Lecture Industrial Costing SS 20162017 Prof Dr Olga

Lecture „Industrial Costing“ SS 2016/2017 Prof. Dr. Olga Popova, OVGU Prof. Dr. Jörg Jablinski, OWL 1

Chapter 3 „Cost type accounting“ (Part 2) 2

Personnel costs Wages Direct labor costs for orders Salaries for orders Nonproductive salaries Nonproductive labor costs Additional personnel expenses Statutory APE Tariff APE Operating APE Other APE 3

Differentiation of costs Costs Imputed costs Operating costs Outlay costs -Imputed depreciation -Imputed risks -Imputed interest on borrowed capital Additional costs -Imputed rent -Imputed employer's salary -Imputed equity capital interest 4

Kinds of depreciation Depreciation Book depreciation Imputed depreciation Difference between book and imputed depreciation Kind of depreciation of fixed assets Parameter Base of depreciation Duration of depreciation Type of depreciation Book depreciation Acqisition- and production costs Tables of depreciation Time depreciation/ unit-ofproduction depreciation Imputed depreciation Replacement value Estimated actual life cycle Freely selectable, mostly linear 5

Depreciation methods Unit-of-production depreciation Time depreciation Linear Degressive Progressive Declining-balance method Sum-of-the-year's digital method 6

Depreciation amounts and residual book value in linear depreciation Liquidation proceeds in linear depreciation Residual book value (in €) (in €/period) Depreciation amounts (A) in linear depreciation (in years) 7

Example: Imputed linear depreciation A machine that was purchased for 95. 000, - € is expected to cost 110. 000, - € after the end of four years of useful life. Residual value (liquidation proceeds) will amount to 10. 000, - €. Imputed depreciation per year in linear depreciation can be calculated as follows: 8

Example: Declining balance method A machine was purchased for 66. 000, - €. Residual value (liquidation proceeds) will amount to 12. 000, - € after 6 years. Imputed depreciation per year in % (p) can be calculated as follows: Depreciation amounts and residual book values can be calculated with this percentage as follows: Year 0 1 2 3 4 5 6 Depreciation amount 16. 323, 60 € 12. 286, 33 € 9. 247, 58 € 6. 960, 40 € 5. 238, 91 € 3. 943, 18 € Residual value 66. 000, 00 € 49. 676, 40 € 37. 390, 07 € 28. 142, 49 € 21. 182, 09 € 15. 943, 18 € 12. 000, 00 € 9

Example: Digital method A machine was purchased for 75. 000, - €. Residual value (liquidation proceeds) will amount to 15. 000, - € after 5 years. Degression amount per year in € (p) can be calculated as follows: Depreciation amounts and residual book values can be calculated as follows: Year 0 1 2 3 4 5 Depreciation amount (5 x 4. 000, - €) = 20. 000, - € (4 x 4. 000, - €) = 16. 000, - € (3 x 4. 000, - €) = 12. 000, - € (2 x 4. 000, - €) = 8. 000, - € (1 x 4. 000, - €) = 4. 000, - € Residual value 75. 000, - € 55. 000, - € 39. 000, - € 27. 000, - € 19. 000, - € 15. 000, - € 10

Example: Digital method The following table shows the percentage price development of a machine with eight years of useful life, which was purchased in 02 year for 265. 500, - €. The task is, to calculate the replacement value and depreciation for the sixth year. Year 0 1 2 3 4 5 6 Price index 100, 0 103, 5 106, 2 108, 0 111, 5 115, 4 120, 0 11

Example: Imputed interest Fixed assets from the balance sheet; it consists of Depreciable fixed assets measured at average- and residual values Not depreciable fixed assets measured at acquisition- and production costs + current assets from the balance (measured at imputed average values) non-operating fixed assets + not reported, operating current assets = Operating assets non-interest-bearing liabilities (= interest-free borrowed capital) = Operating capital 12

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Evaluation of assets Assets Not depreciable fixed assets Examples Investments, premises Average method depreciable fixed assets Machines, transport fleet, buildings, factory and office equipment Residual value method depreciable fixed assets Machines, transport fleet, buildings, factory and office equipment Current assets Raw materials and supplies, goods, semi-finished and finished products, cash assets, bank balance, debt claim Evaluation Acquisition value (AV) from the balance or present value These positions are subjected in the course of period mostly strong fluctuations, therefore will be considered the average stock of period. 14

Example: Calculation of imputed interests In the following example is presented the way of calculation of operating capital and imputed interest of the general partnership Schmidt. Below are listed the assets of the general partnership Schmidt. The rate of interest amounts to 10 %. Note: investments don't concern operation financial assets. Moreover the leasing of property to a farmer amounts to 50. 000 EUR. Additionally is a vehicle for 10. 000 EUR, which is used for private drives, included in the balance sheet. Liquid assets are used for operational purposes only to an extent of 75 %. Fixed assets Property Machines Transport fleet Investments Current assets Average inventory of raw materials and supplies Average inventory of finished products Average accounts receivable Average liquid assets Average bank balance Average cash balance Average advance payments received Average trade accounts payable 270. 000, - € 140. 000, - € 50. 000, - € 60. 000, - € 38. 000, - € 24. 000, - € 18. 000, - € 11. 000, - € 8. 000, - € 6. 000, - € 13. 000, - € 15

Example: Calculation of imputed interests Operating fixed assets Property 220. 000, - € Machines (140. 000, - € : 2) + 70. 000, - € Transport fleet [(50. 000, - € -10. 000, - €) : 2] + 20. 000, - € = 310. 000, - € Current assets Average inventory of raw materials and supplies 38. 000, - € Average inventory of finished goods + 24. 000, - € Average trade accounts receivable + 18. 000, - € = 80. 000, - € Cash and cash equivalents Average bank balance (11. 000, - € x 0, 75) 8. 250, - € Average cash balance (8. 000, - € x 0, 75) + 6. 000, - € = 14. 250, - € Average operating assets Non-interest-bearing liabilities Average advance payments received Average trade accounts payable Average operating capital = 404. 250, - € - 6. 000, - € - 13. 000, - € = 385. 250, - € Imputed interest = operating capital x interest rate = 385. 250, - € * 0, 1 = 38. 525, - € 16

Categories of imputed risks Type of risk Reference value Inventory risk Average inventory value Investments risk Acquisition- and replacement value Production risk Production costs of produced goods Distribution risk Average accounts receivable Guarantee risk Production costs or turnover Development risk Costs for development Other risks Turnover, total costs Examples Loss in storage because of stock shrinkage, theft, obsolescence of stock, technical and economic progress Loss because of false investment, quicker wear than planned, machine breakage, disasters, accidents Defective goods because of material-, processing- or construction error, more costs because of rework Default on receivables, non- acceptance of ordered good, exchange rate fluctuations, goodwill reduction Loss from guarantee obligations, for example later improvement, free replacement delivery etc. Loss because of failed researching- and development works Liability claims from accidents and environment liability Risk costs = risk rate * reference value of the period 17

Example: Calculation of imputed risks In the printing company with limited liability Sauer arose encountered risk because of defects. Due to prognostication, production costs for coming financial year will amount to 2, 5 million €. The risk costs can be calculated in the following way: Acounting period 01 02 03 04 05 Summe Encountered risk (production risk) 32. 800, - € 46. 050, - € 28. 450, - € 26. 200, - € 39. 000, - € 172. 500, - € Production costs 2, 40 million € 2, 10 million € 2, 25 million € 2, 60 million € 2, 15 million € 11, 50 million € 18