PC stands for Production Cost. In order to know the meaning of the term production cost, it is necessary, in the first place, to discover the etymological origin of the two words that give it shape:
-Cost, in the first place, comes from Latin. Exactly it emanates from the verb “constare”, which is synonymous with “squaring”.
-Production, secondly, also has its origin in Latin. In his case, it comes from “productio, productionis” which can be translated as “prolongation”. It is the result of the sum of two components: the verb “producere”, which means “carry forward”, and the action suffix “-ion”.
According to abbreviationfinder, the cost is the economic expense that is carried out to buy or maintain a service or a product. The concept of production, meanwhile, refers to the action of producing (elaborate, manufacture, originate).
With these ideas in mind, we can move forward with the definition of cost of production. This is the set of expenses that are necessary to produce a service or good. The cost of production, therefore, is made up of all the investments that a company must make to continue operating and produce what it sells.
A company records profit when the revenue it earns is greater than its cost of production. If a shoe manufacturer has a monthly production cost of 200,000 pesos and achieves revenues of 500,000 in the same period, it will have achieved a gross profit of 300,000 pesos.
On the other hand, if the income is less than the cost of production, the company will register losses. Returning to the previous example, if the manufacturer maintains the same production cost (200,000 pesos) but obtains revenues of just 150,000 pesos, it will not have made a profit: on the contrary, it has losses of 50,000 pesos.
Production costs can be fixed costs (which remain stable in the face of changes in the production level) or variable costs (they change as the volume of production changes). The rent of a building or office, labor, raw materials, payment of electricity and taxes are part of the cost of production of a company.
In addition to everything indicated, we have to establish that within the production costs there are two other clearly differentiated types. We are referring to the following:
-Direct costs, which are those that are linked and related to each item that is produced. An example of these would be the money it costs to buy the raw material with which it is created.
-Indirect costs, which are those that do not have a direct impact on that item. Examples of this type of production costs are both the salaries of the workers in the administrative area of the company and the cost of renting the premises where the company is located.
In order to carry out the best control and management of the aforementioned production costs, it is necessary not only to have adequate planning for them, but also to have computer tools, programs, in order to have the best follow-up of them.