How to Calculate Cost of Goods Sold for Crushed Stone Production Operations?

Time: 9 January 2021

Calculating the Cost of Goods Sold (COGS) for crushed stone production involves identifying, aggregating, and analyzing all costs related to producing and delivering the product. This includes both direct and indirect expenses. Here’s a step-by-step guide:

1. Identify the Cost Components

Understanding the cost structure is critical. The main components for crushed stone production include:

Direct Costs

• Raw Material Costs: Cost of the stone or rock sourced from quarries or mining operations.
• Labor Costs: Wages and salaries for workers directly involved in production, such as machine operators, loaders, drivers, and quarry staff.
• Processing Costs:
  • Crushing, grinding, and screening operations.
  • Machinery operation costs including fuel or electricity.
• Transportation Costs: Costs to transport stones from the quarry to processing facilities or storage areas.
• Packaging (if applicable): Costs associated with packaging crushed stones.

Indirect Costs

• Maintenance and repairs for machinery and equipment.
• Depreciation of equipment and machinery used in production.
• Utilities (electricity, water, etc.) used in operations.
• Administrative costs related to production oversight.
• Compliance and regulatory costs (e.g., environmental permits, inspections).

Overhead Costs

• General office expenses (e.g., office leases, utilities).
• Marketing and distribution costs related directly to the product.

2. Aggregate the Costs

Once you’ve identified all cost components, classify and aggregate them into one of three categories:

• Direct costs (materials, labor, transportation)
• Indirect costs (utilities, maintenance, etc.)
• Overhead costs (administrative and fixed costs like depreciation)

Some costs, like depreciation or utilities, may need to be allocated proportionally to production volumes.

3. Calculate Cost Per Unit

To calculate the COGS for a given production period:

• Determine the total production cost by summing up all expenses over the period.
• Divide the total cost by the number of units (tons or cubic meters) produced during that period.

COGS Formula:

\[\text{COGS} = \text{(Direct Costs + Indirect Costs + Overheads)} \div \text{Total Units Produced}\]

4. Adjust for Beginning and Ending Inventory

If you maintain inventory, you need to adjust the COGS calculation using the following formula:\[\text{COGS} = \text{Beginning Inventory} + \text{Production Costs} – \text{Ending Inventory}\]

Where:

• Beginning Inventory: The value of crushed stone inventory at the start of the period.
• Production Costs: Total cost of producing crushed stone during the period.
• Ending Inventory: The value of inventory at the end of the period.

5. Consider Other Adjustments

Certain adjustments might apply based on operations, business practices, or accounting methods:

• Waste Material: Factor in the cost of unusable or rejected material.
• Byproducts: Account for sales of byproducts from the production process to offset COGS.
• Volume Discounts: Adjust supplier costs if bulk purchasing discounts apply.

Example

Let’s assume:

• Production cost (direct and indirect): $500,000
• Overhead allocation: $50,000
• Units produced: 10,000 tons

\[\text{COGS per unit} = (\$500,000 + \$50,000) \div 10,000 = \$55 \text{ per ton.}\]

If your beginning inventory was $30,000 and ending inventory is $40,000:\[\text{COGS} = (\$30,000 + \$550,000) – \$40,000 = \$540,000.\]

By conducting this analysis, you can calculate and monitor your COGS for crushed stone production, helping to manage costs effectively and improve profitability.

Contact Us

Shanghai Zenith Mineral Co., Ltd. is a leading manufacturer of crushing and grinding equipment in China. With more than 30 years of experience in the mining machinery industry, Zenith has built a strong reputation for delivering high-quality crushers, mills, sand-making machines, and mineral processing equipment to customers around the world.

Headquartered in Shanghai, China, Zenith integrates research, production, sales, and service, providing complete solutions for aggregates, mining, and mineral grinding industries. Its equipment is widely used in metallurgy, construction, chemical engineering, and environmental protection.

Committed to innovation and customer satisfaction, Shanghai Zenith continues to advance in intelligent manufacturing and green production, offering reliable equipment and comprehensive after-sales service to help clients achieve efficient and sustainable operations.

website: https://www.chinagrindingmill.net

Email:info@chinagrindingmill.net

Whatsapp:+8613661969651

• Previous: What Operational Factors Determine Portable Crushing Costs Per Tonne?
• Next: Where to Source Reliable Coal Mining Crushers for South African Operations?