Determination of Product Cost in a Steel Plant...

Determination of Product Cost in a Steel Plant The term ‘product cost’ means the amount of expenses [actual or notional] incurred on or attributable to the production of the specified product. Product cost refers to the costs used to produce the product. It is the measurement in monetary terms of the amount of resources used for the purpose of production of the product. For effective monitoring, specific product cost (cost per unit of product produced) is usually determined. A steel plant consists of several processes which are integrated. These processes produce many intermediate products as well as semi-finished and finished products. Many of intermediate products and semi-finished products along with all the finished products are saleable products. There are also a large number of by-products which are being produced from these processes. These by-products are used either internally within the plant or are being sold to different customers. In such a situation, the cost of the saleable products is determined in the steel plant in several stages. Each stage has a product for which the cost is determined. This product may be a saleable product or may be an intermediate product used as a raw material for the next stage. In case the intermediate product of a certain stage is the raw material for next stage then the determined cost of the product along with the cost of handling losses for the product is assigned to the next stage to the extent the product is consumed in the next stage. The product cost in a steel plant is determined the way it is done in any other manufacturing organization. The total cost of producing a product basically consists of two components (Fig 1) namely (i) fixed cost, and (ii) variable cost. Fig 1 Component of...

Cost Management

Cost Management Cost management is a complex process related to the cost and expenditure. It facilitates cost control and cost reduction. All types of organizations, whether manufacturing, service or trading, require management of cost to control various activities. Cost management is an internal reporting system and provides the detailed cost information that management needs to control current operations and for planning of the future. It helps management to understand the costs involved in running of the organization and in taking decision on the appropriate course of action which are based on cost efficiency and capability. Modern cost management originated during the industrial revolution, when the complexities of running a large scale organization led to the development of systems for recording and tracking costs to help the management. Cost management is the process for effective planning and controlling the costs involved in an organization. It is an integral part of the overall management. It is considered to be one of the most challenging tasks of the management since the performance of the organization depends on how effective is its cost management. The process of cost management involves cost sheets which are prepared taking into account various activities such as collecting, analyzing, evaluating and reporting cost statistics. Cost sheets aims at computing cost of production in a scientific manner and facilitate cost control and cost reduction. The information available in cost sheets is used for budgeting, estimating, forecasting and monitoring of the costs. By implementing an effective cost management system, overall budgeting of the organization can be brought under control. In cost management, cost classification is basically based upon the basis of functions, activities, products, process and on internal planning and control as well as information needs of the organization.  The basic elements of the cost include...