Product Costing= determining the cost associated with a product

-Reasons for product costing-Variable, fixed and mixed

HL: 2007, 2003

Product Costing

1. Product = anything that is manufactured for sale (e.g. iPhone)

2. Product Costing = determining the cost associated with a product

iPhone 5

Materials = Manufacturing Cost =

Product Costing

iPhone 5Materials = $199 = €155Manufacturing Cost = $8 = €6

Total = $207 = €161

Product Costing

3. Manufacturing Costs incurred:

+Direct Labour+Direct Expenses = Prime Cost (= direct cost excl. fixed

costs)

+ Variable Factory Overheads+ Fixed Factory Overheads= Factory or Manufacturing or Production Cost

Product Costing

4. Reasons for Product Costing:(i) Fixing Selling Price (note: Selling Price = Cost Price +

Profit)(ii) Control = comparing budgeted costs with actual (iii) Stock Valuation = to complete trading and profit and

loss accounts

Product Costing

5. Variable Vs Fixed Vs Mixed

For Example:(i) Direct Materials(ii) Direct Wages(iii) Overheads(iv) Administration Expenses