Manufacturing Costing
It is essential when manufacturing a product to know exactly how much it costs. You must work out how much one pack or portion of your product will cost.
Ingredient / Cost / Quantity / Calculation / Cost£ p
e.g.
Unit cost of blueberries / 10p x 500g / 200g / = 10 x 2
5 / 04
Total Cost of ingredients
FINAL SELLING PRICE
Your group is asked to calculate the costs of producing your product and establish a price for selling in your chosen outlet that will ensure that you make a profit.
The stages in between weighing out the raw materials and despatching your final product to the customer, e.g. a supermarket chain, is called production. Your team agreed on a recipe, costed the raw materials and then went through the production process to make the end product.
Whether the product is made in a small test kitchen or in a huge factory, it is essential that the order of stages must be carefully planned so that the process runs smoothly. For example, there would be no point in weighing out a batch of the product if some of the ingredients were missing, or producing large amounts of your product if you have no space for storage.
All decisions and expenditure should be recorded.
Calculating the final selling price
What will it cost to manufacture (make) your product?
Manufacturing any product for sale needs careful organisation if money is not to be wasted.
Many costs are involved both in setting up a business and in keeping it going
Some of these costs are fixed i.e. they stay the same over a set period e.g. electricity, rent, maintenance of machinery.
Other costs are variable e.g. ingredients, packaging they will change with the amount produced.
Together these make up the total cost of production.
ACTION!
Work out the cost of making and packaging one “consumer unit” of your product,.
Remember that the purpose of being in business is to make a profit!
Overheads (other costs)
Some of the other costs you will have to consider are:
- Premises you will need somewhere to produce your product
- Storage Space - this is necessary to store the raw materials and the finished product
- Packaging wrappers and packaging will need to be kept somewhere too
- Machinery special machines are usually needed to produce bulk food or drink items
- Transport is needed to get the product to market
- Wages must be paid to the work force
- Marketing what it costs to advertise the product.
These extra costs are often grouped together and called OVERHEADS.
ACTION!
To separate these costs would take too long, so a simpler way of doing this is to add a percentage to the cost of production so far.
Use the chart below to work out your final selling price you may use a calculator if you wish.
Ingredient / Cost£ p
Cost of product
+
Overheads @ 40% of production+
Profit you want to make (enter the profit you would like to)=
Final selling price