Price structure

The composition of the price of any type of goods and services is a set of certain components that belong to the number of absolute values. But we should not identify the notion of "price composition" with the notion of "price structure". A detailed explanation of this will be given in the article below.

The structure of the price is nothing more than the relative expression of all the elements that are directly included in its composition. Each element can be represented either in percentage terms or in fractions of a unit. In other words, the price structure is that part which is occupied by the cost price, profit and taxes in the price of a good or service. Such information allows us to fully appreciate the influence of intermediary organizations on the formation of retail prices. From an economic point of view, the price structure is a combination of cost, profit, excise, VAT, wholesale and retail premiums. Let us consider in more detail each structural element.

Under the cost price it is necessary to understand a monetary expression of expenses for manufacturing and realization of the goods. There are several groups of costs. The main ones are material (general production costs), costs for payment of wages, depreciation expenses for fixed assets and various deductions (for example, to a pension fund). The analysis, as well as an estimation of the cost price of the sold products, allows to determine the value of expenses for the release of goods, and the results of such analysis give an opportunity to find ways to reduce them.

The composition and structure of prices are the main factors that are taken into account when choosing a pricing strategy. Experienced managers know that the prevalence of prime cost in the price structure is evidence of a decline in competitiveness. The high profitability and stability of the enterprise is evidenced by a large share of profits. As an economic category, it shows the net income received in the sphere of material production (its economists often call the economic effect).

It should also be noted that the price includes taxes, namely: social and indirect. The first are deductions to a variety of funds (pension, employment fund, medical fund, as well as social insurance). Indirect taxes include the value-added tax (known as VAT), as well as excises. It is important to remember that indirect taxes are included in the price of goods (services) and are transferred to the budget.

On the way from production to the sale of goods, one should not forget about the surcharges of wholesale and retail organizations. The value depends on many factors. For example, on the type of goods or the timing of its implementation. Most of the products are distributed through wholesale organizations. Based on this, the amount of extra charges for such companies is much less than the retail premiums. Wholesalers receive their profits from the turnover of goods.

As for the retail companies, through them the products come directly to the consumer. The retail mark-up of a retail organization includes profit and distribution costs. The price of the wholesale organization and the retail premium are the two main components that form the structure of the retail price. It can be depicted schematically. At the head of the scheme there will be a retail price, which is divided into the selling price of the purchase and the retail mark-up. In turn, the vacation is divided into the producer's selling price and the intermediary surcharge. The manufacturer's selling price includes prime cost, profit, excise and VAT. The schematic structure of the retail price is very simple and convenient enough to use, so it is so often and successfully used in practice.