Here Are The Understanding of Production Costs and Non-Production Costs

kelolalaut.com Costs are an important element in running a business because they directly impact product prices, profits, and company strategy. In the context of accounting and management, costs are grouped into production costs and non-production costs.

1. Production Costs

Production costs are all expenditures directly related to the production of goods or services. The main components of production costs include:

• Raw Material Costs: Expenditures for primary materials used in the production process. For example, wood for making furniture.
• Direct Labor Costs: Wages paid to workers directly involved in the production process, such as machine operators.
• Factory Overhead Costs: Indirect costs such as electricity, machinery depreciation, and facility maintenance. Example: A bakery spends Rp10 million on flour (raw materials), Rp5 million on labor (bakers), and Rp3 million on electricity and gas. The total production cost is Rp18 million.

2. Non-Production Costs

Non-production costs are expenditures not directly related to the production process but are necessary for business operations. These costs are typically divided into:

• Marketing Costs: Includes advertising, promotions, and product distribution.
• Administrative Costs: Such as office staff salaries, office supplies, and managerial expenses.
• Financial Costs: Loan interest, bank fees, and related expenses. Example: Advertising expenses of Rp2 million and office staff salaries of Rp3 million are part of non-production costs.

Key Differences

Conclusion

Understanding both production and non-production costs is crucial for managing a company’s budget efficiently. By identifying and controlling these two types of costs, a company can improve profitability and competitiveness in the market.

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