Do you know all the expenses involved in product pricing for your goods and services? This article takes a look at all the extensive costs of running your business.
When you’re determining the price of a product, it’s obvious that you need to charge more than the total cost of producing it. But production costs go beyond the materials and equipment — you also need to factor in workers’ salaries, marketing campaigns, overall company maintenance, and the like. Taken all together, these expenses make up the direct and indirect costs of running your business.
It is easy to classify the basic difference between direct and indirect costs. Direct costs are immediately associated with the production of a product or service, while indirect costs include such things as rent — which may be associated with many products — or they may be several steps back in the production process. Though it is tempting to ignore the nuances of this accounting principle, spending some time correctly allocating your costs can improve your accounting ledger — and your clout with potential investors.
by Katherine Arline
Read The Full Article » Understanding Direct Costs vs. Indirect Costs