Explain how an organisation can cost a product and determine its price at any activity level

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Asid Ashraf

                                                              A1 Books Ltd

                                                                                                              High Street

                                                                                                              West Grinstead

                                                                                                              WG6 89P

Jones’ Footwear

Unit 17

Grinstead Industrial Estate

WG3 15R

20th April 2012

Dear Mr Jones

I have recently joined a manufacturing firm at Jones’ Footwear and work out all the costs and price myself. The economy is functioning, when running three main elements: profit, competition and pricing system. For my business company one of the most important elements is cost assessment. The company set prices for their products, primarily to cover production costs and make a profit. Costs can be defined as resource, consumed in to a certain goal and calculated monetary units. Costs term associated with the company monetary costs, production resource buying.

When preparing your first business plan you'll probably have to estimate most costs which are fine so long as you are estimating based on facts and not on what you believe they should be. As my business grows I'll hopefully be able to make cost savings as you can build in economies of scale into your operations. All costs, which manufacturer had to do, consists of the production costs. They are divided to variable and semi-variable costs.  Example of variable costs labour, fuel and raw materials and an example for semi variable costs are telephone bill, Internet usage and electricity bills. Fixed cost is the cost that never changes over a period of time. And also it does not increase with the output of the firm. E.g. Rent, wages of permanent workers etc. Stepped cost is a type of fixed cost that will be fixed for a relevant range (RR) but as this range is exceeded the cost will be increased till the next relevant range. Stepped cost is a cost that increases by a reasonably constant sum each time volume or activity increases by a predictable, constant and multiple. Costing methods are used by companies as means for pricing or stock valuation and to control business or to assist in managerial decision making. Costing methods are very important in accounting in order to make the right decision for the success of the organisation. If the company failed to make the right decision at the right moment, it will be a reason for the drawback of the organisation

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Direct costs are costs which are incurred for, and can be conveniently identified with, a particular cost unit. The aggregate of direct materials, direct wages and direct expenses is known as prime cost. Indirect costs are costs which cannot be associated with a particular unit of output. The total of indirect materials, indirect wages and indirect expenses represents overheads. Costing systems can influence pricing decisions. The aim of Jones Footwear business is to make a profit, it is reasonable to assume that products or services should be sold at a price in excess of their cost. Consequently, pricing decisions ...

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