How to Calculate Full Cost Pricing

With full cost pricing, a company receives no profit or loss, unless built into cost.
With full cost pricing, a company receives no profit or loss, unless built into cost. (Image: Jupiterimages/Comstock/Getty Images)

Full cost pricing takes into account every cost a business may have associated with a product. First, you need to look at the direct costs. These are costs directly related to the product, such as material and labor. Then the company accounts for any overhead that it may pay in the course of producing the product, such as electric and rent. Finally, a company can account for profits as part of its costs. In all, the price for the product should not be less than the cost to produce the product.

Determine your total direct costs for each unit. In order to find this, you need to first add together all the labor costs, such as wages you have for manufacturing the product, then look at all material costs you have. For example, assume you plan to produce 5,000 widgets with your manufacturing labor at $50,000 and your materials costs at $100,000. So, $50,000 divided by 5,000 widgets equals direct labor cost per unit of $10. Then, $100,000 divided by 5,000 widgets equals $20 of manufacturing costs per widget.

Determine your overhead costs per unit. Overhead costs include any cost that does not directly impact manufacturing. These include costs for things such as electricity, secretary work, water and anything that is not involved directly in manufacturing. In the example, assume the company only produces widgets and had overhead costs of $20,000. So, $20,000 divided by 5,000 widgets equals $4 per widget.

Determine your profit, if any, you want per widget. In the example, assume you want $8 profit per widget.

Add together direct labor costs, manufacturing costs, overhead costs and profit per widget to find the full cost price of the object. In the example, $10 plus $20 plus $4 plus $8 equals a full cost price of $42 per widget. This means using full cost pricing, a company would sell its widgets at $42.

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