Understanding Production Costs Breakdown
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ScribdTranslationsUnderstanding Production Costs Breakdown
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ScribdTranslationsProductioncosts
Every company, when producing its product or service, must assume certain costs that it will take to bring it to
cabo. Normally these costs will depend on the raw materials used, the labor that is employed.
I need the rent for the premises, the payment of taxes, and services like water, electricity, phone, among others.
It is the monetary valuation of theexpensesincurred and applied in the acquisition of an asset. Includes
thecostof thematerials,labor and the indirect manufacturing costs charged to the jobs in
[Link] is defined as thevalueof the inputs that economic units require to carry out their
production ofgoodsyservices;Payments to the factors of production are considered here:
Atcapital, withreplaced by the payments tobusinessman(interests, profits, etc.)
Towork, psalary adjustmentssalariesybenefitsto workers and employees.
To the goods and services consumed in the production process (raw materials,
fuels,electricity, itservices, etc.).
ELEMENTS OF PRODUCTION COST
Raw material
Labor
Indirect costs
Production costs
1. RAW MATERIAL.- It is defined asraw materialtodos los elementos que se incluyen en la elaboración de
[Link] material is any element that transforms and becomes part of a final product. A
finished product includes a series of elements and by-products, which through a process of
transformation allowed the making of the final product.
The raw material is mainly used in industrial companies that manufacture a product.
Commercial companies manage goods; they are responsible for marketing the products that
Industrial companies manufacture. They are divided into:
Direct raw materials.
They are all those who can be identified in the manufacturing of a finished product, they can easily
They are associated with this and represent the main material cost in the production of a product
Raw materials Indirect costs.
They are the ones involved in the production of a product, but have a relative relevance.
facing the direct ones
2. LABOR.- Labor refers to the total cost represented by the amount of workers that
havethe companyincluding salaries and all kinds oftaxesthat are linked to each worker. The hand of
work is a very important element, therefore its correctmanagementycontrolwill determine in a way
significant the cost final delete product oservice.
TYPES OF LABOR
DIRECT LABOR (DL): it is the labor consumed in areas that have a direct relationship with
the production or provision of some service. It is generated by skilled workers and operators of thecompany.
INDIRECT LABOR (IL): is the labor consumed in the administrative areas of the company that
they serve as support for production and tocommerce.
3. INDIRECT MANUFACTURING COSTS (CIF)
These are all costs that are not classified as direct labor or direct materials. Although the
expenses ofsalegeneral and ofadministrationthey are also often considered as indirect costs, not
they are part of the indirect manufacturing costs, nor are they product costs.
Examples of indirect manufacturing costs:
Indirect labor and indirect materials.
Heating,lightand factory energy.
Lease of the factory building
Depreciation of the building and factory equipment.
Formulas:
PRIME COST = THE SUM OF RAW MATERIAL + LABOR.
PRODUCTION COST = RAW MATERIAL + LABOR + INDIRECT COSTS OF
MANUFACTURING.
Application:
1,000 units of suits are produced
Use:
Raw material = 80,000
Direct labor = 7,322
Indirect costs = 8,000
Total costo de producción = 95,322
Unit cost of the product = Production cost / units produced
Therefore: CU = 95.322 / 1,000
CU = 95.32
PRACTICAL COST EXERCISES
ABBREVIATIONS:
C.F.T= COSTO FIJO TOTAL
C.F.U= COSTO FIJO UNITARIO
C.V.T= COSTO VARIABLE TOTAL
C.V.U = UNIT VARIABLE COST
C.U = COSTO UNITARIO
C.T = COSTO TOTAL
U UNITS PRODUCED
V.V = VALOR DE VENTA
I.T = INGRESO TOTAL
V.V = SALE VALUE
M.G = PROFIT MARGIN (UTILITY)
FORMULAS:
CT = C.F.T + C.V.T C.U = C.T C.F.U = C.F.T C.V.U = C.V.T I.T = V.V * U
U U U
I.T = V.V * U M.G = I.T - C.T
1.-A textile manufacturing company has produced in the month of March,
800 UNITS OF GARMENT 'X' AND IT IS KNOWN THAT THE UNIT COST IS 20.00
SOLES AND THE FIXED UNIT COST IS 70% OF THE VALUE OF THE UNIT COST, ALSO
THEY TELL US THAT THE TOTAL INCOME IS 25,000.00 SOLES, WE ARE ASKED TO CALCULATE:
COSTO TOTAL(C.T)
TOTAL VARIABLE COST (T.V.C)
TOTAL FIXED COST (T.F.C)
SALE VALUE (S.V)
PROFIT MARGIN (P.M)
VARIABLE UNIT COST (V.U.C)
UNITARY FIXED COST (U.F.C)
2.-FOR THE MANUFACTURE OF 400 UNITS OF A PRODUCT 'Z' IT IS NECESSARY
THE FOLLOWING ELEMENTS:
Raw material worth 2,800.00 soles, direct labor worth
5,000.00 soles, envases por un valor de 500.00 soles, arrendamiento de local 1,000.00 soles,
basic services 400.00 soles, supplies and materials 300.00 soles, they also tell us that the
The unit production cost is 25.00 soles and the profit margin is 60% of the cost.
total. We are asked to calculate:
Costo total(C.T)costo fijo total(C.F.T)costo variable total(C.V.T) ingreso total(I.T)
valor de venta(V.V)Costo variable unitario(C.V.U)costo fijo unitario(C.F.U)
Profit Margin (P.M)