Costs and Price Determining

 

Costs 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 explain how to calculate the cost of production of 1000 kilograms banana chips in a month. From this point you will be able to determine the sales price of the product.

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 made 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 are required to prepare 100 kilograms of banana chips.

Then calculate the quantities you will need to prepare 1000 kilograms by multiplying the results by 10.

Then to calculate the price of the required quantities, you will need to multiply this 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.

To sum it up in order to obtain the operative costs for the production of 1000 kilograms of banana chips in a month, you will need to add the variable costs with the fixed costs.

 

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