Extended cost and performance accounting

21. March 2023

General information on cost and performance accounting

Cost and performance accounting is part of internal accounting and considers costs and products that originate from the internal value chain. In contrast to financial accounting, cost and performance accounting is not mandatory and is less regulated.

Purpose of cost and performance accounting

The purpose of cost and performance accounting is to identify costs in the company and to allocate them to their originator. It therefore primarily serves a controlling purpose. Internal processes can be checked and optimized with regard to their economic efficiency.

Elements of cost and performance accounting

Cost and performance accounting distinguishes between three main classification criteria:

  • Cost types divide the costs into different categories (e.g. material, personnel).
  • Cost centers designate the areas or departments in which the costs were incurred (e.g. production, service, marketing).
  • Cost units are the products or services generated in the company to which the costs are allocated (e.g. production, installation, maintenance).

Based on these elements, cost and performance accounting goes through three stages of cost calculation:

  1. Cost type accounting: Which costs have been incurred? In the first step, costs are identified and assigned to a cost type. Different classifications can be used, e.g. according to production factors (material, personnel) or according to operational function (procurement, production, sales). Costs that can be directly assigned to a cost unit (so-called direct costs) are then transferred to cost unit accounting. Costs that cannot be directly allocated (so-called overhead costs) are considered separately in cost center accounting at first.
  2. Cost center accounting: Where did the costs occur? Overhead costs are distributed to cost centers according to an internal company key. Typically, these are the departments in the company (e.g. production, service, marketing). A distinction is made between main and auxiliary cost centers. Main cost centers are those that are directly involved in the production of goods and services. Auxiliary cost centers, on the other hand, provide intermediate services for other cost centers.
  3. Cost unit accounting: What have the costs been incurred for? In the last step, the collected direct and overhead costs are assigned to the cost units. These are the services that the company provides. Two different calculation methods can be used for this: Unit costing calculates the costs per unit of quantity, i.e. the unit costs of the product. cost unit time accounting, on the other hand, looks at the total costs within a specific time period. These costs can be compared with the revenues to calculate the operating profit.

The resulting cost distribution can be used to draw conclusions about the efficiency of service provision, discover potential savings or assess the profitability of products.

Extended cost allocation in projectfacts

In projectfacts there are four types of elements that can reflect positive or negative monetary relationships: finance items, times, cost elements and accounting transactions. All of these elements have been enhanced to allow flexible and rule-based assignment of cost type, cost center and cost unit.

Information on cost and performance accounting can now be viewed or changed directly when creating such an element – provided the appropriate rights are granted. As far as possible, the assignments are automatically pre-filled. For this purpose, the system accesses various sources of information in a fixed order, which can be configured individually for each element type.

As an example, let’s consider the following setting for cost elements:

  • Cost type: 1. expense type
  • Cost unit: 1. project
  • Cost center: 1. employee, 2. customer

The cost type in this example is based on the type of expense (material costs, travel costs, etc.). The customer project is defined as the cost unit. The cost center, in turn, is initially based on the employee. If no fixed cost center is defined for the employee, the system next considers the customer.

The new rule-based mechanism significantly simplifies cost accounting for companies. Costs can thus be allocated more precisely and with less effort. The enhancement also offers improved analysis options. In various lists, such as project times, cost type, cost center and cost unit can now be displayed as active columns and filtered accordingly. This makes it easy to identify cost drivers or particularly profitable products.

Cost and performance accounting with projectfacts

Cost and performance accounting is a helpful controlling tool to work as economically as possible. Test now the possibilities projectfacts offers you.

Header image: © Ibrahim Boran – unsplash.com (2021)