Costing of material, labour,

expenses and overheads

 Introduction
Income statement or profit & loss statement: A
financial statement that relates revenues to costs to
determine profit.

Majorly has 3 sections: Revenue, cost of goods sold,

general operating expenses

Cost of goods sold: all expenditures related to

manufacture of the product ie, material costs, labour
costs, factory and administrative overhead expenses.
Gross Profit Margin: Amount of income remaining
after after cost of goods sold is is covered

Bottom line profit/ loss = Gross profit margin –

General Operating Expenses (or administrative
overhead)
To better the Bottom Line
Increase in sales

Reduction is cost of goods sold

Reduction in general operating expenses

Each factor with other components kept constant

 Manufacturing costs
Direct Material
Direct Labour
Direct Expenses
&
Indirect Material
Indirect Labour
Indirect Expenses
Overheads: Variable and non-variable manufacturing
costs that can not be traced to specific units of
production.
 Systems of Costing
Direct Costing

Absorption costing

Activity based costing

 Costing is used to determine:

1. Producibility of a design within an established price

range

2. Profit potential in a design

3. Whether a design should be added to the line

 Stages of Costing
Costing may be done at several stages:

1. Preliminary or precosting is done during the creative design

phase of product development before samples are made

2. Cost estimating is done prior to line adoption

3. Detailed costing is done during technical design phase prior

to production

4. Actual costs are determined during and following

production
Determining Product Costs
Material costs
Labour cost

TOTAL DIRECT LABOR COST=STANDARD

COST + EXCESS COST
STANDARD COST=%PLANT EFFICIENCY*NO OF
WORK HOURS*WEIGHTED AVG BASE RATE
MAKE-UP COSTS
EXCESS LABOR COST: Time spent on a jpb not
producing the product

Excess labor cost=Direct labor – standard labor