What is the cost of production

The cost of any product varies under the influence of various factors. Among the most significant ones are the demand, state price regulation mechanisms, production costs, and the presence of competition. The management of the enterprise should analyze each factor and on the basis of this develop a pricing policy. The article will deal with such an important aspect as the cost of production.Production costBased on this complex indicator, one can say how effective the policy of the enterprise is and how efficiently the use of available resources is. It includes a variety of production costs.

Cost concept

It represents the value expression of the current costs of manufacturing and sales of products. The success of the company depends on the cost, since it is incurred costs are the starting point in the formation of prices of products. In addition, this indicator is essential for making forecasts, analyzing and managing the production process.To this end, it is customary to allocate several types of cost: shop floor, production and complete. The first includes the costs incurred in the production of products by any workshop.Cost conceptProduction, in addition to shop expenses, also includes overhead costs. In other words, the production cost of production reflects all the costs associated with its manufacture. As for the full, it includes the costs of both the manufacture and sale of goods.

Classification of costs included in cost

In order to ensure the management of the expenses of the enterprise, their classification is applied according to certain criteria. For example, to include costs in the cost of production they are divided into overhead and direct. The former include costs that cannot be fully allocated to finished products. But the most popular is the classification of costs according to economic elements and calculation items. The first is a homogeneous type of expenses (from an economic point of view) for the manufacture and sale of goods, works, services, which within the organization is not advisable to consider in more detail.The division of costs by element is of great practical importance, since it serves as the basis for cost estimates. She, in turn, includes all the costs of the company associated not only with the manufacture of products, but also with the change in the balance of work in progress and the performance of various kinds of work that do not include in the gross output. The estimate is used for the formation of the balance sheet of the enterprise, serves as the basis for the preparation of such an important element as the planned cost, as well asPlanned costhelps in the calculation of important economic indicators.


It is fair to say that raw materials, as well as basic materials, account for the largest share in production costs. Slightly less spend on staff salaries and contributions to the depreciation fund. To reduce such an indicator as the cost of production, modern advances in science and technology are used. Important is the competent organization of labor and the production process.

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