Analysis of production costs

The cost price can be defined as costsenterprises to produce a particular product. The technological process of producing even the simplest product, as a rule, requires a wide variety of expenses. In addition to raw materials and materials, of which a specific product is directly produced, it is also, of course, payment for human labor, rental of premises, taxes, insurance, etc. In this regard, cost analysis is a complex process, involving the study of the mass of various factors affecting the final result, with a view to reducing it.

In general, all costs can be divided into direct andindirect. Direct costs include all costs that can be directly attributed to a particular product, for example, the labor of workers who produce a particular detail. In this case it is quite easy to determine in which place the expenses of the enterprise can be reduced. Analyzing the process of production of a particular detail, we can determine whether it is possible to implement the transition to cheaper raw materials, reduce energy costs, optimize the labor activity of workers, reduce their number, etc. Each specific situation is considered separately, and a decision is made to implement certain measures in this direction, then a general analysis of the cost of production is conducted and the various factors interacting with each other are checked. For example, will not the reduction of energy costs hurt the quality of work of workers.

However, this scheme is not always applicable in all cases. For example, we can not analyze the cost of livestock products. In this case, it is quite difficult to affect the cost price by changing direct costs, since the life expectancy of an animal is a weakly predictable factor, and therefore it will be unreasonable to approach the solution of the problem exclusively by mathematical means.

Therefore, most likely the company shouldto optimize not direct costs, but indirect ones. These include costs that are not directly related to the production process, but which indirectly affect it. The most typical example is the cost of maintaining the office and paying salaries to the manager of the enterprise. Quite often, it is indirect costs that are the main reason for the excessively high cost price. Especially on them it is necessary to pay attention when the value of fixed costs (another name of indirect costs) exceeds the costs of variables (direct). In this case, the enterprise faces a threat to suffer significant losses if sales volumes fall.

By analyzing the cost of your products,analyze each item of expenditure, determining the economic effect of costs. For example, if you conduct an analysis of the cost of crop production, and in the cost items you have to rent storage for ready-to-sell crops, then you need to get ahead, whether these warehouses are loaded to their maximum, or a significant part of the space remains free. In the latter case, it is necessary to get rid of some of the areas. The same applies to any other types of costs.

At the same time, try not to overdo it especially. Remember that the analysis of the cost of production only shows the weaknesses of the process, and is not the guarantor of absolutely correct decision. After all, it is extremely important, reducing the cost price, not to lose as a product, and also not to lose customers because of the failure of marketing policy. Each decision must be made on the basis of a comprehensive analysis of all the pros and cons.

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