JUSTIFICATION OF METHODS OF DISTRIBUTION OF OVERHEAD COSTS OF AGRICULTURAL ENTERPRISES

Abstract

Costs associated with creating the necessary conditions for production and performing management functions constitute a separate group of expenses - overheads.

The share of overhead costs in total expenses is increasing. First of all, this is due to introduction of the latest technologies in production, automation of business processes, increase of costs on information technology, marketing, people management. Therefore, it is important for companies to determine the value of overheads in order to include them into cost of certain types of products.

Overhead costs have impact on the whole production result, they relate to the entire volume of production of the enterprise, and that is why they cannot be directly attributed to the cost of a particular type of product. They are included into cost of individual types of products proportionally using the distribution base chosen by the enterprise.

Selection of method of distribution of overheads depends on industry peculiarities, size of the enterprise, its organizational structure, product mix and other factors. As a base for distribution of overhead costs the following may be used:   the level of labor-intensive of production,   time of equipment operation,  wages of the main production workers,  total direct costs for raw materials and wages of the main production workers,  direct costs for raw materials, the volume of manufactured products.

Regardless of the chosen distribution base, the cost allocation coefficient (cost rate) is calculated as the ratio of the amount of overheads to the total value of the base for their distribution.

In a number of agricultural enterprises, including LLC "Volyn Nova", only the total production overheads are allocated. Administrative expenses are written-off directly on the financial result. At the enterprise both the amount of administrative costs and their share in the total amount of overheads increase. In order to determine the full cost of production, it is recommended to allocate administrative costs.

Analysis of the correlation between administrative costs and possible distribution bases demonstrated that the highest correlation (with the highest correlation coefficient) is with a distribution base - direct labor expenditure for production. Data on hours worked contains in the Form “1-business”. The Form “50-SG” allows you to calculate the level of labor-intensive of production by major types of products. The objects for allocation will be divisions of the enterprise and individual products.

The proposed mechanism for allocation of administrative costs will ensure the inclusion of the relevant part of administrative expenses into the full cost of certain types of enterprise’s products. This will allow correct determination of the full cost of products, their profitability and making reasonable management decisions on production.