the product budget: putting it all together

THE PRODUCT BUDGET

PUTTING IT ALL TOGETHER

To evaluate product cost you must understand what drives your

business

What drives your business?

In my bakery business, cost is

driven by

Food costWhich strongly correlates with food supply and

inflation rate

Labor costWhich strongly correlates with local laws and labor supply

Cost of acquiring assets and maintaining the business Which strongly correlates

with the level of activity in my cake shop

Below is the summary product budget for "My Cake Shop"

Many entrepreneurs

struggle with how to price their

product. A product budget could be a

key place to find he answer.

This is my product cost

By taking the time to create my budget, I know it cost me $75.39 to bake a cake

Knowing what my product cost allows me to compute my gross margin

Gross MarginGross Margin is the difference between what I sell the cake for and what it cost me to make it. if I sell the cake for $125, my gross margin is $49.61 (125 -

75.39). This is a gross margin percentage of approximately 40%. This gross margin will allow me to cover my other expenses which are not part of

making the cake

Account for owners time in product cost

I have to be paid for my efforts or I will burn out really

fast

I might decide to hire someone else to fill that position and if I

am not costing my cake appropriately, I will not be able to generate enough cash to pay

that person

Questions for thoughts


inflation rate



inflation rate


Summary

WE HAVE DISCUSSED KNOWING YOUR PRODUCT COST GOES BEYOND JUST

KNOWING WHAT YOU PAY; BUT UNDERSTANDING WHY YOU PAY, WHAT YOU PAY. BY ACCOUNTING FOR THE FACTORS OF

PRODUCTION THAT MAKE UP YOUR PRODUCT COST, YOU CAN ANALYZE IF THERE

ARE POSSIBLE WAYS OF REDUCING COST.

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the product budget: putting it all together

Business