Examples of Cost of Production

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Let us understand the concept better with the help of a few examples.

For instance, there is a company that manufactures tables. It requires raw materials such as different kinds of wood, metal components such as screws, nuts, brackets and frames, adhesives, varnish, paint and toughened glass. It also requires skilled labour for the production process. In addition to spending a substantial amount for procuring raw materials and hiring workers, it will also have to bear overhead charges such as electricity bills, factory rentals, maintenance costs, taxes, machinery costs, administrative expenses and insurance premiums. All this adds up to determine the cost of production.

Likewise, suppose there is a pharmaceutical company that manufactures lebanon phone number list different kinds of medicines. It would require raw materials such as chemical compounds, preservatives, flavourings, solvents, bottles, cartons and blister packs. To carry out the production process, it requires machine operators, technicians, QA analysts and lab technicians. The business will also incur overhead costs such as the rent of the facility, utility bills, taxes, machinery and equipment costs, maintenance charges and administrative expenses. On adding all these costs, you will get the total cost of production.

Categories of Production Costs
Let us take a look at the different categories in which production costs have been categorised:

Fixed Cost
This is the cost that does not change month on month. It remains fixed and a business has to bear it irrespective of the amount of goods being produced. You cannot cut down on it even if you choose not to manufacture a product during a given period. Some examples of fixed costs are the rent for the facility, utility bills, insurance, loan instalments, employee salaries and insurance premiums. Thus, a business owner has a fair idea about this expense beforehand.