Costing and Pricing of Products and Services

Study Notes

Calculating Labor Costs

Total Monthly Wage = (Daily wage) x (# of Days per month) x (# of workers)
Annual Wage = (Total Monthly Wage) x (12 Months)
Annual Work Hours = (Hours/Day) x (Days/Week) x (47 Weeks) = (Hours/Week) x (47 Weeks) = (Hours/Year) x (# of workers)
Hourly Rate of Labor = Annual Wage / Annual Work Hours
Hours Spent per Batch = (Labor Time) x (# of workers)
Direct Labor Cost = (Hours spent per batch) x (Hourly Rate of Labor)

Indirect Costs

Indirect Costs are overhead expenses like rent, bills, loans
Monthly Indirect Costs = Total Costs of all overhead expenses
Monthly Production Target = (# of products per day) x (days of operation)
Indirect Cost per Product = Monthly Indirect Costs / Monthly Production Target

Determining Costing of Products and Services

Costing is the amount spent to produce a product or service before it can be sold
Pricing is the amount the product or service is sold to the market, based on supply and demand
Costing includes Direct Cost, Material Cost, Staff Cost, and Indirect Cost

Direct Cost

Direct Cost is the payment for raw materials needed for production
Material Cost is the cost of all raw materials needed for manufacturing and functioning of a product
Staff Cost is the cost wages or salaries of all workers concerned in the manufacturing and functioning of the product

Calculating Direct Labor Cost

Total Monthly Wage = (Daily wage) x (# of Days per month) x (# of workers)
Annual Wage = (Total Monthly Wage) x (12 Months)
Annual Work Hours = (Hours/Day) x (Days/Week) x (47 Weeks) = (Hours/Week) x (47 Weeks) = (Hours/Year) x (# of workers)
Hourly Rate of Labor = Annual Wage / Annual Work Hours
Hours Spent per Batch = (Labor Time) x (# of workers)
Direct Labor Cost = (Hours spent per batch) x (Hourly Rate of Labor)

Description

This quiz covers the concepts of costing and pricing in business, including direct and indirect costs, material costs, staff costs, and overhead expenses. It also involves listing needed materials, manufacturing materials, manpower, and facilities for a product, such as a cheesy egg sandwich. Test your knowledge of costing and pricing principles in this quiz.