The cost of production includes Composition of costs, grouping, estimate and expense item

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:54

Cost is one of the most important performance indicators of any company. It characterizes the competitiveness of the organization's products, and is also a set of costs incurred during the manufacture of products. In order to perform the correct analysis, to compile the financial statements of the organization, you need to know which items of expenditure are included in the cost of production. They will be discussed in detail below.

General definition

What costs are included in the cost of production? To answer this question, you need to consider the features of production. To manufacture this or that product, the company spends objects of labor, fixed assets, labor, etc. During this process, the cost of means and objects of labor is transferred to the total price of products, services.

Costs are called the assessment of production resources, which is expressed in monetary terms or in kind. In the first case, they are called costs. In addition to costs, the company in the course of performing its core activities incurs costs during its organization (advertising campaigns, market research, etc.). They are expressed in cash and are costs of implementation.

Costs are the costs that a company attracts for production resources in the course of production or trading activities.

In addition to production costs, taxes and fees are included in the cost of production. It also includes contributions to trust or extrabudgetary funds. Therefore, costs consist not only of the costs that arise during implementation. They also include indirect taxes.

It is worth noting that there is a certain difference between the concepts of "costs", "expenses" and "costs", although in some cases they are used as synonyms. So, expenses are called expenses that arose in a certain period. These are specific payments that can be covered both from the organization's profits and income, earmarked funds and funds.

It is from the costs that such a concept as the cost of production is formed. This is an assessment of the cost of resources, fuel, energy, materials, intangible assets, etc., that the company attracts during the manufacture and sale of its products.

Classification according to the principle of economic homogeneity of costs

Studying what costs are included in the cost of production,It is worth noting that any organization incurs a variety of costs. They differ in economic purpose, place of origin, as well as in the role played in the production process. In addition, they may depend on the volume of production.

The cost of production includes the costs of all production units, services and sections. The enterprise calculates the workshop, production and total cost. To do this, cost items are determined. But in the financial statements, an estimate is prepared in which the costs are grouped according to economically homogeneous elements, presented in the table below.

1.	Depreciation of fixed assets and intangible assets
2.	Deductions to social funds
3.	Material costs
4.	Wages
5.	Other

To perform the correct calculation of the cost, you need to understand which cost items are included in one or another group of expenses. The composition of the production cost of production necessarily includes material costs. These include the following expenses:

• gasoline, gas, electricity, etc.;
• material costs;
• components (purchased);
• blanks;
• works or services related tomanufactured by a third party company;
• energy.

Material costs

Raw materials are purchased components from which the organization's finished products are produced. This is its basis, the necessary components. The cost of the presented item of expenditure includes costs, without which it would be impossible to organize the normal course of the production cycle, packaging. Also, such components can be spent on other economic or production needs.

The cost of production includes general business expenses that the company incurs during the purchase of spare parts for repairs, deductions covering the wear and tear of tools, appliances and other means of labor, low-value items.

The presented costs include payment for the use of water resources from public networks.

This category includes purchased components and parts that will subsequently be subjected to further installation or processing, refinement. If the work is carried out by a third-party organization, payment for its services is also included in the total cost of the product. These can be individual feedstock processing operations, repair or transport (internal or external) services.

Material costs include research, testing and design work, activities related to the development and development of new technological processes.

The cost item "Fuel" includes the costs of acquiring it for technological purposes, as well as the development of othertypes of energy. With the help of gasoline, gas, etc., they heat buildings, carry out transport work.

The item "Energy" includes the cost of purchasing electricity, compressed air, thermal energy, etc. It is spent on various production needs.

Payroll costs, social funds, depreciation

The cost of finished products includes the cost of paying employees. This includes the amount of wages that are calculated on the basis of piece rates, rates and salaries of officials, and so on. They are set depending on the results of labor.

This article also includes compensation and incentive payments. This may include payments made by the organization in connection with price increases, as well as revaluation. Bonus systems for ordinary employees and management are also reflected in the presented item of expenditure. Other forms of wages adopted in the workplace also fall under this cost category.

In addition to wages, deductions that are included in the total cost include the costs of social funds. In some cases, the company is required to make such payments. The corresponding tariffs are established by the legislation. The company also pays for he alth insurance for certain categories of employees. This is also stipulated by law.

The cost of production includes the cost of covering wear and tear. Gradually, the entire amount of fixed assets and intangible assets is transferred to the final cost of the organization's products. Forthe book value and depreciation rate apply. It is calculated in accordance with all the rules established by the Ministry of Finance. Deductions to cover material or obsolescence can also be calculated using an accelerated method. In accordance with the law, deductions are indexed.

After the expiration of the service life of the PF or intangible asset, deductions cease. This is only fair as long as they fully transfer their value.

Other expenses

The cost of production includes costs that are not related to the items listed above. Thus, the “Other” category includes emergency taxes paid by enterprises to eliminate the consequences of the explosion at the Chernobyl nuclear power plant, contributions to the innovation fund, and land tax. They also pay environmental taxes, various percentages. For short-term bank loans (except for overdue and deferred payments) and long-term loans to increase the amount of funds in circulation, deductions are also made. They are transferred to the total cost of production. This also includes payment on promissory notes in the current period, as well as on short-term loans of individuals or legal entities.

If any services or goods were purchased from third-party organizations on credit, as well as other services related to the work of the company, this article also indicates the amount of such costs. In addition, the following items are included in the total cost.

1.	Payment of rent for some objects OF, leasing
2.	Certification of finished products
3.	Travel expenses
4.	Paying other organizations for the provision of security, fire and other services, including the construction of related facilities
5.	Deductions for centers providing information, computing, communication services
6.	Payment for retraining or third party training
7.	Advisory, audit, information and other services
8.	Compensation for depreciation of personal vehicles, tools, equipment provided by agreement, used for the needs of the enterprise
9.	Deductions to reserve and repair funds
10.	Other specific costs attributable to product cost

Costs by way of attribution to results

The cost of production includes work performed or services rendered, which can be divided into two large groups. They are called direct and indirect costs. In the first case, the costs are charged directly to the cost of a particular product or service. This category includes purchased material resources, blanks, parts, gasoline,gas and electricity. They are directed to the technological needs of the enterprise.

Direct costs also include accrued wages to employees of the organization, contributions to social funds. This category includes contributions to the he alth insurance of certain categories of workers.

If a company manufactures several types of products, then some costs cannot be immediately attributed to the total cost. That is why they are called indirect. These expenses include expenses for administrative and managerial categories of employees. This is also the salary of managers of different levels. Indirect costs include the cost of space heating, the creation of artificial lighting, sewerage, wear and tear of equipment, and repairs. It can also be a salary for non-production workers.

By activity functions

Included in the cost of products, works, services are expenses that are classified according to the functional activities of the company. On this basis, 4 categories of costs are distinguished:

• production;
• supply and procurement;
• commercial, marketing;
• administrative.

This division allows planning and cost accounting for each area of activity. This allows for the correct on-farm settlement.

According to the role of involvement in the economic process, overhead and basic expenses are divided. The first category includes the costs incurred duringorganization, management and maintenance of production. They include general and general production expenses. The value of this category of costs depends on the management structure of workshops, divisions and enterprises.

The main costs are associated with the technological process. This category includes raw materials, materials, energy, fuel. The composition of the cost of production includes the cost of technological purposes, the payment of salaries to employees involved in the production of finished products.

Calculation articles

The cost of production includes costs for costing items. This allows you to calculate the costs that fall per unit of manufactured products. For this, a special statement is used, which is called costing. It reflects data on planned and actual costs for the entire output during the study period. This approach is called finished product pricing. This allows you to determine the costs for each type of product.

This includes both material costs and the costs of maintaining, creating and managing a certain type of product. Each organization develops its own nomenclature of costing items. This takes into account the specific needs of the company. There are specific industry guidelines for this. The most common list of costing items is given in the table below.

1.	Raw materials and supplies.
2.	Semi-finished products producedat the enterprise.
3.	Returnable production waste (subtracted from the total amount).
4.	Fuel, energy used in the technological cycle.
5.	Auxiliary materials.
6.	The cost of paying salaries to employees involved in the production of products.
7.	Social payments.
8.	Expenses for preparation, development of production.
9.	Operation of production units, equipment.
10.	Shop expenses.
11.	General expenses.
12.	Loss due to marriage.
13.	Other production costs.
14.	Business expenses.

Shop cost is determined by adding the first ten items. To calculate the production price of the organization's products, add up the first 13 costing items. Adding all the listed item lines, you can get the total cost of the goods.

Cost to output ratio

Product cost includesfixed and variable costs. They are necessarily calculated by the enterprise to determine the optimal production volume.

Fixed costs do not depend on the increase or decrease in the number of manufactured products. Their company carries even if it doesn't produce anything.

Variable costs increase proportionally with the increase in production volume. For some companies, the indicator changes in accordance with the level of business activity. This, for example, can be wages for employees involved in the main production, raw materials and materials, etc. Variable costs are calculated per unit of output. This is a constant value.

If a company has both fixed and variable costs, as output increases, the total unit cost will decrease.

Costs by time of occurrence

Among other things, the cost of production includes costs that arise at the enterprise at different times. These can be current or future costs, as well as upcoming costs.

Current costs include the financing of production, as well as the sale of products in this period. They were fully included in the total cost. In the future, such costs will not be able to generate income.

Expenses arising in the future period are incurred in the current period, but they are partially included in the total cost. In subsequent reporting periods, they will be fully covered.

Upcoming costs are called,which have not yet been produced in the reporting period. But they are included in the price to correctly display the actual information. Their size is planned. This, for example, may be the payment of vacations to workers, lump-sum payments and incentives, bonuses to wages for years of service and other expenses. They can be periodic or one-off.