New to business - how to calculate cost of product.

Discussion in 'General Business Forum' started by Simon_Singh, Jul 10, 2019.

  1. Simon_Singh

    Simon_Singh UKBF Newcomer Free Member

    5 0
    Hello,
    Thank you for having me at the forums. I hope to gain some knowledge from you vets out there!

    I have recently decided to start a business. I am struggling to work out how to calculate the cost of my product all inclusive of labor and material cost.

    I have identified the cost of material is £130. I will have four people working for me at the following hourly rates:

    Person:
    A £7 5hrs/day
    B £7.50 8hrs/day
    C £8 8hrs/day
    D £7 5hrs/ day
    Total billable hours = 26hrs

    Between the four people we can make 6 of the items in a day/hours they worked. How can I use this information to work out how much each product will cost inclusive of labor? Any advice is much appreciated!
     
    Posted: Jul 10, 2019 By: Simon_Singh Member since: Jul 10, 2019
    #1
  2. DWS

    DWS UKBF Regular Free Member

    108 13
    If these people are employees have you considered the minimum wage?
     
    Posted: Jul 10, 2019 By: DWS Member since: Oct 26, 2018
    #2
  3. WaveJumper

    WaveJumper UKBF Enthusiast Free Member

    564 100
    Have you taken into account the National Minimum wage, plus all the on costs
     
    Posted: Jul 10, 2019 By: WaveJumper Member since: Aug 26, 2013
    #3
  4. Simon_Singh

    Simon_Singh UKBF Newcomer Free Member

    5 0
    Hi, yes I did check it. Nat min for 18-20 is £6.15 if I am correct. I have agreed to pay them more. This will only be for the initial couple of months until we can complete the orders (we have them pending already). All the people working will be friends of mine so we have an understanding.

    Am I doing it wrong? Sorry this is my first ever business.
     
    Posted: Jul 10, 2019 By: Simon_Singh Member since: Jul 10, 2019
    #4
  5. Mr D

    Mr D UKBF Legend Free Member

    16,847 1,886
    The cost of the employees includes any employer NI and any pension contributions you make.

    The product requires material cost of £130 plus 26 hours staff time plus NI plus pension?
    Don't forget too, staff cost you money when using annual leave but do not produce anything.
     
    Posted: Jul 10, 2019 By: Mr D Member since: Feb 12, 2017
    #5
  6. Simon_Singh

    Simon_Singh UKBF Newcomer Free Member

    5 0
    In regards to overheads there will be little to none as I have a friend who has allowed me to use some spare space at his unit.
     
    Posted: Jul 10, 2019 By: Simon_Singh Member since: Jul 10, 2019
    #6
  7. Mr D

    Mr D UKBF Legend Free Member

    16,847 1,886
    And they are all age 20 or less?
     
    Posted: Jul 10, 2019 By: Mr D Member since: Feb 12, 2017
    #7
  8. WaveJumper

    WaveJumper UKBF Enthusiast Free Member

    564 100
    https://www.gov.uk/national-minimum-wage-rate
    https://www.gov.uk/employing-staff
    https://www.acas.org.uk/index.aspx?articleid=1366
    https://www.gov.uk/employers-workplace-pensions-rules
    https://www.gov.uk/national-insurance-rates-letters

    Unless of course you are paying them cash in-hand
     
    Posted: Jul 10, 2019 By: WaveJumper Member since: Aug 26, 2013
    #8
  9. DWS

    DWS UKBF Regular Free Member

    108 13
    So if I have read this right and without allowing for any additional employee/employer expenses and from the information above
    26hrs at the above rates = £194/6 = £32.33 labour + £130.00 materials = Total cost of £162.33
     
    Posted: Jul 10, 2019 By: DWS Member since: Oct 26, 2018
    #9
  10. Simon_Singh

    Simon_Singh UKBF Newcomer Free Member

    5 0
    Unless of course you are paying them cash in-hand[/QUOTE]

    Hi, yes I should have mentioned that this will be cash in hand. (I have advised that each person should consider getting a UTR should they want to declare the extra income). We are all 20 and below and will be doing this little business on the weekends. Doesn't seem like I am quite ready for the business within regards to all the legal stuff.
     
    Posted: Jul 10, 2019 By: Simon_Singh Member since: Jul 10, 2019
    #10
  11. billybob99

    billybob99 UKBF Regular Free Member

    1,182 262
    Cash is king.
     
    Posted: Jul 10, 2019 By: billybob99 Member since: Apr 23, 2013
    #11
  12. Simon_Singh

    Simon_Singh UKBF Newcomer Free Member

    5 0
    Thanks for all the info guys. Managed to make a little excel sheet with formulas with the info provided here. Thank You!
     
    Posted: Jul 10, 2019 By: Simon_Singh Member since: Jul 10, 2019
    #12
  13. Mr D

    Mr D UKBF Legend Free Member

    16,847 1,886
    Hi, yes I should have mentioned that this will be cash in hand. (I have advised that each person should consider getting a UTR should they want to declare the extra income). We are all 20 and below and will be doing this little business on the weekends. Doesn't seem like I am quite ready for the business within regards to all the legal stuff.[/QUOTE]

    Are they employees?
    Self employed?
    Or business partners?
     
    Posted: Jul 10, 2019 By: Mr D Member since: Feb 12, 2017
    #13
  14. Millerd

    Millerd UKBF Newcomer Full Member

    29 6
    The cost you are getting here is only the direct cost. In doing the costing you should also consider the cost of your your own time and resources to acquire and deliver the orders plus any other expenses.
    And I’m sure you are aware that there doesn’t necessarily have to be any correlation between the cost and selling price.
    Best of luck with your project.
     
    Posted: Jul 12, 2019 By: Millerd Member since: Feb 24, 2019
    #14
  15. TheoNe

    TheoNe UKBF Regular Full Member

    135 14
    Posted: Jul 12, 2019 By: TheoNe Member since: Jul 6, 2019
    #15
  16. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,924 998
    You still need to factor into your pricing what this would cost you.

    If doing this makes the business not viable, then you don't have a business.
     
    Posted: Jul 16, 2019 By: STDFR33 Member since: Aug 7, 2016
    #16
  17. Guy Incognito

    Guy Incognito UKBF Contributor Free Member

    82 8
    It's always more expensive than you think. I've certainly found that out the hard way! And don't forget VAT in the future too...
     
    Posted: Jul 16, 2019 By: Guy Incognito Member since: Aug 2, 2016
    #17
  18. TopSpek

    TopSpek UKBF Contributor Free Member

    44 4
    Using only the information given by Simon:

    A receives £7.00 per hour, and works for 5hrs/day
    B receives £7.50 per hour, and works for 8hrs/day
    C receives £8.00 per hour, and works for 8hrs/day
    D receives £7.00 per hour, and works for 5hrs/ day

    So the daily rates of the workers are:

    7.0 * 5 = £35.00 per day
    7.5 * 8 = £60.00 per day
    8.0 * 8 = £64.00 per day
    7.0 * 5 = £35.00 per day

    This comes to £194 per day for labour, and assuming the cost of materials, £130, is for all 6 items, then the cost of each item is given by:

    ( 194 / 6 ) + ( 130 / 6 ) = £54

    I think your teacher should be happy enough with this answer Simon, but I do worry about what your teacher will think when your GCSE result comes in! Perhaps you'll pick up a couple of extra marks for the blagging! ;)

    David
     
    Posted: Jul 18, 2019 By: TopSpek Member since: Jul 15, 2019
    #18