The operator cost per minute is called souchin, in this case: €10/60 minutes=€0.1667 per minute of operator. The cost per hour of the operator is €10 and 1 mobile phone requires 404 minutes of operator ( the time of operator required to manufacture 1 mobile phone is called Standard Time, SST). The manufacturing process of 1 mobile phone employs: Let’s calculate the COGs of manufacturing a mobile phone. Why do we have a COGs that is +5% greater in absolute terms? The reason is because our supply procedures/ingredients are more expensive, do we pay higher salaries or our technology is not efficient? As the sales plan for the fiscal year is 60,000 units sold, the yearly COGs= €2*60,000 hamburgers=€120,000.ĮXAMPLE 2: COGs of MANUFACTURING A MOBILE PHONE Imagine that the competitors COGs on average is 15%. This calculation is very important as we can compare the COGs of our company against others and analyze causes of deviations. The COGs is usually provided in percentage over selling price excluding VAT, in this case it would be €2/€10=20%. Therefore the cost of machinery would be cps*number of shots=€0.04791*10shots=€0.4791 (R3). In order to prepare the hamburger, different machineries are used, and the company has estimated that one machinery usage, called as “Cost per shot, cps” is €0.04791 and preparing 1 hamburger requires 10 usages of the machinery (“number of shots per hamburger”). Japanese define the cost of the operator per minute as “souchin” (souchin=€0.1041 per minute). This “operator” employs 5 minutes of time to prepare the hamburger, therefore the cost of personnel per hamburger manufactured would be 5 minutes*€1,000/9,600 minutes=€0.5208 (R2). The monthly salary of the person that prepares the hamburgers including social security paid by the company is €1,000 per month and works 160 hours per month (9,600 minutes). Imagine that we sell hamburgers, and the ingredients used in 1 hamburger (bread, lettuce, beef, tomato, etc cost €1 (R1). If we estimate the usage of R1, R2 and R3 per product/service manufactured, the COGs per unit manufactured can be calculated. Usually any manufacturing process uses 3 types of resources: (1) R1, raw materials, (2) R2, operator, (3) R3, machinery. This item, depending on the cost accounting system used by the company could be considered as: (1) Direct cost (expense that only takes into account the manufacturing costs of the product/service, either variable or fixed), (2) Direct variable cost, taking into account only the manufacturing costs per unit sold. The COGs is the direct manufacturing cost of a product or service (only manufacturing! logistics is not considered in COGs).ĬOGs (Cost of Goods Sold). In this post it will be explained the concept COGs, cost of goods sold.
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