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.

Process

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)

	Ksh
Process	Cost
Materials(meat, soup, can etc	200
Cutting meat	50
Putting meat into can	10
Filing soup into can	10
Inspect weight	20
Capping(closing lid)	5
Heating (sterilization)	5
Labeling	10
Packing	10
Expenses(water ,electric etc)	5
Production cost	325

After the costing you can now price your product using any of the pricing methods I discussed in this earlier blog http://strategies-to-grow-business.blogspot.com/2011/03/how-to-price-5-methods-to-set-price.html.

If you have any comment or suggestion, share in the comments section 

To Your Success!

Patrick

Patrick Juma
Paradigm Partners Services

 

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