Main types of prime cost

Each product sold on the market, each service that we have various firms and companies, has its own cost. It affects the price difference between goods of the same direction, but made from raw materials of different quality, with the involvement of specialists of different skill levels. What is the cost price?

The concept of

This term is usually understood as the sum of the monetary costs incurred by the producer of the product for its manufacture, packaging, transportation and sale. The cost includes the cost of purchasing raw materials, all sorts of materials for future products, fuel, for the delivery of these materials, the purchase of necessary equipment and machinery, wages for workers, etc. This includes the cash costs for the sale of manufactured products and the provision of one or another type of services. Calculation of prime cost performs a number of important tasks. First of all it is important for an entrepreneur to know how much money he spends on the production of a particular commodity in order to form a basis for assigning a wholesale price for his products. Further, it is thanks to the cost and calculation of the level of the possible mark-up that the manufacturer can determine the approximate profit from the sale of goods and services and the profitability of this type of activity. By calculating the cost price of the goods, you can find out whether the enterprise works efficiently and how fully it uses its resources.

Cost of production. Its composition and types

The cost price of goods and services depends on a variety of factors, including the availability of modern equipment in production, its quantity and quality, the amount of labor and the level of its training (this determines the wages of workers), etc.

In this case, it should be borne in mind that if an enterprise decides to purchase new equipment or expand its staff, this will naturally affect the price of the products. When considering the classification of the types of prime cost, it should be borne in mind that there are two such concepts as the cost of production and the cost of selling goods and services. Basically, the types of prime cost are considered based on its composition. Here there is a certain classification, on which experts rely when determining the price of finished products.

For example, what are the different types of prime cost, both general and individual? The total cost of all products produced by the enterprise is obtained by counting all costs for materials, their delivery and production process. Whereas the individual cost price is calculated separately for each unit of the product.

The technological cost (or operational, aggregate) is the sum of the costs that are required to perform a certain specific operation. Still there are such kinds of the cost price, as guild and industrial. The first reflects all the costs that are required to produce products in the shop. This includes the depreciation of equipment, the cost of its maintenance operation, and the salary of the shop floor, including social deductions. This type of cost is used to determine planned prices within the plant. The production cost is a broader concept. It includes both the shop price and various costs (general factory, auxiliary production).

Types of prime costs also include a full cost that covers absolutely all costs directly related to the manufacture and sale of products. In addition, the full cost includes non-production costs: the advertising of goods or services, the costs of packaging and storage of goods, as well as its transportation from one point to another. There is another classification, in which the types of cost are different in accordance with the methods of calculation. These include the following: planned, regulatory and actual cost.