If you consider yourself a responsible businessman with your work and with your clients, you must bear in mind that your products must be competitive in price and quality. To achieve this strategic objective, you must keep good cost accounting
Keep in mind that the client also does his accounts and incidentally compares the advantages offered by one and the other producer. The client will take into account both the quality of the product, as well as the economy in the price and also the compliance at work or the ease of obtaining it.
On the part of the producer, it is necessary to know how much it costs to produce the good, in order to later be able to set a price that will return profits and with which we can compete in the market. If you do not know exactly how much it costs to produce a good, it will be the end of your business, you will be in trouble when quoting the materials and surely your cash flow will be distorted by your lack of information. This in the long run will not be sustainable and quite possibly fail.
But let's see what other problems you may encounter by not keeping correct cost accounting. Firstly, if the cost of your product is higher than that of other micro-enterprises, its prices may not be able to be maintained in the market and you lose your time and money in a business that you do not find due to its high costs. Cost analysis allows you to know which of the parts that constitutes the cost is the cause of this situation. This means that you can analyze the inputs one by one and make decisions.
In order to have order in the accounting of the costs of a product it is necessary that we know the parts of which the so-called TOTAL COST is composed .
- Raw Material and Other Inputs: For each type of microenterprise it is possible to prepare a complete list of the inputs that are needed, specifying the details of quality and quantity required. Labor: Remember that labor is not only the corresponding to the monthly salary but it will be necessary to plan this input in the long term since you must consider that social benefits are also part of the costs. General Expenses: This section considers the expenses that are periodically made for leasing, plant and equipment maintenance, advertising and promotional services, public services, transport of all kinds, stationery and other office, mail and other expenses incurred. in the company. Administrative expenses: These are the personal expenses of the owner manager. Depreciation Of Machinery And Tools: As its name implies, this is a cost that is incurred every time the machinery and tools are used to make the product. More exactly, he is an accounting figure of the physical wear of these instruments.
To put into practice what we recommend, we suggest that you take the time to prepare a RAW MATERIAL COSTS TABLE, which lists each of the supplies you need for each of your products, alphabetically ordered. Keep in mind that you must know how many units you want to produce and when you plan to buy the materials so that your budgets are real and in accordance with current prices.
In this table you must also state what is the purchase unit of each input (meters, kilos, etc.), what is the cost per unit, how much you use for each product unit and finally the cost of each input. The idea is that your budget is clear to you so that you can make decisions about what expenses to make and what financing strategies to assume to cover the shortages or to better manage the surpluses.
To find the quantities that will be used for each unit, you can try the inductive or deductive method, that is, you can experiment with a small amount of product to find out what amount of raw material you need and then you can make the accounts with the standard quantities in which the inputs are obtained in the market. The important thing here is that you take into account all the inputs, however insignificant they may seem. Remember that when speaking of larger quantities these apparently negligible costs are no longer so small, to become decisive factors with their own weight.
If you work by order of few units, you should do this exercise every time you are asked for a job that is not listed.
This apparently inconvenient has the advantage that you will soon acquire a lot of practice and will do it more quickly and easily. In addition, you will soon have the quotation of many products and this is to standardize the costs which is definitely in your favor.
Lastly, we recommend that you keep your quote data updated. Don't waste money by not knowing how much it costs you to produce.
