Industrial Costing and Business Profitability

Challenges of Industrial Costing

The problem is that in an industry, there are different processes, materials used, and labor costs; to calculate costs accurately, the units produced must be considered.

Understanding Unit Cost of Production

If you want to compare the cost of manufacturing between two periods, it will require the use of unit cost. For example, in the manufacture of beer, the unit cost could be a quart of the product.

Every industry must determine in each case what is the most convenient unit of cost, based on the products they manufacture, the methods of manufacture, and other relevant factors. The unit cost will depend on the product to be manufactured; this will allow us to determine the final unit cost.

Cost Structures in Commercial Companies

In the case of a commercial enterprise, the process is simpler: to a purchased commercial product, one adds utility, freight, packaging, other costs of sales management, and 19% VAT.

Key Elements of Manufacturing Costs

The cost items are:

• Raw material (direct or direct materials)
• Direct Labor
• Manufacturing Costs:
  • Direct manufacturing costs
  • Indirect manufacturing expenses
  • Indirect materials
  • Indirect labor
  • Overhead

Benefits of Implementing a Costing System

The advantages for a company to implement a system of cost are:

• Serves as a suitable basis for calculating prices of goods and services.
• It allows us to know the goods and services produced and the profit or loss on that scale.
• It allows us to compare costs between different departments, different companies, and different periods.
• Used to monitor actual costs against the default.
• It allows us to choose between alternative suppliers.
• Find weak points in the enterprise.
• They guide investment decisions.
• Used as a planning and control tool.

Core Objectives and Business Profitability

Every business, regardless of its nature, has goals that guide its activities and mandate the way of its actions; these goals have different characteristics and define the profile and business vision.

These objectives are:

• Make money
• Develop
• Stay in time
• Reach new markets
• Have product or service quality
• Providing efficiency
• Obtain customer loyalty
• Meet your customers' needs

But the most important objective is profitability; a return is impossible without being sustainable over time in the medium and long term.