Yazan AlQasem

Article

 

Product costing is a methodology associated with managerial accounting, i.e. accounting intended to serve management in an operational context rather than to measure corporate performance.

 

Product cost refers to the costs incurred to create a product. These costs include fixed costs and variable costs. Service costs, on the other hand, take into account the cost of the labor required to deliver a service to a customer, including all costs related to a service, such as compensation, payroll taxes, and employee benefits.

The calculation for the cost of one unit from the product is:

(Fixed cost + (variable cost * units produced))/ total number of units produced   = Product unit cost

The cost of the product is reflected on the price, therefore it's crucially important to maintain the product cost to the minimum in order to increase your product unique selling proposition or to increase your gross profit, which is represented by the following equation:

Total Revenue – Cost of Goods Sold (COGS)
  • Managerial Accounting
  • Accounting Tools
  • Product Cost