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EXPECTATIONS
WHAT IS
COST?
Cost
the value
of money that has
been used up to
produce something
WHAT IS
PRICE?
Price
is
the quantity of payment given
by one party to another in
return for goods or services
ACTIVITY 1
Example
Product: Doormat
Price: 35.00
Types of Cost
Operating Expenses
Direct Material Cost
Raw materials used
directly to the product
or services. These
materials become a
physical part of a
finished product.
Direct Labor Cost
Human effort directly
involved in the production process.
Money spent on wages, salaries and
benefits of the employees involved
in making the products and in
rendering the services.
Manufacturing Overhead
Other expenses incurred in
making the products or in
rendering the services.
It includes:
Indirect Material Costs
Indirect Labor Costs
Other Indirect Manufacturing Cost
Operating Expenses
Other expenditures
involved in running the
business apart from the
production process, namely:
Administrative Expenses
Selling Expenses
Direct Material
Costs
+
Direct Labor
Costs Total
+
Manufacturing Costs
Overhead
+
Operating
Expenses
Example 1
Assumption: production capacity of 10 doormats
Product: Doormat
Price: 35.00/unit
Direct Materials:
Used Cloth (2kg) 100.00
Threads 20.00
Direct Labor:
Salaries (5 per product) 50.00
Manufacturing Overhead:
Electric Bill 15.00
Transportation-Purchasing 20.00
Operating Expenses:
Transportation-Selling 20.00
Commission 50.00
TOTAL COST 275.00
Example 2
Ms. Madish Karte observed that
no one sells “meryenda” in their
place and decided to sell Banana
Cue. The following are the
expenditures incurred in selling
Banana Cue.
Cost per Unit
Banana 100 pcs @ 1.50/pc
Brown Sugar 5 kgs @ 50/kilo
Cooking oil 3bottles @ 20.00/bottle
Cooking gas 200.00 (good for 5 uses)
Sticks 2 bundles @ 10.00/bundle
Transportation 20.00
Penetration Pricing
Discount pricing
How do we price?
Prestige pricing
Competition-based pricing
Demand-oriented pricing
HOW DO WE
How to reduce cost?
Manage Time Efficiently
Reduce Expenses
Maximize Resources