PRODUCT COSTING

1. PRODUCT COSTING Süleyman ÜSTEK Industrial Engineering Department, DokuzEylül University, Turkey

2. WHAT IS COST? • Tohave a goodor service what is put forward as directandindirectexpenditures is the total cost.

3. All the goods we use daily to meet our needs has a cost to come ready to use. Elements of cost producers of goods or services should know the cost of their goods or services. If they do not know their enterprises will be in difficult position to continue. Producers know the elements of cost, as well as lowering the cost factors.

4. COST FACTORS • Raw Materials • Supporting Materials • General Expenses • Depreciation • Labor • Direct labor • Indirect Labor • Maintenance and RepairExpenses • General Operating Expenses

5. RAW MATERIALS • Each production activity is carried out from the forces of nature and natural materials are obtained. In this regard, the underground and above ground resources, minerals, forests, soil, air, sun are the realization of the production sources. Soil iron ore, cotton yarn, sugar beet are production examples of the raw material.

6. SUPPORTING MATERIALS • These materials help to keep the structure of the materials or other substances used to make the production. Example: The paint used in the cotton, the machine used to produce coal, coal used to produce iron.

7. GENERAL EXPENSES • Business activities in order to continue, like lighting, heating, transport, communications, stationery, and so on are classified as general expenses.

8. DEPRECIATION • Some machine tools and materials are used to make production. Wear out over time and economic life of equipment used is a loss and it has a cost. The cost of this lost for the production of goods is added to the cost items as the amount of depreciation.

9. LABOR • For the realization of the production, what is paid for the body and brain activities of people is called wages. Cost of labor are of two kinds: • Direct labor: The cost and production time for the production of consumable goods that can be found by multiplying the labor. • Indirect Labor: On goods produced in non-business activities, paid wages. Transportation, security, such as fees.

10. MAINTENANCE AND REPAIR EXPENSES • Periodically in the maintenance of machine tools and devices used is done, or machines mightsourfrom time to time, these costs are added to the cost.

11. GENERAL OPERATING EXPENSES • Business activities such as rent and insurance are examples for general operating expenses.

12. TYPES OF COST • There are various methods for calculating the cost. These methods depend on the objectives of the business, the type used in the production, are classified according to the procedures used in cost calculations.

13. According to the form of business operation; • Serial or continuous cost:Without a break in a factory constantly refers to the cost of production calculated in the event. • Tracks cost: If more than one workshop production of a commodity is made through the exit of the calculated cost of each workshop. Example: A car's engine, chassis, bodywork, rubber parts, such as workshops, produced a separate installation costs are combined and calculated accordingly.

14. Cost Calculation by the time of; • Pre-cost: Pre-production of the cost • Mid-cost:The work before the end of a stage production of the goods are calculated as mid-cost. • Last cost: Calculated after the end of the business.

15. Cost calculation method by; • Cost of Supply: The main inputs required for production, but these are outside of the vehicle, insurance, commission and expenses. • Industrial Cost: Materials and labor used in production, depreciation, cost of adding overhead.

16. Commercial Cost: Costs like industrial packaging, advertising expenses, are industrial costs. • Standard Cost: Certain specific conditions, activity level and the cost of the service by a direct raw materials and finished goods and materials, direct labor, manufacturing costs and general cost of pre-determined standard cost is based on scientific principles.

17. MINUS COST FACTORS • Business and the location of the right to be selected taking into account all economic factors, • Easy and cheap availability of raw and auxiliary materials, • Cheap and easy finding qualified labor force, • Business in the presence of different economic means, (transportation energy, market)

18. Import and export facilities for the production, • Developed infrastructure (electricity, water, lighting, heating, facilities) • Used machine tools in production and repair instrument, • Main and side industries that benefit from opportunities.

19. AN EXAMPLE OF COST CALCULATION • QUESTION: 25X25X1mm. profile of the pipe will be manufactured in a standard chair . Chair, table and back gauge table seating order will be made. Calculate the cost of a standard part of the chair frame?

20. ANSWER: • List of direct material used in the construction of the chair: Name of material Quantity Unit Price Amount • 25x25x1mm. 6.5 mt 5 TL 32.50 TL profile pipe • 2.5 mm. Electrode 5 pcs 0.05 TL 0.25 TL • Nuts 10 pcs 0.05 TL 0.50 TL • Paint Primer 0.2 kg 12.50 TL 2.50 TL • Oil Paint 0.2 kg 12.50 TL 2.50 TL • Bolt ¼ “ 8 pcs 0.50 TL 4.00 TL • Chair table 1 pcs 7.75 TL 7.75 TL (to be ready)

21. Material Total: 50.00 TL • General Expenses (electric + light + cleaning) % 2 1.00 TL • Sub Total : 51.00 TL • Depreciation: % 5 2.55 TL • Sub Total: 53.55 TL • Profit: % 25 14.45 TL • GRAND TOTAL: 68.00 TL 68.00 TL. Sales price of the chair.

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