Im writing a business proposal, and im wondering how to accurately implement the overhead cost into product pricing.
Some places online say that the amount of sales in a year should be divided by the overhead cost to find the overhead percentage. But since its a estimated sales on a year i have no real data for amounts sold.
Im currently using overhead cost divided by time spent on the product production, but since were talking about mass manufacturing, some products only take a few seconds to make in essence.
So for example these are the datas im working with:
Overhead Cost (Monthly): 30,000.00 USD
Product Raw Material cost: 1.20 USD
Product Packaging cost: 0.58 USD
Product Retail Price: 13.00 USD
Overhead is recurring monthly cost such as: rent, advertising, salaries, transportation utilities, office supplies, telecommunications, repairs and maintenance, software, tax and administrative fees, misc supplies)
So for that product im calculating using this formula:
(((Overhead:30K / Work days in a Month:24) / Work Hours in a Day:8) / 60 minutes) * 1 = 2,6 USD
Wich is around 21% overhead cost.
Is that accurately calculated? Is there a different way i should be utilizing overhead cost into the product?
I guess what i need to know is how to accurately implement overhead cost into the product pricing, because the above overhead formula isn't really truly accurate since were talking about mass manufacturing now, and it definitely wont take 1 minute to produce 1 product anymore, it will take seconds. Im just stuck on how to accurately proceed.