How to Optimize Cost of Production?
As a manufacturing company, a lot of processes need to be considered to lower costs and maximize profits. It is difficult to compare and calculate the exact amount for work in progress (WIP) as some processes are unquantifiable. Thus, below are some ways in which a company can optimize cost of production in large quantities with high quality and low costs.
1. Effectively Calculating Cost of Goods Manufactured (CoGM)
Cost of Good Manufactured calculates production costs at a specific period of time. It includes Direct Materials Used, Direct Labour Used, Manufacturing Overhead and Inventory Used. When cost of goods manufactured are calculated, companies can assess which parts of the process requires the most investment to easily cut costs where needed. Nevertheless, it is also an essential part of calculating profitability in a company. Having higher revenues does not result in a good profit margin when cost of goods manufactured are high. Thus, being able to minimize the cost will create a better profit margin for companies.
2. Reduce Storage Cost
Whilst we calculate cost of goods manufactured, it is also relevant to reduce storage costs where necessary. This can be done by accurately predicting the amount of goods sold to calculate the amount of goods needed to be manufactured. Additionally, they can also reduce waste or turning them into scrap materials. By reducing waste, the company can reduce extra costs of storing and disposal of waste which is unnecessary when it can be used as raw materials for other products instead.
3. Develop Proper Value Chain
Eliminate processes that do not add value to the company such as reducing waste and storage as mentioned in the previous point. By doing so, the company has optimised cost of production and created value in every step of their manufacturing process. Similarly, when companies invest in other processes such as transport and better R&D and software, such as QR Codes and high-tech machineries, they will be able to eliminate the risk of losing products. Thus, creating added value for every process.
Therefore, it is important for companies to analyse their value chain to ensure that every part of their manufacturing process is important and does not produce waste. When waste is reduced, storage costs can also be cut. As a result, cost of goods manufactured can be calculated more effectively, reducing costs and maximizing profits – increasing the profit margin.
Calculating costs of goods manufactured can be confusing or rather complicated when the inaccurate program is used. Using programs such as MAQNA Complete or MAQNA General Ledger from Armada IT can be highly beneficial, where every process can be recorded in the system, making it simple to calculate the whole process all in a few clicks. MAQNA Complete is an all around complete web-based stock and accounting software that offers different modules from purchase invoice, sales invoice, inventory, general ledger up to tax and customs. It also offers a diverse list of reports and invoices that can be printed easily according to business requirements.
For more information on MAQNA Complete and other programs by Armada IT, contact us now at +628116488842 and we will find the best Hardware and Software Solutions for YOU.
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