Lessons 19 · 1 lessons · U. G‘afurov, Q. Sharipov. Basics of Entrepreneurship: textbook for Grade 11 of general secondary schools and for secondary specialised and vocational institutions. 1st edition. “O‘zbekiston” publishing house, Tashkent, 2018
19
Product cost (tannarx)
Textbook: pp. 89–92
GoalExplain the concept of cost (tannarx), its types (production, full, marginal), the calculation items, how to calculate it and ways of reducing it.
New words
cost of a product: the monetary expression of the costs of producing and selling it · Tannarxcalculation (costing): working out the production costs per unit of product in money terms · Kalkulatsiyafull cost: production cost plus selling (commercial) costs · To‘la tannarxreturnable waste: leftover material with a value that is subtracted from the costs · Qaytarilgan chiqindi
Explanation
The cost of a product (tannarx) is the monetary expression of the costs of producing and selling it; without knowing it a price cannot be set. Production cost is the sum of costs from organising production until the finished product reaches the warehouse; full cost is the sum of production cost and selling (commercial) costs such as packing, transport and advertising; marginal cost is the extra cost of the next unit. Costing (kalkulatsiya) is done by items: raw materials and materials; value of returnable waste (subtracted); semi-finished products and purchased parts; fuel and energy; depreciation of fixed assets; wages and social insurance contributions; selling costs. Taking these items together, full cost = raw materials and materials − returnable waste + purchased parts + fuel and energy + depreciation + wages and contributions + selling costs. Ways of lowering cost: using fixed capital efficiently (improving technology, using capacities fully), saving working capital (preventing losses), organising production efficiently (raising skills) and external opportunities (raw material prices, specialisation, cooperation). Selling below cost brings a loss; a price is usually set by adding profit to cost.
Worked examples
Costing: one bag (imaginary). Material 60 000, value of returnable waste 4 000 (subtracted), purchased clasps and zips 9 000, energy 2 000, depreciation 3 000, wages and contributions 24 000 so‘m. Production cost = 60 000 − 4 000 + 9 000 + 2 000 + 3 000 + 24 000 = 94 000. Adding selling costs of 6 000 gives a full cost of 100 000 so‘m. If sold for 125 000 so‘m, the profit is 25 000 so‘m.
Marginal cost: 50 units cost 400 000 so‘m (average 8 000 so‘m). With the 51st unit the total became 407 000 so‘m. Marginal cost = 407 000 − 400 000 = 7 000 so‘m — below the average, so the average cost falls slightly.
Class activity
Cost calculator: groups invent figures for the 7 items for an imaginary product (for example handmade candles; no wax work is done in class, it is only a calculation). They find the full cost, set a price and profit, then write 2 specific measures to cut the cost by 10 %.
Practice
1
What is the difference between production cost and full cost?
Full cost equals production cost plus the commercial costs of selling (packing, transport, advertising).
2
Why is the value of returnable waste subtracted from costs?
Because waste can be reused or sold; its value reduces the cost of the material spent.
3
Material 14 000, returnable waste 1 000 (subtracted), purchased parts 2 000, energy 3 000, depreciation 2 000, wages 9 000, selling cost 3 000 so‘m. What is the full cost in so‘m?
32000
4
40 units cost 260 000 so‘m and 41 units cost 266 500 so‘m. What is the marginal cost in so‘m?