Budget and Finances

Systems of partial costs imputed to receive this designation because only part of the costs of organizing the services provided. Thus, in terms of costs considered, the system of partial costs can be direct costs or partial costs of partial variables. The system of partial direct costs, explained in this guide only impute direct costs to products or services. The remaining costs, indirect deducted directly in the income statement, considering the costs of the period. According to this system, you can get income for each service, which is very useful to be able to analyze the contribution margin generated by each of them. This cost system is widely used in enterprises or institutions with a cost structure characterized by having a considerable weight of the direct costs.

The complete system costs consider all costs that have had to endure for the manufacture of a product or providing a service. These cost systems are advisable in those institutions that have high overhead costs and are very useful to be able to know more precisely the impact of all costs for each service. The implementation of these systems is more costly than the systems of partial costs because it requires more information to be able to impute indirect costs, so before you use them, you must compare the cost of applying the system with benefits that obtains with its implementation. There are different variants of these systems, including:

• Cost system for complete rate: direct costs are recognized immediately in the target cost and indirect costs are allocated according to a rate of distribution.
• System costs to complete sections: direct costs are recognized immediately to the target cost and indirect costs are assigned to the sections later be assigned to the target cost.
• Costs system based on activities (activity based costing, or ABC): This system is based on the principle that the activity is the cause that determines the fact incur costs, and the products or services they consume activities. This system is more complex and needs more information on the costs attributed to the different activities of each section, but gives much more detail of the cost of each activity undertaken by the organization. This system is also useful at the same time fix rates and fees for services provided to citizens because it provides a more accurate total costs of each service end.

The cost system ABC (Activity Based Costing) arises in the eighties, in response to a series of changes in the business and institutional world:

• increased indirect costs (especially costs not related to the production process or provision of services)
• weight reduction of the workforce (mainly distribution criteria used to distribute indirect costs)

This cost system based on the premise that the products or services consumed costs of departments but consumed by these activities, being activities cost consumers. In addition, the products or services are not the only ones consuming activities, as customers or users in your organization can also consume activities.

In the ABC system costs, like the rest of the cost systems aimed at calculating the cost, direct costs are allocated directly to products or services, whereas indirect costs are still several steps:

• First, these indirect costs are located in sections or departments.
• Then define the activities of the departments.
• Then determine the cost of each activity.
• Then define cost drivers (causing costs or variability factors of costs).
• Later calculated the cost inductor.
• Finally, the cost of the activities assigned to the products or services based on the number of inductors each product or service cost inductor.

Some of the advantages of using the ABC system costs would be:

• enabling a more accurate calculation of the costs (based on a more rigorous allocation of indirect costs)
• allows the organization to have a better understanding of the costs of activities
• helps reduce indirect costs (through the elimination or re design activities are not taking advantage of resources)
• helps to fix fees or fees for services provided to citizens council

The main disadvantages of the ABC system costs are:

• if they determine many activities much more expensive cost calculation
• it is an expensive system (time and financial resources)
• can tend to eliminate activities that may be of interest to medium term but they are wasting resources in the short term

Systems of partial costs

The main advantages of the systems of partial costs, stand in simplicity, compared with other systems costs, and the fact that as a result of the simplicity is an information system cheaper. By contrast, the main drawback is the lack of analysis of certain costs, mainly indirect, that many organizations are experiencing significant growth.

The partial cost systems are useful for organizations in which the costs are no longer allocated insignificant.

The information provides a partial cost system may be insufficient for those organizations in which they want to know more exact impact of indirect costs and common costs of the overall structure of the organization to each service offered.

Complete system costs

The complete system costs can increase the quality of information relating to the indirect costs of products or services. For this reason, even though it is an information system more expensive, it is especially recommended for organizations that work with low margins or have a significant weight in indirect costs, plus improve knowledge of the cost for services in relation to System partial costs.

The complete system costs are usually applied to organizations operating in sectors such as industry and services (hospitals, schools, hotels ...) and also, increasingly, in public administration.

Costs system based on activities (activity based costing, or ABC)

The main advantages of the system are cost ABC to calculate very precisely the total costs of a product or service, which provides information on the costs of the activities carried out in the organization, and to relate the costs to their causes. It is a good system for cost reduction in complex organizations. But this system also has disadvantages. Among the main drawbacks can indicate if you select too many activities can be complicated and expensive system for calculating costs. In addition, certain indirect costs of administration and are difficult to impute activities. It is a cost system which requires more time to implement it, but once installed gives great information and is very useful for managers of public administration.