How to calculate production costs

How to calculate production costs

cost calculation considered part of the accounting system By recording information about the total cost of goods in the business in detail, it is also suitable for all types of businesses such as restaurants, shops or businesses that provide various services.

There are two types of costs as follows:

Type 1 Variable costs are costs that vary according to the amount of goods sold or produced, such as wages, raw materials, production costs, etc.

Type 2 Fixed costs are costs that do not change with the amount of goods sold or produced. The costs are constant, such as salary, shop rent, insurance, etc.

Simple way of calculating production costs

Production cost = (Material cost + Labor cost + Production overhead)/Number of goods produced in that period = Cost per unit (piece or box)

Benefits of calculating production costs

- Helps to know the actual cost of production. And can adjust the selling price not to be lower than the actual cost.

- Helps to know real profits

- help with planning and control the production or purchase of goods and can prepare a budget for the purchase of goods

- In case of having a variety of products Cost calculations will help in deciding to discontinue selling unprofitable products. Or find more products to sell in profitable products

- Helps in collecting cost items that the business owner has not yet been calculated. to know the actual cost amount

cost calculation It's not just about calculating production costs alone. There are other additional factors that must be calculated as well, such as operating costs such as marketing costs, electricity costs, etc. In other words, All operations are all costs. It depends on how much the business wants to detail the cost.

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