Dear readers, I have been mentioning in different articles some processes that are of utmost importance to maintain the balance in business and of course generate optimal income, in this publication we will talk about costs, which is nothing more than the money we invest for the manufacture or purchase of a product.
Marulanda (2009), points out that costs is a part of the general accounting system that allows knowing how much it costs to produce an item, describing it as a subsystem of the general system, the same author mentions that according to its theoretical context it can be applied to any type of company in the agricultural, livestock and food sectors, among others.
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That is why each person who decides to make a product must be clear about what its elements are in order to determine the cost that generated the realization of the product and thus evaluate what will be the profit that will be obtained. It should be noted that the elements of the costs would be direct and indirect labor, direct and indirect raw material, and indirect manufacturing costs. In this sense, each of these elements are essential to determine the cost of a product.
To understand a little about the elements of cost we can say that each one has its function, i.e., direct labor is that which is present from the beginning of the production of the product until it is finished, while indirect labor is part of a small space at the beginning or end of the product. The same is true for materials, since direct materials are present throughout production and without them the product cannot be finished, while indirect materials are important but not essential for the product to be finished. Finally, indirect manufacturing costs are nothing more than the expenses that were incurred, but are not involved in the production process. When we talk about indirect manufacturing costs we refer to rent, advertising, among others.
In that sense, to generate a clearer and more concise explanation, I will place below an example with a product called Delicius chocolate which is an artisan spreadable chocolate to enjoy either with family or friends, which I had the opportunity to make with my sister a few years ago.
The investment for the production of the product was as follows:
*Direct and indirect labor $10
*Direct and indirect materials $25
*Indirect costs for the realization of the product 10$.
*Giving a total of $45, which would be the total investment to make the product.
With the amount of raw material and materials used, 10 small packages of 250 gr. and 10 medium packages of 500 gr. were made. The small ones cost $3.00 each and the medium ones $5.00 each, giving a total of $80.00, which would be the total of the sale. In this sense we can see that when discounting the investment obtained from the sale of the product, the profit was $35.
To conclude, dear readers, we can say that any person at the time of investing should make a budget or a cost structure where all its elements are specified and the investment generated by each one of them and thus can apply all the processes for the development of any product, market it and get the profit expected from the sale of the same.
Marulanda, O. (2009). Costs and budgets. National Open and Distance University.