Cost of goods sold is the aggregate of the company's total direct costs of all stages of the manufacturing process and other costs at the time of sale.
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When determining it, the following costs are considered:
- The cost of materials aimed at manufacturing products or performing work.
- Remuneration for workers directly involved in the production process.
- Non-production costs.
- Selling expenses.
Cost expresses the aggregate value of the use of various resources by the enterprise. Thanks to it, it is possible to provide economic activity with resources by determining a part of the share of the cost to reimburse them. As a result, the production process is constantly running.
Cost dynamics for certain periods of time, as well as an assessment of its value after each sale of products, allows to summarize the feasibility and rationality of purchases and expenditure of material and labor resources. In addition, the calculated cost indicators in 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 methodology for calculating the cost price directly depends on the stage at which the finished product is located.
As a result, the following techniques are considered:
- Calculation of production costs by adding up all costs for economic elements and deriving a grand total.
- Calculation of the cost of gross production by finding the difference between the sum of all production costs and non-production costs, as well as costs of future periods.
- Calculation of the production cost by finding the difference between the cost of gross production and the change in WIP balances, in the event of an increase. When the balances are reduced, their change, expressed in monetary terms, is summed up.
- Payment full cost by adding the value of the production cost and the cumulative total of non-production costs.
- Calculation of the cost of goods sold by adding the total cost and selling costs. But, the actual value of this cost indicator is obtained when the summation is subtracted from the total monetary value leftovers of unsold finished products.
How to calculate cost of goods sold
To calculate the cost of goods sold, you first need to display the total of 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:
- connected with commercial activities;
- directly related to the activities of the organization in question;
- spent on finished products in production and sales processes;
- justified by documentary evidence;
- comply with the law;
The amount of costs is expressed in monetary terms and is accounted for 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:
- Material costs.
- Salary.
- Social Security contributions.
- Depreciation.
- 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 price. This indicator is necessary for further calculation of the cost of goods sold. When finished goods are sold, there may be additional planned and unforeseen costs. For example, paying for advertising or marketing activities. Such expenses are usually called commercial.
The summation of the total cost and selling costs and a decrease in the total for the balance of products in the warehouse expresses the indicator of the cost of goods sold.
Formula
As a result, in order to derive the monetary value of the cost of goods sold, you will have to use the formula:
Srp = Cn + KR - Onp, where
Cn- full cost price;
KR – business expenses;
Onp- balances of unsold products.
In turn, the value of the total cost is calculated by the formula:
Cn = PR + VR, where
NS- production costs,
BP- non-production costs.
Calculation example
For clarity of the application of the methodology for calculating the cost of goods sold, consider specific example... The LLC "Posuda" enterprise produces various types of tableware. It is required to calculate the production cost for July, when it is known that 70 pots and 50 kettles were produced, and 52 pots and 35 kettles were sold.
Also, the cost calculation was carried out, as a result, the following results were obtained:
- 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;
- Spent on teapots:
- materials - 98,000 rubles;
- energy - 8,000 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:
- Total pots: 148000 + 14000 + 28000 + 8380 + 8700 + 6000 = 213080 rubles.
- Total teapots: 98000 + 8000 + 22000 + 6800 + 7100 + 4000 = 145,900 rubles.
- The cost of one pot: 213080/70 = 3044 rubles.
- The cost of one teapot: 145,900/50 = 2918 rubles.
Now we calculate the cost of goods sold:
- The cost of the pots sold: 3044 * 52 = 158288 rubles.
- The cost of the teapots sold: 2918 * 35 = 102,130 rubles.
Let's sum up the total cost of sales for the enterprise as a whole 158288 + 102,130 = 260,418 rubles.
Total cost of goods sold
The indicator of the total cost of goods sold expresses the total obtained from the addition or subtraction of the change in the cost of product balances in the warehouse from the total cost of finished goods. With an increase in the balances relative to the beginning of the period, the monetary value of the increase is subtracted, and with a decrease, the difference is added.
The total cost price always includes the sum of all direct and indirect costs. Initially, on the basis of accounting records, production costs are deduced for each economic element.
For the full cost of sale, you need to take into account the funds spent in its process. Selling expenses are also calculated between the types of products released and sold. It is important to remember that the number of products released is not always equal to the amount sold. Accordingly, for the cost of sales, the balances of goods in the warehouse are not taken into account.
Analysis of the cost of goods sold
The main purpose of the analysis of the cost of goods sold is to identify ways to improve the efficiency and rationality of the use of all types of resources at each stage of the production process and at the time of implementation.
As a result, the analysis assumes the following tasks:
- assessment of changes in the cost value and its relation to planned indicators;
- assessment of the validity of the planned cost values;
- determination 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;
The analysis of the cost of goods sold considers the following directions:
- Analytical calculations and conclusions on the composition, the value of the total cost and its changes.
- Analytical calculations and conclusions on the values of expenses per one ruble of the cost of production.
The analysis of the total cost is carried out in several stages:
- The total cost is calculated.
- The structuring of the cost is being carried out.
- Based on the results of comparing the current and similar previous periods, the value of the cost difference is displayed.
- For several types of products, the analysis is carried out in the context of its assortment.
The process of analyzing the costs incurred per ruble of the cost of goods is based on the following points:
- Calculation of the value of the costs incurred per one ruble of the cost of production.
- Comparison with the maximum value. The calculated value must always be below the target level.
- Comparison of value changes. The decrease in the indicator is a favorable trend.
- Factor analysis.
The cost of goods sold is of particular importance in the amount of profit received. Therefore, it requires constant calculation and analysis of the results obtained.
In addition, the calculation of the financial value of the cost of sales allows you to assess the consumption of resources at all stages of the production process, since it includes:
- Production cost.
- General production costs to be calculated between types of products.
- Production costs are in excess of the norm.
If you carry out manufacturing activities or are engaged in speculative resale of certain commodity items, the cost of sales is the most significant parameter for you. To calculate this value, the presence of some other indicators is required. The subtleties of calculation actions and basic rules will be considered within the framework of this material.
The cost price is a set of costs (expenditure directions) that went to the production process of the product. Traditionally, this includes costs related to the units produced. But such a variant of calculations is also possible, within the framework of which administrative and commercial expenses are allocated to the cost of the final product.
This is one of the basic parameters related to accounting reporting, immediately following the sales proceeds. If you subtract the cost of sales parameter from revenue, you get gross profit, which can be positive and negative. As for other expenses of general economic importance, they also act as part of the financial result. This is not all that is included in the cost of sales, since this indicator is very broad and generalized.
Cost of sales: varieties and classification
The cost of sales parameter can be considered in the context of cost directions and calculation elements. There are several key cost elements:
- material part (it includes raw materials, materials, components, expenses of general production value);
- personnel labor costs;
- deductions from salary - insurance, pension payments and other items;
- costs associated with depreciation (amortization) of fixed assets.
Calculation for current expenses
There is also a classification by article, which depends on the industry characteristics of the company. Traditionally, in practice, there are several fundamental cost items:
- raw materials and supplies;
- returnable waste;
- purchased components;
- fuel and energy resources;
- labor costs;
- deductions for needs of a social nature;
- production development costs;
- losses associated with marriage;
- implementation costs.
Considering the question of what the cost of sales is, it is worth considering two more classification signs. It can be medium or extreme. In the context of the full indicator, implies the volume of all waste associated with production activities, including business expenses. As for the marginal cost, it is represented by the price of a unit of output that is produced.
Within the framework of practice, several key types of cost are distinguished.
- Shop... It assumes the total amount of all expendable parts that were incurred by all structures that affect the process of creating a product.
- Production... Within its framework, the organization's expenses are recorded. Also here you can talk about general and target costs.
- Full... This indicator assumes the fact that the money spent on the final process of selling the product is attributed to the main expenses. That is, the costs associated with logistics are added here.
There are several more terms that define the cost indicator.
Cost analysis
The cost price acts as critical indicator to carry out analyzes aimed at improving operational efficiency. It can be implemented in several directions. For example, all expenses can be:
- variables(depending on the volume of output) - costs of warehousing and storage, purchase of raw materials, payment of wages to employees;
- permanent costs (not depending on the amount of products produced) - advertising costs, the cost of renting premises, the salary of management personnel.
Types of costs (expenses) on the chart
Thanks to the implementation of this type of analysis, you can start determining the volume of production, within which the company can recoup its costs, that is, achieve a break-even point and start making a profit. The source for analytical activities is accounting, as well as warehouse and production data. It is possible to analyze the cost on the basis of public reporting information only in a general way, defining only the trend of costs and profits (growth or decline). To ensure the conduct of deeper analytical activities, it is necessary to use the data that are in the accounting system of the enterprise.
How to carry out settlement activities
The cost of goods sold has certain calculation methods. To determine this indicator, it is necessary to have information about other company data.
- The price of the inventory that is available at the beginning of the year. If this indicator differs from the price of goods and materials at the end of the last year, it is worth finding an explanation for this phenomenon.
- The probable value of purchases, assuming the exclusion of goods that have been taken for personal use.
- Cost areas that were used to pay employees. From them it is necessary to exclude the amounts that are allocated for yourself.
- The cost of materials and other supplies.
Analytical cost accounting
After determining all these parameters and elements, you can answer a simple question, how to calculate the cost of sales and do it as efficiently as possible. After all, these indicators are the most important, and they must be present in the framework of your reporting documents without fail. To carry out the calculated actions, it is necessary to add up all these parameters. To do this, it is enough to subtract the sum of other indicators from the amount of inventories, and it will not be difficult for you to start determining the cost of sales of products.
The most common counting methods
Traditionally, the generation of a publicly available formula occurs in accordance with the full volume of accounted costs. There are several options for action - a normative option, by orders, by processes. Each of them has a base in the form classic version determining the full cost. In order to obtain the parameter of the total cost of the produced units of production, it is necessary to sum up all the values of the shop floor and other rasters. A workshop cost of sales consists of several components:
- operation of equipment along with its practical use;
- the cost of electricity and the purchase of process fuel used in the production process;
- payment arrangements for obligations, wages for basic workers;
- a complete list of workshop expenses, including depreciation, inventory, various deductions.
Special attention is paid to the general production costs of the company, which include the salaries of management personnel, travel expenses, the costs of maintaining the guard. In this regard, the calculated actions are performed in a specific sequence.
- Identification of the costs of a variable type associated with the creation of one product unit, taking into account costly activities.
- Determination of the types and directions of expenses directly related to the type of products.
- Implementation of the summation of accompanying expenditure operations that are not related to production-type costs.
Current costs of the company
If the value of the total cost of production is increased, there will be an increase in the cost of its sale. And this will negatively affect the indicator of the competitiveness of the product in the market and the company's ratings.
General view of the formula
The way in which costs will be calculated depends on the degree of readiness of the product units. The generalized type of the formula is as follows.
- Production costs:
Cost = Material costs + Depreciation charges + Payroll costs + General costs. - The generalized type of formula for calculating the total cost is as follows appearance which is important to take into account.
PS = production costs + non-production costs. - The calculation of the cost of a product that has been sold is carried out according to the following principle:
SP = PS + commercial expenses - product leftovers that have not been sold. - The production cost can be calculated based on the following formula.
PS = value of gross product - changes in WIP balances. - The cost price associated with gross output is equal to the following value:
BC = Production costs - non-production areas - future costs.
So, we looked at which areas the cost of sales includes. To have an idea of the company's activities as a whole, it is necessary to correctly analyze and calculate the main parameters. This will allow you to always be aware of the need to take the measures that are needed to improve business and improve basic economic indicators commercial activities.
Hello! Many people ask the question: what is the cost of goods or products? For the production of any goods, a number of various resources are spent: natural, energy, land, financial, labor, etc. The sum of all costs incurred will constitute the cost of production. More details this question consider in this article!
What is the cost of goods
First, let's look at determining the cost of a product.
Cost of goods - This is the monetary value of the current costs of the enterprise for the manufacture and sale of goods, as well as the actual cost of labor and financial resources.
In fact, the cost price is an indicator of production and economic activity firms reflecting financial expenses organizations for the production of products. The price of the goods directly depends on the cost price. The lower the cost of finished products, the higher the profitability of the enterprise.
How to determine the cost of goods
Depending on the method of keeping records of expenses, several methods of calculating the cost of goods have been formed: standard, process-by-process, by-process, order-by-order. In turn, the cost is also subdivided into several types: gross, commodity and sold.
What is included in the cost of goods
Surely every novice entrepreneur at least once asked the question: why do we need a prime cost? And it is needed in order to objectively assess the profitability of an enterprise, to determine the wholesale and retail price of goods, to give an objective assessment of the efficiency of the expenditure and use of resources.
The cost of goods takes into account many indicators, depending on what exactly needs to be monitored.
The unit cost of goods directly depends on the amount of produced or purchased products. To understand this, it is enough to consider a simple example:
Let's say you went to the store to buy a pack of tea worth 100 rubles. Then the calculation of the cost will take the following form:
- Suppose you spent 1 hour on the trip (assuming the estimated cost of a working hour is 100 rubles);
- The estimated depreciation of the car was 15 rubles.
Therefore, the cost of goods includes: The cost of a batch of goods (in this case, a pack of tea) + Costs) / Quantity = 215 rubles.
The picture will change significantly if you buy more than one pack of tea, but, let's say, five:
Cost = ((5 * 100) + 100 + 15) / 5 = 123 rubles.
The example clearly shows that it directly depends on the purchased quantity of products - what large quantity you buy (or produce), the cheaper each unit costs you. Not a single company is interested in increasing the cost of goods.
Types of production costs
Basically, the cost price is the sum of all costs attributed to the production and release of goods. The cost price can be calculated both for the entire product produced, and for a separate product unit.
Strictly speaking, there are several types of cost, and, depending on which particular field of activity the entrepreneur wants to control, the following indicators can be calculated:
- Workshop, containing the costs of all divisions of the organization, aimed at manufacturing products;
- Production, which includes the workshop cost, as well as general and target costs;
- Full, consisting of production costs and costs of selling products;
- General business, which includes expenses that are not directly related to the production process, but aimed at doing business.
Production cost contains all the resources spent at the production stage, namely:
- The cost of purchasing raw materials and basic materials for the manufacture of products;
- The cost of fuel and energy production;
- Remuneration of labor to employees of the enterprise;
- Costs for internal movement of raw materials and supplies;
- Maintenance, Maintenance and the maintenance of the company's fixed assets;
- Depreciation of equipment and fixed assets.
Realized cost means the costs of the enterprise at the stage of selling the goods, namely:
- The costs of packing / packing / preserving products;
- The costs of transporting goods to the distributor's warehouse or to the direct buyer;
- Product advertising costs.
The total cost of goods is made up of production and realized costs. Also, this indicator takes into account the cost of purchasing equipment.
Maintenance costs entrepreneurial activity and it is customary to divide into certain periods during which these costs should pay off. Such costs are added in equal shares to the total costs of production and sales of products and are included in the concept of total cost.
There is also a planned cost price, this is the average estimated cost of goods manufactured in the planning period (for example, for a year). Such a cost is calculated in the presence of consumption rates for the use of materials, energy resources, equipment, etc.
To determine the cost of one unit of finished goods, such a concept as the marginal cost is used. This indicator directly depends on the number of products produced and reflects the effectiveness of further expansion of production.
In addition to the cost of production, there is also
The cost structure is classified by costing item and cost item.
According to calculation articles:
- Raw materials, materials, components, semi-finished products, units, etc. required for the production of goods;
- Fuel and energy resources spent on production;
- Depreciation of fixed assets of an enterprise or fixed assets (equipment, tooling, machinery, etc.), the cost of their maintenance and maintenance;
- Remuneration for the main personnel (salary or tariff);
- Additional remuneration for personnel (bonuses, additional payments, allowances paid in accordance with the law);
- Contributions to various extrabudgetary funds (e.g. Pension Fund, social insurance fund, etc.);
- Production costs in general (sales costs, transportation costs, payroll for employees of the enterprise, etc.);
- Travel expenses (ticket prices, hotel fees, per diem);
- Payment for the work of third-party organizations;
- The costs of maintaining the administrative apparatus.
By cost elements:
- Material costs (raw materials, parts, components, fuel and energy resources, general production costs, etc.);
- Costs for wages employees (remuneration of workers, auxiliary working personnel, for example, servicing equipment, remuneration of engineers, employees, i.e. managers, managers, accountants, etc., junior service personnel);
- Contributions to social institutions;
- Depreciation of fixed assets of the enterprise;
- Other expenses related to advertising, sales, marketing, etc.).
Under general production costs, it is customary to understand the costs of an organization for paying salaries to management, security payments, travel expenses, as well as remuneration of the management department. This expense item also includes depreciation and maintenance of buildings and structures, labor protection, training and education of specialists.
The figure shows the approximate items of the enterprise's expense for the production of products.
Theory of Constraints
According to this theory, there are certain significant costs that do not depend on the quantity of products produced. Such costs include loan payments, rent and payroll for permanent employees. If there are such fixed costs, the use of production costs as an indicator becomes a constraint economic policy enterprises, which can lead to illogical decisions. For example, a product sold below cost is removed from production, which in turn raises the cost of other manufactured goods.
Methods for calculating the cost of goods
There is no single methodology for calculating the cost as such. This indicator can be calculated in completely different ways, depending on the type of product, the method and technology of its production, and many more different factors.
As a rule, in order to calculate the cost of production, you need to take into account the following factors:
- The sum of all expenses for the production and sale of products;
- The costs of the manufacturer for acting as an entrepreneur;
- Costs associated with the preparation of documentation for products.
It is necessary to keep records of the cost of goods directly for a certain production cycle of products. In order to determine the price of an item, you need to make a cost estimate. It is made up based on the amount of products produced (in pieces, meters, tons, etc.). The calculation must reflect absolutely all costs associated with production. (Which items are included in the calculation is described in the paragraph "Cost structure").
Method # 1
Complete addition of costs to cost. The cost price is full and truncated. At full cost, all expenses of the enterprise are taken into account. When truncated, the unit cost at variable costs... A constant share of overhead costs is attributed to the decrease in profits at the end set period and is not allocated to the goods produced.
With this method of determining the cost, this indicator is influenced by both the variables and fixed costs... When adding the necessary profitability to the cost price, the product price is determined.
Method # 2
In this method, the actual and target costs are calculated based on the costs incurred by the entity. The standard cost allows you to control the cost of raw materials and materials, and, in case of deviation from the norms, to take appropriate measures. This method is very laborious.
Method # 3
Alternating method. It is convenient for use in enterprises with serial or in-line production, while the products go through several stages of processing.
Method # 4
The processor method is used mainly in the mining industry.
So, to calculate the total cost of production, we will use the following algorithm:
- We calculate variable costs for the production of one unit of products, taking into account the costs;
- From the general plant costs, we single out exactly those that relate to this type of product.
- We summarize all costs that are not directly related to the production process.
The resulting value will be the cost of the finished product.
Since there are several types of cost price, then one calculation formula this is indispensable.
Production costs:
С = МЗ + А + Tr + other expenses
Where C is the cost of costs;
МЗ - material costs of the organization;
A - depreciation charges;
Tr - waste on wages to employees of the company.
To get the full cost of the finished product, you need to add together all the costs of its production:
Where PS is the total cost;
PRS - the production cost of goods, which is calculated based on production costs (costs of materials and raw materials, depreciation production assets, social and other contributions);
РР - costs for the sale of goods (packaging, storage, transportation, advertising).
The cost of goods sold is calculated by the formula:
Where PS is the total cost,
KR - costs associated with the commercial activities of the enterprise,
OP - the remains of unsold products.
Gross cost is defined as:
C = Production costs - non-production costs - future costs
If the company produces only one type of product, then its cost and price can be determined using the costing method. In this case, the unit price of a product is obtained by dividing the sum of all costs spent on production by the amount of products produced. It is worth remembering that all calculations are made for a certain set period.
Calculating and analyzing the cost of goods produced by a large enterprise is a very complex and laborious process that requires certain knowledge, therefore, an accountant solves such problems. At the same time, it is customary to divide costs into direct and indirect.
The most common way of determining the price of a product is by calculating the cost of production, since this method allows you to calculate the costs of producing a single unit of output.
Cost classification
Depending on what task you want to accomplish, the costs are classified as follows:
- There are two types of costs that are usually added to the cost of the finished product. These are direct costs (these costs are added to the cost of the finished product in a precise way, or in a single way) and indirect costs (costs added to the subject of calculation according to the methodology established at the enterprise). Indirect costs include general business, general production and commercial costs;
- Depending on the quantity or volume of products produced, the costs are:
- Constant (independent of the volume of goods produced), indicated per unit of production;
- Variables (depending on the volume of production or sales);
- There are also costs that are relevant to a particular case. Such as, relevant (dependent on decisions taken) and irrelevant (not related to the decisions made).
All of the above indicators of costs and expenses significantly affect the formation of the price of goods. But there is another important indicator - tax deductions.
For those who decide to start their own business, it will be necessary to study the question of how to calculate the total cost of production. This is important for its implementation. In order to understand this issue, it is necessary to clearly understand what the cost of the product is.
The concept of cost
The cost price is the total and partial sum of the costs of producing and selling a product. The production of a product requires resources:
- material from which the product is directly produced;
- fuel required for the transportation of materials for manufacturing or transportation of finished products to points of sale;
- repair work;
- workers' wages;
- rental of premises, if required.
Each product is individual and requires its own manufacturing resources. And in order to figure out how to calculate the cost of production, you need to take into account each stage separately.
Economic concepts of cost
Full cost
This is the ratio of all costs to total production. This calculation is suitable for mass production. Costs include:
- Employee salaries.
- Contributions to government funds.
- Raw materials used for the manufacture of products.
- Accounting for equipment deterioration and expenses for its repair (depreciation).
- Advertising costs.
- Other expenses.
It is these costs that determine how to calculate the cost of the finished product. Usually used in large, large-scale enterprises.
Marginal cost
This concept includes the cost of a manufactured unit of production. How to calculate the actual cost of finished goods (also called complete)? This can be done using the formula, but for this you need:
- Calculate how many raw materials and materials are spent on the manufacture of one copy of the product.
- Calculate how much fuel and lubricants and electricity goes to one unit of production.
- Take into account the costs of semi-finished products purchased in other industries, if any.
- Calculate how much the employee will receive by making given view goods (including all social payments).
- Know the cost of repairing and depreciating equipment.
- Consider tool wear.
- Calculate the cost of maintaining a production facility.
- Other costs.
After analyzing the data given above, you can imagine how much raw materials are used to manufacture a unit of production. And if we add to all this: transportation; contributions to government funds; payment for the leave of employees; taxes; expenses incurred by the organization due to unforeseen circumstances - all this will give you a complete picture of how to calculate the actual cost of production.
Cost types
In addition to the basic types of costs, there are also types that are specific to a particular production.
- Aggregate cost... The cost of the cost of manufacturing a product on a specific machine is estimated, be it a technical machine or a woven machine.
- Prime cost. In addition to assessing the costs of manufacturing products in the workshop, the costs of maintaining and maintaining the territory itself are also taken into account: heating, security, alarm, fire brigade, management structure.
- General production costs. Consist of the cost of depreciation and repair of equipment, advanced training of workers, taxes.
- Full cost price. In addition to other expenses, it includes the costs of packaging, loading and unloading of products, transportation services.
Why do you need to calculate the cost of production?
When opening a business, not everyone is in a hurry to immediately calculate the cost of production, thereby making a huge mistake. This mistake can lead you at least to losses, and at most to complete bankruptcy.
What the cost analysis will give you:
- Shows the profitability of all your products... After all, it depends on it how effectively raw materials and other, monetary and human, resources will be used.
- Forms retail and wholesale prices... The correct effective pricing policy will allow you to make production competitive.
- It will make it clear how effectively the production process at the enterprise works. The lower the cost of production is in comparison with the average statistics in this industry, the more efficiently the company will work. Accordingly, the higher the costs, the lower the profitability and efficiency of the enterprise.
- It will form an indicator of reduction of fixed and variable costs.
Your profit depends on the calculation of the cost price. A cycle system operates here: the lower the cost, the greater the profit, and the higher the cost, the lower the profit. Therefore, each manufacturer seeks to reduce production costs in the pursuit of profit. In this case, the quality of the product may also suffer. In order to run your business correctly, it is imperative to calculate the cost of manufactured products, this is one of the main elements of enterprise management.
How to calculate the cost of production using the example of a furniture workshop
Furniture company "Divan" LLC will be taken as an example. It is required to calculate the cost of the manufactured product for December. A total of 12 were released corner sofas, 10 sofa-books, 24 armchairs.
| Number | Cost item | Corner sofa | Sofa - book | Armchair |
| 1 | Raw materials used | 192,000 rubles. | RUB 60,000 | RUB 72,000 |
| 2 | Energy | RUB 21,000 | RUB 16,000 | RUB 18,000 |
| 3 | Workers' wages | RUB 36,000 | RUB 15,000 | RUB 16 800 |
| 4 | Fund contributions | 4320 RUB | RUB 1,500 | RUB 1,680 |
| 5 | Equipment operation | RUB 10,000 | RUB 7,000 | RUB 5,000 |
| 6 | Other costs | 2000 RUB | 2000 RUB | 2000 RUB |
| Total: | RUB 265 320 | RUB 101,500 | RUB 115,480 | |
Total:
- The cost of one corner sofa is: 265 320: 12 = 22 110 rubles.
- The cost price of one sofa-book is: 101,500: 10 = 10,150 rubles.
- The cost of one chair is: 115 480: 24 = 4 812 rubles.
How to calculate cost of goods sold
Let's take as an example a firm that makes sofas that we are already familiar with. In December, ten corner sofas, seven book sofas and twenty armchairs were sold.
Let's use the data above and calculate:
- Ten corner sofas cost us 221,100 rubles (22,110 x 10).
- Seven sofa-books - 71,050 rubles (10,150 x 7).
- Twenty seats - 96,240 rubles (4812 x 20).
The total result was: 388 390 rubles.
Features of the cost
In the course of its work, each organization seeks to minimize its production costs. Therefore, the question of how to calculate the cost of production will depend on a number of factors. Directly all costs are included in the cost of production, up to heating the premises in winter period(v summer period absent). All this allows us to judge that the main management mechanism is the analysis and accounting of all aspects of the organization's economic activity, which will make it possible to judge correct work firms. In this case, a specific estimate of the cost price will depend on the inventory, technological features enterprises and from the managers themselves, who own this or that information about the production. 
Each company has its own costing method. So, for example, the production of confectionery products according to the calculation system will differ significantly from the method of calculating the cost price for furniture factory... In the first case, electricity and shelf life will be of paramount importance (it must be given Special attention), and in the second case in the first place will be large financial resources spent on raw materials and transportation of a large-sized product. And, accordingly, for an enterprise producing sweet products, there is only one calculation method, and for upholstered furniture- another.
In management analysis, total cost is calculated in order to determine the total cost of manufacturing a product. This indicator allows you to understand how profitable the organization is, and how to price products. Let's figure out what exactly the costs of manufacturing products include the full cost and in what order such a calculation is carried out.
The cumulative total cost of the SOE shows the total volume of all resources spent on production and commercial, that is, sales related costs. Figuratively speaking, this is an assessment of all the costs of manufacturing a product and its implementation - from the initial production stage to the final delivery to the consumer. The total cost price usually includes the following types of costs:
- Production - consists of material, raw materials, fuel and energy, labor, depreciation, social and other costs directly expended in the production of SOE and its delivery to the warehouse of the organization. This group also includes the amounts of taxes, credit interest, rent, consulting, advertising, legal, auditing and other services received from outside.
- Commercial - consists of costs associated with transportation, packaging, storage, advertising in order to sell the manufactured SOE and bring it to the end-consumer market.
- General production - for the maintenance of the main, auxiliary, service industries.
- General business - to ensure the successful operation of the entire enterprise. They may not relate directly to production cycles, but without them, the successful functioning of a business is impossible.
Regardless of which classification group the costs belong to, calculating the total cost of production means taking into account all costs - whether they are fixed or variable, overhead or direct costs. For calculation, overhead costs are allocated depending on the selected distribution base. The total cost of goods sold is a gross indicator that characterizes the costs of the entire volume of manufactured products, or a single indicator showing how much costs were spent on the production of one product.
Reduced cost is the costing of products based only on direct, variable costs associated with the production of SOEs. With this accounting option, general business expenses, which are considered conditionally constant, as ordinary costs refer directly to financial results, without using accounts 20, 29 or 23 (PBU 10/99). The reflection of such indirect costs is made by the accountant on the account. 44 or 26 depending on the type of activity of the organization. At the end of the period, the collected amounts are subject to full write-off to the account. 90.
The abbreviated version of the calculation of products greatly simplifies accounting and does not in any way affect the determination of the final result of economic activity. But this method distorts the data and does not always allow you to accurately calculate how much money the company cost to manufacture a product or provide a service. In addition, only the full cost of goods sold enables managers to carry out long-term planning, analysis and control of production to increase the profitability and profitability of the business. The method used should be fixed in accounting policy companies.
How to find the total cost
The total cost of the manufactured products of the enterprise is equal to the monetary value of the total costs. In the calculations, the raw materials, financial, labor and other resources spent in the production process are estimated, as well as the costs of selling and storing goods. The obtained value helps to understand how expensive the manufacturing of the GPU was for the company. To know how to calculate the total cost of production, it is necessary to determine the financial indicator by summing up.
Costing is done by adding up production costs, sales costs, and general business costs (if any). After the calculations, it becomes clear at what level to set prices for goods or services so that the company can recoup the manufacturing costs and start a new production cycle, that is, work without loss. Conducting an in-depth analysis of the structure of expenses allows you to identify reserves for saving resources and more efficient use of them. Next, we will consider, using examples and formulas, how the total cost of the GP is determined.
How to calculate the total cost of production - formula
We decided that the total cost of production is all the costs of the enterprise. Therefore, in order to make a correct calculation, it is necessary to add up all the costs. For this, the following general formula for calculating the total cost of production is used:
Full cost price = PS + CP, where:
PS is the value of the production cost, and SR is the volume of sales costs.
The above formula is generalized and understandable to those who have already come across the costing of products. If you do not know what the terms are composed of, check out the expanded formula that looks like this:
Total cost price = SMR + PF + FER + ZOP + ZAUP + A + SV + PPR + SR + TR + RPS, where:
SMR - material and raw material costs;
PF - semi-finished products spent in production;
FER - fuel and energy costs;
PDO - salary of personnel of main and auxiliary industries;
ZAUP - the salary of the administrative and managerial personnel of the company;
A - the accrued amortization of the used fixed assets;
SV - the amount of accrued insurance premiums;
PPR - the amount of all other production costs;
СР - the amount of sales expenses;
TR - transportation costs;
RPS - the amount of other sales costs.
An example of calculating the total cost of a GP
To make it clear what the total cost of production of an enterprise is equal to, consider an example on a specific organization. Let's say a company makes electrical equipment. The expenses incurred during the period are shown in the table below. We will make the calculation of products in two ways - at full cost, and also reduced. At the end, we will calculate the financial indicators from the activity.
Table of economic indicators for calculations
| Indicator name | Value in rub. |
| 75000 | |
| Labor in rubles | 160000 |
| General production in rubles | 25000 |
| General business in rubles | 40000 |
| The total volume of production in pcs. | 50 |
| Total sales in pcs. | 40 |
| The final price of one unit of production in rubles. | 11000 |
Costing table - the calculation is done in two ways
| Indicator name | Full cost option | Reduced cost option |
| Material and raw material costs in rubles | 75000 | 75000 |
| Labor in rubles | 160000 | 160000 |
| General production in rubles | 25000 | 25000 |
| General business in rubles | 40000 | – |
| The total cost of the GP in rubles. | 300000 | 260000 |
| Unit cost of GP in rubles. (for 1 piece) | 6000 (300000 / 50) | 5200 (260000 / 50) |
| The value of the cost of the sold SOE in rubles. | 240,000 (6,000 x 40) | 208000 (5200 x 40) |
| The value of the cost of SOE balances at the end of the period in rubles. | 60,000 (6,000 x 10) | 52000 (5200 x 10) |
Profit calculation table for the production activities of the organization
Thus, from the example it is clear that the full cost of goods sold allows you to take into account all the costs incurred by the enterprise and more accurately set the price indicator in order to ultimately receive a large profit.
Features of the full cost method
In assessing recurring costs, the full cost method has been designed to establish a fair price for the items produced. If the enterprise produces various products (types of goods), the responsible employees must first divide all costs by responsibility centers, that is, places of origin. Then you establish cost objects for their allocation. And finally, for each specific product, the costs are attributed depending on the production need.
The calculation process is quite complex and usually unites the work of several specialists. For the accuracy of calculations for products, estimates and rates for writing off costs are developed, prices are determined at which costs are written off, and at the final stage, indicators are analyzed and monitored. Like other techniques, the full cost method has its advantages and disadvantages. The pluses include the elimination of market monopolization, since with this option for calculating goods, the price for the consumer is set on average at the same level. At the same time, sellers get the opportunity to realistically assess their costs and calculate the optimal cost of products for making a profit.
Among the shortcomings, it should be noted that such a methodology does not take into account the existing competition in the current market, therefore, the existing demand for products is not taken into account in the calculations. And the change in the level of costs with fluctuations in production volumes is not amenable to planning. In addition, the attribution of fixed costs to the cost of products or services may somewhat distort the influence of a particular product on the financial result of an organization. Which method of calculating the manufactured products to choose is up to each organization independently.
It is possible that for some purposes (or external users) it will be necessary to calculate the cost according to traditional full indicators, and for others - according to reduced or combined ones. When choosing, one should take into account the specifics of the activity, the nature of the products produced, the seasonality, the time indicator of planning and other factors. The most widespread method of full cost accounting was obtained in small companies, as well as where a narrow range of products are produced. If the range is significant, and the business is large, it is recommended to use aggregate methods and techniques for calculating the cost of GP.
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