In any product development process or in the case of presentation of services, there must be a certain cost, which may vary depending on the different cost elements that are used to know their true value exactly.
It is very important to note that a (cost, price, cost value, amount or expense), refers to the economic effort that is made in order to carry out a production or it is for the acquisition of a good, product or service, from which it is expected to acquire favorable profits and Benefits.
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The cost It helps to determine what should be invested in the production of a good or service and thus identify the sale value that allows knowing the profit that will be obtained from said production. In companies, the different types of costs can be determined through the process and the characteristics according to their impact.
In this article you will find:
Production cost elements
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Within companies, it is essential to have an adequate cost accounting, since it is a tool that allows to maintain an optimal administration that leads to the success of production. That is why a production must be profitable, competitive and must also understand cost elements as the following:
Materials
They are the main resources of all production, which are transformed into products thanks to labor and indirect production costs. These materials, in turn, are classified into:
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- Direct: They are those that can be identified within the elaboration of finished products, these represent the main costs of materials used to manufacture goods or products.
- Indirect: These are the materials included in the production of products, however, they have relative relevance to direct materials.
Workforce
This element refers to the costs of the personnel, which requires their physical and mental effort to carry out the execution of the products. Within labor, there are payroll expenses, salaries and all expenses related to company personnel. This element can also be:
- Direct: It is directly related to the production of finished products, associated with the high manufacturing cost.
- Indirect: It is based on a cost without major significance during the product production process.
Indirect manufacturing costs
They are the costs required in all manufacturing of products that do not belong to direct materials or direct labor. Among these indirect manufacturing costs are repairs, maintenance, public services, insurance, among others.
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Types of production costs
In the production costs there is a classification like the following:
Fixed costs
They are the independent costs of production, such as taxes, levies, public relations, insurance, financing, audits, legal advice and marketing, among others.
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Variable costs
They are the costs that are adjusted to the production. In this case, it is the value of raw materials, payment and supervision of direct labor, consumer services, necessary supplies, equipment maintenance, among others.
In addition to these production costs, the following can also be mentioned:
Administration costs
They are those that are related to the managerial, legal and accounting personnel that are involved with the administrative procedures that are not directly related to production, but are indispensable within of the company.
Distribution costs
They are those that occupy a place at the end of the production process and are taken directly to consumers in a massive way, it is also used as an intermediary between companies and businesses.
Financing costs
They are directly related to all types of loans, mortgages and returns, where procedures for the acquisition of money are involved that the company must then return.
Importance of production cost elements
Due to economic conditions, companies currently apply strategies to improve their efficiency and thus become much more competitive and maintain their profitability. For this, they carry out operational evaluations that identify the main points that generate deficiencies in the production process.
In this way, results can be achieved that help improve the production process and even reduce costs, that is why some companies apply these processes through operational audits efficient.
Another important point is the execution of projects of costs reduction, where comparisons are made of the profitability of the company in conjunction with the level of competition. For this, the resources of the company must be considered and thus obtain the appropriate average profitability.
The production costs either fixed or variable they should focus on the objectives of modification, substitution, reduction, innovation or elimination. In the same way, it is convenient to evaluate the acquisition of materials, freight, insurance and inventory costs, in order to effectively control the elements of the cost of production.
