Business really is a very tricky matter. One false move and all your invested time, money, and dreams will be wasted. That is why the right cost calculation and cost financial should always be done. On top of that, cost effectiveness as well as benefit analysis should be done—that is through product cost analysis.
Doing a product cost analysis is not completely necessary but it will give you many benefits. With this, you might say that forms, charts, and reports are truly worth your time.
Understanding the Definition of Product Cost Analysis
Product cost is different from sales price. Product cost is simply the cost of a single unit of product. You may wonder how a Gucci bag or a can of Coca-Cola is priced. Well, it’s all because of product cost analysis. By having the product cost analysis, you’ll be able to at least get the most accurate cost of your product. However, the real problem is that the specific processes needed in product cost analysis are not uniform.
Every product needs special processes since every product needs unique things for its production. For instance, a seller of honey won’t need so much cost for the honey production since it’s naturally produced. Usually only the labor and packaging materials used to store the honey determine the product cost.
Meanwhile, product cost of designer bags may include the materials used, the designer’s fee, the manufacturer’s fee, the machines used, and advertising efforts. Fortunately, businesses can still follow a general guideline when analyzing the product cost. This guideline may not be specific but most business will find this relevant and helpful.
How to Do a Product Cost Analysis
- Determine what is needed in producing units of products. Consider everything that is needed in creating the product. For instance, if you are into t-shirt printing, the product cost is not only the t-shirt and the materials used to imprint it. You also need to calculate the depreciation that the t-shirt printing will cause the machine and the labor cost.
- Calculate the monetary values of different determinants of the total product cost. You have to calculate the monetary values of the product’s different cost determinants. Perhaps, only the labor cost and the machine and electricity used will be difficult to determine. Simply do a calculation of labor cost depending on the number of hours needed in producing the t-shirt. Meanwhile, for the machine use, simply divide the machine cost and the expected lifespan of the machine. That will give you the depreciation value of the machine every minute or hour it is used for t-shirt printing.
- Add all the monetary values of the product cost determinants. After converting the monetary values of the determinants, add all those and the answer will be the total product cost. After getting the total product cost, you can now determine the right pricing for the product. Just add the profit you want to gain. Of course, always keep some forms, charts, and reports that will keep track of your benefits.
With simple benefit analysis and product cost analysis, you can now determine the cost effectiveness, cost calculation, and cost financial of your product. That will surely lead you into making the right business decisions.