Any company 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 - this is a factor that forms the cost. However, this is not such a simple concept as it might seem. So, what is the cost?
Terminology issues
Costs are a component of the cost of production. They can both increase and decrease, which depends on the volume of material and labor resources, the organization of production and the level of technology. A manufacturer can manage cost reductions. It must be understood that the differences between the concept under consideration and such terms as “expenses” and “costs”, which are often given in regulatory documents and economic literature, are essentially not.
Economic costs
If you carefully look at these concepts, the "cost" is used mainly in economic theory and means the total cost of the enterprise to perform certain operations. This includes accounting, opportunity costs and estimated costs. Estimated costs are the actual costs that are caused by the expenditure of various economic resources during the production and circulation of goods, products and services. Alternative (they are also imputed) - the lost profit of the enterprise, which it could receive when producing at another (alternative) price another product that would be released on the alternative market.
Economic costs and expenses
Cost is the actual and estimated cost of a particular enterprise. Under the costs means an increase in debt obligations of the enterprise in the process of its activities, or a decrease in own funds. Expense - this is the use of material, services, raw materials, which is recognized in the statements of profit and loss as a relationship between costs and direct revenues by income. In accounting, income should be correlated with such an item as the cost of production.
Cost accounting
This concept from the point of view of accounting is considered for some points, such as separate accounts: “Depreciation”, “Settlements for payment”, “Materials”, “Finished goods” and “Main production”. Cost is a component of the report that has not been written off to the sales accounts and is accumulated in the above accounts until all goods and services associated with them are finally sold.
Cost of production indicator
The performance indicators of any enterprise can not do without such a parameter as the cost of production. The costs of labor, economic, financial and industrial activities are reflected in this indicator. The cost level affects the size of profit, profitability. The more economically the organization uses material, financial and labor resources to carry out work, provide services and manufacture products, the higher the efficiency of the process and more profit.
So different costs
From a listing of all the terms that form the cost of a product (service or work), it can be seen that they are not homogeneous either in composition or value in the process of manufacturing a product, performing services and work. There are costs for products (for raw materials, materials, production, wages for workers, and so on). There is - for management and maintenance (administration content), 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 raw materials and mineral resources, 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 and calculate the degree of influence on the levels of profitability and cost of the enterprise. The purpose of any cost classification is to assist the manager in making informed and correct decisions, as well as to identify 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 generalized the classification in the direction of accounting:
- To evaluate and calculate the cost of manufactured products.
- For decision-making by managers and adequate planning.
- To regulate and control the process.
To date, 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 separate the cost functions by goals, objectives, methods, techniques and methods of achievement.
