Costs Management

 

Costs Management.

Cost management aims to help in decision making and help show us the paths of a business. Therefore, we must understand the characteristics and classifications of each one.

Spending: Obtaining a good or service

Examples of Expenses:

1- Costs

2- Expenses

3- Investments

4- Losses

Costs: Good or Service used directly in production.

Cost Examples:

1) Cotton -> Clothing

2) Wheat -> Bread

Expenses: Good or service not used in productive activity

Examples of Expenses:

1) Insurance

2) Administrative sector salary

Investments: Expectation of increasing profits in future periods

Investment Examples:

1) Purchase of machinery and equipment

2) Product development

Loss: Unforeseen, unintentional expenses, arising from external factors or your productive activity.

They are divided into direct and indirect costs:

Direct costs are those directly linked to production, such as the wages of production employees and raw materials, while indirect costs are those indirectly linked to the product, such as rent, electricity for production.

We also have two other definitions, fixed and variable costs.

The fixed cost does not depend on the quantity produced, that is, producing a lot or a little cost remains the same.

Example: Salaries and Rent.

Variable cost, on the other hand, depends on the quantity produced, as the greater the productivity, the greater the demand for raw material, packaging, commissions, among others.

To avoid this loss, and working with the necessary variable cost, it is essential to hire a specialist, as it is not just about raw material, there are other points to be analyzed, such as man hours, rework, reduced productivity, inventory and other factors hidden in the production process. Thus, it is necessary to make a diagnosis, with methods and specific points for its reduction.