"What is the manufacturing and selling cost per bottle"
This is a usual question posted by so many people on youtube, since we have many videos on various aspects of packaged drinking water business. No fault of them. However, let me clarify this aspect through a post below :-
Manufacturing Costs are costs incurred while producing the packaged drinking water till a particular point in the whole business process. Let us assume that it starts with Groundwater extraction process and ends when the bottle is inspected for quality after producing & packaging in its required quantity, say 1 Ltr or 1/2 Ltr, and kept in ready condition for despatch.
Similar Way, Selling Costs are costs incurred right from leaving the factory, distribution through various points and ends when payment realizes in the account.
All the instances, where the business pays out something, is COST to the business.
Here, to calculate the exact, non-varying cost per bottle, we need following inputs :
- How many bottles are produced in the time-cycle
- What were the pay-outs during the same
In these cost components, certain are Fixed ( Indirect Expenses ) while certain are varying ( Direct Expenses ). Usually Indirect Expenses are constant irrespective of your production whereas direct expenses vary, change with the quantity of bottles produced.
To take an example; Admin/Office Expenses, Financial payouts are constant, whereas Preform, Label, Packaging Supplies payouts will change, vary as per the quantity of bottles produced during the day/ cycle/batch.
You may clearly understand that there is 1 component in the costing is non-varying, and another is varying. To match this cost, you will need :-
- A fix production plan ( irrespective whether you have own plant or get it done )
- This plan has to be flexible, which replies to changing market conditions
- A non-defying commitment to execute this plan till we achieve first set of results, say 1st quarter.
Otherwise this blanket rule of "Per bottle Cost" is a pure shallow market pulling myth.
