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Product Costing
Knowing the cost of producing a product or service is essential to any business. This knowledge can become critical if faced with competitive pricing or with opportunities for new business based on meeting price requirements. It can also be a way of reviewing and analyzing if costs can be reduced in any way toward the goal of greater profits.
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To estimate the cost of production for each item or category of items, there are these major cost categories:
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Labor
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Material
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Outsource
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Royalties/License Fees
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Safety Procedures
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Shipment
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Indirect/Overhead
For some businesses, a target maximum is established for labor costs as a
percentage of billing price. There are typically two methods of billing the more
costly materials. This also holds true for outsourced and safety procedures and
shipment. One is to incorporate these into a flat rate and another is to bill these
as a separate item based on the quantity/units used. If included in a flat rate,
the cost should be included in the product costing calculations.
Default rates can be established for labor hours, safety procedures, and
shipment, but provision has been made for overrides.
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The ideal tool for product costing allows for experimentation, similar to the capability found in spreadsheets. Entry or editing of a field drives recalculation of all the other fields. Results are available both from the screen and in printed reports.
Sample product costings have been included. These can be viewed from the screen and transferred to a new product costing as a starting point.
"Thank you! We dearly love this software!"
Katrina Kornegay
Elite Dental Lab
North Carolina, USA