It consists of calculating the final cost of production by distributing all the enterprise's costs for production in proportion to variable costs. Then fixed costs and markup are added:
Price = Variable Costs + Fixed Costs / (Quantity * Variable) + Markup.
Fixed costs (such as rent, management fees) may be allocated to output in proportion to employee salaries, purchase prices, or total variable costs.
The disadvantage of this method is that the indonesia email database inclusion of indirect costs in the cost price does not allow for flexible discounts.
For example, if goods "A" and "B" have common costs of 100 rubles per unit and a 25% markup, then the price of goods "A" may be too high for the consumer by 46 rubles. Reducing it to 130 rubles will make it below the cost price of 141 rubles, which is unacceptable. If fixed costs were distributed differently, the difference could be compensated for by goods "B", where the margin allows this.
Direct Cost Method
In the above-mentioned method of direct costs, there is no distribution of total costs across all products. In our example, we can set a cost for product “A” equal to the demand price of 130 rubles, which is 2.6 times more than the variable costs of 50 rubles. This leaves more room for maneuver.
The direct markup on variable costs is calculated as follows:
Markup (per.) = Markup + Fixed Costs (1+ Markup) / Variable Costs.
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Standard cost method
It differs from the previous methods in that when forming the price, not actual but standard costs are taken into account. One of the problems that many enterprises face is the need to maintain a stable cost.
Customers get used to certain prices and plan their expenses based on them. Any increase in prices can cause dissatisfaction among customers and reduce their loyalty.
For example, a wholesale company imports goods from China, which are delivered by sea to St. Petersburg for three months. Therefore, the warehouse always has a stock of products purchased at old prices. While the cargo is in transit, the dollar exchange rate may change.
The company faces a dilemma: at what price to sell goods from the warehouse - at the current purchase price or at the price at which it was purchased earlier? And should the dollar be included in the cost price at the current rate or at the time of payment?
Standard cost method
Source: shutterstock.com
Prices for raw materials and components may change, so the company has the right to set prices based on internal standards. For example, in recent months the dollar exchange rate has fluctuated from 60.75 to 63.37 rubles. The average value is 62.25 rubles. In this case, the company can set its currency equivalent of the dollar at 62 rubles or another value, taking into account analysts' forecasts.
If the production of a product requires different quantities of materials each time, then standard costs can be used when planning the price, rather than actual costs.
Marginal cost method
Focuses on a significant increase in sales volume. Unlike the direct cost method, here variable costs are not actual or standard costs, but those that the enterprise will incur with the maximum volume of production and sales.
It is known that with an increase in the volume of production, the effect of scale appears: fixed costs are distributed over a larger number of units of production, and the prices for the purchase of materials are reduced due to volume discounts.
Gaining a large market share is often only possible by reducing prices, which requires a large turnover (lowering marginal costs). But this creates a vicious circle: to lower prices, you need a large sales volume, but to achieve this, you must first reduce prices.
Therefore, companies sometimes have to accept temporary losses. In this case, the markup is either made on marginal costs (minimum at maximum production), or the cost is set at the level of current variable costs, which are the lower limit of the price.
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Alexander Kuleshov
Alexander Kuleshov
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