The first thing you you should know to bring to  on calculation of costs of productionis that it is try of a variable that should not be lose of view. If you calculates correctlycan be you can set about costs suitable for on consumerwhich in turn your time will increase on volume of the sales and incomegetting a margin
 
correct of the profit
.
 

 

ERP Software

 

What are the costs of production? 

 They are the disbursements that a company makes to carry out its processes, that is to say, the provision of its services or the elaboration of its products. 

Difference between costs and expenses 

The costs and costs are not the same concept. The first represent a output of money associated to process productive   of the company. On the other hand, expenses are the administrative outlays that the company must make to be able to work, but they are not directly associated with the manufacturing process. 

Elements of the cost of production of a service or else 

  • The procurement or materials direct is the  raw material essential at the elaboration from any project at a company. For example, the flour for to make the cakes or the fabric for to make the dresses. 
  • The direct labour force, which are the collaborators who, thanks to their activity, manage to transform a raw material into a finished product. Within these costs are the salaries of the workers. 
  • The indirect costs of production, which are the disbursements of the company during your process productive and that it is not can assign from  direct to a unit, but at volume from production. These a your time are compounds by hand of work hint, materials indirect y supplies from factory. 

 

Knowing these three elements is possible calculate the   costs of production to establish which will be the  price sale perfect for your service or product, as well as the  margin earnings that you have depending from number from units that fabriques or of the number from services borrowed. 

Let’s put a example. Adding the costs fixed monthly and the costs direct o indirect from manufacture of a company dedicated to the manufacture from skirts, it you get a cost monthly 4,500 euros. If the sme produces 150 garments at a cost unit cost of 30 euros and sells them at 35 euros, it gets a profitability approximate of 20%. 

At any case, it is necessary to consider that both on volume from production like the quantities and the prices from each one of the elements from cost, could change of a month a other. For that, it is convenient to make the adjustments necessary in a way periodically. 

How is set the price of a service or product? 

With what has been seen so far , you can determine that the  costs of production are very important   when determining the price of a product or service. From in fact, they are the basis for to be able to establish the value that is going to have the itself. If a price from sale is on same that on cost unit from said product, the company you can stay operational, but no would get benefits a level economic like is on case of the foundations other than have  lucrative. 

Therefore, from according to the costs of production you can establish the margin that you want to get for the sales. A simple way of to do this is follow the following   formula: 

Price=   unit cost + ( % of desired profitability   *   unit cost of production) 

You can take a look at our business solutions that will help you to be more efficient in your business and reduce unnecessary costs. If none of them fit your preferences, contact our team to study a custom solution

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