What is business cost analysis?

Cost analysis is an accounting study procedure useful for maximizing the efficiency of the administration of the resources available to a company. This type of study procedure is valid for every kind of company, with no exceptions for tourism companies, which need tools for monitoring the use and profitability of all the production factors used. The analysis of company costs is an essential accounting procedure for each type of company, necessary for maximizing the resources available to a company, which in addition to giving a clear overview of the current economic situation. It also helps to identify the source of any waste allows to reduce them in the shortest possible time. It is also possible to define the sale price of the product, to detect the economic trend, and keep under control the most important aspects related to company management.

Analysis of the different types of business cost

 The cost is the financial disbursement for the acquisition of production and represents the monetary value of the factors used in the production of goods and services.

 It is necessary to take into account all the costs inherent in the company to carry out a correct and complete analysis of company costs. Let's see them together.

- Multi-year costs

- Operating costs

- Direct costs

- Indirect costs

- Fixed costs

- Variable costs

- Marginal costs

- Standard costs

- Actual costs

 It is based on the utility overtime of the cost for the company; we can distinguish in:

- Multi-year costs

- Operating costs

 Multi-year costs are incurred for production factors whose utility for the company extends over several administrative periods, such as costs for the purchase of tangible and intangible assets.

On the other hand, operating costs are incurred for production factors that show their usefulness during a single administrative period. It is based on the contribution to the production process; we can distinguish in:

- Direct costs

- Indirect costs

 It is necessary to start from an object or the company's product to calculate them.

Direct costs are those attributable to the products to which they refer, raw materials, for example, are a direct cost, because they have an objective and direct link with the goods produced.

On the contrary, the general production costs are indirect because they are not strictly linked to the object produced. In fact, indirect costs are defined as those incurred for production as a whole and not attributable to a specific product, such as staff salaries.

It is based on the variability of the cost they can be distinguished then:

- Fixed costs

- Variable costs

- Marginal costs

 Fixed costs are the costs that the entrepreneur faces to carry out his business, and represent the fundamental condition for a company to exist and be in the market.

They remain the same from the zero levels of quantities produced to the maximum level of production. They are constant if they refer to a specific period of the company life and to certain conditions, but over time they may vary. Variable costs are additional costs that the company bears for each product. They are linked to the actual production trend.

 Their value is directly proportional to the amount of work, the more products it is necessary to make, the more they increase. The cost of raw materials is a perfect example of variable cost. The total cost of a company and, therefore, of production is given by the sum of fixed and variable costs. The marginal cost is connected to these concepts, which is the share linked to a service that is used to cover fixed costs. It indicates the additional cost that a company incurs to produce an additional service, and it is variable, but in an analysis of the company costs, it must be taken into account. Knowledge of the marginal cost indicates to what extent it is convenient to increase production.

 A final difference is that between:

- Standard costs

- Actual costs

 Useful in the analysis of company costs to calculate how much the budget set at the beginning of the works was able to meet. Standard costs represent budgeted costs. The actual costs are the final balance, or how much the company has actually spent.

What is the analysis of business costs?

 A good analysis of the company costs and constant monitoring of the management operations of a company allow keeping under constant control the health status of a company and, above all, to allocate available resources consciously and wisely. In addition, this allows you to make predictions on the future performance of the company by putting entrepreneurs in a position to recalibrate their internal strategy. When you proceed with a good analysis of the company, costs will also be preparatory to the determination of the selling price of the product.

The determination of the sale price is, in fact, based on the analysis of fixed and variable costs. In short, it is necessary to formulate the breakeven quantity, i.e., the so-called "Break-even point," that point where costs and revenues are equivalent and the company produces the exact quantity that allows covering all fixed costs.

Being aware of the amount of breakeven will allow the company to know exactly where it will start to make a profit.

Business cost analysis: the fundamental points

To carry out an accurate analysis of company costs, such as to be able to guarantee good results in the short and long term, it will be necessary to adopt a series of behaviors.

Identify all expenses, dividing the various costs from management costs to fixed ones, trying to emphasize the costs on which it is possible to save.

Establish specific objectives to deal

Try to be truthful and reliable as possible with employees and collaborators to obtain an analysis of company costs. Be ready for a change if a reduction in expenses and therefore take action on costs personnel costs, purchase costs, production costs, rental costs.

Provide the support of professionals specialized in the subject.

A company that does not keep track of its money, in addition to taking unnecessary risks, is destined to fail as it does not maintain control over its production.

Having full control over the analysis of company costs and the entire financial situation of the company is a good way to understand the economic possibilities and reduce the risk of making risky investments. It is difficult to absorb in one's own business - and, consequently, avoiding unnecessary waste of money.

What does COMPANY do? We attach particular importance to an accurate cost analysis, fundamental to keep track of income, expenses, and investments.

Author: Vicki Lezama