Report the cost of production – detailed guide for business

In the business environment competitive, controlling the cost of production not only help enterprises to reduce the cost of products, but also ensure sustainable growth contribute to improve profitability. However, many enterprises still face difficulties in the establishment report production costs accurate tracking fluctuations in cost, find out solutions to optimize efficiency.

So, expense reports play a role in how to manage business finance? How to business can reduce waste, improve production efficiency and optimize product price?

In this article Lac Viet Computing will in-depth analysis of report production costs, the cost type is important, methods of making accurate reports by applying technology to optimize production costs.

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1. Report the cost of production is what?

Report production costs is one of the important document to help businesses financial control, performance evaluation and production activities, calculate the accurate price of the product. The establishment cost report not only support managers in decision-making, financial accuracy, but also help enterprises optimize costs, improve productivity, maintaining sustainable profitability.

Report the cost of production is accounting documents reflect the full costs incurred in the production process, including raw material costs, labor costs, production costs, general.

• Track control the whole of the expenses incurred in the production process.
• Provide accurate data to calculate the product price, guarantee business with the reasonable price, the optimal profit.
• To help businesses evaluate the performance of production, from which adjust the process to minimize waste.
• Support financial planning and forecasting the cost of future production.

For example, A business of food production can be used to report the cost of production to determine the level of expenditure raw materials, reasonable, from which optimize the usage of raw materials, limited shrinkage.

2. Types of costs in the cost report production

Report the cost of production helps enterprises monitor, control, to optimize each item of cost in the production process. To ensure the accuracy of transparency, the expenses are classified into three main groups: the cost of direct material cost, direct labour cost, manufacturing general.

2.1. The cost of raw materials directly

The cost of raw material is direct expenditures related to the main raw material constituting the product. This is the kind of costs accounted for the largest proportion of the total cost of production, which directly affects the price of products.

The item the cost of raw materials directly

• Main materials: The material directly form the final product (for example: iron, steel, wood, plastic, fabric).
• Raw material: material Is supported but is not the main component (for example: screws, glue, paint, packaging).
• The cost of buying raw materials: including the cost of transportation, warehousing and wastage in the process of preservation.

For example, A company with the cost of direct material including fabric, buttons, zippers, sewing thread.

The impact of the cost of raw materials directly to production

• If the business does not control good price of imported raw materials, production costs will increase, affecting the profit margin.
• Status of waste or wastage of raw material can increase the cost of production.
• Applications warehouse management system smart track consumption of raw materials, optimum process for importing goods.

For example: A manufacturing enterprise of furniture can use AI to analyze data consumption of wood, from which optimized the process of cutting wood to reduce wastage.

2.2. Costs directly

Cost of direct labour is wages and allowances for workers directly involved in manufacturing the product. This is an important factor in the total cost of production, especially in the industry that needs a lot of manual labor, such as textiles, footwear and food processing.

The item cost, direct labour

• Basic salary: fixed salary of production workers.
• Overtime, bonus and productivity: Cost arises when workers do overtime or performance.
• The account insurance: social insurance, health insurance, unemployment insurance under the provisions of the law.

For example: A factory-assembled car rental cost, direct labour, including salaries of workers, assembly line, quality control, operate machinery.

How to optimize costs directly

• Automation of production processes helps to reduce dependency on manual labor.
• Reorganize work shifts reasonable to limit overtime costs.
• Application AI to analyze the performance of labor, from which layout workers to suit each stage of production.

For example: A factory manufacturing electronic can use sensors, tracking systems productivity to identify workers have a high-performance, optimized training procedures.

2.3. The cost of production in common

Cost of joint production is a whole other costs related to the manufacturing process but can not be attributed directly to each product. This is the cost of a permanent nature or transform big influence on the financial performance of the business.

The item production costs, general

• Depreciation fixed assets: machinery, equipment, factories, transportation of raw materials.
• The cost of electricity, water, maintenance workshops: included electricity for the production line, cooling system, repair costs periodically.
• Cost production manager: Salary of the production supervisor, warehouse manager, accountant production.

For example: A factory manufacturing food production costs include the cost of refrigeration for preserving raw materials, cost of maintenance system, packaging line and wage foreman workshop.

The impact of the cost of production common to business

• The cost of production generally difficult to control than the cost of materials, labor, because many terms are fixed costs.
• If not optimized, the business can be financial pressure, particularly in duration reduced output.
• Use technology monitoring costs help detect the payments are not necessary, optimized operation.

For example, A textile factory can use sensors IoT to track power consumption, thereby determining machinery would expend more energy and adjust the schedule accordingly.

3. How to report cost of production exact details

The report detailed visual to help businesses evaluate production efficiency, the detection of inconsistencies in the process of using resources to make decisions to improve fit.

Here are the steps to take to report the cost of production accuracy effectively.

3.1. Identify the main expense item

Before reporting, businesses need to identify and classify the main expense items, including:

• The cost of raw materials directly
• Costs directly
• The cost of production in common

Determine fixed costs – variable costs

• Fixed costs: These costs do not vary with the level of production, such as rent factory, depreciation of machinery.
• Variable costs: The costs change according to the number of products produced, like raw materials, wage workers work according to the product.

For example: If the business produces 10,000 units of product, cost of raw materials will increase according to the number of products, but rents the workshop remains the same.

Determine the range reported production costs

Businesses need to determine:

• Statements according to the accounting period (month, quarter, year).
• Report by project or manufacturing orders.
• Reports according to type of product or production line.

3.2. Collects data processing, accounting

Recorded aggregate cost data

• Collect data from the accounting department, raw material production.
• Collated with the purchase invoices, warehouse, payroll workers.
• Recorded costs according to each stage of production, to help businesses determine the period incurred cost.

Use accounting software to manage cost data

• Automatic recognition and classification of costs according to each item to minimize errors.
• Synchronize accounting data with the ERP system or software to manage production in order to have accurate reporting.
• Support to generate reports quickly under each accounting period, avoid entering data manually cause mistakes.

For example: A manufacturing enterprise electronic components use ERP software to track each consignment and warehousing of raw materials, automatically calculates the cost of raw materials according to each order.

Check out the collated data, the actual costs with the estimates

• Compare the data collected with the budget had set up previously to detect the difference.
• If there is a deviation, need to check the price of raw materials increase, consumption of raw material is larger than expected, or low labor productivity.
• Check the validity of the cost of joint production, ensure no waste in spending operate.

3.3. Analysis of performance evaluation cost

Compare actual costs with the budget expected

• Calculate the percentage difference (%) between actual costs and estimates to determine the cost exceeds the budget.
• If the cost is higher than expected, should cause analysis to propose a solution to cut costs.

Analyze the causes of discrepancies costs

• If the cost of raw materials increase, the need to assess the causes from the raw material or consumable in the manufacturing process.
• If labor costs increase, the need to check the level of overtime hours, labor productivity, performance machinery.
• If the cost of joint production increase, the need to consider factors such as maintenance, machinery, electricity and water consumption more than usual.

Performance evaluation using raw materials and labor

• Check the percentage of shrinkage of raw materials in each stage of production.
• Reviews labor productivity based on the number of finished product per hour worked.
• Giving solutions to optimize the efficient use of raw materials and labor to help reduce the cost of production.

3.4. Optimized production costs to improve financial performance

Technology application to manage the cost of production more efficient

• Integrated AI system to analyze cost data, to help businesses forecast is fluctuating costs in the future.
• Use warehouse management software smart to track raw materials, in real time, avoid the excess or shortage of raw materials.
• Optimize workforce productivity by monitoring system production helps reduce wasted time and increase efficiency for manual labor.

For example, A company produces plastic that can use AI to analyze data consumption of raw materials according to each shipment of production, from that given the local project save cost more efficiently.

Adjust the manufacturing processes to reduce costs

• Re-evaluate the production stage has a high cost, from which the optimization process to reduce costs not necessary.
• Consider adopting automation technology to replace manual labor helps to reduce costs and improve performance.

4. App AI technology, in report production costs

In the digital era, the application of artificial intelligence (AI) and automation to manage the cost of production not only help businesses save time, reduce errors, but also improve the ability to analyze, forecast, cost optimization. WHO can help collect more accurate data, cost analysis in real time, predict trends, fluctuations in cost, and make suggestions to cut costs effectively.

Here's how AI can revolutionize the reported production cost, helping businesses make financial decisions more accurate.

4.1. Automation collects data processing

The process of collecting cost data in the production usually takes a lot of time, easy-to-happen errors due to input manually. AI and automation systems help businesses collect, aggregate processing cost data in real time.

Connect ONE with the accounting system and ERP

• AI can be integrated with accounting software, ERP and warehouse management software to sync data, the cost of production as soon as they arise.
• AI system automatic recognition, classification, cost of raw materials, labor, general production costs for each project, the production line or specific product.
• Thanks to AI, data costs are updated in real-time to help businesses have an overview on the costs of production that do not have to wait for the accounting period.

For example: A factory manufacturing electronic components, uses AI to record the amount of consumable materials from the production line help in accounting defined the cost of raw materials according to each order immediately.

Minimize errors in expense reports

• ANYONE can cross-check the data, automatically detects errors in the recorded cost.
• When there is a difference between actual costs and estimates, WHO will immediately notify the department of accounting or financial management.
• AI system can collate the bills, vouchers, payroll data, the cost of production, helps to detect expenses which have not been recorded or recorded wrong.

For example, If SOMEONE finds an account of raw material have stock but not yet recorded the corresponding cost in the report, the system will alert right to accounting test updates in a timely manner.

4.2. Analyze data to optimize costs

Not only automate data collection, AI also has the ability to analyze the cost of production in order to propose measures to optimize cost efficiency.

Detect consumption of unusual materials

• AI can analyze data consumption of raw materials according to each shipment or production line to detect abnormalities.
• If a line material consumption more than the average, WHO can alert businesses about waste or wastage of materials.
• Based on the data collected, ONE can propose the change of the raw material to each production stage.

Control costs under labor productivity

• AI can analyze the number of hours worked, productivity of each worker or each line, from which the proposed work schedule optimal.
• If labor costs increase, but the output does not increase, respectively, WHO will give a warning to businesses to re-evaluate the performance of labor and adjust personnel policy.
• The system can propose to increase ca in peak time or reduced hours during low points in order to optimize costs.

Warning production costs exceed budget

• ONE can set the threshold standard costs, if any item exceed the estimate, the system will alert immediately.
• For example, if the cost of electricity during the month increased by 20% compared with the average, WHO will propose a test machine system to find the cause.
• This helps businesses control the budget more closely and avoid the cost is the team without control plan.

4.3. Forecast production costs in the future

One of the biggest advantages of AI is the ability to forecast trends, production cost, help business financial planning more accurate to avoid financial risks.

Predict the price of raw materials – cost of inputs

• AI can analyze historical data and market trends to predict fluctuations in the prices of raw materials.
• The system can alert when the price of raw materials have increased risk, help businesses actively negotiating with suppliers or purchase in advance to save cost.

For example: A company produced food noticed the price of sugar tends to increase in the next 6 months. WHO proposed purchase before bulk order to save cost of raw materials.

Production planning based on forecast costs

• WHO can calculate the proposed production schedule optimization based on cost of labor, raw materials, expected yield.
• If the system detects that some material about scarcity or price is about to increase, WHO will propose to strengthen pre-production to optimal cost.

Production cost is a key factor determining the price and the profit margin of the business. A business management good cost will not only have a competitive advantage on price, but also optimize cash flow, improve productivity, ensure sustainable profitability.

Let's start today by upgrading the system report production costs of the business, application and technology to optimize processes, reduce errors and improve financial performance.