Surcharge calculation is a method of price calculation in which various surcharges are added to the self-cost of a product or service. This approach allows companies to include the different types of costs in their calculations and thus determine a market-appropriate price. Surcharge calculation is particularly widespread among craft businesses and in the industry.
Basics of Surcharge Calculation
Surcharge calculation is based on determining the self-cost of a product or service. These costs can be divided into various categories, such as:
- Material costs
- Labor costs
- Overhead costs (e.g., energy, rent, administration)
In surcharge calculation, different surcharges are added to these self-costs to determine the selling price. The surcharges can include:
- Material surcharge
- Labor surcharge
- Overhead surcharge
- Profit surcharge
The surcharges can be defined as percentage mark-ups or as fixed amounts. They take into account the various types of costs and thus enable a realistic calculation of the selling price.
Example of Surcharge Calculation
A company produces a product with the following costs:
- Material costs: 50 euros
- Labor costs: 30 euros
- Overhead costs: 20 euros
The self-cost of the product is therefore 100 euros (50 + 30 + 20). To determine the selling price, the surcharges are now added:
- Material surcharge: 10% (5 euros)
- Labor surcharge: 20% (6 euros)
- Overhead surcharge: 15% (3 euros)
- Profit surcharge: 25% (25 euros)
The selling price of the product is therefore 139 euros (100 + 5 + 6 + 3 + 25).
Advantages and Disadvantages of Surcharge Calculation
Surcharge calculation offers various advantages:
- Simple and quick calculation of the selling price
- Takes into account the different types of costs
- Possibility to adjust the surcharges when cost structures change
However, there are also some disadvantages:
- The surcharges may not always accurately reflect the actual costs, especially when they vary greatly.
- The method is less suitable for companies with complex cost structures or a large number of products or services.
Alternative Methods of Price Calculation
In addition to surcharge calculation, there are other methods of price calculation, such as:
- Division calculation: Here, the total costs are divided by the number of products made or services provided. The resulting value is used as the price per unit or per service.
- Job costing: This method is used especially for individual orders or small series. The individual costs for the respective order are determined and the selling price is calculated based on these costs.
- Standard costing: In this method, costs are determined based on planned values derived from past experiences and future expectations. Standard costing allows for continuous adjustment of the price calculation to changing conditions.
The choice of the appropriate method for price calculation depends on various factors, such as the nature of the company, the complexity of the cost structure, and the number of products or services.
Conclusion
Surcharge calculation is a widely used method for determining selling prices, especially in craft businesses and the industry. It allows for a simple and quick calculation while considering the different types of costs. However, it is not equally suitable for all companies and situations. Therefore, companies should carefully weigh the pros and cons of surcharge calculation and alternative methods of price calculation to choose the method that suits them best.
