Academic journal article Economics & Sociology

Cost Variability and Cost Behaviour in Manufacturing Enterprises

Academic journal article Economics & Sociology

Cost Variability and Cost Behaviour in Manufacturing Enterprises

Article excerpt

Introduction

Cost management is one of the most important issue of company performance and company financial management. Also the issue of the costing systems, methods and techniques is one of the important features of cost management and management accounting. We can observe a continuously growing importance of cost management systems quality that is caused by dramatic changes in business environment. Ecological, economical, social and environmental problems, as well as challenges connected with developing of the consumers, make the companies concerned with existing level and quality of relationship between them and the society, their employees and their consumers. On the one hand new challenges and expectations of the consumers force the companies to develop and introduce policies which foresee their strategy as for dealing with social, ecological and other problems. On the other hand such actions of the companies positively influence their image, increase competitiveness and lead to higher market value (Bilan, 2013).

Due to growing competition on globalized markets, companies need the more accurate information about the profitability of their products, customers or markets. All these problems carry higher need for understanding of the consumed costs by different activities and other different areas where the costs play the important role. This change in the business environment is associated also with the suitable change of structure and organization of company activities and structure of products. The importance of these problems has significantly increased during the economic crisis, because many enterprises in the world reduced their performance. According to Belas et al. (2014) average performance of small and medium enterprises decreased by 15.80% in the Czech Republic and 18.78% in Slovakia at this time.

The main goal of this paper is to discuss the problems related to the cost behaviour, variability of cost groups and the stickiness of costs in relation to researches carried out by this article's author. The special focus of this paper is to analyze the previously performed research surveys in this field and introduce the importance of the cost variability issues in context of manufacturing companies in Czech Republic. Effort of this paper is also to demonstrate the inadequacy of traditional assessment of cost behaviour based only on the relationship to the volume of production.

1. Literature Review

1.1. Changes in cost structure

Changes in business environment in last century had the significant impact on the structure of the company costs. In the first half of 20th century, manufacturing-related costs (materials, salaries of employees and replacement of the plant) constituted well over 90% of total costs. Majority of those manufacturing-related costs had the direct character. Portion of the indirect - overhead costs rarely exceeded the 20% of total company costs. Glad and Becker (1996) summarizes the major reasons of the changes in structure of the manufacturing industries in 2nd half of 20th century. These reasons were: smaller quantities of cheaper materials used; increased competitive environment resulting in higher marketing, distribution and communication costs; many "new costs" such as market and other research, prototyping and training occurred; increased mechanization and automation; increased use of information technologies. Above mentioned reasons lead in the situation, when in 1990's portion of the direct costs of manufacturing concern consume only circa 40% of the total company costs. This study is also supported by other authors, for example Drury (2007) or Cokins (2001).

Cokins (2001) explains how the direct costs such as direct material and direct labour have been displaced by overhead costs between 1950's and 1990's from 25% to 60% portion. The technology, equipment, automation and computers are briefly considered as the main reason of change in the cost structure. …

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