Product costing establishes what each product or job actually costs to make and deliver. A reliable product cost supports quotations, pricing reviews, make-or-buy choices and valuation of inventory in the financial statements.
Scope of service
- Bill of materials and routing-based cost build-up
- Direct material, direct labour, machine hour and overhead rates
- Job, batch, process and contract costing as the operation requires
- Standard versus actual cost comparison
- Cost sheets for quotations and customer price negotiations
Regulatory framework
- CAS 1 (Classification of Cost), CAS 3 (Production and Operation Overheads), CAS 6 (Material Cost), CAS 7 (Employee Cost)
- Ind AS 2 / AS 2 — cost formula for inventory valuation
Typical professional activities
- Process walk-through and data collection on the shop floor
- Machine hour and labour hour rate computation
- Costing templates in Excel or the client ERP
- Product-wise profitability report
Applicable industries
- Manufacturing
- Automobile & Auto Components
- Engineering
- Pharmaceuticals
- Sugar & Agro Industries
- Trading & Distribution
Relevant articles and resources
- Break-even and contribution analysis with a worked example
- CAS-2: capacity determination and the cost of idle capacity
- CAS-4: cost of production for captive consumption
- CAS-6: measuring material cost
- Knowledge Centre: Cost Accounting
- Break-even Analysis Calculator
- Product Costing Calculator
Frequently asked questions
What is included in product cost?
Direct materials, direct labour, direct expenses and production overheads absorbed on normal capacity. Selling and distribution overheads are added to arrive at cost of sales. Abnormal costs are excluded.
Why does product cost change when volume falls?
If fixed overheads are spread over actual output, unit cost rises when output falls. CAS-2 avoids this by absorbing fixed overheads on normal capacity and treating idle capacity cost separately.
The information on this page describes the nature of the service. It is not advice on any specific matter. See the disclaimer.