Cost is in simple words. What is cost, about calculation in simple words Cost of a company

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

The cost of a product refers to the amount that was spent on its production. It includes expended natural resources, raw materials, supplies, fuel, energy, transportation, wages to production workers and other costs.

Dear reader! Our articles talk about typical ways to resolve legal issues, but each case is unique.

If you want to know how to solve exactly your problem - contact the online consultant form on the right or call by phone.

It's fast and free!

Cost can be divided into the following types:

1. Determining the full cost includes all costs, including commercial costs.
2. The concept of marginal cost corresponds to the cost of one unit of production.

The cost of finished products is calculated taking into account the full volume of production costs and it can be:

1. Workshop. Includes the costs of all stages of production.
2. Production. It is calculated by adding shop floor and general plant costs.
3. Full. This takes into account the costs not only of production, but also of transportation and sales.

The classification of cost is extensive; it can be divided into many types depending on the characteristics of production and methods of selling goods.

Calculation methods

There is no uniform methodology for calculating costs. Depending on the type of product, its production and many different factors, the cost of production can be calculated differently.

Most often, the following costs are taken into account in calculations:

• manufacturer's business costs;
• total production and sales costs;
• costs for preparing documentation for the goods;
• other costs required by law;

Costs should be taken into account in the reporting period corresponding to the time of production of the goods, and not the time of payment of all costs.

When calculating the price of a product, the cost is calculated. The calculation is based on the quantity of products produced (in meters, pieces, or, in case of one-time production, a hundred meters or pieces are taken as a unit of measurement).

Costing items should reflect all stages of production, for example:

• cost of raw materials and materials;
• fuel and energy costs;
• wages for production workers;
• total costs for the production process:
• expenses for the economic needs of the enterprise;
• business expenses;
• other costs;

All these factors are expressed in certain amounts, and taking them into account, a formula for calculating the cost is drawn up.

General view and explanation

As mentioned above, there is no single calculation formula; when calculating the cost of a particular product, various factors can be taken into account.

Here is a general formula for calculating the total cost:

• PS = Total production costs + Costs of selling goods/costing unit;

The cost is calculated in order to:

1. Evaluate profitability.
2. Set the wholesale and retail price for the product.
3. Assess the efficiency of resources used in production.
4. Calculate the potential profit of the enterprise.

The production process also includes such types of costs as fixed and variable, which must be reflected in the cost of goods. Moreover, an enterprise has fixed costs even when it does not produce anything.

In general, the formula for calculating cost looks like this:

• PS = (Total production costs + Costs of selling goods)/costing unit;
• PS - total cost of production;

Total production costs- this is the total cost of raw materials, energy, wages and other expenses required by the production process.

Costs of selling goods- the amount spent on storage, transportation, documentation for the goods.

Costing unit- quantity of goods, expressed in pieces or meters.

Example of calculation using the formula

Using Excel

There are methods for calculating costs using tables in Excel. Let us give examples of calculations.

Option 1

In cases where the organization is not able to calculate the exact costs of production, an approximate calculation can be made. The planned quantity of goods and planned costs are entered into the table and division is performed. The resulting amount will be the cost unit.

Example 1:

Option 2

After the company has allocated the amount necessary to produce 1 unit of goods, it is necessary to calculate the cost by adding up the variable and fixed costs. The amount of variable costs depends on the quantity of products produced, while fixed costs do not change.

Example 2:

Reduction methods

Product cost reduction scheme

There are methods by which the cost of goods can be reduced. This can be done by conducting a detailed full cost analysis of all production costs. In this case, you can plan measures to reduce the price of the product and calculate its optimal value.

If the analysis is carried out qualitatively and taking into account all the factors necessary for an objective assessment, then there is every opportunity to adjust the production process.

According to experts, one of the most effective ways to reduce the cost of goods is to increase.

Labor productivity- this is the amount of work for a certain amount of labor input in a given period of time.

The following factors influence labor productivity:

1. The level of qualifications of employees involved in the production of products. It is better to replace untrained employees with low qualifications with qualified specialists. This will reduce the number of production workers, and therefore the costs of paying wages, which also affect the cost of production.
2. Production conditions and organization of the work process. At a production enterprise that is equipped with modern high-tech equipment, energy costs will be significantly lower than where outdated models of equipment are used. In addition, modern equipment will reduce the number of defects, and therefore the costs of raw materials in the manufacture of goods .

There is another way to reduce the cost of production - its essence is to cooperate and expand the specialization of the production enterprise. This will reduce the costs of administrative, management and other activities of the enterprise.

Such a measure as analysis, making the necessary changes and improving the ways of using the enterprise's fixed assets will also allow saving on the production of goods.

It is also possible to revise the management structure, the staff of administrative and managerial employees in the direction of reducing their number. Since the costs of management activities of an enterprise also influence the cost of the product and are taken into account when calculating it, reducing staff and replacing quantity with quality will also lead to cost reduction and lower costs.

In conclusion, we can say that by applying the formula for calculating the cost and taking into account the result obtained, it is possible to objectively assess the profitability of production and the main performance indicators of the company.

The result of the calculations is an indicator of how efficiently the resources of the enterprise are used and what results are achieved by measures to improve production conditions and introduce new technologies.

Cost is one of the most important indicators of store performance and profitability. It can be calculated in several ways using different formulas. In our article we will give examples and tell you how to determine this indicator correctly.

How to calculate cost

The cost of products sold, goods, work performed, services provided is the totality of all costs that the store incurs in order to manufacture and sell.

Professional automation of goods accounting in retail. Organize your store

Take control of sales and track indicators for cashiers, points and organizations in real time from any convenient place where there is an Internet connection. Formulate the needs of outlets and purchase goods in 3 clicks, print labels and price tags with barcodes, making life easier for yourself and your employees. Build a customer base using a ready-made loyalty system, use a flexible system of discounts to attract customers during off-peak hours. Operate like a big store, but without the expense of specialists and server equipment today, and start earning more tomorrow.

How to calculate the cost? To do this, you need to sum up all the costs and expenses of the store. The total cost is the totality of all expenses in monetary terms, all the costs that the store incurs to carry out its activities.

In general, in economics, including the microeconomics of each store, costs are divided by type depending on the methods of their structuring, on how much these costs change under the influence of various factors of commercial activity.

Costs are divided by economic elements and cost items:

1. Material costs. In the context of retail trade, this is the cost of products purchased for further sale;
2. Depreciation of fixed assets;
3. Wages;
4. Social contributions to extra-budgetary funds. Previously it was the Unified Social Tax;
5. Other taxes, for example, transport tax, property tax;
6. Rent;
7. Third party services;
8. Telephone and Internet ;
9. Other expenses.

The total cost is found by simply adding all the cost amounts indicated in these paragraphs.

You can analyze the cost and markup and calculate the profitability of products in the Business.Ru program. It allows you to forecast profits and make purchases based on sales dynamics!

Costs in the cost of production can be calculated using costing items. The cost price for costing items is calculated per unit of manufactured products.

Another way to divide costs is by how they behave depending on changes in commercial, production, and management factors. In this context, all costs of the company, including the store, are divided into two groups:

• Fixed costs;
• Variable costs.

We calculate the cost using an example. Video

Cost of goods in the store

The cost of goods in retail trade may consist of the following elements:

1. The purchase price of goods in the cost of production. This is the cost at which stores buy goods from suppliers, wholesalers, manufacturers for further retail sale;
2. Delivery costs;
3. Renting a retail outlet – if the store is not owned by the entrepreneur;
4. Depreciation of fixed assets in the cost of production. This is commercial equipment, computer equipment. Anything that costs more than 10 thousand rubles;
5. The salary is constant. This is the salary of management, accounting, permanent salaries of sellers and sales managers, service personnel;
6. Salary is variable. These are percentages from sales and concluded contracts that sales managers receive depending on the effectiveness of their work;
7. Deductions for wages. These are contributions to extra-budgetary funds, the former UST - to the Pension Fund, to the Social Insurance Fund, to the Compulsory Medical Insurance Fund;
8. Taxes;
9. Services of third-party organizations – transport services, Internet, communications, including mobile;
10. Other expenses. This usually includes what is not included in the above large groups of expenses: office supplies, other expenses.

The costs in retail trade in the cost of production specified in paragraphs 1, 2 and 6 are considered variable. This means that they change, the amount of costs changes depending on the volume of trade: the more you sell, the more you spend on purchasing goods.

Comprehensive trade automation at minimum costs

We take a regular computer, connect any fiscal registrar and install the Business Ru Kassa application. As a result, we get an economical analogue of a POS terminal like in a large store with all its functions. We enter goods with prices into the cloud service Business.Ru and start working. For everything about everything - maximum 1 hour and 15-20 thousand rubles. for the fiscal registrar.

The remaining costs are considered fixed. They do not change depending on the volume of trade: no matter how much you sell - little or much - your rental cost is the same, you pay the same salary to the store director, along with accountants and cleaners, you spend the same on communications, internet and office supplies same.

The Business.Ru service will generate reports on the total balances and cash turnover of your store, and will also help you create detailed sales analytics, which will allow you to correctly calculate the cost and profitability of goods in your store.

Methods for calculating costs in trade

In retail trade, it is very important to use one of three costing methods. What is meant here is not the full cost, but the cost of goods.

Namely: at what price to write off as cost, write off as expenses goods purchased for further resale. All other costs mentioned above are simply further added to the cost of goods.

There are three methods for determining at what price to write off the cost of goods purchased for sale:

• At the cost of each unit of goods;
• At average cost;
• Using the FIFO method (FIFO: First In First Out - First In, First Out).

Cost per unit method

It is used in those areas of trade when they sell some piece and expensive goods. It could be cars, jewelry.

This method is used where accuracy is needed in determining the cost, as well as in determining the financial results from each specific individual sale.

When applying this method, the cost for which each individual product was purchased, each individual product that was later sold, is written off as expenses.

Average cost method

It consists in the fact that monthly the cost (actual cost) of the goods sold is written off to expenses not at the price of each individual purchase, but at the arithmetic average, that is, at the average cost. This method is used more often than the first.

The formula for calculating the average cost is as follows:

Average cost =(cost of balances at the beginning of the month + cost of the next delivery) / (quantity of goods at the beginning of the month + quantity of goods in the next delivery)

Example of cost calculation using the average cost method

Let's say you have a butcher shop. At the beginning of the month, you had 5 kilograms of sausages left at 270 rubles per kilogram (supplier price).

Within a month, you received new sausages in two batches: 7 kilograms for 270 rubles and 7 kilograms for 240 rubles. During the reporting month, you sold 17 kilograms at a selling price of 300 rubles per kilogram.

Let's find the cost of sausages sold per month using the average cost method:

• Cost of balances at the beginning of the month:
  5 kg. * 270 rub. = 1350 rub.
• First delivery cost:
  7 kg. * 270 rub. = 1890 rub.
• Cost of the second delivery:
  7 kg. * 240 rub. = 1680 rub.
• Average cost of sausages:
  (1350 + 1890 + 1680) / (5 +7 +7) = 4920 / 19 = 259 rub.

Since you sold 17 kilograms in a month at 300 rubles per kilogram, that is, 5100 rubles (17 * 300), then you will write off 17 kilograms at the average price in the cost of sales:

17 * 259 = 4403

5100 – 2590 = 697 rub.

FIFO method

This is the most popular cost determination method used in trade. It consists in the fact that the cost of goods is first written off at the price of the first delivery (previous), then at the price of the subsequent one, and so on.

This method may also be more profitable for the store. Let's look at an example based on the previous data about sausages for your butcher shop: you have a balance of 5 kg. 270 rubles each, and two deliveries - 7 kg. 270 rub. and 7 kg. 240 rub. and sale of 17 kg. 300 rub.

An example of calculating cost using the FIFO method and financial results:

When you sold 17 kilograms, first you sold the remainder:

5 kg. 270 rub. = 1350 rub.

Then your first batch sold:

7 kg. 270 rub. = 1890 rub.

Then you sold 5 kilograms from the second batch:

5 kg. 240 rub. = 1200 rub.

Thus, the total cost (actual cost of sales) of 17 kilograms of sausages sold during the month will be:

1350 + 1890 + 1200 = 4440 rubles . (actual cost of sales)

Profit from the sale of sausages for the month will be:

5100 – 4440 = 660 rub.

Cost of goods sold is the sum of a company's total direct costs at all stages of the production process and other costs at the time of sale.

Dear reader! Our articles talk about typical ways to resolve legal issues, but each case is unique.

If you want to know how to solve exactly your problem - contact the online consultant form on the right or call by phone.

It's fast and free!

When determining it, the following costs are considered:

1. The cost of materials used to produce products or perform work.
2. Remuneration of workers directly involved in the production process.
3. Non-production expenses.
4. Business expenses.

Cost expresses the total amount of use by the enterprise of various resources. Thanks to it, it is possible to provide economic activities with resources by determining a portion of the cost share to reimburse them. As a result, the production process is continuous.

Cost dynamics for certain periods of time, as well as assessing its value after each sale of products, allows us to summarize the feasibility and rationality of procurement and expenditure of material and labor resources. In addition, the calculated cost indicators for different periods help to analyze the essence of the enterprise’s costs and develop marketing and economic methods to reduce their share in profits.

Calculation methods

The cost calculation method directly depends on the stage at which the finished product is located.

As a result, the following methods are considered:

1. Calculation of production costs by summing up all costs for economic elements and drawing a total.
2. Calculation of the cost of gross output by finding the difference between the sum of all production costs and non-production expenses, as well as deferred expenses.
3. Calculation of production costs by finding the difference between the cost of gross output and the change in work in progress balances, if they increase. When balances are reduced, their change, expressed in monetary terms, is summed up.
4. Calculation of the total cost by adding the production cost value and the cumulative total of non-production costs.
5. Calculation of the cost of goods sold by adding the total cost and selling expenses. But, the actual value of this cost indicator is obtained when the monetary value of the balances of unsold finished products is subtracted from the resulting summation result.

How to calculate cost of goods sold

To calculate the cost of goods sold, you first need to total production costs. In other words, production cost data will be required.

As a result, it will be necessary to establish costs of a different nature incurred at each stage of production and meeting the following requirements:

• related to commercial activities;
• directly relate to the activities of the organization in question;
• spent on finished products in the production and sales processes;
• documented;
• comply with the law;

The amount of costs is expressed in monetary terms and is taken into account for all types of products. Expenses included in the cost price are grouped according to elements of different economic significance.

As a result, five groups are considered:

1. Material costs.
2. Remuneration.
3. Social contributions.
4. Depreciation.
5. Other expenses.

These include costs:

• for packaging;
• for transportation;
• for storage and creation of special conditions;
• to pay various commissions;

The sum of production and non-production costs expresses the total cost. This indicator is necessary for further calculation of the cost of products sold. When finished products are sold, additional both planned and unforeseen costs may arise. For example, payment for advertising or marketing activities. Such expenses are usually called commercial expenses.

Summing up the total cost and selling expenses and reducing the total by the balance of products in the warehouse expresses the cost of goods sold indicator.

Formula

As a result, to derive the monetary value of the cost of goods sold, you will have to use the formula:

Srp = Sp + KR – Onp, Where

Sp– full cost;

KR– commercial expenses;

Onp– remains of unsold products.

In turn, the value of the total cost is calculated using the formula:

Sp = PR + VR, Where

PR– production costs,

VR– non-production expenses.

Calculation example

To illustrate the application of the methodology for calculating the cost of products sold, let’s consider a specific example. The company Posuda LLC produces various types of tableware. It is required to calculate the cost of production for July, when it is known that 70 saucepans and 50 teapots were produced, and 52 saucepans and 35 teapots were sold.

Cost calculations were also carried out, resulting in the following results:

1. Spent on pots:
   • materials – 148,000 rubles;
   • energy – 14,000 rubles;
   • salary – 28,000 rubles;
   • deductions – 8380 rubles;
   • depreciation – 8,700 rubles;
   • other expenses – 6,000 rubles;
2. Spent on teapots:
   • materials – 98,000 rubles;
   • energy – 8000 rubles;
   • salary – 22,000 rubles;
   • deductions – 6800 rubles;
   • depreciation – 7100 rubles;
   • other expenses – 4000 rubles;

We calculate the total costs for each type of product:

1. Total pots: 148000+14000+28000+8380+8700+6000 = 213080 rubles.
2. Total teapots: 98000+8000+22000+6800+7100+4000 = 145900 rubles.

1. Cost of one pan: 213080/70 = 3044 rubles.
2. Cost of one teapot: 145900/50 = 2918 rubles.

Now we calculate the cost of goods sold:

1. Cost of pots sold: 3044*52 = 158288 rubles.
2. Cost of teapots sold: 2918*35 = 102,130 rubles.

We summarize the total cost of sales for the enterprise as a whole: 158,288 + 102,130 = 260,418 rubles.

Total cost of goods sold

The indicator of the total cost of goods sold expresses the result obtained by adding or subtracting the change in the cost of product balances in the warehouse from the full cost of finished products. When balances increase relative to the beginning of the period, the monetary value of the increase is subtracted, and when they decrease, the difference is added.

The total cost always includes the sum of all direct and indirect costs. Initially, based on accounting documentation, production costs are derived for each economic element.

For the full cost of the sale, you need to take into account the funds spent in the process. Selling expenses are also calculated between types of products produced and sold. It is important to remember that the quantity of products produced is not always equal to the quantity sold. Accordingly, for the cost of sales, the remaining goods in the warehouse are not taken into account.

Cost of goods sold analysis

The main goal of analyzing the cost of products sold is to identify ways to improve the efficiency and rationality of using all types of resources at each stage of the production process and at the time of sale.

As a result of this, the analysis involves performing the following tasks:

• assessment of changes in the cost value and its relation to planned indicators;
• assessment of the validity of planned cost values;
• identification of factors influencing the formation of the indicator and its changes, as well as deviations of the final value from the plan;
• identification of lost opportunities and unused reserves;

Analysis of cost of goods sold considers the following areas:

1. Analytical calculations and conclusions on the composition, value of the total cost and its changes.
2. Analytical calculations and conclusions on the values ​​of expenses per one ruble of product cost.

The analysis of the total cost is carried out in several stages:

1. The total cost is calculated.
2. Cost structuring is carried out.
3. Based on the results of comparing the current and similar previous periods, the value of the cost difference is derived.
4. For several types of products, the analysis is carried out in terms of its range.

The process of analyzing the costs incurred per ruble of the cost of goods is based on the following points:

1. Calculation of the value of costs incurred per ruble of product cost.
2. Comparison with the maximum value. The calculated value must always be below the standard level.
3. Comparison of value changes. The decrease in the indicator is a favorable trend.
4. Factor analysis.

The cost of products sold is of particular importance in the amount of profit received. Therefore, it requires constant calculation and analysis of the results obtained.

In addition, calculating the financial value of the cost of sales allows you to evaluate the consumption of resources at all stages of the production process, since it includes:

• Production cost.
• General production costs subject to calculation between types of products.
• Production costs are above normal.

It is quite difficult to give an unambiguous definition of cost, since this indicator has several types. In general, the cost shows the cost of a company to perform a particular action or maintain a condition. Cost indicators directly affect the final cost of products, and are also necessary when calculating the profitability of an enterprise. Another use of cost estimates can be when filing a customs declaration; if customs officers suspect that the value of the cargo is undervalued, then providing a detailed cost estimate will help avoid delays. Typically, product costing is the responsibility of the accountant.

Types of cost

There is the following classification of cost:

1. The workshop includes all the costs that are necessary for the production of products, including raw materials, personnel wages, and energy costs.
2. Production takes into account workshop costs, costs of auxiliary production and enterprise management.
3. The full one consists of production, to which are added the costs of selling and promoting the product. Most often, it is precisely this that is understood under the concept of the cost of goods.
4. Indirect (general business) consists exclusively of the costs of managing the company, and does not take into account production costs.

Please note: the choice of the required type of cost is solely within the competence of the company’s management. Typically, if production or workshop costs are used, then the costs of managing and selling the goods are also indicated in separate columns of the documentation.

Classification of expenses

This division is quite arbitrary; it is necessary to improve the analysis of the enterprise’s activities and may differ depending on internal rules. Typically, direct costs include materials, worker salaries, and equipment maintenance. It is quite difficult to reduce them; as a rule, such a step involves a transition to a new technological process, and therefore requires large capital investments. Rather, indirect costs are necessary to increase product sales and effectively manage the production process; they can change significantly over time, for example, due to increased supply and expansion of production.

Another type of classification is the division of expenses into relevant and irrelevant. The first category depends on decision-making, while the second is impossible to manage; it usually includes natural disasters and accidents. However, the relevance of costs is determined only for a specific situation, for example, a fire can be a consequence of both a violation of safety regulations and technical defects of equipment.

Depending on the volume of production, costs can be fixed or variable. An example of the second type is the purchase of energy and consumables. The remuneration of workers most likely belongs to the first type, since it does not always depend on production volumes. It is most difficult to classify commercial expenses, since with a fall in production the size of the advertising budget usually increases, but at the same time the income of managers decreases due to the deprivation of their bonuses. The company should try to minimize fixed costs to reduce the final cost of the product.

The basis of any business is the process of control; you can talk a lot about desire, the ability to organize and the availability of start-up capital, but all of them become secondary without the ability to control. Why is this happening?

In fact, any models (mechanisms) built by humans require systematic “adjustment” because nothing is eternal on this planet, and when it comes to models built using people themselves, the problem is aggravated many times over. Alas, no one has canceled the “human factor”; any business is, first of all, a model of interaction between different people to achieve certain goals, most often making a profit. But the question arises of how you can monitor the functioning process itself and, of course, check how effective the work of the constructed model is. In fact, it was precisely for monitoring business processes, which is impossible without analysis, that such indicators as cost, . Moreover, with the development of economic relations, more “advanced” ones appeared in the form of capital productivity, capital intensity, and so on.

Today we will talk about cost as one of the most important (if not the most important) indicators of economic analysis of business performance. What is cost?

Types and types of cost

In fact, the cost price is the totality of all (I emphasize all) expenses in monetary terms from the beginning of the business process to its final completion.

Important - very often the cost price means exclusively the costs of producing one unit of product; at most, total costs are added to the total amount. Which is fundamentally wrong; in fact, this is only one part of the total cost and, ultimately, the total amount must also include costs associated with organizing the business process. That is why there are two main types of cost:

Total cost (average)- this is a complete list of expenses, including expenses associated with organizing the business itself and purchasing equipment. For convenience and to obtain a readable analysis, the total costs associated with creating the business itself, including the contribution of working capital, start-up capital, etc., are divided into an estimated payback period and added in equal parts to general production expenses, as well as depreciation of fixed assets. Thus, the average cost per unit of production is formed;

An example of calculating the total cost.

Start-up costs for starting a business are 1,000,000 rubles, including fixed assets and working capital (conditionally, the full payback period in the business plan is 60 months). Total 16,667 rubles per month.

General expenses (salaries of the director, cleaners, taxes, building rent, lawyer’s services, etc.) amount to 150,000 rubles per month.

1000 units of leather belts were produced in a month (). The total costs for production amounted to 500,000 rubles (cost of leather, electricity, wages for workers, paint, threads).

Total total cost will be - 16667+150000+500000 / 1000 (product units) = 667 rubles for one leather belt (calculations are conditional)

Marginal cost- such calculations are used to determine the break-even threshold for production, plus, of course, profit maximization. What does this mean? In fact, there are two main elements: total production costs, plus depreciation and start-up capital, and the second element is the cost of production itself (how much money we will spend if we produce a unit). So the first category is not directly related to production volumes (or rather, it is extremely elastic). By and large, a salesperson in a store can sell both (or) and 100.

Example of marginal cost calculation.

We take the numbers from the example above, but the calculation method changes:

1 month 1000 belts produced – 16667+150000+500000 / 1000 = 667 rubles

2 month 1500 belts produced - 666667+16667+150000+750000/2500 =633 rubles

3 month 1200 belts produced -1583334+16667+150000+600000/3700 ​​= 635 rubles

As you can see, the marginal cost directly depends on the quantity of products produced and shows how effective it is to increase production in the future. Average reflects the current state of production, trade or provision of services.

There are a huge number of different types of cost, in fact, its type depends on the desire of the owner to control this or that area of ​​work, the main classification looks like this:

• Shop price – this refers to the cost of individual sections of the production cycle. Transferring it to a small business, we can recall the production of fried sunflower seeds, where you can keep separate records of the cost of the frying process and separately the process of packaging the products;
• General business cost (or indirect) - this includes all expenses associated with managing and maintaining the business as a whole, things that are not directly related to the production process (for example, a cleaner or lawyer’s services, etc.).
• Production cost is the sum of workshop and general economic costs;
• Full cost - it is calculated as the sum of production and plus expenses associated with the promotion of goods (advertising, delivery, promotions, presentations), depreciation and, of course, start-up capital (in a proportional breakdown.

Cost structure for business

Regarding the cost structure, two main points can be distinguished:

• Firstly, there is the so-called net cost structure. This gradation is developed and maintained as a cumulative total of total expenses in individual areas (blocks or items). It can be noted that the gradation was developed for large businesses; for small individual entrepreneurs or LLCs such a complex system is not needed. True, for a full analysis and, especially, drawing up a business plan, it is worth using an expanded structure.

1. Raw materials involved in the main production (activity) include materials, components, semi-finished products, units, components
2. Energy costs - gasoline, diesel fuel, electricity, other types of fuel (in certain types of production this is one of the most significant expense items).
3. Depreciation of fixed assets - equipment, machines, appliances, display cases, refrigerators, shelving.
4. Salaries of key personnel, including mandatory payments and taxes
5. General production expenses - wages of service personnel, advertising costs, office maintenance, and so on.
6. Work of third-party organizations (contractors), outsourcing or simply contract agreements
7. Administrative expenses - expenses for maintaining the management apparatus, paying taxes.

In addition, the cost price is taken classify by elements of production costs, while a separate article or block may contain several different elements.

The main elements of cost costs:

• costs associated with preparing production facilities and launching;
• costs reflecting investments in technology, production, management decisions;
• investments in the development of the scientific and technical base, development projects, research;
• costs reflecting the service component of the process of releasing goods;
• investments in improving working conditions;
• salary, vacation pay, social contributions;
• mandatory (insurance) payments (contributions);
• acquisition of fixed assets, depreciation;
• purchase of raw materials;
• other costs (including social costs, including “resolution of the issue”);

How to calculate your own cost

In fact, independently calculating the cost of a specific business is not difficult, but the trick, as always, is in the details:

• First, it is necessary to keep full records of activities, and this does not mean accounting for taxation (this was discussed in the article and), but namely economic activities. In Russia, accounting and, as a consequence, costing and tax accounting of costs are two different things.
• Secondly, cost accounting should be carried out by blocks, that is, costs of core activities and management costs (general). By the way, this also applies to costing for stores.
• Third, after summing up the general results, that is, calculating how much was spent, it is imperative to transfer it in the context of sold or produced products. This will give you the opportunity to see the real profitability of the business. That is why when they say that the markup in trade is 100-150%, this absolutely does not mean that the profitability of the business is the same. If we remove from the markup the costs associated with the sale of products and defects (losses), the markup will decrease to 50-70%, alas, the costs in this business are high.

Ultimately, you will reach your real business profitability indicators, which is very important for any startup.

I often hear the question, how much is cost related to production volume?

There is no definite answer here; it all depends on how high the share of general business expenses is, that is, costs not directly related to production.

For example, if you have built your own greenhouse and grow cucumbers in it (which gives you the right not to pay taxes), then the level of general economic costs will be minimal, you can even order that there will be no such costs at all. Accordingly, volumes practically do not affect the cost, another thing is when there is a company with staff, paying taxes, then in this case such an influence will be traced and the larger the production, the more noticeable this process.

That's all, if you have any questions, ask

Interesting on this topic