Cost and Price Determining

In order to calculate the sales price of a product we first need to find out how much it is worth. In other words, we need to know our productions costs and besides this, know our investment costs.

In the next part we will show you how to calculate each cost for the production of 1250 kilograms of jam in one month.

Investment costs
The initial investment can be divided into general preoperative expenses such as training courses, tests, previous studies etc, and in active expenses such as machinery and tools.

Production costs
Production costs are expenses that have to be every month. They can be classified as variable costs and fixed expenses.

• Variable costs: The amount this will finally be depends on the monthly production you are intending to make. (Prime material, ingredients, manual labor etc).

First calculate the amount of prime materials and ingredients that is required to make 50 kilograms of jam and then multiply the results by 25 to know how much you would need. Then multiply the result by the unitary price of each ingredient.

The next variable cost you will need to calculate is manual labor.

• Fixed expenses: These are administrative expenses that are independent from the amount of production. They include rent, energy, transportation and others.

But first you will want to consider that implements lose value as they are used. These are depreciation costs.

To calculate the depreciation costs you will need to divide the price of each utensil, machine etc between its life span.

Once you are aware of your depreciation costs, you will be able to calculate the total amount of administration costs.