How to determine the cost of a product?
In business, when you decide to invest in a product, you need to have the cost price in mind in order to set the selling price of your product. What do we know about costing? Read this article to find out.
what is costing?
Whether your company is a production firm, has trading and/or service activity, the cost price is a rather crucial value for its existence. It represents all direct and indirect charges, fixed costs (production costs, administrative costs) incurred by a company in the production, or in the purchase of a good.
It is crucial for you as a company to determine the profitability of your investment.
When you are able to determine the cost of ownership of your firm, it can lead you to make relevant decisions as to whether it is profitable or unprofitable.
What is the purpose of costing?
The costing is essential for you to know whether to make adjustments on the sale or purchase of manufacturing products. When you know your cost price, you can easily decide whether or not to refocus your business on a certain product category, or decide to diversify your offering. It guides you in finding new partners and suppliers who can provide you with raw materials at lower costs.
Finally, the cost price determines the price of your good; it can help you make decisions about whether to increase the price of your product, good and/or service.
How do you identify the cost price?
Determining the cost price as stated above, involves a number of fixed and non-fixed values. These are the purchase and supply costs, which take into account the costs of purchasing raw materials and their transport. There are also production, distribution and administrative costs.
Mathematically, the cost price (Cr) is equal to: purchase and supply price + manufacturing costs + distribution costs + administrative costs.