The cost or cost is he economic spending that represents the manufacture of a product or the provision of a service. By determining the cost of production, you can establish the retail price of the good in question (the price to the public is the sum of the cost plus the benefit).
The cost of a product is made up of the price of the raw material, the price of the direct labor used in its production, the price of the indirect labor used for the operation of the company and the amortization cost of machinery and buildings.
The costs of a company
Specialists affirm that many businessmen they usually set their sales prices based on the prices of their competitors, without first determining whether they are able to cover their own costs. Therefore, a large number of businesses do not prosper because they do not obtain the cost effectiveness necessary for its operation. This reflects that the cost calculation it is essential for proper business management.
The analysis of business costs allows to know what, where, when, to what extent, how and why it happened, which enables better management of the future.
In other words, the cost is the Economic effort What must be done to achieve an operational objective (the payment of salaries, the purchase of materials, the manufacture of a product, the obtaining of funds for financing, the administration of the company, etc.). When the desired objective is not reached, a company is said to have losses.
Comparison with the competition
One of the greatest incentives to calculate production costs appropriately is the increasing number of competitors who present themselves as a natural consequence of the globalization. The equation is much more difficult to solve than a mere mathematical vision can offer us: it is not enough to obtain an attractive sale price, but each variable must be analyzed in depth to guarantee a promising future for the company.
As mentioned in a previous paragraph, one of the most common mistakes made by companies is simply to improve the prices offered by their competitors. Yes, it is true that such an impulsive and irresponsible strategy can lead to bankruptcy. However, it is also not correct to say that the solution always consists in reducing production costs until the price winner, because in this way we would be neglecting consumer expectations: do you really want a lower price?
In some cases, the best decision that companies can make is to focus on adjusting their messages so that people can appreciate the advantages of their products and are convinced to choose them over the competition, even if their prices are higher. Needless to say, this strategy is very risky and can also lead to bankruptcy, but if it works the Benefits they are incalculable.
Difficulties in calculating costs
On the other hand, we must not forget one of the complications that the international distribution of products entails: prices must be calculated taking into account taxes and the stability of the currency of each region, among other determining factors. This arouses complaints from consumers when they learn that in other countries the same item is much more accessible in proportion to the salary minimum and average monthly expenses.
Calculating labor costs is difficult, as factors such as employee fatigue or commitment are not objectively accountable; for this there are global parameters that all companies they can observe. With regard to materials, you should look for the best offers and seek beneficial contracts to never opt for a lower quality at a better price.