The price structure of any type of goods and services is a set of certain components that belong to the number of absolute values. But one should not equate the concept of “price structure” with the concept of “price structure”. A detailed explanation of this will be given in the article below.
The price structure is nothing more than a relative expression of all the elements 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 the part that costs, profit and taxes occupy in the price of a product or service. Such information allows you to fairly fully assess the impact 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 taxes, VAT, premiums of wholesale and retail organizations. Let us consider in more detail each structural element.
Under the cost should be understood the monetary expression of the costs of the manufacture and sale of goods. There are several cost groups. The main ones are material (general production costs), expenses for the payment of wages, expenses for depreciation of fixed assets and various deductions (for example, to a pension fund). Analysis, as well as an assessment of the cost of sales, allows you to determine the cost of the production of goods, and the results of this analysis make it possible to find ways to reduce them.
The composition and price structure are the main factors that are taken into account when choosing a pricing strategy. Experienced managers know that the prevalence of cost in the price structure is evidence of a decrease in competitiveness. The high profitability and stability of the enterprise is evidenced by a large share of profit. As an economic category, it shows the net income received in the sphere of material production (economists often call it the economic effect).
It should also be noted that taxes are necessarily included in the price structure, namely social and indirect. The first are contributions to various funds (pension, employment fund, medical and social insurance funds). Indirect taxes include value added tax (known as VAT), as well as excise taxes. It is important to remember that indirect taxes are included in the price of the goods (services) and are transferred to the budget.
On the way from production to the sale of goods, one should not forget about premiums of wholesale and retail organizations. The magnitude depends on many factors. For example, the type of product or the timing of its sale. Most of the products are distributed through wholesale organizations. Based on this, the amount of premiums of such companies is much smaller than retail premiums. Wholesale organizations receive their profits from the circulation of goods.
As for retail companies, through them the products go directly to the consumer. The retail premium for a retail organization includes profit and distribution costs. The price of the wholesale organization and the retail premium are two main components that form the structure of the retail price. It can be depicted schematically. At the head of the scheme will be the retail price, which is divided into the selling price of the purchase and the retail mark-up. In turn, the selling price is divided into the selling price of the manufacturer and the intermediary premium. The manufacturer's selling price includes cost, profit, excise tax and VAT. The schematic structure of the retail price is very simple and quite convenient to use, so it is so often and successfully used in practice.