Analysis of direct material costs
As a rule, material costs occupy the largest share in the structure of production costs of enterprises in most industries. Therefore, the efficiency of production largely depends on the effective use of materials, in material costs there is one of the largest reserves of cost reduction.
The bulk of direct material costs are reflected in the cost of "Raw Materials and Materials", so the analysis technique will be shown using the example of this article. Although there are other calculation items reflecting the material costs associated with the production of specific products, for example, "Components", "Fuel and energy for technological purposes". Some of the material costs are included in the complex items of production costs: "Equipment Maintenance and Maintenance Costs", "General Production Expenses", "General Costs" etc. However, this part of material costs does not apply to direct costs. These are indirect costs, and they are analyzed in the corresponding complex articles.
The main factors that affect the amount of direct material costs are:
1) change in the volume of production;
2) the change in the structure of products;
3) the change in the level of material costs for certain types of products, including the implementation of standards for the consumption of materials; change in the procurement cost of materials; replacement of materials.
Example
In accordance with our example, direct material costs are:
• according to the business plan for the planned production volume of 70.2 million rubles.
• at a planned cost price for the actual output of 85.2 million rubles.
• at an actual cost of 90.7 million rubles. Actual material costs turned out to be more than those provided by the business plan for 20.5 million rubles. (90.7  70.2).
First of all, we will find influence on this overrun at once of two factors  changes in the volume of production and the structure of output. To do this, it is sufficient to compare the planned amount of material costs in relation to the actual output with material costs according to the originally approved business plan:
85.2  70.2 = + 15.0 million rubles.
Now we will distinguish from this general influence the effect of an increase in the volume of production. In our example, the plan for the output of finished products is 120% complete. Since the consumption of materials directly depends on the volume of production, then overfulfilment of the plan by 20% should increase and the consumption of materials also by 20%, and thus the effect of growth in output will be:
70.2 • 20/100 = + 14.04 million rubles.
Then the effect of the change in the structure of the product range is found by the balance method, subtracting from the cumulative effect of the two factors the effect of volume:
15.0  14.04 = +0.96 million rubles.
Therefore, the increase in the composition of the output of specific weight of more materialintensive products increased direct material costs by 960 thousand rubles.
The effect of changing the level of material costs for individual types of products is determined by comparing the consumption of materials at the actual and planned cost of actual output:
90.7  85.2 = + 5.5 million rubles.
Thus, the overplan growth of direct material costs for individual types of products increased their total amount by 5.5 million rubles.
We calculate the overall impact of the three factors under the influence of which there was a change in the amount of direct material costs:
• a change in the volume of products +14.04 million rubles.
• a change in the structure of the product mix +0.96 million rubles.
• change in the level of costs for individual products +5.5 million rubles. The cumulative influence of three factors is +20.5 million rubles.
However, in the analysis it should be borne in mind that the impact of the last factor of unit costs is complex. It can be associated with changes in the norms of consumption of materials, prices for them and with possible substitutions of materials in product designs. To determine the impact of factors of norms, prices and replacement, you should refer to the data of the accounting calculations of the cost price of units of specific types of products. For this purpose, first of all, the calculations of those products that occupy the largest share in the structure of output products, including those products for which the actual cost price exceeds the planned production, as well as products with low profitability, are selected first. In the course of the analysis it is not enough to compare the planned and actual amounts of costs by items of material costs. You need to use the data in the costing section & quot; Disclosure of material costs & quot; to study the consumption of specific types of materials per unit of this product in comparison with production standards and the actual procurement cost of these materials in comparison with their cost at planned prices calculated in the planned cost estimates. Example
The methodology of this analysis will be shown in the following example (Table 10.5).
Table 10.5. Direct material costs for the production of a product unit A
Content 
Plan 
Fact 

Quantity 
price, rub. 
amount, rub. 
Quantity 
price, rub. 
amount, rub. 

Steel rolling 
10 kg 
2.1 
250 
8 kg 
30 
240 
Nonferrous rolled products 
1kg 
400 
400 
1.2 kg 
1.1 (1 
540 
Cast Iron Casting 
100 kg 
20 
2000 
 
 
 
Synthetic material 
 
 
50 kg 
30 
1500 

Special glass 
0. (1 m  ' 
60 
 
 
 

Total 
x 
x 
2710 
x 
x 
2280 
It can be seen from the table that the decrease in the level of direct material costs per unit of output amounted to 430 rubles. (2280  2710). This was influenced by the following factors:
1. The effect of changing material consumption rates:
• steel rolling (8  10) • 25 = 50 rubles.
• color hire (1,2  1) • 400 = +80 rubles.
2. The effect of changing the den:
• rolled steel 8 • (30  25) = +40 rubles.
• dietary hire 1,2 • (450  400) = + 60 rubles.
3. The effect of the replacement of materials (cast iron and special glass replaced in the design of the product on synthetic material):
(2000 + 60)  1500 = 560 rubles.
The cumulative influence of norms, prices and substitutions on the overall change in the level of direct material costs will be shown in Table. 10.6.
Table 10.6. Analysis of the impact of norms, prices and substitution on the change in the level of direct material costs, rubles.
Content 
General Deviation 
Including the impact of 

rate 
price 
Replacements 

Steel rolling 
10 
50 
+40 
 
Nonferrous rolled products 
+ 140 
+80 
+60 
 
Synthetic material 
560 
 
 
560 
Total 
430 
+30 
+ 100 
560 
As the analysis has shown, the achieved savings are almost entirely explained by the replacement of cast iron and glass with more efficient synthetic material. At the same time, due to overstating the norms of the cost of materials, the cost of a unit of A's output increased by 30 rubles, and due to an increase in the prices of materials  by 100 rubles. At the same time, steel was saved, and the entire increase in material costs is associated with the use of nonferrous rolled metal. Therefore, a clear reserve of reducing the cost of a unit of product A can be considered liquidation of the overspending of nonferrous metals against the established norms by 80 rubles. With an annual output of these products in 10 thousand units. The reserve for reducing the cost of all of their output will be 80 • 10 000 = 800 000 rubles. Of course, in order to mobilize such a reserve, it is necessary to develop and implement a set of organizational and technical measures that exclude the possibility of violating established norms.
Saving of material costs can be the result of the introduction of advanced technologies that allow to reduce the consumption of materials per unit of output, to strengthen the economy regime, to reward the employees of the enterprise for the rational use of materials and other factors. At the same time, during the analysis, all cases and amounts of excess of material costs should be allocated in comparison with the established norms. The total size of this excess can be considered as an explicit reserve of possible savings in material costs. Replacement of materials can be considered rational only if it leads to savings without compromising the quality of the products.
The growth of material costs due to the price factor, as a rule, is not dependent on the work of the enterprise nature. However, in the course of the analysis, it is possible to detect the effect on the amount of direct material costs of changes in transportation and procurement costs, which along with the purchase prices form the procurement cost of materials. In this example, this factor was not allocated, but was considered as part of the price factor. But enterprises, optimizing the system of procurement and supply schemes, are able to influence the transportation and procurement costs. Therefore, in cases where they make up substantial amounts, it is advisable to evaluate their impact on material costs.
Example
According to the business plan and analytical accounting of the preparation of materials, the following analytical calculations can be performed:
1. Material costs at the planned cost price for the actual output of 85.2 million rubles.
2. Actual material costs 90.7 million rubles. including:
a) transport and procurement costs of 17 million rubles.
b) the cost of materials in the purchase price of 73.7 million rubles.
3. The percentage of transport and procurement costs provided for in the business plan is 10%.
4. Transportationprocuring expenses at the planned rate for the actual consumption of materials (page 3 х p. 2, b) 7.37 million rubles.
5. Deviations from the plan for the amount of material costs, total (page 2  page 1) 5.5 million rubles.
including due to:
• changes in specific consumption in purchased chains (page 2, b + + page 4  page 1) 4.13 million rubles.
• changes in transportation and procurement costs (page 2, a  page 4) +9.63 million rubles.
Thus, along with the economy due to the tightening of the norms of the consumption of materials, there is an extraplan increase in transport and procurement costs by 9.63 million rubles. Of course, additional analysis is needed to determine whether the growth of transportation and procurement costs is associated with irrational choice of suppliers, delivery areas or modes of transport, or it arose from factors independent of the enterprise (the growth of tariffs for rail transportation, etc.).
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