In the process of production, the provision of services and the performance of work, the business entity expends labor, material and financial resources. The costs of these items ultimately form the cost of goods. The value of this indicator has a significant impact on the final result of the organization, which may be either profit or loss.
The costs of the enterprise must be properly considered. This will ensure proper control over their effective use and will allow you to correctly calculate the financial result of the business entity. The costs of the enterprise are an important component in determining the selling price of the goods and underlie the analysis of the organization, which is necessary for management and forecasting.
In the course of its activities, the business entity incurs monetary and material expenses, the purpose of which is both simple and expanded reproduction of non-current and working capital, as well as the manufacture and sale of products and much more.
The largest share is the cost of releasing goods. The company also incurs costs for the sale of products. These costs are commercial or non-manufacturing. These include transportation, packaging and storage of goods, advertising and much more. The combination of production costs and commercial costs comprise the total amount of expenses that characterizes the costs of the enterprise.
A reliable definition of this indicator is the basis for the following:
- conducting a marketing analysis and deciding on the release of a new product with a minimum cost;
- finding the degree of impact of certain cost items on expenses incurred in the course of production;
- pricing;
- reliable determination of the amount of income and the correct calculation of taxes.
The costs of the enterprise, which should be included in the cost of production, services rendered and work performed, are the valuation of natural resources and raw materials, fuel and materials, energy and fixed assets, labor resources and many other necessary expenses used during the production process. In addition, the business entity incurs costs that do not affect the release of goods. These costs should not be included in the cost of production.
These include:
- work related to the improvement of towns and cities;
- assistance to the village;
- expenses for repair and depreciation of cultural and domestic objects that are on the balance sheet of a business entity;
- work performed for other organizations in order to provide assistance.
For the proper planning of activities, accounting and analysis of the costs of the enterprise and their classification (integration into homogeneous categories) must be correctly determined. These indicators reflect the rational use of financial, labor and material resources.
The total costs of the enterprise are divided into the following types:
- included in the cost of production;
- mixed (interest paid on a loan, travel and hospitality expenses , etc.);
- directly attributable to financial results (canceled orders, costs of production that did not produce products, maintenance of mothballed production assets, and so on);
- made at the expense of net profit (material assistance, expenses incurred in excess of the standard, and so on).
A reliable analysis of costs and correctly adopted management decisions on the rational use of enterprise resources should lead to a decrease in the level of expenses of a business entity, which will be a significant indicator of the effectiveness of its activities and ensure revenue growth.