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To: Blue House Sue
How does a business cover costs of labor, taxes, inventory, interest, insurance, real estate, etc, if those costs are not factored into the prices of their products?

Now you're throwing a smokescreen. You had said "...all labor costs, from top to bottom, are included in the price of products."

I challenged you on your assertion that ALL labor costs - from top to bottom, are included in the price of products. That's a ludicrous statement. So now you want to change the subject and throw in taxes, inventory, interest, insurance, real estate, etc.

Do some of these factor in to the price of a product? Of course. But does "all labor costs, from top to bottom, are included in the price of products"? Of course not. Maybe, maybe not. But to say "ALL" is a gross oversimplification.

Let's try a simple example, which maybe even you can figure out:

Jane owns a business that resells machines. At the start of 2009, she has no machines or parts on hand. She buys machines A and B for 10 each, and later buys machines C and D for 12 each. All the machines are the same, but they have serial numbers. Jane sells machines A and C for 20 each. Her cost of goods sold depends on her inventory method. Under specific identification, the cost of goods sold is 10 + 12, the particular costs of machines A and C. If she uses FIFO, her costs are 20 (10+10). If she uses average cost, her costs are 22 ( (10+10+12+12)/4 x 2). If she uses LIFO, her costs are 24 (12+12). Thus, her profit for accounting and tax purposes may be 20, 18, or 16, depending on her inventory method. After the sales, her inventory values are either 20, 22 or 24.

After year end, Jane decides she can make more money by improving machines B and D. She buys and uses 10 of parts and supplies, and it takes 6 hours at 2 per hour to make the improvements to each machine. Jane has overhead, including rent and electricity. She calculates that the overhead adds 0.5 per hour to her costs. Thus, Jane has spent 20 to improve each machine (10/2 + 12 + (6 x 0.5) ). She sells machine D for 45. Her cost for that machine depends on her inventory method. If she used FIFO, the cost of machine D is 12 plus 20 she spent improving it, for a profit of 13. Remember, she used up the two 10 cost items already under FIFO. If she uses average cost, it is 11 plus 20, for a profit of 14. If she used LIFO, the cost would be 10 plus 20 for a profit of 15.

In year 3, Jane sells the last machine for 38 and quits the business. She recovers the last of her costs. Her total profits for the three years are the same under all inventory methods. Only the timing of income and the balance of inventory differ.

So...if we were to go by your original assertion, "...all labor costs, from top to bottom, are included in the price of products."

How does Jane's labor factor in to the price she charges for her products?

89 posted on 01/31/2019 8:39:10 AM PST by COBOL2Java (Marxism: Trendy theory, wrong species)
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To: COBOL2Java
How does Jane's labor factor in to the price she charges for her products?

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If she does not charge enough to cover her cost of labor, she goes out of business.

153 posted on 01/31/2019 12:26:51 PM PST by marktwain (President Trump and his supporters are the Resistance. His opponents are the Reactionaries.)
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