Naturaleza y Concepto de Costos

• Nature and Concept of Costs
• One of the most important elements for planning, control, and decision-making.
• All costs must have an associated future benefit for the investor.
• Importance lies in having full knowledge and control of the activities that consume resources.

Cost

• Economic expense representing the manufacturing of a product or provision of a service.

Cost-Asset

• Exists when a cost is incurred whose potential income exceeds the potential of a period.
• Example: acquiring a building, machinery, etc.

Cost-Expense

• Portion of an asset or cash disbursement that contributes to the productive effort of a period.
• Compared with the revenues it generates, it results in the profit made in the same period.
• Example: salaries corresponding to administrative executives or depreciation of the company's building for that year.

Cost-Loss

• Sum of disbursements made, but did not generate the expected income.
• There is no income with which to compare the sacrifice made.
• Example: when a piece of equipment is burned and was not insured.

Financial Accounting

• Focuses on collecting historical financial information.
• Applied to preparing financial statements that meet the needs of investors, creditors, and other external users of financial information.
• These statements include the balance sheet (or statement of financial position), income statement, statement of retained earnings, etc.

Administrative Accounting

• Focuses on historical data and estimates.
• Assists management in making current operations, long-term planning, controlling, and developing business strategies.
• Information system to serve the internal needs of administration.
• Example: Budgets; an estimate

Cost Accounting

• An important aspect to analyze when reviewing the cost structure is knowing the business sector.
• The cost structure will differ based on the sector.
• The accounting discipline that assists in determining a company's cost structure is called cost accounting.

Unit Cost

• Determining the cost per unit of what is sold, whether it's a product or a service.

Objectives

• Generate reports to measure profitability, providing the correct cost of sales.
• Value inventories.
• Provide reports to help exert administrative control.
• Generate information for decision-making.
• Generate information to help management support the competitive strategy.
• Collaborate with the administration in the continuous improvement process by eliminating activities or processes that do not generate value.

Classification of Costs

Based on the time they were calculated

• Historical costs are obtained after the product has been sold.
• This category is very helpful in predicting the behavior of costs in the future.

Predetermined Costs

• Calculated before the product is made or determined.
• Divided based on the foundations used for their calculation.

Estimated Costs

• Valuation technique where costs are calculated based on certain empirical bases (knowledge in the industry).
• This is done before or during the manufacturing of the item.
• Aims to predict the value and quantity of the elements of the cost of production.
• Serves as the basis for the valuation of production in progress, finished, and sold.
• Example: "Tostadas de tinga" (1 kilo of chicken, 1/2 of tomato) may yield 2 kilos of product to sell 50 tostadas.

Standard Costs

• Calculation done with generally scientific bases for each element of the cost.
• Done to determine what a product should cost, based on the efficiency factor (budget).
• Example: The budgeted cost of sales is based on an sales estimation for the next year.

Based on their Tax Impact

• Deductible Costs are those costs (expenses) that a company can deduct from its income to calculate taxes.
• Example: Major medical expenses.
• Non-Deductible Costs are costs (expenses) that are not deductible from income for tax calculation purposes.

Based on the Function in which they Originate

• Production Costs (exclusive to production companies) are those generated in the process of transforming raw materials into finished products.
• Subdivided into:

Raw Material Cost

• Cost of materials integrated into the product.
• Example: Milk for producing cheese, wheat for producing bread, etc.

Labor Cost

• Cost directly involved in the transformation of products.
• Example: The salary of plant operators.

Indirect Manufacturing Costs

• Costs that are related to the transformation of the product, with the exception of raw materials and direct labor.
• Example: The salary of supervisors, maintenance, depreciation, etc.

Sales Distribution Cost

• Costs incurred in the area responsible for taking the product from the company to the final consumer.
• Example: Advertising, sales personnel salaries

Administration Costs

• Those that originate in the Administrative area.
• Example: Salaries of administrative personnel, general office expenses, such as telephone and electricity.

Financing Costs

• Originate from the use of outside resources, which allow financing the growth and development of the company.
• Example: Interest expense that a company has for credits that have been granted

Elements of Cost

• Monetary values of the inputs used in the productive process of the industry.
• They are part of production costs.
• Classified into: Direct Materials, Direct Labor, Indirect Production Costs (salaries)

Direct Materials

• They can be easily identified in the finished product.
• Represents the main cost in the production of the product.
• Example: Fabric for making shirts, pants, etc.; Leather for shoes; Wood for tables

Indirect Materials

• Necessary for the manufacture of a product, but are not easily identifiable or have an insignificant cost and are included as part of indirect manufacturing costs as indirect materials.
• Example: Labels, thread, cardboard boxes for packaging; almost always related to packaging.

Economic Lot

• Quantity of units that should be requested from the supplier in each order.
• Aims to minimize the cost associated with purchasing and maintaining units in inventory.
• The basic objective is to reduce costs while answering questions like "How much to order?" and "When to order?"
• To determine the economic lot, one must identify the costs associated with inventories.

Cost of Placing the Order

• This value is considered fixed regardless of the order quantity.
• Not affected by inventory policies.
• Represented by the cost of the purchase format, the cost of sending the purchase order to the supplier, etc.
• Whether you order 1, 100, 1000, the cost is normally the same.
• Examples: Shipment of goods or preparation of the order.

Maintenance Cost

• Defined as the cost of maintaining a unit or item during a certain period.
• Items that are stored in the inventory are also subject to losses due to theft, deterioration, or obsolescence.

Cost of Running Short

• When a company cannot fulfill an order, two types of costs usually occur.

Breakdown cost

• Represented by the lack of an item during a certain period.
• Despite the breach, the customer prefers to wait.

Default Costs

• Represented by the lack of an item during a certain period.
• In this case the demand is not met.
• The sale is lost, and the customer is lost.

Safety Margin

• Number of additional units above those determined by the economic lot (has a formula to calculate) to be maintained in inventory.
• Done to cope with unforeseen events or increases in demand.

Reorder Point

• Inventory level of an item that signals the need to place a reorder.

Operating Expenses

• Not all companies have production, but all operate.
• Means that there are administration, distribution, and sales expenses.

Administration Expenses

• All expenses that are not production expenses.
• Necessary investment for the company to work in the best way.
• Items grouped in this area vary according to the nature of the business, although they generally include:
• Salaries of Administrators (HR, Accountants, Administrators, etc.)
• Office supplies
• Rent, light, computer equipment and maintenance.

Distribution and Sales Expenses

• Covers the control of the ended product.
• Disbursements incurred by a producer to bring their products from their manufacturing plant to the place where they are acquired.
• A fundamental component of the total cost for the producer and the price paid by the consumers.
• Reyes Concept is that all expenses incurred to bring the product to market and obtain recovery through sales.

Analysis of Distribution Costs

• There are 4 factors to consider when analyzing distribution costs.
• Creation of Demand: How consumer interest in the product is awakened. Includes advertising and sales promotion.
• Obtaining the order: Includes expenses related to the sales force: shipping costs.
• Handling and delivery of product: Transportation, storage, and other logistical activities
• Sales control: Investigation and opening of credit, accounting routine for its registration, preparation of sales analysis, service and collection
• Other inherent functions until the sale is reflected in money.

Unit Cost Sheet

• Document in which all expenses for the manufacture of a product or service are recorded.
• Example: "Conchas"
• Direct raw material: 125 grams of flour; Eggs; Sugar; Dry yeast; Butter; Lard; Powdered sugar
• Indirect Raw materials: Colorings; Paper