Account 16 Deviation in the cost of material assets

Account 16 “Deviation in the cost of material assets” is used by organizations that reflect the cost of inventories at accounting prices. Accounting for acquired inventories is carried out using account 15 “Procurement and acquisition of material assets”.

Account 16 takes into account the difference (deviation) between the book price and the actual cost of inventories.

Accounting for deviations in the cost of material assets

Medium and large manufacturing enterprises that use the services of a large number of suppliers often face a problem: incoming materials and goods, which are homogeneous in nature, vary significantly in price. In addition, situations may arise in production in which it is necessary to capitalize materials before receiving documentation reflecting their actual cost.

In such cases, enterprises use accounting prices, which can be:

• the price fixed in the supply contract;
• planned price based on actual cost;
• approved fixed price;
• the average price of a group of homogeneous materials combined with each other, accounted for as one object;
• the cost actually established in the previous period (month, year).

In the first four cases, deviations are included in transportation and procurement costs (TPC).

Actual cost arises from:

• amounts for settlements with suppliers;
• settlements with intermediaries;
• costs for delivery, procurement, storage of valuables;
• other costs not included in the previous groups.

To account for deviations of planned prices from actual prices, account 16 “Deviation in the cost of material assets” is used in correspondence with account 15 “Procurement and acquisition of material assets”.

Attention! The chosen method of accounting for inventory items must be recorded in the accounting policy. It is necessary to prescribe in detail the use of certain accounts, the methodology for calculating and assigning to costs the amounts of deviations in the cost of inventory items, if the enterprise uses planned prices.

Typical postings for account 16

By debit of the account

By account credit

Characteristics of accounts 15, 16 and their features

Account 15 is active-passive, but in its economic essence it has all the signs of an active account, since it reflects information about the material assets of the enterprise. The actual value of the MC is accumulated on the account. Then, in correspondence with the account. 16 the differences between actual and accounting prices are revealed. The debit balance of the account reflects inventory items in transit that belong to the enterprise, but have not yet arrived at the warehouse.

Count 16 is active-passive, similar to count. 15, showing signs of being active. Reflects the deviation of the actual cost from the planned cost, recorded on accounts 10, 41, 07.

Typical entries for accounting for cost deviations of inventory items

Let's look at account correspondence using examples.

Boards were purchased for the construction workshop: 400 linear meters of edged material at a price of 200 rubles per meter, including VAT. The planned price of the MC is 150 rubles per meter, lower than the actual one.

Postings:

Let the planned price of boards under the same conditions be 250 rubles per meter, that is, higher than the actual one.

At the end of the month, in proportion to the cost of materials, their increase in price is written off to the debit of those accounts to which the materials themselves were written off:

If the accounting price exceeds the actual price (a credit balance appears on account 16), deviations are also calculated. Reversal entries are made similar to those given above. Amounts are most often written off in proportion to the cost of materials.

Example

Let it be at 1.01. of the current month on account 16 there is a loan balance of 3,800 rubles, a debit turnover of 5,700.00 rubles, and a credit turnover of 1,100.00 rubles. At the end of the month, a debit balance is formed in the amount of 800 rubles, subject to distribution. On account 10, the balance as of January 1 of the current month is 2000.00 rubles, receipt of materials in the amount of 78,000.00 rubles, write-off to production - 40,000.00 rubles. Posting - D 20 K10 - 40,000.00 rubles - materials are written off for production at discount prices.

Analytics for account 16 is organized by inventory groups with a similar level of deviations of accounting prices from actual indicators. It is advisable to combine it with a grouping of materials of the same type in purpose and use in the production process.

Regulatory accounting and deviation analysis as a means of effective cost control

From the point of view of the efficiency of cost accounting, we can distinguish between accounting for actual (past) costs and accounting for standard (normative) costs, which in world practice is called accounting according to the “standard-cost” system. The most progressive is accounting for standard costs. Its essence is that only what should happen is entered into accounting, and not what happened. Completing them even 80% means successful work, and if accounting is set up correctly, a large accounting staff is not required. The more stable an enterprise operates, the less labor-intensive accounting and costing become.

Author:

Ivan Nikolaevich Chuev, Professor of the Department of Economic Theory, Kuban State Agrarian University, Krasnodar.

From the point of view of the efficiency of cost accounting, we can distinguish between accounting for actual (past, historical) costs and accounting for standard (normative) costs, which in world practice is called cost accounting.

"standard-cost" system

.

The most progressive is taking into account standard costs, especially in conditions of market relations and competition. Main goal

regulatory accounting systems

is the full use of production factors and economical implementation of economic activities. The standard cost accounting method was developed in the 1930s in the USSR on the basis of the American standard-cost system. The standard-cost system originated in the USA at the beginning of the 20th century. Name

standard cost

implies a cost that is set in advance.

The essence of this system

lies in the fact that only what should happen is entered into accounting, and not what happened, and deviations that arise are reflected separately. The main task of this system is to take into account losses and deviations in the profit of the enterprise. It is based on a clear, firm establishment of standards for the costs of materials, energy, working time, labor, wages and all other costs of production. Moreover

established standards cannot be exceeded

. Completing them even 80% means successful work. Exceeding the norm indicates that it was set incorrectly.

The standard method of accounting and calculating product costs is characterized by the fact that for each product, based on current standards and cost estimates, a

preliminary costing

standard cost of the product. Accounting is organized in such a way that all current costs are divided into

consumption according to standards

And

deviations from norms

. Data on identified deviations allows you to manage the cost of the product and at the same time calculate the actual cost by adding to the standard cost (subtracting from it) the corresponding share of deviations from the norms and changes in the norms for each item. The standard method of cost accounting allows, without waiting for the end of the month, to have the actual cost of products and regularly analyze the causes of deviations and identify the culprits.

Variance Analysis as a Cost Control Tool

Special purpose

standard accounting method -

establishment and systematization of deviations from norms and standards

. Deviations from norms are the identified difference between actual and standard costs. The process of calculating and determining the reasons for the difference between actual and standard values ​​is called variance analysis. When there are too many indicators, deviations are analyzed selectively, and only those that exceed the limit established by the organization. This type of cost management is called

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deviation management

.

All the variety of methods for detecting deviations can be reduced to two main ones:

documentation method

And

calculation method

.

Primary documentation method

deviations is characterized by simplicity and versatility. It allows you to identify the absolute value of deviations in the amount of consumption before or at the time of business transactions. In most cases, it requires prior approval of deviations from a higher level of management and thereby provides increased control over the use of resources.

Calculation method

requires an analytical approach to determining the magnitude and causes of deviations. Its advantages are the possibility of more diverse applications, including for finding deviations that cannot be documented. Deviations from standard cost estimates for organization, production maintenance and management can only be identified using the calculation method.

When accounting

deviations from the norms for raw materials and materials, first of all, a single one is established for the organization

nomenclature

the causes of deviations and their culprits, a system for their digital designation is being developed.

Main

methods for detecting deviations

are:

• signal documentation

  (used for forced replacement of materials and supply of piece materials, semi-finished products and components in excess of limits, a special document is issued that has a special designation (diagonal stripe, different color), in which the cause and culprit of the deviations are indicated, and in some cases the calculation of deviations is provided) ;

• accounting for batch and continuous cutting of material

  (in the accounting cards opened for each batch of material, the amount of material supplied to the workplace, the number of blanks made from this batch, the amount of waste received and unused material are recorded; when comparing the amount of actually consumed materials with the consumption according to the norms, savings or overexpenditure are established) ;

• preliminary calculation of deviations

  according to the actual recipe for launching materials into production (used in industries where raw materials and materials are consumed in the form of a mixture, deviations are identified by comparing the consumption for each component of the mixture according to the norm and actually);

• inventory method

  (requires an inventory of the balances of unused materials or workpieces in workshop storerooms and workplaces on the date of detection of deviations, while standard costs for finally rejected parts and products and deviations due to replacement of materials are excluded from the total amount of deviations).

Material costs

can be represented as a formula

M = K x C

where K is the amount of material; P is the price of the material.

Total change in material costs

determined by the formula

∆М = Мф - Мн

where Mf is the actual consumption of materials; Mn is the standard consumption of materials.

Using the method of absolute differences, a factor analysis of changes in material costs is carried out.

Deviation from standards for the use of materials

determined by comparing the actually consumed material with the standard consumption for actual output according to the formula

∆M(K) = (Kf - Kn) x Cn

where Tsn is the standard price of the material; Kf - actual material consumption; Kn - standard consumption of material for actual production.

Possible reasons for deviations are: replacement of one type of raw material with another, violation of the standards of supplied materials, direct cost overruns associated with technology violations, incorrect or irrational cutting, theft, damage, etc.

Changes in material costs under the influence of price factors

calculated by the formula

∆M (C) = Kf x (Cf - Cn)

where Tsf is the actual price of the material.

Possible reasons for deviations: changes in market prices, miscalculations by the procurement and procurement service in finding the most favorable suppliers, poor inventory management, which led to urgent purchases at higher prices, additional transportation costs, as well as other reasons that arise as a result of purchasing activities.

When accounting

deviations in payment costs

labor use the same methods as when accounting for raw materials: the signal documentation method, the batch and continuous cutting method, the inventory method.

Direct labor costs

can be represented as a formula

T = K x C

where K is the number of hours worked; C - wage rate (cost of one hour).

Overall change in direct labor

calculated by the formula

∆T = Tf - Tn

where Tf - actual labor costs; Tn - standard labor costs.

First of all, deviations from standard labor costs are caused by two reasons: the wage rate and the amount of labor.

Deviation in the volume of labor of the main production workers

calculated by the formula

∆T(K) = (Kf - Kn) x Cn

where Kf is the actual costs of direct labor; Kn - standard costs of direct labor required to produce the actual volume of products; Tsn - standard wage rate.

Possible reasons for deviations are: product range; low quality material; technical condition of equipment; change and compliance with technological processes; different complexity of work; introduction of new equipment, etc.

Change in direct labor costs

by changing the rate of payment, it is determined by comparing the actual and standard price of one hour of labor using the formula

∆T(C) = (Cf - Cn) x Kf

where Tsf is the actual wage rate; Tsn - standard wage rate;

Possible reasons for deviations arise when the standard rate is increased, which is not included in the standard, the level of work does not correspond to the level of the worker performing this work, the level of bonuses is exceeded, not included in the standard rate, various types of additional payments to standard prices caused by deviations from the technological process, deficiencies in organization of production and management.

Labor deviations can be controlled by the heads of workshops and divisions, but most of them are beyond the control of lower and middle level managers.

Overhead variances

are considered from the standpoint of compliance of actual production overhead costs with their amount distributed among types of products according to pre-established absorption rates. In this case, overhead costs are divided into fixed and variable components.

Variances for fixed overhead costs

is the difference between standard fixed overhead costs and actual fixed costs. Analysis of deviations requires a comparison of the amounts of actual and standard costs for each budget item. The reasons for deviations can be very diverse, for example, unscheduled repairs, revision of wages for adjusters, etc.

Absolute variances for variable overhead costs

is the difference between the standard value of variable overhead costs and the actual variable overhead costs. Separate calculations determine relative deviations from estimated costs, adjusted to the actual volume of work. For each budget item there may be different reasons for deviations. Deviations of overhead costs by efficiency (HP) are calculated as the difference between the output in standard hours (LS) and the actual labor time spent (LF) for the period under review, multiplied by the standard rate of variable overhead costs (NS):

∆NR = (LF - LF) x NS

The main reason for these deviations is changes in labor productivity.

***

One of the main advantages of the standard-cost system is that if it is set up correctly, it does not require a large accounting staff, since only deviations from standards are taken into account. The more stable an enterprise is, the more standardized production processes are, and the less labor-intensive accounting and costing become.

However, the normative method has a number of disadvantages when used in practice. For example, deviations are often incorrectly taken into account: they are identified by calculations over a long period, are not always documented, their aggregated records are kept without identifying the causes and culprits, and the amounts of unaccounted deviations are significant.

You can study the standard cost accounting method and the “standard-cost” system in the “Management Accounting” course when studying under an individual program or as part of the advanced training program “Financial Management and Planning” (6 courses, ~4 months of training, certificate).

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Methods for writing off deviations

The company has the right to choose its own methodology. Guidelines for accounting of MPZ (Order of the Ministry of Finance No. 119-n, clause 88) offer a number of options:

1. Write-off of deviations in general to the accounts of production costs or distribution costs, similar to those used to write off the materials themselves. Applies when the share of costs does not exceed 10% of the accounting value of the MC.
2. Write-off based on their share as a percentage of the cost of certain MCs at discount prices at the beginning of the month. If this method significantly reduces the accuracy of the indicators, the data is adjusted in the next month by the amount of the resulting write-off differences. At the same time, the maximum materiality standard is set at 5%.
3. Write-off according to the standard for the proportion of deviations to the accounting value of the MC. If the actual data reveal a strong difference from the standards, adjustments are made to the distributed deviation indicators.
4. Write-off of deviations in full on a monthly basis to the cost of consumed inventory items. This method is possible if their share in the cost of materials at discount prices is not higher than 5%.

Deviations from the actual cost occur when accounting for material assets at planned prices. Deviations are reflected in accounts 15 and 16 of accounting. The enterprise independently chooses the method of distribution of deviations and enshrines it in its accounting policies. In this case, it is advisable to be guided by the “Methodological guidelines for accounting for inventories” approved by the Ministry of Finance.

Material cost variance

Deviation in the cost of materials is account 16 of accounting, intended to summarize information about differences in the cost of acquired material assets, calculated in the actual cost of acquisition (procurement) and accounting prices.

The account is used by enterprises that record materials in the “Materials” account, and low-value and wear-and-tear items in the “Low-value and wear-and-tear items” account at accounting prices.

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Calculation of the percentage of deviations of the actual cost from the accounting cost of materials

APPENDIX 2

List of write-offs of deviations of actual cost from the accounting cost of materials

APPENDIX 3

Data for payroll calculation and deductions for December 2007.

All employees received a bonus of 40% of their salary based on their performance results.

Statement of distribution of wages and contributions for social needs

APPENDIX 4

Calculation of cost distribution of auxiliary production

APPENDIX 5

Calculation of distribution of overhead costs

Coef. distributor = (355320/1031380)*100=34.45

APPENDIX 6

Calculation of distribution of general business expenses

Coef. distributor = (380236/1026060)*100=37.06

APPENDIX 7

Calculation of production costs of sofas

Issue _1000__ (pieces) Production cost of the product _1407_ rub.

APPENDIX 8

Calculation of production costs of chairs

Issue _3000_ (pieces). The production cost of the product is _286_ rub.

APPENDIX 9

Calculation of the actual production cost of shipped products

APPENDIX 10

Calculation of advertising tax payments for the 4th quarter of 2007

APPENDIX 11

Calculation of property tax for December 2007

APPENDIX 12

Calculation of corporate income tax