The use of productive assets production factors

1
11. Company costs
Costs

• The use of productive assets (production factors)
• Tangible productive assets
• A labour force
• Services

2
11. Company costs
Expenses, costs and payments

• Expenses
• Are incurred at the moment when companies acquire
  productive assets.
• Costs
• Are incurred at the moment when productive assets
  are consumed. In other words, costs constitute
  the consumption of productive assets involved in
  carrying out production and/or sales, converted
  into cash
• Payment
• Occur at the moment when companies withdraw funds
  from their liquid assets or overdraft.

3
11. Company costs
Expenses, costs and payments
Example In February 20x6 a company buys goods a
the cost of DDK 20.000. A credit period of 60
days has been agreed with the supplier. Half of
the goods are sold (consumed) in March 20x6 while
the other half are sold in May 20x6.
20.000
20.000
10.000
10.000
4
11. Company costs
Expenses, costs and payments

• Example
• In January 20x5 a company buys a machine costing
  100.000. This machine is expected to have a
  useful lifetime of five years, after which it is
  expected to be worthless. DDK 40.000 is paid on
  delivery in January, and the remainder is paid
  over the course of the following six quarters.
  (DDK 10.000 per quarter)

100.000
70.000
30.000
20.000
20.000
20.000
20.000
20.000
5
11. Company costs
Fixed costs (11.2, page 316 320)

• Capacity
• Premises, machinery and staff
• Fixed costs
• Costs whose total for any given period is not
  directly determined by the size and composition
  of the sales volumen
• Cahs fixed costs
• Calculated fixed costs
• Example
• Staff salaries
• Rent
• Various cash fixed costs
• Depreciation
• Total

1.000.000 1.000.000 1.000.000 1.000.000 1.000.000
1.000.000
-
550.000 100.000 200.000 150.000 1.000.000
1.000
500
333
250
200
6
11. Company costs
Stepped costs page 318

• Example
• In a company, the fixed costs of kr. 200.000 per
  month cover a capacity of 3.000 units per month.
• An incease in capacity to more than 3000 units
  per month will result in an increase in fixed
  costs from 200.000 to kr. 300.000 per month
  known as stepped costs

- 200 100 67
200.000 200.000 200.000 200.000
100 75 60 50
300.000 300.000 300.000 300.000
7
11. Company costs
Variable costs (11.3 page, 320 325)

• Conception
• Costs, whose total for any given period is
  directly determined by the size and composition
  of the sales volume achieved.
• Course of variable costs
• Proportional
• The variable costs increase proportionally as the
  sales volume increase
• Degressive
• The variable costs change more slowly than the
  sales volume
• Progressive
• The variable costs change more quickly than the
  sales volume

0 600 1.200 1.800
- 6,00 6,00 6,00
0 600 1.400 2.400
- 6,00 7,00 8,00
0 600 1.000 1.200
- 6,00 5,00 4,00
8
11. Company costs
The total costs

• The total costs
• The fixed costs plus the variable costs.

VU VC SALES VOLUME
KE KO AFSÆTNING
TC FC VC
TU TC / sales volume TU FU VU
- 200 100 67 50 40 33
- 140 120 100 100 112 127
- 340 220 167 150 152 160
200.000 340.000 440.000 500.000 600.000 760.000 96
0.000
9
11. Company costs
Differential costs 11.5 page 326- 328

• The average increase or decrease in turnover per
  unit in the level of total costs when the level
  of activity is changed by more than one unit
• change in
  total costs
• Differential costs change in sales volume

340.000 200.000 1.000 - 0
140
440.000 340.000 2.000 1.000
100
500.000 440.000 3.000 2.000
60
600.000 500.000 4.000 3.000
100
760.000 600.000 5.000 4.000
160
960.000 760.000 6.000 5.000
200
10
11. Company costs
The most important types of costs 11.6

• Cost of sales / material
• Trading company cost of goods sold
• Production company raw material
• Variable costs
• Salaries
• Wages
• Hourly wages
• Piecework wages
• Variable costs
• Salaries to sales staff
• Sales commissionariable cost
• Fixed salary
• Fixed cost
• Other forms of salary
• Bonus

11
11. Company costs
The most important types of costs 11.6 continued

• Costs of premises
• Rent, electricity, water, heating etc.
• Fixed costs
• Sales promotion costs
• Advertising, trade fairs etc.
• Fixed costs
• Other costs
• Maintenance of fixed assets fixed costs
• Energy consumption (gas, oil, coal)
• Energy used by machines variable costs
• Heating and lighting fixed cost
• Transportation of goods
• Insurance, office equipment, telephone, etc

12
11. Company costs
The most important types of costs 11.6 continued

• Depreciation on fixed assets
• Decrease in value
• Depreciation plan
• What is the total depreciation?
• Cost price scrap value
• What is the period of depreciation (how many
  years)
• lifetime (wear and tear, technical obsolescence)
• How should depreciation be allocated to each
  year?
• Straight line method
• Reducing balance method

13
11. Company costs
Depreciation

• The straight-line method
• The fixed asset loses value at a constant rate
  throughout its lifetime
• Cost price
  Scrap value
• Annual depreciation Useful lifetime
• Example page 334 Mette Goldschmidt
• She has invested the 1.1.20x6 kr. 500.000 in new
  modern burglar-proof exhibition cabinets. She
  expects to keep these cabinets for four years,
  after which she expects to be able to sell them
  for a total of DKK 120.000.

Annual depreciation (500.000 120.000) 4
95.000
500.000
405.000
95.000
95.000
405.000
310.000
310.000
95.000
215.000
215.000
95.000
120.000
14
11. Company costs
Depreciation

• The reducing balance method
• The depreciation of the fixed asset is a fixed
  percentage of the current book value each year
• Initial book
  value x Depreciation percentage
• Annual depreciation
  100
• Example page 334 Mette Goldschmidt
• She has invested the 1.1.20x6 kr. 500.000 in new
  modern burglar-proof exhibition cabinets. She
  expects to keep these cabinets for four years,
  after which she expects to be able to sell them
  for a total of DKK 120.000.

Afskrivning 20x5 500.000 x 30 100 150.000
Afskrivning 20x6 350.000 x 30 100 105.000
Afskrivning 20x7 245.000 x 30 100 73.500
Depreciation 20x8 171.500 x 30 100 51.450
500.000
350.000
150.000
105.000
350.000
245.000
245.000
73.500
171.500
171.500
51.450
120.050
15
11. Company costs
Profit and loss account contribution method
11.7
Production company
Trading company
16
11. Company costs
Calculation 11.8 page, 340

• Calculation
• Calculate the costs incurred in connection with
  the purchase, production and sale of a
  consignment of goods or a single product.
• Pre-calculation
• A pre-calculation is made before the product is
  purchased,or produced.
• Purpose planning
• Post-calculation
• Is made after the product has been purchased
• Purpose check the level of costs incurred.
• Contribution calculation
• Calculate the variable unit costs of a product.
• Distribution calculation
• Calculate the total unit costs of a product.

17
11. Company costs
Contribution calculation in a trading company

• Purchase price
• - Discount
• Packaging
• Invoice ammount
• Transport costs
• Cost price
• Other vairable costs)
• Variable costs

18
11. Company costs
Contribution calculation in a trading company

• Invoice amount
• An amount is quoted including VAT, you want to
  find
• amount with
  VAT x 100 amount with VAT
• amount without VAT 125
  1,25
• The conversion from foreign currency to Danish
  Kroner is performed as follows
• Amount in foreign currency x exchange rate
• amount in danish kroner
  100
• Transport costs
• Freight
• Insurance premiums
• Port charges
• Forwarding costs

19
11. Company costs
Contribution calculation in a trading company

• Example page 345 - 346
• An electrical wholesale company UpLight owned by
  Claus Lysager in Lystrup has purchased a
  consignment of lamps from Portugal.
• Work out a contribution calculation for the
  consignment.
• The following information is available
• The purchase price for 200 lamps is EUR 65 a
  piece.

Purchase price 200 lamps each EUR 65
13.000
EUR
- 10 discount from supplier
1.300
EUR
11.700
EUR
Packaging
300
EUR
Invoice amount
12.000
EUR
Invoice amount converted into Danish kroner
87.000
kr.
EUR 12.000 at an exchange rate of 725,00
3.000
kr.
Freight 400 x 750 kg 100 kg
900
kr.
Insurance 1 af kr. 90.000 (87.000 3.000)
2.300
kr.
Port charge
1.800
kr.
Freight forwarding charges 2.250 1,25
The goods from Portugal weighs 750 kg, and
freight is kr. 400 pr. 100 kg.
Cost price
95.000
kr.
Leverandøren yder en kvan- tumsrabat på 10.
Emballagen udgør EUR 300.
Kursen på EUR er 725,00
Assurancen beregnes med 1 af fakturabeløb plus
fragt.
Vareafgiften udgør kr. 2.300 eksklusive moms.
Speditionsomkostninger udgør Kr. 2.250 inklusive
moms.
Salgsprovision udgør kr. 45 pr. solgt lampe.
9.000
kr.
Sales commission 200 lamps each kr. 45
104.000
kr.
Variable costs
Variable eunit cost 104.000 200 stk.
520
kr.
20
11. Company costs
Contribution calculation in a production
company 11.8.2, page 347
21
11. Company costs
Contribution calculation in a production company
Example page 348 A fertiliser factory called
GROW-UP produces a product called GREEN, which is
packed in drums weighing 10 kg each.