Importance Considering the crisis phenomena in the domestic economy, it is reasonable and relevant for businesses to calculate the total cost of products, and, subsequently, evaluate the performance of some entities' units. The article focuses on the method for allocating overhead expenses as part of the system for calculating the cost of products. Objectives The objective of the research is to develop an effective tool for allocating indirect costs as part of forming the total cost of semi-finished and finished products. The research pursues building a mathematical model of the total cost and formulating the method for its application in business operations of particular entities. Methods The research draws upon the methods of analysis, synthesis, induction and formal logic. The balance sheet method is used as the main tool of economic analysis within the proposed method of cost allocation. Results We present an analysis of the issue of indirect cost allocation in corporate operations, review strengths and weaknesses of the most common conventional and functional approaches to cost allocation. The research also proposes a mathematical model for allocating indirect costs, considering reversed technological communications. The mathematical model is advisable for entities that have counter material flows in their technological structure. We also present the method for its application, devise specific formula describing the rules for their application, and provide the format of tables that will facilitate and streamline the use of the model. Conclusions and Relevance When allocated, indirect costs help evaluate the performance of corporate units, thus timely identifying bottlenecks of technological processes. The evaluation is based on the production profitability indicator per type of products as output of respective technological processes. Bottlenecks are subsequently eliminated, thus increasing the efficiency of financial and business activities of both the entity and the sector as a whole. The proposed model and methods for its application streamline the mechanism for allocating indirect costs when calculating the total cost of products.
Keywords: cost allocation, matrix modeling, total cost, managerial decision, conventional approach, functional approach, responsibility center, indirect costs
References:
Aptekar' S.S., Geifman R.S. Matrichnoe modelirovanie tekhpromfinplana zavoda [Matrix modeling of the plant’s technical, manufacturing and financial plan]. Moscow, Metallurgiya Publ., 1970, 256 p.
Upchurch A. Upravlencheskii uchet: printsipy i praktika [Management Accounting: Principles and Practice]. Moscow, Finansy i statistika Publ., 2002, 952 p.
Vakhrushina M.A. Bukhgalterskii upravlencheskii uchet [Management accounting]. Moscow, Omega-L Publ., 2008, 570 p.
Garrison R., Noreen E., Brewer P. Upravlencheskii uchet [Management Accounting]. Saint Petersburg, Piter Publ., 2010, 592 p.
Drury C. Upravlencheskii uchet dlya biznes-reshenii [Management Accounting for Business]. Moscow, YUNITI-DANA Publ., 2012, 655 p.
Edronova V.N., Pivkin S.A. Raspredelenie kosvennykh raskhodov po zhiznennomu tsiklu produkta i denezhnym potokam [Allocation of indirect costs throughout the product life cycle and cash flows]. Ekonomicheskii analiz: teoriya i praktika = Economic Analysis: Theory and Practice, 2007, no. 11, pp. 6–9.
Zambrzhitskaya E.S., Murikova A.R., Kalinina T.V. Raspredelenie zatrat neproizvodstvennykh podrazdelenii matrichnym metodom dlya tselei bukhgalterskogo upravlencheskogo ucheta na primere kholdinga RB-Group [Allocating the costs of non-production units using a matrix approach for management accounting purposes, with the case study of RB-Group]. Molodoi uchenyi = Young Scientist, 2012, no. 8, pp. 96–100.
Leontief W.W. Izbrannye proizvedeniya. T. 1. Obshcheekonomicheskie problemy mezhotraslevogo analiza [Selecta. Volume 1. Essays in Economics]. Moscow, Ekonomika Publ., 2006, 407 p.
Litvinov I.A., Zambrzhitskaya E.S., Balbarin Ya.D. Sovremennye sistemy raspredeleniya neproizvodstvennykh zatrat v bukhgalterskom upravlencheskom uchete [Modern systems of non-production cost allocation in management accounting]. Molodoi uchenyi = Young Scientist, 2013, no. 4, pp. 258–261.
Matematicheskie metody v planirovanii i upravlenii khimicheskim predpriyatiem [Mathematical methods in planning and managing chemical plants]. Moscow, Vysshaya shkola Publ., 1971, 317 p.
Melkikh E. Uchet zatrat na vstrechnye uslugi vnutri predpriyatiya (poshagovyi i iteratsionnyi metody raspredeleniya) [Cost accounting for counter services within the enterprise (step-by-step and iterative allocation methods)]. Glavnyi economist = Chief Economist, 2010, no. 9, pp. 14–18.
Nikolaeva S.A., Shebek S.V. Upravlencheskii uchet. Legendy i mify [Management accounting. Legends and myths]. Moscow, TsBA Publ., 2008, 208 p.
Ryzhova I.G., Dorman V.N., Danilov G.V., Bliznyuk T.S. Uchet obratno napravlennykh tekhnologicheskikh svyazei pri kal'kulirovanii sebestoimosti produktsii [Accounting for reversed technological communications in calculating the cost of products]. Finansovyi menedzhment = Financial Management, 2006, no. 6, pp. 36–41.
Sidorenko V.I., Gol'skaya Yu.N. Problemy planirovaniya i raspredeleniya zatrat otraslevykh predpriyatii v usloviyakh krizisa [Issues of planning and allocating industrial enterprises’ costs during the crisis]. Ekonomika regiona = The Region’s Economy, 2010, no. 2, pp. 203–207.
Slutskin M.L. Kontrolling raspredeleniya nakladnykh raskhodov [Controlling of overhead expense allocation]. Auditor, 2004, no. 12, pp. 25–31.
Horngren Ch., Foster G., Datar S. Upravlencheskii uchet [Cost Accounting: A Managerial Emphasis]. St. Petersburg, Piter Publ., 2007, 1008 p.
Shigaev A.I. Raspredelenie zatrat po vidam vnutrikhozyaistvennoi deyatel'nosti [Allocating costs per type of in-house operations]. Bukhgalterskii uchet = Accounting, 2003, no. 8, pp. 50–52.
Shim J., Siegel J. Metody upravleniya stoimost'yu i analiz zatrat [Modern Cost Management & Analysis]. Moscow, Filin” Publ., 1996, 344 p.
Shchiborshch K. Raspredelenie kosvennykh raskhodov po vidam produktsii [Allocating indirect costs per type of products]. Auditor, 1999, no. 6, pp. 7–10.
