PRICE/COST ANALYSISPRESENTED BY:

RITU

PRICE ANALYSIS

The objective of analysis prices is to ensure that

the price paid is a reasonable one in terms of

the market, the industry ,and the end use of the

material bought.

Price analysis is a means of isolating and possi-

bly eliminating items of unnecessary cost.

SOURCES OF PUBLISHED PRICE DATA

VENDER: many materials traditionally are priced on the basis of published price list; it involves a “list” price for each item, which is then subject to a scale of trade discounts for either various quantity , brackets or for various classes of customers.

TRADE PUBLICATIONS: there are numerous trade publications that periodically publish current price information.

Some examples are: Oil ,Paint and Drug Reporter-chemicals American Metal Market-metals

GOVERNMENT: Both the Bureau of Labor Statistics and the Indian department of commerce issue a wealth of price information on commodities and manufactured goods.

PRICE RECORDS : Historical records are invaluable as a tool for checking current price against price previously paid, as well as for establishing price trends and as basis for forecasting prices.

QUOTATIONS: The buyer should assure himself that each bidder is capable of supplying goods of the proper specification with regard to quality, delivery requirement, packaging etc.

COST ANALYSIS

Cost analysis should be employed when price aprice analysis is impractical or does not allow abuyer to reach the conclusion that a price is fair

and reasonable.

It is the element-by-element examination of the estimated or actual cost of contract

performance to be determine the probable cost to the vender. The goal is to form an opinion onwhether the proposed cost are in line with that reasonably economical and efficient performance

should Cost.

SOURCES OF COST DATA

Cost data from partners: The supply partner will share information on its design, production, and quality processes and on its design and production.

Cost data as a precondition of bidding :When a buyer anticipates that cast analysis will be required ,he or she should includes a request for a cost breakdown with each request for quotation.

Cost data from cost models: It may be necessary for the purchasing firm to develop its own cost models to estimate what the supplier’s costs should be.

DIRECT COSTS AND INDIRECT COSTS

DIRECT COST: except in industries with the heavy fixed capital investments , direct costs are normally the major portion of total costs.

DIRECT LABOUR DIRECT MATERIALS

INDIRECT COSTS

Indirect costs represent 30 to 40 percent of many suppliers’ total costs of production.

Five of the most common indirect cost pools are: 1. Engineering overheads: cost of directing and supporting

the engineering department and direct labour staff.

2. Materials overhead: includes the indirect costs of purchasing, transporting incoming materials ,receiving , handling etc.

3. Manufacturing overheads: it includes all production costs except direct materials,labour and similar costs that can be assigned directly to the production of an item.

- cost of supervision,inspection.maintence and related costs.

-fringe benefits etc.

4.General and Administrative :includes the company’s general and executive, staff services .

5.Selling : selling expenses - sales salaries,bonuses and

commission and the normal costs of running the department.

CONCLUSION

With the understanding of cost/price principle ,

the buyer now is in a position to conduct an

Analysis of a potential supplier’s proposal.This

Analysis is a major step in preparing for negotiation .