Enterprise costs are the key to determining a pricing strategy. Cost analysis allows you to calculate the minimum price of a product, work or service that is needed for a non-profitable company to function. In this regard, the organization must first assess its production costs.
Instructions
Step 1
Calculate the fixed costs of production. Their value does not depend on the volume of production, since they are associated with the direct existence of the enterprise. These include: administration salaries, rental of premises, depreciation of buildings, etc. In this regard, they must be paid even in the case when the product is not produced. The only way to reduce fixed costs is to completely shut down the company. By dividing the amount of fixed costs by the volume of production, you can determine the constant part of the cost of production.
Step 2
Determine the variable costs that directly depend on the output. These include costs for raw materials, energy, fuels, transportation services, materials, wages, and more. When planning and analyzing costs, it is necessary to take into account that variable costs grow with an increase in production volumes.
Step 3
To reduce these costs, it is necessary to optimize the various stages of the company's activities. For example, automate equipment and develop a system of work shifts, which will reduce labor costs. Divide the variable cost by the output to get the variable portion of the unit cost.
Step 4
Add the variable and constant parts of the production cost. Compare the prices at which you can sell your products on the market and the cost of producing them. Analyze this situation and determine how optimal and profitable the activity of the enterprise is.
Step 5
Calculate the costs of the business that can be avoided. To do this, divide the costs into fully and partially refundable, as well as completely non-refundable. When analyzing costs, you need to pay attention to the first two categories, which will help optimize the pricing of the product.
