How to calculate the cost of finished products

In the conditions of fierce competition that is developing in the modern market, it is becoming increasingly difficult for companies to set high prices for their products. Thus, there is a need for strict control of the cost of purchased raw materials in order to plan production activities as efficiently as possible. With proper management, the company can set margins on products sold, which in the total sales will bring sufficient profit, not only to cover all costs, but also to obtain net profit.

Instruction manual

1

In the formation of the cost of production involved several types of costs, the inclusion of which in the final price of the goods will allow to establish such margins so that the company could receive net profit from sales. These are payments to suppliers, customs duties, interest to intermediaries for the purchase of materials, delivery of materials and other expenses associated with the acquisition of source goods and production.

2

The costs of production of goods also include: payment of labor resources (salaries), natural resources (water, land) and costs for the sale of goods (advertising). The cost is formed for the reporting period, for which all of the above types of costs are taken. Settlement objects are both individual types (categories) of goods, and all products. The following methods are used to calculate the cost of finished products: normative, process, alternate and custom.

3

The normative calculation method involves the following actions: calculating the cost of each product, accounting for changes in existing norms throughout the reporting period, accounting for all costs divided by normative and deviated from the norm, setting the reason for the deviation from the norm, calculating the total cost of production by summing the listed values. The normative set of expenses is adopted individually at each enterprise and may change under the influence of various factors (for example, changes in prices for materials or modification of equipment).

4

The post-process costing method is used at enterprises that are characterized by mass production of one or two types of goods, and the absence of complex technological processes. With this method, the costs of the entire batch of goods are taken into account immediately. For the convenience of counting, all production is divided into processes, hence the name.

5

With the alternate calculation method, the production process is divided into stages during which intermediate products (semi-finished products) are returned. These stages are called redistribution. For each redistribution, costs are calculated.

6

A custom billing method is used in cost accounting for each individual order. The cost of production specified in the order is calculated after its completion. Also included in the calculation are indirect costs that arise as the ordered products are manufactured.