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SME CASE STUDY: Chocolate Bar Production
A factory routinely manufactures 5,000 “Arcus” chocolate bars every day (as well as other chocolate and candy products on other lines). The direct cost to manufacture each chocolate bar is calculated at 25 cents (the cost of the raw materials as well as the direct labour cost).
The costing team also assigns $500 of indirect costs for each day of production. (This indirect cost having been calculated as a proportion of the expected sales revenue of each product line running in the factory.) So, 10 cents of overhead cost is assigned to each Arcus chocolate bar.
The total cost per unit is therefore:
25 cents direct cost plus 10 cents indirect cost = 35 cents.
If the Arcus chocolate bars are purchased by retailers at a cost of 45 cents each, then each bar has a profit of 10 cents.
Can you think of any examples of new innovative products that may have required some level of costing estimates? Ask yourself if there maybe some other costing items that may need to be included in your costing! Remember, every innovation initiative is different and may have unique requirements!