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

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Introduction

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. ...read more.

Middle

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 could be based on a cost-plus approach, by adding a profit mark-up to cost. However, pricing should be based on what the market will bear, and cost-plus pricing, for both selling externally and for internal transfers between profit centres of the business, has service limitations and should be regarded as inferior in most circumstances to a market-based approach to pricing. Production overhead or usually refers to as manufacturing overhead, is recovered by absorbing them into the cost of a product. This process is known as absorption costing. Absorption costing means that all of the manufacturing costs are absorbed by the units produced. Absorption costing is often contrasted with variable costing or direct costing. The fixed manufacturing overhead costs are not allocated or assigned to (not absorbed by) ...read more.

Conclusion

The cost to produce an extra unit is the variable production cost. It is realistic to value closing inventory items at this directly attributable cost. Under or over absorption of overheads is avoided. I employ five machinists who manufacture a range of footwear mainly trainers which are sold in sports shops around the country. Also I employ a full-time receptionist who deals with the day-to-day business duties such as marketing, wages, customers and suppliers, etc. I also have two vans and employ two van drivers to transport my goods to the various customers that I have. In conclusion I would like to say that the company needs to use these methods/ techniques because of the three main things, these are decision making, planning and control and product costing. It is very important for the company to identify if they are making profit or loss. For them to make decision whether to drop the service or keep doing, they need to know which services are more profitable and which one are not. After the decision is made the company must plan and control their spending. Yours Faithfully ...read more.

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