Costing Flashcards
How does having a product with a high water inclusive formulation affect the price? Because of this give examples of products that are reasonable cheap to make and reasonable expensive.
Lowers the cost. The more water the less cost. This makes creams, serums and moisturisers resonably cheap to make and balms and butters more expensive.
How much more % than required should you order when buying raw ingredients?
1-2%
Why should you order and extra % of raw materials?
Due to product waste and evaporation during the manufacturing process. This will vary between batch size. The larger the batch the smaller the % waste you need to allow for.
Give an example of a raw material that produces lots of waste
Tocopherol, it is very sticky and could leave behind a large amount in the container.
How does making your product clean, green or natural affect the price?
Causes the price to increase, these materials are more expensive.
How is specific gravity relevant when buying raw materials?
We need to calculate the cost of the product with the specific gravity in mind when the product is purchased in litres and not kg. For instance many oils are purchased in litres, so their actual cost per kg is higher than the per litre price.
What needs to be thought about when calculating the cost of personnel?
Using an hourly rate that will cover all associated costs of their labour including their work cover and superannuation costs.
What do micellaneous costs cover
Cleaning cloths, cleaning water, microbial testing, plastic bags, buckers, packing boxes, shrine wrap
What be investing into development as a cosmetic company?
Successful cosmetic companies should be looking to invest 10% of they’re anticipated 3 year sales on R&D
What does R&D include?
Formulation, sample devlopment, stability testing, pilot batches, regulatory checks and label compliance
What can marketing do for your products?
Influence the price,
What are the different ways to sell to consumers?
Pre-sale, direct to customer, via distributor, retail, digital, party planning, subscription, multi-level marketing, NZonly, global, country specific, brand army (brand champions)
What should you always do when planning your manufacturing processes? (6 things)
Document the entire process (preferably on a computer), close all material and energy balances, calculate demand for utilities as a function of time, estimate cycle of time process, perform cost analysis & return on investment, assess environmental impact.
What resources need to be considered when production scheduling?
Equipment, labour, utilities, inventories of materials.
Why should we record these plans and share them digitally?
This process is not a 1 person job, it needs to be known by managers and workers what the goal is so if there is an emergency eg. testing positive for COVID, others know the plan and can still get it done
What are the general steps involved in formulation? (11 things)
Raw ingredients preparation (includes storage and inventory of raw materials), warming up ingredients prior to processing, heating (fats or waxes to liquid form), dilution and quantifying (weight or volume), hydration or reconstitution (thickeners or powders), pH and concentration adjustment, combination, mixing and blending, standing or stirring, pH adjustment, successive additions, post combination processing, packaging and distribution, labelling, secondary packaging, storage and shipping
What is the first step when planning production processes?
Gather informaation and create a batch recipe sheet
Give a description of a batch recipe sheet
Contains every step with a detailed description that can be followed by anyone. A detail source of info, not just the steps but the hidden information
What does a batch recipe sheet need to include?
Various steps, sequencing, duration, materials, labour etc.
What is annual throughput?
The batch size times the number of batches per annum.
What is batch size limited by?
The capacity of the smallest unit
What can you do to increase production volume? (3 things)
Increase the size of bottle neck equipment, add extra equipment to run in parallel, reduce cycle time to reduce resource downtime
What is meant by ‘increasing the size of bottle neck equipment?
Bottleneck equipment describe equipment that has a limited production number, buying a bigger machine would solve this issue, or buying a machine that has faster mixing speeds.
What does throughput mean?
Throughput is a measure of how many units a system can process in a given amount of time.
What should be decided before building a spreadsheet?
The length of day
What steps should be included in the spreadsheet? (7 things)
Main procedure, all steps within procedure, sequencing, duration, start/finish times, labour, equipment facilities
Why is deciding length of day important?
It means you can determine how many units you can make in one day, as well as making you think about things that go over these time limits. If you make something that finishes after closing will it be okay to stay in that place until you open again, what condition will it need to be in?
What do financial calculations enable?
Cash flow comparisons
What is the main issue when considering the time value of money?
How much is money worth now compared to money in the future?
What is the basic concept of the time value of money?
Would you rather have $100 today or $100 in the future?
What is the basic assumption when thinking about the time value of money?
Given an foxed amount and given the choice of having it now or in the future most people would have it now.
Give an example of when this assumption is not universally satisfied?
Retirement, rather have it annually than a lump sum
When is this basic assumption nearly universal?
In business
What does the time value of money centre around the idea of?
An interest rate, if projecting into the future and a discount rate if rolling back to the past
What is the single most important concept in business economics?
Time value of money deals with the changes in the value of money over some period of time (due to investment opportunities, uncertainty, etc.)
What is process economics about?
Predicting the future
What is process economics based on?
Estimates of future costs and benefits. So it has to deal with risk and uncertainty.
What is unknown when trying to predict the future?
The costs, benefits and other parameters are unknowna can vary over time
What will the value of these parameters dictate?
They will dictate a particular numerical outcome, and therefore a sensitive decision.
What can sensitivity analysis be used to do?
Explore how the decisions changes as our estimates change
What is important to remember if you don’t like the answers?
Tools don’t make decisions, people make decisions based on values, engineering economics can help in decision making but won’t make the decision for you, which alternative is best is up to you
What is first cost?
The cost or total amount of investment required for getting activity started. Occurs once for any given activity. Typically assumed to be paid in year 0. Typically used for capital (land, building, tools, equipment,) not operating expenses
What is fixed cost?
Costs that remain constant and don’t vary with level of production. eg. Maintenance, taxes, insurance, rent, research, heat, light.
Give an example of why fixed costs are only relatively fixed?
Rent may go up year after year, however you still have to pay it
What are variable costs? Give examples
Costs that vary with activity level, eg with number of units produced. Typically only direct cost, may or may not remain constant per university of product. Examples include, material costs, direct labour
What are incremental or marginal costs? Give an example
Refer to the same concept, the additional cost of making 1 more unit. If units cost $50 and to make 1 more it costs $1 the marginal cost would be the $1. Marginal cost will change, for example if a machine used only makes 100, to make 101, there would be the added cost of the machine, we would have to add the cost of the machine to the marginal cost.
When should you look at marginal cost?
When deciding whether to increase production
What should marginal costs look like relative to average cost?
Marginal cost can be greater or smaller than larger costs
What is the definition of marginal revenue?
Defined as the additional revenue a firm receives for selling one additional unit of output. In perfect competition, it equals the price of the product.
What are sunk costs? Give examples
Cost that occurred in the past that cannot be changed by future decision or actions. Cost of marketing, or paid someone to do research, both payed in the past, can’t take it back
What affect should sunk costs have when making decisions?
Sunk costs should be ignored in the choice except when they affect tax liability and depreciation
Why are sunk costs irrelevant?
Decisions should be made on the basis of differences between choices, identical factors can be cancelled out. Sunk costs are already spent, they remain constant regardless of what you do.
How should you consider sunk costs?
Learn what went wrong, you can avoid that in future decisions.
What will generally be assumed in this course?
No inflation
What does ‘i’ stand for?
Interest rate per time period
What does ‘n’ stand for?
of time periods (weekly, monthly, annually etc.)
What does ‘P’ stand for?
Money at present
What does ‘F’ stand for?
Money in future. (After n time periods, equivalent to P now at interest rate i)
What does ‘A’ stand for?
Payment at the end of each time period.
What other assumptions do we have?
All cash flow occurs at the end of each time period (for example all year 1 payments are due on December 31 of year 1)
