Cost of production is an important economic indicator. It is evaluated by each enterprise. This allows you to determine the amount of costs that were determined at the enterprise in a certain period. Of particular note is the production cost. How the presented indicator is calculated and analyzed will be considered further.
Definition
Full and production costs are the most important indicators that characterize the activities of the organization. They allow you to determine profitability, as well as draw conclusions about the correctness of management decisions. Cost is the costs that are formed at the enterprise in the course of its activities.
Each organization is engaged in the release of goods or the provision of services. In the course of its production activities, it expends certain resources. This can be raw materials, energy, labor of workers, etc. They are called production costs. These are all costs that are determined during the production of finished products from the moment of receipt of raw materials in the production cycle and obtaining the final result.
Each company is interested in cost reduction. However, this process should be reasonable. With a reduction in cost, the quality of goods may fall. The product obtained during the technological cycle must meet the requirements of customers. Otherwise, they simply will not buy it. In this case, the company suffers losses, since it is not possible to achieve the desired amount of profit from sales.
Today, when calculating the costs that the company incurred in the course of its activities, concepts such as the full and production cost of production are used. They have several differences. Production costs reflect the costs that were directly attributable to the production process. They are formed from the beginning of the technological cycle to the shipment of finished products to the warehouse. The full cost also takes into account the costs that will be additionally incurred during implementation. In this case, the costs of packaging, advertising and transportation of products are added to the production cost.
Structure
To determine production costs, you need to know its structure. Expenses form in separate groups according to certain criteria. The first category includes material costs. At a manufacturing enterprise, this is one of the largest cost groups.
Material costs include raw materials from which finished products are produced, as well as materials that are necessary for the organization of production. They are completely processed in the course of one technological cycle, changing their original form.
Also, material costs include energy costs. This may be electricity, gas and other similar resources. Another component of the production cost of the material group are consumables (for example, lubricant, fuel, etc.) and so on.
The second group of production costs includes labor costs. They are divided according to the category of company employees. Separately taken into account are the costs of the salaries of key personnel, specialists, employees of auxiliary departments, employees, and junior staff. Also in this group of expenses are contributions to insurance funds.
The third group of costs is the cost associated with the depreciation of technological equipment. These are depreciation charges, which also relate to cost. These funds go to a special fund and are consumed with significant equipment wear. With these funds, new machines, units and other components of equipment are purchased.
There are also other costs. They are determined by the characteristics of the company.
When is the calculation carried out?
The need to calculate the cost of production of a manufacturing enterprise may arise for various reasons. This procedure is carried out by any commercial organization, regardless of the scale of its activities. During analytical, economic studies of the performance of the enterprise, the cost is calculated.
Often the need for such work arises in the process of finding reserves to reduce the amount of costs. This allows you to increase the profitability of production, the efficiency of the enterprise. Also, the cost is calculated in the process of forming a pricing policy.
Similar work is also performed in the process of researching the effectiveness of management decisions and production activities of the company. This becomes especially relevant when new equipment is introduced into the technological cycle, after expanding the product range.
The planning process also conducts costing. At the same time, it is possible to track the dynamics of changes in product prices, to take timely actions to improve it.
The production cost of the finished product is calculated during self-financing, as well as in the process of researching profitability indicators of the organization’s production activities. When analyzing profit, as well as factors that influenced it in the reporting period, they also conduct similar studies.
Factors Affecting Cost
Costs and production costs of each organization may vary significantly. Therefore, making calculations and analysis, they compare indicators in dynamics over several periods, as well as between similar competing enterprises in a particular industry.
Cost factors can be influenced by certain factors. This must be taken into account during the analysis of this indicator. First of all, the cost of production is affected by the quantity of products manufactured by the enterprise. At the same time, the cost of a unit of finished products is taken into account both at the retail and wholesale prices.
The indicator is affected by the number of stages that production includes. Cost comparison is performed at the same point in the technological cycle. Therefore, you can only compare products of the same type, which are characterized by the same properties.
The cost indicator is affected by the amount of costs that were incurred during the production cycle. Also on this indicator is influenced by the method of analytical assessment. Normative, planned and actual production costs may vary significantly.
In this case, the price can be formed within one workshop, as well as within the entire production. In the second case, the general and target expenses of the enterprise are added to the workshop costs incurred in the course of production. Therefore, at each level, the cost is considered separately.
Normative, process methodology
The actual production cost of production can be calculated in various ways. This allows you to most effectively evaluate the indicator. Today 4 methods of costing are applied. This is a normative, ostentatious, alternate and process-based approach. They have a number of differences.
The normative method involves the calculation procedure in a certain sequence. First, the selling price of each unit of the product group is calculated. Then, the level of fluctuations that was recorded in the study period relative to production standards is taken into account.
The next step is to determine the level of costs incurred during this time. At the same time, established norms and deviations from them are taken into account. This allows you to determine the causes of such discrepancies. After that, the initial cost of production is calculated.
Actual production costs will suit enterprises that manufacture large batches of products in a short time. First, the company calculates all the expenses that were incurred by it during the technological cycle. Further, the resulting indicator is divided by the number of units of manufactured products. This allows you to determine the cost of one product.
To facilitate the control procedure, the calculation is carried out at different stages of production. This allows you to avoid mistakes. Negative factors can be determined directly at the stage of their occurrence.
Alternating, ostentatious technique
The production cost of products can be calculated using the front-end technique. This campaign is used by enterprises with different scales of production. These are representatives of industries such as agriculture and industry.
In the calculation process, the cost of expenses incurred during the execution of one order is calculated. After that, the result is divided either by the number of batches, or by the number of homogeneous products.
The ostentatious method is suitable for many enterprises for calculating the cost of production. First, they calculate all direct costs that arose during the production activities of the company. They are calculated for each individual order. Next, the sum of a unit of production for each batch of similar products is determined. For this, the total amount of all costs is divided by the number of finished products in the context of each specific order.
The production cost of production can be grouped according to various criteria. At the place of occurrence, costs can be production, workshop, determined at sites or other structural units. Grouping can also be done by cost object. In this case, the cost price for each homogeneous type of goods is calculated separately.
By type of costing, costs can be accounted for by economic indicators. This allows you to determine what factors influenced the increase in cost in dynamics.
Calculation
The production cost of goods sold is calculated by a simple formula. To do this, you need to summarize all the costs that arose in the manufacturing process. In a simplified form, the formula looks like this:
PS = MZ + ZP + A + PR, where PS is the production cost, MZ is material costs, ZP is the salary of personnel; A - depreciation; PR - other expenses.
Other expenses may include general production and industry-wide costs, targeted financing. However, this is a very general formula. It may include other articles that are determined in the course of the organization’s production activities. Each item of expenditure is considered in dynamics. This allows you to determine what factors influenced the formation of cost.
Each indicator that is used during the calculation is evaluated as a percentage of the total cost. The structure is influenced by the branch affiliation of the organization, other internal and external factors. This does not allow you to adhere to the same level of cost in different periods of time.
Example
To make a calculation of production costs, you need to consider an example of this process. To do this, take into account a number of data that are determined by the results of the company's production activities. For example, in a company last month, the following costs were taken into account;
- raw materials and materials - 50 thousand rubles;
- balances of production resources - 0.9 thousand rubles;
- components, semi-finished products - 3 thousand rubles;
- energy, fuel - 6 thousand rubles;
- salary - 45 thousand rubles;
- premiums - 8 thousand rubles;
- contributions to the Pension Fund - 13.78 thousand rubles;
- services of tool shops - 3.3 thousand rubles;
- overhead costs - 13.55 thousand rubles;
- general business expenses - 17.6 thousand rubles;
- fatal marriage - 0.94 thousand rubles;
- shortages - 0.92 thousand rubles. (within normal limits) and 2.15 thousand rubles. (over the norm);
- work in progress - 24.6 thousand rubles.
First, material costs are determined: 50 - 0.9 = 49.1 thousand rubles. To the amount received, you need to add energy costs, semi-finished products: 49.1 + 3 + 6 = 58.1 thousand rubles.
Next, labor costs are determined: 45 + 8 + 13.78 + 58.1 = 124.88 thousand rubles. When the total amount is established, it is necessary to add general production and general business expenses: 3.3 + 13.55 + 17.6 + 124.88 = 159.33 thousand rubles.
The deficiency, which was established within the normal range, must be subtracted from the indicator over the norm. The result obtained is added to the total amount: 2.15 - 0.92 + 159.33 = 160.56 thousand rubles.
Since the company has work in progress, it must be deducted from the total cost for this period. This indicator will be taken into account in the following period: 160.56 - 24.6 = 135.96 thousand rubles. This is the sum of production costs.
Unit Cost Analysis
The production cost of production requires proper analysis. This allows you to highlight existing problems and prevent their occurrence in the future. During the analysis, an assessment of the cost of a unit of production is carried out. For this, the indicator in monetary terms is divided by the number of goods produced. The calculation is carried out at wholesale prices.
The indicator is compared with the planned indicators. If there are deviations, determine the cause of this phenomenon.
An assessment is also made of the amount of costs by type. Their structure is also analyzed. If any article has unreasonably increased, take measures to eliminate such a negative phenomenon. Further indicators are evaluated in dynamics. They are compared for several periods. At the same time, absolute (in thousand rubles) and relative deviation (in percent) are found. This allows you to set the growth rate.
Also, the structure is compared with the planned one. If there are deviations, they determine the cause, find ways to solve such problems. The analysis is carried out once a year, quarterly or monthly. The frequency is chosen in accordance with the peculiarity of the company and its surroundings.
Teaching techniques
Production costs require control by the governing bodies of the company. To do this, use different teaching methods. Diagnostics and analysis is carried out in the context of a unit of production.
The choice is made of the best option for the production of certain products, taking into account the needs of the market. It is also necessary to evaluate cost-effectiveness. To do this, calculate how much profit falls on each ruble spent.
Each group of products is compared with the previous year. Further, their cost is compared with the planned indicator. In this case, take into account the level of profitability of production. Next, each group of products is evaluated in the context of costing items. This allows you to identify opportunities to increase the competitiveness of products.
To perform the analysis, you study the data from the costing report. Here is information about the costs in general for the production of a certain type of product, as well as its individual parts, components. It is necessary to take into account the data that will be obtained in other areas of output. This will reveal the negative factors common to production that constrain its development.
Having considered the features of production costs, we can carry out its calculation and make an analysis regarding the result. This work is necessary to reduce costs and increase the competitiveness of finished products.