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Topic created : 26.04.2010, 10:23

deathincarn

ok can someone please tell me why even when i sell a product to my own business at "prime cost" that business still incures a loss? it just doesnt make sense.

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27.04.2010, 02:28

Last time edited : 27.04.2010, 02:30

Ixnad

You can lower the sale price, if your subdivision's spend too much money on internal purchasing. I don't see what is the problem?

27.04.2010, 02:37. Subject: lowering prime cost

light76212001

if u like to lower prime cost another way to do it or put it you , buy the raw materials to the warehouse then resell at 1.00 or .01 cents to the factory. Then your prime cost will only be delivery price. Then you can sell it in the factory for a very very low price.

27.04.2010, 07:15

Ixnad

light76212001
if u like to lower prime cost another way to do it or put it you , buy the raw materials to the warehouse then resell at 1.00 or .01 cents to the factory. Then your prime cost will only be delivery price. Then you can sell it in the factory for a very very low price.

This brings a question I want to ask myself: is it better to let the warehouse take the loss than letting factories take the loss since it may harm qualification growth?

27.04.2010, 07:29

Last time edited : 27.04.2010, 07:31

ChrisBerlin82

Uhm.... personally I'd forget about the warehouse. Why transport something from A -> B -> C when you can just transport it from A -> B and protect the environment by producing less CO² ;)

Just sell at your factory for prime cost + X while X is <= 1.0-1.5 to let your factory make money and at your retail store just ask for the price you desire. If you're not up to maximum retail profit and your factory is in a region/city with lower taxes than your retails store I'd actually sell at your factory for retail price minus <= 10% and then sell at your retail store for just a small profit to minimize taxes while maximizing income after tax = profits.

I personally find warehouses more or less useless, except you want/have to store huge amounts of a good that doesn't fit in the storage of a factory. Since I am a fan of JIT-production I never have large storage of any good, so I never built a warehouse in this game actually.

Another thought though is that if you cannot supply your factories with your own raw materials you might use a warehouse to store raw materials in advance in case your supplier stops selling or something like that.

P.S. "Faking" prime cost at your factory with this "warehouse trick" will NOT increase overall profits in any way. Actually the opposite is the case. All you can do by this is maximizing retail profits on the cost of overall profit. Not very wise imo.

27.04.2010, 14:30

casperb

I'm using warehouses to sell at different prices. My stores supply from the factory at low price dubble the prime cost. The supplies i got left go to my warehouse for other customers. All make profit and taxes are low.

k can someone please tell me why even when i sell a product to my own business at "prime cost" that business still incures a loss? it just doesnt make sense.

Tax costs going after the prime cost can be up to 30 %

27.04.2010, 17:30

ChrisBerlin82

That's probably because the tax system in Virtonomics has flaws... even when your expenses are higher than your revenue you pay full tax for your revenue and in real life that would be different.

Can you give a more detailed explanation of your production chain and the prices you have set at each point compared to prime cost and say which of the subdivisions have losses?

27.04.2010, 20:41

Ixnad

ChrisBerlin82
JIT-production

JIT = Just In Time? As in "Just In Time compiler"?

And thanks for the followup about factory<>retail tax minimization, your original reply in my thread along with this post are both very helpful, and should be put in a wiki page somewhere. Yes

27.04.2010, 21:15

ChrisBerlin82

JIT = just in time... it's not only used in computer science but also in economics and other areas. All the large car manufacturers in Europe work with JIT-production to minimize the need for storage == warehouses.

28.04.2010, 11:05

deathincarn

well for instance i buy oil at say $100 per unit to a 10ths warehouse, i then sell that at prime cost to a factory. one would expect then that expenses = revenue and hence 0 profit. but when i look at the finances page it still in cures a loss of $514. doesnt make sense...

28.04.2010, 12:48

ChrisBerlin82

Yeah, there is a small bug with prime cost or to say it another way, the game algorithm must use imprecise calculations. I used to sell at prime cost as well just to find out that almost all of my factories have small losses. Then I just raised selling prices at least a bit above prime cost to fix this. The problem seems to be that some kind of non-obvious costs like storage for example are not added to prime cost. I can't tell exactly though since these are just my personal observations.

3.05.2010, 17:24

Honorchamp

Excise tax. You guys forgot about excise tax. There is a calculation somewhere that if you sell at a loss or even at less than the profit tax amount, you pay excise tax. I think it is up to 6% but the explanation is in broken english and hard to understand. I hope this helps. Check your customs and excise taxes pages.

Looking for low priced goods, steady trading partners, and open to any business opportunity!!

Bankrupted 3 times by game bugs.
1. Office Efficiency Bug - top mgr low eff makes all company employees stop working completely.
2. Warehouse Bug - rent skyrockets to 1.5 Million instead of $10,000 when office efficiency is low.
3. Office employee change bug - sometimes makes your #changed into your actual number at update. + Warehouse bug.

3.05.2010, 18:38

Last time edited : 3.05.2010, 18:45

ChrisBerlin82

One thing I found out about prime cost is that costs for training employees are not added to them. When you do training you will see expenses in the area of "personnel" in addition to "salary". Now "salary" expenses are added to prime cost calculation but not the costs for training your employees. Since training can cost millions per turn, selling at prime cost might still drive a subdivision deep into red numbers. In my opinion prime cost should include expenses for things like employee training.

Also upgrades of buildings (shown as building and modernization expenses) also don't count towards prime cost calculation.

3.05.2010, 23:03

pectopatop

KKompany

ChrisBerlin82
One thing I found out about prime cost is that costs for training employees are not added to them. When you do training you will see expenses in the area of "personnel" in addition to "salary". Now "salary" expenses are added to prime cost calculation but not the costs for training your employees. Since training can cost millions per turn, selling at prime cost might still drive a subdivision deep into red numbers. In my opinion prime cost should include expenses for things like employee training.

Also upgrades of buildings (shown as building and modernization expenses) also don't count towards prime cost calculation.

Yes, because all you call - is an investments, not expenses, which is paying on steady basis.

4.05.2010, 02:40

Ixnad

ChrisBerlin82

Just sell at your factory for prime cost + X while X is <= 1.0-1.5 to let your factory make money and at your retail store just ask for the price you desire. If you're not up to maximum retail profit and your factory is in a region/city with lower taxes than your retails store I'd actually sell at your factory for retail price minus <= 10% and then sell at your retail store for just a small profit to minimize taxes while maximizing income after tax = profits..

Just to supplement Chris' info, for people it may concern (man, we really ought to get it completed and edit it into an article on wiki).

If my understanding of the tax system is right (correct me if you can please), it's generally good idea to sell higher in factories and only give retail stores tiny margin, when (R x (1 + FEI ) > FEI) where R is retail tax, FEI is (Factory Tax + Import and Export Customs), otherwise you are paying more taxes than if you sell low in factories.

For e.g. when Retail Tax = 30%, Factory Tax = 20%, Export = 10% and Import = 10%, we have (0.3 x 1.4 > 0.4), so it's a good idea to sell high in your factories.

With that said, I will not enforce this rule myself. I'm lazy like that. Not precisely

Unless I can make some script to save the time spent on calculation.

4.05.2010, 03:19

Last time edited : 4.05.2010, 03:21

ChrisBerlin82

The downside of high manufacturing profits is you won't see the tiny little flags next to your name Very we!

you only get them for retail profits.

I personaly think the tax system overall is flawed though. For example:

--> 2 turns ago I had revenues of 2,427,673,785$ (2,4 billion).
--> My expenses were 3,282,983,246$ (3,2 billion).
--> Thus I had losses of about 800 million $.
--> Yet I paid taxes in the amount of 557,939,962$ (557 million).

When looking at my revenues and expenses you see that I have a huge net operating loss (NOL). That means my tax deductions are greater than my taxable income, resulting in negative taxable income. In the real world I can use NOL even to recover past tax payments (read on NOL carryback e.g.).

Real world example: In year 1 you make losses of 1 million, in year 2 you make profits of 10 million (not revenue, actual profits). You would pay taxes only for 9 million, because that's what you're actually ahead of your expenses.

The problem in the game is shown by this example:

--> You have revenue of 1 billion in country/region 1. No expenses in this region.
--> You have expenses of 2 billion in country/region 2. No revenue in this region.
--> Thus you will have no profits, but losses of 1 billion.
--> If country/region 1 != country/region 2 you will be fully taxed for the 1 billion revenue you made in country/region 1 completely leaving out the fact that you had expenses of 2 billion somewhere else.

In the real world this works completely differently for international companies. A company which has stores in Germany and France for example and has a revenue of 100 million in France (no expenses) and expenses of 200 million in Germany (no revenue) would not pay taxes, because it has a NOL which is valid in either country due to bilateral tax agreements. I don't know if there exist such agreements in the real world between the African countries in this game, but they do for sure with all the European countries. Also the tax of 30% you have in Dubai is completely unrealisitc. In real life there is no capital tax in Dubai and they don't even have income taxes (an exception are oil producing subdivsions of foreign companies).

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List of forums -> Questions and answers. Help. -> prime costs. please reply

List of forums -> Questions and answers. Help.-> prime costs. please reply