Product price - what is it?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The amount of money that the seller wants to receive, and the buyer agrees to pay for a unit of goods - this is the price of the product. The volume of sales depends entirely on its level, and hence the amount of revenue follows. This means that the price of products is a factor that directly affects revenue. What affects it? The price level is determined by production costs and the sale itself, where the maximum level regulates demand. Thus, the price of products is also a mechanism for balancing supply and demand.

Pricing

First of all, when pricing, you need to determine the level of demand. It can be increased for specific goods or for goods of a particular enterprise. Also, demand may vary depending on the region and throughout the domestic market. For pricing to be correct, you need to understand that the price of a product is a whole set of characteristic concepts related to the certainty of demand. This indicator is considered in at least three components.

These are the volumes of market demand, which depend on the exact amount of products thatwill be acquired by certain buyers in a certain territory at a certain time and with the help of certain merchants. The calculation of the price of products also depends on the capacity of the market. What it is? Capacity is the highest limit where maximum demand tends to go. The volume of demand mainly depends on this indicator. He is part of it. Also, the calculation of the price of products dictates the magnitude of demand. It is estimated by the quantity of a particular product that is supposed to be sold to the buyer at a fixed or contractual value. The types of prices for products can be different, that is, if the demand is multiplied by the price, the demand will be obtained.

Profit

The most important element in unit price is profit, which is net income in monetary terms. It is created by the enterprise in production and is formed after the sale. Making a profit in a market economy is the main goal of any business. After all, this is the main source for the formation of financial and material resources of each enterprise, its social and industrial development. The greater the profit in the price of a unit of production, the wider the company's opportunities for the development and improvement of the financial situation of its employees, to strengthen the financial condition. The state is also interested in the growth of such income in private enterprises. After all, income tax is a very significant share in state budget revenues.

Here it is necessary to note the discrepancy between the economic meaning of profit and the concept of its calculation in accounting. The economic content of this concept is pureincome received from the operation of the enterprise. But the quantitative calculation of profit in all its forms must be determined by the accounting system, which considers the costs and prices of products. The procedure established by law for the formation of the financial result has a very great influence here.

Market price of products

The monetary expression of the value of any product, that is, its price, is an element of market conditions and a market mechanism that forms the market and influences the market price. In the world management practice, there are several approaches to the problem of establishing this indicator. First of all, the basis is supply and demand, planned costs related to the release of certain products, and there may also be a contractual basis. All these are components of the price of goods. The main motive for making a decision on the choice of production of a particular product and on its quantity is the receipt of benefits, which is influenced by the price system established during the sale. Profitability is determined by the market. In other words, the selling price. If this indicator is higher than the costs of production and sales, then it is profitable to produce such products.

In the market, prices are formed, as already mentioned, based on supply and demand for a particular product. It does not depend on costs. In this case, it is not difficult to determine the price of a unit of production, since it will be given. Between the magnitude of demand for a given product and its market price there is a certain relationship, which is called the demand curve (or demand scale). If agraphically, one can easily calculate that the lower the price, the higher the demand and consumption. What influences the final result? The price is set necessarily taking into account all the components of the product price: the demand for this type of product, the cost of manufacturing, delivery, selling it, the prices set by competitors, the number of offers of the same product from other manufacturers.

Types of prices

Groups of price types are formed depending on the scale of the market - prices for foreign trade and domestic, international and world markets are determined in completely different systems, although the relationship through international integration has been increasing over the years, approaching the uniform rules for the formation of the structure and levels of one or another types of prices. In the national economy, the sphere of its service differentiates prices. At the same time, the features of different areas of management are taken into account.

Here the main types are as follows:

• wholesale price of products;
• retail price;
• purchasing and tariffs;
• prices for construction products;
• foreign trade prices, that is - export for domestic products and import - for foreign.

The last group is formed in principle differently than the national ones. Information about competitors and the prices of manufacturers selling similar products on the world market is important here.

Export is defined differently. After all, it is through them that foreign trade organizations and manufacturers sell products on the world market. It is necessary to choose a reference price and bring it to reality according to the terms of the transaction, taking into account the quality of products, their transportation, payments, insurance, storage and much more. This also includes an export duty and a transfer into the currency of the country that exports products at the exchange rate of the country's Central Bank on the date the transaction was concluded. These are the main ingredients.

Import prices exist for the purchase of goods abroad and are set on the basis of the customs value of the products. This takes into account customs duties, exchange rates and domestic sales costs. Indirect taxes are of great importance here, and the whole structure of import prices depends on them.

Accounting and redistribution function of prices

Features characteristic of all types of prices are common properties that are objectively inherent in the category under consideration. The economic literature offers four types. This is an accounting, stimulating, redistributive and function of the balance between supply and demand. The first type involves comparing prices that are incomparable in terms of consumer characteristics, where the value expression is determined by macroeconomic or industry indicators, as well as indicators of a particular enterprise.

The redistributive function involves redistributing the created social product between different economic units, regions, sectors of the economy and population groups. For example, the state keeps the level of prices for cars, tobacco products, alcohol, and this level significantly exceeds all production costs.and implementation. The proceeds are supposed to be used to maintain low prices for essential commodities. Whether it works is another question.

Stimulating function and balance function

Stimulative function - encouraging and deterrent effect of prices on various areas of production. Progressive products do not have such restrictions, and the growth of production profits is not restrained by anything. But products with costly components are covered by severe price restrictions. The essence of the supply and demand balance function is to achieve a certain price level.

The classic unregulated market spontaneously regulates social production. As a result, capital flows from industry to industry, excess production is curtailed, freeing up resources for the production of scarcity. Social labor in this variant is spent insufficiently rationally. If the economy is regulated, the function of balance is performed not only by prices, but also by state financing, lending, tax policy and much more.

Cost and price

The optimal price of products is not too easy to determine. If it is prohibitively high, it will not be possible to attract buyers, and if it is low, there will not be sufficient profit. It is especially difficult to set a price for a small firm, because the economic scope is insufficient and price competition is high. How to be? In any case, the formula for the price of products is the same. The more units produced, the lower the cost. This rule is most often used to getsufficient profit and win in price from competitors at the same time. And it is small firms that rarely have such an opportunity. After all, they have to deal with the rigid pricing policy of large firms.

The cost of production includes all current costs of production and sales, and they are always expressed in cash. This must include material costs for the cost of materials and raw materials, energy, fuel, and the like. It also takes into account the wages of employees, contributions to pension, insurance and other funds, deductions for depreciation of equipment and many other expenses - fines, pen alties, rent, and so on. All this must be taken into account when determining the average price of products.

It must be remembered that this indicator is a tool for comparing the capabilities of the manufacturer and the needs of the buyer. Price setting must always be preceded by careful analysis. This is a prerequisite. Prices are easier to change than the product itself or the method of distribution, and pricing almost always affects the way you do business.

Retail and wholesale price of products

Wholesale prices are called in the case of the sale of products by industrial enterprises or their intermediaries in large volumes, that is, wholesale, without any assistance in sales by various retail trade organizations. This indicator is also used in other cases. For example, if enterprises agree to sell their products to each other, if sales are carried out between industries, as well as from production to a retail network, when productsis sold to trade organizations, and not to the population, which practically does not use the wholesale trade, even in small lots. If the goods are sold at wholesale prices, transactions are usually carried out by bank transfer.

Retail prices are intended for the sale of products to the final consumer, that is, the population, since it is a consumer product. In such cases, cash is usually paid.

Purchase prices are used by producers of agricultural commodities when they are sold in large quantities either to the state or to a specific processing plant. It is worth considering the nuances. If these organizations do not want to sell products of agricultural origin, but, for example, excess equipment, then they use wholesale prices.

Usually large volumes of agricultural products are purchased by government agencies to create funds for the material base, fulfilling the objectives of public policy. Also, various non-governmental organizations and enterprises, such as meat-packing plants and dairies, who buy similar goods in large quantities, use purchase prices. If the sale of agricultural products is intended for the population, then the concept of retail price should be used.

Purchase price

The concept of the purchase price differs from the price of public procurement, one might say, fundamentally. Let's consider in more detail. Public purchases are made at prices that are set for a variety of types of products, not only agricultural, in order toform centralized state funds. Goods of such a plan always have a special meaning, since they are the most important. These are the main strategic types of fuel, raw materials, cotton, grain and the like. In this way, nationwide tasks of national importance are solved, and the state provides many, many benefits for sellers of such products.

The statistical analysis of the applied purchase prices must pass the main stage - the assessment of the general price level. after that, it is necessary to summarize the obtained indicators. Thus, the absolute or relative value of prices for specific products will be revealed. Here, as a rule, the levels of income and expenses are reflected in a certain period of time, in specific territories and specific enterprises.

It is possible to determine the price level by comparing the current period with any other base period for similar or identical products with similar consumer properties. Then correction factors are applied. This is how a direct measurement of changes in the level of price dynamics is made.

Analysis

In practice, pricing most often uses data that shows the average price of products for homogeneous groups with generalized characteristics. Calculations of general indices for food and industrial goods are also widely used. This is the main tool for such analysis by price levels. They are also normalized in comparison with domestic and foreign prices. In other words, they are analyzed in relation to certain economic indicators.

Inter-industry or intra-industry price ratios are determined byalready established pricing levels. So you can calculate the increase or decrease in living standards. If the growth in retail prices, for example, is higher than the growth in incomes of the population, we observe a decrease. Let's take another example. If the purchase prices of agricultural products do not increase relative to the increase in the prices of manufactured goods that agricultural enterprises need to purchase, this exchange is unequal and unprofitable.

Product selling price

The easiest way to calculate the selling price with which a company enters the market is to apply a fairly simple formula: P=C + P + Ca + VAT + VAT.

The letters represent the following:

• C - sale price;
• C - full actual cost;
• P - profit;
• Sa - excises in total;
• VAT - everyone knows that this is a value added tax;
• Np is sales tax.

It has already been said what the actual cost is. This includes all production costs and selling expenses. The profitability (or profitability) of products is determined precisely by the amount of profit. You can evaluate it using the profitability ratio, the formula of which is present in the illustrations for this article.

But excises in total are determined for each type of product in its own way. What does it mean? Only excisable goods, such as alcohol, alcohol, tobacco, gasoline and the like, have their own fixed excise rates with the appointment of a certain amount of contribution for each unit.products (kilogram, liter, and so on). Such indicators are called specific.

Cars and jewelry have an interest rate on their value called ad valorem rates. VAT is defined as a percentage of the actual cost of production plus profit on it. And sales tax - as a percentage, where not only profits are added, but also VAT.

The selling price of the company's products must necessarily be three times higher than the cost price. This is the amount of profit, the amount of sales tax and the amount of VAT. All these indicators are transferred to the state budget.