This question may arise from a reader familiar with management accounting, which is based on accounting data, but pursues its own goals. It turns out that some management accounting techniques and principles can be used in regular accounting, thereby improving the quality of information provided to users. The author suggests familiarizing yourself with one of the ways to manage costs in accounting, which the document on calculating product costs will help with [1].
What are fixed costs
Briefly, fixed costs can be defined as expenses, the value of which does not depend on the volume of production of the enterprise. Such expenses include the cost of paying “non-production” personnel, paying for lighting, up to certain limits, rental payments, etc.
Fixed expenses differ from investments in that they are “shorter” investments, but are similar in that they are one-time expenses for a certain period of time.
Fixed costs are an integral part of any production and, one might say, its foundation. Moreover, the larger the production, the smaller the share of fixed costs per unit of output. If the profit from the production and sale of products does not cover the amount of fixed costs, then efforts to develop such an enterprise are meaningless.
Results
The legislative acts of the Russian Federation do not contain a clear list of commercial costs. Based on the established practice of Russian accounting, commercial expenses should be attributed to account 44. Based on this principle, commercial expenses can be recognized as those costs that are listed in the instructions to the Chart of Accounts in the description of account 44.
For more information on how an organization can create its own working chart of accounts and which accounts to include in it, read this publication.
Sources: Order of the Ministry of Finance dated October 31, 2000 No. 94n
You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.
Types of fixed expenses
The list of fixed expenses will vary depending on the specifics of each specific enterprise, but their single distinguishing feature can be identified - these are always investments that do not depend on production volumes. Although such “independence” exists only to certain limits.
Main types of fixed expenses :
— Salaries of non-production personnel (accounting, legal department, technical support group, security guards and other categories of personnel not directly involved in the production of goods and services, but ensuring the maintenance of all business processes of the enterprise);
— Payment for utilities (primarily this includes lighting of premises, water supply not intended for the manufacture of products, heating, etc.);
— Security system of the organization (functioning of video surveillance, alarm systems, etc.);
— Costs of developing an advertising campaign;
— In many cases, this can also include write-offs of costs associated with depreciation of equipment;
fixed expense items “in their pure form.” Therefore, when classifying expenses at an enterprise, the concept of semi-fixed expenses is used. These can be called costs that will be considered constant only up to certain limits. For example, paying for lighting will be a fixed cost if we are talking about a small enterprise, where it does not matter how many machines one light bulb illuminates, it is necessary in any case. But, for example, if this light bulb functions on each machine and their number depends on the volume of production, then in this case we will be talking about variable costs.
The legislative framework
The law does not define the concept of “business expenses”. This concept refers to the company's distribution costs. This transcript is reliable and has confirmation in legislative acts. For example, the Tax Code of the Russian Federation states that distribution costs include the costs of sales of companies operating in retail, wholesale and small wholesale trade. This concept can also be found in accounting. Selling expenses in the company's profit and loss statement are reflected on line 2210 (
Their difference from variables
As already noted, the line between fixed and variable costs is sometimes very thin and it would be more correct to talk about semi-fixed and semi-variable costs. However, for ease of understanding, we still list some types of variable expenses:
— costs for the purchase of raw materials and supplies;
— costs of purchasing spare parts;
— remuneration of production personnel (equipment operators, foremen, etc.);
— payment for water supply for production purposes;
— payment for electricity consumed during the manufacture of products;
— costs of purchasing packaging;
— costs associated with the delivery and sale of manufactured products.
Thus, it can be seen that the main difference between fixed and variable costs is their relationship with production volumes. The value of variable costs changes depending on changes in production volumes, the value of constant costs, in turn, remains relatively stable. Knowledge of the laws of dividing costs into fixed and variable allows you to forecast costs, which in some cases is very difficult.
This fine line between fixed and variable costs sometimes causes difficulties in determining their share in the cost of the final product, and indeed in determining the financial sections of a business plan. In order to correctly determine the appropriate values, when developing a business plan, we recommend using a ready-made sample of this document for an enterprise similar to yours. Of course, the benefit of this document will lie not in simply copying existing data, but in using a clear and convenient structure of sections of the business plan.
Business expenses include expenses for the following operations:
— packaging and packing of finished products;
— delivery of products to the departure station;
— loading into vehicles;
— commissions to intermediary organizations;
— maintenance of premises for storing products at points of sale;
— remuneration of salespeople in production organizations;
— carrying out analyzes of products during their release;
— advertising;
— entertainment expenses;
— procurement, delivery and transportation of goods in trade organizations;
— wages in trade organizations;
— rental of retail premises and finished product warehouses;
— maintenance of retail premises and finished product warehouses;
— storage of goods;
— insurance of shipped goods and commercial risks;
— covering shortages of goods within the limits of natural loss;
— maintenance of procurement and receiving points;
— keeping livestock and poultry at reception points and bases;
- other expenses similar in purpose.
Commercial expenses are monthly fully or partially written off from account 44 “Sales expenses” to the debit of account 90 “Sales”, subaccount 90-2 “Cost of sales”. The write-off procedure is established by the organization's accounting policy.
The relationship between fixed and variable costs
Both fixed and variable costs essentially perform one main function - to ensure the life of production. The connection between them is related to the impact on the cost of the final product. Variable costs, as a rule, are proportionally the same in the cost of final products, regardless of the volume of output of these products. For example, if the production of one dress requires 400 conventional units of variable costs, then this value will be the same regardless of whether we produce 10 dresses or 100.
But the share of constant investments will be different depending on production volumes. Let’s say fixed costs are 5,000 conventional units. Then, when producing 10 dresses, the cost of one dress will include 500 units of fixed costs. And when producing 100 dresses, this value will be only 50 conventional units.
Thus, it is clear that the larger the production volume, the smaller the share of fixed costs in the cost of the final product. Continuing this relationship, we can see that such a “stretching” of permanent investment items also has a beneficial effect on the price of products. This relationship is called the “economy of scale.” This also determines the “survival” in the market of large corporations with large-scale production. Economies of scale allow such enterprises to minimize the amount of fixed costs in the cost of products, resulting in a lower price than their competitors.
The relationship between fixed and variable costs also affects such a basic parameter of investment analysis as the break-even point. The formula for this indicator is as follows:
Break-even point = fixed costs/(price - variable costs).
The break-even point shows how much product will need to be produced in order to cover at least fixed costs . Indeed, otherwise the activity of the enterprise will not only not be profitable, but also unprofitable.
Example of accounting for account 44
Let's look at the expenses of commercial enterprises and the procedure for reflecting them on accounts 44 and 90 using an example. The condition is given: In March 2015, the factory incurred the following types of expenses:
- for delivery of products – 240 thousand rubles;
- for storage of goods - 30 thousand rubles;
- procurement - 15 thousand rubles;
- loading - 48 thousand rubles.
Total - 333 thousand rubles. The production cost of sold products as of March is 1.1 million rubles, and the cost of manufactured products is 4.7 million rubles. The balances of accounts 43 and 44 are taken equal to zero.
Let's write off the amounts for business expenses:
- Dt 90.2 Kt 44 – 288 thousand (240 thousand + 48 thousand) – expenses for loading and delivery of goods, which are entirely related to sold products, are written off.
- Let's distribute the amount of expenses for packaging material and storage between the goods sold and the balance in the warehouse:
- 30 + 15 = 45 thousand rubles. – total amount of expenses;
- 45 × 1100 ÷ 4700 = 10.532 thousand rubles. – the amount of expenses attributable to the cost of goods sold;
- Dt 90.2 Kt 44 – 10.532 rub. – part of the business expenses was written off.
For accounting purposes, enterprises have the right to completely write off the debit amounts of account 44 to account 90.2, without distributing expenses between sold products and warehouse balances. But in tax accounting data it is necessary to indicate strictly those business expenses that are associated with sold products.
Selling expenses are the main indicator of the profitability of a particular production or sales activity, thanks to which it is possible to conduct a qualitative analysis of costs and income.
The role of cost accounting when developing a business plan
Planning the expenditure side of a project is one of the most time-consuming parts of business planning. When drawing up a business plan, you will need to specify not only the amount of fixed and variable expenses , but also take into account investment investments, which to some extent are also associated with fixed expenses.
Let us explain how this relationship manifests itself. Investments are, as a rule, one-time capital investments, the value of which is also indirectly included in the cost of finished products through depreciation charges. Thus, investment investments, as well as fixed expenses, are “stretched” as part of the cost over a certain payback period.
Taking into account all expenses when planning a project is also fundamentally important because the relationship between the amount of expenses, investments and income from the project is the basis for determining the possible amount of profit and the feasibility of the project.
The indicators of financial calculations also depend on the correct distribution of expenses among variable and fixed items. At the same time, if the business plan has an automatic financial model, it will be possible to easily trace the change in the share of fixed expenses in the cost of production, the change in the total amount of expenses depending on the change in the volume of manufactured products.
Our company is developing standard business plans, including a business plan for a bottled beverage store. In it you will find calculations of all financial and investment indicators.
Interdependence of production costs
The relationship between variable costs and fixed costs is an important indicator. Their interdependence in relation to each other is the break-even point of the organization, which consists in the amount of sales that the enterprise needs to make in order to be considered profitable and have costs equal to zero, that is, absolutely covered by the company’s income.
The break-even point is determined using a simple algorithm:
Break-even point = fixed costs / (cost of one unit of goods - variable costs per unit of goods).
As a result, it is easy to see that it is necessary to produce products of such a production volume and at such a cost that it can cover fixed costs that remain unchanged.
Some conclusions
The presented analysis of fixed costs , their types and relationships with other types of costs allows us to understand that this type of costs is both constant (if we are talking about the total cost of manufacturing products) and changing (if we are talking about their share in the cost of the final product).
In order to correctly analyze the structure of all costs for starting and developing a business, in particular, to determine the optimal amount of fixed costs , we advise you to focus on already developed business plans in your field. Using a ready-made sample will allow you to avoid many mistakes, and will also simply save your effort and time. You can also trust professionals in this field and order a comprehensive development of a business plan in a turnkey format, taking into account the individual characteristics of your business.
Entertainment expenses: how to properly justify, confirm and not have consequences
If food products were purchased for buffet service during negotiations or for official reception by accountable persons and were delivered to the warehouse, then their release from the warehouse should be carried out on the basis of invoices (form No. TORG-12) and invoices for the internal movement of goods (form No. TORG-12) 13). The form and content of invoices must comply with the requirements set out in Resolution of the State Statistics Committee of December 25, 1998 No. 132.
Let’s assume that during a hospitality event, the host party provided transport services for the invited persons independently, without the involvement of third-party organizations. These operations will be confirmed by documents on the purchase of fuel and lubricants by the accountable person with the necessary receipts attached, and vehicle waybills with a clear indication of the route. When paying for fuel and lubricants in non-cash form, the supporting documents will be issued invoices and invoices, as well as payment documents of the organization.
The amounts and purposes of entertainment expenses must be documented and confirmed also with primary documents, which must correspond to the unified forms contained in the albums. If the documents are not drawn up according to the standard form, then they must contain the following details: name and date of preparation of the document; name of the organization that compiled the document; the content of a business transaction and its measurement in monetary and physical terms; the name of the official responsible for the execution and execution of this operation, and his signature.
Cash receipts confirming the fact of payment must be attached to the primary shipping documents. Cash receipts must contain details such as the name and TIN of the organization; KKM serial number; serial number of the check; date and time of sale of goods/provision of services; cost of purchase/service; a sign of the fiscal regime (clause 4 of the Decree of the Government of the Russian Federation of July 30, 1993 No. 745 “Regulations on the use of cash registers when making cash settlements with the population”).
Payment for entertainment events can also be made using corporate plastic cards. An organization can use plastic cards to pay for entertainment expenses in the Russian Federation and abroad, as well as receive cash to pay for entertainment expenses (clause 2.5 of the Regulations of the Central Bank of the Russian Federation dated December 24, 2004 No. 266-P “On the issue of plastic cards and on transactions performed using payment cards"). A document confirming payment of entertainment expenses using a plastic card must contain the following mandatory details: terminal device identifier; type and date of transaction; transaction amount and currency; authorization code; payment card details; signatures of the card holder and the cashier who performed the transaction.
In order to correctly process entertainment expenses using a corporate plastic card, an organization must fulfill the following conditions:
- develop internal documents regulating the procedure for working with corporate plastic cards, as well as the circle of officials who have the right to use them for representative purposes;
- ensure the procedure for storing and recording corporate plastic cards;
- formalize the issuance of corporate plastic cards by order of the organization.
It is equally important to correctly draw up contracts with third-party organizations (for transport services, for catering and official reception, for payment of translation services).
The catering company's services for buffet service and official reception will be confirmed by:
- an agreement drawn up in accordance with the requirements of civil law;
- act of performing work (rendering services). The date and place of the entertainment event, the number of participants, the name of the counterparty company and the amount of expenses indicated in it must match the data of the contract and other documents confirming the entertainment expenses;
- an invoice and an order invoice in standard form No. OP-20 for cash payment, and in the case of dispensing food products by bank transfer - an act in form No. OP-22;
- menu certified by the catering company.
If translators were involved during the negotiations, then the supporting documents will be:
- an agreement drawn up in accordance with the requirements of civil law;
- a copy of the license allowing a specialized organization to provide translation services from a foreign language;
- certificate of provision of translation services, signed by the parties. It must indicate the date, place and time of the event, personal information of the translators, and a list of services provided by them.
Sometimes tax authorities do not recognize payments for translator services as entertainment expenses if the organization had full-time translators. But the company can refute such a decision, citing the fact that the manager independently decides in what form certain functional responsibilities will be performed. In addition, he may delegate some functions to the appropriate specialized organization. The arbiters in this matter are on the side of the taxpayers (Resolution of the Federal Antimonopoly Service of the Moscow Region dated July 21, 2005 No. KA-A41/6715-05).
