Monday, April 4, 2011

How to Cost -Costing Calculation Method for a Typical Business

To ensure success and profitability of your business, costing is a critical activity of the pricing process. If the price of your products or services is too high then it may be uncompetitive, and if it is too low, then it may not be viable to operate. How then do you cost profitably?
Calculation methods changes with the type of industry for which it is used though typical production cost is derived using the cost reduction.
 As an entrepreneur your primary objective should be to produce goods that are of high quality while reducing the cost of defective goods and scrap materials, unused materials, buying cheap parts from good suppliers and avoidance of wastage.
Once you produce the product, inspect to ensure good quality and then calculate the cost per unit.
Below, I have given an example of the production process and a typical production cost for the food business. You can customize it to suit your product or service.
Step 1-Start
Step 2-Cutting meat and vegetable
Step 3-Putting meat, vegetable and soup into can
Step 4-Inspect weight
Step 5-Capping (closing the lid)
Step 6-Heating (sterilization)
Step 7-Sticking label
Step 8-Packing
Step 9 –Finish
Production cost for a meat can in Kenya Shillings (1 US$ =86 KSH)

Materials(meat, soup, can etc
Cutting meat
Putting meat into can
Filing soup into can
Inspect weight
Capping(closing lid)
Heating (sterilization)
Expenses(water ,electric etc)
Production cost

After the costing you can now price your product using any of the pricing methods I discussed in this earlier blog
If you have any comment or suggestion, share in the comments section 

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