Therefore it is essential to determine whether: the factors represented by the multi-year capital spending have suffered depreciations; operating expenses are attributable to the current, we have products in inventory.
The factors that serve multi-year production are exclusively the machines that are used for the production (eg. Computers that are used for billing both offices is in stock are included).
Operating expenses; manodoper, electricity, gas and everything that contributes to the production as the perishable material must belong to the year in which they are used effectively. So if I get an invoice of the gas or light that indicates competence as the previous year, will be paid in the current year as an expense, but the cost of production belong to the previous year.
Inventories are always there and at the end of the year will be counted to be put in the budget and used in the following year. This is part of the stock accounts which will be discussed in another article.
The real cost of production is calculated by adding all the elements that have contributed to produce profits in the previous year; the cost is necessary and useful to determine exactly what the real annual cost of production.
Only the cost of production is not enough to write a detailed and sure to determine what is wrong in a society, it is necessary to take into account all the elements and the general market for the avoidance of doubt and analysis wrong maybe that would lead to a fall-back on cutting costs perhaps improper, ineffective or that would put the company in terms of pre-bankruptcy.
Rashna