Explain how an organization can cost a product and determine its price at any activity level
For this task I will explain how a product price is determined and how this is calculated at the activity level of the product in the shop.
- Costs can be divided into different concepts. Below I will explain those concepts and give an example of how it will work in practice.
o Direct costs
Direct costs are the costs that are directly linked to a cost object. You can also say, the costs that are made when making the product ready. All the costs of making the product ready for sale are the direct costs of the product. There will be only direct costs in a company when they making products, otherwise there are no direct costs.
- Labour costs are direct costs; the costs paying the employee for his work on the product.
- Costs for the raw materials; to make the product, you have to buy materials to produce the product.
- Staff training costs; for some products you have to use machinery that is controlled by employees, to control those machinery you may have need to train you employee to make your product.
Example of direct costs on a manufacturer of furniture:
When you product furniture in a company there will be direct costs for the labor, you have to pay your employees for producing the furniture. The employee only can make the furniture if there are raw materials he can use, like plastic, wood or dyes. For each new product the employees need to be trained to make it, there you have the costs of your staff training. All of those costs are directly linked on the cost price of the product, so that’s why those costs are direct costs.
o Variable costs
Variable costs are costs that depends on the output of the product, so the costs are not regular. So for example when a company that makes computers, the variable costs depends on how much they have to produce. How more computers they have to make how more displays, hard-drives etc. so the variable costs will grow.
o Depreciation
Each company or organization needs equipment to work. This could be
- Costs can be divided into different concepts. Below I will explain those concepts and give an example of how it will work in practice.
o Direct costs
Direct costs are the costs that are directly linked to a cost object. You can also say, the costs that are made when making the product ready. All the costs of making the product ready for sale are the direct costs of the product. There will be only direct costs in a company when they making products, otherwise there are no direct costs.
- Labour costs are direct costs; the costs paying the employee for his work on the product.
- Costs for the raw materials; to make the product, you have to buy materials to produce the product.
- Staff training costs; for some products you have to use machinery that is controlled by employees, to control those machinery you may have need to train you employee to make your product.
Example of direct costs on a manufacturer of furniture:
When you product furniture in a company there will be direct costs for the labor, you have to pay your employees for producing the furniture. The employee only can make the furniture if there are raw materials he can use, like plastic, wood or dyes. For each new product the employees need to be trained to make it, there you have the costs of your staff training. All of those costs are directly linked on the cost price of the product, so that’s why those costs are direct costs.
o Variable costs
Variable costs are costs that depends on the output of the product, so the costs are not regular. So for example when a company that makes computers, the variable costs depends on how much they have to produce. How more computers they have to make how more displays, hard-drives etc. so the variable costs will grow.
o Depreciation
Each company or organization needs equipment to work. This could be