[Nissho Bookkeeping x Song] The First Step into Industrial Bookkeeping! Master the 4 Criteria of "Cost Classification" with a Song! "Dance! The Grand March of Cost Classification" 🦊

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"As soon as I started Industrial Bookkeeping, I got discouraged by all the unfamiliar terms..."
"How do you distinguish between direct costs and indirect costs?"

This theme is perfect for those who have such worries.
The cool and slightly laid-back "Ten" returns as the lead to bring you this lesson! 🦊🎶

Let's learn about the "Cost Classification (4 Criteria)," the absolute foundation of "Industrial Bookkeeping" which is newly introduced in Nissho Bookkeeping Level 2!

Moving from the world of Commercial Bookkeeping, where you "buy and sell goods," to the world of Industrial Bookkeeping, where you "make products from materials yourself and sell them," many people are likely to be confused by the sudden parade of technical terms.

But don't worry! The title of this song is "Dance! The Grand March of Cost Classification" 🎪🎺

It has an up-tempo, lively melody, like a slapstick cartoon from overseas or a flashy musical show!
If you sing along to the rhythm of the piano and brass band, even complex cost rules will stick in your head in no time!

🔽 Check out the video first!

⚡ This theme: Cost Classification! Four Criteria!

In the world of Industrial Bookkeeping, costs incurred in the factory are classified and analyzed from various angles.
Dividing costs by "4 criteria" depending on the purpose is the starting line for all of Industrial Bookkeeping.

Let's deepen our understanding of each classification criterion together with Ten's high-speed singing!

① What was used? [Classification by Form]

{📝 Bookkeeping Explanation!}
The most basic classification is based on "what the money was spent on (form of consumption)." This is called the "3 elements of cost."

🪵 Material Cost: The cost of "things" consumed to make a product. (e.g., wood, iron, paint, etc., to make a desk)
👷 Labor Cost: The cost of "people (labor)" consumed to make a product. (e.g., wages for people working in the factory, etc.)
⚡ Expense: All costs [other than] material and labor costs. (e.g., factory electricity/water bills, depreciation of machinery, factory rent, etc.)

Dividing them into these three is the first step in all cost accounting!

② Can it be calculated individually? [Classification in relation to products]

【📝 Bookkeeping Explanation!】
Next is the perspective of "Can we clearly tell which product it was used for and how much?"

🎯 Direct manufacturing cost: Costs that can be "clearly linked" to the production of a specific product.
(Example: Costs that can be calculated directly, such as 5,000 yen worth of wood used for a custom-made desk A)

🌫️ Indirect manufacturing cost: Costs that are used commonly for various products and for which "it is not immediately clear how much was used" for a specific product.
(Example: Electricity for the entire factory, glue used for various products, salaries for factory supervisors, etc.)

*Since indirect costs cannot be directly linked to a specific product, they are later allocated to each product through a process called "allocation." This is a major highlight of industrial bookkeeping!

③ Does it change with the production volume? [Classification in relation to operating level]

【📝 Bookkeeping Explanation!】
"Operating level" refers to the factory's activity level (production volume, machine operating hours, etc.). This classification focuses on how costs move when production volume increases or decreases.

📈 Variable costs: Costs that increase in proportion to the increase in production volume.
(Example: Direct material costs, etc. If wood costs 1,000 yen to make one desk, it will be 10,000 yen if you make 10)

➖ Fixed costs: Costs that "continue to occur at a constant amount" regardless of whether production volume increases, decreases, or is zero.
(Example: Factory rent, machine depreciation, etc.)

This classification is a super important concept essential for "Direct Costing" and "CVP Analysis (Break-even point analysis = calculating how many units to sell to avoid a loss)" learned in the latter half of Bookkeeping Level 2!

④ Can it be managed? [Classification based on controllability]

【📝 Bookkeeping Explanation!】
Finally, this is the perspective of responsibility accounting: "Can the cost be reduced through the efforts or authority of a specific manager?"

⭕ Controllable cost: Costs for which the occurrence amount can be controlled, such as reducing waste, under the authority of that department's manager (factory manager, department head, etc.).
(Example: Material consumption on-site, overtime pay for workers, etc.)

❌ Uncontrollable cost: Costs that cannot be helped by the manager's authority.
(Example: Factory rent decided by headquarters, depreciation from capital investment decided by management, etc.)

If you don't separate these, you end up with unfair evaluations like, 'The factory isn't making a profit because the rent decided by management is too high, but the factory manager is being held responsible!' This classification is necessary for accurate performance evaluation.

🦊 MV Highlights: Keep an eye on 'Ten' dancing in a slapstick cartoon world!

This MV features a world view reminiscent of old overseas cartoons and vaudeville (comedy shows)! 🎬🍿

Ten is usually cool and laid-back, but this time, carried away by the super up-tempo piano and brass accompaniment, they run around the stage in a slapstick frenzy!
The slapstick movements of gracefully (?) sorting the 'materials (lumber)' and 'expenses (invoices)' that come flying in one after another are a must-see! 👀✨

With the shout of 'Yeah! Are you ready?', you'll surely find yourself smiling at this new side of Ten, who plays the show's host happily with their fox ears standing straight up!

In conclusion

Industrial bookkeeping terms like 'direct material costs' and 'variable manufacturing overhead' are long and can feel difficult at first.
However, if you look at them through the filter of these '4 criteria,' you'll realize it's just a combination of puzzles!

When you get lost in the terminology, try humming the chorus of this 'Dance! The Grand March of Cost Classification'!

💡 Today's 'Review Memo'

🎯 Classification by Form = What was used? (Material costs, labor costs, expenses)
🎯 Relationship to Products = Can it be directly charged? (Direct manufacturing costs, indirect manufacturing costs)
🎯 Relationship to Operating Level = Does it change with production volume? (Variable costs, fixed costs)
🎯 Controllability = Can it be controlled by authority? (Controllable costs, uncontrollable costs)

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This time, it was brought to you by the slightly goofy showman, Ten!
See you in the next video! 🦊🎤🎪

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