of the most convenient and easy to master and implement. Despite its simplicity, it offers very reliable information for further analysis. Less labor intensity of calculations is achieved by refusing to use general business expenses.
Experts also call this method "truncated costing".
The method has proven itself best in small firms specializing in the production of homogeneous goods with insignificant fixed costs. The cost of sales of goods or services is calculated easily and quickly.
According to the direct costing method, the calculation comes down to determining the cost of production of a unit of product and is made by dividing the total amount of variable costs by the quantity of manufactured products.
Direct costing
Source: shutterstock.com
Let's calculate the sales costs job seekers data package in the cost price of computer desks and chairs using the direct costing method.
General costs will not be taken into account.
The cost price of one table will be:
55,000 / 15 = 3,667 rubles.
Cost price of one chair:
65,000 / 12 = 5,417 rubles.
As you can see, the cost of sales calculated using direct costing has a lower value than when using the order method.
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ABC method
This method can be used to obtain information on the costs of each unit of goods or services produced. In addition, the analysis of the cost structure (including management costs) when they are correlated with revenue allows one to know the cost of sales with sufficient accuracy and develop a methodology for reducing them and using resources more rationally and finding reserves.
This type of calculation requires dividing all the company's activities by functionality. That is, all highly specialized departments (HR, production service, accounting, etc.) are considered as separate structural units. Key performance indicators are entered for each division. For example, the work of the sales department is assessed by sales volume.
After that, it is necessary to determine the level of costs for each structural division of the enterprise. For this, a system of corresponding coefficients is used.
ABC method
Source: shutterstock.com
The cost of an individual operation is multiplied by their number for a specific reporting period.
Naturally, the choice of any method for calculating the cost of sales and profit (or their combination) is carried out only taking into account the specifics of the business processes implemented in a particular organization. Their effectiveness will depend on this.
Experts also call this method "truncated costing".
The method has proven itself best in small firms specializing in the production of homogeneous goods with insignificant fixed costs. The cost of sales of goods or services is calculated easily and quickly.
According to the direct costing method, the calculation comes down to determining the cost of production of a unit of product and is made by dividing the total amount of variable costs by the quantity of manufactured products.
Direct costing
Source: shutterstock.com
Let's calculate the sales costs job seekers data package in the cost price of computer desks and chairs using the direct costing method.
General costs will not be taken into account.
The cost price of one table will be:
55,000 / 15 = 3,667 rubles.
Cost price of one chair:
65,000 / 12 = 5,417 rubles.
As you can see, the cost of sales calculated using direct costing has a lower value than when using the order method.
Professional tests
for managers
Which employees should be fired?
What job would you have at Google?
And 15 other tests
Take the tests
ABC method
This method can be used to obtain information on the costs of each unit of goods or services produced. In addition, the analysis of the cost structure (including management costs) when they are correlated with revenue allows one to know the cost of sales with sufficient accuracy and develop a methodology for reducing them and using resources more rationally and finding reserves.
This type of calculation requires dividing all the company's activities by functionality. That is, all highly specialized departments (HR, production service, accounting, etc.) are considered as separate structural units. Key performance indicators are entered for each division. For example, the work of the sales department is assessed by sales volume.
After that, it is necessary to determine the level of costs for each structural division of the enterprise. For this, a system of corresponding coefficients is used.
ABC method
Source: shutterstock.com
The cost of an individual operation is multiplied by their number for a specific reporting period.
Naturally, the choice of any method for calculating the cost of sales and profit (or their combination) is carried out only taking into account the specifics of the business processes implemented in a particular organization. Their effectiveness will depend on this.