In enterprises across many economic sectors, the operational costs of the full product supply chain – including procurement and materials management, production, and distribution (including warehousing, forwarding, and transport) – account for a significant (over 70%) share of total operating costs. Improving business efficiency often determines a company’s development and the ability to improve the competitiveness of its products. However, this requires managers to perform a detailed analysis of the efficiency of the enterprise’s processes and resources (Figure 1), as well as an analysis of costs and the sensitivity of the enterprise’s results to individual cost groups.
Management staff in agricultural holdings, as part of product cost analysis (as well as comparing product costs with their sales results), seek opportunities to analyze activities performed during processes – for example, procurement or the production of agricultural products – and the consumption of resources, which are the direct cause of the costs incurred.
Defining the problem
Unfortunately, the management of agricultural enterprises does not always have an accounting and information system that enables appropriate analysis and evaluation of the efficiency of the enterprise’s operational activities. In addition to the lack of appropriate management information systems, there are also substantive obstacles to identifying, assessing the level, and determining the structure of operational (process) costs in the full supply chain of agricultural products. A significant limitation to the use of comprehensive operational (process) costing is the use of traditional cost accounting methods in enterprises (in the nature-based layout shown alongside) and their allocation to enterprise resources (salaries, depreciation, materials, energy, external services, etc.). These methods are not adapted to allocating costs to processes and products, which hinders the analysis of multidimensional dependencies between a product and its market competitiveness, and the processes implemented and resources consumed.
Traditional methods of assessing product cost-intensity make product profitability dependent on turnover value – which means that production, distribution, or sales costs are settled according to a revenue value key. The proportionality of cost allocation means that products with similar sales values are equally cost-intensive for the enterprise. However, such cost accounting does not reflect the differentiated consumption of resources by individual products.
Traditional cost recording systems allocated to cost centers (CC), in a nature-based layout, show:
• Who – CC 034 – Procurement Department, CC 025 – Crop Production Department,…,
• On what – materials, salaries, services,…,
• How much – individual cost values recorded by nature-based items,
• When – cost accounting period,
incurred the costs, i.e., spent money in the enterprise. However, only answering the questions: How are costs incurred? What influences costs and to what extent? – creates opportunities to seek more rational ways of operating and using resources, enabling cost reduction.
The article comes from the magazine “Logistyka” 1/2009.