Product cost calculation: know what each product really costs you
I calculate the cost of each product from real data on materials, labour, overhead and downtime, so you know which products make money, what to base your prices on, and where costs are out of control.
Best for: CEOs, finance directors and production managers in plants that estimate product cost roughly or only at year end.
Why does accurate product cost matter?
When product cost is an estimate, pricing is a guess. Your best-selling product may actually lose money, and a product you dropped may have had the highest margin.
- Prices and discounts are set on real numbers.
- Loss-making products and orders are identified.
- The effect of a rise in material or labour cost on each product is visible at once.
How the work runs
The calculation starts from the plant’s own data, not from assumptions:
- Collecting material usage, labour hours, machine hours and downtime from existing systems or Excel.
- Defining cost centres and a sound basis for allocating overhead.
- Calculating the cost of each product, and of each order or batch where needed.
- Comparing with standard cost and analysing material, labour and overhead variances.
- A product profitability dashboard that updates every month with new data.
Experience across industries
I have analysed product cost in steel, foundry, pulp and paper, packaging, sandwich panel, and non-stick and granite cookware manufacturing, from continuous to make-to-order production, each with its own costing method.
What you receive
- A product costing model with documented logic
- A cost centre table and overhead allocation bases
- Variance analysis against standard cost
- A product and customer profitability dashboard
- A findings report with pricing recommendations
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How is this different from the product cost our accountants calculate?
Accounting usually calculates cost for the financial statements and at a summary level. This work shows the cost of each product for management decisions, in more detail and monthly, reconciled with the same books.
What if we do not record material usage or labour hours accurately?
We start with the data you have and identify the gaps in recording. A few simple logging forms usually raise accuracy within a few months.
Do you use data from SAP Business One or other ERPs?
Yes. I extract material, production and cost data directly from your ERP so the calculation updates automatically every month.
Does it work for make-to-order production?
Yes. For make-to-order production, cost is calculated per order so the profit of each contract is clear.
Topics
- Product costing
- Cost of goods manufactured
- Cost accounting
- Overhead allocation
- Cost variance analysis
- Product profitability