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COST ANALYSIS COST ANALYSIS • Cost analysis based on geographic comparison . This is a comparison of the costs (eg, for the cost types, because each business is 'collect' them). and the analysis of the distribution costs of the partial cost of particular cost groups. • An analysis based on chronological comparison could be • a retrospective cost analysis ; • prospective cost analysis. • A retrospective cost analysis or cost estimate. The prospective cost analysis practically means planning for future costs. The average costs of the previous period, various trends, etc. CONT… • The purpose of the analytical methods is the one set out in the report. Obviously, costs may be classified. • It is based on an analysis of the costs of a correlation with a cost attribute. • Proportional digressive, progressive, or even regressive costs. COMPARATIVE RATIOS IN COST ANALYSIS • Analysis of costs and cost variation • Cost breakdown • Cost ratio • Cost level • margin ANALYSIS OF COSTS AND COST VARIATION • Costs and cost variations can be analyzed with dynamic ratios and absolute differences. • The dynamic ratios show variation between two periods as a percentage or as a coefficient. • The difference between the costs and the analysed period. • Absolute difference = Costs of the current period - Base or budget costs COST BREAKDOWN • The cost breakdown ratio shows the ratio of the costs of the group. THE FOLLOWING TABLE CLASSIFIES THE COSTS OF A MANUFACTURING BUSINESS: • Compared to the base period by HUF 1,605 thousand (12.75%).With the exception of depreciation, the costs are higher than in the current period, etc .; • Among the cost types, the highest rates are in both periods, because they are the most important ones. COST RATIO • The cost ratio expresses the correlation between the various cost types and production value. Symbols: • q: produced quantity • f: resources / product (kg / item, liter / item, kg / meter, wh / item, mh / item, etc.) • p: specific resource price (HUF / kg, HUF / liter, HUF / wh, HUF / mh, etc.) • (a) sales price of the product (price); • :: unit cost of the product in a particular cost type COST LEVEL • The cost level is the coefficient of the cost of production. • Depending on the costs, the costs will be different. • The cost ratio indicator is identical to the cost indicator. • Remark: The cost-ratio and cost-level calculation, i. CONT… MARGIN • The margin is the gross profit and the revenues. • q: means the quantity sold in this case • q * a: revenues • Ö: production cost of the goods sold • If the cost is the level of the direct costs of sales, CONT… • then the following formula: • The following table illustrates the correlation between the margin and the cost level: METHODS OF DIRECT COST ANALYSIS • Direct costs may include: 1. Analysis of the breakdown of the different direct cost groups. 2. Analysis of costs (analysis of the variation and dynamics of the direct costs). 3. Analysis of the following factors: a) Cumulative difference breakdown b) Alternative difference breakdown c) Partial difference breakdown ANALYSIS OF THE DIRECT COSTS OF THE CHAIN METHOD • In the chain method, a single factor is changed at a time. • The method is simple, but it is an inaccurate one. • The factors used in the analysis are the direct costs. • The cost of the following formula: • K 1 + K 2 + K 3 + ... + K n = VALUATION COST • The cost components (K) could be cost, wage costs, divided operating costs, etc. depending on which types of costs are involved. PARTICULAR COST COMPONENT • q: produced quantity • f: resources / product (kg / item, liter / item, kg / meter, wh / item, mh / item, etc.) • p: specific resource price (HUF / kg, HUF / liter, HUF / wh, HUF / mh, etc.) • ö: unit cost of the product • Impact of volume changes • The f and p factors are considered fixed during the analysis. IMPACT OF ANY USE OF SPECIFIC RESOURCES • In line with the chain method, any modified factor ( q ) Used also in the analysis at the modified value (q 1 ). IMPACT OF TARIFF CHANGES • If several products are manufactured, cost variations are triggered not only by the quantity of product, but also by changes in production, several resource norms makes a difference.Yes, the impact of volume changes • 1. Impact of the net volume changes • 2. Impact of the composition changes IMPACT OF THE NET VOLUME CHANGES IMPACT OF THE COMPOSITION CHANGES ALTERNATIVE DIFFERENCE BREAKDOWN • Steps of the standardization method: • 1. Quantification of the single-factor impacts • 2. Quantification of the concurrent changes • 3. Breakdown of the concurrent changes to the factors involved in the influencing factors • the. based on the basis of differences from 1, • b. calculated from its logarithm • 4. Addition of the results of the previous calculations PARTIAL DIFFERENCE BREAKDOWN METHOD • Steps of the partial difference breakdown method: 1. Quantification of the single-factor impacts 2. Quantification of the concurrent changes 3. Distribution of the impacts of the concurrent changes in the effective factors involved in the concurrent changes. (Any bi-factor concurrent changes are also a three-factor concurrent change.) 4. Summary of the results of the calculation. COST ANALYSIS BASED ON FLEXIBILITY • Where to use cost analysis based on flexibility? (a) in the analysis of operating costs; (b) in the analysis of direct costs; (c) the analysis of the overhead costs of the head office. STEPS OF A COST ANALYSIS BASED ON FLEXIBILITY 1. Classification of costs by function. (Establishment of a homogeneous cost group, determined by the cost attribute.) 2. Definition of indicators with average or most frequent workload. (J 0 = Cost attribute with most frequent workload, K 0 = cost with the most frequent workload) 3. Definition of the degree of reaction (r). 4. Calculation of the eligible costs. POSSIBLE COST ATTRIBUTES: • For machine costs: machine hour • For heating costs: heated air cubic meter • For energy costs: kWh consumption • For maintenance cost: maintenance hours • For operating costs: working hour • For internal transportation costs: ton kilometre (CLASSICAL) FLEXIBLE COST ANALYSIS • The classical flexible cost analysis can be: • a progressive cost analysis of cost-based analysis • a retrospective cost analysis • The progressive cost analysis is used for the analysis of the costs of the current period. • Correlations and symbols used in a cost analysis based on flexibility CONT… • r: degree of reaction • K 0 : base cost • K R : technically and economically eligible costs • J 1 : cost attribute, for a retrospective cost analysis, • V: dynamic correlation expressing the variation of the cost attribute containing the following information: • 1. for retrospective cost analysis V = J 1 / J 0 • 2. for progressive cost planning V = J t1 / J 0 • v: deviation of the variations of the cost attribute from 1, • K 1 : Actual Cost • K t R : eligible cost defined with planned cost attributes • K t R : eligible cost defined with actual cost attributes DIFFERENCES DEFINED IN FLEXIBLE COST ANALYSIS • Necessary (justified) difference 1 • Necessary (justified) difference 2 • Other difference EXAMPLE OF A FLEXIBLE COST ANALYSIS EXERCISES • Let's calculate the planned technically and economically eligible cost amount. • Let us calculate the general operating costs. Solution Part 1 solution Machine cost: Planned variation of the cost attribute: (132/110 - 1) * 100% = 20% Planned machine cost: 15,000 * (0.75 * 0.2 + 1) = HUF 17 250 th Operating control costs Planned variation of the cost attribute: (242 / 220-1) * 100% = 10% Planned operating control costs 12,000 * (0.55 * 0.1 + 1) = HUF 12 660 th Planned total of other costs: HUF 2 250 th Total planned amount of operating costs: HUF 32 160 th Solution Part 11 solution Machine cost: (148.5 / 110 - 1) * 100% = 35% Eligible cost: 15,000 * (0.75 * 0.35 + 1) = HUF 18 937.5 th Operating control costs: (278.3 / 220 - 1) * 100% = 26.5% Eligible cost: 12,000 * (0.55 * 0.265 + 1) = HUF 13 749 th Other eligible costs: HUF 2 250 th Total eligible general operating costs: HUF 34 936.5 th Necessary difference caused by J t - J 0 difference and r: 32 160 - 29 250 = + HUF 2 910 th Necessary difference caused by J t - J 0 difference and r: 34 936.5 - 32 160 = + HUF 2 776.5 th Other difference: 34 170 - 34 936.5 = - HUF 766.5 th DESCRIPTIVE EVALUATION: • Total operating costs increased by HUF 4,920 thousand (HUF 34,170 thousand - 29,250 thousand). • The most of the cost increase (HUF 2,910 thousand + 2,776.5 thousand HUF 5,686.5 th) is the volume of cost attributes above the general workload. • The other factors (eg, unit prices) had an overall cost of $ 766.5 thousand.