Product cost calculation: formula, components, example

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

In this article we will touch on a fairly complex calculation procedure, which is vital for the whole variety of enterprises. This is the cost of the product. To execute it is the prerogative of the accounting department, since it is necessary to have professional knowledge and preparation for such an operation. The specialist must calculate all the expected income of the company, while taking into account all the planned costs. In the article we will consider what is the cost, its types, structure. Let's analyze the calculation methods, formulas and examples of calculations on them.

What is this?

The cost of a product is the current expenses of the company, which are presented in monetary terms. Expenses that are directed both to production and to the sale of products.

The cost price is also called the economic category, which reflects the economic and production activities of the company. It shows how much financial costs are needed for the manufacture andsales of a particular product.

It is easy to guess that the profitability of the enterprise directly depends on this value. Reducing the cost of production increases the profitability of the company.

Main types

What is it like? When an accountant needs to calculate the cost of production, first of all he is determined with its type:

Full cost. The total cost of production and sales. Commercial costs are taken into account not only for manufacturing, but also for the purchase of equipment for it. At the same time, the costs of starting a business are divided into periods during which the losses must pay off. They are gradually added in equal shares to the total mass of production costs. This is how the average cost of a product is formed.
Marginal cost. This value is directly dependent on the quantity of goods produced. It is intended to reflect the price of each of the additional units of production. Demonstrates how effective the planned expansion of production can be.

Main species

When calculating the cost of production, it is equally important to determine its type. It depends on what field the accountant wants to explore:

Shop. The total costs of all production structures of the company aimed at manufacturing a new type of product.
Production. For accounting, the workshop cost is important here. They also pay attention to both general and targetedloss.
Full. In this case, not only production costs will be summed up, but also the costs that were required for the sale of products, products.
Indirect (general business). The calculations are made to find out how much the business management structure costs the company, separately from operating costs.

Structure

What are the cost components? The main highlights are:

Raw materials needed for production.
The volume of fuel, energy consumption for the production of any product.
The cost of machinery and equipment, which determines the activities of the enterprise.
Salaries of employees, making all necessary payments on bills, paying off debts.
General production expenses. From office rent to advertising and promotion costs.
Costs of organizing social events.
Costs that will be associated with the depreciation of fixed capital.
Payment for services, works provided by third parties.
Administrative expenses.

From here it is clearly seen that the calculation of the cost of production is a complex and time-consuming procedure. But still, let's try to deal with it.

Cost Formula

Cost costing is best understood with a simple real-life example.

So, the cost is always directly dependent on the volume of goods produced. Hence the following example: you need to buy 4 packs of coffee. Its price inthe nearest store - 100 rubles. The road to the grocery store will take you 30 minutes. You take time off from work, where an hour of your working time is estimated at 200 rubles. Spend 20 rubles on travel.

Now the formula for calculating the cost of production:

Cost=(total price of goods + expenses) / (volume of goods produced (purchased)).

Let's go back to the example. Four packs of coffee will cost 400 rubles. The road to the store and back - 60 minutes (30+30). This is minus 200 rubles that you could get if you stayed at work. The way there / back - 40 rubles (20 + 20). There is everything for substitution in the formula.

(400 + 200 + 40) / 4=160.

From here we see that the cost of each package of coffee in your case is 160 rubles. And not 100 rubles, for which the product is sold in the store. It's so easy to find out how the cost calculation works. Now back to the accountant's job.

calculation of the cost of production in production

Full and truncated

Of course, in the previous heading we have given as an example the simplest formula for calculating the cost of production. Specialists-accountants turn to the most complex calculations. Consider their main methods.

Taking into account the completeness of adding costs to the cost of production. From here there will be two types of it:

Full cost. The accountant will take into account absolutely all the expenses and expenses of the enterprise. Costs are affected by both fixed and variable costs. The price of the product is calculated by adding to the cost of the productnecessary profitability here.
Truncated cost. The cost of unit production of variable costs. At the same time, a constant share of both general production costs and other expenses is written off as a decrease in income at the end of the established time period. There is no allocation to manufactured products.

Factual and normative

Calculation of the cost of a unit of production here is based on the costs incurred by the enterprise:

Regulatory cost. Allows you to control the costs of various resources. In case of deviation from the set norm, it allows you to quickly return the situation to its previous course.
Actual cost. Calculated per unit of production. Determined after taking into account all costs. From this, the method is fraught with its low efficiency.

Batch and process method

Calculated depending on the cost accounting object. In this classification, the following examples of calculating the cost of production are distinguished:

Peredelny. It is more typical for enterprises that are characterized by in-line and mass production, when products go through a number of processing steps at once.
Processed. The method is used by mining companies.

Need for calculation

Product cost calculation is required in the following cases:

In continuation of activities aimed at seeking out reserves. It helpssignificantly reduce costs.
When forming the cost of new manufactured products.
When conducting an analysis, with the help of which it is necessary to find out the effectiveness of a particular business entity. For example, after the introduction of innovative technologies. Or after the decision to expand the product range.
When evaluating the indicators of the purchase planned cost, while monitoring its dynamic change.
During self-financing.
When calculating the profitability of a company.
When determining the specific profit of the enterprise for certain categories of manufactured goods.

Choose variety

Calculation of the cost of production may be different depending on which business entity it is produced for - large, medium or small. When determining the type of cost price, it is important to pay attention to the following criteria:

Production volume. It is necessary to determine the selling price of both one unit of production and the wholesale batch of manufactured goods.
Production stages. The initial price of products will be considered in terms of goods that have been produced, prepared for sale, shipped and already sold out.
Amount of losses incurred. Here consider the full and reduced purchase price.
Analytical operations. In the course of their activities, business entities may encounter regulatory,actual and planned cost of production.
Accounting for production costs. What are they paying attention to here? Full, factory and production price.

Cost formation

As we have said more than once, the calculation of the cost of production in production is the prerogative of the accounting department. In this important and complex process, one of the main tasks of a specialist is to divide all company expenses into indirect and direct ones.

The difficulty is that part of the costs in accounting is considered direct, and in the tax - already indirect. But at the same time, all the costs that go into the manufacture and sale of products are usually attributed to the cost of the product. Those related to taxation are usually rationed.

To compile an accounting report, a specialist first of all groups the company's expenses into the following categories - economic elements:

Material costs.
Social payments.
Employee salaries.
Other expenses. For example, deductions to the insurance fund, payment of company debts, etc.

Further there is a gradation of all costs incurred already by costing items. Thanks to this, it becomes possible to calculate how much the production of a unit of output will cost. The groups here are:

Costs of production materials, works and services.
Employee salaries.
Costs aimed at preparing production for operation.
General and general production costs.
Expenses directly on production.
Other expenses (for example, contributions to insurance funds).

When calculating the cost estimate, the accountant uses the division of costs for specific costing items. Because of this, it becomes possible to know how much it will cost to produce a unit of production.

Calculation of the full variety

Full cost is the total cost of production of one product. In order to find out, it is necessary to sum up all the costs that the production and sale of a unit of production turns into.

The following formula is used here:

S_p =PRS + PP.

The transcript is as follows:

C_p - full cost.
PRS - this includes all production costs - wages of employees, depreciation, expenses for the purchase of materials and raw materials, social benefits, etc.
PP - the cost of selling products. From packing, transporting and storing goods in a warehouse to advertising them.

Calculation of planned variety

The calculation of the planned cost is needed for representatives of all categories of business - large, medium and small. A formula is used that is identical to the formula for calculating the real, actual cost of production. Only indicators here will be replaced with planned ones.

The following data is important for calculating this category of factory cost:

Loss ratesmaterial plane.
Manufacturing direct costs.
Cost rates for energy resources.
Production plan.

The necessary calculations are made at the beginning of the reporting financial year. Then the results in certain proportions are "scattered" over the quarters.

Excel Help

Time does not stand still - today it is not necessary for an accountant to manually calculate the cost. In the case, various electronic programs help significantly. It is enough to choose the appropriate formula for calculating the cost of production, substitute the correct numbers into it, after which the system itself will carry out the necessary mathematical operations and give the result in a fraction of a second.

Specialists highlight the following positive aspects of working with Excel:

The program can work both in automatic and manual modes.
Possibility to include "Returnable Waste".
Program options allow you to use it not only in small, but also in medium-sized businesses.

At the same time, there are also negative sides:

The amount of information processed is limited.
Only a single resource variety specification is supported.

The cost of manufactured products is important to know for any manufacturer - from small to large. This indicator helps to correctly distribute the income and expenses of the company, to identify weaknesses, the unprofitability of the manufacture of certain goods. Calculations are made by the accounting department using special electronicprograms.