Calculation of the cost of production - definition and methods

Calculation of the cost of production - is the determination of all costs for the production and sale of finished products and their grouping by object of expenditure.

Accounting for costs and calculating the cost of production - a very important part of the economic policy of the enterprise, allowing you to determine with the highest accuracy the causes that affect the final and intermediate cost of a unit of manufactured products and, if necessary, adjust them. Calculation is a clear, detailed calculation that allows the manager or the owner to formulate their opinion on the cost of production.

There are three types of costing:

• Normative - is compiled according to factory and industry standards. It is necessary in order to determine the technically and economically justified amount of expenses that will be needed for the production of products (works, services);
• Planned - such a calculation is planned for a certain period for budgeting. It is necessary in order to determine the need for working capital and when planning profit;
• Reporting - the one that actually took place at the end of the reporting period.

In economic analysis, planned and budgeted costing of production costs are compared to determine the deviation and to find out its causes. Also, this comparison allows you to monitor the use of resources and the efficiency of production units.

Calculation of the cost of production can be carried out by such basic articles:

• Materials and all kinds of raw materials;
• Returnable waste and packaging (these costs are deducted from the cost estimate, since they are subsequently returned to the balance of the enterprise) ;
• Fuel and energy (for technological purposes and production)
• Payment of labor, including bonuses to the production worker;
• Social deductions from the wage fund;
• Expenses for the operation of production equipment and premises.

All these costs form a technological cost. It is necessary to estimate the costs directly to the production process.

• General production costs (for the maintenance of certain workshops and the costs of their management, are calculated in proportion to the amount of wages of all production workers and personnel directly engaged in production);
• General economic expenses (these are the costs of management and maintenance of the enterprise as a whole);
• Loss from marriage;
• Other business expenses.

All of the above costs create a production cost. It is needed to estimate the costs of the production process, including its management and maintenance.

• Non-production costs (shipping, storage, sale).

All these costs create a full cost price. It is this cost price that is the basis for determining the price of goods by the method of costs.

The structure of the cost price is the specific weight of all the components of the calculation.

The structure of the cost price is affected by the nature of the products, natural conditions and the level of technical and general organization of the enterprise.

If necessary, each pricing article can be divided into sub-items related to the feature of the activity, for more detailed information.

Calculation of unit cost is an internal document of the enterprise, in which all expenses for 1 unit of manufactured products are described in detail, it is often a commercial secret.

Calculation of the cost of production is most often entrusted to the economic department, accounts department, as well as to the production and normalization department of the enterprise. Costing is a very important point in the budgeting of company costs.