Sellers need to consider the selling price of an item in order to be profitable. There are various ways to determine the selling price in addition to production costs. Calculating selling price is important for the benefit of sellers and consumers. In simple terms, the selling price is the price charged to consumers. The amount of this cost is calculated from the cost of production, non-production, and profit. From this explanation, the way to calculate the selling price is the result of production costs plus non-production costs, and profit.
Determining the selling price is not easy. Businesses need to consider various factors. If the price is too high, the demand decreases. Besides that, it is detrimental to the company because it does not get profit from production and non-production costs. The challenge of determining the selling price requires calculating the cost of goods sold. If the company doesn’t do enough research, then the price of materials to make products may be more expensive.
How to Calculate Selling Price Per Unit
Determining the selling price can use total cost formula. The formula of total cost = fixed cost + variable cost. As explained above, fixed costs plus variable prices change. For example, the seller determines the selling price of 1,000 masks. If the fixed cost is $200 and the variable cost is $550. What’s the selling price?
Materials: $0.2 x 1000 = $200
Labor: $75 x 2 = $150
Packaging: $0.05 x 1000 = $50
Equipment and operations = $75
The total production of 1000 masks are $200 plus $550. The result is $750.
The price for one mask, which is $750 divided by 1,000, equals $0.75. The price for one mask is the base price. This means that you have not calculated the profit from production costs.
How to Calculate Profit from the Selling Price
You can calculate profit from the selling price using the calculation of the profit percentage. For example, a profit of 50% of the total cost of production. The total cost of production for 1 mask is $ 0.75, what is the total profit?
The profit formula is: Production costs + (Profit percentage x production costs) = Selling price.
The price per mask product is $0.75 + (50 % x $0.75) = $1.125. Thus, the selling price of one mask is $1.125
That’s how to calculate selling price per unit.
