How to keep track of production costs

In accounting, the system of forming costs for production is one of the main mechanisms in any enterprise. It is from the proper distribution of funds that the profitability of future production and the receipt of income from products depend. Accounting for the cost of production is the most important part in calculating the cost of goods produced. In view of the fact that the management of the enterprise independently determines the market value for its products, the calculation of costs and production costs, especially its correct methodology, serve the active growth of the enterprise and its profitability.

When keeping records of production costs, the management of the enterprise, as well as, first of all, the accountant, can establish how high the level of costs is, the cost is calculated, and subsequently the final price of the goods on the market. Analyzing all the data obtained, we can say how promising the enterprise will be and what profit is expected.

Some elements of accounting are strictly controlled by state regulations for the further registration of taxes from the profit of the enterprise. In order to understand what a cost accounting for production is, it is necessary to consider the basic principles of accounting for these very costs.

The main objective of each individual enterprise is to continuously increase the profit and independence of the enterprise on the market among other competitors. This is the main reason why the cost of production is recorded . That is, the accountant carefully notes all costs that directly or indirectly affect the cost of goods. This is the purchase of raw materials, materials, fuel and electricity costs, workers' salaries and other types of production services. Among other things, you can include the cost of VAT, equipment depreciation, deductions to the insurance fund, rental of premises and other variable types of costs.

It is worth noting that the cost of production affects only the documented accounting of all costs incurred in the production process. Themselves the costs are divided into two separate units: it is the direct cost of production and sale of goods and other costs.

In order to determine how much the enterprise may need to produce, the accountant conducts an initial accounting of production costs. The approximate cost per unit of output is calculated and the average cost is predicted. This is called the planned and actual cost.

Accounting for production costs is performed by several methods: as it was said before, a planned calculation for a certain period of time is made, as well as an estimate for a one-time production, if any. Then, at the end of the reporting period, a summary is made, the actual accounting of costs for production, where unplanned expenses are credited for the month.

Also, the depreciation of the main equipment involved in the production process is included in the cost accounting. As the equipment begins to break down over the years, the company's management is obliged to take care of its replacement, and the purchase of new equipment is a new expense. Therefore, in order for the enterprise to have funds to purchase equipment, the state provides for depreciation charges to be included in the cost of goods.

All other expenses of the enterprise, not related to production, are accounted for under other items of financial statements. Thus, the report reveals indicators that indicate the total profit and expenses that are deducted from this profit.