How to create prime cost

Prime cost – one of the most important components of any sale, after all without it it is impossible to calculate correctly the price of future product or service. Many beginning businessmen for the first time face that they need to create prime cost. It is necessary to begin with it.

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1

The settlement indicator of prime cost approached to reality shows, how many money was invested in each concrete service or a product. Without prime cost it is impossible to begin sale, and the more exact to calculate it, the expected profit will be more exact. Prime cost is the accounting of all costs of production divided into unit of the delivered production (the provided service). The unit of account of production has to be defined precisely and cannot change at the subsequent calculations and corrections of prime cost.

2

Define exact unit of service or production for which prime cost will pay off. This unit should not change further that it was possible to compare prime costs in time.

3

Choose a way as which will consider prime cost. Way only 3: boiler, poprotsessny and job order.

The boiler way of calculation is ideal for productions where uniform production is issued. In this case total amount simply undertakes and shares on quantity of production.

In case on production products highly - and low-cost adjoin, it is simple to divide into everything it is impossible – rough calculation will not correspond to reality and will direct price policy on an incorrect way. In this case calculation of prime cost goes in two ways: job order and poprotsessny.

At a poprotsessny way standard means (the accounting of all expenses) cost of all processes involved in production of the final product pays off. Full prime cost is the sum of costs of all processes.

At a job order way of calculation of prime cost the cost of a unit of production pays off as result of division of the sum of expenses on the separate order for quantity of units of production made on it. In this case not processes and not time, and final number of products for a certain term are considered.

4

Put all expenses which belong to production. To the list of full expenses which surely are considered, belong:

- costs of materials;

- costs of the personnel;

- costs of the equipment taking into account depreciation;

- costs of service and control of processes;

- costs of utilities;

- costs of rent;

- other costs of everything that treats the organization of process of production.

5

Calculate prime cost of a unit of production: divide the total amount of costs of the quantity of production made with use of all these expenses. The turned-out result that will be more exact, than more various expenses are considered at summation.