Any enterprise tries to make decisions that provide it with maximum profit, which depends on the costs of sales and production. Naturally, the price of such products is a consequence of the interaction of supply and demand. Costs are the factor that determines the cost. However, this is not as simple a concept as it might seem. So what is cost?
Terminology issues
Costs are part of the cost of production. They can both increase and decrease, depending on the volume of material and labor resources, the organization of production and the level of technology. The manufacturer can drive cost reduction. It must be understood that there is, in fact, no difference between the concept under consideration and such terms as “expenses” and “costs”, which are often given in regulatory documents and economic literature.
Economic costs
If you look closely at these concepts, then "cost" is used mainly in economic theory andmeans the total expenses of the enterprise for the performance of certain operations. This includes accounting, opportunity and settlement costs. Estimated costs are called actual expenses, which are due to the expenditure of various economic resources during the production and circulation of goods, products and services. Alternative (they are imputed) - the lost profit of the enterprise, which it could receive in the production at a different (alternative) price of another product that would be produced on the alternative market.
Economic costs and expenses
Cost is the actual and estimated cost of a particular enterprise. Expenses are understood as an increase in the debt obligations of an enterprise in the course of its activities, or a decrease in own funds. Expense is the use of material, services, raw materials, which is recognized in the income statement as a link between costs and direct income items. In accounting, income should be correlated with such an item as product costs.
Cost Accounting
This concept from the point of view of accounting is considered for some items, such as separate accounts: “Depreciation”, “Payment calculations”, “Materials”, “Finished products” and “Main production”. Expenditure is the part of the report that is not written off to sales accounts and accumulates on the above accounts until all related goods and services are finally sold.
Product cost indicator
The performance of any enterprise cannot do without such a parameter as the cost of production. Labor costs, economic, financial and production activities are reflected in this indicator. The level of cost affects the amount of profit, profitability. The more economically an organization uses material, financial and human resources to perform work, provide services and manufacture products, the higher the efficiency of the process and the greater the profit.
Such different costs
From the enumeration of all the terms that form the cost of any product (service or work), you can see that they are not homogeneous either in composition or in value in the process of manufacturing a product, performing services and works. There are costs for products (for raw materials, materials, production, wages for workers, and so on). There is - for management and maintenance (maintenance of the administration), for maintaining fixed assets in working condition. The third types of costs are those that are not directly related to the production process, but are nevertheless included in the cost of finished products, albeit indirectly, and relate to deductions for the raw material and mineral base, for social needs, and so on.
Organization of accounting
For the efficient organization of production, a reasonable classification of costs according to various criteria is necessary. This allows you to analyze and plan costs, identify relationships between their different types andcalculate the degree of influence on the levels of profitability and cost of the enterprise. The purpose of any cost classification is to help the manager make informed and correct decisions, as well as highlight the part that can and should be influenced.
Drury classification
According to this researcher, cost is information that has accumulated from different categories: overhead, labor, and material costs. Drury then summarized the classification by direction of accounting:
- To estimate and calculate the cost of manufactured products.
- For management decision making and adequate planning.
- For regulation and process control.
Today, this classification limits the possibilities of management accounting, which is designed to help achieve the intended goals of the enterprise. That is why it became necessary to divide cost functions by goals, objectives, methods, techniques and methods of achievement.
Generalized classification
Calculation of costs is a very important point for accounting, during which certain decisions are made on tactics and strategies for the development of an enterprise. For these purposes, the following classification can be distinguished:
- alternative and explicit;
- irrelevant and relevant;
- ineffective and effective.
Management decisions are made on the basis of explicit and implicit costs. Explicit costs are estimated costs that are passed on to the enterprise for the duration of itscommercial and industrial activities. Opportunity cost is the abandonment of one type of product in favor of another (alternative). If there are no restrictions on resources, then these costs will be equal to zero, which is why they are often called additional. Relevant costs depend on the management decisions currently under consideration, that is, those that can be influenced. Efficient expenditures are those in which income is received from the sale of products. Inefficient, respectively, - unprofitable. These include losses in production, from marriage, shortages, downtime, damage to inventory items, and so on.
