Kids Kreative Korner
How Much Will it Cost You to Produce Your Product? You'll Need to Know.
By Bonnie Drew
The direct expenses you pay to produce, manufacture, or purchase the products you sell is called. "cost of goods."
For example, the cost of goods for making a T-shirt might include the price of the shirt, paints, paint brushes, ribbon, and sequins. Cost of goods for baking a birthday cake would include the cost of the cake mix, eggs, oil, icing, decoration, and candles.
The cost of goods includes any raw materials, supplies, or equipment directly used to produce the product. It also includes wholesale prices and shipping charges to buy merchandise you plan to resell.
These are some ways young entrepreneurs use cost of goods to make business decisions.
* To know when to raise or lower prices* To evaluate new products for profitability
* To know how much discount to allow a bargain hunter
* To figure how much income tax you owe
For every item you sell, you need a written record of the exact, to-the-penny cost of goods. A good way to keep these records is to set up a card file. On a card for each product or service, list the following information--name of product, description, date purchased or manufactured, number of units, wholesale price, cost of raw materials, shipping costs, any miscellaneous costs, and total cost of goods.
These records of your cost of goods should be updated as changes occur in the cost of goods. For example, during the winter holiday season, you can almost always buy semisweet chocolate chips for half price. It's a great time to bake and sell chocolate-chip cookies. However, if you continue the business year round, you will want to watch the price of chocolate chips closely. As soon as the prices go up, you'll need to update your records and adjust your prices to reflect the new cost of goods.
Bonnie Drew is the author of FAST CASH FOR KIDS (2nd edition), published by Career Press (1-800-227-3371). She is also the creator of the KIDS BUSINESS software for young entrepreneurs, available from Homeland Publications (713-332-9764).
Drew is also Editor of YoungBiz online magazine, published by Kid's Way, Inc., a company that helps youth prepare for business and the workplace of the 21st century. For more information, write to Kid's Way at 5589 Peachtree Rd, Chamblee, GA 30341 or call toll free 1-888-KidsWay (1-888-543-7929). YoungBiz magazine can be found at http://www.youngbiz.com
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