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Costs, Productivity, Profit, and Efficiency: An Empirical Study Conducted Through the Management Accounting

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Abstract

This article highlights the author's attempt to test the hypothesis upon which the study is based taking into account the connection that exists among cost, productivity, profits and efficiency and trying to prove that this can be confirmed by a simple and efficient method of calculation used by the management accounting, namely the Direct Costing method. The article also presents a methodological case study designed to highlight the modifications of the results taking into account the changes of the variables met in the current business environment. The obtained results will be presented and discussed by the author herself whose conclusions about the benefits offered by the Direct Costing method will end the article.
Procedia - Social and Behavioral Sciences 191 ( 2015 ) 574 – 579
Available online at www.sciencedirect.com
1877-0428 © 2015 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and peer-review under responsibility of the Organizing Committee of WCES 2014
doi: 10.1016/j.sbspro.2015.04.260
ScienceDirect
WCES 2014
Costs, Productivity, Profit, and Efficiency: An Empirical Study
Conducted Through the Management Accounting
Mihaela Bebeşelea
a
*
a
Spiru Haret University, 32-34 Unirii Street, Constantza, Romania
Abstract
This article highlights the author's attempt to test the hypothesis upon which the study is based taking into account the
connection that exists among cost, productivity, profits and efficiency and trying to prove that this can be confirmed by a simple
and efficient method of calculation used by the management accounting, namely the Direct Costing method. The article also
presents a methodological case study designed to highlight the modifications of the results taking into account the changes of the
v
ariables met in the current business environment. The obtained results will be presented and discussed by the author herself
whose conclusions about the benefits offered by the Direct Costing method will end the article.
© 2014 The Authors. Published by Elsevier Ltd.
Selection and peer-review under responsibility of the Organizing Committee of WCES 2014.
Key words: cost, efficiency, management accounting, productivity, profit.
1. Introduction
The progress of any society depends, to a crucial measure, on
the efficiency with which the human, natural, and
financial resources it owns are used. People have always tried, that in each field of work with reference to human
resou
rces or money spent, to ensure the greatest possible growth of the volume and quality of production, to obtain
greater amounts of goods and services, because only on such a basis an intense economic growth, the creating of an
advanced economy and implicit conditions having in view the material and spiritual welfare of the population, can
be as
sured. Thus, one can define the hypothesis on which this study is based upon, a hypothesis according to which
there is a connection between costs, productivity, profits and efficiency. In this article the author tries to test this
hypothesis through the means of the management accounting by using the Direct-Costing method.
*
Mihaela Bebeşelea. Tel.: +40-072-378-7427
E-mail address: m
ihaelabebeselea@yahoo.com
© 2015 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Selection and peer-review under responsibility of the Organizing Committee of WCES 2014
575
Mihaela Bebeşelea / Procedia - Social and Behavioral Sciences 191 ( 2015 ) 574 – 579
2. Research methodology
The research techniques and procedu
res used have been chosen according to the aim and the type of
information meant, as it follows:
According to the intended purpose of
the research, we will identify:
x the exploratory research that aims to identify the hypot
heses which are investigated in the present study
are:
x the instrumental research conducted with the help of th
e indicators calculated according to the statistical
and mathematical model;
x the descriptive research which aims to prove the descriptio
n and evaluation of the cost, profit, productivity
and efficiency indicators;
x the explanatory research which has as purpose the study of the causes that explain the evolution in time
and space of
the cost, productivity, profit, efficiency indicators;
x the conclusiv
e or confirmation research (Cătoiu, 2002) which aims to test the author’s hypothesis.
From the perspective of the type of information resulting
from the research, this study has assumed the observance
of some rules and principles characteristic of the mixed research methodology, which points out that this article is a
qu
alitative research combined with quantitative elements.
Chapter 1 The Analysis of the Ter
ms Involved
To sustain the hypothesis formulated, the author moves to the analysis of the terms involved.
Cost. On
e of the main objectives of the management accounting is the calculation of the cost of the production. The
cost of the production is the sum of the expenditure incurred by the production and sale of an asset, the execution of
a works or the provision of a service.
Productivity. In
the process of combining the factors of production, their consumption takes place, yielding
economic assets. The Manager will keep on comparing the results obtained with the production factors used. This is
ach
ieved especially through productivity, calculated as the ratio between the economic assets obtained and the
production factors involved in their achievement. In the economic theory and practice there are two acknowdged
forms of productivity: the partial productivity and the global productivity (Briciu, 2010).
The partial productivity expresses the efficiency of a single factor of produ
ction; according to circumstances, we can
distinguish among the following: the work productivity, the capital productivity and the land productivity. Our study
deals with the partial labour productivity, more precisely the labour productivity of a section or the labour
productivity at the level of the economic entity. The average labour productivity or effectiveness expresses the
fruitfulness with which a certain amount of work is spent and it can be
measured either by the quantity of products
obtained in one unit of time, or by the labour expenses per unit of product. The labour used rationally is a decisive
factor in the permanent increase of the fruitfulness of work and obviously of the labour productivity.
The global productivity expresses the efficiency of all the factors of the production involved in the achievement of a
resu
lt.
Profit. T
he share which is obtained as income above the cost of production irrespectively this income is, the product
of some factors of production hired or as a result of the competition on the market, is the economic profit. While the
accounting profit is the excess of cost over the net revenue, the economic profit is the difference between the total
income of the economic entities and the opportunity costs of all inputs (factors) used by this in a certain period of
time. (Bebeşelea, 2010).
Efficiency. A
s a whole, it represents the correlation between effects and efforts. From the point of view of the
quantity, it is expressed by indicators of efficiency which usually takes the shape of a mathematical relation between
effect and effort. The economic calculation, the operation and development of the activity on the principle of
efficiency, take into account the relationship between the cost and the selling price of every goods, a relationship
viewed from the viewpoint of both the part and the whole. The cost (C) designate
s only a portion of the sale price
(P), namely the costs incurred by the operators, and the excess of the price (more than the cost of production)
represents the profit (pr) or the benefit. Thus, for each unit of product, the following ties are valid: P = C + pr; and
the economic entity as per total turnover CA = C + pr.
576 Mihaela Bebeşelea / Procedia - Social and Behavioral Sciences 191 ( 2015 ) 574 – 579
Chapter 2 Cost, Productivity, Profit, Efficiency and the Management Accounting
The converging concerns and studies of the accounting profes
sionals in the field with those in other related fields
such as marketing, management, etc., have led to a real revolution in the methodology of the systems of the
calculation of the cost. Thus, the manner of the achievement of products knows drastic changes in the utilization of
the advanced manufacturing technologies that includes the automated production technology, the computer-aided
design
and production, robotics, the flexible manufacturing systems, the total control of quality, the entire quality
management etc. According to the accounting professionals, the traditional costing systems those of the measuring
of
the results are virtually incompatible with the use of the advanced manufacturing technologies. Considering the
radical plea for the exclusion of the traditional systems of practice, we’d like a better appreciation of the patchy
resou
rce consumption (Tabără, et al, 2012). Thus, there emerges the need for some costs that concern primarily,
generally speaking, the management of the resources and the behaviour of the officials involved. These efforts of
the specialists resulted in the Direct-Costing calculation.
The Direct Costing Method Axiology
The Direct Costing method is a method of a su
bdirectory calculation which takes into account the unit cost only as
the variable costs.
The essence of the method consists in the separation of th
e production and distribution, with respect to their
character variations in the volume of production and sales, in variable and fixed expenses, and taking into account
the calculation of the unit cost per product, making reference only to variable costs. The fixed expenses are treated
as expenses of the period and are to be deducted from the gross financial result of the economic entity. The method
focuses on the boosting of the sales in that the size of the fixed costs are not allocated on the stocks (of execution in
progress, finished products, goods shipped but not received), but they should be covered by the sales period.
The Direct Costing Method Indicators
The Direct Costing method is both a method of calculation and a method of analysis regarding the adoption of some
decision
s concerning the manufacturing or the production of a product. With reference to an economic entity, the
volume of activity is in a full correlation with the price and the variable expenditure and, on the other hand, the
w
orkloads with the production capacity and implicitly the fixed expenses. These are in correlation with the wearer's
cost (product) which, on the one hand, generates costs dependent on them and, on the other hand, generates the
necessity of the existence of a certain production capacities. This correlation is expressed by the means of the
following indicators characteristics of the Direct-Costing method, such as: the break-even, the coverage factor, the
sa
fety factor, the safety range (Fătăcean, 2009).
2.1. The break-even threshold or the poi
nt of equilibrium
The break-even threshold or the point of equilibrium is that point where the profit is equal to zero or, otherway
said
, the revenues are equal to the expenses. Knowing the break-even point of balance helps us know the point from
w
hich you need to start an entity in order to get profit and to cover its fixed and variable expenses.
The balance can be expressed in different ways:
- quantitatively (per product), meaning that respectively the qu
antity of products which is to be manufactured and
sold in order that the expenditure should be equal to the income (in order to cover all the expenditures). It is the
expression and the main relation of the equilibrium point;
Pe
Qe
VuV
CP
CF
u
Cbu
CF
(1)
- valuedly (per total entity), meaning respectively the turnover (the critic) criticism, namely CA at the point of
equilibrium;

PvuQ
Pe
CA
Pe
*
(2)
- percentagely; it shows how much of a percentage of the total production produced by the economic entity is
n
eeded, in order to arrive at the point of equilibrium.
577
Mihaela Bebeşelea / Procedia - Social and Behavioral Sciences 191 ( 2015 ) 574 – 579

100*
0
0
vi
Pe
Q
Q
Pe
(3)
per product (Q) Pvu cvu Cbu
will be:
total entity CA ChV
T
Cbt
Fig. 1 Elements of point of equilibrium per product and total enti
ty
P - profit
Pvu - unit selling price
Ch.T - total expenses
ChV
T
- total variable expenses
ChF
T
- total fixed expenses
Cvu - variable costs per unit
Cbu - gross contribution per unit
Cbt - gross total contribution
CA = Turnover
Pe
Q
is Pe expressed quantitatively.
Ch.T= ChV
T
+ ChF
T
Cbt = CA - ChV
T
Cbu = Pvu Cv
u
P = Cbt- ChF
T
= CA - ChV
T
- ChF
T
2.2. The coverage factor or the margin contributory.
This indicator underscores the extent to which a product or an order is prof
itable (a) for an economic entity, in
terms of the degree of coverage of the expenses and of the achievement of the profit. The higher the coverage factor,
th
e higher the contribution of the product to profit. The margin contributory or the coverage factor per order is
co
unted according to the relationship:
x on the basis of the gross contribution and CA:
- the calculation per product
100*
Pvu
Cbu
Fa
(4)
- total products
100*
Pe
CA
Cbt
Fa
(5)
x on the basis of the fixed costs and a CA at the level Pe
100*
Pe
CA
ChF
Fa
T
(6)
Using the Direct Costing method you can identify those produ
cts that cannot cover their expenses and are
unprofitable to the economic entity.
578 Mihaela Bebeşelea / Procedia - Social and Behavioral Sciences 191 ( 2015 ) 574 – 579
2.3. The coefficient of the dynamic safety
The coefficient of the dynamic safety shows how much sales can drop relatively in order that the economic
entit
y should reach the equilibrium point. Any decrease over this coefficient will cause the economic entity which
enters into the losses. Therefore, all the decisions concerning the sales should be made taking into account the marge
of
the coefficient of the dynamic safety. You have to count taking into consideration the following relation:
100*
CA
Pe
CA
CA
Ks
(7)
2. 4. The safety range represents
The safety range represents in absolute sizes, how much the sales can decrease so th
at the economic entity does
not enter into the losses. You have to count taking into consideration the following relation:
Pe
CA
CAIs
(8)
Is = CA turnover (Total Sales) - The break-even threshold on the whole economic entity (Sales at steady level point
of
equilibrium).
The direct costing method is both a calculation method and a
method of analyzing the decisions relating to the
manufacture or production of a product.
An economic entity produces and sells t
he product A. Starting from the initial state of affairs, there can appear the
following situations:
1. the growth of the volume of the production
by 10%, of the total variable costs by 10%.
2. the price increase occurs for the sale of the products with 10%, th
e decrease of the total variable costs by 5% and
the decrease of the number of the products with 10%.
Table 1. The Specific Indicators of the Direct-Costing Method, the Productivity and Efficiency in the Initial Situation and in the Cases 1, 2
Calculation of indicators
Initial situation
Case 1 Case 2
1. Turnover
2. Material expenses
3. Salaries expenses
4. Total variable expenses
5. Gross total contribution (5 = 1-4)
Quant Pv Total
20.000 6,5 130.000
36.000
64.000
100.000
30.000
Quant Pv Total Quant Pv Total
22.000 6,5 143.000 18.000 7,15 128.700
39.600 34.200
70.400 60.800
110.000 95.000
33.000 33.700
6. Total fixed expenses
7. Profit (7= 5-6)
8. Point of equilibrium
9. Coverage factor
10. Coefficient of safery
11. Savery of range
12. Labour productivity
13. Efficiency
16.000
14.000
69.336
23,07%
46,6%
60.664
3,2
12%
Source: Projection made by author
3. Results and Discussion
The cases presented and analyzed (cases 1-3) led us to the following findings:
1. After having analysed the above situations, one would be ab
le to notice a significant increase of the product, the
labour productivity and the economic efficiency but just in case 2.
2. The controlled percentage growth (a certain percen
tage) of the price of sale of the product leads to: the loss of the
balance, the increase of the coverage factor, the increase of the coefficient of the dynamic safety, the increase of the
profits, while there is a labour productivity growth, respectively of the economic efficiency.
579
Mihaela Bebeşelea / Procedia - Social and Behavioral Sciences 191 ( 2015 ) 574 – 579
3. The quantitative growth of the physical volume of production leads to: the maintenance of the balance and
coverage factor, the increase of the coefficient of reliability and safety of the range, the increase of the profits, the
labour productivity growth, respectively of the economic efficiency.
4. The reduction of the costs of the uniform variables will lead
to: the growth of the coverage factor, of the
coefficient of safety and of the range of safety, the loss of the balance, the increase of the profits, the labour
productivity growth, respectively of the economic efficiency.
4. Conclusions
Summarizing the advantages of the applicable Direct-Costing method, we can conclude the following:
- it allows decision-making in terms of efficiency with respect to the waiver of the manufacture of certain products;
- it easily ensures the control of the amount of the product
which are to be sold in order to get a certain
predetermined benefit;
- it allows the knowledge of the conditions under which one can
accept a lower variable cost price because one can
easily count the effect on the profit or loss.
As a conclusion we’d like to underline that the hypothesis that the connection between cost-productivity-profit-
efficiency can be tested through the management accounting using the Direct-Costing method, proves true.
Acknowledgements
I’d like to thank to the WCES 2014 Editor and to the reviewers of the Procedia Social and Behavioral Sciences
J
ournal, too. I’d also like to address my special thanks to Prof. Dr. Steven M. Ross who kindly read the manuscript
of
this paper and gave me some valuable pieces of advice on it.
References
Bebeşelea, M. (2010). The accounting and financial flow of taxes in Romania. Cluj Napoca: Alma Mater Publishing House
Briciu, S., Căpuşne
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Căto
iu, I., et al. (2002). Marketing research. Bucharest: Uranus Publishing House
Tabără,
N., et al. (2012). Actualities and prospects of accounting and management control. Iaşi: TipoMoldova Publishing House
... Economic calculation, functioning and activities development based on the efficiency principle take into account the relation between production cost price and sales price of every product. This relation is considered as both the part and the whole (Bebeşelea, 2015). https://doi.org/10.15405/epsbs.2021.04.02.83 Corresponding Author: D. A. Streltsova Selection and peer-review under Source: author. ...
... [34] Costs "The cost of the production is the sum of the expenditure incurred by the production and sale of an asset, the execution of a work or the provision of a service." [35] Customer accounting "Includes all accounting practices directed towards appraising profit, sales, or present value of earnings relating to a customer or group of customers." [20] Terms ...
The accounting and financial flow of taxes in Romania Accounting and management control. Tools for evaluating performance Cost control and analysis based on results account of the ABC method
  • References Bebeşelea
  • M S Căpuşneanu
  • S Rof
  • L M Topor
References Bebeşelea, M. (2010). The accounting and financial flow of taxes in Romania. Cluj –Napoca: Alma Mater Publishing House Briciu, S., Căpuşneanu, S., Rof, L.M., Topor, D. (2010). Accounting and management control. Tools for evaluating performance. Alba-Iulia: Aeternitas Publishing House Căpuşneanu, S., Briciu, S. (2011). Cost control and analysis based on results account of the ABC method, International Journal of Academic Research in Business and Social Sciences, 1(3), 137-154
Marketing research Actualities and prospects of accounting and management control
  • I Cătoiu
Cătoiu, I., et al. (2002). Marketing research. Bucharest: Uranus Publishing House Tabără, N., et al. (2012). Actualities and prospects of accounting and management control. Iaşi: TipoMoldova Publishing House
Actualities and prospects of accounting and management control
  • I Cătoiu
Cătoiu, I., et al. (2002). Marketing research. Bucharest: Uranus Publishing House Tabără, N., et al. (2012). Actualities and prospects of accounting and management control. Iaşi: TipoMoldova Publishing House