The prime cost of goods is a set of all types of the expenses of the enterprise connected with its production. This size is the minimum value of the price at which cost is completely covered by income. Therefore to find product cost is an important, purposeful action, the first step on the way to profit.
Instruction
1. The analysis of prime cost is some and most important aspects of the economic analysis. It shows in what sums production of a certain volume cost the enterprise. When pricing these expenditure have to be considered in the form of the minimum cost. To increase profit and not to raise at the same time the price of quick-selling goods, it is necessary to investigate possibilities of decrease in prime cost without loss of quality of a product.
2. To find prime cost, put all costs connected with production and product sales. They can be divided into two big groups: variable and constant costs. Pay attention that the first grow in proportion to release volume. Carry to them: expenses on raw materials purchase, compensation, purchase or rent of the special equipment, creation or purchase of a container and personal packing. In other words, all resources which consumption grows depending on an additional commodity unit.
3. Constant expenses are called so only conditionally as they are not connected directly with production, however they can change too over time. Payment of rent of rooms/warehouses/offices, depreciation, the price-work salary of non-productive and service staff and so forth belong to them, for example.
4. Distinguish the general, individual and average prime cost. The general prime cost is a set of costs of all released production volume. Individual is the sum of expenses spent for release of one commodity unit. Average prime cost turns out division by the general on quantity of commodity units. Besides, there is a production and full prime cost.
5. To find production prime cost, consider only the expenses connected directly with production i.e. before receiving finished goods and its departure on a warehouse. Further expenses on its realization are called business, these are the costs connected with advertizing, the general packing and delivery to the place of future sale. Their summation with production prime cost forms full prime cost.