This is a Crude Costing Formulae based on my Ideas which is called “Gut-Feel Thumb-Rule Methodology.” Even Though i am probably the only follower of this popular System, I am sure it is worth a casual Look.
RM – Raw Material Cost SP – Selling Price to Distributor
Reserves are for Dry days, Employee Fund is to reduce Attrition and Layoff. I was costing the products as a Proprietor, Managing Director and as an R&D Engineer too.
This post is just to enlighten you of the intricacies involved. It is merely the Tip of the IceBerg. You will need a Spreadsheet and lot of foresight and hindsight to make a practical costing.
This rule is for products made in good numbers. Large scale production costs may go down. Custom designed products made in small numbers the price may double. The cost of Engineering and IP has not been taken to consideration. It has been covered by a 10% Research Cost.
All this assuming we make products of reasonable quality and reliability. Build a reputation by good customer service when the product fails. So this will add into the cost depending upon the organization.
The grey areas in this costing are “Sourcing quality Raw Materials and Parts”. Designing and Engineering “Reliable and Robust Products” . Customer Support at site or field may be expensive and warranty too.
Better to be Honest, Transparent and build a Brand Reputation for a Long Term company Success.