Calculating Production Cost Is Vital to Determine the Price

Cost calculation is something many a businessman does not like doing but it is vital in order to determine the price level of a product. The total cost of production does not only include the manufacturing cost but the cost for marketing as well as warehousing of the product as well. Having the details of the cost structure is a must need for the entrepreneurs in order to decide where to peg the price level at.

It is better to work with excel. Create a spreadsheet. Enlist all the products in the left of the spreadsheet. Create columns, divide the total cost into some segments and input the costs associated with different stages under suitable heads. Creating a file in excel or similar application is advantageous as getting the sum of all the cost figures is so much easy with the sum tool. Besides the auto sum option, you will have several other tools that will help you adjust the new entry and any of the existing figures instantly.

In case you are involved into foreign trading then you have to create some additional columns. If you are importing raw materials and exporting the final product, then type in the figure of export and import duties. These duties do not continue to remain the same for years. The possibility of sudden change can not be ruled out and so it is vital to check the website of trade department to know how much charge you have to bear. The duties are charged as a percentage and greatly hinge upon the volume of the imported and exported products. In case, a broker is involved, his commission will add to the total cost and therefore needs to be entered into the spreadsheet. When you are done with inputing all the costs, have a separate column to find out the total cost of each of the products.

Now it is time for you to estimate your profit level. Make sure to do a little bit market research as charging high price will make the customers shift to the other manufacturers in the market. So, try to be more realistic when it comes to determining the price level. Concentrate on having maximum revenue in the initial stage rather than being focused on maximizing return on investment.