Main Production Price: Explanation, And Procedure For Calculation

Main Production Price (Freepik)

YOGYAKARTA - When you run a business that sells any products or services, the cost of production (HPP) is an important metric. The cost of production is the main input in overall profitability, so understanding how the system works and flows into your business results is very important for every owner or business manager.

If you want to know how the production cost works, look at the basic price formula and learn how you can apply the production basic price to help increase your long-term business results.

The cost of production is the total amount paid by your business as a cost associated directly with product sales.

Depending on your business, it may include products purchased for resale, raw materials, packaging, and direct labor related to the production or sale of goods.

Dengan kata lain, bahan yang digunakan untuk menghasilkan produk dan tenaga kerja yang digunakan untuk membuat setiap unit dapat dimasukkan dalam harga pokok produksi. Jika Anda mengeluarkan biaya penjualan khusus untuk item tersebut, seperti komisi, biaya tersebut juga dapat dimasukkan dalam HPP. Serama accounting untuk ini adalah biaya langsung.

If costs are common for your business, such as rental, new machinery, or general marketing costs, they are not a 100% cost dedicated to certain items. The indirect fee is considered as overhead, not the cost of production.

The cost of production is an important number that business owners and managers have to track. That's the lowest price absolutely you can sell your products to break evenly. Each additional margin returns to covering overhead and ultimately profit. If you don't know your HPP and break-even points, you don't know if you make or lose money.

To help you track your profitability without an MBA or accounting title, look at Square's profit and loss templates for any business. The cost of production is the main input in the earnings report, which is usually called a large company's earnings report. The terms "demand earnings reporting" and "depth earnings reporting" are used alternately.

Taking into account the cost of production

Accountants and bookholders use standard formulas to calculate the cost of production for physical products:

Initial Inventory + Purchase - Final Revenue = Product Price

If you have manufacturing labor costs or direct sales costs, you can include them too, but that may not apply to all businesses.

An inventory fee may be a little more complicated to calculate depending on your business inventory method. If you use the "last entry, first exit" or FIFO "first entry, first exit", for example, the costs you include may vary.

Examples of production basic prices

The cost of production can also be called the production principal price. Public companies are required by law to share this information in their annual report, so you can always see the cost of production, or the cost of production, for every company listed on the US stock exchange.

Here's a mathematical example for small businesses, calculated using the standard production cost formula:

Initial Inventory + Purchase - Final Revenue = Product Price

Initial Revenue: Rp. 15,000 Purchase: Rp. 20,000 Available Goods to Sell: Rp. 35,000 Reduced: Final Inventory: (Rp. 10,000) The main price of production: Rp. 25,000

Learn from the main price of production

To be more comfortable with your business number, think about your business this way to better understand your HPP.

The cost of production is a major margin contributor: Your business will never make money if the production cost is higher than the price of your product. Always trace HPP to help ensure you generate operating profit.

Get a proper understanding of HPP: Don't just look at the results of high-level HPP. Look at every underlying cost for savings opportunities.

Strategically reducing production prices: Even small progress on HPP results in higher profits. For businesses with low margins such as restaurants and general retailers, small differences in HPP can create or destroy your business.

Maintain long-term focus: Be careful to avoid cuttings that endanger the experience of your customers, product quality, or employee experience, as they can turn around and damage your long-term views.

You don't need a strong financial background to use HPP to build a more profitable long-term business strategy. Anyone can use HPP to improve their business.

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