What is the cost price and what is included in it?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Any enterprise that produces any goods or provides any services has a business plan. This is an annual program that contains a description of the company's activities, the planned volume of output, revenue, profits and costs. In turn, it is the costs that give a person an idea of what the cost of production is.

Introducing new technologies, using machines and equipment, burning fuel and consuming materials, the company spends huge amounts of money on production. They are the basis of the cost price - the main indicator on which the economic efficiency of the company is based.

Analysis of this indicator allows you to find the volume of production at which the output will be profitable. The cost basis is fixed (in no way dependent on the volume of output) and variable (may vary depending on the volume indicators of the output of goods) costs. So what is the cost price and what is included in it?

This indicator is considered in the context of costing items, as well as the costs used to manufacture products. The calculation of the total cost is based onthe following expenses:

- material costs, including the cost of components such as raw materials, parts, components, etc.;

- depreciation of fixed equipment and fixed assets;

- wages of workers involved in the production process;

- deductions from accrued wages: the so-called pension, social and insurance contributions;

- other expenses.

A more complete picture, telling what the cost is, is represented by the industry departments of the enterprise. Each department or workshop involved in the production of products has its own highly specialized costs. Thus, they include expenses for general business and general production needs, for defective products and returnable waste, for the remuneration of employees and deductions from it, for purchased components and services of third-party organizations, as well as other expenses. All these components are included in the structure of such a thing as shop cost.

Every department, every shop and every ancillary production, directly or indirectly involved in the production of products, affects the underlying cost of goods. Therefore, the effective work of each participant in the production process allows minimizing the cost of sales, increasing revenue and, as a result, net income. The profitable work of the company depends on these factors.

What is cost of sales? All costs incurred by the enterprise for the sale of products,including services of third parties, transport and others are included in this indicator. The realized production gives one more such indicator as the cost price of the realized production. The basis of this indicator is the cost of production of goods, marketing and management.

Thus, the cost is the value expression of the sum of all costs incurred by the enterprise in the production, storage and marketing of products. And net profit is the main and main indicator of the organization's activity, which it affects.