Does the discussion about product costs create discomfort in internal meetings?
In many situations, discussions about the company's economic and financial performance end up being attributed to a theory of inaccuracy in cost calculation, with statements such as: our cost is higher than the competitor's selling price; ours are the most expensive of all competitors; if we had a lower cost, we would hit our commercial targets; among others.
Accurately calculating production costs is a major challenge for company management, as it is a fundamental tool for strategic decision-making. For example, the decision to discontinue manufacturing a specific product due to a very low or negative margin may in fact be the result of an error in the production cost calculation methodology.
In this regard, having specialized advisory support to review the criteria and assumptions used in production cost calculation is essential for conducting a critical analysis of the model adopted by the company and proposing adjustments aligned with market best practices, as well as other insights that may assist management in its business strategy.
Situations in which the adequacy of cost calculation criteria is questioned:
Conflict between the Commercial and Controlling/Costing Departments:It is common for there to be diverging perspectives between the commercial department and the controlling/costing department, stemming from the commercial team's difficulty in understanding the technical aspects of the cost calculation system, as well as the costing team's difficulty in explaining the concepts used.
Change of Tax Regime from Lucro Presumido to Lucro Real:The transition between tax regimes can directly impact the cost calculation criteria, since the applicable tax rules and obligations may vary significantly between regimes. This can raise questions about the accuracy and adequacy of the costing methods used by the company. Furthermore, in extreme situations, tax authorities may disqualify the cost accounting records and determine taxable income on an estimated basis for corporate income tax and social contribution purposes.
Discussion with Auditors:During audit processes, the cost calculation criteria are examined in detail to ensure compliance with established accounting standards and practices, given that production costs generally have a significant impact on the balance sheet through inventory valuation and on the income statement through the cost of goods sold. In extreme situations, the auditor may abstain from expressing an opinion on the financial statements due to the materiality of the amounts involved.
How to assess whether the production cost is correct?
A company can determine whether its production cost is correct by analyzing cash flow. By monitoring financial inflows and outflows and comparing the profit obtained with the costs incurred, it is possible to identify whether the production cost is aligned with expectations. It is also important to calculate the break-even point, which represents the sales volume required to cover costs and expenses without generating profit or loss. Discrepancies between calculated costs and actual results are a strong indicator of the need to review the calculations in order to identify possible errors or failures in production processes.
Shall we review the criteria and assumptions used in your production cost calculation?
Apter has a multidisciplinary team of professionals with diverse backgrounds and qualifications to support your company's management in this important challenge.
By choosing Apter, you will have access to:
- Detailed analysis of your current production costs.
- Identification of the need to improve existing controls and, where applicable, definition of new controls.
- Development of customized action plans to reduce costs without compromising quality.
- Ongoing monitoring and support to ensure lasting results.
Do not let uncertainty about the adequacy of your cost calculation methodology limit your business growth or lead to incorrect strategic decisions. Work with us and find out how we can help you achieve maximum efficiency and sustainable profitability.
