Question

You must apply the concepts of estimation, cost behavior and cost prediction:

Identify in a pharmaceutical industry, the production (services) of estimation, cost behavior and cost prediction. Of his opinion about the behavior of pharmaceutical costs.

Answer 1

Estimating the production Volume in a Pharmaceutical industry can be done as given below:

Actually it is a tough ask, however it can be done in the following steps:

01. The company collect a market potential/ requirement from all the doctors through representatives about their future requirements. This has ti be done in a region wise collection, then the amounts are to be summed up for the total requirement.

02. The company can also depend on the past sales data of the company and prepare a rough production schedule with 10% addition to meet any surges in demand.

03. Also many medical companies keep the the production high/ low by following the industry trends.

These are the methods /techniques used to predict production estimates in pharmaceutical industry.

Cost behavior of production in Pharmaceutical industry:

Cost behavior of production in a pharmaceutical industry involves the fixed costs, variable costs and semi variable costs. they are explained as given below:

Fixed costs:

While manufacturing a pharma product the company takes into account the followng:

i. Laboratory expenses.

ii. Rent charges /lease charges.

Variable Expenses :

The manufacturing process includes the following variable expenses:

ii. Cost of the raw material

ii. Equipment used for the manufacturing

iii. electricity charges and

iv. maintenance charges.

Cost Prediction of a particular product in Pharma industry can be done in the following fashion:

Cost prediction can be done in Pharma industry by using Conjoint Analysis, conjoint analysis is based on extensive market surveys conducted by companies on the volume of sale during a particular month or year, the revenue generated, the percentage of share held by a company etc.

Methods used for implementing conjoint analysis:

Data Collection required for implementing conjoint analysis can be collected by using a pre-designed questionnaire , containing around 20-25 questions and requires around 15 mins to complete.

It requires collection of data from a large number of respondents and depending on the nature of the product the sample type will be decided.

For example, if it is special medicine, clinical sampling will be chosen. otherwise a simple random sample can also be chosen in normal cases.

Thus it can be concluded that the behavior of costs involved in production of pharmaceutical products involves both the variable and fixed costs.