In the manufacture or production of a good it is extremely important that the Company and/or Entity in office knows the elements that make up the cost of production. The success and achievement of the objectives and goals set, as a result of the company's mission and vision, depends on it.
In simple words we can say that the cost of production is the sum of all the expenditures and monetary resources that have been invested to produce a good or service. The production cost of any good and/or service is framed in a set of elements classified as follows:
Direct materials
a.- These are the main resources used in the manufacture of the good.
b.- Their volume and cost are easily and economically identified.
c.- They generally constitute the element with the highest cost. Examples: Wood to make furniture, fabric to make clothes, milk to make cheese, among others.
Indirect materials
a.- They are not easy to visualize.
b.- Their values are minimal compared to direct costs.
c.- Their cost and exact measurement is difficult and uneconomical to assign to the product.
to assign to the product.
d.- They are part of the Indirect Manufacturing Costs. Examples: Varnish, paint, sandpaper to manufacture furniture, buttons, thread for clothing, among others.
Labor: Direct
a.- Workers directly involved in the manufacture of the good.
b.- Can be easily associated, measured and valued with the good.
c.- Represents an important cost in production. Examples: Production machine operators, the carpenter, the blacksmith, the shoemaker, the tailor among others.
Indirect labor
a.- Workers who are not directly involved in the activities of transformation of the good.
c.- It is difficult and uneconomical to assign to the goods.
d.- Their tasks are of supervision and control.
e.- They are part of the Indirect Manufacturing Costs. Examples Foremen, supervisors, watchmen, inspectors, production managers, among others.
Indirect Manufacturing Costs (CIF)
a.- They are made up of Indirect Materials, Indirect Labor and Production Charge. That is to say, all the elements that are not part of the Direct Materials and Direct Labor.
b.- A scientific methodology is required to assign or distribute these costs to each of the goods produced, according to reasonable application bases or rates. The most commonly used are: Units of production, direct labor hours, machine hours, cost of direct materials, cost of labor, among others.
c.- Examples of CIF: Electric power, potable water service, machinery and equipment depreciation, fuels, lubricants, insurance, rentals, chemical and cleaning products, boiler service, refrigeration service, among others.
If the company has mastered all these elements, it will be able to determine, in percentage terms, the participation of each one of them in the cost of production and thus be able to orient production towards the proposed objective. Since it can identify in the product cost which is the element with the highest value.
Until a new opportunity, @yonglerosales bids you farewell.