A METHODOLOGY FOR ANALYSIS OF EXPENSES ON MATERIALS OF ENTERPRISES WITH INDUSTRIAL PRINCIPAL ACTIVITY

Abstract

The issue of expenses on materials in the enterprises with industrial principal activity is relevant at all stages and phases of their development. This is due to the following facts:
1) expenses on materials have the biggest relative share in the cost of production;
2) expenses for the industrial enterprise’s principal activity have direct impact on the financial result from sale of products;
3) in addition to revenue, any enterprise’s expenses are one of the direct factors that influence the formation and measurement of its financial performance for different reporting periods;
4) through financial performance, expenses and revenue influence the behavior of a number of relative indicators that characterize the effectiveness of business, such as profitability.
The object of study in this publication refers to the expenses on materials in the industrial enterprise’s principal activity and the methodology for their analysis. It highlights both the information provision and the methodological guidelines for analysis of expenses on materials. It presents the methodology for analysis and evaluation of the absolute savings or the absolute overspending of expenses on materials in the principal activity. The following four direct factors exert influence on the difference between the actual expenses on materials in the industrial enterprises’ principal activity for the current year versus the previous year (absolute savings or absolute overspending), and namely:
1) changes in the physical amount of products;
2) changes in the product range structure;
3) changes in the expenses on each type of material for the manufacturing of a unit of each type of product (consumption rates);
4) changes in the prices per unit of each type of material.
Through the elements of the financial and business analysis method, we determine the impact of each factor on the achieved absolute savings or absolute overspending of direct expenses on materials in the cost of industrial production.
Furthermore, this article describes the guidelines for analysis of the relative savings or overspending of materials in the enterprises’ principal activity. It highlights the guidelines for analysis of the effectiveness of costs on materials for the manufacturing of products.
The author’s objective is to suggest an improved methodology for analysis of expenses on materials in the industrial enterprises’ principal activity. Based on the information obtained from the analysis, timely, informed and proper decisions for effective control of expenses on materials in the cost of industrial products may be designed and made.