Determining the amount of profit and the features...

Determination of profit size and features of drawing up a profit and loss account

The basic approach to determining the amount of profit coincides in the costing methods we are considering here. Both systems are based on the principle of compliance, the essence of which is that the costs relate to the reporting period in which the incomes that were made possible by these expenditures were received.

The difference lies in the magnitude of the costs, correlated with income. As already noted, in the costing system for full costs, permanent production overheads are treated as costs for the product and are included in the cost of production, which implies their correlation with revenue when selling products. In the same system, direct-costing the revenue of the reporting period must cover the fixed costs of this period.

Another difference between the two methods is the approach to determining profit, which also has a direct bearing on the application of the correspondence principle. The main condition for determining profit is the possibility of its accurate and objective evaluation. Supporters of the "direct-costing" method; question the validity of the system with a full distribution of costs in this issue. In their opinion, profit is distorted due to the inclusion of permanent production overhead costs in itself the cost of production. If income is recognized not at the stage of production, but only after the sale of products, then, from their point of view, it is illogical to treat income as a function of production or reserves. Future incomes have nothing to do with stock valuation, which is a simple expression of the costs incurred in the process of obtaining future income.

Indeed, there is a paradoxical situation in which a sufficiently accurate estimate of the reserves leads to a distorted estimate of income. At the same time, measures aimed at eliminating such distortions in the measurement of income used in the costing system for variable costs give underestimated data on stocks. It should be noted that while the recognition of income is based on the fact of sales, and the costs are aimed at reflecting the assets, there will be a difference between calculating the cost of production at full and variable costs.

In the variable cost method, as we have already noted, the profit and loss account has its own characteristics, since it is compiled taking into account the differences between the variables and the constant costs. According to this approach, even administrative and commercial expenses should be divided into variables and permanent components. Differences in approaches to the preparation of the profit and loss account stem from the recognition of which factors will most affect the amount of profit. If in the variable cost calculation method the change in profit is directly related to the change in sales volume, the full cost method allows you to obtain profit data, which is also affected by changes in the stock level.

When calculating the cost of variable costs, the permanent production overheads incurred during the reporting period are deducted from the income of that period. According to the system of full costs, permanent production overheads are distributed between products produced during the reporting period and become part of its cost price. Thus, the revenue of the reporting period is reduced by the portion that relates only to the products sold. If the permanent production overheads included in the cost of sales differ from those that were incurred during the reporting period, it means that the profit indicators will be different.

An important component of the method of calculating the cost of variable costs is the margin of the margin margin. In United States scientific literature, the translation of this term is also referred to as the "profit of coverage" or contribution & quot ;. First of all, it should be noted that there is a direct relationship between variable costs per unit of output and sales price, since the selling price is the price per unit of output. Variables (or marginal) costs per unit of output indicate additional production costs, and the sales price is the additional revenue from the sale of each subsequent unit of output. Thus, the resulting difference reflects the additional profit from the production and sale of each subsequent unit of output. This indicator was called the marginal revenue per unit of output.

Since fixed costs remain unchanged in the production of additional units (until the need arises for additional capacity), aggregate costs are increased only at the expense of its variable part. Therefore, the marginal revenue per unit of output demonstrates a possible increase in the company's profit in the production and sale of another unit of production. Accordingly, the margin income for the enterprise as a whole is the difference between revenue from sales and variable costs.

The marginal income statement, compiled with the allocation of marginal revenue, is more preferable for profit planning and forecasting purposes. The use of the margin profit and loss account helps to avoid profit forecasting by multiplying the difference between the selling price per unit of output and the unit cost of production calculated in accordance with the full costing calculation system by the number of units expected to be sold (gross income per unit of output) .

Consider the compilation of margin and traditional profit and loss statements by example.


Using the data of the previous example, we will write a profit and loss account using different methods. The results are shown in Table. 9.3.

Table 9.3

Profit and loss account in accordance with the methods of calculating the cost of production at full and variable costs, den. units

Profit and loss account (full cost method)

Sales revenue

(17,000 x 7000)

119 000 000

Cost of Products Sold

(17,000 x 4250)


Gross Profit


Administrative and business expenses (3,400,000 +

+ 2 000 000)

(5 400 000)



Profit and loss account (variable cost method)

Sales revenue

(17,000 x 7000)

119 000 000

Variable costs



cost of goods sold

(17,000 × 4000)


variable administrative and business costs (17,000 x 200)





Constant costs



production overhead


administrative and business costs

(2 000 000)



From Table. 9.3 it is obvious that, although 20,000 units were produced during the reporting period. products, sales amounted to only 17 000 units, which led to the formation of stocks of finished products at the end of the period of 3000 units.

The transfer of permanent production overheads to inventories means that the profit calculated in accordance with the costing method at full cost will be greater than the corresponding figure calculated in accordance with the variable costing method, since the lower amount of permanent production invoices costs will be charged to current income.

To understand the relationship between the two costing systems, the following generalizations can be made. First, if the volume of sales is equal to the volume of production, the profit calculated by both methods will be the same. Secondly, if the number of units sold is less than the number of units produced (which inevitably leads to an increase in inventories), the profit calculated in the traditional way usually exceeds the profit calculated at variable costs. Finally, thirdly, if the number of units sold is larger than the number of units produced (stocks are decreasing), the profit in the marginal income statement will exceed this figure in the traditional report. This is because some of the fixed production costs of the previous period, previously included in the inventory as part of the cost of finished products, are written off to the cost of sales together with the permanent production overheads of the current period.

Thus, differences in the amount of profit are directly affected by changes in the level of production stocks, caused, in turn, by differences between production and sales. If you use a traditional calculating system with significant changes in inventory levels, care should be taken to analyze profits. For example, increasing stocks accumulate ever larger fixed production costs and thus cause the appearance of increased profits. However, in the long term, the growth of stocks without guarantee of their further implementation can lead to even greater costs associated with the storage of products, its moral obsolescence and damage. Therefore, in our opinion, for the purposes of analyzing and evaluating the performance of an enterprise, it is preferable to use the method of calculating the cost price for variable costs.

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