Calculation of the cost of the cost: how to do it?

The management of a company has many aspects such as the financial component. And to make profits, it is essential to monitor certain indicators such as cost cost.

The cost of the cost is also essential to determine the margins to do to survive.

But what is the cost of and what is important? How to calculate it? The factorial helps you to see more clearly.

What is the cost of the cost?

The cost of the cost (or cost price) represents All costs for a company to create a property or perform a service.

Therefore, all costs are taken into consideration, including direct and indirect loads.
Production costs, purchase costs, commercial costs, administrative costs … all its expenses influence this amount.

Key indicator of the analytical accounts, it is decisive Know the benefits made by a company and also allows Note the free margin released.

Calculation of the cost of the cost

The calculation of the cost price allows you to determine the gross margin and is therefore precious to know the benefits made and achievable by the company.

The cost formula is as follows:

Cost cost = direct and indirect / quantity produced charged

In order for this calculation to be effective, the company must impractically identify the products and services concerned.

A analysis work is therefore necessary and the perfect knowledge of its activity field is essential.

Election elements of evaluation

The cost price consists of several elements that will influence its results such as:

• Purchase and supply costs : Raw materials, goods, consumption supplies, delivery costs, etc.;
• Production price : Operating expenses, labor, rent, insurance, maintenance …;
• Distribution costs : Advertising, delivery, packaging, marketing …;
• Unit of work : number of hours of employees, turnover, number of employees …

All these elements will be considered direct or indirect loads.

Direct and indirect charges

The company must distribute its expenses between Direct charges AND indirect accusations.

It is often a delicate moment because you have to take into account all expenses. Don’t forget some at risk of obtaining different results.

Direct charges

Direct charges are the costs connected directly to the product production process or service service.

They are quite simple to determine because it is not useful to carry out intermediate calculations to integrate them into the cost of costs.

For example, supply costs (raw materials, supplies, etc.) and production costs (fuel, electricity, etc.) are considered direct charges since they are assigned directly to the cost of a product or service.

Indirect accusations

Indirect charges have no direct link with the cost object and do not refer directly to the production or service process.

They are more complicated to charge because they require some intermediate calculations.

Therefore, the indirect expenses participate in the functioning of the company as administrative expenses, of rent, insurance, advertising, internet or telephone.

Must be distributed according to the work units.

Example of calculating costs costs

For greater clarity, here is an example of cost cost:

A company specialized in table production must produce 500 units. It has indirect and indirect loads of 8000 euros.

To know the cost of the cost, it is therefore necessary to apply the formula:

Direct and indirect (8000) / quantities produced (500): a cost of 16 euros per table.

Therefore, in order not to lose money, the company owes every table at least 16 euros.

The sale price

To determine the cost of the cost it is also Correct the sale price of a product or service. As for the target cost method, it allows the company to project itself.

If it helps to define the minimum level of the sale price, it also helps to know the room necessary to create profits.

When setting the sale price of a product or service, it is therefore necessary to take into account the cost of the costs and the amount of the margin for a convincing result.

Why calculate the cost of the cost?

For a company, the calculation of the cost of the cost is fundamental.

Adding it with margin and VAT, it is possible Define the best price to get profits and face competition.

In itself, it is a financial indicator that goes guide the price strategy of a company.

Furthermore, this allows itConsider the margin of the company and to improve turnover.

If the cost price is low, the gross margin increases. It is therefore possible to obtain more profits.

But the cost of the cost is also a vehicle Details the expenses incurred during a production cycle.

It helps to create a cash plan and estimate future expenses on the basis of those already made.

It is also an effective element for make strategic decisions.
Reduce or remove certain expenses, increase the sale price, reduce the cost of indirect expenses or modify the production process to increase margins are all possible measures.

You can too Better understand the structure of the costs of your products or services.

It is therefore easier to master business management and know how to know the profitability threshold.

Finally, mastering your costs offers you the possibility of setting levers to reduce them and Be more competitive. To reduce certain expenses, it is better to know their quantity perfectly.

For any company, the calculation of cost cost It is essential.

Significant accounting indicator, it is an ally to establish a company plan and manage the daily organization of a company.