Adobe Systems
COST – MUNI – ABEC
1
COSTs
Cost analysis; Cost classification; Cost according the volume of providing outputs; Production
theory

Adobe Systems
COST – MUNI – ABEC
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revenues, COSTS, profit and their relation
̶Production – transform of inputs into output
̶Inputs – production factors = all of them!
̶In accounting = the current assets, depreciation (as a cost), and overhead costs
̶Outputs = in accounting = stock of finished good, unfinished goods, etc. (usually also current
assets)
̶

Adobe Systems
COST – MUNI – ABEC
3
COSTs analysis
̶Production = amortization or consumption of production factors. This amortization or consumption
is called costs.
̶
̶Importance? Stakeholders!
̶
̶Goal is to have the lowest sustainable costs possible…?

Adobe Systems
COST – MUNI – ABEC
4
Cost as a term
Many points of view:
̶Per operation – calculation costs
̶Per place of origin and responsibility
̶Per typology of costs – cost types
̶Per time
̶Per production volume – capacity costs
̶

Adobe Systems
COST – MUNI – ABEC
5
Calculation costs
̶Per operation stage – in all production phases
̶Important for price creation + portfolio creation
̶
Price calculation
+ Base price of the product
- Discounts to customers
- Volume
- Season
- Other
= Price after changes
- Costs
= Profit/Loss
̶

Adobe Systems
COST – MUNI – ABEC
6
General calculation formula
+ Direct material
+ Direct work
+ Other direct costs
= Total manufacturing costs
+ Overhead costs – supply
+ Overhead costs – management
= Operation costs
+ Overhead costs – sales
= Total operation costs
+ (Profit)
= (Sale price)

Adobe Systems
COST – MUNI – ABEC
7
Unit vs. overhead costs
̶unit costs (prime costs / per-unit costs)
̶costs that are directly caused (induced) by a unit of any kind of business output
̶
̶overhead (overheads)
̶supplement to unit costs
̶in particular the costs of operation, maintenance, management
̶
̶

Adobe Systems
COST – MUNI – ABEC
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Direct vs. indirect costs
̶direct costs
̶directly attributable to a specific type of performance
always unit costs
overheads associated with the type of performance (e.g. single-purpose mould, machine, etc.)
̶indirect costs
̶cannot be directly attributed to product types
̶different calculation methods are used for the assignment
̶

Adobe Systems
COST – MUNI – ABEC
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Variable vs. fixed costs
̶variable costs
̶increase in line with the growth in activity
̶what are we assessing variability for?
usually the total output
number of units sold, or units of final production produced
can be assessed e.g. also in relation to the output of the centre
(e.g. hours of repairs carried out by the Repair Service Centre)
̶fixed costs
̶within a certain range of production unchanged, then a change by a jump
̶

Adobe Systems
COST – MUNI – ABEC
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Unit vs. direct

Adobe Systems
COST – MUNI – ABEC
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Unit vs. variable

Adobe Systems
COST – MUNI – ABEC
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Direct vs. variable

Adobe Systems
COST – MUNI – ABEC
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Cost as a term
Many points of view:
̶Per operation – calculation costs
̶Per place of origin and responsibility
̶Per typology of costs – cost types
̶Per time
̶Per production volume – capacity costs
̶

Adobe Systems
COST – MUNI – ABEC
14
Place of origin and responsibility
̶Cost center
̶
̶Economic structure of the company
̶
̶Importance? – further lectures and courses – calculations, controlling
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Adobe Systems
COST – MUNI – ABEC
15
Cost center
̶Separated, independent technologically closed cycle
̶Independency and responsibility of the „center“ workers for operations, production and
revenues/costs
̶Mapping of real costs of operations – availability of info for calculations
̶Local perspective – should be closed quarters
̶

Adobe Systems
COST – MUNI – ABEC
16
Cost as a term
Many points of view:
̶Per operation – calculation costs
̶Per place of origin and responsibility
̶Per typology of costs – cost types
̶Per time
̶Per production volume – capacity costs
̶

Adobe Systems
COST – MUNI – ABEC
17
Typology of costs – cost types
̶From accounting – Czech standards.
̶(see papers!) - Sample chart of accounts
̶
̶Czech standards vs. IFRS vs. US GAAP
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Adobe Systems
COST – MUNI – ABEC
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IFRS – International Financial Reporting Standards
̶Transfer of the national economies to the IFRS
̶Doing IFRS you can MEAT one problem (US GAAP)
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Adobe Systems
COST – MUNI – ABEC
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IFRS adoption around globe
̶https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/#use-of-ifrs-accou
nting-standards-by-jurisdiction

Adobe Systems
COST – MUNI – ABEC
20
Generally Accepted Accounting Principles – US GAAP
̶Civil law vs. common law
̶
̶adopted by the U.S. Securities and Exchange Commission (SEC)
̶Historical cost principle
̶Financial Accounting Standards Board (FASB)
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Adobe Systems
COST – MUNI – ABEC
21
Cost as a term
Many points of view:
̶Per operation – calculation costs
̶Per place of origin and responsibility
̶Per typology of costs – cost types
̶Per time
̶Per production volume – capacity costs
̶

Adobe Systems
COST – MUNI – ABEC
22
Time centric
̶Elementary distribution
̶Theoretical economists – national economies theory
̶
̶Long term – over 1 year
̶Short term – under 1 year
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Adobe Systems
COST – MUNI – ABEC
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Dispute
̶Economic theory vs. business economics theory
̶
̶Economic theorist says – in short term there are variable and fixed costs. In long run, there are
only variable costs.
̶
̶Business economist says – there are variable and also fixed cost in both long and short run.

Adobe Systems
COST – MUNI – ABEC
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Microecnomics Y
Volume of production
Total costs
Total fixed costs
Average fixed costs
Variable costs
Average variable costs
Average total costs
Increment in the volume
Increment of total costs
Marginal costs
Q
TC
TFC
AFC
VC
AVC
ATC
DQ
DTC
MC
0
1
2
3
10
15
18
200
208
216
224
275
314
340
200
200
200
200
200
200
200
-
200
100
67
20
13
11
-
8
16
24
75
114
140
0
8
8
8
7,5
7,6
7,8
-
208
104
74,7
27,5
20,9
18,9
-
1
1
1
7
5
3
-
8
8
8
51
39
26
-
8
8
8
7,3
7,8
8,7

Adobe Systems
COST – MUNI – ABEC
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Microecnomics
̶Point of ceasing/stopping production
̶
̶LR: P ≥ AC
̶
̶SR: P ≥ AVC
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Adobe Systems
COST – MUNI – ABEC
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Cost as a term
Many points of view:
̶Per operation – calculation costs
̶Per place of origin and responsibility
̶Per typology of costs – cost types
̶Per time
̶Per production volume – capacity costs
̶

Adobe Systems
COST – MUNI – ABEC
27
Volume variability
̶Costs distributed by the linking to the volume produced.
̶
̶Costs connected to the volume – variable costs
̶
̶Costs independent of volume – fixed costs (not always truth)
̶

Adobe Systems
COST – MUNI – ABEC
28
Variable vs. fixed costs
̶variable costs
̶increase in line with the growth in activity
̶what are we assessing variability for?
usually the total output
number of units sold, or units of final production produced
can be assessed e.g. also in relation to the output of the centre
(e.g. hours of repairs carried out by the Repair Service Centre)
̶fixed costs
̶within a certain range of production unchanged, then a change by a jump
̶

Adobe Systems
COST – MUNI – ABEC
29
General formula for costs
̶TC = TFC + Q * AVC
̶

Adobe Systems
COST – MUNI – ABEC
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REVENUES, costs, profit and their relation
̶Revenues are simple and from microeconomics:
̶
P * Q
̶
̶In the accounting (Sample chart of accounts!)
̶
̶usually from the sale of goods and services to customers.
̶
̶Revenue is also referred to as sales or turnover. (in CZ L )
̶

Adobe Systems
COST – MUNI – ABEC
31
REVENUES
̶Goal is to have the highest sustainable revenues possible…?
̶What about taxes?

Adobe Systems
COST – MUNI – ABEC
32
ProfitJ
̶Revenues – costs = profit.
̶
̶This one is subject to taxation.
̶
̶Top goal is to have the highest sustainable goal possible…?
̶

Adobe Systems
COST – MUNI – ABEC
33
Rehearsal
̶Tax rate for the natural person?
̶Tax rate for the law entity?
̶
̶EBIT vs. EAT
̶
̶Usage?

Adobe Systems
COST – MUNI – ABEC
34
EBIT or EAT?
̶ROA = E???/ Assets
̶
̶
̶ROE = E???/ Equity
̶
̶
̶ROS = E???/ Sales

Adobe Systems
COST – MUNI – ABEC
35
OUT OF ABEC
̶CBA – Cost benefit analysis
̶Based on predictions of future cash flows
̶Takes account of time value of money
̶Requires all costs and benefits to be given a monetary value
̶ABC – Power graph
̶
̶ABC/M – Activity based costing/management

Adobe Systems
COST – MUNI – ABEC
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ABC – Power graph

Adobe Systems
COST – MUNI – ABEC
37
Thank you
̶