He Cost control It is a vital task in the management of any company. Only a thorough and exhaustive analysis of production processes, supplies, the commercial network, and human resources can allow a company to not only succeed, but simply survive in a competitive environment.
Cost and cost are words that, in some of their meanings, can be used interchangeably, which is why in this article we will use both terms.
Machado said "Every fool confuses value and price," Machado.
- Cost: what it costs to create or carry out the product or service
- Value: what is attributed within the market according to the needs of customers.
- Price: the amount of money with which a product or service is placed on the market, that is:
Price = cost + desired profit.
What is a cost?
What is a cost? popular definition:
We say phrases like "getting here was very expensive for me" or "I asked what the cost of the repair was" being the definition of cost.
«What is necessary to give to achieve something»
«What we have to sacrifice to get what we want
What is a cost and cost? according to the RAE it gives different meanings:
- Expense incurred to obtain or acquire a thing or a service.
- Production cost: Set of expenses for the production of goods and services.
- Marginal cost: Increase in production costs by increasing the quantity produced by one unit.
- Cost: Amount given or paid for something.
What is a cost? business definition of a cost :
- Consumption of productive factors, which allow the company to maintain its structure (costs of supplies, rent, personnel...) or obtaining a more elaborate product or with greater value than before starting the transformation process (production costs).
Different concepts linked to business costs
Expense, cost, payment and investment.
Difference between Expenditure and investment
Spent, In a generic way, it is any purchase of goods and services that the company makes to develop its value creation process, which will have its compensation in the income generated by its sales of goods and services.
- Purchases of merchandise and raw materials will be incorporated into the production process and are expenses of the period.
- Cost of personnel participating in the activity (wages and salaries, social security paid by the company and other social expenses).
- Services to third parties will be expenses for the year
Investment: use resources with the objective of achieving some benefit, whether economic, political, social, personal satisfaction, among others. In the business context, investment is the act through which certain assets are used with the aim of obtaining income or income over time (Wikipedia).
In a home:
- Food would be an expense.
- Furniture would be an investment.
Difference between expense and payment
- Spent, It is any purchase of goods or services.
According to the General Accountant, the accrual principle applies: The allocation of income and expenses must be made based on the actual flow of goods and services that they represent and regardless of the moment in which the monetary or financial flow derived from them occurs.
In other words, expenses must be accounted for at the time the acquisition of goods or services takes place, that is, we account for the invoice at the time we receive it, not when we pay it, and at that moment it is when it affects our benefit.
- Pay, An outflow of money from the company (cash criterion). But remember that there may be expenses that do not represent an outlay of money, such as depreciation.
Types of business costs
Costs by their nature:
- Raw Materials and supplies (valuation systems)
- External services.
- Staff.
- Financial.
- Amortization and provisions.
Fixed or variable costs
- Fixed cost: It is not directly related to the volume of activity, example leasing
- Variable cost: Its amount depends on the volume of activity, for example a commercial commission
Direct and Indirect Costs
- Direct Costs: Possibility of objective assignment.
- Indirect costs :No possibility or great difficulty of assignment to a product
Other concepts to classify them
- Opportunity costs: Cost for the waiver alternative
- Relevant or irrelevant costs: Affected or not when making a decision.
- Incremental costs: Increase in cost due to increase in Output, the incremental cost is that generated by adding or subtracting an additional unit of product or output
- Sunk Costs: Corresponding to decisions already made, therefore they are irrecoverable
- Financial costs: Whose origin is in obtaining external resources, that is, financing. It includes the cost of interest that the company must pay on loans, as well as the cost of extending credit to customers.
If you are interested in learning more about costs and putting it into practice in a company, the Master in Financial Management, Accounting and Management Control will enable you to lead the comprehensive financial-fiscal management of the companies.
