Theoretical Review

Theoretical Review

Elements of Cost of Production

Elements of the cost of production are intended to the cost. Prawironegoro and Purwanti (2008) found that the costs are cash, and cash equivalents are sacrificed to produce or obtain goods or services that are expected to obtain benefits or benefits in the future. Mulyadi (2003) found that the cost is the sacrifice of economic resources, measured in units of money, which has occurred or that may occur for a particular purpose. Book of Financial Accounting Standards applicable as basic bookkeeping in Indonesia (Ikatan Akuntan Indonesia [IAI], 2007), the cost is defined as:

All the charges cover both losses and expenses incurred in conducting activities ordinary company. Expenses incurred in the ordinary activities of a company that covers expenses such as cost of goods sold, salaries, and depreciation. These expenses are usually in form of outflow or decrease in assets such as cash immediately (cash equivalents), inventory, and fixed assets.

The elements of the cost of production are: (1) Raw Materials, namely all of the materials that form an integral part of finished products and explicitly

included in the calculation of product cost (Carter & Usry, 2004; Blocher, Chen, & Lin, 2000). In aquaculture companies, which have become so are the fish itself, and therefore in determining the value of finished goods necessary cost calculations are contained in fish produced. In other industries, the material used is certain it will be made the value of their raw materials without any special calculation except the calculation of inventory valuation. At the company’s aquaculture industry, to determine the value of raw materials required special calculations in order to know how the value of fish produced was for sure. The calculation used is:

Fish Prices = Biomass ! FCR ! Average Purchase Price Feed

Biomass production is a calculation based on the number of fish which was initially spread in a cage (pool), the approximate level of fish that survive are often referred to as survival rate (survival ratio) and size of fish harvested and sold as (Sim et al., 2005).

FCR is the amount of feed consumed fish during the production period compared with a total weight of fish produced (Sim et al., 2005).

COST OF PRODUCTION AT BUSINESS UNIT IN AQUACULTURE INDUSTRY 673

(2) Direct Labor, labor that converts raw materials into finished products directly and can be reasonably charged to a specific product (Carter & Usry, 2004; Letricia, 1999). (3) Overhead costs, costs incurred by the business entity to produce a product outside of the cost of raw materials and direct labor costs (Garrison & Noreen, 2007; Blocher et al., 2000).

Calculation Method of Cost of Production

There are two methods of collecting fees in determining the cost of production (Garrison & Noreen, 2007; Hansen & Mowen, 1999; Carter & Usry, 2004): (1) The calculation of costs based on order. In this method, costs of production are collected for specific orders and production cost per unit is calculated by dividing the total cost of production for those orders with the number of product units in the respective orders.

(2) The calculation of costs based on the process. Cost calculation method based on the process normally used to collect production costs for companies that produce continuously and intended to meet the production of finished goods inventory. In this method, the company’s production activities are determined by the production budget or just a certain time unit of production as well as serving as a base by the production to carry out production.

In calculating the cost of production is known there are two methods of charging fees based on the types of costs, full costing and the method of variable costs (variable costing) (Carter & Usry, 2004; Mulyadi, 2003): (1) The full costing method is a method of determining the cost of the product by incorporating all components of production costs as the price of goods, including raw materials, direct labor costs, factory overhead, variable overhead costs, and fixed factory.

(2) The method of variable costing is a pricing method that incorporates principal component costs are variable only as an element of cost of goods, including raw material costs, direct labor costs and factory overhead cost variables.