In this post we will talk about how we can get our costs by volume of production. Since the client who asks us for 5 cups is not the same as the one who asks us for 200. We must consider the volume of production and how we can adapt it.
How is the proccess?
First we will take the production cost of our item, in this case we will analyze it from the perspective of a cup.
First, we must obtain our fixed costs .
That is, services, transport, electricity, rent, etc. For this example we are going to assume total costs of RD$28,300 . We must carry this amount at a fixed cost per hour.
Then, we are going to calculate our variable costs , that is, the cost that we will have depending on what we produce, that is, one cup or 50.
In this case, if we contemplate: Sublimation sheets, ink, mug, thermal tape. It gives us a total of RD$103 .
Then, we must calculate the return on investment of my machines, that is, for each cup that I make in my machine, how much I am charging the cost of the cup to recover my investment. For the machine and the printer it would be RD$28 .
Well, if we add up all the costs, a cup has a total cost of RD$143.38.
We must know our margin of error , that is, according to the amounts of errors that we make according to the volume of production that we make.
How does it work?
If we produce 6 cups, and 2 go wrong. We must use the rule of 3:
6 cups - 100%
2 cups - x
Our margin of error is 33.33%
In other words, if we have to place an order for 200 cups, we must consider that 33.33% can be damaged. How many cups would be:
200 cups - 100%
x - 33.33%
That is, to our client instead of saying:
Well, we sell personalized mugs for $400, if you need 200 mugs it would be RD$80,000.
But looking at it from the perspective of the margin of error, we could say that:
1 cup costs me RD$143.38
I calculate that it would be approximately 66 cups that would be damaged. That is, 266 cups in total.
The total cost of 266 cups is RD$38,139.08
If we put a profit margin of 50% on that, it would be:
RD$57,208.62, contemplating or giving rise to the damage of 66 cups. That is, the price per cup would be:
For our client who does not know that we contemplate the 66 error rates, it would be:
This is an alternative to calculate our price per production volume and thus offer more competitive prices.
If you want to see a video where we perform the calculations live. Access our youtube channel: https://youtu.be/Gk9cS4bkzLE
Image Source: https://bit.ly/39vqXJB