I - Cost of Sales: General principles 

4. Non-proportional costs of sales

4.1. Content

Non-proportional costs of sales, excluding depreciation

• Non-proportional costs of sales:
• • R25410 - Actual/Standard variance: Non-proportional costs of production
  • R25460 - Period non-proportional costs of production (excl depr)
  • R25470 - Absorption variance: Non-proportional costs absorbed in inventories
  • R25490 - Non-proportional costs of sales
• R25500 - Plant storage and loading costs
• R25510 - Logistics costs - Non-proportional
• R25600 - Write-downs on inventories

Production depreciation

• R25860 - Period non-proportional depreciation of production

4.2. Non-proportional costs of sales (R25410, R25460, R25470, R25490)

4.2.1. Actual/Standard variance: Non-proportional costs of production (R25410)

Fixed costs & depreciation variances due to:

• Process orders variances (only in WP1)
• Inventory revaluation from current month standard to next month standard (only in WP1)
• Purchase price variances for spare parts without inventory (for PF1 & WP1)

4.2.2. Period non-proportional costs of production (excl depr) (R25460)

This section covers the non-proportional costs incurred in a production site by the various departments, direct and indirect, involved in the production process.

These costs are used to calculate the non-proportional cost value of the goods produced as part of the product costing process.

The costs are considered using two approaches: by nature of costs (labor, insurance, tax) and by departments

Nature of costs:

People costs: 

• • Internal salary costs (compensation, social security charges and taxes) 
  • External personnel costs: temporary staff and subcontractors

Mobility and meetings: all costs related to the car fleet (company cars), travel and expenses (business trips of Solvay employees) and meetings and events (seminars, conventions, group meals).

Maintenance materials & services: industrial maintenance expenses including both materials and services.

Insurance & taxes: insurance premiums & local taxes (different to CIT & VAT) paid to the different administrations.

Other external costs: Purchase of materials or services not covered in any of the above groupings. 

Departments/Sections of the factory:

Workshops: costs of all direct activities related to the operation of a production facility or workshop. Including:

• • Management of production/packaging areas.
  • Controlling production based on quantity, quality (IPC) and cost effectiveness
  • Production planning and documentation
  • Cleaning and set-up of equipment
  • Verification and adjustment of available production resources with product demand in order to locate any problems regarding the availability of these resources.
  • Annual budget forecast (in quantities),
  • Updating production recipes

Maintenance: 

• • Costs involved in maintaining installations, machines, material, and furniture in good condition, as well as the repair costs, allowing their optimal use until the end of their normal life.
  • Costs involved in overhauling old installations. 
  • Any replacement of a part in the broad sense of the term (mechanical, electrical, instrumentation, painting, etc) by another part identical or very similar to the original.
  • Activities related to the receipt, storage and management of spare parts

Technical assistance: 

• • The part of the Engineering/Technical assistance Department that is not used in capex projects or R&I or Demolition projects but it is used in supporting the production process.

Quality laboratory:

• • Analytical controls of production and other operating services (environment, hygiene at work, research, technical assistance to customers, etc) 
  • Management of on-line analyzers (even if the instrumentation service or production personnel is in charge of it).
  • Technical help and assistance to manufacturing (training, various tests, etc)

Utilities fixed costs:

• • Costs of managing and operating utilities facilities

Security, Health & Safety:

• • Costs of environmental studies for the site (impact assessments, audits, …).
  • Management of waste  
  • Department  responsible for safety and accident prevention
  • Costs of safety/health studies for the site (Seveso, audits, …)
  • First-aid training
  • Fire department and equipment.
  • Activities and resources implemented to provide site security, including: guards, fences, guards' lodges, doors and access grilles, security devices, TV, radars, etc.

The cost paid to external contractors for waste treatment services related to production volume is not included in this section.

Quality control:

• • Set-up insurance quality policy
  • Management of the processes of setting in certifications and the maintenance of certifications acquired

Internal logistic:

• • Activities related to the receipt, storage, management and distribution of raw materials & packaging.

Industrial management:

• • Plant Management

Other production:

• • Includes expenses relating to shared installations (exploitation and maintenance of the central building, parking places, roads, lighting, etc)

4.2.3. Absorption variance: Non-proportional costs absorbed in inventories (R25470)

Absorption of fixed costs & depreciation:

• In WP1 = actual quantity produced x unit standard costs
• In PF1 = actual costs

4.2.4. Non-proportional costs of sales (R25490)

Fixed costs & depreciation of goods sold:

• In WP1 = actual quantity sold x unit standard costs
• In PF1 = actual costs

4.3. Production depreciation

4.3.1. Period non-proportional depreciation of production (R25860)

• Depreciation charges for property, plant and equipment and intangible assets directly related to production.