We explain what the cost is, what types exist and differences with the expenses. Also, cost accounting and production costs.
Cost is the direct cost of producing a good or service.What is the cost?
The cost, also called cost, is the economic outlay that is made for the production of some good or theoffer from someservice. The cost includes the purchase of inputs, the payment of the workforce, production expenses and administrative expenses, among other activities.
There are different types of costs and how to calculate them in a business ororganization may vary.
Cost types
Costs can be classified according to various criteria:
According to their behavior:
- Fixed costs. They are those costs that a company has beyond the production obtained, that is, its value does not vary according to what is produced. Fixed costs can only be stipulated in the short term, since with the running of the weather they eventually vary. Some examples are: rent payments andtaxes.
- Variable costs. They are those costs that vary in relation to what is produced, that is, if production is increased these costs will be higher and vice versa. Some examples are: the amount of raw material used, the packaging and packaging of the products.
- Semi - variable cost. They are those costs that can vary according to what is produced, but these changes are rather progressive.
According to the relationship between the factors of production and the products:
- Indirect costs. They are those costs that have consequences on production in a total way, that is, they cannot be assigned to a certain product. The costs must be distributed equitably among all the goods produced. For example: the increase in factory cleaning supplies or the increase inwages of theworkers.
- Direct costs. They are those costs that can be assigned to each particular good or service. For example: the increase in flour (which has a direct impact on the production of bread) or the increase in ink (which impacts the production of books).
According to its nature:
- Costs of workforce. They are those costs that derive from the payment of salaries of all the members that participate in the production process and of all those that are part of the business structure.
- Costs of raw material. They are those costs that are incurred when acquiring the raw material to make a certain product.
- Financial costs. Are those costs that are needed for the financing ofbusiness.
- Costs of distribution. They are those costs that occur in the product's distribution system.
- Tax costs. They are those costs related to the payment of taxes.
Cost and expense
Cost and expense are two concepts that are usually taken as synonyms, but what in accounting differ substantially.
The cost is defined as all those investments necessary for the production of the good or service, such as: labor, raw materials. The costs are considered as investments, as they are expected to return as a form of Profits for the company.
Expenses are all those payments that the company must make for aspects that do not have to do directly with production, such as the payment of salaries for administrative personnel. These expenses are those that allow the proper functioning of the company, but are not directly related to profits.
Cost examples
Examples of fixed costs
- Service Internet
- Payment of wages
- Office rent
- Service light, Water Y gas
- Contracting insurance
- Municipal permits
- Taxes
Examples of variable costs
- Raw material
- Workforce
- Packing and packaging
- Distribution
- Sales commissions
Production costs
The production costs are all the investments that a company makes to produce a certain good or provide a service. Some key elements within the cost of production are: raw material, labor and general manufacturing costs. Production costs can also be divided into fixed costs and variable costs. The sum of these two costs will result in the total cost of production.
The company generates profits when the income is greater than the production costs and generates losses when the production costs exceed the profits obtained from the commercialization of the good or service.
Cost accounting
Cost accounting is an area within accounting in which accounting techniques are used to record, analyze and distribute the costs used in the production of a certain good or service. This analysis of the total costs allows to know the cost per product.
Cost accounting is a fundamental piece within the accounting area of companies or organizations. This process uses basic accounting principles to later make use of the information obtained. The analysis of these costs allows you to manage and administer them. They provide accurate information that contributes to the planning and the decision making within the organization.