In conditions of large production it is very important to control material costs. For this, indicators are used to calculate the material consumption of finished products and blanks.
With proper optimization of the presented indicators, the company makes a big profit in the reporting period. Therefore, material consumption is an important factor that should not be ignored. How to calculate and interpret it should be considered in more detail.
general characteristics
Material consumption is an indicator that can reflect the picture of the use of resources available to the enterprise. This is the expenditure of stocks that falls on the monetary unit of the finished product.
This technique is used to assess the means of production of the organization. The inverse of this indicator will be the coefficient of material productivity.
These are common performance indicators the use of resources used for the manufacture of enterprise products. If the consumption of products decreases, this is a positive trend.
Such examples can minimize cost and produce more competitive products, respectively, the organization at the end of the reporting period increases the profit from the sale of goods and services. For this reason, analysts in the study of the financial and economic situation at the enterprise must calculate the system of indicators of material consumption.
Indicator group
Material consumption is one of the indicators that allow us to assess the use of enterprise resources. To carry out a full analysis of the company's production activities in the field of stocks, several techniques are used.
For this, along with material consumption, material-output indices and the material cutting ratio are necessarily investigated. All of them are important for a comprehensive assessment.
As mentioned above, material output is the inverse indicator of material consumption. It shows how much production came from consumed resources.
The cutting factor makes it possible to understand whether existing stocks have been correctly processed. To do this, add the natural values of all the blanks (lengths, weights, etc.) that were produced from a specific number of resources, and then divide this result into a mass of initial resources. The most important in this assessment system is precisely the material consumption.
Calculation formula
Material consumption, the formula of which is used by analysts in the research process, deserves separate consideration. It is calculated by dividing material costs by the volume of finished products. The formula is as follows:
Me = Ms / N, Where Mz - total material costs, N - volume of output (in kind or in value).
The resulting indicator is compared with the planned value. By dividing the fact into a plan, a normative resource use coefficient is obtained. If it is more than 1, there is an overspending of consumption in production. Savings are determined when the ratio is less than 1.
Types of material consumption
Material consumption, the formula of which was presented above, is a general method for determining the consumption of resources in the production cycle. But there are several varieties of this indicator.
Material consumption can be specific, structural and absolute. The last of them allows the financial manager to determine the rate of consumption of resources for the production of a unit of finished goods, its net weight and the degree of consumption of stocks.
The structural variety will show the proportion of selected products in the total indicator of material consumption. And the specific type of this indicator is a structural variant, which was reduced to a natural common unit. It is used only for products of one group of goods.
Ways to improve
Studying the indicators of material consumption, the financial manager analyzes in a certain sequence.
- Initially, the quality of the previously completed process support planning is ascertained, and the fact of compliance with the developed standards is analyzed.
- Then the organization’s need for such resources is determined. The effectiveness of the use of materials is evaluated. Carrying out factor analysis at this stage will make it possible to understand which component requires more resources, in which areas a decrease in the indicator is required.
- The study completes the calculation of the impact of the cost of materials on production.
Based on the calculations, decisions are made on measures aimed at improving the situation.
The leader can carry out the following actions. The way of conducting low-waste production and integrated use of raw materials is being considered. It is also possible more extensive use of synthetic materials and improve the quality of finished products. For this, it is necessary to carefully prepare the raw materials for the production of the main products.
The organization of the regulatory framework should be improved. It will also be necessary to optimize the number of working capital, update equipment and production technology.
Personnel must adhere to the rules of respect for materials and tools.
Optimization result
Carrying out activities that positively affect the indicators of material consumption of products will lead to a number of changes.
- Due to cost reduction, sales are increasing. It will be possible to produce more finished products from the same amount of feedstock.
- Lower costs will reduce the price of products, which will increase consumer demand and the competitiveness of these products. This will lead to an increase in profits and will allow to introduce new production technologies and modernize equipment.
- Management of material resources will improve the structure of working capital and allow more harmonious management of capital. This reduces the risk of bankruptcy and increases the investment rating of the company.
The stable, optimized work of the organization opens up a host of new development opportunities.
Material consumption is a significant indicator of evaluating the effectiveness of a company. Its optimization will open up many interesting prospects for the company.
