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Product cost. Cost of goods sold What is the cost of products in production

The cost of sales is one of the key performance indicators of the enterprise. In this article, we will look at the most common costing methods, as well as give examples of calculating the cost of sales.

Determination of cost and its types

The cost price is the amount of company resources in terms of value spent on the execution of a specific business process.

As a rule, the cost price is understood as the amount of costs incurred as a result of the production of goods (performance of work, or provision of services)

Thus, the total cost implies the entire set of costs incurred by the company as a result of creating a certain product - including the cost of purchasing materials, energy consumption, equipment depreciation, as well as employee salaries, sales, logistics and other expenses.

In contrast to the full cost, the workshop is a narrower concept and includes only expenses directly for production.

However, for assessing the effectiveness of the functioning of the enterprise, the cost of sales is of the greatest importance. What is the cost of sales? It includes the costs associated not with the entire volume of manufactured products, but only with those that were actually sold. In other words, the cost of sales is the difference between the total cost and the costs associated with unsold products, including the cost of work in progress.

Cost of sales is shown in on line 2120. The value of the cost is always indicated in the balance sheet and in other financial statements in parentheses, since in fact this indicator has a negative value - it reduces the amount of revenue when calculating profit.

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Classification of costs when calculating the cost of sales

In order to calculate the cost of products, the costs of the manufacturer (seller) are classified according to certain criteria.

So, for example, the costs of purchasing materials and salaries of production workers are considered direct, while the costs of processing orders and salaries of administrative staff are indirect (see also ).

Also, costs are divided into different types depending on how their size is related to the volume of production. If this relationship exists, the costs are variable. Costs that do not change depending on the number of products produced are fixed.

One of the serious drawbacks of the custom method is its laboriousness, since it is associated with detailed information and requires a specific organization of accounting.

How to Calculate Cost of Sales: Calculation Methods

There are several ways to calculate the cost of production. Consider the most common.

Custom Method

The order-based cost calculation method allows you to determine the costs for each production order or for each work (service) performed. A feature of the order-by-order method is that if it is applied, the cost of sales cannot be predicted - it can only be determined upon the fact of production.

In order to organize accounting before the end of the production process, products can be valued at the planned cost, or at the actual cost of homogeneous products that were produced earlier.

The custom method is used by companies producing unique products in small batches, as well as in the production of complex products with a long production cycle - for example, in mechanical engineering and aircraft construction.

The formula for calculating the cost of sales

In the case of using the order-by-order method, the unit cost of production is calculated by dividing the costs attributable to a specific order by the number of products produced for this order. A characteristic feature of the order method is that the amount of costs is formed not for any period of time, but for each specific order.

Cost of sales = Cost per specific order / Quantity of items produced

Since the custom method is associated with detailed information and requires a specific organization of accounting, this method is quite complex and laborious, which is often considered its disadvantage.

Example. How to calculate the cost of production using the formula

The furniture factory Comfort LLC produced 10 sofas and 15 armchairs in September.

Direct costs for the production of sofas amounted to 100,000 rubles, and for the production of armchairs - 75,000 rubles.

General business expenses for the month amounted to 26,000 rubles.

Let's determine the selling cost of furniture produced by Comfort LLC

To do this, we will use two different ways of allocating indirect costs. In this situation and in the future, in order to make the calculation as simple and transparent as possible, we assume that all manufactured products were sold. In other words, suppose that the cost of unsold items and work in progress is 0.

Method 1

Distribute general expenses in proportion to the volume of direct costs.

Then the volume of general business expenses attributable to the sale cost of sofas will be equal to:

26,000 * (100,000: (100,000 + 75,000)) \u003d 14,857.14 rubles;

And at the selling cost of the cost of the chairs:

26,000 * (75,000 / (100,000 + 75,000)) \u003d 11,142.86 rubles.

The cost of one sofa:

(100,000 rubles + 14,857.14 rubles) : 10 pieces = 11485.71 rubles.

The cost of one chair:

(75,000 rubles + 11,142.86 rubles): 15 pieces = 5742.86 rubles.

Method 2

Let's distribute general business costs evenly in accordance with the number of armchairs and sofas produced and sold.

Then the volume of indirect costs attributable to the manufacture and sale of sofas will be determined as follows:

26 000 rub. * 10 pieces. / (10 pcs. + 15 pcs.) = 10400 rubles.

In turn, the volume of indirect costs attributable to the cost of seats will be equal to:

26 000 rub. * 15 pcs. / (10 pcs. + 15 pcs.) = 15600 rubles.

Thus, the unit cost of production of each type of product will be:

For sofas:

(100,000 rubles + 10,400 rubles) / 10 pcs. = 11040 rubles;

For armchairs:

(75,000 rubles + 15,600 rubles) / 15 pcs. = 6040 rubles.

As a result of applying different methods of distribution of overhead costs, we received a different value of the cost of production.

The choice of the method of distribution of indirect costs has a significant impact on the size of the cost of products and therefore is an important management decision of the management of any company.

How to calculate the cost of sales using the direct costing method

Direct costing is the simplest, but also the least informative costing method. Using this method, financiers focus on production costs and do not make any allocation of general business costs.

It is also called the "truncated" cost method - because it excludes indirect costs from the cost calculation. This method of calculation is mainly used by small enterprises specializing in the production of relatively homogeneous products with a low level of fixed costs. Its main advantage is low labor input and simplicity of calculations.

Direct costing means that the cost price is determined as the quotient of dividing the total amount of variable costs by the number of products produced.

Calculation example

Calculate the selling price of armchairs and sofas using the direct costing method.

Since general business expenses are not taken into account when using the direct costing method, we will get the following values:

The cost of one sofa will be equal to:

100 000 rub. : 10 pcs=10000

And the cost of one chair:

75 000 rub: 15 pieces = 5000 rub

Thus, the sale cost of armchairs and sofas produced by the furniture factory Comfort LLC, in the case of using the direct costing method, turned out to be lower than the cost of the same products calculated by the order method.

Perepredelny (by-process) method

The line-by-line method of calculating the cost of sales implies that the production process is divided into certain stages, and each stage of production (processing of products) is an object of accounting. At the same time, each production unit of the company is responsible for a certain stage of product processing. Having passed the next processing process, the products are transferred to the next production unit for the next process - and so on until the product is brought to the state of the finished product.

The process method is the most informative when used in the chemical, oil and metallurgy industries.

The ABC method allows not only to determine the amount of costs attributable to each unit of production, but also to analyze the structure of expenses incurred by the enterprise and identify excess resource consumption.

ABC method

When using this method, the business process is divided into separate functions (operations). This may be interaction with potential buyers, the purchase of materials, the operation of equipment, taking orders from customers and other elements of the business. Further, each function is considered as a separate cost element and measured using the appropriate units of measure. For example, interaction with potential buyers can be measured by the number of minutes spent on the phone.

After that, the cost of each process is determined. To do this, the amount of costs attributable to each function is divided by the quantitative value of the corresponding cost element.

At the end of the ABC cost of sales calculation, the cost of each operation is multiplied by the number of such operations required to produce and sell each product.

Calculation example

The company "Climate-Control" produces air conditioners, heaters and fans.

Table 1. Direct costs of the enterprise associated with production

Product type	Number of products	Material costs per unit of production.	The amount of direct material costs rub.	Wages of production workers per unit, rub.	The amount of expenses for the wages of production workers, rub

Air conditioners
Heaters
Fans

Let's divide the process into operations (functions), each of which corresponds to a certain cost element.

table 2. Correspondence of costs to operations

	Cost element value	By product type:
	Cost element value	Air conditioners	Heaters	Fans
Staff participation (person-hour)

Supply of materials (batch)
Order accounting (qty)

Table 3. Calculation of the cost of each cost element

	Costs, thousand rubles	The value of the cost element for each type of product	Unit Cost of Cost Element
Staff participation (person-hour)			RUB 10.70/person-hour
Use of equipment (mash-hour)			RUB 5.01/machine-hour
Supply of materials (batch)			3789.47 rubles/delivery
Order accounting (qty)			RUB 461.54/order

We calculate the indirect costs attributable to each process, and determine their amount.

Table 4. Calculation of indirect costs

	Quantity value of the cost element	The cost of the cost element per unit of product	The total cost of costs attributable to each process, rub.
Staff participation (person-hour)		RUB 10.70/person-hour
Use of equipment (mash-hour)		RUB 5.01/machine-hour
Supply of materials (batch)		3789.47 rub./delivery
Order accounting (qty)		RUB 461.54/order
Total costs for all functions

892149.36 / 140 = 6372.49 rubles

The cost of purchasing materials - 34706.00 rubles.

Wages of workers in production - 16171.00 rubles.

Thus, the cost of sales of one air conditioner consists of:

34706.00 + 16171.00 + 6372.49 = 57249.49 rubles

An important advantage of the ABS method is that it allows not only to determine the amount of costs attributable to each unit of production, but also to analyze the structure of costs incurred by the enterprise and identify excess resource consumption.

For example, the ABS method allows management to draw conclusions about how appropriate the price of materials purchased for production and the cost of maintaining equipment and then decide whether it is worth raising the price of finished products, or it is better to save on the cost of resources. However, it must be borne in mind that this method is quite laborious and requires a high degree of automation of financial accounting.

Since the cost of sales is one of the key performance indicators of the company, the chosen calculation method should be as informative as possible.

conclusions

There are several ways to calculate cost of sales. The choice of calculation method depends on the type of activity of the enterprise and the nature of the products.

Since the cost of sales is one of the key performance indicators of the company, the chosen calculation method should be as informative as possible - so that, guided by the results obtained, users of financial statements can analyze the costs incurred by the enterprise and make competent management decisions regarding the pricing policy and the efficiency of the company's resource allocation.

Cost price represents the current expenditure of the organization, expressed in monetary terms, which is aimed at the production and sale of goods.

Cost price is an economic category that reflects the production and economic activities of the enterprise and shows the amount of financial resources spent on the production and sale of products. The cost price has an impact on the profit of the enterprise, while the lower it is, the greater the profitability.

Cost Formula

The cost price includes the sum of all expenses for the release of goods. To calculate using the cost formula, you need to sum up all the costs that were incurred in the production (sales) process:

The cost formula looks like this:

Full \u003d Spr + Rreal

Here Full is the full cost,

Spr - the production cost of the goods, calculated as the sum of production costs (wages, depreciation, material costs, etc.),

Rreal - the cost of selling products (storage, packaging, advertising, etc.).

If you need to determine the cost of a unit of production, then the formula for the cost of goods produced is calculated using the simple calculation method. At the same time, the unit price of the produced goods is determined by dividing the sum of all costs for the corresponding period by the quantity of goods manufactured during this time.

Cost structure

The cost formula includes:

Raw materials needed in the production process;
Calculation of energy carriers (various types of fuel).
Expenses for equipment and machinery that are necessary for the operation of the enterprise.
Wages of company employees, including payment of all payments and taxes.
General production expenses (office rent, advertising, etc.).
Depreciation expenses for fixed assets.
Administrative expenses, etc.

Features of cost calculation

There are several different methods for calculating the cost of goods. They may be applied according to the nature of the work, services or products produced. There are two types of production costs:

Full, including all expenses of the enterprise.
Truncated cost, referring to unit cost of variable cost production.

The actual and standard cost is calculated on the basis of the costs incurred by the company. At the same time, the standard cost helps to control the costs of various resources and, in the event of deviations from the norm, the timely provision of all necessary measures. The actual cost per unit of output can be determined after all costs have been calculated.

Cost types

Cost is of the following types:

Full (average) cost, implying the totality of expenses, including commercial costs for the release of products and the purchase of equipment. The costs of creating a business are divided into periods during which they pay off. Gradually, in equal parts, they are added to general production costs.
Marginal cost, which is directly dependent on the quantity of output and shows the cost of each additional unit of goods. This indicator reflects the effectiveness of the subsequent expansion of production.

Also, the cost can be:

Shop cost, including the total cost of all departments of the enterprise, which are aimed at the production of new products;
The production cost, which is the shop cost, including target and general costs.
The full cost price, which includes not only production costs, but also the costs incurred by the company in the process of selling the product.
General business (indirect) cost, consisting of business management costs and not directly related to the production process.

This indicator shows how efficient and cost-effective production is. Also, the cost directly affects pricing. Now we will tell in detail everything about this qualitative indicator and learn how to calculate it.

General concept of cost

In every textbook on economics, you can find a variety of interpretations of the term "cost". But no matter how the definition sounds, its essence does not change from this.

Production cost - Thisthe sum of all costs incurred by the enterprise for the manufacture of goods and their subsequent sale.

Under the costs understand the costs associated with the purchase of raw materials and materials necessary for production, remuneration of employees, transportation, storage and sale of finished products.

At first glance, it may seem that calculating the cost of production is quite simple, but this is not entirely true. At each enterprise, such an important process is entrusted only to qualified accountants.

It is necessary to carry out the calculation of the cost of goods on a regular basis. Often this is done at regular intervals. Every quarter, 6 and 12 months.

Types and types of cost

Before undertaking the calculation of the cost of production, it is necessary to study into what types and types it is divided.

Cost can be of 2 types:

Full or average- includes absolutely all expenses of the enterprise. All costs associated with the purchase of equipment, tools, materials, transportation of goods, etc. are taken into account. The indicator is averaged;
Marginal - depends on the number of products produced and reflects the cost of all additional manufactured units of the goods. Thanks to the value obtained, it is possible to calculate the efficiency of further expansion of production.

The cost is also divided into several types:

shop cost- consists of the costs of all structures of the enterprise, whose activities are aimed at the production of new products;
Production cost- represents the sum of the shop cost, target and general expenses;
Full cost- includes production costs and costs associated with the sale of finished products;
Indirect or general business cost- consists of costs that are not directly related to the production process. These are management expenses.

The cost price can be actual and normative.

When calculating the actual cost, they take real data, i.e. Based on the actual costs, the price of the goods is formed. It is very inconvenient to make such a calculation, because often it is necessary to find out the cost of a product before it is sold. The profitability of the business depends on this.

When calculating the standard cost, the data is taken according to production standards. This allows you to tightly control the consumption of materials, which minimizes the occurrence of unnecessary costs.

Product cost structure

All enterprises that produce products or provide services are different from each other. For example , the technological processes of an ice cream factory and a soft toy factory are completely different.

Therefore, each production individually calculates the cost of finished products. This is made possible by a flexible cost structure.

The cost is the sum of the expenses. They can be divided into the following categories:

Spending on raw materials and materials necessary for the production of products;
Energy costs. Some industries take into account the costs associated with the use of a particular type of fuel;
The cost of machinery and equipment, thanks to which production is carried out;
Payment of salaries to employees. This item also includes payments related to the payment of taxes and social services. payments;
Production expenses (rent of premises, advertising campaigns, etc.);
Expenses for holding social events;
Depreciation deductions;
administrative costs;
Payment for third party services.

All costs and expenses are percentages. Thanks to this, it is easier for the head of the enterprise to find the “weak” aspects of production.

The cost is not constant. It is influenced by factors such as:

Inflation;
Interest rates on loans (if the company has such);
Geographical location of production;
The number of competitors;
Use of modern equipment, etc.

In order for the company not to go bankrupt, it is necessary to calculate the cost of the product in a timely manner.

Formation of production cost

Calculating the cost of production, summarize the costs necessary for the production of products. This indicator does not take into account the cost of selling products.

The formation of the cost at the enterprise occurs before the products are sold, because the price of the product depends on the value of this indicator.

There are several ways to calculate it, but the most common is costing. Thanks to him, you can calculate how much money is spent to produce 1 unit of output.

Classification of production costs

As we said earlier, production costs (cost of production) at each enterprise are different, but they are grouped according to separate characteristics, which makes it easier to make calculations.

Costs, depending on the method of their inclusion in the cost price, are:

Direct - those that relate directly to the production of products. That is, the costs associated with the purchase of material or raw materials, the remuneration of workers who participate in the production process, etc.;
Indirect costs are those costs that cannot be attributed directly to production. These include commercial, general and general production costs. For example, the salaries of managers.

In relation to the total volume of production, the costs are:

Constants are those that do not depend on the volume of production. These include the rent of premises, depreciation, etc.;
Variables are costs that directly depend on the volume of products produced. For example, the costs associated with the purchase of raw materials and supplies.

According to the significance of a specific decision of the manager, the costs are:

Irrelevant - costs that do not depend on the decision of the manager.
Relevant - dependent on management decisions.

For a better understanding, consider the following example. The company has an empty space at its disposal. Certain funds are allocated for the maintenance of this facility. Their value does not depend on whether some process is being performed there. The manager plans to expand production and use this room. In this case, he will need to purchase new equipment and equip jobs.

There are two ways to calculate the cost of production in production. These are the costing method and the tiered allocation method. Most often, the first method is used, since it allows you to more accurately and quickly determine the cost of production. We will consider it in detail.

Costing - this is a calculation of the amount of costs and expenses that fall on a unit of production. In this case, the costs are grouped by items, due to which the calculations are carried out.

Depending on the activity of production and its costs, costing can be carried out in several ways:

Direct costing. This is a production accounting system that arose and developed in a market economy. This is how limited cost is calculated. That is, only direct costs are used in the calculation. Indirect ones are written off to the sales account;
Custom Method. Used to calculate the cost of production for each unit of output. It is used in enterprises that produce unique equipment. For complex and time-consuming orders, it is rational to calculate the costs for each product. For example, at a shipyard, where several ships are produced per year, it is rational to calculate the cost of each separately;
Transverse method. This method is used by enterprises that carry out mass production, and the manufacturing process consists of several stages. The cost price is calculated for each stage of production. For example, at a bakery, products are made in several stages. In one workshop, dough is kneaded, in another, bakery products are baked, in a third, they are packaged, and so on. In this case, calculate the cost of each process separately;
Process method. It is used by extractive industries, or companies with a simple technological process (for example, in the production of asphalt).

How to calculate the cost

Depending on the type and type, there may be several variations of the formulas for calculating the cost. We will consider simplified and expanded. Thanks to the first, every person who does not have an economic education will understand how this indicator is calculated. With the help of the second, you can make a real calculation of the cost of production.

A simplified version of the formula for calculating the total cost of goods looks like this:

Full cost = Production cost of the product + Cost of implementation

You can calculate the cost of sales using the expanded formula:

PST \u003d PF + MO + MV + T + E + RS + A + ZO + NR + ZD + OSS + CR

PF - expenses for the purchase of semi-finished products;
MO - the costs associated with the purchase of basic materials;
MW - related materials;
TR - transportation costs;
E - the cost of paying for energy resources;
PC - the costs associated with the sale of finished products;
A - depreciation expenses;
ZO - wages of the main workers;
HP - non-production costs;
ZD - allowances for workers;
ZR - factory costs;
OSS - insurance deductions;
CR - shop expenses.

To make it clear to everyone how to make calculations, we will give an example of cost calculation and step-by-step instructions

Before proceeding with the numbers, you need to do the following:

Sum up all the costs associated with the purchase of raw materials and supplies needed for production;
Calculate how much money was spent on energy resources;
Add up all the costs associated with paying salaries. Don't forget to add 12% for additional work and 38% for social. deductions and health insurance;
Add deductions for depreciation costs with other expenses that are associated with the maintenance of devices and equipment;
Calculate the costs associated with the sale of products;
Analyze and account for other production costs.

Based on the initial data and costing articles, we make calculations:

Expense Category		Calculation	Final value
Fund contributions	Paragraph 4 of the initial data
overhead costs	Paragraph 6 of the initial data
General running costs	Paragraph 5 of the initial data
Production cost of 1000 m of pipes	The sum of points 1-6 ref. data	3000+1500+2000+800+200+400
Selling costs	Paragraph 7 of the initial data
Full cost	The amount of production. Costs and distribution costs

Cost components - what does this indicator depend on

As it has already become known, the cost price consists of the costs of the enterprise. It can be divided into different types and classes. This is the main factor to consider when calculating the cost of the enterprise.

Different cost implies the presence of completely different components. For example, when calculating the shop cost, we do not take into account the cost of selling products. Therefore, each accountant is faced with the task of calculating exactly the indicator that will most accurately show the effectiveness of this enterprise.

The cost of a unit of production depends on how much production is established. If each workshop of an enterprise “lives its own life”, employees are not interested in fast and high-quality performance of their duties, etc., then with great confidence, we can say that such an enterprise suffers losses and has no future.

By reducing the cost of production, the company receives more profit. That is why every leader is faced with the task of establishing a production process.

Cost reduction methods

Before you start reducing costs, you need to understand that product quality should not suffer from this in any way. Otherwise, the savings will be unjustified.

There are many ways to reduce costs. We have tried to collect some of the most popular and effective ways:

Raise labor productivity;
Automate workplaces, purchase and install new modern equipment;
Engage in the enlargement of the enterprise, think about cooperation;
Expand the range, specifics and volume of products;
Introduce economy mode throughout the enterprise;
Use energy resources wisely, use energy-saving equipment;
Make a careful selection of partners, suppliers, etc.;
Minimize the appearance of defective products;
Reduce the cost of maintaining the administrative apparatus;
Conduct market research regularly.

Conclusion

Cost is one of the most important quality indicators of any enterprise. It is not a constant value. Cost is subject to change. Therefore, it is very important to periodically calculate it. Thanks to this, it will be possible to adjust the market value of the goods, which will avoid unnecessary costs.

Full cost are the costs of producing and selling products.

The total cost consists of the production cost and selling expenses.

Selling expenses are associated with the sale of products. These include: the cost of packaging, packaging, loading, unloading, transportation, etc.

When planning the cost of production, three main calculations are performed:

1. Calculation costing;

2. Calculation of cost estimates for production;

3. Calculation of production cost reduction.

Calculation are the costs in cash associated with the production and sale of a unit of output.

Such a unit in the confectionery industry is 1 ton of products.

Costing is compiled for each product range in order to determine the profitability of the production of a particular product. A cost estimate is made. The essence of this method is that all costs are divided into: direct and indirect.

Direct costs include costs that are calculated according to established standards, for example: the cost of raw materials, materials, fuel, electricity, packaging, etc.

Indirect costs include such costs that are difficult to calculate according to the norms and they are calculated relative to the established base - these are general production costs, general business expenses, and commercial expenses.

The methodology for calculating indirect costs is as follows: general production costs, general business expenses are calculated as a percentage of wages; selling expenses are calculated as a percentage of the production cost.

In the calculation of cost items are: fixed and variable.

fixed costs do not depend on the amount of output. These include: general production and selling expenses.

variable costs depend on the amount of production. These include all other costing items.

Estimated production costs- these are the costs associated with the release of gross output, taking into account work in progress.

The cost estimate is compiled according to aggregated economic indicators, regardless of the purpose of the costs and the place of their use. This allows you to determine the total need of the enterprise for raw materials, the total cost of wages, the total need for fuel, electricity, the total amount of depreciation and other expenses.

In the calculation, wages are indicated in separate articles for production workers, for the managerial apparatus and non-administrative apparatus, and the general article "Wages of the PPP" is indicated in the production estimate.

The production estimate includes the following cost elements:

1. Raw materials and basic materials;

2. Auxiliary materials;

3. Fuel part;

4. Electricity from outside;

5. PPP salary;

6. Payroll charges;

7. Depreciation charges;

8. Other expenses;

There are two methods for calculating the reduction in the cost of production:

1. Calculation of cost reduction of comparable products;

2. Calculation of cost reduction of incomparable products.

Comparableproducts These are products that were produced last year and are planned to be produced next year.

Incomparable products- This is a product that is produced for the first time.

When producing comparable products, the percentage of cost reduction is planned according to the formula

where T - commercial products, rub.;

C - cost, rub.

At each enterprise it is necessary to reduce the cost of production, because. profit increases, and conditions are created to reduce the price of goods, so it is necessary to know the sources and factors of cost reduction. Sources of cost reduction include:

Saving raw materials and materials;

Decreased TZR;

Reducing fuel and electricity;

Growth in labor productivity;

Reducing indirect costs.

The main factors for reducing the cost of production are:

1. Implementation of scientific and technological progress;

2. Improving the form of organization of production;

3. Improvement of the main and auxiliary production;

4. Improving the organization of service jobs;

5. Introduction of advanced management methods;

6. Effective use of advanced management methods;

7. Development of quality products;

8. Improving the planning of the enterprise;

9. Market expansion

2 Calculation of the cost of 1 ton of products

2.1 Calculation of the quantity and cost of raw materials and materials per 1 ton.

The initial data are in table 1.

Table 1

name of raw materials	Price for 1kg, rub.	Cream Biscuit Cake
name of raw materials	Price for 1kg, rub.	Consumption rate, kg/t.	Cost, rub.

Wheat flour premium
Dry potato starch
Sugar

Essence
powdered sugar
Butter
Whole milk condensed with sugar
Vanilla powder

Rum essence

cocoa powder



Total with TZR
Auxiliary materials:
paper etiquette
under parchment
Boxed cardboard

Transport and procurement costs
Total with TZR

The price of any product depends on its initial cost, calculated using a special formula, taking into account certain costs.

The total cost formula is the sum of all costs, including commercial costs.

In accordance with the total cost of production, the cost price can be:

Shop cost, consisting of all types of costs at each stage of the production cycle;
Production cost, which is determined by the summation of shop and general costs of the enterprise;
The full cost price, which takes into account not only production costs, but also the costs of selling and transporting goods.

There are many types of cost in accordance with the characteristics of production and ways of selling products.

Total cost formula

The full cost formula is most often used in evaluating the effectiveness of a company. It includes all costs for the production of goods, as well as subsequent costs for its transportation and sale. The general cost formula looks like this:

Full=PZ+RZ

Here Full is the total cost of production,

PZ - production costs,

RZ - the cost of selling products.

All other types of cost are part of the full cost, since it includes a more complete composition of the costs of production and selling expenses of the company.

The production cost of a product is the amount spent on its production. This amount includes:

Natural resources,
materials and raw materials,
depreciation of fixed assets,
energy and fuel
staff salaries (including deductions), etc.

What does total cost show?

The cost price is a cost indicator that reflects the costs incurred by the enterprise for the manufacture of a certain volume of products or the manufacture of a unit of production. The management of any enterprise, using the full cost formula, can identify the most expensive type of product, as well as reduce production costs.

When analyzing the full cost, one can draw conclusions about the unprofitability or profitability of manufactured or sold products, as well as the possibility of its production in the future.

The advantages of this cost price can be called:

full compliance with current regulatory acts of taxation and financial accounting,
correct valuation of the stock of finished goods.

The disadvantages of the full cost calculation method are:

inclusion of costs that are not related to the production of products, as a result of which the profitability indicator is distorted;
it is impossible to analyze, control and plan costs due to inattention to the nature of their behavior depending on production volumes.