Economic sciences / 7. Accounting and Auditing

Ashirbekova Y.V., master's degree,

Karaganda Economic University of Kazpotrebsoyuz, 100009, Republic of Kazakhstan, Karaganda, Akademicheskaya str. 9

Analysis of the cost management system in the enterprise.

For any activity of enterprises, the economic outcome is generally determined as the difference of income from sales of goods (works and services) and the costs of their production and (or) implementation. Cost management is a means of achieving high economic result by enterprises which is not just about reducing costs, but also extends to all elements of management.

Costs characterize in monetary terms amount of resources for a certain period, used for production and distribution, and transforme into the cost of products, works and services. In the the cost of production and sales are included pre-production (non-recurring) costs, production costs, directly related to the implementation of technological operations, maintenance and operation of industrial equipment and machinery, production management and administrative and commercial costs associated with the general, administrative management and marketing of products [1, p.5].

Cost management is not cost-minimization, which can lead to lower production but more efficient use of resources of the enterprise, their savings and maximizing the their return at all stages of the production process. Establishment of cost management process in the enterprise is basedon accepting the cost account, grouping and sorting and presenting it in a form suitable for further analysis and decision-making. Cost management includes: forecasting and planning costs, their organization, coordination and control, activation and stimulation of personnel, accounting, analysis and control (monitoring).

Thus, cost management system is the target, multi-tiered system, where the control object is the costs of the organization, and the subject is of cost management - the control system.

In countries with developed market economies account of production costs and calculation  are allocated into Management Accounting, aimed to provide the information to control production costs for specialists and administration of the enterprise and its subsidiaries.

Economic analysis as an element of of cost management is closely linked with the rest of its constituents. It is based on the accounting information, statements, plans and forecasts. The main objective of the analysis is the identification of opportunities for more rational use of productive resources use, reduce production costs and implementation and providing profit.

Results of the analysis serve as the basis for making management decisions at the level of enterprise management and are the source material for financial managers.

Cost management for production and marketing is carried out in order to find reserves to reduce production costs and therefore maximize company profits.

In the traditional view the most important ways of reducing the cost of industrial products are: increase of labor productivity and reduce of production labor intensity , improving the use of materials, supplies, fuel and introducing new types of materials and supplies, improvement of basic production funds, reducing administrative expenses and the elimination of unnecessary loss [2].

In modern conditions Kazakhstan enterprises face more and more increasingly acute problem of effective cost management. With the development of competition in the target markets there is a decrease of profit margins to 10 - 15%. In this situation, the prospects for the development of enterprises begin to depend largely on the behavior of costs, the extent of their managing.

The ability to steadily and efficiently reduce costs increases the chances of survival in period of deteriorating. On the other hand, under favorable economic conditions it becoms an important problem of optimal distribution of resources between the current and investing activities. All this is possible to be done when the company has implemented an elaborate system of cost management.

The concept of strategic management accounting includes financial elements of the three topics of the Strategic Management Theory : value chains: construction, consideration of strategic positioning and accounting of costs-causing factors

Strategic costs management accounting is such a brand-new view point to the management accounting that it brings some kind of a paradigm shift. This approach is not an entirely new method but the one with a  wider coverage from the view of traditional management accounting.

Acceptance of the strategic management accounting concept requires the rejection of some basic facilities that form the current views of modern management accounting. Some elements of the old paradigm must be rejected in the benefit of the new one. Registration and analysis of ROI, for example, plays almost no role in the strategic management accounting system that takes into account the long-term prospects in the views on production costs.

Basic blocks of technology to create and implement such a system are characterized by following points:

1) Identification of the basic concepts and procedures;

2) Identification of existing problems (diagnosis);

3) Description of the desired model of cost management;

4) Developing information system;

5) Adaptation of the document to the information system;

6) The distribution of responsibilities for the formation of the cost;

7) Establishment of motivation mechanism ;

8) Introduction of and personnel training.

Purpose of creating new systems of cost accounting is to provide accurate and reliable information for operational control and analysis of the profitability of individual types of products and processes. The general cost management system serves these goals, designed to manage all the resources and activities of the company, during which these resources are consumed. [3]

Let's consider the limited liability company «Gulden Arka» as an object of the investigation.

We analyze the system and the process of cost management at the enterprise to carry out the analysis let's take the main cost items of the enterprise. The largest share in cost items is the expenses for salaries (44 percent), rent (26.3 percent), extra costs (7.9 percent).

Cost of construction works is an important economic indicator of collective LLP «Gulden Arka», which has a significant impact on profits. Analysis of the cost of repair and construction organizations begin, as a rule, consideration of the cost of construction and assembly works in comparison to last year and the plan (estimate). In this case we study not only the absolute deviations, but also changes in the structure of these costs, that is, changes in the specific balance some items of expenditure in their total amount. Analysis of this structure allows to reveal the study for what the cost in each case should focus on what the pattern in changing ofseparate costs is, to link these changes to technical progress [4].

To analyze the dynamics and cost structure of the analyzed organization we present the following Table 1 containing data about the expenses of the organization for the preceding three years.

Table 1 - Analysis of the production costs dynamics for LLP «Gulden Arka» for 2010-2012., Mln.tg.

Cost items	Years			Deviations
	2010	2011	2012	In 2012 compared to 2011	In 2011 compared to 2010
Materials	189,2	280,9	309,1	+28,2	+91,7
Wages	189,4	180,7	186,5	+5,8	-8,7
Machinery	36,7	34,5	48,2	+13,7	-2,2
Total direct costs	415,3	496,1	543,8	+47,7	+80,8
Overhead expenses	74,2	69,4	117,4	+48	-4,8
Total	489,5	565,5	661,2	+95,7	+76

This analysis of  production costs dynamics indicators shows that the total cost of construction and assembly works in 2012 increased by 95.7 mln tenge compared to the year 2011, in which there is a significant increase in costs compared to 2010 by 76 million tenge.

The reason of the increase of production expenses will be defined in the following analysis.

The increase of total expenses around the organization in general in 2011 was due to the growth of the direct expenses of 496.1 million tenge, in 2012 there is also observed a significant increase in the growth of overhead expenses compared to previous years. But according to the calculation data of the absolute indicators of the chart is seen that in 2011 there was a deviation in the direction of decreasing operating machinery on 2.2 million tenge in compare with 2010, which undoubtedly has affected on the decrease of the total sum of expenses.

Let’s consider chart # 2, the structure of expenses on LLP «Gulden Arka» in 2010-2012, for a more accurate notion .

Chart #2 is the figure analysis of the production expenses on LLP «Gulden Arka»,%

Items of expenses	Years			Deviation
	2010	2011	2005	In 2012 in comparison with 2011	In 2011 in comparison with 2010
Materials	39	50	47	-3	+11
Wages	39	32	28	-4	-7
Mechanisms	7	6	7	+1	-1
Total direct expenses	85	88	82	-6	+3
Overhead expenses	15	12	18	+6	-3
Total	100	100	100	-	-

The structure of prime cost is determined by the proportion of each item of expenses in total range of prime cost. When considering each item of expense separately it is determined that there is a change not just in the structure of the prime cost but also the effects of changing the overhead expenses by construction assembly as a whole.

This analysis shows the changing structure of the overhead expenses and construction assembly organizations in comparison with the previous years. These charts show a reduction of expenses on material in the structure of total expenses in 2012 by 3% in comparison with 2011, and increase by 11% in 2011in comparison with 2010. The increase of the proportion of the expenses on operation of the machinery and mechanisms in the total cost of 1 % is observed in 2012, it was probably connected with the worsening of production organization of working at building sites or the increase of working capacity which was performed. In 2011, there was a deviation in the direction of decreasing by 1% in comparison with previous years. 

In 2011, the overhead expenses were reduced by 3 % in comparison with 2010. In 2012, there is a significant increase in the structure of the overhead expenses by 6 %, which is not a favorable factor for the reduction of prime cost for LLP «Gulden Arka». In the general structure of direct expenses was observed a tendency of growth in 2011 by 3% and 6% of reduction in 2012 . It also should be noticed that in the analyzed organization the expenses on steel production became lower in 2012, in comparison with 2011 , it can be seen from the absolute deviation of expenses.

The chart #3 figures of performed works according to LLP «Gulden Arka», thousand tenges

Years	Sources	Work capacity
		Planned execution	Actual execution	%
2010	Altogether:	480991	508922,2	106
	Fundamental building	164286	209167,3	127
	Fundamental repair	316705	299754,9	95
2011	Altogether:	534126	588915,5	110
	Fundamental building	186750	226557,7	121
	Fundamental repair	347376	362359,7	104
2012	Altogether:	623894	662050,149	106
	Fundamental building	261129	302640,236	116
	Fundamental repair	362765	359409,913	99

The table shows that the actual execution of the capacity of work which was performed exceeds the plan ( check digits ) by the actual execution of the work of past years. The given factor of change of the capacity and structure of completed construction works influenced on the change in the total expenses of the organization.

The capacity of completed construction works in 2011 was exceeded by 15.7% , as the expenses on materials increased by 48.5 % in comparison with 2010.

( 588915,5 /508922,2 )∙100%=115,7%

115,7%-100%=15,7%

(280,9/189,2)∙100%=148,5%

148,5%-100%=48,5%

The over-fulfillment of the capacity of construction and installation work has influenced on the increase of total expenses of the organization in 2010, and on the increase of direct expenses, i.e. a higher level of expenses on materials and a level of expenses on certain types of work .

In 2012, there was observed the over-fulfillment of the capacity of work by 12.4 % and the increase of expenses on materials by 10% in comparison with 2011.

(662050,149/588915,5)∙100%=112,4%,

112,4%-100%=12,4%.

(309,1/280,9)∙100%=110%,

110%-100%=10%.

The consumption rationality of raw materials depends on the level of specialization of the enterprise, implement of the plan cooperative deliveries, the condition of warehousing and weighing state farms , state accounting values and control the use of their intended purpose.

In order to reduce the expenses, it is necessary to change the cost of the materials which are used in production or construction , or to reduce in total expenses , i.e. more efficient usage of materials. As a rule, in this case different design solutions as planning and design are considered . The change in the cost materials depends from the market of this product , from the cost of its delivery and transportation , as well as the effective operation of the specialized services of the organization as a supply.

In order to get the maximum profit at the lowest expenses, saving manpower, material and financial resources depend on how the company resolves the issue of reducing the prime cost of the production. The financial results of enterprises , the rate of expanded reproduction , the financial condition of businesses depend on it.

According to the analysis of expenses in construction organization of LLP «Gulden Arka», there can be mad the following conclusions:

¾ materials for construction and repair works must be used relatively sparingly and efficiently;

¾ salary savings are advisable;

¾ it is necessary to reduce the amount of overhead expenses.

References:

1) Dyrdonova A.N. Managing the expenses : Textbook / Nizhnekamsk: KSTU , 2010.- p.112

2) Gorfinkelya V.YA , Shvandar V.A. . Enterprise Economics / M. Banks and stock exchanges, with UNITY 1998-p.742

3) www.cogito.ru “How to develop expenses management system”

4) Kovalev V.V , Volkova O.N. , ZaharovM.A. / Business Analysis company / -M.: PVOYUL 2001 . : -p.424