Determining where the costs were incurred
If it is defined where certain costs have been incurred in a company, then it is made clear in what ways these can be improved or saved . For example, it may be that one area of the company incurs particularly high costs , but in contrast to another area, these generate too little profit . Here, the cost center accounting the way to optimize . These cost centers can be, for example:
- The material : In most cases, materials are needed for the company, be it for the creation of the product, storage, etc.
- The production : In the production by the production also additional costs come to the company and also for the continuous development of the product.
- The Management : When managing mostly staff costs will the company, as evidenced by the accounting or management.
This is only a small selection of the possible cost centers; these vary depending on the company model and the area in which the company is active.
In cost center accounting, we assume in an example that two different cell phones are produced in one company. The Handy A is a higher-class model, which can therefore be bought for around 1000 euros. Handy B, on the other hand, tends to be made for the mass market. The costs for this phone are accordingly around 500 euros.
Both models cost 100 euros to produce.
- Cell phone A win: 900 euros
- Profit cell phone B: 400 euros
With 10 models sold, the profit is 9,000 euros and 4,000 euros.
But now there are additional individual costs. For Handy A these amount to 200 euros and for Handy B to 50 euros per product.
So there are still 600 euros profit for Handy A and 350 euros profit for Handy B.
According to howsmb.com, the company has to reckon with further overhead costs , which amount to around 5000 euros. The cost center accounting now helps to determine exactly where these costs arise. If the entrepreneur would simply calculate 50/50, then Handy B would be in the red and production would cease. The fact is that Handy A causes more basic costs through the appropriate marketing, but still makes economic sense due to the high profit.
Cost unit accounting
The last point is cost unit accounting . This defines exactly what the costs are for .
Determination of what the costs were incurred for
Cost unit accounting shows how high the costs are for different cost units in a certain period of time. In this way, it can be precisely analyzed which aspects in the company cause which costs and what extent must be expected.
In addition, it can be determined how high the exact costs are that are incurred, for example, to create a product. This ultimately determines how economically the company is really oriented.
To understand cost unit accounting, it is helpful to use an example to illustrate this.
Let us assume that a company produces cups that change color when heated. Accordingly, cost unit accounting calculates exactly where and in which areas of the production process which costs arise. These are then extrapolated so that it can be determined how much money has to be invested to produce a cup.
This is followed by an agreement with the price that will be charged for this cup and finally it can be found out how economical the company really is.
Tasks of cost and performance accounting
The question now arises as to why a cost and performance calculation should be carried out at all. Because, in contrast to accounting, this is not an obligation for the entrepreneur. Still, it can be worth it. There are four main points here , which are explained below.
In contrast to financial accounting, the implementation of cost and performance accounting is not mandatory. The entrepreneur carries it out independently and voluntarily and can adapt it at his own discretion.
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Determination of prime costs for pricing
When a product or service is offered, in most cases costs, such as for production, advertising, etc., are incurred by the entrepreneur. This forms the basis for profit, so that the company is economically successful in the long term. A suitable price for the product or service must be found so that the costs are covered and a satisfactory profit is generated .
The cost and performance accounting is also suitable when it comes to identifying where most of the costs arise and how these are in relation to the services provided. This has the advantage that it can be defined where costs can be saved, since these are not profitable for the process . This enables the entrepreneur, his own company and the process, for example production. to optimize financially .
Contribution margin calculation
The contribution margin calculation shows how high the required production quantity of a product is. Accordingly, this production quantity depends on the contribution margin calculation, because in this case the price is a fixed price , so that if the quantity is higher, this price is reduced and the profit for the period increases. So it can sometimes make sense to mass produce, but only if demand is high enough.
Basis for decision-making
The cost and performance accounting can help to answer internal questions in the company. If, for example, a change in production is to take place and the entrepreneur has to decide how this should be implemented, then the cost and performance accounting can provide the necessary information .