Costing

Nations that to glory aspire, Their common men should prosper, By nurturing in every household, An enterprising culture.

UDYAM SHASTRA- Chapter 02, Verse 01

Key Objectives: The students focus on a sandwich to analyse the costs of producing and selling a product. They discover the importance of profit. They then will learn to estimate costs and price of a vocational enterprise product. Reading this module and doing the students activities will enable the students to:

  • Estimate costs and expenses of typical 'Goods' or 'Service' .

  • Figure profit.


Enterprise Concepts:

Raw material cost for one unit.: This is the cost of raw materials that go into manufacture of one piece or unit of the product.

Labor costs.: Cost of salaries and wages of workers employed.

Management costs.: Cost of salaries and wages of managers who supervise and manage work output of workers or do other administrative jobs.

Utilities costs.: Cost of items like gas, electricity, telephone etc.

Fixed costs.: Fixed costs are costs necessary to operate a business (operating costs) that stay the same over the range of the sales the business is making. Example office rent, Management costs etc

Variable cost.: Variable costs are operating costs that change (vary) depending on the volume of sales. Example: wages of labor deployed based on quantity to be produced , electricity consumed for production etc.

Profit.: Profit is the entrepreneur's earning after paying for all expenses.

Profit = Sales - Costs

Overhead costs.: The term overhead is an informal term used for fixed costs. 'Over head' comes from literal 'over-the 'head', i.e. roof over the business.

Cost of service sold.: For a 'service' enterprise, the cost of selling one additional unit of the service is referred to as 'Unit Cost of Service sold'. If a 'service' is selling labor, then the cost of labor should be included in the cost of the service sold. If the service uses some supplies e.g. use of paper for photo-copying, then this cost should also be included in cost of service sold.

Enterprise Skills: The student 'Activities' in each lesson are designed to clarify the ENTERPRISE CONCEPTS of the lesson and develop some ENTERPRISE SKILLS (E.SKILLS). The E.SKILLS included in a lesson may not be exhaustive, but are indicative.

E.SKILLS stated in a lesson elsewhere may also get addressed through the activities of a particular lesson.

Some useful E.SKILLS are dealt with below:

Estimating costs: An entrepreneur may often be called upon to 'estimate' costs of producing a 'goods' or service'. 'Estimating' means assessing, rating or setting a value on goods or 'service', in part or whole, with best available data.

Mathematical calculations: An entrepreneur should have adequate numeric skills to do day to day Mathematical computations.The latter implies numerical calculations of addition, subtraction, multiplication, division, percentage calculation and related arithmetic. An electronic calculator is a handy tool nowadays for 'Mathematical Computations'.

Analytical thinking: This thinking ability enables a person to :

- break a problem into parts,

- identify relevant facts

- interpret the meaning of facts, and project the consequences of a decision.

Because so many factors bear on an enterprise, an entrepreneurs needs what might be called an intuitive analytical sense in order to select key facts and eliminate the nonessential ones.  

Activities:

Activity 1 - Sandwich cost breakdown.

Activity 2 - Cost-Price your own rechargeable torch product.