What is a common price?
A common product requires two or more departments for production. If this happens, the company can experience the concept of common costs. This price arises when one raw material requires at least two departments to transform the item into a usable good. Utility is a common example of common costs. The company often needs electricity to operate multiple machines in the production process, and in this case the common costs would be an item or item that the company requires to create a single product. Within the process of the process, the company produces homogeneous goods continuously. The costs incurred for the production of these items are therefore common costs in nature. For example, the production of a sprinkled drink may require syrup, malt, sweetener, liquid flavor and several pieces of refinery equipment. Each of these items represents common costs because they are necessary to produce multi -product, including various flavored drinks.
When the company allows costs regarding their products, it usually does so by assigning them according to each production process. This allows precise allocation of each common costs. The dose of goods passing through each process allows companies to accurately monitor part of the common cost of each dose. For example, 100 Cherry Cola units will receive a certain part of the process. 200 units of root beer will then receive part of the costs related to their dose production.
common costs are also possible when the company produces by -products. The by -products result in a company using a production process to improve unnecessary materials into usable goods. For example, a wood manufacturer can use small portions removed from standard wood as sawdust. This allows the company to use its equipment of two goods from the same raw material. In some cases, wood manufacturer can produce chips and sawdustObtained goods from the same production process.
Not all companies experience common costs in their production processes. For example, construction companies use the cost of work costs. All items for each project relate only to this design process. It is almost impossible to have common costs, because any unused items for the project usually go to a pile of waste. The rest of the unused materials are usually not safe for use on other projects.