c.21 Costos y Presupuestos - Clase 1

Main ideas and concepts

• Purpose of the class

  • Introduce costs and budgeting through everyday examples, so the definitions and accounting/economic concepts become easier to understand.
  • Example used: when buying a cell phone, people compare cost with their budget/income to decide whether to pay all at once or in installments.

• Key definition: Cost (“costo/coste”)

  • Two meanings of “cost” are emphasized:
    1. Money amount: how much something costs (e.g., the cell phone price).
    2. Economic definition: the monetary value of consumption involved in an economic activity.
  • Geographic spelling note
    • Spain: costo
    • Argentina: costos
    • Other Latin American countries: similar usage—refers to the same idea.
  • Example
    • A yearly balance sheet reflects the monetary value of consumption such as:
      • raw materials used to produce goods,
      • providing services,
      • carrying out specific activities.

• Cost vs. Expense

  • Expense is framed as money outflow/income outflow for a person or company—something that must be supported/justified as part of operations (e.g., buying to own, paying for services, receiving services).
  • Example: paying a plumber or electrician is an expense.

• Key definition: Budget

  • Budget is defined from two dictionary angles:
    • Advance calculation of the cost of a project/service/material (not only products).
    • From an accounting view: the set of projected expenses and income for a given period.
  • Personal example
    • Rent expenses each month = a known amount.
    • Income is known for that period.
    • Those inputs help form a budget for managing additional expenses (products or services).

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Production cost: how costs are constructed

• Economic meaning of cost in production

  • Cost is described as economic expenditure required to manufacture a product or provide a service.

• Using cost to set retail price

  • Once production cost is determined:
    • Retail price = cost + desired profit/income

• Components of production cost (example: furniture)

  • Raw materials (e.g., wood).
  • Direct labor (workers who directly build the furniture).
  • Indirect labor (support work not directly applied to the product), e.g.:
    • cleaning/sweeping the plant,
    • collecting sawdust after work.
  • Depreciation of machinery and facilities, e.g.:
    • the saw,
    • the shed/work area.

• Why depreciation matters

  • Equipment wears down over time.
  • Money must be set aside to maintain/update it.
  • Therefore depreciation is treated as a cost added to production per time/economic aging.

• Accounting cost definition

  • Cost accounting is the analysis, compilation, and recording of cash outlays needed to transform inputs into another state (e.g., loose wood → finished furniture).

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Overhead / indirect costs (what belongs vs. what doesn’t)

• Overhead
  • Overhead is defined as the set of indirect costs needed to produce the final product but that cannot be allocated to a specific unit.
  • Examples mentioned:
    • towels,
    • electricity,
    • administration costs.
  • Reason: it’s impractical to calculate something like “a percentage per table” in accounting because it requires too much work and yields little useful allocation.

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Differences: costs vs. expenses (accounting behavior)

• Costs

  • Can be capitalized:
    • If they provide an economic benefit for the company/entity (i.e., tied to creating or enabling future benefit).
  • They form the product, meaning they are part of what becomes marketable.
  • They are transferred/marketed (can be passed to others who sell it, or sold directly).
  • They accumulate during transformation processes, e.g.:
    • refrigeration as part of making ice cream (accumulated as a transformation-related cost).

• Expenses

  • Not recoverable even if they benefit internal operations or manufacturing.
  • Common categories given:
    • administration,
    • sales,
    • financing.
  • Examples:
    • Electricity in warehouse/storage for employee belongings → used internally, not directly included in manufacturing cost.
    • Paper cups in a company cafeteria → hygiene-related, not directly tied to producing the manufactured product.

• Consumed vs. non-consumed costs

  • Non-consumed costs (treated as assets)
    • costs tied to obtaining future income or avoiding future sacrifice.
    • Example: a taxi driver saving money to change cars later.
  • Consumed costs become expenses
    • Example: car insurance—needed for benefits in case of problems, but it is not an asset; it is an expense.

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Three elements of production cost (detailed)

• 1) Raw materials

  • Elements extracted directly from nature in pure/near-pure state.
  • They undergo processing (e.g., wood is cut, dried, turned into planks).
  • Industrial example concept
    • A raw material may be semi-finished for another production circuit.
    • Example: sawmills produce planks used to build houses.
  • Classified as part of the primary sector (start of the production chain).

• 2) Labor

  • Physical and mental effort by a worker to:
    • manufacture,
    • repair,
    • maintain goods.
  • Labor has economic remuneration, meaning it has a price for the service of that work.

• 3) Overhead (indirect costs)

  • Indirect costs needed to obtain/produce the final product (examples: administration electricity, indirect administrative items).
  • Not easily attributable to specific products/units.

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Budget methodology and planning logic (detailed bullet points)

• What a budget is (method)

  • Planning and advance formulation of:
    • expected costs and expenses,
    • how the organization/person will pay for those costs/expenses.

• Budget steps for launching a new product

  1. Step 1: Estimate product costs
     • Determine the cost of the new product.
  2. Step 2: Estimate expenses
     • Identify expenses tied to the plan (including those tied to marketing).
  3. Step 3: Link to market strategy
     • Consider the market you are targeting:
       • demographics (e.g., over 50 vs. young people),
       • income level (higher vs. lower).
     • Decide positioning:
       • mass marketing vs. exclusive.
     • These choices influence budget size because costs/expenses determine sacrifice and investment.
  4. Step 4: Build an action plan around income/objectives
     • Expected income for the activity/product forms the action plan.
     • Set an objective to sell a quantity to the intended market.
  5. Step 5: Express objectives numerically
     • Often described as market share percentages, such as 5%, 10%, 20%, 30%.
  6. Step 6: Check competitive coverage
     • For competing launches, determine what percentage of the market must be covered to cover costs/expenses.
     • Evaluate acceptance and potential growth over time.
  7. Step 7: Consider proactive measures
     • If the product is stuck as a minority option, plan actions to expand it toward broader adoption.

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Example lesson: captive markets and marketing strategy (soda case)

• Scenario described

  • In some provinces, certain well-known sodas did not sell because they didn’t declare their composition.
  • Local/provincial sodas gained success (example mentioned: Tucumán).
  • Even compared with national brands, the provincial brand:
    • “captivated” its audience,
    • resonated strongly with young people,
    • benefited from a captive market (limited entry of other brands).

• Lesson applied

  • The objective (gaining/expanding market share) must be expressed in financial terms:
    • how much to invest to reach the target market,
    • how much to earn.
  • The objective must also be achieved within a timeframe (often annual, sometimes stated as 6–12 months).

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Speakers / sources featured

• No specific named speaker is identified in the subtitles.
• The only “sources” explicitly referenced are dictionary definitions (no author names given).