A bit on principles drawn from another life.
Pricing and costing are not the same thing.
The price you can charge is in in the end set by your market and has nothing to do with your costs and inputs - more to the point by the perceptions of the market. Competition sets prices pretty much directly in the case of (commodity) bread and butter stuff where there are lots of alternative sources, and indirectly in the case of stuff that's unique, but which usually will still have some perceived value projected off other similar items, reputation of the maker, bragging rights/exclusivity and so on.
The words can vary a bit - but perceived product excellence/attractiveness, price, quality, and service are usually regarded as the factors determining how a competitive market rates a supplier's offering.
While you may get away with it now and then the chickens tend to come home to roost if you overcharge for whatever blend of the above you are offering - so that by and large you can't hope to stay in business that way.
That's not to say that a fast mouth and and effective marketing approach can't manipulate perceptions.
Cost is what it actually costs you to make the piece. It's often divided into direct labour and material (quantity used per unit of product @ actual cost), indirect cost items like marketing, energy, heating, maintenance/repair, depreciation/replacement costs, waste disposal (stuff where the quantity used increases with more production, but only roughly in proportion. e.g. you have to run a fair amount of heating come what may), and overheads. Overheads are fixed costs you are committed to meeting unrelated to how much business you do - e.g. machine repayments, cost of your premises, cost of insurance (if fixed regardless of output), professional fees etc)
Direct costs are fairly easily handled and are down to what you pay for the inputs (to yourself, others and your suppliers), indirects and overheads are tricky as they hang around out of sight in the background, but still have to be paid.
It may be in practice in a small woodworking business that indirect costs are more conveniently treated as overheads - i.e. they don't vary enough with volume output to justify tracking them separately. But care is needed on decisions that take stuff out of scrutiny like that, and the vice versa may be just as true - costs that look fixed rarely are. (e.g. the rent is fixed, but it may be possible to sub let some shop space if you get a bit slack)
It's common to add some % extra to your hourly rates, and likewise to your material costs to recover indirects/overheads - but this method only works reliably if you actually sell your expected volume of business at the budgeted price and is an obsolete practice.
It almost never happens that things go to plan, so its far better to use methods that regularly extract key figures and keep them in your view.
Many a business has found too late that it actually was loss making when at the end of the year it turns out that these costs (a) have not been recovered due to reduced sales, or (b) had increased on the quiet.
The other common problem scenario is that if your business shrinks it's essential to find ways to manage your indirect and overhead costs to maintain their proportion to your direct costs or you risk ending up either trying to overcharge (if the problem is known), or losing money. (if it's not)
Profit/margins are the other factor. It's not uncommon to see margins added in to labour rate, material costs and the like in a similar way ('butter accounting') - but strictly speaking this is bad practice because it also (a) moves the issue out of sight, and (b) inevitably results in loss of contact with what's going on in the market.
A better mindset is to try to always know what your costs are (in each category, at your present levels of output), to know what margin you need to make, and to regularly review how you are doing.
This separation of costs and pricing, and the splitting of costs into categories (along with actively managing the whole ball of wax ongoing) helps to avoid getting hung up on stuff. Like ending up mindlessly pitching a price regardless of the market or your costs - e.g. because my accountant says so. (.....that was a year ago before x,y,z happened)
It sounds complicated, and certainly doesn't happen without a good system. A well designed spread sheet should go a long way to automating it though - so that it becomes mostly about disciplined entry of income and expenditure as it happens.
Even if you don't get it all set up that well it's a good model for clear thinking about costs, pricing and the market.
The problem in the end is that you basically can't buck the the market. (although as above you can over time sometimes change its perceptions) If the market is forcing you to sell at prices that you can't survive on, then it becomes a case of adjusting your offering and/or your costs to get to somewhere that works for you.
Failing that it's tone down your expectations or close the business time - but even then the sooner you know it losing the better.....
