The cost type accounting is a sub-area of the cost accounting, in which all costs are broken down according to type, whereby the cost accounting is structured as a whole. In addition, cost type accounting is used to provide information about the costs incurred for the individual sub-areas of the company. Within the cost accounting, the cost type accounting forms the basis for further calculations. Following that follows Cost Center Accounting , which then again as a basis for cost accounting can be used. In this article, we will show you how cost type accounting works in detail and what advantages it can bring for your company.
Definition – cost type accounting
Cost accounting is generally a relatively complex topic, which is why we should clarify exactly what cost type accounting actually is at the beginning.
What is cost type accounting?
The cost type accounting raises the question of which costs are incurred in principle. The costs incurred in the company should be able to be traced in more detail. For this purpose, they are divided according to cost types . So the point here is not where the costs were incurred, but what costs were incurred. The cost type accounting thus forms the basis for the general, advanced cost accounting calculations. It records costs, delimits them and thus brings a system into the total amount of costs incurred. Only then can direct costs are directly attributable to payers or the cost center accounting be performed. Overhead costs are transferred to cost unit accounting at a later point in time, namely when the cost center accounting is created, via overhead surcharge rates . Understanding this sequence of the various steps is important so that you have a holistic view of the cost accounting process and not just look at cost type accounting alone.
What does cost type accounting do?
Put simply, the cost type calculation sorts the total costs into different areas so that these can be assigned and it is clear which costs have been incurred. Each cost amount must be assignable to a cost type , whereby it is important to precisely define the cost types so that there are no overlaps or omissions.
What results and findings does cost type accounting provide?
The cost type calculation ultimately provides a breakdown of the costs. The systematization of the costs can be such that a distinction is made between material costs , personnel costs and service costs . On the other hand, it is also possible to break down according to individual costs and overhead costs . The various options for structuring the costs will be discussed in detail below.
The results obtained can then be used to base further cost accounting calculations on them, to gain knowledge of the cost structure in the company and to identify the first starting points for potential for improvement.
Scheme of cost type accounting
The cost type calculation works depending on how the costs are broken down. This means that you have different options for dividing the costs into groups . How this makes the most sense depends on your company and how you would like to use the data in the future. So let’s take a closer look at different options:
Option 1: breakdown of costs according to the type of inputs used
With this form of the breakdown of the costs incurred, the following types of costs result:
- Personnel costs
- Material costs
- Service costs
- Cost of capital
- Space costs
- Imputed costs
With this approach, the focus is on which production factors (factor working time, factor material, etc.) were used. Also imputed costs are considered as a separate category.
Option 2: According to operational functions
This structuring of costs is often used and does not target the production factors, but the operational areas . The individual positions are therefore:
- Material costs
- Manufacturing costs
- Administrative expenses
- Distribution costs
- Taxes
With this approach, there is thus a difference between the material costs and the manufacturing costs with regard to the creation of the products . Likewise, the costs for the administration of the company and the sales costs are listed separately and, last but not least, tax burdens are assigned to a separate category.
Option 3: breakdown by type of cost recording
This procedure is comparatively greatly simplified. It only distinguishes whether costs are calculatory or whether they are real costs .
Option 4: According to the origin of the cost goods
Despite its simplicity, this distinction is again of greater importance. The point here is the decision as to whether these are primary costs or secondary costs . What does that mean in concrete terms? Primary costs result from the consumption of production factors (material, personnel costs, etc.) and also externally included production factors. Secondary costs, on the other hand, arise when consuming self-produced goods and are therefore located in a completely different area.
Option 5: breakdown according to attributability
The breakdown according to the attributability of costs is differentiated between direct costs and overhead costs . A differentiation that can also be particularly relevant for further calculations. Individual costs can be assigned directly to a specific cost unit. It is therefore not necessary to allocate these to a cost center first, as they can be clearly assigned . Overhead costs, on the other hand, can not be clearly allocated to a cost unit. They arise in such a way that it is not clearly understandable which cost unit has caused them. That is why they are proportionate to the cost center accounting apportioned to the cost bearers. This ensures that even costs that cannot be clearly assigned can be taken into account in the cost unit at the end of the day .
Option 6: breakdown by behavior in the event of fluctuations in employment
A simple division of the costs can be made by distinguishing between fixed costs and variable costs . In the event of fluctuations in employment, i.e. if demand falls in a manufacturing company and machines and workers are temporarily less needed, variable costs are reduced. This can be electricity, for example, whose consumption drops because a machine is not in use. Fixed costs, on the other hand, remain in place in the event of fluctuations, such as the rent for the hall in which the machine is located. In terms of fixed costs, it does not matter what utilization is present or what fluctuations are currently occurring.
