Feargal Quinn: Solving the problems of small business. Do you have a problem with your small business? Email Feargal at: [email protected] Question: Could you please explain to me how I accurately work out the cost of a product I am producing? I am really confused by what I should do. Feargal replies: The information I give you here is not going to solve your problem, but it might point you in the right direction. Your query is very, very common and in fact you should be praised for asking the question as many early stage businesses simply make assumptions about product costings and end up losing lots and lots of money. Accurate product costings are a vital part of any business. What I normally find is that people usually get ingredients and packaging relatively accurate but completely forget about other costs which are associated with the product. Start by producing a batch of product and time yourself making this. Work out the cost of all of the ingredients and the labour and divide it over the number of products you have produced. Obviously you need to ask yourself the question; how many more could I make in the same time, if I had the order. Then spread these costs over the number of products you had produced. Dont forget to add packaging and labelling cost in and very often you have outer boxes, outer labels and perhaps even pallet rental etc. which sometimes people forget to charge into the product cost. Now for those overhead costs which often get forgotten! Ask yourself what are the costs of running the business. Will you have a bank loan? What about electricity, another service cost? Will you be renting or leasing a premise? Will you be leasing equipment? These are all the costs typically that people forget to add in to their product costing. I remember somebody once explaining this in a very practical way to me. Say you are producing five products. Well, the sales and the profit for the business can only come from these five products. If you have not allocated the costs correctly over the five products, then there is no other revenue stream coming into the business to cover these additional costs. Failure to allocate the cost over the five products means many of these overhead costs will be funded out of your own pocket and that is where things begin to go wrong. Go to your Local Enterprise Office and explain your predicament. Ask do they have either a financial mentor or a cost accountant who could operate as a mentor for you to help you to get a number of products costed accurately. Of course your accountant should also be able to help in this process. independent.ie/business/im-baffled-by-how-much-it-actually-costs-to-produce-my-product-30685257.html
Posted on: Thu, 23 Oct 2014 06:54:56 +0000
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