The 5 steps to efficient costing
Posted: Mon Dec 09, 2024 5:57 am
In this article, you will see the 5 steps for efficient costing, to reduce your costs and increase your profit.
If you are here, it is because at some point you have stopped to think that, in a lunch, you spend not only on ingredients, such as rice, beans, oil, meat, onion and garlic, but also on other supplies and equipment, such as electricity, gas, water, stove maintenance, mixer and blender.
Likewise, to know exactly how much bc data brazil you spent on that lunch, you would have to measure in grams and ml how much was spent on each ingredient, in addition to considering the other expenses, correct?
You got it! Any activity needs to have its costs controlled , because no one likes to lose control and see money going out without knowing why, right?
At the same time, in the business world it is necessary to be as precise as possible, considering how much was spent on each input and understanding every detail in order to reduce costs.
One of the biggest challenges for companies is calculating how much is spent on each product and having a more detailed view of the profitability of their business. To this end, this article will cover some essential costing steps, application methodology and a step-by-step guide on how to apply it.
Want to know more about how to reduce your expenses? Schedule a free diagnosis!
Costing steps : Fixed expenses vs. Variable expenses
Firstly, expenses are values that do not directly impact the production process, therefore, the lower your expenses, the greater your profit will be.
However, expenses are not necessarily associated with waste. In this sense, expenses are often necessary to keep the company running smoothly.
Therefore, expenses are those that will be present every month and that will keep the company running according to its needs. Variable expenses are those that do not necessarily have to be present every month, that is, they are values that will not be present in the monthly closing of accounts.
In short, taxes, energy bills and PPE are examples of fixed expenses. Social gatherings, outsourced services and fees are examples of variable expenses.
Costing steps: Fixed costs vs. Variable costs
Firstly, costs are the monetary amounts used to produce products /services. Therefore, everything that is spent directly on producing your product/service falls into this category.
Costs can be classified as fixed and variable:
Likewise, a company's fixed costs are those that are least likely to vary according to the volume of production or sales. Therefore, variable costs correspond to expenses that increase or decrease proportionally to the level of activity.
Also read about the 7 reasons to hire a junior company
Raw materials are an example of variable costs. The more products a company manufactures, the greater its consumption of raw materials and, therefore, the greater its expenditure on them. Similarly, employee salaries or equipment depreciation are examples of fixed costs. Therefore, these items have values that remain stable every month, regardless of whether the company produces/sells more or less.
Costing steps: Direct Costs vs. Indirect Costs
Initially, your company has expenses that are fundamental and without them, the product would not exist, which are direct costs. However, there are expenses that only help in the manufacture of this product, which are indirect costs.
Read about what commercial structuring is and how it can help you
For a bakery, for example, the salaries of employees who work in production and the raw materials to make the pastries are examples of direct costs. The depreciation of the bakery's production machinery is an example of indirect costs.
Costing steps: Absorption cost methodology
First, imagine that your business offers two products to its customers, product X and product Y, each with a different price. Therefore, suppose that you pay R$2,500.00 in rent and need to somehow include this amount in the price of your products in order to pay your bills at the end of the month.
So, now I ask you, would dividing the rental value in half, for each of the two products, be ideal?
The answer is no! One of the products is cheaper, and by dividing it in half, you would be forcing this product to become more expensive unnecessarily, as its distribution is not respecting the contribution proportion of the products.
And that is why we will understand about absorption costing , which is a method that considers all production costs (direct, indirect, fixed and/or variable) and divides them by the quantity produced. In this way, it allows the total unit cost of products to be established, without the need to separate the company's costs into categories and, therefore, it is the simplest to implement.
Furthermore, adopting this type of costing is advantageous, as among the main ones, it is the only one accepted by Brazilian legislation in accounting terms, both for calculating taxes and for presenting reports.
Finally, having made the necessary considerations, let's now look at the 5 steps to costing a product.
If you are here, it is because at some point you have stopped to think that, in a lunch, you spend not only on ingredients, such as rice, beans, oil, meat, onion and garlic, but also on other supplies and equipment, such as electricity, gas, water, stove maintenance, mixer and blender.
Likewise, to know exactly how much bc data brazil you spent on that lunch, you would have to measure in grams and ml how much was spent on each ingredient, in addition to considering the other expenses, correct?
You got it! Any activity needs to have its costs controlled , because no one likes to lose control and see money going out without knowing why, right?
At the same time, in the business world it is necessary to be as precise as possible, considering how much was spent on each input and understanding every detail in order to reduce costs.
One of the biggest challenges for companies is calculating how much is spent on each product and having a more detailed view of the profitability of their business. To this end, this article will cover some essential costing steps, application methodology and a step-by-step guide on how to apply it.
Want to know more about how to reduce your expenses? Schedule a free diagnosis!
Costing steps : Fixed expenses vs. Variable expenses
Firstly, expenses are values that do not directly impact the production process, therefore, the lower your expenses, the greater your profit will be.
However, expenses are not necessarily associated with waste. In this sense, expenses are often necessary to keep the company running smoothly.
Therefore, expenses are those that will be present every month and that will keep the company running according to its needs. Variable expenses are those that do not necessarily have to be present every month, that is, they are values that will not be present in the monthly closing of accounts.
In short, taxes, energy bills and PPE are examples of fixed expenses. Social gatherings, outsourced services and fees are examples of variable expenses.
Costing steps: Fixed costs vs. Variable costs
Firstly, costs are the monetary amounts used to produce products /services. Therefore, everything that is spent directly on producing your product/service falls into this category.
Costs can be classified as fixed and variable:
Likewise, a company's fixed costs are those that are least likely to vary according to the volume of production or sales. Therefore, variable costs correspond to expenses that increase or decrease proportionally to the level of activity.
Also read about the 7 reasons to hire a junior company
Raw materials are an example of variable costs. The more products a company manufactures, the greater its consumption of raw materials and, therefore, the greater its expenditure on them. Similarly, employee salaries or equipment depreciation are examples of fixed costs. Therefore, these items have values that remain stable every month, regardless of whether the company produces/sells more or less.
Costing steps: Direct Costs vs. Indirect Costs
Initially, your company has expenses that are fundamental and without them, the product would not exist, which are direct costs. However, there are expenses that only help in the manufacture of this product, which are indirect costs.
Read about what commercial structuring is and how it can help you
For a bakery, for example, the salaries of employees who work in production and the raw materials to make the pastries are examples of direct costs. The depreciation of the bakery's production machinery is an example of indirect costs.
Costing steps: Absorption cost methodology
First, imagine that your business offers two products to its customers, product X and product Y, each with a different price. Therefore, suppose that you pay R$2,500.00 in rent and need to somehow include this amount in the price of your products in order to pay your bills at the end of the month.
So, now I ask you, would dividing the rental value in half, for each of the two products, be ideal?
The answer is no! One of the products is cheaper, and by dividing it in half, you would be forcing this product to become more expensive unnecessarily, as its distribution is not respecting the contribution proportion of the products.
And that is why we will understand about absorption costing , which is a method that considers all production costs (direct, indirect, fixed and/or variable) and divides them by the quantity produced. In this way, it allows the total unit cost of products to be established, without the need to separate the company's costs into categories and, therefore, it is the simplest to implement.
Furthermore, adopting this type of costing is advantageous, as among the main ones, it is the only one accepted by Brazilian legislation in accounting terms, both for calculating taxes and for presenting reports.
Finally, having made the necessary considerations, let's now look at the 5 steps to costing a product.