IMPROVED METHODOLOGY FOR ANALYSIS OF FULL COST OF PRODUCTION OF BGN 100 - with classification of costs by types of activities

Abstract

The indicator ‘Full cost of production of BGN 100’ is a key business indicator that characterises the effectiveness of the operations of enterprises that carry out industrial activity as their principal activity. Such indicator is calculated as a percentage ratio between the full cost of production and the production value at net sales prices. The value of this indicator may be calculated in different aspects. For example, costs comprised in the full cost of production may be classified:
 by economic elements, i.e. depending on the economic nature and composition of costs. From this perspective, objective opportunities are created to analyse and assess the impact of changes in the costs by economic elements within the scope of the full cost of production, on one hand, and on the other hand, the influence of the changes in the net production sales revenue on costs by economic elements basis on the changes that have occurred in the full cost of production of BGN 100 for the current versus the previous period;
 as conditionally fixed and variable costs, allowing to analyse and assess the impact of both the changes in the amount of these costs and of the efficiency of net production sales revenue on the basis of conditionally fixed and variable costs comprised in the full cost of production of BGN 100;
 by types of activities, i.e. classification of costs, depending on their economic nature, content and incurrence venue (by functional purpose).
The main source of information for the needs of the analysis of the full cost of production of BGN 100 is the accounting information kept in the enterprise. Such data are created and contained in the synthetic, financial account ‘Production sales revenue’.
The object studied in this publication refers to the indicator ‘Full cost of production of BGN 100’, and its subject covers the direct factors that influence the change of actual versus reference full cost of production of BGN 100, and the methods for analysis and assessment of such impact. In particular, the article presents a model for analysis of full cost of production of BGN 100 with classification of costs comprised in the full cost of production by types of activities.
The author’s objective is to suggest different options and guidance for improvement of the methodology for analysis of the indicator ‘Full cost of production of BGN 100’. One of the options is to extend and deepen the analysis of this indicator by studying the costs by types of activities, which form the full cost of the industrial products. The usefulness of the resultative information is based in its actual use for making informed, proper, timely and efficient decisions for the management of the full cost of production and of the effectiveness of the enterprise’s operations. Moreover, the indicator of full cost of production of BGN 100 is directly related to the net production sales revenue-based profitability (profitability of sales) – a summary indicator that characterizes the effectiveness of the industrial enterprise’s operations. This information is also useful because the factors having influence on the dynamics of the full cost of production of BGN 100 are factors that affect the change of profitability of sales. The impact of these factors is equal in value but opposite in terms of direction. This is due to the economic nature of two relative indicators for effectiveness of the enterprise’s operations – full cost of production of BGN 100 and profitability of sales.