Primary Production

Primary production is a process or division whose main goal is to create finished products or semi-finished goods intended for further processing or sale. Examples of primary production include car manufacturing workshops at an automobile plant, clothing production lines at a textile factory, or bakeries in a confectionery company. Costs associated with primary production are directly included in the cost of finished products.

The calculation of the cost of products in primary production includes several main components:

1. Direct material costs: These include the cost of raw materials, materials, and energy that directly participate in the creation of the product.

2. Direct labor costs: These are expenses for the wages of workers directly involved in the production process.

3. General production costs: These costs include distributed expenses such as rent for production premises, equipment depreciation, utilities, and other production expenses related to the production process.

Auxiliary Production

Auxiliary production, unlike primary production, is aimed at ensuring the functioning of primary production. It includes processes or divisions that produce auxiliary materials, semi-finished goods, or energy carriers. Examples of auxiliary production include repair workshops, power supply units, and water supply services at an industrial enterprise.

The costs of auxiliary production are not directly included in the cost of finished products. Instead, they are distributed among the main divisions based on various methods.

Role of Auxiliary Production in Cost Formation

Auxiliary production plays an important role in ensuring the uninterrupted operation of primary production. Although its costs are indirect in relation to finished products, their proper distribution is critical for accurate cost determination. For example, if an auxiliary division responsible for equipment maintenance incurs high costs, this can significantly increase the overall cost of products produced on this equipment.

Examples of Auxiliary Production

1. Repair workshops: Provide technical maintenance and repair of equipment, allowing primary production to operate without downtime.

2. Power supply units: Ensure uninterrupted electricity supply necessary for the operation of production equipment.

3. Water supply services: Provide water for technological processes and sanitary needs.