It should be noted that efficient and consistent with the reality of the organization and information on costs, is very important phases of cost management, it is time to learn how to shape it according to the intentions of your company, before effectively implement the management.
Production is understood as the addition of value to a good (product or service) by the effect of a transformation; in this sense, production seeks to satisfy certain consumer needs through the modification of raw materials into manufactured goods; although not very generalized, according to the definition, the word production includes the production of services as well as material goods.
Cost accounting must observe the stages through which products are produced, to determine the flow of costs and collect data, since the flow of costs is parallel to the flow of production; costs are assigned to products as resources are consumed, such as raw materials, services and others. On the other hand, production comprises the following stages or phases: (a) storage of materials, (b) processing of materials, (c) storage of finished goods.
The production process begins with the purchase of materials (raw materials, finished parts, and factory supplies), which are temporarily located in warehouses. When using these materials, some are considered direct and others indirect. In the manufacturing process, labor is also required to convert materials into finished products, which is consumed immediately; as with materials, there is labor classified as direct and other classified as indirect.
In the production process converge so far only: materials and labor; however, for the manufacture of the product it is necessary the use of the plant, which originates indirect manufacturing costs (utilities, maintenance services, rents and others) that are also elements of the production cost, which is why they must be allocated to production. Once the three elements of the production cost are present and the product is finished, it must be extracted from the production process to be stored until its sale.