Costs in an industrial company

When one is an industrial company (company dedicated to the production or product manufacture), the usual thing is to only denominate costs to the Production costs, that is to say, the costs which they are incurred within the production process.

These production costs are conformed by the following elements:

Cost of acquisition of Direct Raw materials or Material

It is the cost of acquisition of the goods that will be transformed into finished products or that will comprise of him, for example, consumptions, parts, labels.

Cost of Direct Manpower

Costs conformed by the wages and benefits of the workers who work directly in the production of the product.

Indirect expenses of Manufacture

Costs of the necessary elements for the manufacture of the product, but that take part in indirect form in the elaboration of the same.

The Indirect Expenses of Manufacture are conformed as well by:

• Indirect materials: conformed by the costs of the auxiliary materials, provisions of factory, spare parts, fuels and lubricants, equipment of cleanliness, etc.
• Indirect manpower: conformed by the pays and wages of the professional, technical personnel, specialized or to directly help in charge of complementary tasks nonligatures to the process of production, case of the plant head, supervisors, personnel of cleaning, maintenance personnel, guardianía, etc.
• Other Indirect Expenses: conformed by costs incurred insurances against irrigations, depreciation, rents, electrical energy, water, telephone, subsidies, maintenance services, etc.

As we have seen previously, the accounting of costs does not have a method or standard system, but the company adapts the method or system that more is suitable according to its needs or objectives to him.

We see next an example of how to apply the accounting of costs in an industrial or producing company:

We suppose that they solicit to us that we make 40 tables, which would be the net utility and the price of each table, if we hoped to obtain a 20% of utility?

The data on which we counted are:

• the raw material (wood) has a cost of $800 for the 40 units.
• the wage for the workers who will carry out the work of cuts, cepillado, arming and painted it is of $380 altogether.
• one will be used tail, nails, varnish, etc., with a total value of $140.
• it is esteem that depreciation, energy and others, have a value of $80.
• the administrative expenses and of sales add $180.

1. In the first place we found the production cost:

Raw material	800
Direct manpower	380
Indirect expenses of Manufacture
- Material Indirect	140
- Other Indirect Expenses	80
Production cost	$1400

2. Once found the production cost, we found the unit cost: 1400/40 = $35

3. Soon we found the price to which each table would be due to sell to gain a gross utility of 20% of the production cost:

Production cost	1400
20% utility	280
Sales	$1680

The sale price of each table would be: 1680/40 = $42

4. In order to find the net utility, we make our Earnings statement Projected:

Sales	1680
(-) Cost of Sales	1400 (40 xs 35)
Gross utility	280
(-) Operative Expenses	180
Net utility	$100