Calculation of Estimated Rates in Product Costing at the Tomsk Rubber Footwear Plant
Abstract Generated abstract
This paper examines the allocation of equipment maintenance and operation costs in product costing at the Tomsk Rubber Footwear Factory, criticizing distribution in proportion to production workers’ wages as insufficiently justified. It describes the introduction of a machine-hour coefficient method, including grouping technological and auxiliary equipment, allocating operating expenses by appropriate cost drivers, calculating costs per machine-hour, and converting product labor requirements into coefficient-machine-hours. The method is presented as reducing distortions in the costing of individual products by more than 60 percent and as producing coefficients that can serve as multi-year standards when equipment composition, loading, prices, and tariffs remain substantially unchanged.
Full Text
CALCULATION OF ESTIMATED RATES IN PRODUCT COSTING AT THE TOMSK RUBBER FOOTWEAR FACTORY
L. M. Glukhovskikh
(Presented by the scientific seminar of the Department of Economics)
The method of allocating overhead costs in proportion to the wages of production workers does not ensure an economically justified assignment of these costs to the cost of individual types of products. They must be assigned to individual articles depending on the character of production, the level of mechanization of production processes, and the amount of operating expenses per hour of equipment operation.
The use of the machine-hour coefficient (K-M-H) in allocating these costs at the Tomsk Rubber Footwear Factory made it possible to eliminate distortions in the cost of individual articles by more than 60%. Considerable preparatory work was carried out in order to introduce this method.
First of all, all equipment in the shops where application of this method is expedient was combined into groups.
It is usually recommended to group equipment according to the criterion of equal (or similar) operating costs per hour of equipment operation. At the Tomsk Rubber Footwear Factory, practically every type of basic technological equipment was assigned to an independent group (the number of types is small, and operating expenses differ substantially). In cases where, to ensure the operation of some type of basic technological equipment, equipment of other types was installed that does not operate independently, it was attached to the main group as component parts of an aggregate. Thus, hydraulic pumps, hydraulic accumulators, etc., without which the hydraulic presses cannot operate and which ensure the operation of only this group, were included in the group of hydraulic presses of shop No. 14. Equipment for cleaning press molds, whose load depends only on the operation of this group, was also included there.
Technological equipment of various types operating in one synchronous flow (for example, rolls for heating rubber compounds, a calender, and a device for cutting out parts of molded boots in shop No. 20) was combined into one group as a single aggregate. This simplifies further calculations while yielding the same result.
In shop No. 15, rolls of all sizes used for mixing rubbers were also included in one group, despite the difference in operating costs, since the same rubber compound is manufactured on different rolls.
Table 1
Calculation of the maintenance and operation costs coefficient by equipment groups of Shop No. 14
| Name of equipment group and list of equipment included in this group | Row No. | Costs for maintenance and operation of equipment by groups (thousand rubles) | Distribution of costs by auxiliary production and by maintenance of technological equipment (items 03 + item 04, thousand rubles) | Total costs by groups of main technological equipment (items 05 + item 06, rubles/kopecks) | Number of machine-hours of equipment operation | Cost of 1 machine-hour (items 05 : item 06, rubles/kopecks) | Coefficient (items 07 correspond to group 07 of the main group) |
|---|---|---|---|---|---|---|---|
| Hydraulic press (hydraulic accumulator, station for cleaning press molds, etc.) | 01 | 102.1 | — | 102.1 | 136531 | 0-75 | 1.0 |
| Syringe machines | 02 | 14.3 | — | 14.3 | 5737 | 2-49 | 3.3 |
| Press for trimming AB parts | 03 | 13.8 | — | 13.8 | 3790 | 3-64 | 4.8 |
| Roughing machines | 04 | 1.2 | — | 1.2 | 3790 | 0-32 | 0.4 |
| Finishing drums | 05 | 3.1 | — | 3.1 | 1135 | 2-73 | 3.6 |
| Vulcanization boilers | 06 | 39.0 | — | 39.0 | 4661 | 8-37 | 11.2 |
| Total by main technological equipment | 07 | 173.5 | — | 173.5 | × | × | × |
| Auxiliary and other equipment | 08 | — | × | × | × | × | × |
| Total for shop | 09 | 173.5 | × | × | × | × | × |
Note. In the maintenance and operation costs, the costs of maintaining machine tools, special equipment, and transportation costs are not included, since they are allocated among products separately.
Auxiliary and other equipment serving more than one group of main equipment is separated out.
After grouping, operating expenses were determined for each group of equipment by allocating the total estimate of these expenses. The proper determination of operating expenses for each group of equipment is the most responsible and labor-intensive part of the preparatory work.
Each item of expenses for the maintenance and operation of equipment is allocated among the groups according to its own criterion. For example, the cost of operating equipment and of its current repair is allocated on the basis of the total repair complexity of each group, taking into account loading by time; electric-power consumption is allocated on the basis of total consumed capacity; the amount of depreciation deductions is allocated directly, etc.
CALCULATION
of the number of coefficient-machine-hours
| Name of products | Costing unit | Injection machines K=3.3, M-h | Injection machines K=3.3, K-M-H | Hydraulic press K=1.0, M-h | Hydraulic press K=1.0, K-M-H |
|---|---|---|---|---|---|
| AB parts made of I-51 rubber | thous. pcs. | — | — | 0,107 | 0,107 |
| Non-molded rubber-technical parts | ton | 52,75 | 174,1 | — | — |
| Other molded rubber parts (according to TU MKhP 233-54 r) by weight: | |||||
| up to 1 g | ton | 133,6 | 440,9 | 1225,0 | 1225,0 |
| from 1,1 to 5 g | ton | 70,5 | 232,7 | 698,1 | 698,1 |
| from 5,1 to 10 g | ton | 44,64 | 147,3 | 668,9 | 668,9 |
| from 10,1 to 100 g | ton | 45,3 | 149,49 | 533,06 | 533,06 |
| over 100 g, etc. | ton | 31,6 | 104,3 | 119,5 | 119,5 |
After the expenses for the maintenance and operation of equipment have been allocated among all groups of equipment, the second stage of allocation is carried out: the expenses attributable to auxiliary and other equipment are allocated among the groups of main technological equipment (in shop No. 14—see Table 1, group 04—there is no auxiliary equipment). For a more substantiated allocation of this portion of expenses, it is advisable to account for auxiliary equipment not by one group, but by several groups.
Thus, the entire amount of operating expenses proves to be allocated among the groups of main technological equipment. After this, the amount of expenses per 1 machine-hour is determined. In cases where a group includes equipment that is not only technological (hydraulic pump, hydraulic accumulator, etc.), or where different synchronously operating technological equipment is accounted for in one group as a single unit, the planned number of machine-hours of operation is determined only by the main type (in the second case—as the number of unit-hours).
When determining the coefficients characterizing the ratio of the level of operating expenses of different groups, the cost of one hour of maintaining the type of equipment that defines the main profile of the shop was taken as the unit (a hydraulic press in shops 14 and 15, an electric press with steel cores in shop 20).
The calculation that provides the coefficients is performed using a simple form, convenient in application and covering all stages of the work (see Table 1).
The results obtained by this calculation (the coefficients) are long-term standards and, in the absence of substantial changes in the composition of the equipment, its loading, and the amount of operating expenses in connection with the revision of prices and tariffs, etc., may be used for several years.
CULATION
per unit of product
Table 2
| Press for trimming parts K=4.8 | Press for trimming parts K=4.8 | Roughening machines K=0.4 | Roughening machines K=0.4 | Washing drums K=3.6 | Washing drums K=3.6 | Vulcanization boilers K=11.2 | Vulcanization boilers K=11.2 | Total coefficient-machine-hours |
|---|---|---|---|---|---|---|---|---|
| M-h | K-M-h | M-h | K-M-h | M-h | K-M-h | M-h | K-M-h | |
| 0.088 | 0.422 | — | — | 0.014 | 0.050 | — | — | 0.579 |
| — | — | — | — | — | — | 5.0 | 56.0 | 230.1 |
| — | — | — | — | — | — | — | — | 1665.9 |
| — | — | — | — | — | — | — | — | 930.8 |
| — | — | — | — | — | — | — | — | 816.2 |
| — | — | — | — | — | — | — | — | 682.55 |
| — | — | — | — | — | — | — | — | 223.8 |
All other calculations are performed for each period for which planned cost estimates are drawn up.
The labor requirement per unit of product in machine-hours, used to determine the coefficient-machine-hours, is determined for the same equipment as the planned number of machine-hours of loading (aggregate-hours). This is a mandatory condition, the violation of which will lead to a distortion of the relationships sought (the form for calculating the number of coefficient-machine-hours is given in Table 2).
All other operations for determining estimated rates per unit and distributing the costs of maintenance and operation of equipment are performed in the costing sheet.
LITERATURE
-
N. I. Ivanov, Introduction of Standard Cost Accounting at an Enterprise. Moscow, “Finansy,” 1970, pp. 137–150.
-
Instruction on planning, accounting, and costing of production costs at enterprises of machine building and metalworking. Moscow, “Finansy,” 1964, pp. 25–36.