What is a Cost Structure?

The cost structure is the proportion of the amount of each cost item in the total cost of the factory, that is, the composition of the cost of the product (labor service or operation). Generally expressed as a percentage. Products in different production sectors often have different cost structures. For example, the product cost structure of the extractive industry has a larger proportion of wages for production workers; while the product cost structure of the machinery manufacturing industry has a larger proportion of raw material costs. Due to the level of production technology of products in the same production sector, the cost structure will also be affected. For mechanized enterprises and workshops, the proportion of workshop costs in product costs is relatively large. The cost structure is also affected by different types of production and scale of production. For example, the wage share of large-scale production enterprises is generally lower than that of small-scale production enterprises. Different natural conditions, as well as the level of production and management of the enterprise, will also cause changes in the cost structure. Comparing the actual cost structure of the current period with the planned, previous period or the same industry's cost structure indicators, and analyzing the changes in the proportion of each cost item, you can generally understand the achievements or problems of the enterprise in production and management. Helps to find ways to reduce costs. ^[1]

Cost structure

The cost structure can reflect the production characteristics of the product. From the proportion of various costs, some consume labor, some consume materials, some consume power, and some occupy equipment to cause depreciation costs to rise. The cost structure is also largely affected by technological development,

Analyzing the cost structure of the product, the cost structure can find ways to further reduce costs. To study the product cost structure, first of all, you should observe the changes in the actual number of last year, the number of plans for the current year, and the actual number of changes in the current year to understand the increase and decrease of the change and the rate of change;

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Analyzing cost structure can help

All businesses want their cost and profit structure to be

1. Based on the corporate system and operating efficiency

Different corporate systems, different positions and strategies

Specifically reflected in:

Employees' role and status in business operations

Configuration requirements and appointment system

Source of workforce

Enterprise's cost investment share in human resources

Cost structure analysis (taking washing powder manufacturing and software industries as examples):

Generally, the price of a bag of washing powder is about 3-5 yuan, about 10% of the profit, and the cost is about 90% of the price. Cost factors mainly include raw materials (flavors, bleaching powders and various washing ingredients) and labor costs (ie wages), in addition to transportation and distribution costs. Among them, the cost of labor, that is, wages, accounts for about 20%, and the price of washing powder is not very high. The wage standard for washing powder manufacturing is basically in the range of 20% of its cost structure.

Looking back at the software development industry. Its biggest cost is intelligence, which is the time to develop energy, that is, wages must occupy at least 50% or 60%; other daily management and maintenance costs may account for 10% to 20%, and profits are 20% to 30%. The price of software products is not low, so wage levels are high.

The larger the share of intelligence in the cost structure, the higher the wage standard. This is a simple truth. The nature of business is determined by the cost structure of the industry. No matter what system the companies have a common industry foundation, this is the first.

2. Business requirements and employee appointment methods directly determine employee salary standards

People with different skill levels bring different production efficiency to the enterprise, which is also a determinant of the wage standard. Take the detergent industry as an example. For example, washing powder packaging, if it is manually packed, primary school or junior high school graduates can do this job, but automatic packaging requires at least technical school graduates. Their production efficiency is different. Two or three people in automated packaging can manage a packaging line, but manual packaging requires six to eight people to manage a packaging machine. Productivity is different, and of course wages are different.

3. Operating efficiency and the structure of the number of employees are the prerequisites for determining the salary standard of employees

Technology must be tied to the system. Because there are two different guiding ideas for business operation, one is to arrange as many people as possible for employment, and the other guiding idea is to create good benefits as much as possible. This requires different technical levels and thus produces different production efficiency. Under the planned economy system, the former may be used a little bit more, but under the modern market competition system, the latter will be a little more, so the salary standards of different systems will be different.